UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

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

Commission File Number 001-34257

________________________

UNITED FIRE GROUP, INC.

(Exact name of registrant as specified in its charter)


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


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

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

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

No ☒

As of ~~November 1, 2022, 25,197,357~~May 2, 2023, 25,237,340 shares of common stock were outstanding.

Table of Contents

United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

~~September 30, 2022~~March 31, 2023


			Page
Forward-Looking Information			1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of ~~September~~March ~~30, 2022~~3 1, 2023 (unaudited) and December 31, ~~2021~~20 2 2			3

Consolidated Statements of Income and Comprehensive Income (unaudited) for the three- ~~and~~ ~~nine~~month period ~~-month periods~~ s ended ~~September~~March 31 , 202 3 ~~30, 2022~~ and ~~2021~~20 2 2			4

Consolidated Statement of Stockholders’ Equity (unaudited) for the three- ~~and~~ ~~nine-month~~month periods ended ~~Sept~~March 31 ~~ember~~, 202 3 ~~30, 2022~~ and ~~2021~~20 2 2			65

Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~three-month ~~-month~~ periods ended ~~September~~March ~~30, 2022~~3 1 , 202 3 and ~~2021~~20 2 2			86

Notes to Unaudited Consolidated Financial Statements			97


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3633

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5247

Item 4. Controls and Procedures			5247

Part II. Other Information

Item 1. Legal Proceedings			5348

Item 1A. Risk Factors			5348

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5348

Item 3. Defaults Upon Senior Securities			5348

Item 4. Mine Safety Disclosures			5348

Item 5. Other Information			5348

Item 6. Exhibits			5449

Signatures			5550

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FORWARD-LOOKING INFORMATION

This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "remain(s) optimistic," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2021~~2022 and in our other filings with the Securities and Exchange Commission ("SEC") for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

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

◦Our ability to effectively underwrite and adequately price insured risks;

◦Risks related to our investment portfolio that could negatively affect our profitability;

◦General macroeconomic conditions, interest rate risk, the impact of inflation and changes in governmental regulations and monetary policy;

◦Geographic concentration risk in our property and casualty insurance business;

◦The properties we insure are exposed to various natural perils that can give rise to significant claims costs;

◦Changing weather patterns and climate change add to the unpredictability, frequency and severity of catastrophe losses and may adversely affect our results of operations, liquidity and financial condition;

◦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;

◦We may be unable to attract, retain or effectively manage the succession of key personnel;

◦The risk of not being able to predict the rising cost of insurance claims resulting from changing societal expectations that lead to increasing litigation, broader definitions of liability, broader contract interpretations, more plaintiff-friendly legal decisions and larger compensatory jury awards;

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

◦The ~~impact of the COVID-19 pandemic, and the emergence of variant strains, on our business, financial conditions, results of operations, and liquidity;~~

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

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

◦Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other federal stimulus relief legislation, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of ~~compliance.~~compliance;

~~These~~◦We will be at a competitive disadvantage if, over time, our competitors are ~~representative~~more effective than us in their utilization of ~~the risks, uncertainties,~~technology and ~~assumptions~~evolving data analytics; and

◦We may be unable to secure reinsurance capacity 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~~provides necessary risk protection at a reasonable cost.

Table of Contents

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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

United Fire Group, Inc.
Consolidated Balance Sheets


(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	September 30, 2022		December 31, 2021		(In Thousands, Except Share Data)	March 31, 2023		December 31, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Investments:	Investments:					Investments:
Fixed maturities	Fixed maturities					Fixed maturities
Available-for-sale, at fair value (amortized cost $1,681,752 in 2022 and $1,656,797 in 2021)		$	1,547,061	$	1,719,790
Available-for-sale, at fair value (amortized cost $1,684,249 in 2023 and $1,662,680 in 2022)						Available-for-sale, at fair value (amortized cost $1,684,249 in 2023 and $1,662,680 in 2022)	$	1,591,169	$	1,551,336

Equity securities at fair value (cost $75,292 in 2022 and $84,605 in 2021)		149,505		213,401
Equity securities at fair value (cost $70,565 in 2023 and $75,292 in 2022)						Equity securities at fair value (cost $70,565 in 2023 and $75,292 in 2022)	159,378		169,106
Mortgage loans	Mortgage loans	46,757		47,201		Mortgage loans	37,912		37,947
Less: allowance for mortgage loan losses	Less: allowance for mortgage loan losses	65		71		Less: allowance for mortgage loan losses	49		49
Mortgage loans, net	Mortgage loans, net	46,692		47,130		Mortgage loans, net	37,863		37,898
Other long-term investments	Other long-term investments	79,917		84,090		Other long-term investments	91,003		86,276
Short-term investments	Short-term investments	275		275		Short-term investments	275		275
Total investments	Total investments	1,823,450		2,064,686		Total investments	1,879,688		1,844,891
Cash and cash equivalents	Cash and cash equivalents	53,017		132,104		Cash and cash equivalents	53,230		96,650
Accrued investment income	Accrued investment income	15,169		13,396		Accrued investment income	15,396		14,480
Premiums receivable (net of allowance for doubtful accounts of $1,082 in 2022 and $781 in 2021)		374,341		316,771
Premiums receivable (net of allowance for doubtful accounts of $1,701 in 2023 and $1,575 in 2022)						Premiums receivable (net of allowance for doubtful accounts of $1,701 in 2023 and $1,575 in 2022)	398,390		365,729
Deferred policy acquisition costs	Deferred policy acquisition costs	106,376		91,446		Deferred policy acquisition costs	107,489		104,225
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $61,790 in 2022 and $60,142 in 2021)		133,064		137,702
Reinsurance receivables and recoverables (net of allowance for credit losses of $76 in 2022 and $102 in 2021)		155,960		127,815
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $62,027 in 2023 and $59,566 in 2022)						Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $62,027 in 2023 and $59,566 in 2022)	133,259		133,113
Reinsurance receivables and recoverables (net of allowance for credit losses of $94 in 2023 and $82 in 2022)						Reinsurance receivables and recoverables (net of allowance for credit losses of $94 in 2023 and $82 in 2022)	162,425		170,953
Prepaid reinsurance premiums	Prepaid reinsurance premiums	12,142		9,328		Prepaid reinsurance premiums	10,569		11,300
Intangible assets	Intangible assets	5,502		6,034		Intangible assets	5,147		5,324
Deferred tax asset	Deferred tax asset	25,983		—		Deferred tax asset	13,980		15,531
Income taxes receivable	Income taxes receivable	39,593		32,378		Income taxes receivable	29,944		31,418
Other assets	Other assets	74,303		81,061		Other assets	88,886		88,672
TOTAL ASSETS	TOTAL ASSETS	$	2,818,900	$	3,012,721	TOTAL ASSETS	$	2,898,403	$	2,882,286
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	Liabilities					Liabilities

Losses and loss settlement expenses	Losses and loss settlement expenses	$	1,464,508	$	1,514,265	Losses and loss settlement expenses	$	1,499,391	$	1,497,274
Unearned premiums	Unearned premiums	488,293		439,733		Unearned premiums	490,798		474,388
Accrued expenses and other liabilities	Accrued expenses and other liabilities	115,304		102,849		Accrued expenses and other liabilities	106,419		120,510

Long term debt	Long term debt	50,000		50,000		Long term debt	50,000		50,000
Deferred tax liability		—		26,753

TOTAL LIABILITIES	TOTAL LIABILITIES	$	2,118,105	$	2,133,600	TOTAL LIABILITIES	$	2,146,608	$	2,142,172
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,191,414 and 25,082,104 shares issued and outstanding in 2022 and 2021, respectively		$	25	$	25
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,231,553 and 25,210,541 shares issued and outstanding in 2023 and 2022, respectively						Common stock, $0.001 par value; authorized 75,000,000 shares; 25,231,553 and 25,210,541 shares issued and outstanding in 2023 and 2022, respectively	$	25	$	25
Additional paid-in capital	Additional paid-in capital	206,811		203,375		Additional paid-in capital	208,010		207,030
Retained earnings	Retained earnings	604,469		621,384		Retained earnings	617,213		620,555
Accumulated other comprehensive income, net of tax	Accumulated other comprehensive income, net of tax	(110,510)		54,337		Accumulated other comprehensive income, net of tax	(73,453)		(87,496)
TOTAL STOCKHOLDERS’ EQUITY	TOTAL STOCKHOLDERS’ EQUITY	$	700,795	$	879,121	TOTAL STOCKHOLDERS’ EQUITY	$	751,795	$	740,114
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,818,900	$	3,012,721	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,898,403	$	2,882,286

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,
(In Thousands, Except Share Data) 2022 2021 2022 2021
Revenues
Net premiums earned $ 238,256 $ 238,909 $ 703,746 $ 722,837
Investment income, net of investment expenses 11,606 11,571 32,062 42,447
Net investment gains (losses) (includes reclassifications for net unrealized investment gains (losses) on available-for-sale securities of $(1,079) and $(1,478) in 2022 and $214 and $(453) in 2021; previously included in accumulated other comprehensive income (loss)) (14,250) (2,269) (35,647) 28,243
Other income (loss) (39) 332 (38) 163
Total revenues $ 235,573 $ 248,543 $ 700,123 $ 793,690
Benefits, Losses and Expenses
Losses and loss settlement expenses $ 182,411 $ 175,444 $ 464,295 $ 533,981
Amortization of deferred policy acquisition costs 53,107 51,261 156,116 150,533
Other underwriting expenses (includes reclassifications for employee benefit costs of $900 and $2,700 in 2022 and $1,586 and $4,899 in 2021; previously included in accumulated other comprehensive income (loss)) 30,487 35,468 87,885 82,236
Interest expense 797 797 2,391 2,391
Total benefits, losses and expenses $ 266,802 $ 262,970 $ 710,687 $ 769,141
Income (loss) before income taxes $ (31,229) $ (14,427) $ (10,564) $ 24,549
Federal income tax expense (benefit) (includes reclassifications of $416 and $877 in 2022 and $285 and $1,122 in 2021; previously included in accumulated other comprehensive income (loss)) (8,248) (4,834) (5,475) 1,690
Net Income (loss) $ (22,981) $ (9,593) $ (5,089) $ 22,859
Other comprehensive income (loss)
Change in net unrealized appreciation on investments $ (65,415) $ (12,230) $ (199,071) $ (33,231)
Change in liability for underfunded employee benefit plans (4,591) (3,765) (13,774) (1,025)
Other comprehensive income (loss), before tax and reclassification adjustments $ (70,006) $ (15,995) $ (212,845) $ (34,256)
Income tax effect 14,701 3,359 44,697 7,194
Other comprehensive income (loss), after tax, before reclassification adjustments $ (55,305) $ (12,636) $ (168,148) $ (27,062)
Reclassification adjustment for net investment losses included in income $ 1,079 $ (214) $ 1,478 $ 453
Reclassification adjustment for employee benefit costs included in expense 900 1,586 2,700 4,899
Total reclassification adjustments, before tax $ 1,979 $ 1,372 $ 4,178 $ 5,352
Income tax effect (416) (285) (877) (1,122)
Total reclassification adjustments, after tax $ 1,563 $ 1,087 $ 3,301 $ 4,230
Comprehensive income (loss) $ (76,723) $ (21,142) $ (169,936) $ 27
Diluted weighted average common shares outstanding 25,188,958 25,092,167 25,146,318 25,427,318
Earnings per common share:
Basic $ (0.91) $ (0.38) $ (0.20) $ 0.91
Diluted (0.91) (0.38) (0.20) 0.90

~~Table of Contents~~


	Three Months Ended March 31,
(In Thousands, Except Share Data)	2023		2022
Revenues
Net premiums earned	$	256,127	$	234,228
Investment income, net of investment expenses	12,722		11,276
Net investment gains (losses) (includes reclassifications for net unrealized investment gains (losses) on available-for-sale securities of $(540) in 2023 and $318 in 2022; previously included in accumulated other comprehensive income (loss))	(1,745)		(465)
Other income (loss)	—		(25)
Total revenues	$	267,104	$	245,014
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	174,597	$	130,376
Amortization of deferred policy acquisition costs	59,835		50,471
Other underwriting expenses (includes reclassifications for employee benefit costs of $52 in 2023 and $900 in 2022; previously included in accumulated other comprehensive income (loss))	31,876		28,644

Interest expense	797		797
Total benefits, losses and expenses	$	267,105	$	210,288
Income (loss) before income taxes	$	(1)	$	34,726
Federal income tax expense (benefit) (includes reclassifications of $124 in 2023 and $122 in 2022; previously included in accumulated other comprehensive income (loss))	(695)		6,377
Net Income (loss)	$	694	$	28,349
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	$	18,004	$	(82,965)
Change in liability for underfunded employee benefit plans	(820)		(4,591)
Other comprehensive income (loss), before tax and reclassification adjustments	$	17,184	$	(87,556)
Income tax effect	(3,609)		18,387
Other comprehensive income (loss), after tax, before reclassification adjustments	$	13,575	$	(69,169)
Reclassification adjustment for net investment losses included in income	$	540	$	(318)
Reclassification adjustment for employee benefit costs included in expense	52		900
Total reclassification adjustments, before tax	$	592	$	582
Income tax effect	(124)		(122)
Total reclassification adjustments, after tax	$	468	$	460
Comprehensive income (loss)	$	14,737	$	(40,360)
Diluted weighted average common shares outstanding	25,500,115		25,323,105
Earnings per common share:
Basic	$	0.03	$	1.13
Diluted	0.03		1.12

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

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United Fire Group, Inc.

Consolidated Statement of Stockholders’ Equity (Unaudited)


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

Balance, January 1, 2022		25,082,104	$	25	$	203,375	$	621,384	$	54,337	$	879,121
Balance, January 1, 2023													Balance, January 1, 2023	25,210,541	$	25	$	207,030	$	620,555	$	(87,496)	$	740,114
Net income	Net income	—	—		—		28,349		—		28,349		Net income	—	—		—		694		—		694

Stock based compensation		37,140	—		631		—		—		631
Dividends on common stock ($0.15 per share)		—	—		—		(3,767)		—		(3,767)
Change in net unrealized investment appreciation (depreciation)(1)		—	—		—		—		(65,793)		(65,793)
Change in liability for underfunded employee benefit plans(2)		—	—		—		—		(2,916)		(2,916)

Balance, March 31, 2022		25,119,244	$	25	$	204,006	$	645,966	$	(14,372)	$	835,625

Net income (loss)		—	$	—	$	—	$	(10,457)	$	—	$	(10,457)

Stock based compensation	Stock based compensation	67,404	—		2,159		—		—		2,159		Stock based compensation	21,012	—		980		—		—		980
Dividends on common stock ($0.16 per share)	Dividends on common stock ($0.16 per share)	—	—		—		(4,028)		—		(4,028)		Dividends on common stock ($0.16 per share)	—	—		—		(4,037)		—		(4,037)
Change in net unrealized investment appreciation (depreciation)(1)	Change in net unrealized investment appreciation (depreciation)(1)	—	—		—		—		(39,480)		(39,480)		Change in net unrealized investment appreciation (depreciation)(1)	—	—		—		—		14,650		14,650
Change in liability for underfunded employee benefit plans(2)	Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(2,916)		(2,916)		Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(607)		(607)

Balance, June 30, 2022		25,186,648	$	25	$	206,165	$	631,481	$	(56,768)	$	780,903

Net income (loss)		—	$	—	$	—	$	(22,981)	$	—	$	(22,981)

Stock based compensation		4,766	—		646		—		—		646
Dividends on common stock ($0.16 per share)		—	—		—		(4,031)		—		(4,031)
Change in net unrealized investment appreciation(1)		—	—		—		—		(50,826)		(50,826)
Change in liability for underfunded employee benefit plans(2)		—	—		—		—		(2,916)		(2,916)

Balance, September 30, 2022		25,191,414	$	25	$	206,811	$	604,469	$	(110,510)	$	700,795
Balance, March 31, 2023													Balance, March 31, 2023	25,231,553	$	25	$	208,010	$	617,213	$	(73,453)	$	751,795

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

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

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

Balance, January 1, 2021		25,055,479		$	25	$	202,359	$	555,854	$	66,911	$	825,149
Balance, January 1, 2022														Balance, January 1, 2022	25,082,104	$	25	$	203,375	$	621,384	$	54,337	$	879,121
Net income	Net income	—		—		—		18,702		—		18,702		Net income	—	—		—		28,349		—		28,349
Shares repurchased		(207)		—		(7)		—		—		(7)

