~~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, 2018~~March 31, 2019

[ ] 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 SE

Cedar Rapids, Iowa 52401

(Address of principal executive offices) (Zip Code)

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

~~(Address of principal executive offices) (Zip Code)~~

~~Registrant’s~~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 [X]☒NO ☐[ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES [X]☒NO ☐[ ]

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

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 ☒[X]

Securities Registered Pursuant to Section 12(b) of the Exchange Act of 1934:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	UFCS	The NASDAQ Global Select Market

As of ~~November 5, 2018~~May 6, 2019, ~~25,071,751~~25,202,733 shares of common stock were outstanding.

United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

~~September 30, 2018~~March 31, 2019



	Page
Forward-Looking Information	1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 (unaudited) and December 31, ~~2017~~2018	2

Consolidated Statements of Income and Comprehensive Income (unaudited) for the ~~three- and nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	3

Consolidated Statement of Stockholders’ Equity (unaudited) for the ~~nine-month period~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018	4

Consolidated Statements of Cash Flows (unaudited) for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~	5

Notes to Unaudited Consolidated Financial Statements	6

~~Review~~ ~~Report of Independent Registered Public Accounting Firm~~	41

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	4233

Item 3. Quantitative and Qualitative Disclosures About Market Risk	5746

Item 4. Controls and Procedures	5746

Part II. Other Information

Item 1. Legal Proceedings	5847

Item 1A. Risk Factors	5847

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5847

Item 3. Defaults Upon Senior Securities	5847

Item 4. Mine Safety Disclosures	5847

Item 5. Other Information	5847

Item 6. Exhibits	5948

Signatures	6049

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, ~~2017 and Part II, Item 1A "Risk Factors" of this report~~2018 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;

Geographic concentration risk in ~~the~~our property and casualty insurance business;

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

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

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

Our ability to effectively underwrite and adequately price insured risks;

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

~~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.

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, 2018			December 31, 2017		March 31, 2019			December 31, 2018
	(unaudited)					(unaudited)
ASSETS
Investments
Fixed maturities
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
Available-for-sale, at fair value (amortized cost $1,709,100 in 2019 and $1,761,289 in 2018)						$	1,730,563		$	1,749,488
Trading securities, at fair value (amortized cost $12,699 in 2019 and $11,277 in 2018)						16,409			13,240
Equity securities at fair value (cost $63,708 in 2019 and $64,819 in 2018)						269,843			248,361
Mortgage loans	14,896			—		34,209			25,782
Other long-term investments	40,432			49,352		40,929			37,077
Short-term investments	175			175		175			175
	2,076,186			1,888,933		2,092,128			2,074,123
Cash and cash equivalents	52,252			95,562		95,536			64,454
Accrued investment income	16,873			13,841		16,483			15,774
Premiums receivable (net of allowance for doubtful accounts of $968 in 2018 and $1,255 in 2017)	379,293			328,513
Premiums receivable (net of allowance for doubtful accounts of $1,125 in 2019 and $785 in 2018)						365,186			346,825
Deferred policy acquisition costs	95,140			88,102		95,891			92,796
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
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $40,856 in 2019 and $39,894 in 2018)						108,223			97,194
Reinsurance receivables and recoverables	66,148			63,194		56,617			61,337
Prepaid reinsurance premiums	5,856			3,749		7,506			7,063
Deferred tax asset						—			912
Income taxes receivable	10,269			6,031		4,388			15,035
Goodwill and intangible assets	23,429			23,971		23,074			23,252
Other assets	16,632			16,409		38,967			17,933
Assets held for sale	—			1,586,134
TOTAL ASSETS	$	2,830,960		$	4,183,431	$	2,903,999		$	2,816,698
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Losses and loss settlement expenses	$	1,278,077		$	1,224,183	$	1,303,496		$	1,312,483
Unearned premiums	508,850			465,391		510,713			492,918
Accrued expenses and other liabilities	158,761			167,396		123,563			122,922
Deferred income taxes	1,056			5,953
Liabilities held for sale	—			1,347,135
Deferred income liability						11,036			—
TOTAL LIABILITIES	$	1,946,744		$	3,210,058	$	1,948,808		$	1,928,323
Stockholders’ Equity
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
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,167,822 and 25,097,408 shares issued and outstanding in 2019 and 2018, respectively						$	25		$	25
Additional paid-in capital	201,361			196,334		206,788			203,350
Retained earnings	752,581			608,700		751,683			715,472
Accumulated other comprehensive income (loss), net of tax	(69,751		)	168,314		(3,305		)	(30,472		)
TOTAL STOCKHOLDERS’ EQUITY	$	884,216		$	973,373	$	955,191		$	888,375
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,830,960		$	4,183,431	$	2,903,999		$	2,816,698

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

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United Fire Group, Inc.

Consolidated Statements of Income and Comprehensive Income (Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(In Thousands, Except Share Data)	2018			2017			2018			2017			2019			2018
Revenues
Net premiums earned	$	264,747		$	255,758		$	766,767		$	737,424		$	262,314		$	245,167
Investment income, net of investment expenses	13,192			13,792			43,933			38,561			16,512			13,492
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
Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains on available-for-sale securities of $90 in 2019 and $37 in 2018; previously included in accumulated other comprehensive income)													26,713			(7,864		)
Total revenues	$	291,910		$	269,617		$	818,104		$	779,382		$	305,539		$	250,795
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	193,667		$	223,208		$	527,541		$	568,356		$	164,240		$	144,728
Amortization of deferred policy acquisition costs	51,758			52,986			152,207			154,845			52,219			49,639
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
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,124 in 2019 and $1,660 in 2018; previously included in accumulated other comprehensive income)													34,403			34,855
Total benefits, losses and expenses	$	279,312		$	302,011		$	785,742		$	793,101		$	250,862		$	229,222
Income (loss) from continuing operations before income taxes	$	12,598		$	(32,394	)	$	32,362		$	(13,719	)
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	$	11,070		$	(19,082	)	$	31,591		$	(389	)
Income from continuing operations before income taxes													$	54,677		$	21,573
Federal income tax expense (includes reclassifications of $217 in 2019 and $341 in 2018; previously included in accumulated other comprehensive income)													10,156			1,209
Income from continuing operations													$	44,521		$	20,364
Income (loss) from discontinued operations, net of taxes	—			1,218			(1,912		)	5,419			—			(1,912		)
Gain on sale of discontinued operations, net of taxes	—			—			27,307			—			—			$	27,307
Net income (loss)	$	11,070		$	(17,864	)	$	56,986		$	5,030
Net income													$	44,521		$	45,759
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	$	(15,389	)	$	18,995		$	(73,402	)	$	64,614		$	33,354		$	(51,814	)
Change in liability for underfunded employee benefit plans	—			—			—			—			—			—
Other comprehensive income (loss), before tax and reclassification adjustments	$	(15,389	)	$	18,995		$	(73,402	)	$	64,614		$	33,354		$	(51,814	)
Income tax effect	3,232			(6,648		)	15,414			(22,615		)	(7,005		)	10,881
Other comprehensive income (loss), after tax, before reclassification adjustments	$	(12,157	)	$	12,347		$	(57,988	)	$	41,999		$	26,349		$	(40,933	)
Reclassification adjustment for net realized investment (gains) losses included in income	$	496		$	(419	)	$	655		$	(5,799	)	$	(90	)	$	(37	)
Reclassification adjustment for employee benefit costs included in expense	1,661			1,352			4,982			4,056			1,124			1,660
Total reclassification adjustments, before tax	$	2,157		$	933		$	5,637		$	(1,743	)	$	1,034		$	1,623
Income tax effect	(453		)	(327		)	(1,184		)	610			(217		)	(341		)
Total reclassification adjustments, after tax	$	1,704		$	606		$	4,453		$	(1,133	)	$	817		$	1,282
Comprehensive income (loss)	$	617		$	(4,911	)	$	3,451		$	45,896
Comprehensive income													$	71,687		$	6,108
Diluted weighted average common shares outstanding	25,626,951			24,960,086			25,607,305			25,666,405			25,604,268			25,458,090
Earnings (loss) per common share from continuing operations:
Earnings per common share from continuing operations:
Basic	$	0.44		$	(0.77	)	$	1.26		$	(0.01	)	$	1.77		$	0.82
Diluted	0.43			(0.77		)	1.23			(0.01		)	1.74			0.80
Earnings (loss) per common share:
Earnings per common share:
Basic	$	0.44		$	(0.72	)	$	2.28		$	0.20		$	1.77		$	1.84
Diluted	0.43			(0.72		)	2.23			0.20			1.74			1.80

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)


				Three Months Ended March 31,
(In Thousands, Except Share Data)	Nine Months Ended September 30, 2018			2019			2018

Common stock
Balance, beginning of year	$	25		$	25		$	25
Shares repurchased (120,372 shares)	—
Shares issued for stock-based awards (269,950 shares)	—
Shares repurchased (0 shares in 2019 and 120,372 shares in 2018)				—			—
Shares issued for stock-based awards (70,414 shares in 2019 and 116,314 shares in 2018)				—			—
Balance, end of period	$	25		$	25		$	25

Additional paid-in capital
Balance, beginning of year	$	196,334		$	203,350		$	196,334
Compensation expense and related tax benefit for stock-based award grants	4,040			2,688			1,281
Shares repurchased	(5,404		)	—			(5,404		)
Shares issued for stock-based awards	6,391			750			2,293
Balance, end of period	$	201,361		$	206,788		$	194,504

Retained earnings
Balance, beginning of year	$	608,700		$	715,472		$	608,700
Cumulative effect of change in accounting principle	191,244			(513		)	191,244
Net unrealized investment depreciation of discontinued operations, sold	(6,714		)	—			(6,714		)
Net income	56,986			44,521			45,759
Dividends on common stock ($3.90 per share)	(97,635		)
Dividends on common stock ($0.31 per share in 2019 and $0.28 per share in 2018)				(7,797		)	(6,958		)
Balance, end of period	$	752,581		$	751,683		$	832,031

Accumulated other comprehensive income (loss), net of tax
Balance, beginning of year	$	168,314		$	(30,472	)	$	168,314
Cumulative effect of change in accounting principle	(191,244		)	—			(191,244		)
Change in net unrealized investment appreciation⁽¹⁾	(50,756		)	26,279			(34,248		)
Change in liability for underfunded employee benefit plans⁽²⁾	3,935			888			1,311
Balance, end of period	$	(69,751	)	$	(3,305	)	$	(55,867	)

Summary of changes
Balance, beginning of year	$	973,373		$	888,375		$	973,373
Net income	56,986			44,521			45,759
All other changes in stockholders’ equity accounts	(146,143		)	22,295			(48,439		)
Balance, end of period	$	884,216		$	955,191		$	970,693


