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 ~~March 31,~~September 30, 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:~~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:~~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 May 2,~~of November 1, 2023, ~~25,237,340~~ 25,265,351 shares of common stock were outstanding.

Table of Contents

United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

~~March 31,~~September 30, 2023


			Page
Forward-Looking Information			1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of ~~March~~ September 3 1, 30, 2023 (unaudited) and December 31, 20 2 22022			3

Consolidated Statements of Income and Comprehensive Income (unaudited) for the three- and ~~month period~~nine s -month periods ended ~~March~~September 31 ~~, 202~~3 30, 2023 and 20 2 22022			4

Consolidated Statement of ~~Stockholders’~~Stockholders' Equity (unaudited) for the three- and ~~month~~nine -month periods ended ~~March 31, 202~~3September 30, 2023 and 20 2 22022			5

Consolidated Statements of Cash Flows (unaudited) for the ~~three-month~~nine -month periods ended ~~March~~September 3 1 ~~, 202~~3 30, 2023 and 20 2 22022			67

Notes to Unaudited Consolidated Financial Statements			78


Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations			3335

Item 3. Quantitative and Qualitative Disclosures About Market Risk			4751

Item 4. Controls and Procedures			4751

Part II. Other Information

Item 1. Legal Proceedings			4852

Item 1A. Risk Factors			4852

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			4853

Item 3. Defaults Upon Senior Securities			4853

Item 4. Mine Safety Disclosures			4853

Item 5. Other Information			4853

Item 6. Exhibits			4954

Signatures			5055

Table of Contents

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/A for the year ended December 31, 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~~Further downgrades 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 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;

◦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;

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

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

◦Our stock price could become more volatile and your investment could lose value.

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.

Table of Contents

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)	March 31, 2023		December 31, 2022		(In Thousands, Except Share Data)	September 30, 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 $1,684,249 in 2023 and $1,662,680 in 2022)		$	1,591,169	$	1,551,336
Available-for-sale, at fair value (amortized cost $1,794,325 in 2023 and $1,662,680 in 2022)						Available-for-sale, at fair value (amortized cost $1,794,325 in 2023 and $1,662,680 in 2022)	$	1,638,512	$	1,551,336

Equity securities at fair value (cost $70,565 in 2023 and $75,292 in 2022)		159,378		169,106
Equity securities at fair value (cost $29,238 in 2023 and $75,292 in 2022)						Equity securities at fair value (cost $29,238 in 2023 and $75,292 in 2022)	51,217		169,106
Mortgage loans	Mortgage loans	37,912		37,947		Mortgage loans	45,589		37,947
Less: allowance for mortgage loan losses	Less: allowance for mortgage loan losses	49		49		Less: allowance for mortgage loan losses	55		49
Mortgage loans, net	Mortgage loans, net	37,863		37,898		Mortgage loans, net	45,534		37,898
Other long-term investments	Other long-term investments	91,003		86,276		Other long-term investments	93,836		86,276
Short-term investments	Short-term investments	275		275		Short-term investments	—		275
Total investments	Total investments	1,879,688		1,844,891		Total investments	1,829,099		1,844,891
Cash and cash equivalents	Cash and cash equivalents	53,230		96,650		Cash and cash equivalents	69,150		96,650
Accrued investment income	Accrued investment income	15,396		14,480		Accrued investment income	17,269		14,480
Premiums receivable (net of allowance for doubtful accounts of $1,701 in 2023 and $1,575 in 2022)		398,390		365,729
Premiums receivable (net of allowance for doubtful accounts of $1,768 in 2023 and $1,575 in 2022)						Premiums receivable (net of allowance for doubtful accounts of $1,768 in 2023 and $1,575 in 2022)	475,632		365,729
Deferred policy acquisition costs	Deferred policy acquisition costs	107,489		104,225		Deferred policy acquisition costs	125,292		104,225
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)		162,425		170,953
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $66,257 in 2023 and $59,566 in 2022)						Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $66,257 in 2023 and $59,566 in 2022)	133,887		133,113
Reinsurance receivables and recoverables (net of allowance for credit losses of $130 in 2023 and $82 in 2022)						Reinsurance receivables and recoverables (net of allowance for credit losses of $130 in 2023 and $82 in 2022)	211,645		170,953
Prepaid reinsurance premiums	Prepaid reinsurance premiums	10,569		11,300		Prepaid reinsurance premiums	21,425		11,300
Intangible assets	Intangible assets	5,147		5,324		Intangible assets	4,793		5,324
Deferred tax asset	Deferred tax asset	13,980		15,531		Deferred tax asset	36,591		15,531
Income taxes receivable	Income taxes receivable	29,944		31,418		Income taxes receivable	36,469		31,418
Other assets	Other assets	88,886		88,672		Other assets	90,527		88,672
TOTAL ASSETS	TOTAL ASSETS	$	2,898,403	$	2,882,286	TOTAL ASSETS	$	3,051,779	$	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	$	1,499,391	$	1,497,274	Losses and loss settlement expenses	$	1,636,918	$	1,497,274
Unearned premiums	Unearned premiums	490,798		474,388		Unearned premiums	560,663		474,388
Accrued expenses and other liabilities	Accrued expenses and other liabilities	106,419		120,510		Accrued expenses and other liabilities	159,261		120,510