Stock based compensation	Stock based compensation	64,583		—		522		—		—		522		Stock based compensation	37,140	—		631		—		—		631
Dividends on common stock $0.15 per share)	Dividends on common stock $0.15 per share)	—		—		—		(3,767)		—		(3,767)		Dividends on common stock $0.15 per share)	—	—		—		(3,767)		—		(3,767)
Change in net unrealized investment appreciation (depreciation)(1)	Change in net unrealized investment appreciation (depreciation)(1)	—		—		—		—		(23,456)		(23,456)		Change in net unrealized investment appreciation (depreciation)(1)	—	—		—		—		(65,793)		(65,793)
Change in liability for underfunded employee benefit plans(2)	Change in liability for underfunded employee benefit plans(2)	—		—		—		—		6,456		6,456		Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(2,916)		(2,916)

Balance, March 31, 2021		25,119,855		$	25	$	202,874	$	570,789	$	49,911	$	823,599
Balance, March 31, 2022														Balance, March 31, 2022	25,119,244	$	25	$	204,006	$	645,966	$	(14,372)	$	835,625

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

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

Net income (loss)		$	—	$	—	$	—	$	(9,593)	$	—	$	(9,593)
Shares repurchased		(36,417)		—		(1,001)		—		—		(1,001)
Stock based compensation		—		—		960		—		—		960
Dividends on common stock $0.15 per share)		—		—		—		(3,763)		—		(3,763)
Change in net unrealized investment appreciation(1)		—		—		—		—		(9,828)		(9,828)
Change in liability for underfunded employee benefit plans(2)		—		—		—		—		(1,721)		(1,721)

Balance, September 30, 2021		25,080,923		$	25	$	203,014	$	567,411	$	44,079	$	814,529

(1)The change in net unrealized appreciation (depreciation) 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)	(In Thousands)	2022		2021		(In Thousands)	2023		2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	(5,089)	$	22,859	Net income	$	694	$	28,349
Adjustments to reconcile net income to net cash provided by (used in) operating activities	Adjustments to reconcile net income to net cash provided by (used in) operating activities					Adjustments to reconcile net income to net cash provided by (used in) operating activities
Net accretion of bond premium	Net accretion of bond premium	6,969		10,546		Net accretion of bond premium	1,797		2,906
Depreciation and amortization	Depreciation and amortization	8,079		4,887		Depreciation and amortization	2,646		1,668
Stock-based compensation expense	Stock-based compensation expense	2,590		3,074		Stock-based compensation expense	1,076		979
Net investment (gains) losses	Net investment (gains) losses	35,647		(28,243)		Net investment (gains) losses	1,559		465
Net cash flows from equity and trading investments	Net cash flows from equity and trading investments	29,725		34,504		Net cash flows from equity and trading investments	8,523		18,387
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(9,224)		248		Deferred income tax expense (benefit)	(2,182)		(1,234)
Changes in:	Changes in:					Changes in:
Accrued investment income	Accrued investment income	(1,773)		668		Accrued investment income	(916)		(539)
Premiums receivable	Premiums receivable	(57,570)		(7,780)		Premiums receivable	(32,661)		(18,119)
Deferred policy acquisition costs	Deferred policy acquisition costs	(14,930)		(7,966)		Deferred policy acquisition costs	(3,264)		(4,316)
Reinsurance receivables	Reinsurance receivables	(28,145)		39,250		Reinsurance receivables	8,528		(7,173)
Prepaid reinsurance premiums	Prepaid reinsurance premiums	(2,814)		3,653		Prepaid reinsurance premiums	731		464
Income taxes receivable	Income taxes receivable	(7,215)		(2,880)		Income taxes receivable	1,474		17,704
Other assets	Other assets	6,758		(8,456)		Other assets	(109)		(14,768)
Losses and loss settlement expenses	Losses and loss settlement expenses	(49,757)		(10,481)		Losses and loss settlement expenses	2,117		(26,274)
Unearned premiums	Unearned premiums	48,560		(5,914)		Unearned premiums	16,410		6,318
Accrued expenses and other liabilities	Accrued expenses and other liabilities	1,403		(21,348)		Accrued expenses and other liabilities	(14,859)		(3,469)

Deferred income taxes		—		(1,009)

Other, net	Other, net	6,993		(7,424)		Other, net	1,650		247
Cash from operating activities	Cash from operating activities	(24,704)		(4,671)		Cash from operating activities	(7,480)		(26,754)

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(29,793)	$	18,188	Net cash provided by (used in) operating activities	$	(6,786)	$	1,595
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	Proceeds from sale of available-for-sale investments	$	83,409	$	170,637	Proceeds from sale of available-for-sale investments	$	9,868	$	—

Proceeds from call and maturity of available-for-sale investments	Proceeds from call and maturity of available-for-sale investments	145,618		214,702		Proceeds from call and maturity of available-for-sale investments	20,424		65,407
Proceeds from sale of other investments	Proceeds from sale of other investments	3,243		3,616		Proceeds from sale of other investments	972		1,581
Purchase of investments in mortgage loans	Purchase of investments in mortgage loans	(103)		—		Purchase of investments in mortgage loans	(128)		—
Purchase of investments available-for-sale	Purchase of investments available-for-sale	(262,359)		(331,644)		Purchase of investments available-for-sale	(53,832)		(82,942)
Purchase of other investments	Purchase of other investments	(5,447)		(6,021)		Purchase of other investments	(7,190)		(1,597)
Net purchases and sales of property and equipment	Net purchases and sales of property and equipment	(2,675)		(10,932)		Net purchases and sales of property and equipment	(2,615)		(2,510)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	$	(38,314)	$	40,358	Net cash provided by (used in) investing activities	$	(32,501)	$	(20,061)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Issuance of common stock	Issuance of common stock	$	846	$	(412)	Issuance of common stock	$	(96)	$	(349)
Repurchase of common stock		—		(2,008)

Payment of cash dividends	Payment of cash dividends	(11,826)		(11,302)		Payment of cash dividends	(4,037)		(3,767)
Net cash used in financing activities		$	(10,980)	$	(13,722)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	$	(4,133)	$	(4,116)

Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	$	(79,087)	$	44,824	Net Change in Cash and Cash Equivalents	$	(43,420)	$	(22,582)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	132,104		87,948		Cash and Cash Equivalents at Beginning of Period	96,650		132,104
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	53,017	$	132,772	Cash and Cash Equivalents at End of Period	$	53,230	$	109,522

Supplemental Disclosures of Cash Flow Information						Supplemental Disclosures of Cash Flow Information
Income taxes paid						Income taxes paid	$	12	$	—
Interest paid						Interest paid	$	797	$	797

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

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UNITED FIRE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Business

United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as property and casualty insurers in 50 states and the District of Columbia.

Basis of Presentation

The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2021,~~2022, including certain financial statement footnote disclosures, is not required by the rules and regulations of the SEC for interim financial reporting and has been condensed or omitted.

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

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

Management 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~~10-K/A for the year ended December 31, ~~2021.~~2022.

Segment Information

Our property and casualty insurance business is reported as one business segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance 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. We will continue to evaluate our operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.

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Lloyd's Syndicates

On January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). through McIntyre Cedar Corporate Member LLP. As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971, Syndicate 4747, Syndicate 2988, Syndicate 1699 and Syndicate ~~1699.~~5623. At ~~September 30, 2022,~~March 31, 2023, the Company's FAL investments were comprised of cash of ~~$21,362~~$23,661 on deposit with Lloyd's in order to satisfy these FAL requirements.

Cash and Cash Equivalents

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

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, 2022.~~March 31, 2023.




	Total
Recorded asset at beginning of period	$	~~91,446~~104,225
Underwriting costs deferred	~~171,046~~63,099
Amortization of deferred policy acquisition costs	~~(156,116)~~(59,835)
Recorded asset at ~~September 30, 2022~~March 31, 2023	$	~~106,376~~107,489

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.

Other Intangible Assets

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

Long Term Debt

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

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

Interest payments under the ~~surplus notes~~long term debt are paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group ~~as of the applicable Interest Payment Date. For the nine-month period ended September 30, 2022, interest totaled~~

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~~$2,391~~as of the applicable Interest Payment Date. For the three-month period ended March 31, 2023, interest totaled $797 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as ~~Interest~~interest expense in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

Income Taxes

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 a consolidated federal income tax benefit of ~~$5,475~~$695 for the ~~nine-month~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to an income tax expense of ~~$1,690~~$6,377 during the same period of ~~2021.~~2022. Our effective tax rate for ~~2022~~2023 and ~~2021~~2022 is different than the federal statutory rate of 21 percent, due principally to the net effect of tax-exempt municipal bond interest 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 this review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022. 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.

Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred taxes will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods and our tax planning strategy of holding debt securities with unrealized losses to maturity or recovery, we believe it is more likely than not that all the deferred assets will be realized. As a result, we have no valuation allowance at March 31, 2023 or December 31, 2022.

For the ~~nine-month periods~~three-month period ended ~~September 30, 2022 and 2021,~~March 31, 2023, we made payments for income taxes totaling ~~$21,537 and $5,345, respectively.~~$12. For the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2022, we did not make payments for income taxes. For the three-month period ended March 31, 2023, we received no federal tax refund. For the three-month period ended March 31, 2022, we received a federal tax refund of ~~$10,789. We did not receive a tax refund during the nine-month period ended September 30, 2021.~~$10,000.

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 2018. ~~We are under federal income tax examination for the years 2018 through 2020.~~

Leases

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

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Variable Interest Entities

The Company and certain related parties are equity investors in one investment which the Company determined is a variable interest entity ("VIE") as a result of participation in the risks and rewards of the VIE based on the objectives and strategies of the VIE. The VIE is a limited liability company that primarily invests in commercial real estate. The Company and certain related parties are not the primary beneficiary largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's

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financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at ~~September 30, 2022~~March 31, 2023 was ~~$2,342~~$2,998 and there are no future funding commitments.

Credit Losses

The Company recognizes credit losses for our available-for-sale fixed-maturity portfolio, reinsurance receivables, mortgage loans and premium receivables by setting up allowances which are remeasured each reporting period and recorded in the Consolidated Statements of Income and Comprehensive Income.

For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value ~~vs.~~versus amortized cost, investment spreads widening or contracting, rating actions, payment and default history. For more information on credit losses and the allowance for credit losses for our available-for-sale fixed-maturity portfolio, see Note 2 "Summary of Investments."

An allowance for mortgage loan losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments which have similar risk characteristics. To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations. This allowance is presented as a separate line in the Consolidated Balance Sheets beneath the asset value as well as presented net and recorded through "Net investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income. For more information on credit losses and the allowance for credit losses for our investment in mortgage loans see Note 3 "Fair Value of Financial Instruments."

For reinsurance receivables, the Company's model estimates expected credit loss by multiplying the exposure at default by both the probability of default and loss given default ("LGD"). The LGD is estimated by the rating of the reinsurer, historical relationship with UFG, existence of letters of credit and known regulation the Company may be held accountable for. The ultimate LGD percentage is estimated after considering Moody’s experience with unsecured year 1 bond recovery rates from 1983-2017. The allowance calculated as of ~~September 30, 2022~~March 31, 2023 is recorded through the line "Reinsurance receivables and recoverables" in the Consolidated Balance Sheets and through the line "Other underwriting expenses" in the Consolidated Statements of Income and Other Comprehensive Income. As of ~~September 30, 2022,~~March 31, 2023, the Company had a credit loss allowance for reinsurance receivables of ~~$76.~~$94.


Rollforward of credit loss allowance for reinsurance receivables:
	As of
	~~September 30, 2022~~March 31, 2023
Beginning balance, January 1, ~~2022~~2023	$	~~102~~82


Recoveries of amounts previously written off, if any	~~(26)~~12
Ending balance of the allowance for reinsurance receivables, ~~September 30, 2022~~March 31, 2023	$	7694

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

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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.

Recently Issued Accounting Standards

Accounting Standards Adopted in ~~2021~~

~~Defined Benefit Plans - Disclosures~~

In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance modified disclosures, but did not have an impact on the Company's financial position and results of operations.

~~Income Taxes~~

In December 2019, the FASB issued new guidance which simplifies the accounting for income taxes by removing certain exceptions to income tax accounting. The amendments also improve consistent application of and simplify GAAP for other areas of income tax accounting. The new guidance clarifies and amends existing guidance, including removing certain requirements that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance did not have an impact on the Company’s financial position and results of operations.2022

Inflation Reduction Act

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act ("IRA") which, among other changes, created a new corporate alternative minimum tax ("CAMT") based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023. The Company does not expect to be subject to CAMT in 2023 and does not expect the IRA to have ana material 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 to fair value of investments in available-for-sale fixed maturity, presented on a consolidated basis, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, is provided below:

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September 30, 2022
March 31, 2023														March 31, 2023
Type of Investment	Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value		Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE													AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:													Fixed maturities:
Bonds	Bonds													Bonds
U.S. Treasury	U.S. Treasury	$	15,540	$	—	$	1,086	$	14,454	$	—	$	14,454	U.S. Treasury	$	15,635	$	10	$	829	$	14,816	$	—	$	14,816
U.S. government agency	U.S. government agency	91,174		—		9,809		81,365		—		81,365		U.S. government agency	91,069		17		8,938		82,148		—		82,148
States, municipalities and political subdivisions	States, municipalities and political subdivisions													States, municipalities and political subdivisions
General obligations:	General obligations:													General obligations:
Midwest	Midwest	61,255		4		1,357		59,902		—		59,902		Midwest	58,832		213		157		58,888		—		58,888
Northeast	Northeast	20,305		2		298		20,009		—		20,009		Northeast	11,475		25		24		11,476		—		11,476
South	South	65,638		3		2,199		63,442		—		63,442		South	63,842		130		501		63,471		—		63,471
West	West	88,606		22		2,230		86,398		—		86,398		West	86,916		183		389		86,710		—		86,710
Special revenue:	Special revenue:													Special revenue:
Midwest	Midwest	109,211		20		3,086		106,145		—		106,145		Midwest	102,938		472		400		103,010		—		103,010
Northeast	Northeast	55,424		—		2,281		53,143		—		53,143		Northeast	55,161		166		713		54,614		—		54,614
South	South	194,674		7		7,822		186,859		55		186,804		South	180,683		561		2,279		178,965		—		178,965
West	West	114,862		46		4,551		110,357		24		110,333		West	113,332		401		831		112,902		—		112,902
Foreign bonds	Foreign bonds	36,127		—		4,992		31,135		—		31,135		Foreign bonds	38,119		—		3,818		34,301		—		34,301
Public utilities	Public utilities	135,835		27		15,560		120,302		—		120,302		Public utilities	146,966		260		11,515		135,711		—		135,711
Corporate bonds	Corporate bonds													Corporate bonds
Energy	Energy	38,518		—		3,793		34,725		—		34,725		Energy	36,614		—		2,188		34,426		—		34,426
Industrials	Industrials	56,249		—		6,536		49,713		—		49,713		Industrials	63,760		267		4,628		59,399		—		59,399
Consumer goods and services	Consumer goods and services	100,624		—		12,338		88,286		—		88,286		Consumer goods and services	100,455		54		8,757		91,752		—		91,752
Health care	Health care	31,209		—		6,110		25,099		—		25,099		Health care	34,960		124		4,587		30,497		—		30,497
Technology, media and telecommunications	Technology, media and telecommunications	67,242		—		8,613		58,629		12		58,617		Technology, media and telecommunications	69,144		21		5,869		63,296		—		63,296
Financial services	Financial services	132,066		153		10,848		121,371		—		121,371		Financial services	135,098		637		9,356		126,379		179		126,200
Mortgage-backed securities	Mortgage-backed securities	21,063		—		3,010		18,053		—		18,053		Mortgage-backed securities	25,959		—		2,425		23,534		—		23,534
Collateralized mortgage obligations	Collateralized mortgage obligations													Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	94,791		—		13,027		81,764		—		81,764		Government national mortgage association	102,127		12		12,636		89,503		—		89,503
Federal home loan mortgage corporation	Federal home loan mortgage corporation	95,451		—		10,825		84,626		—		84,626		Federal home loan mortgage corporation	93,395		43		11,984		81,454		—		81,454
Federal national mortgage association	Federal national mortgage association	51,946		42		4,828		47,160		—		47,160		Federal national mortgage association	53,846		152		4,227		49,771		—		49,771
Asset-backed securities	Asset-backed securities	3,942		457		184		4,215		—		4,215		Asset-backed securities	3,923		512		110		4,325		—		4,325