(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,						Three Months Ended March 31,
(In Thousands)	2018			2017			2019			2018
Cash Flows From Operating Activities
Net income	$	56,986		$	5,030		$	44,521		$	45,759
Less net income (loss) from discontinued operations, net of taxes	(1,912		)	5,419
Less net loss from discontinued operations, net of taxes							—			(1,912		)
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	6,518			6,663			2,763			2,178
Depreciation and amortization	4,015			3,501			1,166			1,159
Stock-based compensation expense	4,040			3,456			2,688			1,281
Net realized investment gains	(7,404		)	(3,397		)
Net realized investment (gains) losses							(26,713		)	7,864
Net cash flows from equity and trading investments	21,253			816			1,235			383
Deferred income tax benefit	(6,259		)	(4,979		)	4,863			(3,879		)
Changes in:
Accrued investment income	(3,032		)	(1,294		)	(709		)	(1,242		)
Premiums receivable	(50,780		)	(45,208		)	(18,361		)	(10,494		)
Deferred policy acquisition costs	(7,038		)	(4,115		)	(3,095		)	(1,734		)
Reinsurance receivables	(2,954		)	(5,409		)	4,720			(312		)
Prepaid reinsurance premiums	(2,107		)	(39		)	(443		)	(253		)
Income taxes receivable	(4,238		)	(7,075		)	10,647			6,031
Other assets	(223		)	(1,358		)	(21,034		)	104
Losses and loss settlement expenses	53,894			113,384			(8,987		)	(4,202		)
Unearned premiums	43,459			46,641			17,795			11,521
Accrued expenses and other liabilities	(3,654		)	(12,430		)	1,275			(6,925		)
Income taxes payable							—			17,581
Deferred income taxes	(8,298		)	1,794			—			(14,039		)
Other, net	3,951			1,920			(1,628		)	1,708
Cash from operating activities - continuing operations	41,143			92,871			(33,818		)	6,730
Cash from operating activities - discontinued operations	4,024			23,814			—			4,024
Cash from operating activities - gain on sale of discontinued operations	(34,851		)	—			—			(34,851		)
Total adjustments	$	10,316		$	116,685		$	(33,818	)	$	(24,097	)
Net cash provided by operating activities	$	69,214		$	116,296		$	10,703		$	23,574
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	$	129,865		$	3,388		$	36,490		$	—
Proceeds from call and maturity of available-for-sale investments	101,837			134,503			38,740			30,320
Proceeds from short-term and other investments	8,527			4,846			1,027			3,078
Proceeds from the sale of discontinued operations	276,055			—			—			276,055
Purchase of available-for-sale investments	(485,656		)	(162,121		)	(25,007		)	(93,115		)
Purchase of mortgage loans	(14,896		)	—
Purchase of short-term and other investments	(3,824		)	(4,864		)	(11,807		)	(676		)
Net purchases and sales of property and equipment	(23,760		)	(11,630		)	(12,017		)	(3,851		)
Cash from investing activities - continuing operations	(11,852		)	(35,878		)	27,426			211,811
Cash from investing activities - discontinued operations	14,343			31,517			—			14,343
Net cash provided by (used in) investing activities	$	2,491		$	(4,361	)
Net cash provided by investing activities							$	27,426		$	226,154
Cash Flows From Financing Activities
Payment of cash dividends	$	(97,635	)	$	(20,364	)	$	(7,797	)	$	(6,960	)
Repurchase of common stock	(5,404		)	(29,784		)	—			(5,404		)
Issuance of common stock	6,391			2,960			750			2,293
Cash from financing activities - continuing operations	(96,648		)	(47,188		)	(7,047		)	(10,071		)
Cash from financing activities - discontinued operations	(11,547		)	(46,239		)	—			(11,547		)
Net cash used in financing activities	$	(108,195	)	$	(93,427	)	$	(7,047	)	$	(21,618	)
Net Change in Cash and Cash Equivalents	$	(36,490	)	$	18,508		$	31,082		$	228,110
Less: increase in cash and cash equivalents - discontinued operations	(6,820		)	(9,092		)	—			(6,820		)
Net (decrease) increase in cash and cash equivalents - continuing operations	(43,310		)	9,416
Net increase in cash and cash equivalents - continuing operations							31,082			221,290
Cash and Cash Equivalents at Beginning of Period - Continuing Operations	95,562			89,194			64,454			95,562
Cash and Cash Equivalents at End of Period - Continuing Operations	$	52,252		$	98,610		$	95,536		$	316,852

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

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UNITED FIRE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Business

United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of 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, the life insurance business, previously a separate segment, 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").~~10-Q. Subsequent to the announcement of this sale, our continuing operations 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. 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,~~2018, including certain financial statement footnote disclosures, 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, 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, ~~2017~~2018. The review report of Ernst & Young LLP as of September 30, 2018 and for the three- and nine-month periods ended September 30, 2018 and 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.

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For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we made payments for income taxes ~~for continuing operations~~ totaling ~~$24,055~~$19 and ~~$7,648,~~$19, respectively. We received a tax refund of ~~$1,503~~$5,401 and ~~$10,000~~$1,503 for the ~~nine-month~~three month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively.

For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 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~~three-month period ended ~~September 30, 2018~~March 31, 2019.

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




	Total
Recorded asset at beginning of period	$	92,796
Underwriting costs deferred	55,314
Amortization of deferred policy acquisition costs	(52,219		)
Recorded asset at March 31, 2019	$	95,891

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 $6,294 at ~~December 31, 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 consolidated federal income tax expense from ~~consolidated~~continuing operations of $10,156 for the three-month period ended March 31, 2019 compared to income tax expense from continuing operations and discontinued operations of ~~$1,528 and $8,878 for the three- and nine-month periods ended September 30, 2018, respectively, compared to income tax benefit of $12,650 and $10,400~~$9,316 during the same ~~periods~~period of ~~2017.~~2018. Our effective tax rate is different than the federal statutory rate of 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, 2018~~March 31, 2019 or December 31, ~~2017.~~2018. 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 the life insurance subsidiary, federal income taxes 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 2015. The Internal Revenue Service is conducting an examination of our federal income tax return for the 2017 tax year.

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Leases

The Company determines if a contract contains a lease at inception of the contract. The Company's inventory of leases consist of operating leases which are recorded as a lease obligation liability disclosed in accrued expenses and other liabilities line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in other assets line on the Consolidated Balance Sheets. The Company's operating leases consist of office space, vehicles, computer equipment and office equipment. The lease right-of-use asset represents the Company's right to use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. The Company's lease obligation is recorded at the present value of the lease payments based on the term of the lease. The Company has elected to categorize its leases into four categories based on length of lease terms and applies an incremental borrowing rate of interest as of the effective date of adoption or the lease effective date equivalent to a collateralized rate with similar terms. The four categories are as follows: less than three years, three to five years, five to ten years and greater than ten years. The discount rate used to calculate the present value of future minimum lease payments is based, where appropriate, on the Company's incremental borrowing rate of its credit facility, described in Note 9 Credit Facility of this Form 10-Q. For leases that existed prior to the adoption of the new accounting guidance on January 1, 2019 or those with terms not similar to the credit facility, the Company has elected to use the remaining lease term based on the four categories noted above as of the date of initial application to measure its incremental borrowing rate. In this case, the incremental borrowing rate is a collateralized rate based on current industry borrowing rates for similar companies with similar ratings.

Certain leases include rental payments adjusted for increases on an annual basis as part of the rental expense and are included in measurement of the lease liability. Lease expenses for lease payments, where appropriate, are recognized on a straight-line basis over the lease term. Short-term leases of 12 months or less are recorded on the Consolidated Balance Sheets and lease payments are recognized on the Consolidated Statement of Income and Comprehensive Income. The Company has agreements with lease and non-lease components, which the Company accounts for separately and continues to follow the guidance and its existing policy for minimum rental payments under Accounting Standard Codification ("ASC") Topic 840 for leases that commenced prior to the effective date. Modified or new leases subsequent to the effective date will follow ASC Topic 842. For more information on leases refer to Note 12 Leases of this Form 10-Q.

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 ~~concl~~

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~~uded~~concluded 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 ~~2018~~2019

~~Revenue Recognition~~Leases

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 adopted the guidance as of January 1, 2018. The adoption of the new guidance 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 revenue streams are not within the scope of this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.

~~Financial Instruments~~

~~In January~~February 2016, the FASB issued guidance ~~updating certain aspects~~on the accounting for leases. The new guidance requires lessees to place a right-of-use asset and a lease liability on their balance sheets. The lease liability will be based on the present value of ~~recognition, measurement, presentation,~~the future lease payments and ~~disclosure of financial instruments. The amendments~~the right-of-use asset will be based on the liability. Expenses will be recognized on the income statement 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.a similar manner as previous methods. The new guidance also ~~simplifies the impairment process for equity investments without readily determinable fair values.~~requires companies to classify all leases as operating leases or financing leases. The Company has classified all of its leases as operating leases. The new guidance is effective for annual periods beginning after December 15, ~~2017~~2018 and interim periods within those years. The Company adopted the new guidance under a modified retrospective transition approach using the package of practical expedients and the Company did not adopt the hindsight practical expedient as of January 1, ~~2018.~~2019. The package of practical expedients allowed the Company not to reassess whether the arrangement contains a lease, lease classification and whether previously capitalized costs qualify as initial direct costs. The practical expedients allowed the Company to continue classifying all of its leases as operating leases as

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they were previously classified under ASC Topic 840. Therefore, the Company's disclosures for the comparative periods presented in 2019 continues to be in accordance with previous lease guidance under ASC Topic 840. The Company used the accounting standard adoption date as its date of initial application.

Adoption of the new guidance resulted in the recording of additional net lease right-of-use assets and lease obligations of $19.8 million and $20.3 million, respectively, as of January 1, 2019. The lease amounts recognized were measured based on the present value of discounted future lease payments, net of reversal of prepaid rent and deferred rent balances that existed prior to January 1, 2019. The Company had no adjustments upon adoption related to unrecorded but expected lease abandonments at December 31, 2018. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as a ~~reclassification from accumulated other comprehensive income~~cumulative change in accounting principles adjustment 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 on January 1, 2018. Also, in the three- and nine-month periods ended September 30, 2018, the Company recognized an after-tax net realized investment gain from continuing operations of $11,361 and $4,343, respectively, in net income from the change in value of equity securities due to the 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 adopted the new guidance as of January 1, 2018.$387. The adoption ~~had no~~did not have a significant impact on the Company's financial position ~~and~~or results of ~~operations.~~operations and had no impact on cash flows.

~~Defined Benefit Retirement Plan Cost~~Income Taxes - Intra-entity Transfers

In ~~March 2017,~~October 2016, the FASB issued new guidance on the ~~presentation~~income tax treatment of ~~net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income.~~intra-entity transfers. The new guidance ~~requires~~replaces the ~~service cost component~~current guidance which prohibits the recognition of ~~net periodic benefit cost~~current and deferred income taxes of ~~defined benefit plans to be presented in~~intra-entity transfers until the ~~same line in the Statements of Income as other employee compensation expenses. Also, under~~asset is sold externally. Under the new guidance, the ~~service cost component of the net periodic benefit costs~~exemption is eliminated and income taxes will be ~~the only portion~~recognized on transfers of ~~costs subject to be capitalized in~~intra-entity assets. The new guidance is effective for annual periods beginning after December 15, ~~2017~~2018 and interim periods ~~within those years.~~beginning after December 15, 2019. The Company adopted the new guidance as of January 1, ~~2018.~~2019. The adoption ~~of the new guidance resulted in~~did not have a change in the capitalization of deferred acquisition costs to only include the pension and post retirement service costs in place of the total net periodic benefit costs. The adoption had an immaterialsignificant impact on the Company's financial position and results of operations.

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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~~Financial Instruments - Callable Debt Securities

In ~~May 2017,~~March 2016, the FASB issued ~~new guidance~~an update to amend the amortization period for certain purchased callable debt securities held at a premium. The update requires the premium to be amortized to the earliest call date. The update doesn’t change the accounting for securities held at a discount, 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~~will continue 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.~~amortized to maturity. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, ~~2017.~~2018. The Company adopted the new guidance as of January 1, ~~2018.~~2019. The adoption ~~had no~~of the new guidance resulted in cumulative change in accounting principles adjustment to retained earnings, net of the deferred tax, of $126 on January 1, 2019 and did not have a material impact on net income between the ~~Company's financial position and results of operations.~~comparable periods.

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, 2020. Management currently believes that the adoption will not have ~~an impact on the Company's financial position or results of operations.~~

~~Leases~~

In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place a right-of-use asset and a lease liability on their balance 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 total undiscounted future minimum lease payments, which are disclosed in Note 13 Lease Commitments of the Company's Annual Report on Form 10-K for the year ended December 31, 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, 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~~the impairment model related to our available-for-sale fixed-maturity portfolio. The Company will adopt the new guidance as of January 1, 2020 and is currently reviewing it's incurred loss model for recognizing

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credit losses and evaluating the impact of moving to an expected loss model for it's available-for-sale fixed-maturity portfolio 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. Management currently 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 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 effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020. ~~The~~Management currently believes 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~~Management currently believes 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, 2018~~March 31, 2019 and December 31, ~~2017~~2018, is ~~as follows:~~provided below:

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September 30, 2018
March 31, 2019
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
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	27,195	$	—	$	354	$	26,841	$	26,821	$	13	$	143	$	26,691
U.S. government agency	212,542		310		5,862		206,990		188,529		1,417		405		189,541
States, municipalities and political subdivisions
General obligations:
Midwest	99,023		574		1,359		98,238		86,782		1,995		98		88,679
Northeast	37,389		251		289		37,351		31,266		866		—		32,132
South	115,440		333		2,559		113,214		114,500		1,755		475		115,780
West	107,993		643		1,998		106,638		107,580		2,592		305		109,867
Special revenue:
Midwest	140,245		817		1,735		139,327		139,803		3,520		194		143,129
Northeast	63,758		240		1,901		62,097		62,604		1,123		406		63,321
South	241,007		611		6,177		235,441		229,505		4,532		1,101		232,936
West	145,072		737		3,411		142,398		142,974		2,905		537		145,342
Foreign bonds	9,722		49		24		9,747		4,941		106		—		5,047
Public utilities	54,606		129		1,191		53,544		62,774		878		444		63,208
Corporate bonds
Energy	26,929		77		320		26,686		28,158		536		41		28,653
Industrials	56,127		103		699		55,531		53,836		613		171		54,278
Consumer goods and services	52,398		42		763		51,677		48,151		857		209		48,799
Health care	18,062		58		134		17,986		13,974		294		2		14,266
Technology, media and telecommunications	26,622		34		534		26,122		25,895		463		138		26,220
Financial services	77,788		164		1,888		76,064		91,876		1,366		669		92,573
Mortgage-backed securities	7,985		13		260		7,738		7,401		48		134		7,315
Collateralized mortgage obligations
Government national mortgage association	78,797		121		3,602		75,316		77,401		750		763		77,388
Federal home loan mortgage corporation	108,666		7		2,957		105,716		108,333		889		513		108,709
Federal national mortgage association	53,776		2		1,924		51,854		52,722		635		204		53,153
Asset-backed securities	3,238		318		41		3,515		3,274		387		125		3,536
Total Available-for-Sale Fixed Maturities	$	1,764,380	$	5,633	$	39,982	$	1,730,031	$	1,709,100	$	28,540	$	7,077	$	1,730,563

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December 31, 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 34
—
—
34
Total Held-to-Maturity Fixed Maturities $ 184
$ —
$ —
$ 184
AVAILABLE-FOR-SALE

Fixed maturities:

Bonds

U.S. Treasury $ 17,073
$ 4
$ 186
$ 16,891
U.S. government agency 121,574
1,311
717
122,168
States, municipalities and political subdivisions
General obligations:
Midwest 107,689
2,446
439
109,696
Northeast 47,477
1,174
10
48,641
South 139,870
2,462
813
141,519
West 111,123
2,351
463
113,011
Special revenue:
Midwest 155,475
3,620
351
158,744
Northeast 79,028
1,351
619
79,760
South 260,145
5,218
1,851
263,512
West 156,576
2,929
1,198
158,307
Foreign bonds 51,361
1,441
49
52,753
Public utilities 206,028
3,386
270
209,144
Corporate bonds

Energy 93,191
1,972
110
95,053
Industrials 218,067
3,881
241
221,707
Consumer goods and services 183,253
3,498
494
186,257
Health care 74,125
1,312
29
75,408
Technology, media and telecommunications 146,853
2,376
250
148,979
Financial services 277,824
5,769
442
283,151
Mortgage-backed securities 13,828
101
238
13,691
Collateralized mortgage obligations
Government national mortgage association 157,836
1,921
2,274
157,483
Federal home loan mortgage corporation 201,320
1,879
4,047
199,152
Federal national mortgage association 104,903
1,703
1,174
105,432
Asset-backed securities 4,282
362
8
4,636
Total Available-for-Sale Fixed Maturities $ 2,928,901
$ 52,467
$ 16,273
$ 2,965,095
Equity securities:

Common stocks

~~Table of Contents~~

Public utilities $ 6,394
$ 16,075
$ 30
$ 22,439
Energy 6,514
8,171
120
14,565
Industrials 13,117
53,522
120
66,519
Consumer goods and services 10,110
15,742
164
25,688
Health care 7,763
32,340
—
40,103
Technology, media and telecommunications 6,067
11,556
115
17,508
Financial services 11,529
104,985
67
116,447
Nonredeemable preferred stocks 992
305
—
1,297
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

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, 2018 and December 31, 2017:

September 30, 2018
Type of Investment Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations $ 1,764,380
$ 5,633
$ 39,982
$ 1,730,031
Discontinued operations —
—
—
—
Total Available-for-Sale Fixed Maturities $ 1,764,380
$ 5,633
$ 39,982
$ 1,730,031

~~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, 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	$	27,632	$	6	$	220	$	27,418
U.S. government agency	215,535		896		1,749		214,682
States, municipalities and political subdivisions
General obligations:
Midwest	94,806		1,091		685		95,212
Northeast	37,326		432		103		37,655
South	114,710		754		1,553		113,911
West	107,787		1,229		1,175		107,841
Special revenue:
Midwest	140,025		1,609		870		140,764
Northeast	62,737		452		1,241		61,948
South	237,848		1,669		3,708		235,809
West	143,829		1,294		2,203		142,920
Foreign bonds	9,698		31		13		9,716
Public utilities	56,808		274		1,023		56,059
Corporate bonds
Energy	28,909		43		304		28,648
Industrials	53,867		124		906		53,085
Consumer goods and services	54,323		142		819		53,646
Health care	16,721		42		105		16,658
Technology, media and telecommunications	26,819		35		678		26,176
Financial services	81,286		238		2,175		79,349
Mortgage-backed securities	7,642		14		232		7,424
Collateralized mortgage obligations
Government national mortgage association	78,055		380		1,734		76,701
Federal home loan mortgage corporation	108,403		524		1,304		107,623
Federal national mortgage association	53,267		213		732		52,748
Asset-backed securities	3,256		352		113		3,495
Total Available-for-Sale Fixed Maturities	$	1,761,289	$	11,844	$	23,645	$	1,749,488

Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at ~~September 30, 2018~~March 31, 2019, by contractual maturity, are shown in the following tables. ~~The table below includes investments from continuing 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

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Maturities
	Available-For-Sale				Trading
March 31, 2019	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	35,003	$	35,183	$	4,572	$	5,582
Due after one year through five years	231,390		234,309		6,292		8,406
Due after five years through 10 years	537,692		547,933		—		—
Due after 10 years	655,884		663,037		1,835		2,421
Asset-backed securities	3,274		3,536		—		—
Mortgage-backed securities	7,401		7,315		—		—
Collateralized mortgage obligations	238,456		239,250		—		—
	$	1,709,100	$	1,730,563	$	12,699	$	16,409

Net Realized Investment Gains and Losses

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


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
	2018			2017			2018			2017		2019			2018
Net realized investment gains (losses) from continuing operations:
Fixed maturities:
Available-for-sale	$	22		$	118		$	(171	)	$	645	$	150		$	4
Trading securities
Change in fair value	351			(43		)	92			504		1,746			(111		)
Sales	171			72			1,076			117		—			556
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
Change in fair value												24,634			(9,188		)
Sales												198			875
Mortgage loans												(15		)	—
Total net realized investment gains (losses) from continuing operations												$	26,713		$	(7,864	)
Total net realized investment gains (losses) from discontinued operations	—			296			(1,057		)	3,600		—			(1,057		)
Total net realized investment gains	$	13,971		$	363		$	6,347		$	6,997
Total net realized investment gains (losses)												$	26,713		$	(8,921	)

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,					Three Months Ended March 31,
	2018			2017		2018			2017		2019		2018
Proceeds from sales	$	105,871		$	2,293	$	129,865		$	3,388	$	36,490	$	—
Gross realized gains	—			—		140			1,046		30		—
Gross realized losses	(94		)	—		(401		)	—		13		—

~~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,
2018 2017 2018 2017
Proceeds from sales $ —
$ 1,844
$ —
$ 5,807
Gross realized gains —
—
—
1,254
Gross realized losses —
—
—
(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, 2018 and 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 ~~$14,399~~$16,409 and ~~$16,842~~$13,240 at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, respectively.

1613

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Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 31, 2028 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$23,702~~$18,991 at ~~September 30, 2018.~~March 31, 2019.

Unrealized Appreciation

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


	Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2019			2018
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	(80,023	)	$	34,837		$	33,264		$	(59,126	)
Available-for-sale equity securities	—			27,559
Deferred policy acquisition costs	7,274			(3,582		)	—			7,274
Income tax effect	15,279			(20,584		)	(6,985		)	10,890
Net unrealized investment depreciation of discontinued operations, sold	6,714			—			—			6,714
Cumulative change in accounting principles	(191,244		)	—			—			(191,244		)
Total change in net unrealized investment appreciation, net of tax	$	(242,000	)	$	38,230		$	26,279		$	(225,492	)

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, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. 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, 2018,~~March 31, 2019, 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, 2018~~March 31, 2019 or at ~~September 30, 2017.~~March 31, 2018. 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.

1714

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September 30, 2018	Less than 12 months					12 months or longer					Total
March 31, 2019															Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		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	1	$	8,006	$	2	5	$	14,672	$	141	$	22,678	$	143
U.S. government agency	34	158,156		4,096		7	34,516		1,766		192,672		5,862		—	—		—		9	44,960		405		44,960		405
States, municipalities and political subdivisions
General obligations
Midwest	17	26,098		234		5	21,109		1,125		47,207		1,359		—	—		—		3	13,089		98		13,089		98
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		—	—		—		8	24,642		475		24,642		475
West	21	47,340		680		8	24,676		1,318		72,016		1,998		—	—		—		8	24,221		305		24,221		305
Special revenue
Midwest	31	56,940		672		8	20,569		1,063		77,509		1,735		—	—		—		8	18,051		194		18,051		194
Northeast	7	18,451		336		11	27,327		1,565		45,778		1,901		—	—		—		7	19,711		406		19,711		406
South	40	102,910		1,578		32	70,521		4,599		173,431		6,177		—	—		—		25	61,235		1,101		61,235		1,101
West	19	37,030		573		23	52,433		2,838		89,463		3,411		—	—		—		18	50,929		537		50,929		537
Foreign bonds	1	2,973		24		—	—		—		2,973		24
Public utilities	19	39,011		916		1	4,860		275		43,871		1,191		4	9,755		244		7	16,101		200		25,856		444
Corporate bonds
Energy	10	17,219		320		—	—		—		17,219		320		—	—		—		2	4,224		41		4,224		41
Industrials	16	39,427		513		1	3,860		186		43,287		699		1	5,010		17		4	12,389		154		17,399		171
Consumer goods and services	18	40,446		737		1	974		26		41,420		763		—	—		—		6	12,851		209		12,851		209
Health care	5	11,515		134		—	—		—		11,515		134		—	—		—		1	351		2		351		2
Technology, media and telecommunications	9	20,569		406		1	1,833		128		22,402		534		—	—		—		4	8,929		138		8,929		138
Financial services	24	54,884		1,445		2	6,154		443		61,038		1,888		1	4,744		256		11	29,445		413		34,189		669
Mortgage-backed securities	32	2,355		55		13	3,602		205		5,957		260		9	549		4		27	4,548		130		5,097		134
Collateralized mortgage obligations
Government national mortgage association	11	27,027		856		18	39,403		2,746		66,430		3,602		1	4,841		22		20	43,142		741		47,983		763
Federal home loan mortgage corporation	21	77,751		967		11	27,390		1,990		105,141		2,957		1	—		—		11	26,018		513		26,018		513
Federal national mortgage association	16	29,346		684		8	22,072		1,240		51,418		1,924		—	—		—		11	21,334		204		21,334		204
Asset-backed securities	1	2,882		41		—	—		—		2,882		41		—	—		—		1	2,835		125		2,835		125
Total Available-for-Sale Fixed Maturities	385	$	891,883	$	16,226	168	$	401,995	$	23,756	$	1,293,878	$	39,982	18	$	32,905	$	545	196	$	453,677	$	6,532	$	486,582	$	7,077