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,681,752	$	783	$	135,383	$	1,547,152	$	91	$	1,547,061	Total Available-for-Sale Fixed Maturities	$	1,684,249	$	4,260	$	97,161	$	1,591,348	$	179	$	1,591,169

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December 31, 2021
December 31, 2022														December 31, 2022
Type of Investment	Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value		Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE													AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:													Fixed maturities:
Bonds	Bonds													Bonds
U.S. Treasury	U.S. Treasury	$	42,425	$	216	$	718	$	41,923	$	—	$	41,923	U.S. Treasury	$	15,684	$	—	$	1,009	$	14,675	$	—	$	14,675
U.S. government agency	U.S. government agency	60,074		2,155		562		61,667		—		61,667		U.S. government agency	94,092		35		9,721		84,406		—		84,406
States, municipalities and political subdivisions	States, municipalities and political subdivisions													States, municipalities and political subdivisions
General obligations:	General obligations:													General obligations:
Midwest	Midwest	71,863		2,483		—		74,346		—		74,346		Midwest	61,191		185		263		61,113		—		61,113
Northeast	Northeast	22,061		701		—		22,762		—		22,762		Northeast	15,518		18		73		15,463		—		15,463
South	South	90,171		3,873		—		94,044		—		94,044		South	64,851		57		927		63,981		—		63,981
West	West	93,968		5,110		—		99,078		—		99,078		West	87,094		163		712		86,545		—		86,545
Special revenue:	Special revenue:													Special revenue:
Midwest	Midwest	114,997		7,292		—		122,289		—		122,289		Midwest	103,107		224		1,065		102,266		—		102,266
Northeast	Northeast	55,811		3,921		—		59,732		—		59,732		Northeast	55,292		76		1,148		54,220		—		54,220
South	South	201,383		14,365		78		215,670		—		215,670		South	184,108		278		3,529		180,857		—		180,857
West	West	126,521		8,128		—		134,649		—		134,649		West	113,594		275		1,657		112,212		—		112,212
Foreign bonds	Foreign bonds	30,314		789		197		30,906		—		30,906		Foreign bonds	36,129		—		4,480		31,649		—		31,649
Public utilities	Public utilities	104,008		3,966		481		107,493		—		107,493		Public utilities	138,752		65		13,406		125,411		—		125,411
Corporate bonds	Corporate bonds													Corporate bonds
Energy	Energy	31,011		1,751		81		32,681		—		32,681		Energy	36,507		—		3,298		33,209		—		33,209
Industrials	Industrials	55,014		2,319		162		57,171		—		57,171		Industrials	58,334		62		5,554		52,842		—		52,842
Consumer goods and services	Consumer goods and services	71,543		1,912		611		72,844		—		72,844		Consumer goods and services	100,539		—		10,598		89,941		—		89,941
Health care	Health care	27,351		539		461		27,429		—		27,429		Health care	32,987		24		5,419		27,592		—		27,592
Technology, media and telecommunications	Technology, media and telecommunications	55,405		2,958		866		57,497		—		57,497		Technology, media and telecommunications	67,193		—		7,253		59,940		—		59,940
Financial services	Financial services	98,352		4,394		131		102,615		—		102,615		Financial services	132,849		851		9,408		124,292		3		124,289
Mortgage-backed securities	Mortgage-backed securities	25,075		167		229		25,013		—		25,013		Mortgage-backed securities	20,450		—		2,750		17,700		—		17,700
Collateralized mortgage obligations	Collateralized mortgage obligations													Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	109,968		2,322		1,772		110,518		—		110,518		Government national mortgage association	97,839		—		13,291		84,548		—		84,548
Federal home loan mortgage corporation	Federal home loan mortgage corporation	120,911		736		1,658		119,989		—		119,989		Federal home loan mortgage corporation	92,366		—		13,528		78,838		—		78,838
Federal national mortgage association	Federal national mortgage association	48,246		945		642		48,549		—		48,549		Federal national mortgage association	50,272		5		4,891		45,386		—		45,386
Asset-backed securities	Asset-backed securities	325		600		—		925		—		925		Asset-backed securities	3,932		466		145		4,253		—		4,253

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,656,797	$	71,642	$	8,649	$	1,719,790	$	—	$	1,719,790	Total Available-for-Sale Fixed Maturities	$	1,662,680	$	2,784	$	114,125	$	1,551,339	$	3	$	1,551,336

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Maturities

The amortized cost and fair value of available-for-sale fixed maturity securities at ~~September 30, 2022,~~March 31, 2023, by contractual maturity, are shown in the following tables. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.


Maturities	Maturities						Maturities
		Available-For-Sale				Available-For-Sale
September 30, 2022		Amortized Cost		Fair Value
March 31, 2023							March 31, 2023	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	45,019	$	44,925		Due in one year or less	$	41,386	$	41,220
Due after one year through five years	Due after one year through five years	443,505		427,654			Due after one year through five years	479,517		467,682
Due after five years through 10 years	Due after five years through 10 years	540,068		488,978			Due after five years through 10 years	545,965		516,102
Due after 10 years	Due after 10 years	385,967		349,777			Due after 10 years	338,131		317,757
Asset-backed securities	Asset-backed securities	3,942		4,215			Asset-backed securities	3,923		4,325
Mortgage-backed securities	Mortgage-backed securities	21,063		18,053			Mortgage-backed securities	25,959		23,534
Collateralized mortgage obligations	Collateralized mortgage obligations	242,188		213,550			Collateralized mortgage obligations	249,368		220,728
		$	1,681,752	$	1,547,152			$	1,684,249	$	1,591,348

Net Investment Gains and Losses

Net ~~investment~~ gains (losses) 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 investment gains (losses) is as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Net investment gains (losses):	Net investment gains (losses):									Net investment gains (losses):
Fixed maturities:	Fixed maturities:									Fixed maturities:
Available-for-sale	Available-for-sale	$	(98)	$	294	$	(1,397)	$	(207)	Available-for-sale	$	(178)	$	333
Allowance for credit losses	Allowance for credit losses	(91)		170		(91)		5		Allowance for credit losses	(176)		—

Equity securities	Equity securities									Equity securities
Change in the fair value	Change in the fair value	(13,078)		(1,314)		(32,403)		20,513		Change in the fair value	(1,705)		(989)
Sales	Sales	(93)		(1,168)		(1,767)		8,183		Sales	500		206
Mortgage loans allowance for credit losses	Mortgage loans allowance for credit losses	—		5		5		5		Mortgage loans allowance for credit losses	—		5
Other long-term investments	Other long-term investments	(187)		—		(229)		—		Other long-term investments	(186)		(20)

Real estate		(703)		(256)		235		(256)

Total net investment gains (losses)	Total net investment gains (losses)	$	(14,250)	$	(2,269)	$	(35,647)	$	28,243	Total net investment gains (losses)	$	(1,745)	$	(465)

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Proceeds from sales	Proceeds from sales	$	18,399	$	53,973	$	83,409	$	170,637	Proceeds from sales	$	9,868	$	—
Gross realized gains	Gross realized gains	12		690		459		843		Gross realized gains	11		333
Gross realized losses	Gross realized losses	110		396		1,857		1,051		Gross realized losses	189		—

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Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 10, 2030 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$42,994~~$39,958 at ~~September 30, 2022.~~March 31, 2023.

In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a three-year lockup with a ~~60 day~~60-day minimum notice, with four possible repurchase dates per year, after the three-year lockup period has concluded. The fair value of the investment at ~~September 30, 2022~~March 31, 2023 was ~~$24,994~~$24,667 and there are no remaining capital contributions with this investment.

Unrealized Appreciation and Depreciation

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,
		2022		2021			2023		2022
Change in net unrealized investment appreciation
Change in net unrealized investment appreciation (depreciation)						Change in net unrealized investment appreciation (depreciation)
Available-for-sale fixed maturities	Available-for-sale fixed maturities	$	(197,594)	$	(32,779)	Available-for-sale fixed maturities	$	18,544	$	(83,283)
Income tax effect	Income tax effect	41,495		6,886		Income tax effect	(3,894)		17,490
Total change in net unrealized investment appreciation, net of tax		$	(156,099)	$	(25,893)
Total change in net unrealized investment appreciation (depreciation), net of tax						Total change in net unrealized investment appreciation (depreciation), net of tax	$	14,650	$	(65,793)

Credit Risk

An allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value ~~vs.~~versus amortized cost, investment spreads widening or contracting, rating actions, payment and default history. The following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at ~~September 30, 2022.~~March 31, 2023.



Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
	As of
	~~September 30, 2022~~March 31, 2023
Beginning balance, January 1, ~~2022~~2023	$	—3
Additions to the allowance for credit losses for which credit losses were not previously recorded	91176
~~Reductions for securities sold during the period (realized)~~	—
~~Write-offs charged against the allowance~~	—
~~Recoveries of amounts previously written off~~	—
Ending balance, ~~September 30, 2022~~March 31, 2023	$	91179

Fixed Maturities Unrealized Depreciation

The following tables summarize our fixed maturity securities that were in an unrealized loss position reported on a consolidated basis at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The securities are presented by the length of time they have been continuously in an unrealized loss position. Non-credit related unrealized losses are recognized as a component of other comprehensive income and represent other market movements that are not credit related, for example interest rate changes. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

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September 30, 2022		Less than 12 months					12 months or longer					Total
March 31, 2023																March 31, 2023	Less than 12 months					12 months or longer					Total
Type of Investment	Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE															AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:															Fixed maturities:
Bonds	Bonds															Bonds
U.S. Treasury	U.S. Treasury	4	$	6,472	$	216	4	$	7,982	$	869	$	14,454	$	1,085	U.S. Treasury	—	$	—	$	—	6	$	12,633	$	829	$	12,633	$	829
U.S. government agency	U.S. government agency	24	69,948		5,812		3	11,417		3,997		81,365		9,809		U.S. government agency	14	42,728		2,554		12	36,407		6,384		79,135		8,938
States, municipalities and political subdivisions	States, municipalities and political subdivisions															States, municipalities and political subdivisions
General obligations	General obligations															General obligations
Midwest	Midwest	34	58,949		1,357		—	—		—		58,949		1,357		Midwest	8	12,164		96		1	7,779		61		19,943		157
Northeast	Northeast	8	16,807		298		—	—		—		16,807		298		Northeast	1	3,499		24		—	—		—		3,499		24
South	South	33	61,969		2,198		—	—		—		61,969		2,198		South	12	25,768		351		4	10,864		150		36,632		501
West	West	36	82,240		2,230		—	—		—		82,240		2,230		West	18	39,985		284		1	7,248		105		47,233		389
Special revenue	Special revenue															Special revenue
Midwest	Midwest	47	93,081		3,086		—	—		—		93,081		3,086		Midwest	17	36,384		312		2	3,627		88		40,011		400
Northeast	Northeast	21	53,143		2,281		—	—		—		53,143		2,281		Northeast	8	23,746		236		4	12,001		477		35,747		713
South	South	76	177,218		7,200		1	845		426		178,063		7,626		South	41	85,197		1,481		10	18,098		798		103,295		2,279
West	West	54	100,516		4,528		—	—		—		100,516		4,528		West	26	53,685		646		6	11,776		185		65,461		831
Foreign bonds	Foreign bonds	11	25,778		3,360		3	5,357		1,633		31,135		4,993		Foreign bonds	7	18,236		1,033		7	16,065		2,785		34,301		3,818
Public utilities	Public utilities	47	104,282		11,490		7	15,494		4,070		119,776		15,560		Public utilities	24	57,437		2,288		31	65,964		9,227		123,401		11,515
Corporate bonds	Corporate bonds															Corporate bonds
Energy	Energy	16	32,464		3,048		1	2,260		746		34,724		3,794		Energy	13	27,485		788		2	6,941		1,400		34,426		2,188
Industrials	Industrials	23	47,467		5,794		1	2,246		743		49,713		6,537		Industrials	10	26,075		626		12	20,941		4,002		47,016		4,628
Consumer goods and services	Consumer goods and services	32	80,971		9,318		7	18,406		7,498		99,377		16,816		Consumer goods and services	19	52,538		1,651		14	33,182		7,106		85,720		8,757
Health care	Health care	7	14,008		1,632		—	—		—		14,008		1,632		Health care	4	9,101		222		7	17,455		4,365		26,556		4,587
Technology, media and telecommunications	Technology, media and telecommunications	24	51,188		5,163		3	5,551		3,345		56,739		8,508		Technology, media and telecommunications	17	36,541		953		11	23,737		4,916		60,278		5,869
Financial services	Financial services	45	111,766		9,642		3	4,302		1,205		116,068		10,847		Financial services	30	72,896		3,847		16	41,551		5,509		114,447		9,356
Mortgage-backed securities	Mortgage-backed securities	44	8,247		1,162		6	9,806		1,847		18,053		3,009		Mortgage-backed securities	26	7,058		67		26	16,475		2,358		23,533		2,425
Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Federal home loan mortgage corporation		25	41,694		4,755		17	42,935		6,071		84,629		10,826
Federal national mortgage association		15	24,997		1,237		7	17,495		3,590		42,492		4,827
Government national mortgage association		33	56,120		7,726		7	25,644		5,301		81,764		13,027
Government National Mortgage Association																Government National Mortgage Association	9	16,349		673		33	70,165		11,963		86,514		12,636
Federal Home Loan Mortgage Corporation																Federal Home Loan Mortgage Corporation	7	11,325		2,024		31	67,104		9,960		78,429		11,984
Federal National Mortgage Association																Federal National Mortgage Association	6	10,479		220		14	29,668		4,007		40,147		4,227
Asset-backed securities	Asset-backed securities	1	3,426		184		—	—		—		3,426		184		Asset-backed securities	1	3,475		110		—	—		—		3,475		110

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	660	$	1,322,751	$	93,717	70	$	169,740	$	41,341	$	1,492,491	$	135,058	Total Available-for-Sale Fixed Maturities	318	$	672,151	$	20,486	250	$	529,681	$	76,675	$	1,201,832	$	97,161

The unrealized losses on our investments in available-for-sale fixed maturities were the result of interest rate movements. We have no intent to sell, and it is more likely than not that we will not be required to sell these securities until the fair value recovers to at least equal our cost basis or the securities mature.

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December 31, 2021		Less than 12 months					12 months or longer					Total
December 31, 2022																December 31, 2022	Less than 12 months					12 months or longer					Total
Type of Investment	Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE															AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:															Fixed maturities:
Bonds	Bonds															Bonds
U.S. Treasury	U.S. Treasury	6	$	32,166	$	630	1	$	2,837	$	88	$	35,003	$	718	U.S. Treasury	4	$	6,656	$	212	4	$	8,019	$	797	$	14,675	$	1,009
U.S. government agency	U.S. government agency	3	15,023		562		—	—		—		15,023		562		U.S. government agency	24	70,158		5,606		3	11,242		4,115		81,400		9,721
States, municipalities and political subdivisions	States, municipalities and political subdivisions															States, municipalities and political subdivisions

General obligations																General obligations
Midwest																Midwest	16	29,089		263		—	—		—		29,089		263
Northeast																Northeast	4	8,576		73		—	—		—		8,576		73
South	South	1	1,195		78		—	—		—		1,195		78		South	24	48,235		927		—	—		—		48,235		927

West																West	27	62,652		711		—	—		—		62,652		711
Special revenue																Special revenue
Midwest																Midwest	35	67,101		1,065		—	—		—		67,101		1,065
Northeast																Northeast	14	37,484		1,148		—	—		—		37,484		1,148
South																South	58	126,388		3,124		1	866		405		127,254		3,529
West																West	39	83,622		1,658		—	—		—		83,622		1,658
Foreign bonds	Foreign bonds	4	10,731		147		1	1,952		50		12,683		197		Foreign bonds	9	21,377		1,861		5	10,272		2,619		31,649		4,480
Public utilities	Public utilities	9	24,238		481		—	—		—		24,238		481		Public utilities	45	101,867		8,737		9	19,979		4,669		121,846		13,406
Corporate bonds	Corporate bonds															Corporate bonds
Energy	Energy	1	5,881		81		—	—		—		5,881		81		Energy	15	28,612		1,930		1	4,597		1,368		33,209		3,298
Industrials	Industrials	4	8,902		162		—	—		—		8,902		162		Industrials	21	43,639		3,542		4	7,049		2,012		50,688		5,554
Consumer goods and services	Consumer goods and services	10	26,367		611		—	—		—		26,367		611		Consumer goods and services	28	69,320		4,440		7	20,620		6,157		89,940		10,597
Health care	Health care	3	20,550		461		—	—		—		20,550		461		Health care	5	9,829		487		6	15,928		4,933		25,757		5,420
Technology, media and telecommunications	Technology, media and telecommunications	4	11,204		739		1	1,906		127		13,110		866		Technology, media and telecommunications	23	49,970		3,279		5	9,970		3,974		59,940		7,253
Financial services	Financial services	5	13,320		131		—	—		—		13,320		131		Financial services	40	101,411		6,997		5	11,236		2,208		112,647		9,205
Mortgage-backed securities	Mortgage-backed securities	12	13,740		229		—	—		—		13,740		229		Mortgage-backed securities	38	7,909		1,056		12	9,791		1,693		17,700		2,749
Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Federal home loan mortgage corporation		11	48,256		1,752		1	1,032		20		49,288		1,772
Federal national mortgage association		18	50,701��		698		7	30,847		960		81,548		1,658
Government national mortgage association		6	21,806		521		4	5,297		121		27,103		642

Government National Mortgage Association																Government National Mortgage Association	29	48,898		4,500		12	35,650		8,791		84,548		13,291
Federal Home Loan Mortgage Corporation																Federal Home Loan Mortgage Corporation	21	35,456		5,629		19	43,383		7,900		78,839		13,529
Federal National Mortgage Association																Federal National Mortgage Association	14	24,146		1,281		7	16,674		3,611		40,820		4,892
Asset-backed securities																Asset-backed securities	1	3,452		145		—	—		—		3,452		145

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	97	$	304,080	$	7,283	15	$	43,871	$	1,366	$	347,951	$	8,649	Total Available-for-Sale Fixed Maturities	534	$	1,085,847	$	58,671	100	$	225,276	$	55,252	$	1,311,123	$	113,923

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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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.

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

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

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

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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, 2022,~~March 31, 2023, the cash surrender value of the COLI policies was ~~$9,930~~$11,568 which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

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

A summary of the carrying value and estimated fair value of our financial instruments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 is as follows:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Fair Value		Carrying Value		Fair Value		Carrying Value			Fair Value		Carrying Value		Fair Value		Carrying Value
Assets	Assets									Assets
Investments	Investments									Investments
Fixed maturities:	Fixed maturities:									Fixed maturities:
Available-for-sale securities	Available-for-sale securities	$	1,547,152	$	1,547,061	$	1,719,790	$	1,719,785	Available-for-sale securities	$	1,591,348	$	1,591,169	$	1,551,339	$	1,551,336

Equity securities	Equity securities	149,505		149,505		213,401		213,401		Equity securities	159,378		159,378		169,106		169,106
Mortgage loans	Mortgage loans	43,917		46,692		48,815		47,130		Mortgage loans	35,240		37,863		35,302		37,898
Other long-term investments	Other long-term investments	79,917		79,917		84,090		84,090		Other long-term investments	91,003		91,003		86,276		86,276
Short-term investments	Short-term investments	275		275		275		275		Short-term investments	275		275		275		275
Cash and cash equivalents	Cash and cash equivalents	53,017		53,017		132,104		132,104		Cash and cash equivalents	53,230		53,230		96,650		96,650
Corporate-owned life insurance	Corporate-owned life insurance	9,930		9,930		10,755		10,755		Corporate-owned life insurance	11,568		11,568		10,588		10,588
Liabilities	Liabilities									Liabilities
Long Term Debt	Long Term Debt	35,276		50,000		46,047		50,000		Long Term Debt	37,696		50,000		36,168		50,000

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The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


September 30, 2022				Fair Value Measurements
March 31, 2023										March 31, 2023			Fair Value Measurements
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE									AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:									Fixed maturities:
Bonds	Bonds									Bonds
U.S. Treasury	U.S. Treasury	$	14,454	$	—	$	14,454	$	—	U.S. Treasury	$	14,816	$	—	$	14,816	$	—
U.S. government agency	U.S. government agency	81,365		—		81,365		—		U.S. government agency	82,148		—		82,148		—
States, municipalities and political subdivisions	States, municipalities and political subdivisions									States, municipalities and political subdivisions
General obligations	General obligations									General obligations
Midwest	Midwest	59,902		—		59,902		—		Midwest	58,888		—		58,888		—
Northeast	Northeast	20,009		—		20,009		—		Northeast	11,476		—		11,476		—
South	South	63,442		—		63,442		—		South	63,471		—		63,471		—
West	West	86,398		—		86,398		—		West	86,710		—		86,710		—
Special revenue	Special revenue									Special revenue
Midwest	Midwest	106,145		—		106,145		—		Midwest	103,010		—		103,010		—
Northeast	Northeast	53,143		—		53,143		—		Northeast	54,614		—		54,614		—
South	South	186,859		—		186,859		—		South	178,965		—		178,965		—
West	West	110,357		—		110,357		—		West	112,902		—		112,902		—
Foreign bonds	Foreign bonds	31,135		—		31,135		—		Foreign bonds	34,301		—		34,301		—
Public utilities	Public utilities	120,302		—		120,302		—		Public utilities	135,711		—		135,711		—
Corporate bonds	Corporate bonds									Corporate bonds
Energy	Energy	34,725		—		34,725		—		Energy	34,426		—		34,426		—
Industrials	Industrials	49,713		—		49,713		—		Industrials	59,399		—		59,399		—
Consumer goods and services	Consumer goods and services	88,286		—		88,286		—		Consumer goods and services	91,752		—		91,752		—
Health care	Health care	25,099		—		25,099		—		Health care	30,497		—		30,497		—
Technology, media and telecommunications	Technology, media and telecommunications	58,629		—		58,629		—		Technology, media and telecommunications	63,296		—		63,296		—
Financial services	Financial services	121,371		—		121,221		150		Financial services	126,379		—		120,966		5,413
Mortgage-backed securities	Mortgage-backed securities	18,053		—		18,053		—		Mortgage-backed securities	23,534		—		23,534		—
Collateralized mortgage obligations	Collateralized mortgage obligations									Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	81,764		—		81,764		—		Government national mortgage association	89,503		—		89,503		—
Federal home loan mortgage corporation	Federal home loan mortgage corporation	84,626		—		84,626		—		Federal home loan mortgage corporation	81,454		—		81,454		—
Federal national mortgage association	Federal national mortgage association	47,160		—		47,160		—		Federal national mortgage association	49,771		—		49,771		—
Asset-backed securities	Asset-backed securities	4,215		—		3,426		789		Asset-backed securities	4,325		—		3,474		851

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,547,152	$	—	$	1,546,213	$	939	Total Available-for-Sale Fixed Maturities	$	1,591,348	$	—	$	1,585,084	$	6,264

EQUITY SECURITIES	EQUITY SECURITIES									EQUITY SECURITIES
Common stocks	Common stocks									Common stocks
Public utilities	Public utilities	$	13,720	$	13,720	$	—	$	—	Public utilities	$	14,200	$	14,200	$	—	$	—
Energy	Energy	17,543		17,543		—		—		Energy	19,812		19,812		—		—
Industrials	Industrials	22,656		22,656		—		—		Industrials	28,536		28,536		—		—
Consumer goods and services	Consumer goods and services	37,768		37,768		—		—		Consumer goods and services	37,262		37,262		—		—
Health care	Health care	7,341		7,341		—		—		Health care	7,585		7,585		—		—

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Technology, media and telecommunications	Technology, media and telecommunications	25,578		25,578		—		—		Technology, media and telecommunications	27,290		27,290		—		—
Financial services	Financial services	24,899		24,899		—		—		Financial services	24,693		24,693		—		—

Total Equity Securities	Total Equity Securities	$	149,505	$	149,505	$	—	$	—	Total Equity Securities	$	159,378	$	159,378	$	—	$	—
Short-Term Investments	Short-Term Investments	$	275	$	275	$	—	$	—	Short-Term Investments	$	275	$	275	$	—	$	—
Money Market Accounts	Money Market Accounts	$	10,047	$	10,047	$	—	$	—	Money Market Accounts	$	17,962	$	17,962	$	—	$	—
Corporate-Owned Life Insurance	Corporate-Owned Life Insurance	$	9,930	$	—	$	9,930	$	—	Corporate-Owned Life Insurance	$	11,568	$	—	$	11,568	$	—
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	1,716,909	$	159,827	$	1,556,143	$	939	Total Assets Measured at Fair Value	$	1,780,531	$	177,615	$	1,596,652	$	6,264


December 31, 2021				Fair Value Measurements
December 31, 2022										December 31, 2022			Fair Value Measurements
Description	Description	Total		Level 1		Level 2		Level 3		Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE	AVAILABLE-FOR-SALE									AVAILABLE-FOR-SALE
Fixed maturities:	Fixed maturities:									Fixed maturities:
Bonds	Bonds									Bonds
U.S. Treasury	U.S. Treasury	$	41,923	$	—	$	41,923	$	—	U.S. Treasury	$	14,675	$	—	$	14,675	$	—
U.S. government agency	U.S. government agency	61,667		—		61,667		—		U.S. government agency	84,406		—		84,406		—
States, municipalities and political subdivisions	States, municipalities and political subdivisions									States, municipalities and political subdivisions
General obligations	General obligations									General obligations
Midwest	Midwest	74,346		—		74,346		—		Midwest	61,113		—		61,113		—
Northeast	Northeast	22,762		—		22,762		—		Northeast	15,463		—		15,463		—
South	South	94,044		—		94,044		—		South	63,981		—		63,981		—
West	West	99,078		—		99,078		—		West	86,545		—		86,545		—
Special revenue	Special revenue									Special revenue
Midwest	Midwest	122,289		—		122,289		—		Midwest	102,266		—		102,266		—
Northeast	Northeast	59,732		—		59,732		—		Northeast	54,220		—		54,220		—
South	South	215,670		—		215,670		—		South	180,857		—		180,857		—
West	West	134,649		—		134,649		—		West	112,212		—		112,212		—
Foreign bonds	Foreign bonds	30,906		—		30,906		—		Foreign bonds	31,649		—		31,649		—
Public utilities	Public utilities	107,493		—		107,493		—		Public utilities	125,411		—		125,411		—
Corporate bonds	Corporate bonds									Corporate bonds
Energy	Energy	32,681		—		32,681		—		Energy	33,209		—		33,209		—
Industrials	Industrials	57,171		—		57,171		—		Industrials	52,842		—		52,842		—
Consumer goods and services	Consumer goods and services	72,844		—		72,844		—		Consumer goods and services	89,941		—		89,941		—
Health care	Health care	27,429		—		27,429		—		Health care	27,592		—		27,592		—
Technology, media and telecommunications	Technology, media and telecommunications	57,497		—		57,497		—		Technology, media and telecommunications	59,940		—		59,940		—
Financial services	Financial services	102,615		—		102,465		150		Financial services	124,292		—		118,617		5,675
Mortgage-backed securities	Mortgage-backed securities	25,013		—		25,013		—		Mortgage-backed securities	17,700		—		17,700		—
Collateralized mortgage obligations	Collateralized mortgage obligations									Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	110,518		—		110,518		—		Government national mortgage association	84,548		—		84,548		—
Federal home loan mortgage corporation	Federal home loan mortgage corporation	119,989		—		119,989		—		Federal home loan mortgage corporation	78,838		—		78,838		—
Federal national mortgage association	Federal national mortgage association	48,549		—		48,549		—		Federal national mortgage association	45,386		—		45,386		—
Asset-backed securities	Asset-backed securities	925		—		—		925		Asset-backed securities	4,253		—		3,452		801

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,719,790	$	—	$	1,718,715	$	1,075	Total Available-for-Sale Fixed Maturities	$	1,551,339	$	—	$	1,544,863	$	6,476

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EQUITY SECURITIES	EQUITY SECURITIES									EQUITY SECURITIES
Common stocks	Common stocks									Common stocks
Public utilities	Public utilities	$	17,940	$	17,940	$	—	$	—	Public utilities	$	14,846	$	14,846	$	—	$	—
Energy	Energy	13,593		13,593		—		—		Energy	19,743		19,743		—		—
Industrials	Industrials	31,400		31,400		—		—		Industrials	27,163		27,163		—		—
Consumer goods and services	Consumer goods and services	56,233		56,233		—		—		Consumer goods and services	43,139		43,139		—		—
Health care	Health care	13,845		13,845		—		—		Health care	7,981		7,981		—		—
Technology, media and telecommunications	Technology, media and telecommunications	33,973		33,973		—		—		Technology, media and telecommunications	28,213		28,213		—		—
Financial services	Financial services	45,822		45,822		—		—		Financial services	28,021		28,021		—		—
Nonredeemable preferred stocks		595		—		—		595

Total Equity Securities	Total Equity Securities	$	213,401	$	212,806	$	—	$	595	Total Equity Securities	$	169,106	$	169,106	$	—	$	—
Short-Term Investments	Short-Term Investments	$	275	$	275	$	—	$	—	Short-Term Investments	$	275	$	275	$	—	$	—
Money Market Accounts	Money Market Accounts	$	43,351	$	43,351	$	—	$	—	Money Market Accounts	$	31,289	$	31,289	$	—	$	—
Corporate-Owned Life Insurance	Corporate-Owned Life Insurance	$	10,755	$	—	$	10,755	$	—	Corporate-Owned Life Insurance	$	10,588	$	—	$	10,588	$	—
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	1,987,572	$	256,432	$	1,729,470	$	1,670	Total Assets Measured at Fair Value	$	1,762,597	$	200,670	$	1,555,451	$	6,476

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. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analyses 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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was reasonable.

For the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022,~~March 31, 2023, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities.