1815

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December 31, 2017	Less than 12 months					12 months or longer					Total
December 31, 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:
Bonds
U.S. Treasury	5	$	10,370	$	67	2	$	5,765	$	119	$	16,135	$	186	1	$	8,018	$	7	5	$	14,645	$	213	$	22,663	$	220
U.S. government agency	11	64,842		390		5	19,372		327		84,214		717		4	17,907		81		17	80,696		1,668		98,603		1,749
States, municipalities and political subdivisions
General obligations
Midwest	2	2,177		8		3	19,729		431		21,906		439		2	2,939		5		7	23,749		680		26,688		685
Northeast	—	—		—		1	3,644		10		3,644		10		—	—		—		3	12,110		103		12,110		103
South	3	7,959		32		11	29,545		781		37,504		813		1	778		2		22	50,174		1,551		50,952		1,553
West	2	5,944		18		8	25,755		445		31,699		463		1	1,203		5		16	48,499		1,170		49,702		1,175
Special revenue
Midwest	2	3,486		15		7	19,130		336		22,616		351		4	3,892		8		19	43,854		862		47,746		870
Northeast	1	4,471		37		11	28,476		582		32,947		619		—	—		—		14	37,629		1,241		37,629		1,241
South	8	7,749		107		27	69,917		1,744		77,666		1,851		4	4,298		30		45	107,016		3,678		111,314		3,708
West	3	5,424		16		22	56,753		1,182		62,177		1,198		4	11,115		32		28	69,667		2,171		80,782		2,203
Foreign bonds	1	857		49		—	—		—		857		49		1	2,984		13		—	—		—		2,984		13
Public utilities	8	19,186		79		5	8,446		191		27,632		270		12	25,781		552		8	17,253		471		43,034		1,023
Corporate bonds
Energy	1	2,236		13		1	1,606		97		3,842		110		7	12,556		148		2	4,099		156		16,655		304
Industrials	10	27,773		146		2	4,275		95		32,048		241		9	21,970		397		4	11,040		509		33,010		906
Consumer goods and services	14	32,781		248		3	6,813		246		39,594		494		14	30,399		527		5	9,554		292		39,953		819
Health care	4	9,947		29		—	—		—		9,947		29		3	6,203		97		1	345		8		6,548		105
Technology, media and telecommunications	12	35,319		122		3	10,413		128		45,732		250		6	12,638		288		5	9,619		390		22,257		678
Financial services	22	50,144		256		4	11,389		186		61,533		442		13	30,177		650		13	32,855		1,525		63,032		2,175
Mortgage-backed securities	10	2,458		18		10	6,641		220		9,099		238		22	1,539		34		22	4,166		198		5,705		232
Collateralized mortgage obligations
Government national mortgage association	20	49,764		629		17	46,969		1,645		96,733		2,274		2	3,797		55		22	44,690		1,679		48,487		1,734
Federal home loan mortgage corporation	11	37,543		577		20	75,679		3,470		113,222		4,047		3	4,541		20		18	38,189		1,284		42,730		1,304
Federal national mortgage association	11	31,958		342		11	20,123		832		52,081		1,174		4	2,107		3		15	38,986		729		41,093		732
Asset-backed securities	1	992		8		—	—		—		992		8		1	2,829		113		—	—		—		2,829		113
Total Available-for-Sale Fixed Maturities	162	$	413,380	$	3,206	173	$	470,440	$	13,067	$	883,820	$	16,273	118	$	207,671	$	3,067	291	$	698,835	$	20,578	$	906,506	$	23,645
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

~~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, 2018 and December 31, 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, 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:
Continuing operations 385
$ 891,883
$ 16,226
168
$ 401,995
$ 23,756
$ 1,293,878
$ 39,982
Discontinued operations —
—
—
—
—
—
—
—
Total Available-for-Sale Fixed Maturities 385
$ 891,883
$ 16,226
168
$ 401,995
$ 23,756
$ 1,293,878
$ 39,982

~~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

2016

Table of Contents

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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


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


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


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

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

To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. 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' 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 our third party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair value.

2117

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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 Supplemental Executive Retirement and Deferral Plan (the "Executive Retirement Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of ~~September 30, 2018,~~March 31, 2019, the cash surrender value of the COLI policies was ~~$4,998,~~$5,708, 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.

A summary of the carrying value and estimated fair value of our financial instruments ~~from continuing operations~~ at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 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~~

~~A summary of the carrying value and estimated fair value of our financial instruments from discontinued operations at September 30, 2018 and December 31, 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 $ —
$ —
$ 34
$ 34
Available-for-sale securities —
—
1,430,025
1,430,025
Equity securities:
Available-for-sale securities —
—
23,653
23,653
Mortgage loans —
—
3,594
3,435
Policy loans —
—
5,815
5,815
Other long-term investments —
—
16,437
16,437
Cash and cash equivalents —
—
15,851
15,851
Liabilities
Policy reserves
Annuity (accumulations) $ —
$ —
$ 591,702
$ 611,866
Annuity (benefit payments) —
—
147,038
93,560

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

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, 2018 and December 31, 2017:

September 30, 2018 Fair Value Measurements
Description Total Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury $ 26,841
$ —
$ 26,841
$ —
U.S. government agency 206,990
—
206,990
—
States, municipalities and political subdivisions
General obligations
Midwest 98,238
—
98,238
—
Northeast 37,351
—
37,351
—
South 113,214
—
113,214
—
West 106,638
—
106,638
—
Special revenue
Midwest 139,327
—
139,327
—
Northeast 62,097
—
62,097
—
South 235,441
—
235,441
—
West 142,398
—
142,398
—
Foreign bonds 9,747
—
9,747
—
Public utilities 53,544
—
53,544
—
Corporate bonds
Energy 26,686
—
26,686
—
Industrials 55,531
—
55,531
—
Consumer goods and services 51,677
—
51,677
—

~~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
—
—

~~Table of Contents~~

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



	March 31, 2019				December 31, 2018
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Available-for-sale securities	$	1,730,563	$	1,730,563	$	1,749,488	$	1,749,488
Trading securities	16,409		16,409		13,240		13,240
Equity securities	269,843		269,843		248,361		248,361
Mortgage loans	34,856		34,209		26,021		25,782
Other long-term investments	40,929		40,929		37,077		37,077
Short-term investments	175		175		175		175
Cash and cash equivalents	95,536		95,536		64,454		64,454
Corporate-owned life insurance	5,708		5,708		4,907		4,907

Table of Contents

The following tables ~~are a reconciliation for both continuing and discontinued operations of the presentation of~~present the categorization for our financial instruments measured at fair value on a recurring ~~basis~~basis. The table includes financial instruments at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

September 30, 2018 Fair Value Measurements
Description Total Level 1 Level 2 Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations $ 1,730,031

$ 1,729,149
$ 882
Discontinued operations —
—
—
—
Total Available-for-Sale Fixed Maturities $ 1,730,031
$ —
$ 1,729,149
$ 882
TRADING
Fixed maturities:
Continuing operations $ 14,399
$ 2,647
$ 11,752
$ —
Discontinued operations —
—
—
—
Total Trading Securities $ 14,399
$ 2,647
$ 11,752
$ —
EQUITY SECURITIES
Continuing operations $ 276,253
$ 275,658
$ —
$ 595
Discontinued operations —
—
—
—
Total Equity Securities $ 276,253
$ 275,658
$ —
$ 595
SHORT-TERM INVESTMENTS
Continuing operations $ 175
$ 175

Discontinued operations —
—
—
$ —
Short-Term Investments $ 175
$ 175
$ —
$ —
MONEY MARKET ACCOUNTS
Continuing operations $ 3,824
$ 3,824

Discontinued operations —
—
—
—
Money Market Accounts $ 3,824
$ 3,824
$ —
$ —
CORPORATE-OWNED LIFE INSURANCE
Continuing operations $ 4,998

$ 4,998

Discontinued operations —
—
—
—
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.~~



March 31, 2019			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	26,691	$	—	$	26,691	$	—
U.S. government agency	189,541		—		189,541		—
States, municipalities and political subdivisions
General obligations
Midwest	88,679		—		88,679		—
Northeast	32,132		—		32,132		—
South	115,780		—		115,780		—
West	109,867		—		109,867		—
Special revenue
Midwest	143,129		—		143,129		—
Northeast	63,321		—		63,321		—
South	232,936		—		232,936		—
West	145,342		—		145,342		—
Foreign bonds	5,047		—		5,047		—
Public utilities	63,208		—		63,208		—
Corporate bonds
Energy	28,653		—		28,653		—
Industrials	54,278		—		54,278		—
Consumer goods and services	48,799		—		48,799		—
Health care	14,266		—		14,266		—
Technology, media and telecommunications	26,220		—		26,220		—
Financial services	92,573		—		92,323		250
Mortgage-backed securities	7,315		—		7,315		—
Collateralized mortgage obligations
Government national mortgage association	77,388		—		77,388		—
Federal home loan mortgage corporation	108,709		—		108,709		—
Federal national mortgage association	53,153		—		53,153		—
Asset-backed securities	3,536		—		2,835		701
Total Available-for-Sale Fixed Maturities	$	1,730,563	$	—	$	1,729,612	$	951
TRADING
Fixed maturities:
Bonds
U.S. Treasury	$	746	$	—	$	746	$	—
Corporate bonds
Industrials	399		—		399		—
Consumer goods and services	1,822		—		1,822		—
Health care	4,809		—		4,809		—

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Table of Contents

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



Technology, media and telecommunications	3,320		—		3,320		—
Financial services	1,840		—		1,840		—
Redeemable preferred stocks	3,473		3,473		—		—
Total Trading Securities	$	16,409	$	3,473	$	12,936	$	—
EQUITY SECURITIES
Common stocks
Public utilities	$	15,330	$	15,330	$	—	$	—
Energy	12,412		12,412		—		—
Industrials	61,773		61,773		—		—
Consumer goods and services	26,860		26,860		—		—
Health care	24,234		24,234		—		—
Technology, media and telecommunications	16,370		16,370		—		—
Financial services	108,216		108,216		—		—
Nonredeemable preferred stocks	4,648		4,053		—		595
Total Equity Securities	$	269,843	$	269,248	$	—	$	595
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	10,039	$	10,039	$	—	$	—
Corporate-Owned Life Insurance	$	5,708	$	—	$	5,708	$	—
Total Assets Measured at Fair Value	$	2,032,737	$	282,935	$	1,748,256	$	1,546

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Table of Contents



December 31, 2018			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	27,418	$	—	$	27,418	$	—
U.S. government agency	214,682		—		214,682		—
States, municipalities and political subdivisions
General obligations
Midwest	95,212		—		95,212		—
Northeast	37,655		—		37,655		—
South	113,911		—		113,911		—
West	107,841		—		107,841		—
Special revenue
Midwest	140,764		—		140,764		—
Northeast	61,948		—		61,948		—
South	235,809		—		235,809		—
West	142,920		—		142,920		—
Foreign bonds	9,716		—		9,716		—
Public utilities	56,059		—		56,059		—
Corporate bonds
Energy	28,648		—		28,648		—
Industrials	53,085		—		53,085		—
Consumer goods and services	53,646		—		53,646		—
Health care	16,658		—		16,658		—
Technology, media and telecommunications	26,176		—		26,176		—
Financial services	79,349		—		79,099		250
Mortgage-backed securities	7,424		—		7,424		—
Collateralized mortgage obligations
Government national mortgage association	76,701		—		76,701		—
Federal home loan mortgage corporation	107,623		—		107,623		—
Federal national mortgage association	52,748		—		52,748		—
Asset-backed securities	3,495		—		2,829		666
Total Available-for-Sale Fixed Maturities	$	1,749,488	$	—	$	1,748,572	$	916
TRADING
Fixed maturities:
Bonds
Corporate bonds
Industrials	$	397	$	—	$	397	$	—
Consumer goods and services	1,599		—		1,599		—
Health care	3,236		—		3,236		—
Technology, media and telecommunications	3,028		—		3,028		—
Financial services	2,231		—		2,231		—

Table of Contents



Redeemable preferred stocks	2,749		2,749		—		—
Total Trading Securities	$	13,240	$	2,749	$	10,491	—
EQUITY SECURITIES
Common Stocks
Public utilities	$	15,949	$	15,949	$	—	$	—
Energy	10,975		10,975		—		—
Industrials	53,536		53,536		—		—
Consumer goods and services	24,465		24,465		—		—
Health care	22,286		22,286		—		—
Technology, media and telecommunications	13,944		13,944		—		—
Financial services	101,555		101,555		—		—
Nonredeemable preferred stocks	5,651		5,056		—		595
Total Equity Securities	$	248,361	$	247,766	$	—	$	595
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	3,275	$	3,275	$	—	$	—
Corporate-Owned Life Insurance	$	4,907	$	—	$	4,907	$	—
Total Assets Measured at Fair Value	$	2,019,446	$	253,965	$	1,763,970	$	1,511

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

At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. Unusual fluctuations outside of our expectations are independently corroborated with additional third-party sources that use similar valuation techniques as discussed above. In addition, on a quarterly basis, we also ~~randomly select~~test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was reasonable.

For the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018,~~March 31, 2019, 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~~three-month period ended ~~September 30, 2018,~~March 31, 2019, there were no securities transferred between Level 1 and Level 2.

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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~~three-month period ended ~~September 30, 2018,~~March 31, 2019, 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 continuing operations~~ for the three-month period ended ~~September 30, 2018:~~March 31, 2019:

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



	Corporate bonds		Asset-backed securities		Equities		Total
Balance at January 1, 2019	$	250	$	666	$	595	$	1,511
Net unrealized gains⁽¹⁾	—		35		—		35
Balance at March 31, 2019	$	250	$	701	$	595	$	1,546

(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 continuing operations for the nine-month period ended September 30, 2018:~~

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 losses~~ are recorded as a component of comprehensive income.