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

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~~quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’ valuation processes.~~

The following table provides a quantitative information about our Level 3 securities at ~~September 30, 2022:~~March 31, 2023:

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

Valuation Technique(s)

Unobservable inputs

Range of weighted average significant unobservable inputs

~~September 30, 2022~~March 31, 2023

~~Corporate bonds - financial services~~Fixed Maturities corporate

~~150~~5,413

~~Fair value equals cost~~Discounted cash flow

NADiscount Rates

NA3.5% - 7.5%

Fixed Maturities asset-backed securities

~~789~~851

Discounted cash flow

Probability of default

4% - 6%

The following table provides a summary of the changes in fair value of our Level 3 securities for the three-month period ended ~~September 30, 2022:~~March 31, 2023:

Corporate bonds Asset-backed securities Equities Total
Beginning Balance - 07/01/2022 $ 150 $ 842 $ — $ 992
Net unrealized gains (losses)(1)
— (53) — (53)
Ending Balance - 09/30/2022 $ 150 $ 789 $ — $ 939


	Corporate bonds		Asset-backed securities		Equities		Total
Beginning Balance at January 1, 2023	$	5,675	$	801	$	—	$	6,476

Net unrealized gains (losses)(1)	(262)		50		—		(212)





Ending Balance at March 31, 2023	$	5,413	$	851	$	—	$	6,264

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

~~The following table provides a summary of the changes in fair value of our Level 3 securities for the nine-month period ended September 30, 2022:~~

Corporate bonds Asset-backed securities Equities Total
Beginning Balance - 01/01/2022 $ 150 $ 925 $ 595 $ 1,670
Realized gains (losses) — — (595) (595)
Net unrealized gains (losses)(1)
— (136) — (136)
Ending Balance - 09/30/2022 $ 150 $ 789 $ — $ 939

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

Commercial Mortgage Loans

The following tables present the carrying value of our commercial mortgage loans and additional information at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


Commercial Mortgage Loans	Commercial Mortgage Loans					Commercial Mortgage Loans
		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Loan-to-value	Loan-to-value	Carrying Value		Carrying Value		Loan-to-value	Carrying Value		Carrying Value
Less than 65%	Less than 65%	$	29,583	$	29,924	Less than 65%	$	29,113	$	29,231
65%-75%	65%-75%	17,174		17,277		65%-75%	8,799		8,716
Total amortized cost	Total amortized cost	$	46,757	$	47,201	Total amortized cost	$	37,912	$	37,947
Allowance for mortgage loan losses	Allowance for mortgage loan losses	(65)		(71)		Allowance for mortgage loan losses	(49)		(49)
Mortgage loans, net	Mortgage loans, net	$	46,692	$	47,130	Mortgage loans, net	$	37,863	$	37,898


Mortgage Loans by Region
	March 31, 2023				December 31, 2022
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	3,245	8.6	%	$	3,245	8.6	%
Southern Atlantic	9,351		24.6		9,397		24.7
East South Central	7,719		20.3		7,783		20.5
New England	6,588		17.4		6,588		17.4
Middle Atlantic	6,100		16.1		6,139		16.2
Mountain	1,992		5.3		1,992		5.2
West North Central	2,917		7.7		2,803		7.4
Total mortgage loans at amortized cost	$	37,912	100.0	%	$	37,947	100.0	%

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Mortgage Loans by Property Type
	March 31, 2023				December 31, 2022
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Multifamily	$	8,593	22.7	%	$	8,493	22.4	%
Office	11,189		29.4		11,267		29.7
Industrial	10,038		26.5		10,056		26.5
Retail	1,992		5.3		1,992		5.2
Mixed use/Other	6,100		16.1		6,139		16.2
Total mortgage loans at amortized cost	$	37,912	100.0	%	$	37,947	100.0	%

Mortgage Loans by Region
September 30, 2022 December 31, 2021
Carrying Value Percent of Total Carrying Value Percent of Total
East North Central $ 3,245 6.9 % $ 3,245 6.9 %
Southern Atlantic 9,443 20.2 9,578 20.3
East South Central 7,845 16.8 8,028 17.0
New England 6,588 14.1 6,588 14.0
Middle Atlantic 14,592 31.2 14,789 31.3
Mountain 2,227 4.8 2,227 4.7
West North Central 2,817 6.0 2,746 5.8
Total mortgage loans at amortized cost $ 46,757 100.0 % $ 47,201 100.0 %

Mortgage Loans by Property Type
September 30, 2022 December 31, 2021
Carrying Value Percent of Total Carrying Value Percent of Total
Commercial
Multifamily $ 16,934 36.2 % $ 16,986 36.0 %
Office 11,345 24.3 11,571 24.5
Industrial 10,073 21.5 10,124 21.5
Retail 2,227 4.8 2,227 4.7
Mixed use/Other 6,178 13.2 6,293 13.3
Total mortgage loans at amortized cost $ 46,757 100.0 % $ 47,201 100.0 %


Amortized Cost Basis by Year of Origination and Credit Quality Indicator	Amortized Cost Basis by Year of Origination and Credit Quality Indicator											Amortized Cost Basis by Year of Origination and Credit Quality Indicator
		2022		2020		2019		2018		Total			2023		2022		2020		2019		2018		Total
Commercial mortgage loans:	Commercial mortgage loans:											Commercial mortgage loans:
Risk Rating:	Risk Rating:											Risk Rating:
1-2 internal grade	1-2 internal grade	$	102	$	5,406	$	8,255	$	17,992	$	31,755	1-2 internal grade	$	128	$	101	5,350		$	7,959	$	17,786	$	31,324
3-4 internal grade	3-4 internal grade	—		—		8,414		6,588		15,002		3-4 internal grade	—		—		—		—		6,588		6,588
5 internal grade	5 internal grade	—		—		—		—		—		5 internal grade	—		—		—		—		—		—
6 internal grade	6 internal grade	—		—		—		—		—		6 internal grade	—		—		—		—		—		—
7 internal grade	7 internal grade	—		—		—		—		—		7 internal grade	—		—		—		—		—		—
Total commercial mortgage loans	Total commercial mortgage loans	$	102	$	5,406	$	16,669	$	24,580	$	46,757	Total commercial mortgage loans	$	128	$	101	$	5,350	$	7,959	$	24,374	$	37,912
Current-period write-offs	Current-period write-offs	—		—		—		—		—		Current-period write-offs	—		—		—		—		—		—
Current-period recoveries	Current-period recoveries	—		—		—		—		—		Current-period recoveries	—		—		—		—		—		—
Current-period net write-offs	Current-period net write-offs	$	—	$	—	$	—	$	—	$	—	Current-period net write-offs	$	—	$	—	$	—	$	—	$	—	$	—

Commercial mortgage loans carrying value excludes accrued interest of ~~$164.~~$133. As of ~~September 30, 2022,~~March 31, 2023, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. An internal grade is assigned to each mortgage

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loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of ~~September 30, 2022,~~March 31, 2023, the Company had an allowance for mortgage loan losses of ~~$65,~~$49, summarized in the following rollforward:


Rollforward of allowance for mortgage loan losses:
	As of
	~~September 30, 2022~~March 31, 2023
Beginning balance, January 1, ~~2022~~2023	$	7149
Current-period provision for expected credit losses	~~(6)~~—


Ending balance of the allowance for mortgage loan losses, ~~September 30, 2022~~March 31, 2023	$	6549

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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~~evaluate an appropriate response 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 team of actuaries 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 ~~actuaries~~actuarial team to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

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

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The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (net of reinsurance amounts):



		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Gross liability for losses and loss settlement expenses at beginning of year	Gross liability for losses and loss settlement expenses at beginning of year	$	1,514,265	$	1,578,131	Gross liability for losses and loss settlement expenses at beginning of year	$	1,497,274	$	1,514,265
Ceded losses and loss settlement expenses	Ceded losses and loss settlement expenses	(112,900)		(131,843)		Ceded losses and loss settlement expenses	(146,875)		(112,900)
Net liability for losses and loss settlement expenses at beginning of year	Net liability for losses and loss settlement expenses at beginning of year	$	1,401,365	$	1,446,288	Net liability for losses and loss settlement expenses at beginning of year	$	1,350,399	$	1,401,365
Losses and loss settlement expenses incurred for claims occurring during	Losses and loss settlement expenses incurred for claims occurring during					Losses and loss settlement expenses incurred for claims occurring during
Current year	Current year	$	465,513	$	701,064	Current year	$	170,534	$	624,411
Prior years	Prior years	(1,218)		(48,909)		Prior years	4,063		12,890
Total incurred	Total incurred	$	464,295	$	652,155	Total incurred	$	174,597	$	637,301
Losses and loss settlement expense payments for claims occurring during	Losses and loss settlement expense payments for claims occurring during					Losses and loss settlement expense payments for claims occurring during
Current year	Current year	$	149,377	$	277,115	Current year	$	16,401	$	215,891
Prior years	Prior years	380,188		419,963		Prior years	145,831		472,377
Total paid	Total paid	$	529,565	$	697,078	Total paid	$	162,232	$	688,268
Net liability for losses and loss settlement expenses at end of year		$	1,336,095	$	1,401,365
Ceded loss and loss settlement expenses		128,413		112,900
Net liability for losses and loss settlement expenses at end of period						Net liability for losses and loss settlement expenses at end of period	$	1,362,764	$	1,350,399
Ceded losses and loss settlement expenses						Ceded losses and loss settlement expenses	136,627		146,875
Gross liability for losses and loss settlement expenses at end of period	Gross liability for losses and loss settlement expenses at end of period	$	1,464,508	$	1,514,265	Gross liability for losses and loss settlement expenses at end of period	$	1,499,391	$	1,497,274

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

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

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

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Reserve Development

The significant driver of the ~~favorable~~unfavorable reserve development in the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2023 was unfavorable development on catastrophe losses. Fire and allied lines experienced unfavorable development on wind and hail catastrophes primarily from 2022 storms, as well as unfavorable development in assumed reinsurance. Non-catastrophe reserve development was ~~the favorable claims experience for the~~flat with unfavorable development in commercial ~~automobile line of business~~other liability and workers' compensation ~~business. This~~offset by favorable development ~~was partially offset by~~in fire and allied lines and commercial automobile.

The significant drivers of the unfavorable reserve development ~~for the~~in 2022 were commercial other liability and commercial fire and allied ~~line of business.~~lines. This was offset partially by favorable development in commercial automobile, workers' compensation and fidelity and surety. The unfavorable development in commercial other liability was due to paid loss and LAE which was greater than reductions in reserves for unpaid loss and LAE. Emerging claim experience and deeper data insights during 2022 pointed to an increase in loss exposure on these longer tailed businesses driven in part by social and economic inflation. Commercial fire and allied developed unfavorably due to paid loss and LAE which was greater than reductions in reserves for unpaid loss and LAE driven by catastrophe losses and increased severity on non-catastrophe claims. The favorable development for commercial automobile was driven by the favorable claims experience, especially for accident years 2021, 2020 and 2019. The favorable development for workers' compensation was primarily due to favorable claims experience in accident years 2017 to 202~~1. The unfavorable development for other liability was primarily driven by claim payments on claims in accident year 2021 and 2020~~. ~~The unfavorable development for commercial fire and allied was driven by claim payments on property claims in accident year 2021 for many of which the cause of loss was wind or hail~~.

The significant drivers of the favorable reserve development for the full year of 2021 were the commercial automobile line of business along with a favorable contribution from the workers' compensation line of business. This favorable development was partially offset by unfavorable development from the commercial other liability line of business. Favorable development for both the commercial automobile line of business and the workers' compensation line of business was from both loss and ~~loss adjustment expense ("LAE"). Reserve~~LAE where reductions of reserves for unpaid ~~loss and LAE~~liabilities were more than sufficient to offset ~~payments. The commercial other liability line of business was adversely affected by reserve strengthening~~actual paid loss. Paid LAE reductions in reserves for ~~reported~~IBNR claims and reserve strengthening for incurred but unreported claims. The commercial other liability line of business reserve strengthening resulted in unfavorable development because paid loss exceeded the reduction in unpaid claim reserves butalso contributed favorable development ~~for~~in addition to LAE ~~partially~~where reductions in reserves were more than sufficient to offset ~~the unfavorable loss development.~~payments.

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,		2022		2021		2022		2021
Three Months Ended March 31,										Three Months Ended March 31,	2023		2022		2023		2022

Net periodic benefit cost	Net periodic benefit cost									Net periodic benefit cost
Service cost	Service cost	$	1,120	$	3,020	$	—	$	—	Service cost	$	954	$	1,120	$	—	$	—
Interest cost	Interest cost	1,933		1,728		1		1		Interest cost	2,526		1,933		—		1
Expected return on plan assets	Expected return on plan assets	(4,723)		(4,202)		—		—		Expected return on plan assets	(3,756)		(4,723)		—		—
Amortization of prior service credit	Amortization of prior service credit	(820)		(809)		(3,771)		(3,765)		Amortization of prior service credit	(820)		(820)		—		(3,771)
Amortization of net loss	Amortization of net loss	194		999		706		705		Amortization of net loss	52		194		—		706
Special event plan closure		—		—		—		—

Net periodic benefit cost	Net periodic benefit cost	$	(2,296)	$	736	$	(3,064)	$	(3,059)	Net periodic benefit cost	$	(1,044)	$	(2,296)	$	—	$	(3,064)

Pension Plan Postretirement Benefit Plan
Nine Months Ended September 30, 2022 2021 2022 2021
Net periodic benefit cost
Service cost $ 3,361 $ 9,060 $ — $ 148
Interest cost 5,798 5,184 2 71
Expected return on plan assets (14,168) (12,606) — —
Amortization of prior service credit (2,460) (2,427) (11,314) (10,725)
Amortization of net loss 583 2,997 2,118 1,902
Special event plan closure — — — (20,177)
Net periodic benefit cost $ (6,887) $ 2,208 $ (9,194) $ (28,781)

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

In January 2021, the Company ~~decided to change~~changed the ~~post-retirement~~postretirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. The impact of this decision is reflected in the table above, with a one-time adjustment presented in the line "Special event plan closure" and an additional adjustment in the line "Amortization of prior service credit" ~~recorded in first quarter of 2021. There will be continuing~~. The amortization of prior service credits continued through the end of 2022 related to these plan changes. As of December 31, 2022, the postretirement benefit obligation was $0.

Employer Contributions

We previously disclosed in our Annual Report on Form ~~10-K~~10-K/A for the year ended December 31, ~~2021~~2022 that we ~~planned~~are not required to ~~contribute $4,000~~make a contribution to the pension plan ~~in 2022. For the nine-month period ended September 30, 2022, we contributed $4,000 to the pension plan.~~for 2023.

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NOTE 6. STOCK-BASED COMPENSATION

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable ~~at any time and from time to time~~ pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan. In May 2021, the Registrant's shareholders approved an additional 650,000 shares of UFG common stock issuable ~~at any time and from time to time~~ pursuant to the Stock Plan, and among other amendments, renamed such plan as the United Fire Group, Inc. 2021 Stock and Incentive Plan (as amended, the "Stock Plan"). At ~~September 30, 2022,~~March 31, 2023, there were ~~1,300,402~~1,112,116 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees, who are in positions of substantial responsibility with UFG.

Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Options granted after March 2017 vest and are exercisable in installments of 33.3 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after three years or five years from the date of grant, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.

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

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Authorized Shares Available for Future Award Grants	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2022	From Inception to September 30, 2022	Authorized Shares Available for Future Award Grants	Three Months Ended March 31, 2023	From Inception to March 31, 2023
Beginning balance	Beginning balance	1,317,819	1,900,000	Beginning balance	1,342,119	1,900,000
Additional shares authorized	Additional shares authorized	—	2,150,000	Additional shares authorized	—	2,150,000
Number of awards granted	Number of awards granted	(171,385)	(3,622,141)	Number of awards granted	(250,897)	(3,873,038)
Number of awards forfeited or expired	Number of awards forfeited or expired	153,968	872,543	Number of awards forfeited or expired	20,894	935,154
Ending balance	Ending balance	1,300,402	1,300,402	Ending balance	1,112,116	1,112,116
Number of option awards exercised	Number of option awards exercised	45,641	1,527,614	Number of option awards exercised	4,000	1,537,336
Number of unrestricted stock awards granted	Number of unrestricted stock awards granted	—	10,090	Number of unrestricted stock awards granted	—	10,090
Number of restricted stock awards vested	Number of restricted stock awards vested	45,113	262,974	Number of restricted stock awards vested	15,257	283,102

Non-Qualified Non-Employee Director Stock Plan

The United Fire Group, Inc. Non-Employee Director Stock Plan (formerly known as the 2005 Non-Qualified Non- Employee Director Stock Option and Restricted Stock Plan) (the "Director Stock Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. On May 20, 2020, the Company’s shareholders approved amendments to the Director Stock Plan, previously approved by the Company’s Board of Directors, to (i) increase the number of shares available for future awards under the Director Stock Plan from 300,000 to 450,000, (ii) extend the expiration date of the Director Stock Plan from December 31, 2020 to December 31, 2029, (iii) allow for the grant of awards of restricted stock units, and

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(iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At ~~September 30, 2022,~~March 31, 2023, the Company had ~~121,492~~123,397 authorized shares available for future issuance.

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

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


Authorized Shares Available for Future Award Grants	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2022	From Inception to September 30, 2022	Authorized Shares Available for Future Award Grants	Three Months Ended March 31, 2023	From Inception to March 31, 2023
Beginning balance	Beginning balance	144,352	300,000	Beginning balance	123,397	300,000
Additional authorization	Additional authorization	—	150,000	Additional authorization	—	150,000
Number of awards granted	Number of awards granted	(22,860)	(355,238)	Number of awards granted	—	(355,238)
Number of awards forfeited or expired	Number of awards forfeited or expired	—	26,730	Number of awards forfeited or expired	—	28,635
Ending balance	Ending balance	121,492	121,492	Ending balance	123,397	123,397
Number of option awards exercised	Number of option awards exercised	8,580	150,581	Number of option awards exercised	1,755	152,336
Number of restricted stock awards vested	Number of restricted stock awards vested	18,510	117,001	Number of restricted stock awards vested	—	117,001

Stock-Based Compensation Expense

For the three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we recognized stock-based compensation expense of ~~$828~~$1,076 a ~~and $959, respectively. For the nine-month periods ended September 30, 2022 and 2021, we recognized stock-based compensation expense of $2,590 and $3,074,~~nd $979, respectively.

As of ~~September 30, 2022,~~March 31, 2023, we had ~~$4,387 i~~n$7,126 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 ~~2022~~2023 and

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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.