Commercial Mortgage Loans

The following tables present the carrying value of our commercial mortgage loans and additional information at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017:~~2018:

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
$ —



Commercial Mortgage Loans
	March 31, 2019			December 31, 2018
Loan-to-value	Carrying Value			Carrying Value
Less than 65%	$	25,775		$	25,828
65%-75%	8,496			—
Total amortized cost	$	34,271		$	25,828
Valuation allowance	(62		)	(46		)
Total mortgage loans	$	34,209		$	25,782

																	Mortgage Loans by Region
	September 30, 2018				December 31, 2017				March 31, 2019				December 31, 2018
	Carrying Value		Percent of Total		Carrying Value		Percent of Total		Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	3,245	21.8	%	$	—	—	%	$	3,245	9.5	%	$	3,244	12.6	%
Southern Atlantic	6,651		44.7		—		—		6,652		19.4		6,652		25.8
East South Central	5,000		33.5		—		—		4,937		14.4		4,975		19.3
Total mortgage loans	$	14,896	100.0	%	$	—	—	%
New England									6,588		19.2		6,588		25.4
Middle Atlantic									12,849		37.5		4,369		16.9
Total mortgage loans at amortized cost									$	34,271	100.0	%	$	25,828	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 % $ —
— %

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Mortgage Loans by Property Type
	March 31, 2019				December 31, 2018
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Multifamily	$	3,245	9.5	%	$	3,244	12.6	%
Office	11,589		33.8		11,627		45.0
Mixed use/Other	19,437		56.7		10,957		42.4
Total mortgage loans at amortized cost	$	34,271	100.0	%	$	25,828	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 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 contractual terms of the respective loan agreement. As of ~~September 30, 2018~~March 31, 2019 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

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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, 2018~~March 31, 2019 and December 31, ~~2017~~2018 (net of reinsurance amounts):



	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
Gross liability for losses and loss settlement expenses at beginning of year	$	1,224,183		$	1,123,896		$	1,312,483		$	1,224,183
Ceded losses and loss settlement expenses	(59,871		)	(59,794		)	(57,094		)	(59,871		)
Net liability for losses and loss settlement expenses at beginning of year	$	1,164,312		$	1,064,102		$	1,255,389		$	1,164,312
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	575,214		$	779,966		$	168,889		$	785,778
Prior years	(47,673		)	(54,253		)	(4,649		)	(54,167		)
Total incurred	$	527,541		$	725,713		$	164,240		$	731,611
Losses and loss settlement expense payments for claims occurring during
Current year	$	212,138		$	311,972		$	41,136		$	306,032
Prior years	263,552			313,531			125,139			334,502
Total paid	$	475,690		$	625,503		$	166,275		$	640,534
Net liability for losses and loss settlement expenses at end of year	$	1,216,163		$	1,164,312		$	1,253,354		$	1,255,389
Ceded loss and loss settlement expenses	61,914			59,871			50,142			57,094
Gross liability for losses and loss settlement expenses at end of period	$	1,278,077		$	1,224,183		$	1,303,496		$	1,312,483

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

~~For~~The significant drivers of the ~~three-month period ended September 30, 2018 the majority of unfavorable~~favorable reserve development ~~came from two lines, commercial~~in 2019 were our workers' compensation, fidelity and surety, other liability and ~~commercial automobile with a partial offset coming from favorable development for the three~~reinsurance assumed lines of ~~reinsurance assumed, workers compensation~~business, partially offset by unfavorable reserve development in commercial fire and ~~fidelity and surety. All other~~allied lines ~~combined contributed a relatively minimal amount~~ of ~~overall unfavorable~~business. The favorable reserve development ~~during this three-month period. The unfavorable development for the quarter~~in 2019 is attributable to ~~the combination of latent emergence of commercial automobile claims that increased sufficiently~~loss adjustment expense ("LAE") where reserve reductions were more than sufficient 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~~offset paid loss adjustment expense. The favorable loss adjustment development was partially offset by unfavorable loss development where reductions in reserves for unpaid loss were not sufficient to offset loss payments. Workers compensation favorable development ~~came from four lines: workers compensation, commercial automobile, commercial~~is primarily attributable to LAE due to successful litigation management. Fidelity and surety favorable development is attributable to a release of loss IBNR due to favorable claim settlements. Commercial liability favorable development is attributable to LAE due to successful litigation management. Commercial fire and ~~reinsurance assumed. Each of the~~allied lines experienced unfavorable development attributable to paid loss coming in higher than anticipated. All other individual lines ~~also~~of business contributed ~~favorable~~relatively little development ~~during this nine-month period (none~~although most were ~~unfavorable).~~favorable.

The significant drivers of the favorable reserve development in ~~2017~~2018 were our workers' compensation, reinsurance assumed, commercial ~~liability~~automobile and ~~workers~~fidelity and surety. During 2018 the only individual line with unfavorable development was commercial liability. Workers' 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 combined with some~~ favorable development ~~coming~~was primarily from ~~decreases in reserves,~~reserve reductions for both reported claims and loss IBNR which were more than sufficient to ~~pay claims as they closed. Workers compensation~~offset paid loss with additional favorable development coming from LAE where the LAE IBNR reduction was ~~due~~more than sufficient to the combined effects of decreases in claim reserves along with favorable changes affecting loss adjustment expense. Our personal lines also contributed favorable development. The lines that experienced adverse development during the year, which partially offset the favorable development mentioned earlier, were assumed reinsurance and commercial automobile. The adverse development for assumed reinsurance is due to increases in prior year reserves for unpaid claims while the adverse development for commercial automobile is due to paid losses which were greater than reductions in reported loss reserves and

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offset paid LAE which continues to benefit from additional litigation management efforts when compared to prior years. Reinsurance assumed favorable development is attributable reductions in reserves for both reported claims ~~incurred but not reported. No other single line~~and loss IBNR as we reviewed our book of business ~~contributed a significant portion~~and released excess reserves during 2018. Commercial automobile favorable development was driven by loss adjustment expense where LAE IBNR reductions were more than sufficient to offset paid LAE. Fidelity and surety favorable development is attributable reductions in reserves for both reported claims and loss IBNR which were more than sufficient to offset paid loss. Commercial liability adverse development is attributable to reserve strengthening for both reported claims and loss IBNR primarily in response to an increase in umbrella auto related claims while loss adjustment expense developed favorably with reductions of ~~the total development.~~LAE IBNR more than sufficient to offset paid LAE.

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,	2018			2017			2018			2017
Three Months Ended March 31,													2019			2018			2019			2018

Net periodic benefit cost
Service cost	$	2,175		$	1,714		$	750		$	505		$	1,997		$	2,175		$	456		$	749
Interest cost	1,875			1,765			502			482			2,080			1,875			319			502
Expected return on plan assets	(2,626		)	(2,413		)	—			—			(2,696		)	(2,625		)	—			—
Amortization of prior service credit	—			—			(1,352		)	(1,352		)	—			—			(2,021		)	(1,352		)
Amortization of net loss	1,072			891			589			462			901			1,071			223			589
Net periodic benefit cost	$	2,496		$	1,957		$	489		$	97		$	2,282		$	2,496		$	(1,023	)	$	488

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

A portion of the service cost component of net periodic pension and postretirement benefit costs is capitalized and amortized as part of deferred acquisition costs and is included in the income statement line titled "amortization of deferred policy acquisition costs." The portion not related to the compensation and the other components of net periodic pension and postretirement benefit costs is included in the income statement line titled "other underwriting expenses."

Employer Contributions

We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 that we expected to contribute ~~$6,400~~$4,000 to the pension plan in ~~2018.~~2019. For the ~~nine-month~~three-month period ended ~~September 30, 2018,~~March 31, 2019, we contributed ~~$16,400~~$1,000 to the pension plan. ~~In September 2018, the Company contributed an additional $10,000 to the pension plan to reduce future obligations.~~

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NOTE 6. STOCK-BASED COMPENSATION

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At ~~September 30, 2018,~~March 31, 2019, there were ~~879,913~~800,169 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~~United Fire's common stock at the market value of the stock on the date of grant. ~~All outstanding~~Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option ~~awards have graded vesting over 3 years or 5 years~~award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. ~~Performance stock units cliff-vest~~Options granted after ~~3 years~~March 2017 vest and are exercisable in installments of 33.3 percent of the ~~certification~~number of ~~performance results~~shares covered by ~~UFG’s Compensation Committee.~~the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of issuance, 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		Three Months Ended March 31, 2019		From Inception to March 31, 2019
Beginning balance	996,828		1,900,000		890,857		1,900,000
Additional shares authorized	—		1,500,000		—		1,500,000
Number of awards granted	(157,188	)	(3,029,159	)	(116,833	)	(3,139,900	)
Number of awards forfeited or expired	40,273		509,072		26,145		540,069
Ending balance	879,913		879,913		800,169		800,169
Number of option awards exercised	211,789		1,297,684		27,815		1,352,429
Number of unrestricted stock awards granted			8,470		—		9,370
Number of restricted stock awards vested	19,658		57,826		41,468		99,661

Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. 2005 Non-Qualified Non-Employee Director Stock Option and Restricted Stock 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, 2018,~~March 31, 2019, we had 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		Three Months Ended March 31, 2019	From Inception to March 31, 2019
Beginning balance	61,813		300,000		49,163	300,000
Number of awards granted	(12,650	)	(274,840	)	—	(274,840	)
Number of awards forfeited or expired			24,003		—	24,003
Ending balance	49,163		49,163		49,163	49,163
Number of option awards exercised	24,953		114,234		1,131	119,092
Number of restricted stock awards vested	17,269		71,541		—	71,541

Stock-Based Compensation Expense

For the three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~, we recognized stock-based compensation expense of ~~$1,320~~$2,688 and ~~$1,202, respectively. For the nine-month periods ended September 30, 2018 and 2017, we recognized stock-based compensation expense of $4,040 and $3,456,~~$1,281, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

As of ~~September 30, 2018,~~March 31, 2019, we had ~~$8,287~~$8,818 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 ~~2018~~2019 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		$	3,577
2020	2,355		3,388
2021	544		1,674
2022	38		179
2023			—
Total	$	8,287	$	8,818

NOTE 7. SEGMENT INFORMATION

On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life, to Kuvare. The sale closed on March 30, 2018. As a result, the life insurance 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 period presentation. For more information, refer to Note 11. Discontinued Operations.

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

After the announcement of the United Life transaction, our continuing operations, the property and casualty insurance business, was reported as one reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of

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

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, 2018~~March 31, 2019 and ~~2017:~~2018:

Three Months Ended September 30,
(In Thousands, Except Share Data) 2018 2017
Basic Diluted Basic Diluted
Net income (loss) from continuing operations $ 11,070
$ 11,070
$ (19,082 ) $ (19,082 )
Weighted-average common shares outstanding 25,052,627
25,052,627
24,960,086
24,960,086
Add dilutive effect of restricted stock unit awards —
279,636
—
—
Add dilutive effect of stock options —
294,688
—
—
Weighted-average common shares outstanding 25,052,627
25,626,951
24,960,086
24,960,086
Earnings (loss) per common share from continuing operations $ 0.44
$ 0.43
$ (0.77 ) $ (0.77 )
Earnings per common share from discontinued operations —
—
0.05
0.05
Earnings (loss) per common share $ 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, 2018 and 2017:~~


	Nine Months Ended September 30,												Three Months Ended March 31,
(In Thousands, Except Share Data)	2018						2017						2019				2018
	Basic			Diluted			Basic			Diluted			Basic		Diluted		Basic			Diluted
Net income (loss) from continuing operations	$	31,591		$	31,591		$	(389	)	$	(389	)	$	44,521	$	44,521	$	20,364		$	20,364
Weighted-average common shares outstanding	24,982,155			24,982,155			25,177,133			25,177,133			25,130,961		25,130,961		24,915,772			24,915,772
Add dilutive effect of restricted stock unit awards	—			279,636			—			253,082			—		260,829		—			290,083
Add dilutive effect of stock options	—			345,514			—			236,190			—		212,478		—			252,235
Weighted-average common shares outstanding	24,982,155			25,607,305			25,177,133			25,666,405			25,130,961		25,604,268		24,915,772			25,458,090
Earnings (loss) per common share from continuing operations	$	1.26		$	1.23		$	(0.01	)	$	(0.01	)
Earnings per common share from discontinued operations	(0.08		)	(0.07		)	0.21			0.21
Earnings per common share from continuing operations													$	1.77	$	1.74	$	0.82		$	0.80
Earnings (loss) per common share from discontinued operations													—		—		(0.08		)	(0.07		)
Gain on sale of discontinued operations, net of taxes	1.10			1.07			—			—			—		—		1.10			1.07
Earnings per common share	$	2.28		$	2.23		$	0.20		$	0.20		$	1.77	$	1.74	$	1.84		$	1.80
Awards excluded from diluted earnings per share calculation⁽¹⁾	—			2,681			—			—			—		63,897		—			—


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

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

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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, 2018~~March 31, 2019 and ~~2017~~2018, respectively. For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 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, 2018~~March 31, 2019.

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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, 2018:~~March 31, 2019:


				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, 2018	$	(15,370	)	$	(43,928	)	$	(59,298	)
Balance as of January 1, 2019										(9,323		)	(21,149		)	$	(30,472	)
Change in accumulated other comprehensive income before reclassifications	(12,157		)	—			(12,157		)	26,349			—			26,349
Reclassification adjustments from accumulated other comprehensive income (loss)	392			1,312			1,704			(70		)	888			818
Balance as of September 30, 2018	$	(27,135	)	$	(42,616	)	$	(69,751	)
Balance as of March 31, 2019										$	16,956		$	(20,261	)	$	(3,305	)

(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, 2018:~~

Liability for
Net unrealized underfunded
appreciation employee
on investments
benefit costs⁽¹⁾
Total
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 (51,274 ) —
(51,274 )
Reclassification adjustments from accumulated other comprehensive income (loss) 518
3,935
4,453
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, to Kuvare for $280,000 in cash, less a $21 adjustment as set forth in the definitive agreement, for a net amount of $279,979. The sale closed on March 30, 2018 and we reported an after-tax gain on the sale of discontinued operations of $27,307. The life insurance business (previously reported as a separate segment) was considered held for sale and reported as discontinued operations and its financial position, results of operations and cash flows were reported separately for all periods presented, as applicable, unless otherwise noted.

UFG has agreed to provide services to Kuvare through a transition services agreement ("TSA"). The TSA 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 and information technology services, from the closing date for up to 24 months. Since the close date, the Company has received ~~$317~~$584 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,
2018 December 31,
2017
(unaudited)
Assets
Investments
Fixed maturities
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 —
3,435
Policy loans —
5,815
Other long-term investments —
16,437
—
1,479,399
Cash and cash equivalents —
15,851
Deferred policy acquisition costs —
71,151
Other assets —
19,733
Total assets held for sale $ —
$ 1,586,134
Liabilities
Future policy benefits and losses $ —
$ 1,320,401
Deferred income taxes —
18,716
Accrued expenses and other liabilities —
8,018
Total liabilities held for sale $ —
$ 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,					Three Months Ended March 31,
(In Thousands, Except Share Data)	2018		2017		2018			2017		2019		2018

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

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

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

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.

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~~Review Report of Independent Registered Public Accounting Firm~~NOTE 12. LEASES

~~To the Stockholders~~The Company has operating leases consisting of office space, vehicle leases, computer equipment, and ~~Board of Directors 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, 2018,~~office equipment. Lease terms and the related consolidated statements of income and comprehensive income for the three- and nine-month periods ended September 30, 2018 and 2017, the consolidated statements of cash flows for the nine-month periods ended September 30, 2018 and 2017, the consolidated statement of stockholders' equity for the nine-month period ended September 30, 2018, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements 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) (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 forthoptions vary in the ~~accompanying consolidated balance sheet~~Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of ~~December~~our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As of March 31, ~~2017 is fairly stated, in all material respects, in relation~~2019, we have leases with remaining terms of 1 year 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 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 PCAOB, the objective7 years, some of which ismay include no options for renewal and others with options to extend the ~~expression~~lease terms from 6 months to 5 years.

The components of ~~an opinion regarding the financial statements taken~~our operating leases were as ~~a whole. Accordingly, we do not express such an opinion.~~

follows:



	As of March 31, 2019

Components of lease expense:
Operating lease expense	$	1,908
Less sublease income	126
Net lease expense	1,782
Cash flows information related to leases:
Operating cash outflow from operating leases	1,800



	~~/s/ Ernst & Young LLP~~
	~~Ernst & Young LLP~~



Balance sheet information for operating leases:	As of March 31, 2019

Operating lease right-of-use assets (Other assets on Consolidated Balance Sheets)	$	19,595
Operating lease liabilities(Accrued expenses and other liabilities on Consolidated Balance Sheets)	20,101
Right-of-use assets obtained in exchange for new operating lease liabilities	94
Weighted average remaining lease term	3.45
Weighted average discount rate	4.84		%



Maturities of lease liabilities:	As of March 31, 2019
2019	$	5,707
2020	7,201
2021	5,138
2022	2,246
2023	1,191
Thereafter	180
Total lease payments	21,663
Less imputed interest	(1,562		)
Lease liability	$	20,101

~~Des Moines, Iowa~~

~~November 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 on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018. There have been no changes in our critical accounting policies from December 31, ~~2017.~~2018.

INTRODUCTION

The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial condition. Our Management's Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018. 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 46 states plus the District of Columbia and are represented by approximately 1,100 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"). 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. 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 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 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 the life insurance business on September 19, 2017, we ~~operate~~have operated and report as one business ~~segment, which contains our continuing operations.~~segment. The life insurance business has been ~~considered held for sale and is~~ reported as discontinued operations 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."

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~~three-month period ended ~~September 30, 2018,~~March 31, 2019, approximately ~~48.6~~47.3 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 March 31,
(In Thousands, Except Ratios)	2018			2017			%		2018			2017			%		2019			2018			%
Revenues
Net premiums earned	$	264,747		$	255,758		3.5	%	$	766,767		$	737,424		4.0	%	$	262,314		$	245,167		7.0	%
Investment income, net of investment expenses	13,192			13,792			(4.4	)	43,933			38,561			13.9		16,512			13,492			22.4
Net realized investment gains (losses)																	26,713			(7,864		)	NM
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	13,971			67			NM		7,404			3,397			118.0
Total revenues	$	291,910		$	269,617		8.3	%	$	818,104		$	779,382		5.0	%	$	305,539		$	250,795		21.8	%

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	193,667		$	223,208		(13.2	)%	$	527,541		$	568,356		(7.2	)%	$	164,240		$	144,728		13.5	%
Amortization of deferred policy acquisition costs	51,758			52,986			(2.3	)	152,207			154,845			(1.7	)	52,219			49,639			5.2
Other underwriting expenses	33,887			25,817			31.3		105,994			69,900			51.6		34,403			34,855			(1.3	)
Total benefits, losses and expenses	$	279,312		$	302,011		(7.5	)%	$	785,742		$	793,101		(0.9	)%	$	250,862		$	229,222		9.4	%

Income (loss) from continuing operations before income taxes	$	12,598		$	(32,394	)	(138.9	)	$	32,362		$	(13,719	)	(335.9	)%
Income from continuing operations before income taxes																	$	54,677		$	21,573		153.5
Federal income tax expense (benefit)	1,528			(13,312		)	(111.5	)	771			(13,330		)	(105.8	)	10,156			1,209			740.0
Net income from continuing operations	$	11,070		$	(19,082	)	(158.0	)%	$	31,591		$	(389	)	NM		$	44,521		$	20,364		118.6	%
Income (loss) from discontinued operations, net of tax	—			1,218			(100.0	)%	(1,912		)	5,419			(135.3	)%
Loss from discontinued operations, net of tax																	—			(1,912		)	(100.0	)%
Gain on sale of discontinued operations, net of tax	—			—			—	%	27,307			—			NM		—			27,307			(100.0	)%
Net income	$	11,070		$	(17,864	)	(162.0	)%	$	56,986		$	5,030		NM		$	44,521		$	45,759		(2.7	)%

GAAP Ratios:
Net loss ratio (without catastrophes)	68.6		%	75.3		%	(8.9	)%	64.8		%	67.8		%	(4.4	)%	61.2		%	57.6		%	6.3	%
Catastrophes - effect on net loss ratio	4.6			12.0			(61.7	)%	4.0			9.3			(57.0	)%	1.4			1.4			—	%
Net loss ratio⁽¹⁾	73.2		%	87.3		%	(16.2	)%	68.8		%	77.1		%	(10.8	)%	62.6		%	59.0		%	6.1	%
Expense ratio⁽²⁾	32.3			30.8			4.9	%	33.7			30.5			10.5	%	33.0			34.5			(4.3	)%
Combined ratio⁽³⁾	105.5		%	118.1		%	(10.7	)%	102.5		%	107.6		%	(4.7	)%	95.6		%	93.5		%	2.2	%

(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

~~Table of Contents~~

The following is a summary of our financial performance ~~from continuing operations~~ for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018~~March 31, 2019:

RESULTS OF OPERATIONS

For the three-month period ended ~~September 30, 2018, the~~March 31, 2019, net income ~~from continuing operations~~ was ~~$11.1~~$44.5 million compared to net ~~loss from continuing operations~~income of ~~$19.1~~$45.8 million for the same period of ~~2017.~~2018. In the three-month period ended ~~September 30, 2018,~~March 31, 2019, there was an increase in net premiums earned, ~~from continued organic growth from new business writings~~investment income and ~~geographical expansion and rate increases; an increase in~~ net realized ~~investment~~ gains ~~due to the change in value of our~~on equity ~~securities; and a decrease in losses and loss settlement expenses due to lower catastrophe losses and improvement of our core loss ratio, all~~securities, partially offset by an increase in ~~other underwriting expenses primarily due to continued investment in upgrading our underwriting technology platforms.~~ losses and loss settlement expenses.

Net premiums earned increased to ~~$264.7~~$262.3 million compared to ~~$255.8~~$245.2 million for the same period of ~~2017,~~2018 primarily due to rate increases, premium audits and endorsements.

~~For the nine-month period ended September 30, 2018, the net income from continuing operations was $31.6 million compared to net loss from continuing operations~~

Table 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 from new business writings and geographical expansion and rate increases; an increase in investment income due to an increase in invested assets; 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 a decrease in catastrophe losses and improvement of our core loss 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 other underwriting expenses primarily from 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 lower than expected profitability in these lines.Contents

~~Losses and loss settlement expenses decreased~~Investment income increased by ~~13.2 percentage points~~$3.0 million during the three-month period ended September 30, 2018 compared to the same period of 2017. The decrease was primarily due to a decrease in catastrophe losses and an improvement in our core loss ratio from a decrease in frequency of losses, partially offset by an increase in severity of non-catastrophe losses. Pre-tax catastrophe losses for the three-month period ended September 30, 2018 were $12.3 million compared to $30.7 million in the same period of 2017.

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

~~Investment income decreased by $0.6 million and increased $5.4 million during the three- and nine-month periods ended September 30, 2018,~~March 31, 2019 compared to the same periods of ~~2017.~~2018. The change in net investment income for the three-month period ended ~~September 30, 2018~~March 31, 2019 was due to ~~a decrease~~an increase in the value of our investments in limited liability partnerships ~~partially offset by~~and 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 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 decreased 12.6 percentage points and 5.1 percentage points~~increase in net realized investment gains was primarily due to ~~105.5 percent and 102.5 percent, respectively, for~~strong equity markets during the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018, compared to 118.1 percent and 107.6 percent for the same periods of 2017. The decrease~~March 31, 2019 which resulted in an increase in the ~~combined ratio in the three- and nine-month periods ended September 30, 2018 was primarily due~~value of equity securities compared to a decrease in the ~~net~~value on equity securities in first quarter of 2018

Losses and loss settlement expenses increased by 13.5 percentage points during the three-month period ended March 31, 2019 compared to the same period of 2018. The increase was primarily due to lower favorable prior year reserve development from reserve strengthening in our Gulf Coast region on our commercial auto, general liability and commercial property lines of business.

The combined ratio ~~with a decrease~~increased 2.1 percentage points to 95.6 percent for the three-month period ended March 31, 2019, compared to 93.5 percent for the same period of 2018. The increase in ~~catastrophe losses offset~~the combined ratio was primarily driven by an increase in the ~~expense ratio as~~GAAP net loss ratio. Pre-tax catastrophe losses in the first quarter of 2019 were flat compared to the ~~same periods~~first quarter of ~~2017.~~

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2018, with catastrophe losses adding 1.4 percentage points to the combined ratio in both periods. Our historical average for first quarter is 2.5 percentage points added to the combined ratio.

The net loss ratio, a component of the combined ratio, ~~decreased~~increased by ~~14.1 percentage points and 8.3~~3.6 percentage points to ~~73.2 percent and 68.8~~62.6 percent in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018, respectively,~~March 31, 2019 as compared to the same ~~periods~~period of ~~2017. The decrease in net loss ratio was~~2018, primarily ~~driven by a decrease in catastrophe losses and an improvement in~~due to lower favorable prior year reserve development previously mentioned. Excluding the impact of prior year development, our core loss ~~ratio from a decrease in frequency of losses, partially offset by an increase in severity of non-catastrophe losses.~~ration improved 10.1 percentage points.