2022		$	805
2023	2023	2,272		2023	$	2,477
2024	2024	1,115		2024	2,826
2025	2025	195		2025	1,626
2026	2026	—		2026	197
2027				2027	—
Total	Total	$	4,387	Total	$	7,126

NOTE 7. EARNINGS PER COMMON SHARE

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

We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the

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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- and nine-month~~three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


		Three Months Ended September 30,									Three Months Ended March 31,
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	2022				2021				(In Thousands, Except Share Data)	2023				2022
		Basic		Diluted		Basic		Diluted			Basic		Diluted		Basic		Diluted
Net income (loss)	Net income (loss)	$	(22,981)	$	(22,981)	$	(9,593)	$	(9,593)	Net income (loss)	$	694	$	694	$	28,349	$	28,349
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,188,958		25,188,958		25,092,167		25,092,167		Weighted-average common shares outstanding	25,220,437		25,220,437		25,100,885		25,100,885
Add dilutive effect of restricted stock unit awards	Add dilutive effect of restricted stock unit awards	—		—		—		—		Add dilutive effect of restricted stock unit awards	—		279,678		—		222,220
Add dilutive effect of stock options	Add dilutive effect of stock options	—		—		—		—		Add dilutive effect of stock options	—		—		—		—
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,188,958		25,188,958		25,092,167		25,092,167		Weighted-average common shares outstanding	25,220,437		25,500,115		25,100,885		25,323,105
Earnings (loss) per common share	Earnings (loss) per common share	$	(0.91)	$	(0.91)	$	(0.38)	$	(0.38)	Earnings (loss) per common share	$	0.03	$	0.03	$	1.13	$	1.12
Awards excluded from diluted earnings per share calculation(1)	Awards excluded from diluted earnings per share calculation(1)	—		392,062		—		865,966		Awards excluded from diluted earnings per share calculation(1)	—		737,629		—		822,375

(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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Nine Months Ended September 30,
(In Thousands, Except Share Data) 2022 2021
Basic Diluted Basic Diluted
Net income $ (5,089) $ (5,089) $ 22,859 $ 22,859
Weighted-average common shares outstanding 25,146,318 25,146,318 25,095,733 25,095,733
Add dilutive effect of restricted stock unit awards — — — 216,527
Add dilutive effect of stock options — — — 115,058
Weighted-average common shares outstanding 25,146,318 25,146,318 25,095,733 25,427,318
Earnings per common share $ (0.20) $ (0.20) $ 0.91 $ 0.90
Awards excluded from diluted earnings per share calculation(1)
— 479,981 — 674,921

NOTE 8. DEBT

Long Term Debt

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

Interest payments under the ~~surplus notes~~long term debt will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date, as set forth in the table below. For the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, interest expense totaled ~~$2,391.~~$797. Payment of interest is subject to approval by the Iowa Insurance Division.


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

Credit Facilities

On March 31, 2020, UF&C, a wholly owned subsidiary of the Company, entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Administrative Agent"), issuing lender, swing-line lender and lender, and the other lenders from time to time party

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thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing-line loan for working capital and other general corporate purposes. The Credit Agreement is provided by the Lenders on an unsecured basis, and UF&C has the option to increase the Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility.

The Credit Agreement includes customary events of default, including default in payments of principals, default in payment of other indebtedness, change of control and voluntary and involuntary insolvency proceedings, the occurrence of which would allow the Lenders to accelerate payment of all amounts outstanding thereunder and terminate any further commitments to lend.

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The entry into the Credit Agreement was completed as part of the Company’s regular course of financial planning and was not initiated as a result of market conditions resulting from the COVID-19 pandemic.

There was no outstanding balance on the Credit Agreement at ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we did not incur any interest expense related to the credit facility. We were in compliance with all covenants under the Credit Agreement at ~~September 30, 2022.~~March 31, 2023.

NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the three-month period ended ~~September 30, 2022:~~March 31, 2023:


				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, 2022		(55,505)		(1,263)		$	(56,768)
Balance as of January 1, 2023								Balance as of January 1, 2023	(88,369)		873		$	(87,496)
Change in accumulated other comprehensive income (loss) before reclassifications	Change in accumulated other comprehensive income (loss) before reclassifications	(51,678)		(3,627)		(55,305)		Change in accumulated other comprehensive income (loss) before reclassifications	14,223		(648)		13,575
Reclassification adjustments from accumulated other comprehensive income (loss)	Reclassification adjustments from accumulated other comprehensive income (loss)	853		710		1,563		Reclassification adjustments from accumulated other comprehensive income (loss)	427		41		468
Balance as of September 30, 2022		$	(106,330)	$	(4,180)	$	(110,510)
Balance as of March 31, 2023								Balance as of March 31, 2023	$	(73,719)	$	266	$	(73,453)

(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, 2022:~~

Liability for
Net unrealized underfunded
appreciation employee
on investments
benefit costs(1)
Total
Balance as of January 1, 2022 49,769 4,568 $ 54,337
Change in accumulated other comprehensive income before reclassifications (157,266) (10,882) (168,148)
Reclassification adjustments from accumulated other comprehensive income (loss) 1,167 2,134 3,301
Balance as of September 30, 2022 $ (106,330) $ (4,180) $ (110,510)

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NOTE 10. LEASES

The Company has operating leases consisting of office space, vehicle leases, computer equipment, and office equipment. Lease terms and options vary in the Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As of ~~September 30, 2022,~~March 31, 2023, we have leases with remaining terms of one year to ~~seven~~five years, some of which may include no options for renewal and others with options to extend the lease terms from six months to five years.

The components of our operating leases were as follows for the ~~three- and nine-month~~three-month periods ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Components of lease expense:
Operating lease expense $ 2,201 $ 1,748 $ 6,569 $ 5,297
Less sublease income 53 53 160 160
Net lease expense 2,148 1,695 6,409 5,137
Cash flows information related to leases:
Operating cash outflow from operating leases 2,170 1,714 6,471 5,192

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	Three Months Ended March 31,
	2023		2022

Components of lease expense:
Operating lease expense	$	2,188	$	2,177
Less sublease income	167		53
Net lease expense	2,021		2,124
Cash flows information related to leases:
Operating cash outflow from operating leases	2,052		2,143

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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~~10-K/A for the year ended December 31, ~~2021.~~2022. There have been no changes in our critical accounting policies from December 31, ~~2021.~~2022.

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~~10-K/A for the year ended December 31, ~~2021.~~2022. Our Consolidated Financial Statements are prepared in accordance with 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.

~~Please note that references to our commercial line “surety” was referenced in our previous filings as “fidelity and surety”.~~

BUSINESS OVERVIEW

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG, 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 50 states plus the District of Columbia and are represented by approximately 1,000 independent agencies.

Our primary sources of revenue are premiums and investment income. Major categories of expenses from our operations include losses and loss settlement expenses, underwriting and other operating expenses.

Reportable Segments

Our property and casualty insurance business operates and reports as one business segment. For more information, refer to Part I, Item 1, Note 1. "Nature of Operations and Basis of Presentation."

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Lloyd's Syndicates

As of January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971, Syndicate 4747, Syndicate 2988, Syndicate 1699 and Syndicate ~~1699.~~5623. At ~~September 30, 2022,~~March 31, 2023, the Company's FAL investments were comprised of cash of ~~$21.4~~$23.7 million on deposit with Lloyd's in order to satisfy these FAL requirements.

Personal Lines Business

In May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual Insurance Company ~~("Nationwide")~~ beginning in the third quarter of 2020. ~~Nationwide has been offering replacement policies to most~~The majority of ~~our~~this transfer was completed by December 31, 2021. There is an immaterial amount of personal lines ~~policyholders at the time of renewal. The transfer of policies is substantially complete, with~~business remaining primarily in New Jersey ~~being the only state where the Company has personal lines policies in force~~ as of ~~September 30, 2022. These policies will~~March 31, 2023. The business remaining in New Jersey is scheduled to lapse ~~over~~by the ~~next three years.~~end of 2025.

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, 2022,~~March 31, 2023, approximately ~~47.7~~46.9 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and ~~New Jersey.~~Louisiana.

Profit Factors

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

~~COVID-19~~

~~Since mid-March 2020, the COVID-19 pandemic has caused significant financial market volatility, economic uncertainty and interruptions to normal business activities.~~

In response to evolving pandemic conditions, UFG initially activated our pre-existing business continuity plans, dispatched the majority of its staff to work remotely, and implemented numerous safety measures for the safety and health of our employees. As a result of the reduction in COVID-19 community levels, an increasing number of UFG employees have resumed working onsite, although we continue to offer remote and hybrid work arrangements to employees.

The implementation of our business continuity plans has not had a material effect on our internal control environment at any time during the pandemic. Additionally, we believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems continue to operate effectively in the present environment.

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Nearly all of the policies we have issued specifically exclude business interruption coverage for losses due to viruses such as the COVID-19 pandemic, but we continue to carefully investigate each claim and intend to afford coverage when appropriate. We expect the effect of the COVID-19 pandemic on claims currently under our coverages to be manageable, based upon losses reported to date. We continue to evaluate the dynamic nature of the pandemic, including the emergence of variant strains, and cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which could impact our business, financial condition, results of operations and liquidity.

As of September 30, 2022, we intend to keep all assets currently leased and honor the terms of the contracts. We have also evaluated for impairment the four lease contracts in which we are the lessor. As of September 30, 2022, all payments on these contracts had been received and we fully expect to timely receive all future payments.

~~The Company's investment philosophy, objectives, approach and program have not changed as a result of the COVID-19 pandemic.~~

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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)	(In Thousands, Except Ratios)	2022			2021			%		2022			2021			%		(In Thousands, Except Ratios)	2023			2022			%
Revenues	Revenues																	Revenues
Net premiums earned	Net premiums earned	$	238,256		$	238,909		(0.3)	%	$	703,746		$	722,837		(2.6)	%	Net premiums earned	$	256,127		$	234,228		9.3	%
Investment income, net of investment expenses	Investment income, net of investment expenses	11,606			11,571			0.3		32,062			42,447			(24.5)		Investment income, net of investment expenses	12,722			11,276			12.8

Net investment gains (losses)	Net investment gains (losses)	(14,250)			(2,269)			NM		(35,647)			28,243			(226.2)		Net investment gains (losses)	(1,745)			(465)			(275.3)
Other income (loss)	Other income (loss)	(39)			332			(111.7)		(38)			163			(123.3)		Other income (loss)	—			(25)			100.0
Total revenues	Total revenues	$	235,573		$	248,543		(5.2)	%	$	700,123		$	793,690		(11.8)	%	Total revenues	$	267,104		$	245,014		9.0	%

Benefits, Losses and Expenses	Benefits, Losses and Expenses																	Benefits, Losses and Expenses
Losses and loss settlement expenses	Losses and loss settlement expenses	$	182,411		$	175,444		4.0	%	$	464,295		$	533,981		(13.1)	%	Losses and loss settlement expenses	$	174,597		$	130,376		33.9	%
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	53,107			51,261			3.6		156,116			150,533			3.7		Amortization of deferred policy acquisition costs	59,835			50,471			18.6
Other underwriting expenses	Other underwriting expenses	30,487			35,468			(14.0)		87,885			82,236			6.9		Other underwriting expenses	31,876			28,644			11.3
Interest expense	Interest expense	797			797			—		2,391			2,391			—		Interest expense	797			797			—

Total benefits, losses and expenses	Total benefits, losses and expenses	$	266,802		$	262,970		1.5	%	$	710,687		$	769,141		(7.6)	%	Total benefits, losses and expenses	$	267,105		$	210,288		27.0	%

Income (loss) before income taxes	Income (loss) before income taxes	$	(31,229)		$	(14,427)		(116.5)	%	$	(10,564)		$	24,549		(143.0)		Income (loss) before income taxes	$	(1)		$	34,726		(100.0)	%
Federal income tax expense (benefit)	Federal income tax expense (benefit)	(8,248)			(4,834)			(70.6)		(5,475)			1,690			NM		Federal income tax expense (benefit)	(695)			6,377			(110.9)
Net income (loss)	Net income (loss)	$	(22,981)		$	(9,593)		(139.6)		$	(5,089)		$	22,859		(122.3)	%	Net income (loss)	$	694		$	28,349		(97.6)

GAAP Ratios:	GAAP Ratios:																	GAAP Ratios:
Net loss ratio (without catastrophes)		65.2		%	56.9		%	14.6	%	57.3		%	61.4		%	(6.7)	%
Net underlying loss ratio (1)																		Net underlying loss ratio (1)	63.5		%	57.5		%	10.4	%
Catastrophes - effect on net loss ratio(1)	Catastrophes - effect on net loss ratio(1)	11.4			16.5			(30.9)		8.7			12.5			(30.4)		Catastrophes - effect on net loss ratio(1)	4.6			2.6			76.9
Net loss ratio(1)		76.6		%	73.4		%	4.4	%	66.0		%	73.9		%	(10.7)	%
Expense ratio(2)		35.1			36.3			(3.3)		34.6			32.2			7.5
Combined ratio(3)		111.7		%	109.7		%	1.8	%	100.6		%	106.1		%	(5.2)	%
Reserve development-effect on net loss ratio (1)																		Reserve development-effect on net loss ratio (1)	0.1			(4.4)			102.3
Net loss ratio (2)																		Net loss ratio (2)	68.2		%	55.7		%	22.4	%
Expense ratio (3)																		Expense ratio (3)	35.8			33.8			5.9
Combined ratio (4)																		Combined ratio (4)	104.0		%	89.5		%	16.2	%

(1) ~~The~~Net underlying loss ratio is defined as the net loss ratio less impacts of catastrophes and non-catastrophe prior year reserve development.

(2) 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~~(3) Expense ratio is calculated by dividing ~~other~~non-deferred 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~~(4) Combined ratio is a commonly used financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of the net loss ratio and the underwriting expense ratio.

NM = Not meaningful

The following is a summary of our financial performance for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022:~~March 31, 2023:

RESULTS OF OPERATIONS

For the three-month period ended ~~September 30, 2022,~~March 31, 2023, net ~~loss~~income was ~~$23.0~~$0.7 million compared to a net ~~loss~~income of ~~$9.6~~$28.3 million for the same period of ~~2021.~~2022. The change was primarily due to ~~a decrease in the fair value of our investments in equity securities along with~~ higher ~~losses~~loss and loss ~~settlement~~adjustment expenses ~~partially~~ offset by ~~lower other underwriting expenses.~~an increase in earned premium.

~~For~~Net premiums earned increased 9.3 percent during the ~~nine-month~~three-month period ended ~~September 30, 2022, net loss was $5.1 million~~March 31, 2023 compared to ~~net income of $22.9 million for~~ the same period of ~~2021. The change was primarily due to a decrease~~2022.Profitable growth is our primary consideration when putting new business on the books and these results reflect growth in assumed reinsurance, other liability, and surety. For the ~~fair value of our investments~~three-month period ended

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~~in equity securities and a decrease in net premiums earned partially offset by a decrease in losses and loss settlement expenses.~~

~~Net premiums earned decreased 0.3 percent and decreased 2.6 percent during the three- and nine-month periods ended September 30, 2022, respectively, compared to the same periods of 2021.~~Profitable growth is our primary consideration when putting new business on the books and these results reflect growth in assumed reinsurance, other liability, and surety. For the three-month period ended September 30, 2022,March 31, 2023, the overall average increase in renewal premiums was ~~9.5%~~7.4%, with ~~3.8%~~2.9% from exposure changes and ~~5.7%~~4.5% from rate increases. Excluding the workers' compensation line of business, the overall average increase in renewal premiums was ~~10.7%~~8.9%, with ~~4.0%~~3.1% from exposures changes and ~~6.7%~~5.8% from rate ~~changes.~~increases.