The expense ratio, a component of the combined ratio, was ~~32.3~~33.0 percent ~~and 33.7 percent, respectively,~~ for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018, an increase~~March 31, 2019, a decrease of 1.5 percentage points ~~and 3.2 percentage points, respectively,~~ as compared with the same periods of ~~2017.~~2018. The ~~increase~~decrease in the three-month period ended ~~September 30, 2018 is~~March 31, 2019, was primarily due to ~~our continued investment~~a decrease in ~~our multi-year Oasis project. The increase in~~employee benefit expenses due to post-retirement benefit plan amendments made at the nine-month period ended September 30, 2018 was primarily split between two items. First, we continued to invest in our multi-year Oasis project to upgrade our technology platform to enhance core underwriting decisions, selectionend 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.2018.

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.

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

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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~~2019 Development

The property and casualty insurance ~~business~~segment experienced ~~$0.7 million of unfavorable and $47.7~~$4.6 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~~March 31, 2019. Three 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~~combined 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 contributingprovide the majority of favorable ~~development which partially offset the unfavorable development noted above were reinsurance assumed with $6.5 million of favorable development, workers~~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~~contributed $4.8 million favorable development ~~commercial automobile with $8.4~~primarily attributable to loss adjustment expense ("LAE") due to successful litigation management. Fidelity and surety contributed $2.0 million favorable development ~~commercial other~~attributable to reductions in loss IBNR, which was not needed to pay claims. Commercial liability ~~with $5.2~~contributed $1.5 million favorable development attributable to LAE due to successful litigation management. The only line with significant unfavorable development was commercial fire and ~~reinsurance assumed with $5.5~~allied lines, which experienced $4.5 million ~~of favorable development. During the nine-month period ended September 30, 2018 every individual line experienced favorable development.~~unfavorable development attributable to higher than anticipated paid losses. The overall favorable development ~~in the nine-month period ended September 30, 2018~~ is attributable to ~~our continued~~LAE where reserve reductions were more than sufficient to offset paid expenses. LAE payments continue to benefit from successful management of 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~~2018 Development

The property and casualty insurance business experienced ~~$3.2 million of unfavorable and $38.0~~$38.1 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 $2.8 million unfavorable development and commercial liability with $7.4 million unfavorable development, which was partially offset by favorable development from two other lines, workers compensation with $4.4 million favorable development and personal fire and allied lines with $2.2 million favorable development. During the three-month period ended September 30, 2017 all otherMarch 31, 2018. Three lines combined ~~contributed $0.4 million 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~~provide the majority of favorable development ~~came from two lines,~~while one line developed adversely. The three largest contributors to favorable development were commercial liability with ~~$23.6~~$14.9 million of favorable development, commercial automobile with $13.9 million of favorable development and commercial fire and allied with $7.8 million of favorable development. Additional favorable development also came from workers compensation with ~~$14.2~~$4.0 million of favorable development. The favorable development which was partially offset by unfavorable development from assumed reinsurance with $6.2 million unfavorable development. During the nine-month period ended September 30, 2017 all other lines combined contributed $6.4 million favorable development. Much of the favorable year-to-date long-tail liability development continuedis attributable to ~~come from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction~~reductions in reserves for reported claims, as well as reductions in required reserves for incurred but not reported claims ~~because our long tail liability has experienced fewer late reported claims~~along with reductions in reserves for loss adjustment expense. Reserve reductions were more than ~~what was initially anticipated.~~sufficient to offset claim payments and LAE payments. LAE payments continue to benefit from successful management of litigation expenses. The ~~majority of~~only line which partially offset to the favorable ~~workers compensation~~ development was assumed reinsurance with $4.6 million of adverse development. Adverse development for assumed reinsurance is ~~due~~attributable to ~~reductions in~~the combination of paid loss and the emergence of additional reserves for reported claims which were greater than ~~what was necessary to offset claim payments.~~reductions in prior year IBNR.

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, 2018,~~March 31, 2019, our total reserves were within our actuarial estimates.

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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, 2018 2017
Net Losses Net Losses
and Loss and Loss
Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios) Premiums Expenses Loss Premiums Expenses Loss
Unaudited Earned Incurred Ratio Earned Incurred Ratio
Commercial lines
Other liability $ 78,943
$ 53,581
67.9 % $ 77,955
$ 54,598
70.0 %
Fire and allied lines 59,056
40,514
68.6
58,568
44,996
76.8
Automobile 72,773
68,892
94.7
64,470
71,674
111.2
Workers compensation 24,127
17,776
73.7
26,387
23,573
89.3
Fidelity and surety 5,929
1,379
23.3
6,430
(350 ) (5.4 )
Miscellaneous 436
(29 ) (6.7 ) 459
107
23.3
Total commercial lines $ 241,264
$ 182,113
75.5 % $ 234,269
$ 194,598
83.1 %

Personal lines
Fire and allied lines $ 10,416
$ 11,423
109.7 % $ 10,730
$ 8,461
78.9 %
Automobile 7,450
6,731
90.3
6,878
8,046
117.0
Miscellaneous 307
25
8.1
294
161
54.8
Total personal lines $ 18,173
$ 18,179
100.0 % $ 17,902
$ 16,668
93.1 %
Reinsurance assumed $ 5,310
$ (6,625 ) (124.8 )% $ 3,587
$ 11,942
332.9 %
Total $ 264,747
$ 193,667
73.2 % $ 255,758
$ 223,208
87.3 %

Nine Months Ended September 30, 2018 2017
Net Losses Net Losses
and Loss and Loss
Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios) Premiums Expenses Loss Premiums Expenses Loss
Unaudited Earned Incurred Ratio Earned Incurred Ratio
Commercial lines
Other liability $ 230,845
$ 117,387
50.9 % $ 228,250
$ 87,941
38.5 %
Fire and allied lines 174,451
125,844
72.1
168,506
150,108
89.1
Automobile 209,176
188,929
90.3
183,688
202,303
110.1
Workers compensation 71,101
46,838
65.9
78,092
55,885
71.6
Fidelity and surety 17,144
2,328
13.6
18,041
308
1.7
Miscellaneous 1,289
348
27.0
1,374
272
19.8
Total commercial lines $ 704,006
$ 481,674
68.4 % $ 677,951
$ 496,817
73.3 %

Personal lines
Fire and allied lines $ 31,250
$ 28,183
90.2 % $ 32,300
$ 29,836
92.4 %
Automobile 21,686
18,701
86.2
20,031
22,278
111.2
Miscellaneous 903
(247 ) (27.4 ) 860
118
13.7
Total personal lines $ 53,839
$ 46,637
86.6 % $ 53,191
$ 52,232
98.2 %
Reinsurance assumed $ 8,922
$ (770 ) (8.6 )% $ 6,282
$ 19,307
307.3 %
Total $ 766,767
$ 527,541
68.8 % $ 737,424
$ 568,356
77.1 %

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Three Months Ended March 31,	2019							2018
			Net Losses								Net Losses
			and Loss								and Loss
	Net		Settlement			Net		Net			Settlement			Net
(In Thousands, Except Ratios)	Premiums		Expenses			Loss		Premiums			Expenses			Loss
Unaudited	Earned		Incurred			Ratio		Earned			Incurred			Ratio
Commercial lines
Other liability	$	78,427	$	38,275		48.8	%	$	75,593		$	25,303		33.5	%
Fire and allied lines	59,174		36,786			62.2		57,399			34,229			59.6
Automobile	75,234		70,571			93.8		66,694			53,947			80.9
Workers compensation	21,875		5,945			27.2		23,341			12,060			51.7
Fidelity and surety	6,375		(251		)	(3.9	)	5,473			658			12.0
Miscellaneous	427		(99		)	(23.2	)	425			184			43.3
Total commercial lines	$	241,512	$	151,227		62.6	%	$	228,925		$	126,381		55.2	%

Personal lines
Fire and allied lines	$	10,220	$	6,282		61.5	%	$	10,438		$	7,401		70.9	%
Automobile	7,482		5,667			75.7		7,009			5,757			82.1
Miscellaneous	301		(68		)	(22.6	)	295			(105		)	(35.6	)
Total personal lines	$	18,003	$	11,881		66.0	%	$	17,742		$	13,053		73.6	%
Reinsurance assumed	$	2,799	$	1,132		40.4	%	$	(1,500	)	$	5,294		NM
Total	$	262,314	$	164,240		62.6	%	$	245,167		$	144,728		59.0	%

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~~15.3 percentage points in the ~~three and nine-month periods~~three-month period 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 asMarch 31, 2019 compared to the same period of ~~2017.~~

•

~~Commercial fire and allied lines -~~ ~~The net loss ratio improved 8.2 and 17.0 percentage points~~2018. This deterioration is attributable to an increase in paid losses which were significantly higher in the ~~three and nine-month periods ended September 30, 2018, respectively,~~first quarter of 2019 compared to the same ~~periods~~period of ~~2017. The improvement in~~2018. Also contributing to the ~~three-month and nine-month periods~~deterioration is ~~attributable to~~ a decrease in ~~catastrophe losses, a decrease~~favorable reserve development due to reserve strengthening on auto liability related claims in ~~frequency~~our Gulf Coast region during the first quarter 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.~~2019.

•

Commercial automobile -The net loss ratio ~~improved 16.5 and 19.8~~deteriorated 12.9 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~~March 31, 2019 compared to the same period of 2018. This deterioration is attributable to an increase in ~~2017. We continue~~paid losses which were significantly higher in the first quarter of 2019 compared to ~~make progress~~the same period of 2018. Also contributing to the deterioration is a decrease in ~~improving~~favorable reserve development due to reserve strengthening in our ~~core loss ratio, however,~~gulf coast region during the ~~performance~~first quarter 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.2019.

•

Workers compensation - The net loss ratio improved ~~15.6 and 5.7~~24.5 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~~March 31, 2019, compared to the same period of 2018. The improvement is attributable to favorable changes for both loss and loss adjustment expense. The improvement for loss is attributable to a decrease in both paid losses ~~along with decline~~and reserve changes for reported claims which were more favorable in the ~~increase in reserves for reported claims.~~first quarter of 2019 compared to the same period of 2018. The improvement ~~in the nine-month period ended September 30, 2018 was somewhat muted by an increase in severity~~for loss adjustment expense is attributable to reductions of ~~losses with a portion of the severe losses from auto-related claims.~~paid and unpaid loss adjustment reserves.


•	Fidelity and surety- The net loss ratio improved 15.9 percentage points in the three-month period ended March 31, 2019, compared to the same period of 2018. The improvement is attributable to favorable

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changes for both loss and loss adjustment expense. Theimprovement for loss is attributable to paid loss which was lower in the first quarter of 2019 compared to the same period of 2018 primarily due to a significant payment for a single large claim in 2018. Loss adjustment expenses were relatively higher in 2018, primarily due to significant costs of adjusting the single large claim.

•

Personal fire and allied lines - The net loss ratio ~~deteriorated 30.8 and~~ improved ~~2.2~~9.4 percentage points in the ~~three and nine-month periods~~three-month period ended ~~September 30, 2018,~~March 31, 2019 compared to the same ~~periods~~period of ~~2017.~~2018. The ~~deterioration for the quarterly results~~improvement is attributable to ~~changes~~theabsence of significant storms in ~~loss IBNR which decreased significantly during~~ the ~~third~~first quarter of ~~2017 due to favorable reserve development~~2019 compared to ~~a smaller decrease during~~ the ~~three-month~~same period ~~ended September 30, 2018.~~of 2018 which experienced relatively large storm events.

•

Personal automobile - The net loss ratio improved ~~26.7 and 25.0~~6.4 percentage points in the ~~three and nine-month periods~~three-month period 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~~March 31, 2019 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.~~2018. This improvement ~~in the three-month period ended September 30, 2018~~ is attributable to both a ~~decline~~reduction in ~~catastrophe~~paid losses asand the absence of significant storms in the first quarter of 2019 compared to the same period of 2018 which experienced relatively large storm events resulting 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.physical damage claims.

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Financial Condition

~~Our stockholders'~~Stockholders' equity ~~decreased~~increased to ~~$884.2~~$955.2 million at ~~September 30, 2018,~~March 31, 2019, from ~~$973.4~~$888.4 million at December 31, ~~2017.~~2018. The ~~decrease~~increase was ~~attributable~~primarily attributed to ~~shareholder dividends~~net income of ~~$97.6~~$44.5 million, ~~(of which $75 million or $3.00 per share was a special cash dividend paid to shareholders on August 20, 2018), a decrease~~an increase in net unrealized investment gains of ~~$50.8~~$26.3 million, net of tax, ~~and share repurchases of $5.4 million,~~ partially offset by ~~net income~~shareholder dividends of ~~$57.0 million, which includes a $27.3 million gain on the sale of discontinued operations.~~$7.8 million.

At ~~September 30, 2018,~~March 31, 2019, the book value per share of our common stock was ~~$35.27.~~$37.95. During the ~~nine-month~~three-month period ended ~~September 30, 2018, 120,372~~March 31, 2019, no shares of common stock were ~~repurchased under our share repurchase program at a total cost of $5.4 million and an average share price of $44.90. No shares were repurchased during the three-month period ended September 30, 2018.~~repurchased. Under our share repurchase program, which is scheduled to expire on August 31, 2020, we were authorized to repurchase an additional 2,116,200 shares of our common stock as of ~~September 30, 2018.~~March 31, 2019.

5039

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Discontinued Operations Results


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(In Thousands)	2018		2017		2018			2017		2019		2018
Revenues
Net premiums earned	$	—	$	14,230	$	13,003		$	45,999	$	—	$	13,003
Investment income, net of investment expenses	—		12,354		12,663			37,230		—		12,663
Net realized investment gains (losses)	—		296		(1,057		)	3,600		—		(1,057		)
Other income	—		174		146			498		—		146
Total revenues	$	—	$	27,054	$	24,755		$	87,327	$	—	$	24,755

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

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

The sale of our discontinued operations closed on March 30, 2018, and therefore no income attributable to that business was earned in the ~~third~~first quarter of ~~2018.~~2019. For the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2018, our discontinued operations had a loss before income taxes of $1.3 ~~million, compared to income before income taxes of $8.3 million for the same period of 2017.~~million.

Investment Portfolio

Our invested assets ~~from continuing operations~~ totaled $2.1 billion at ~~September 30, 2018,~~March 31, 2019, compared to ~~$1.9~~$2.1 billion at December 31, ~~2017,~~2018, an increase of ~~$187.3~~$18.0 million. At ~~September 30, 2018,~~March 31, 2019, fixed maturity securities and equity securities made up ~~84.0~~83.5 percent and ~~13.3~~12.9 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 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, 2018~~March 31, 2019 is presented at carrying value in the following table:



	Total				Total
			Percent				Percent
(In Thousands, Except Ratios)			of Total				of Total
Fixed maturities ⁽¹⁾
Available-for-sale	$	1,730,031	83.3	%	$	1,730,563	82.7	%
Trading securities	14,399		0.7		16,409		0.8
Equity securities	276,253		13.3		269,843		12.9
Mortgage loans	14,896		0.7		34,209		1.6
Other long-term investments	40,432		2.0		40,929		2.0
Short-term investments	175		—		175		—
Total	$	2,076,186	100.0	%	$	2,092,128	100.0	%

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

At both ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018, we classified $1.7 billion, or ~~99.2~~99.1 percent, and ~~$1.5~~$1.7 billion, or ~~98.9~~99.2 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, 2018~~March 31, 2019 and December 31, ~~2017~~2018, 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, 2018~~March 31, 2019 and December 31, ~~2017~~2018. 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, 2018				December 31, 2017				March 31, 2019				December 31, 2018
Rating	Carrying Value		% of Total		Carrying Value		% of Total		Carrying Value		% of Total		Carrying Value		% of Total
AAA	$	722,204	41.4	%	$	885,000	29.7	%	$	716,356	41.0	%	$	734,471	41.7	%
AA	696,948		40.0		839,210		28.0		683,287		39.1		684,863		38.9
A	172,681		9.9		616,787		20.7		174,998		10.0		178,282		10.1
Baa/BBB	144,814		8.3		585,968		19.6		162,063		9.3		157,349		8.9
Other/Not Rated	7,783		0.4		55,156		1.9		10,268		0.6		7,763		0.4
	$	1,744,430	100.0	%	$	2,982,121	100.0	%	$	1,746,972	100.0	%	$	1,762,728	100.0	%

Duration

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

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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 4.4 percent and~~ increased by ~~13.9~~22.4 percent in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018,~~March 31, 2019, compared with the same period of ~~2017.The~~2018. The change in net investment income for the three-month period ended ~~September 30, 2018~~March 31, 2019 was due to ~~a decrease~~an increase in the value of our investments in limited liability partnerships ~~partially offset by~~and 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 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.

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~~three-month period ended ~~September 30, 2018,~~March 31, 2019, the change in value of our investments in limited liability partnerships from continuing operations resulted in investment ~~losses~~gains of ~~$0.6~~$2.5 million ~~and investment income of $3.4 million, respectively,~~ as compared to an increase of ~~$2.0~~$1.0 million ~~and $3.3 million, respectively~~ in investment income in the same periods of ~~2017.~~2018. This resulted in ~~a decrease of $2.6 million and~~ an increase of ~~$0.1~~$1.5 million in investment income in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018.~~March 31, 2019.

Our net realized investment gains ~~from continuing operations~~ were ~~$14.0~~$26.7 million ~~and $7.4 million, respectively,~~ during the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2018,~~March 31, 2019, as compared with net realized investment ~~gains~~losses of ~~$0.1~~$7.9 million ~~and $3.4 million, respectively,~~ in the same ~~periods~~period of ~~2017~~2018. ~~$5.5~~$33.8 million of the ~~$4.0~~$34.6 million change in the ~~nine-months~~three-month period ended ~~September 30, 2018~~March 31, 2019 as compared to the same period in ~~2017~~2018 is due to the change in the fair 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.~~securities.

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, 2018~~March 31, 2019 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, 2018~~March 31, 2019 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 assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs. In the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 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, reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, the purchase of investments, operating expenses, dividends, pension plan contributions, and in recent years, common stock repurchases.

We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon

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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. 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 for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ from continuing and discontinued operations:


Cash Flow Summary	Nine Months Ended September 30,						Three Months Ended March 31,
(In Thousands)	2018			2017			2019			2018
Cash provided by (used in)
Operating activities	$	69,214		$	116,296		$	10,703		$	23,574
Investing activities	2,491			(4,361		)	27,426			226,154
Financing activities	(108,195		)	(93,427		)	(7,047		)	(21,618		)
Net increase (decrease) in cash and cash equivalents	$	(36,490	)	$	18,508
Net increase in cash and cash equivalents							$	31,082		$	228,110

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~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ and we anticipate they will be sufficient to meet our future liquidity needs.

Operating Activities

Net cash flows provided by operating activities totaled ~~$69.2~~$10.7 million and $~~116.3~~23.6 million for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017, respectively. Cash flows from discontinued operations provided by operating activities totaled $4.0 million and $23.8 million for the nine-month periods ended September 30, 2018 and 2017,~~ 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 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, ~~$264.3~~$269.2 million, or ~~15.2~~15.4 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, 2018~~March 31, 2019, our cash and cash equivalents included ~~$3.8~~$10.0 million related to these money market accounts, compared to ~~$16.8~~$3.3 million at December 31, ~~2017~~2018.

Net cash flows provided by investing activities ~~was $2.5~~were $27.4 million and ~~used in investing activities was $4.4~~$226.2 million for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of

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investments, from continuing operations of ~~$240.2~~$76.3 million and ~~$142.7~~$33.4 million, respectively. We also had net cash inflows from the sale of discontinued operations of $276.1 million for the ~~nine-month~~three-month period ended ~~September 30, 2018~~.March 31, 2018.

Our cash outflows for investment purchases from continuing operations were ~~$504.4~~$36.8 million for the ~~nine-month~~three-month period ended ~~September 30, 2018~~March 31, 2019, compared to ~~$167.0~~$93.8 million for the same period of ~~2017.~~2018.

Financing Activities

Net cash flows used in financing activities from continuing operations was ~~$96.6~~$7.0 million for the ~~nine-month~~three-month period ended ~~September 30, 2018~~March 31, 2019 which ~~increased $49.4~~decreased $3.1 million compared to ~~$47.2~~$10.1 million used in the ~~nine-month~~three-month period ended ~~September 30, 2017~~March 31, 2018 primarily due to ~~an increase in shareholder dividends partially offset by a decrease in share repurchases.~~issuance and repurchase of common stock during first quarter 2018.

Credit Facilities

On February 2, 2016, the Company, as borrower, entered into a 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~~March 31, 2019 and ~~2017,~~2018, there were no balances outstanding under this credit agreement. For further discussion of our credit agreement, refer to Part I, Item 1, Note 9. "Credit Facility."

Dividends

Dividends paid to shareholders totaled ~~$97.6~~$7.8 million and ~~$20.4~~$7.0 million in the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2019 and 2018 ~~and 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 will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.

As a holding company with no independent operations of its own, we rely on dividends received from our insurance company subsidiaries in order to pay dividends to our common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at ~~September 30, 2018~~March 31, 2019, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, was ~~not~~

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able to make a maximum of $109.2 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 ~~decreased 9.2~~increased 7.5 percent to ~~$884.2~~$955.2 million at ~~September 30, 2018~~March 31, 2019, from $~~973.4~~888.4 million at December 31, ~~2017~~2018. The ~~decrease~~increase was primarily attributed to ~~shareholder dividends~~net income of ~~$97.6~~$44.5 million, ~~a decrease~~an increase in net unrealized investment gains of ~~$50.8~~$26.3 million, net of tax, during the first ~~nine~~three months of ~~2018 and share repurchases of $5.4 million,~~2019, partially offset by ~~net income~~shareholder dividends of ~~$57.0 million, which includes $27.3 million of gain on the sale of discontinued operations.~~$7.8 million. At ~~September 30, 2018,~~March 31, 2019, the book value per share of our common stock was ~~$35.27~~$37.95 compared to ~~$39.06~~$35.40 at December 31, ~~2017.~~2018.

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OFF BALANCE SHEET ARRANGEMENTS

Funding Commitments

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 31, 2028, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$23.7~~$19.0 million at ~~September 30, 2018~~March 31, 2019.

MEASUREMENT OF RESULTS

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

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


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(In Thousands)	2018			2017		2018			2017		2019		2018
ISO catastrophes	$	12,441		$	25,628	$	30,990		$	62,170	$	3,545	$	3,438
Non-ISO catastrophes ⁽¹⁾	(173		)	5,077		(245		)	6,596		85		(77		)
Total catastrophes	$	12,268		$	30,705	$	30,745		$	68,766	$	3,630	$	3,361

(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, 2018~~March 31, 2019, 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, ~~2017~~2018.

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, 2018~~March 31, 2019 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial condition or results of operations.

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the SEC on February 28, ~~2018~~2019, 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, 2018~~March 31, 2019:



				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~~1/2019 - 7/1/31/~~2018~~2019	—	$	—	—	2,116,200
8/2/1/~~2018~~2019 - ~~8/31/2018~~2/28/2019	—	—		—	2,116,200
9/3/1/~~2018~~2019 - ~~9/30/2018~~3/31/2019	—	—		—	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, 2018~~March 31, 2019 we remained authorized to repurchase 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.

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ITEM 6. EXHIBIT INDEX



Exhibit number	Exhibit description	Furnished herewith	Filed herewith
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, 2018~~March 31, 2019 formatted in ~~XBRL:~~iXBRL: (i) Consolidated Balance Sheets as of ~~September 30, 2018~~March 31, 2019 (unaudited) and December 31, ~~2017;~~2018; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018; (iv) Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017;~~2018; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.		X

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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 7, 2018~~May 8, 2019		~~November 7, 2018~~May 8, 2019
(Date)		(Date)

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	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



Public utilities	$	6,394	$	16,075	$	30	$	22,439
Energy	6,514		8,171		120		14,565
Industrials	13,117		53,522		120		66,519
Consumer goods and services	10,110		15,742		164		25,688
Health care	7,763		32,340		—		40,103
Technology, media and telecommunications	6,067		11,556		115		17,508
Financial services	11,529		104,985		67		116,447
Nonredeemable preferred stocks	992		305		—		1,297
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



Discontinued Operations
Balance Sheets
(In Thousands, Except Share Data)	September 30, 2018		December 31, 2017
	(unaudited)
Assets
Investments
Fixed maturities
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	—		3,435
Policy loans	—		5,815
Other long-term investments	—		16,437
	—		1,479,399
Cash and cash equivalents	—		15,851
Deferred policy acquisition costs	—		71,151
Other assets	—		19,733
Total assets held for sale	$	—	$	1,586,134
Liabilities
Future policy benefits and losses	$	—	$	1,320,401
Deferred income taxes	—		18,716
Accrued expenses and other liabilities	—		8,018
Total liabilities held for sale	$	—	$	1,347,135

(State of incorporation)

(~~State of Incorporation)~~

~~(IRS~~I.R.S Employer Identification No.)