Net investment income was ~~$11.6~~$12.7 million for the ~~third~~first quarter of ~~2022~~2023 as compared to ~~$11.6~~$11.3 million for the same period in ~~2021. Third~~2022. The first quarter of ~~2022 reflected~~2023 experienced increased fixed maturity income of $2.4 million which was a ~~slight increase over third quarter~~result of ~~2021 related~~higher investment yields due to higher ~~yields on the fixed income portfolio mostly offsetting~~interest rates. This was partially offset by the change in fair value of our investments in limited liability partnerships. The valuation of these investments in limited liability partnerships varies from period to period due to the current equity market conditions, specifically related to financial institutions. ~~Year-to-date, net investment income was $32.1 million compared to net investment income of $42.4 million for the same period in 2021. The decrease in net investment income in the~~ ~~nine-month period ended September 30, 2022~~ ~~was primarily due to the change in the fair value of our investments in limited liability partnerships.~~

The Company recognized net investment losses of ~~$14.3~~$1.7 million during the ~~third~~first quarter of ~~2022~~2023, compared to net investment losses of ~~$2.3~~$0.5 million for the same period in 2021. Year to date, the Company recognized net investment losses of $35.6 million during the nine-month period ended September 30, 2022, compared to net investment gains of $28.2 million for the same period in 2021.2022. The change in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 as compared to the same period in ~~2021~~2022 was primarily due to the change in the fair value of our investments in equity securities.

Losses and loss settlement expenses increased by ~~4.0~~33.9 percent during the three-month period ended ~~September 30,~~March 31, 2023, compared to the same period of 2022, driven by an increase in ~~frequency of large~~underlying losses ~~and unfavorable reserve development, offset by lower catastrophe losses during the quarter. For the nine-month period ended September 30, 2022 the same metric decreased by 13.1 percent compared~~due primarily to the ~~same~~impact of emerging loss trends that led to adverse prior period development in ~~2021. The year-to-date change was primarily driven by lower catastrophe losses~~the third and fourth quarters of 2022 as well as increased ceded reinsurance costs and higher retentions across the broader portfolio. There is an additional increase attributable to a ~~decrease~~shift in ~~frequency and severity of claims.~~accident year loss ratio assumed reinsurance business. This business continues to perform in line with our expectations.

The GAAP combined ratio increased by ~~2.0~~14.5 percentage points to ~~111.7~~104.0 percent for the ~~third~~first quarter of ~~2022~~2023, compared to ~~109.7~~89.5 percent in the same period in ~~2021.~~2022. The ~~change~~deterioration was driven by an increase in the underlying loss ratio of 6.0 percentage points, unfavorable prior period reserve development in the current quarter compared to favorable development in the prior period leading to an increase of 4.5 percentage points, and increases in catastrophe loss and underwriting expenses contributing 2.0 percentage points each. Each of these are explained in more detail below.

The net loss ratio ~~most notably the reserve development effect on the ratio in the quarter.~~ ~~For the nine-month period ended September 30, 2022, the GAAP combined ratio~~ ~~decreased 5.5~~increased 12.5 percentage points ~~to 100.6 percent compared to 106.1 percent for the nine-month period ended September 30, 2021. The decrease in the combined ratio~~ during the ~~nine-month period ended September 30, 2022~~first quarter of 2023 as compared to the same period in ~~2021~~2022. The underlying loss ratio of 63.5% increased 6.0 percentage points which was partially driven by the impacts of the third and fourth quarter 2022 reserve strengthening in long-tailed other liability lines of business that increased our prospective view of loss costs as well as increased ceded reinsurance costs and retentions across the broader portfolio. Also contributing was a ~~decrease~~shift in accident year loss ratio assumptions for the assumed reinsurance book resulting in a greater portion of loss attributed to the current accident year that better reflects the exposure for this business. This shift was effectively neutral across the total loss ratio. Unfavorable prior period reserve development was 0.1% this quarter compared to favorable development of 4.4% in the ~~net loss ratio.~~

~~The net loss ratio increased 3.2 percentage points during the third~~first quarter of 2022 as compared to the same period in 2021. This change was driven by unfavorable reserve development in the quarter and an increase in frequency of claims, offset by catastrophe loss improvement. Year-to-date~~, the net loss~~ ratio decreased 7.9 percentage points to 66.0 percent compared to 73.9 percent for the nine-month period ended September 30, 2021. The year-to-date change was primarily driven by lower catastrophe losses and a decrease in the frequency and severity of claims.2022.

Pre-tax catastrophe losses in the ~~third~~first quarter of ~~2022~~2023 added ~~11.4~~4.6 percentage points to the combined ratio ~~which included 5.7 percentage points for the impacts from Hurricane Ian. This compares~~compared to ~~16.5~~2.6 percentage points added to the combined ratio in the ~~third~~first quarter of ~~2021, and is 1.6~~2022. Elevated severe weather losses resulted in this increase of 2.0 percentage points compared to last year. The catastrophe loss ratio was 1.3 percentage points above our 10-year historic mean catastrophe loss ratio, and in line with our 5-year historical average for the ~~third~~first quarter. During the third quarter of 2022, the higher than average catastrophe losses were driven primarily by Hurricane Ian, however, there were 9 smaller catastrophic events, primarily wind and hail, which collectively resulted in above average catastrophe losses. Year-to-date catastrophe losses totaled $61.4 million ($1.93 per diluted share) compared to $90.3 million ($2.81 per diluted share) for the same period in 2021, which included losses from Hurricane Ida as well as winter storm Uri, which was a full retention loss.

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The underwriting expense ratio for the ~~third~~first quarter of 2023 was 35.8 percent compared to 33.8 percent for the first quarter of 2022. The expense ratio increased 2.0 percentage points compared to the first quarter of 2022 ~~was 35.1 percent compared~~as a result of strategic investments in talent and technology, as well as changes to ~~36.3 percent for the third quarter of 2021. The decrease was primarily driven by lower costs resulting from the change~~our post-retirement benefit plans that reduced expenses in design of our pension plan, which resulted in a reduction in quarterly expenses beginning in 2022. Year-to-date, the underwriting expense ratio was 34.6 percent compared to 32.2 percent in the same period in 2021. The increase in the expense ratio during the nine-month period ended September 30, 2022 ~~was primarily driven by a non-recurring benefit in the prior year related to the change in the design of our employee post-retirement health benefit plan.~~but have since concluded.

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

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

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

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

2023 Development

The property and casualty insurance business experienced $4.1 million unfavorable development in our net reserves for prior accident years for the three-month period ended March 31, 2023. This was driven by development on catastrophe losses. Fire and allied lines experienced unfavorable development on wind and hail catastrophes primarily from 2022 storms, as well as unfavorable development in assumed reinsurance. Non-catastrophe reserve development was flat with unfavorable development in commercial other liability and workers' compensation offset by favorable development in fire and allied lines and commercial automobile.

2022 Development

The property and casualty insurance business experienced ~~$14.1 million unfavorable and $1.2~~$6.7 million of favorable development in our net reserves for prior accident years for the ~~three- and nine-month periods ended September 30, 2022, respectively. For the~~ three-month period ended ~~September 30, 2022~~March 31, 2022. The majority of the ~~unfavorable development was primarily driven by $31.7 million other liability and $5.4 million commercial fire and allied lines of business offset by~~ favorable development ~~in commercial automobile and workers' compensation lines of business of $12.4 and $11.6, respectively. For~~came from the ~~nine-month period ended September 30, 2022 the overall favorable development was primarily driven by~~ commercial automobile line of business ~~and workers' compensation line of business, with $28.9~~which had $12.7 million ~~and $9.2 million, respectively, in net ultimate loss & loss adjustment expense estimates. The~~ favorable ~~reserve development was partially offset by unfavorable reserve development for $22.2 million other liability and $14.1 million commercial fire and allied lines.~~

~~2021 Development~~

~~The property and casualty insurance business experienced $11.1 million and $26.0 million of favorable development~~

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~~in our net reserves for prior accident years for~~development. Partially offsetting the ~~three- and nine-month periods ended September 30, 2021, respectively. For the three-month period ended September 30, 2021 the majority of~~ favorable development was unfavorable development from three lines of business: commercial ~~automobile with $11.0~~other liability experienced $3.7 million of ~~favorable development followed by commercial fire and allied lines with $4.1 million favorable development. The favorable development was partially offset by $7.1 million of~~ unfavorable development in commercial liability. All other lines of insurance, in total, contributed $3.1 million of favorable development during the quarter. For the nine-month period ended September 30, 2021 the majority of favorable development was from commercial automobile with $21.5 million favorable development, followed by workers' compensation with $7.7 million favorable development, commercial fire and allied ~~lines with $5.6~~experienced $2.9 million ~~favorable~~of unfavorable development, and ~~personal fire and allied lines with $4.0 million favorable development. Partially offsetting this was unfavorable development was contributed primarily by commercial liability with $17.1~~reinsurance assumed experienced $2.3 million of unfavorable development. All other lines of ~~insurance,~~business, in total, contributed ~~$4.3~~$2.9 million of favorable development. The favorable development for commercial automobile was from both loss and loss adjustment expense ("LAE") where reductions of reserves for unpaid liabilities were more than sufficient to offset actual paid loss and paid LAE. Commercial other liability experienced unfavorable development primarily from paid LAE which was greater than reductions in reserves for unpaid LAE. Commercial fire and allied experienced unfavorable development primarily from loss development in accident year 2021 from four large claims. Reinsurance assumed developed unfavorably due to paid loss and increased claim reserves which were greater than reductions in reserves for incurred but not reported ("IBNR") claims.

~~Development~~Reserve 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, 2022,~~March 31, 2023, our total reserves were within a reasonable range of our actuarial estimates.

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


Three Months Ended September 30,		2022						2021
Three Months Ended March 31,														Three Months Ended March 31,	2023						2022
				Net Losses						Net Losses							Net Losses						Net Losses
				and Loss						and Loss							and Loss						and Loss
		Net		Settlement		Net		Net		Settlement		Net			Net		Settlement		Net		Net		Settlement		Net
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss		(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss
Unaudited	Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio		Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio
Commercial lines	Commercial lines													Commercial lines
Other liability(1)	Other liability(1)	$	80,231	$	85,738	106.9	%	$	75,559	$	47,416	62.8	%	Other liability(1)	$	78,405	$	52,844	67.4	%	$	70,569	$	36,801	52.1	%
Fire and allied lines(2)	Fire and allied lines(2)	60,263		47,857		79.4		60,457		44,855		74.2		Fire and allied lines(2)	56,466		45,881		81.3		58,748		45,236		77.0
Automobile	Automobile	51,939		32,093		61.8		60,991		42,034		68.9		Automobile	48,972		36,781		75.1		53,232		32,333		60.7
Workers' compensation	Workers' compensation	14,043		(1,888)		(13.4)		15,183		11,265		74.2		Workers' compensation	13,245		8,051		60.8		14,609		5,078		34.8
Surety(3)	Surety(3)	9,756		3,598		36.9		7,939		909		11.4		Surety(3)	11,946		1,221		10.2		8,120		375		4.6
Miscellaneous	Miscellaneous	267		449		168.2		323		176		54.5		Miscellaneous	265		137		51.7		279		162		58.1
Total commercial lines	Total commercial lines	$	216,499	$	167,847	77.5	%	$	220,452	$	146,655	66.5	%	Total commercial lines	$	209,299	$	144,915	69.2	%	$	205,557	$	119,985	58.4	%

Personal lines	Personal lines													Personal lines
Fire and allied lines(4)	Fire and allied lines(4)	$	529	$	1,195	225.9	%	$	2,559	$	11,382	NM		Fire and allied lines(4)	$	1,952	$	2,186	112.0	%	$	950	$	1,191	125.4
Automobile	Automobile	(1)		(775)		NM		734		343		46.7		Automobile	—		(254)		NM		1		(729)		NM
Miscellaneous	Miscellaneous	10		(1,020)		NM		50		(9)		(18.0)		Miscellaneous	7		(46)		NM		17		(18)		(105.9)
Total personal lines	Total personal lines	$	538	$	(600)	(111.5)	%	$	3,343	$	11,716	NM		Total personal lines	$	1,959	$	1,886	96.3	%	$	968	$	444	45.9	%
Assumed reinsurance	Assumed reinsurance	$	21,219	$	15,164	71.5	%	$	15,114	$	17,073	113.0	%	Assumed reinsurance	$	44,869	$	27,796	61.9	%	$	27,703	$	9,947	35.9	%

Total	Total	$	238,256	$	182,411	76.6	%	$	238,909	$	175,444	73.4	%	Total	$	256,127	$	174,597	68.2	%	$	234,228	$	130,376	55.7	%

(1) Commercial lines “Other liability” is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured’s premises and products manufactured or sold.

(2) Commercial lines “Fire and allied lines” includes fire, allied lines, commercial multiple peril and inland marine.

(3) Commercial lines “Surety” previously referred to as “Fidelity and surety”.

(4) Personal lines “Fire and allied lines” includes fire, allied lines, homeowners and inland marine.

NM = Not meaningful

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Nine Months Ended September 30, 2022 2021
Net Losses Net Losses
and Loss and Loss
Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios) Premiums Expenses Loss Premiums Expenses Loss
Unaudited Earned Incurred Ratio Earned Incurred Ratio
Commercial lines
Other liability $ 225,323 $ 159,859 70.9 % $ 225,572 $ 134,286 59.5 %
Fire and allied lines 172,361 144,397 83.8 177,066 150,032 84.7
Automobile 157,927 107,021 67.8 190,238 151,632 79.7
Workers' compensation 42,389 16,345 38.6 47,260 33,601 71.1
Surety 26,700 5,723 21.4 22,436 3,000 13.4
Miscellaneous 817 593 72.6 1,007 174 17.3
Total commercial lines $ 625,517 $ 433,938 69.4 % $ 663,579 $ 472,725 71.2 %

Personal lines
Fire and allied lines $ 2,127 $ 2,144 100.8 % $ 13,120 $ 22,400 170.7 %
Automobile — (1,919) NM 7,069 5,904 83.5
Miscellaneous 42 (1,110) NM 337 (1,369) NM
Total personal lines $ 2,169 $ (885) (40.8) % $ 20,526 $ 26,935 131.2 %
Assumed reinsurance $ 76,060 $ 31,242 41.1 % $ 38,732 $ 34,321 88.6 %
Total $ 703,746 $ 464,295 66.0 % $ 722,837 $ 533,981 73.9 %

~~NM = Not meaningful~~

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

•Other liability lines - The net loss ratio deteriorated ~~44.1 and 11.4~~15.3 percentage points ~~respectively,~~ in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021. Reserves were strengthened~~2022. This deterioration is related to an increase in severity driven by construction defect and an increase in frequency in standard umbrella. During the ~~third quarter~~last half of 2022, ~~as the frequency~~a combination of ~~large claims~~deeper analytical insights and ~~exhaustion of primary coverage limits~~emerging claim experience has increased ~~due to inflationary pressures and other factors. This has~~our view of potential exposure within this line. Our prospective view of loss costs in these long-tailed lines increased ~~exposure to~~during the ~~excess umbrella policies.~~last half of 2022.

•Commercial fire and allied lines - The net loss ratio deteriorated ~~5.2~~4.3 percentage points in the three-month period ending September 30, 2022 as non-catastrophe commercial fire losses were offset by improved catastrophe losses as compared to 2021. The net loss ratio improved 0.9 percentage points in the nine-month periods ended ~~September 30, 2022 driven by catastrophe loss improvement.~~

•~~Commercial automobile~~ ~~- The net loss ratio improved 7.1 and 11.9 percentage points, respectively, in the three- and nine-month periods ended September 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021. These improvements are the direct result~~2022 primarily due to an increase in catastrophe losses. The first quarter of ~~our strategic plan to increase the quality of this line by non-renewing underperforming accounts~~2023 experienced both unfavorable development from prior year catastrophes as well as losses from winter storms and ~~increasing rates.~~

•~~Workers' compensation~~ ~~- The net loss ratio improved 87.6~~wind and 32.5 percentage points, respectively, in the three- and nine-month periods ended September 30, 2022 as compared to the same periods in 2021. For both periods the recognition of lower loss adjustment expense and continued favorable loss experience allowed for reserve releases producing a negative loss ratiohail events that occurred in the current ~~three-month period~~quarter. In addition, there has been a modest impact from increased ceded reinsurance costs and ~~lowering~~higher retentions across the ~~current nine-month period loss ratio. The prior year three- and nine-month periods higher loss ratios were impacted by severity adding to the differences between current and prior periods.~~broader portfolio.

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•Commercial automobile - The net loss ratio deteriorated 14.4 percentage points in the three-month period ended March 31, 2023 as compared to the same period in 2022 primarily due to favorable prior year reserve development being smaller in 2023 as compared to 2022. Benefits from our specialized claims operating model drove favorable emergence in 2022.

•Workers' compensation - The net loss ratio deteriorated 26.0 percentage points in the three-month period ended March 31, 2023 as compared to the same period in 2022 primarily related to unfavorable prior year reserve development in the current quarter as compared to favorable reserve development in the same period of 2022. There was also a small number of large losses in the current quarter contributing to the increase.

•Assumed reinsurance - The net loss ratio ~~improved 41.5 and 47.5~~deteriorated 26.0 percentage points ~~respectively,~~ in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021. The improvement~~2022. This deterioration is driven by a favorable release of catastrophe reserves that occurred in ~~both current periods is primarily attributable to continued favorable loss experience~~the first quarter of 2022, and ~~attractive~~growth in reinsurance ~~rates. This book had~~treaties with less exposure to ~~Hurricane Ian in the current three-month period but not to the level of catastrophes experienced in the prior period.~~catastrophes.

Financial Condition

Stockholders' equity ~~decreased~~increased to ~~$700.8~~$751.8 million at ~~September 30, 2022,~~March 31, 2023, from ~~$879.1~~$740.1 million at December 31, ~~2021.~~2022. The Company's book value per share was ~~$27.82,~~$29.80, which is ~~a decrease~~an increase of ~~$7.23~~$0.44 per share, or ~~20.6~~1.5 percent, from December 31, ~~2021~~2022. The ~~decrease~~increase is primarily attributable to the ~~$156.1~~$14.7 million ~~decrease~~increase in the net unrealized value from our fixed maturity securities, net of tax, and net income of $0.7 million, offset by shareholder dividends of ~~$11.8 million, and net losses of $5.1~~$4.0 million during the first ~~nine~~three months of ~~2022.~~2023.

Investment Portfolio

Our invested assets totaled ~~$1.8~~$1.9 billion at ~~September 30, 2022,~~March 31, 2023, compared to ~~$2.1~~$1.8 billion at December 31, ~~2021, a decrease~~2022, an increase of ~~$241.2~~$34.8 million. At ~~September 30, 2022,~~March 31, 2023, fixed maturity securities and equity securities made up ~~84.8~~84.7 percent and ~~8.2~~8.5 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 and government agency bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to stay fully invested (i.e., minimize cash balances). If additional cash is needed, we have the ability to 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.

The composition of our investment portfolio at ~~September 30, 2022~~March 31, 2023 is presented at carrying value in the following table:

Property & Casualty Insurance
Percent
(In Thousands, Except Ratios) of Total
Fixed maturities (1)

Available-for-sale $ 1,547,061 84.8 %
Equity securities 149,505 8.2
Mortgage loans 46,692 2.6
Other long-term investments 79,917 4.4
Short-term investments 275 —
Total $ 1,823,450 100.0 %

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	Property & Casualty Insurance
			Percent
(In Thousands, Except Ratios)			of Total
Fixed maturities (1)
Available-for-sale	$	1,591,169	84.7	%

Equity securities	159,378		8.5
Mortgage loans	37,863		2.0
Other long-term investments	91,003		4.8
Short-term investments	275		—
Total	$	1,879,688	100.0	%

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

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

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Credit Quality

The table below shows the composition of fixed maturity securities held in our available-for-sale ~~and trading~~ security portfolios by credit rating at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.


(In Thousands, Except Ratios)	(In Thousands, Except Ratios)	September 30, 2022				December 31, 2021				(In Thousands, Except Ratios)	March 31, 2023				December 31, 2022
Rating	Rating	Carrying Value		% of Total		Carrying Value		% of Total		Rating	Carrying Value		% of Total		Carrying Value		% of Total
AAA	AAA	$	543,719	35.2	%	$	670,222	39.0	%	AAA	$	551,231	34.6	%	$	540,485	34.8	%
AA	AA	490,427		31.7		586,426		34.1		AA	486,406		30.6		482,369		31.1
A	A	225,603		14.6		209,076		12.2		A	239,669		15.1		232,668		15.0
Baa/BBB	Baa/BBB	269,783		17.4		241,547		14.0		Baa/BBB	300,632		18.9		278,247		17.9
Other/Not Rated	Other/Not Rated	17,529		1.1		12,519		0.7		Other/Not Rated	13,231		0.8		17,567		1.1
		$	1,547,061	100.0	%	$	1,719,790	100.0	%		$	1,591,169	100.0	%	$	1,551,336	100.0	%

Duration

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

Investment Results

We invest the premiums received from our policyholders in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income increased slightly in the three-month period ended ~~September 30, 2022,~~March 31, 2023, compared with the same period of ~~2021~~2022 primarily due to the higher yields in the fixed income portfolio offset by the change in the fair value of our investments in limited liability partnerships. Net investment income decreased in the nine-month period ended September 30, 2022, compared with the same period of 2021 primarily due to the change in the fair value of our investments in limited liability partnerships.


Investment Results
(unaudited)	Three Months Ended March 31,
(In Thousands)	2023			2022
Investment income:
Interest on fixed maturities	$	13,297		$	10,891
Dividends on equity securities	1,243			1,268
Income on other long-term investments	(1,080)			531
Other	1,860			708
Total investment income	$	15,320		$	13,398
Less investment expenses	2,598			2,122
Net investment income	$	12,722		$	11,276


Average yields:


Fixed income securities:
Pre-tax (1)	3.26		%	2.68		%

(1) Fixed income securities ~~average yields have risen from both the third quarter of 2021~~yield excluding net unrealized investment gains/losses and ~~on a year-to-date basis driven by higher interest rates.~~expenses

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Investment Results
(unaudited) Three Months Ended September 30, Nine Months Ended September 30,
(In Thousands) 2022 2021 2022 2021
Investment income:
Interest on fixed maturities $ 12,792 $ 10,671 $ 35,879 $ 32,441
Dividends on equity securities 1,325 1,383 3,934 3,711
Income on other long-term investments (1,348) 1,305 (3,959) 10,822
Other 891 605 2,279 1,788
Total investment income $ 13,660 $ 13,964 $ 38,133 $ 48,762
Less investment expenses 2,054 2,393 6,071 6,315
Net investment income $ 11,606 $ 11,571 $ 32,062 $ 42,447
Average yields:
Fixed income securities:
Pre-tax (1)
3.07 % 2.55 % 2.88 % 2.58 %

~~(1) Fixed income securities yield excluding net unrealized investment gains/losses and expenses~~

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, 2022,~~March 31, 2023, the change in value of our investments in limited liability partnerships resulted in an investment loss of ~~$1.3 million and $4.0~~$1.1 million as compared to investment income of ~~$1.3 million and $10.8~~$0.5 million in the same ~~periods~~period of ~~2021.~~2022.

We had net investment losses of ~~$14.3 million and $35.6~~$1.7 million during the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022,~~March 31, 2023, as compared to net investment losses of ~~$2.3 million and net investment gains $28.2~~$0.5 million in the same ~~periods~~period of ~~2021.~~2022. The change in the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021~~2022 was primarily due to the change in the fair value of our equity securities investments driven by equity market losses in ~~2022.~~2023.

We regularly monitor the difference between our cost basis and the estimated fair value of our investments. For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value ~~vs.~~versus amortized cost, investment spreads widening or contracting, rating actions, payment and default history.

Non-credit related changes in unrealized gains and losses on available-for-sale fixed maturity securities are recognized as a component of other comprehensive income, impact stockholders' equity and book value per share, but do not affect net income. We believe that any unrealized losses on our available-for-sale securities at ~~September 30, 2022~~March 31, 2023 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

For mortgage loans, an allowance for losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments that have similar risk characteristics. This allowance is presented as a separate line in the Consolidated Balance Sheets with an offset to "Net investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income.

To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. An example of a ~~market linked~~market-linked adjustment is the change in commercial market price appreciation or change in gross domestic product, with every point of fall

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leading to an increase in loss reserve. Local market economics are also considered. On a quarterly basis, quantitative credit risk metrics, including for example, ~~cash-flows,~~cash flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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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, 2022~~March 31, 2023 and ~~2021:~~2022:


Cash Flow Summary	Cash Flow Summary	Nine Months Ended September 30,				Cash Flow Summary	Three Months Ended March 31,
(In Thousands)	(In Thousands)	2022		2021		(In Thousands)	2023		2022
Cash provided by (used in)	Cash provided by (used in)					Cash provided by (used in)
Operating activities	Operating activities	$	(29,793)	$	18,188	Operating activities	$	(6,786)	$	1,595
Investing activities	Investing activities	(38,314)		40,358		Investing activities	(32,501)		(20,061)
Financing activities	Financing activities	(10,980)		(13,721)		Financing activities	(4,133)		(4,116)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(79,087)	$	44,825	Net change in cash and cash equivalents	$	(43,420)	$	(22,582)

Our cash flows were sufficient to meet our liquidity needs for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and we anticipate they will be sufficient to meet our future liquidity needs for at least the next twelve months. We also have the ability to draw on our credit facility if needed.

Operating Activities

Net cash flows from operating activities had outflows of ~~$29.8~~$6.8 million and inflows of ~~$18.2~~$1.6 million for the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. In the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, the net operating cash outflows were driven by loss and ~~loss adjustment~~ expense ~~and tax related~~ outflows not being fully offset by premium and ~~investment income~~reinsurance related cash inflows.

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Investing Activities

Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturity securities provide regular interest payments and allow us to match the duration of our liabilities. Equity securities provide dividend income, potential dividend income growth and potential appreciation. For further discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this Item 2.

In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, ~~$490.0~~$522.1 million, or ~~31.7~~32.8 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, 2022,~~March 31, 2023, our cash and cash equivalents included ~~$10.0~~$18.0 million related to these money market accounts, compared to ~~$43.4~~$31.3 million at December 31, ~~2021.~~2022.

Net cash flows used by investing activities were ~~$38.3~~$32.5 million for the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, compared to net cash flows ~~provided~~used by investing activities of ~~$40.4~~$20.1 million for the ~~nine-month~~three-month period ended ~~September 30, 2021.~~March 31, 2022. For the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of ~~$232.3~~$31.3 million and ~~$389.0~~$67.0 million, respectively. Our cash outflows for investment purchases were ~~$267.9~~$61.2 million for the ~~nine-month~~three-month period ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$337.7~~$84.5 million for the same period of ~~2021.~~2022.

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Financing Activities

Net cash flows used in financing activities was ~~$11.0~~$4.1 million for the ~~nine-month~~three-month period ended ~~September 30, 2022~~March 31, 2023 which ~~decreased $2.7 million~~was flat compared to ~~$13.7~~$4.1 million used in the ~~nine-month~~three-month period ended ~~September 30, 2021.~~

March 31, 2022.

Credit Facilities

On March 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"), wholly owned subsidiary of United Fire Group, Inc. entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, issuing lender, swing line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50 million revolving credit facility, which includes a $20 million letter of credit sub-facility and a $5 million swing line loan for working capital and other general corporate purposes. The Credit Agreement is provided on an unsecured basis, and the Borrower has the option to increase the Credit Agreement by $100 million if agreed to by the Lenders providing such incremental facility. As of ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ there were no balances outstanding under the Credit Agreement. For the ~~nine-month~~three-month period ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we did not incur any interest expense related to the credit facility. For further discussion of the Credit Agreement, refer to Part I, Item 1, Note 8 "Debt."

Dividends

Dividends paid to shareholders totaled ~~$11.8~~$4.0 million and ~~$11.3~~$3.8 million in the ~~nine-month~~three-month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

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

As a holding company with no independent operations of its own, we rely on dividends received from our insurance company subsidiaries in order to pay dividends to our common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws inof the states in which they are domiciled, and if applicable, commercially

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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, 2022,~~March 31, 2023, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, is able to make a maximum of ~~$70.4~~$62.8 million in dividend payments without prior regulatory approval. We do not believe that these restrictions have a material impact in meeting the cash obligations of UFG.

Stockholders' Equity

Stockholders' equity ~~decreased~~increased to ~~$700.8~~$751.8 million at ~~September 30, 2022,~~March 31, 2023, from ~~$879.1~~$740.1 million at December 31, ~~2021.~~2022. The Company's book value per share was ~~$27.82,~~$29.80, which is ~~a decrease~~an increase of ~~$7.23~~$0.44 per share, or ~~20.6~~1.5 percent, from December 31, ~~2021.~~2022. The ~~decrease~~increase is primarily attributable to the ~~$156.1~~$14.7 million ~~decrease~~increase in the net unrealized value from our fixed maturity securities, net of tax, ~~stockholders'~~and net income of $0.7 million, offset by shareholder dividends of ~~$11.8 million, and net losses of $5.1~~$4.0 million during the first ~~nine~~three months of ~~2022.~~2023.

Funding Commitments

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 10, 2030, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was ~~$43.0~~$40.0 million at ~~September 30, 2022.~~March 31, 2023.

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In addition, the Company invested $25.0 million in December 2019 in a limited liability partnership investment fund that is subject to a ~~three year~~three-year lockup with a ~~60 day~~60-day minimum notice, with 4 possible repurchase dates per year after the three-year lockup period has concluded. The fair value of the investment at ~~September 30, 2022~~March 31, 2023 was ~~$25.0~~$24.7 million and there are no remaining capital contribution obligations with this investment.

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MEASUREMENT OF RESULTS

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

Catastrophe losses is ~~a commonly used financial~~an operational measure ~~that uses~~which utilizes 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)	(In Thousands)	2022		2021		2022		2021		(In Thousands)	2023		2022
ISO catastrophes	ISO catastrophes	$	27,816	$	33,105	$	62,179	$	81,277	ISO catastrophes	$	12,562	$	7,905
Non-ISO catastrophes (1)	Non-ISO catastrophes (1)	(607)		6,361		(806)		9,049		Non-ISO catastrophes (1)	(898)		(1,728)
Total catastrophes	Total catastrophes	$	27,209	$	39,466	$	61,373	$	90,326	Total catastrophes	$	11,664	$	6,177

(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 rather 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, 2022,~~March 31, 2023, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.

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

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. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment.

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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, 2022~~March 31, 2023 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~~10-K/A for the year ended December 31, ~~2021~~2022 filed with the SEC on ~~February 25, 2022.~~March 1, 2023. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.

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

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

The ~~following table provides information with respect to~~Board of Directors reauthorized the share repurchase program in November 2022 through August 2024. There are 1,528,886 shares of common stock remaining under this authorization. There were no 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, 2022:~~March 31, 2023.

~~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)~~

~~7/1/2022 - 7/31/2022~~

—

~~1,719,326~~

~~8/1/2022 - 8/31/2022~~

—

~~1,719,326~~

~~Total~~

—

~~1,719,326~~

(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. In August 2018, our Board of Directors extended our share repurchase program through the end of August 2020. In August 2020, our Board of Directors extended our share repurchase program through the end of August 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit number

Exhibit description

Furnished herewith

Filed herewith

10.1*

~~Retirement Agreement between United Fire Group, Inc. and Randy Ramlo~~Amended executive employment offer letter to Julie Stephenson, Chief Operating Officer, dated ~~July 6, 2022 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed on July 12, 2022).~~March 1, 2023

10.2*X

Executive Employment Offer Letter, dated July 6, 2022, between the United Fire Group, Inc. and Kevin J. Leidwinger (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on July 7, 2022).

31.1

Certification of Kevin Leidwinger pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Eric J. Martin pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

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

32.2

Certification of Eric J. Martin pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1

The following financial information from United Fire Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 2023 formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Balance Sheets as of ~~September~~ ~~30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the ~~three-~~three-months ended March 31, 2023 and ~~nine-months ended~~ ~~September 30~~, 2022 ~~and 2021~~ (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the ~~three-~~three-months ended March 31, 2023 and ~~nine-months ended~~ ~~September 30~~, 2022 ~~and 2021~~; (iv) Consolidated Statements of Cash Flows (unaudited) for the ~~nine-months~~three-months ended ~~September 30~~,March 31, 2023 and 2022 ~~and 2021~~; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.

104.1

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

*Indicates a management contract or compensatory plan or arrangement.

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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/ Kevin J. Leidwinger						/s/ Eric J. Martin
Kevin J. Leidwinger						Eric J. Martin
President, Chief Executive Officer, Director and Principal Executive Officer						~~Senior~~Executive Vice President, Chief Financial Officer, Principal Financial Officer and Principal Accounting Officer


~~November 3, 2022~~May 9, 2023						~~November 3, 2022~~May 9, 2023
(Date)						(Date)