Long term debt	Long term debt	50,000		50,000		Long term debt	50,000		50,000

TOTAL LIABILITIES	TOTAL LIABILITIES	$	2,146,608	$	2,142,172	TOTAL LIABILITIES	$	2,406,842	$	2,142,172
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
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
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,263,742 and 25,210,541 shares issued and outstanding in 2023 and 2022, respectively						Common stock, $0.001 par value; authorized 75,000,000 shares; 25,263,742 and 25,210,541 shares issued and outstanding in 2023 and 2022, respectively	$	25	$	25
Additional paid-in capital	Additional paid-in capital	208,010		207,030		Additional paid-in capital	209,931		207,030
Retained earnings	Retained earnings	617,213		620,555		Retained earnings	559,126		620,555
Accumulated other comprehensive income, net of tax	Accumulated other comprehensive income, net of tax	(73,453)		(87,496)		Accumulated other comprehensive income, net of tax	(124,145)		(87,496)
TOTAL STOCKHOLDERS’ EQUITY	TOTAL STOCKHOLDERS’ EQUITY	$	751,795	$	740,114	TOTAL STOCKHOLDERS’ EQUITY	$	644,937	$	740,114
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,898,403	$	2,882,286	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,051,779	$	2,882,286

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

Table of Contents

United Fire Group, Inc.

Consolidated Statements of Income and Comprehensive Income (Unaudited)


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	2023		2022			(In Thousands, Except Share Data)	2023		2022		2023		2022
Revenues	Revenues						Revenues
Net premiums earned	Net premiums earned	$	256,127	$	234,228		Net premiums earned	$	259,456	$	238,256	$	770,221	$	703,746
Investment income, net of investment expenses	Investment income, net of investment expenses	12,722		11,276			Investment income, net of investment expenses	16,459		11,606		40,508		32,062
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)
Net investment gains (losses) (includes reclassifications for net unrealized investment gains (losses) on available-for-sale securities of $(79) and $(771) in 2023 and $(1,079) and $(1,478) in 2022; previously included in accumulated other comprehensive income (loss))							Net investment gains (losses) (includes reclassifications for net unrealized investment gains (losses) on available-for-sale securities of $(79) and $(771) in 2023 and $(1,079) and $(1,478) in 2022; previously included in accumulated other comprehensive income (loss))	(1,960)		(14,250)		(2,581)		(35,647)
Other income (loss)	Other income (loss)	—		(25)			Other income (loss)	—		(39)		—		(38)
Total revenues	Total revenues	$	267,104	$	245,014		Total revenues	$	273,955	$	235,573	$	808,148	$	700,123
Benefits, Losses and Expenses	Benefits, Losses and Expenses						Benefits, Losses and Expenses
Losses and loss settlement expenses	Losses and loss settlement expenses	$	174,597	$	130,376		Losses and loss settlement expenses	$	172,798	$	182,411	$	598,125	$	464,295
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	59,835		50,471			Amortization of deferred policy acquisition costs	62,709		53,107		181,700		156,116
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
Other underwriting expenses (includes reclassifications for employee benefit costs of $51 and $155 in 2023 and $900 and $2,700 in 2022; previously included in accumulated other comprehensive income (loss))							Other underwriting expenses (includes reclassifications for employee benefit costs of $51 and $155 in 2023 and $900 and $2,700 in 2022; previously included in accumulated other comprehensive income (loss))	29,275		30,487		89,784		87,885

Interest expense	Interest expense	797		797			Interest expense	797		797		2,391		2,391
Total benefits, losses and expenses	Total benefits, losses and expenses	$	267,105	$	210,288		Total benefits, losses and expenses	$	265,579	$	266,802	$	872,000	$	710,687
Income (loss) before income taxes	Income (loss) before income taxes	$	(1)	$	34,726		Income (loss) before income taxes	$	8,376	$	(31,229)	$	(63,852)	$	(10,564)
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
Federal income tax expense (benefit) (includes reclassifications of $28 and $195 in 2023 and $416 and $877 in 2022; previously included in accumulated other comprehensive income (loss))							Federal income tax expense (benefit) (includes reclassifications of $28 and $195 in 2023 and $416 and $877 in 2022; previously included in accumulated other comprehensive income (loss))	1,996		(8,248)		(14,544)		(5,475)
Net Income (loss)	Net Income (loss)	$	694	$	28,349		Net Income (loss)	$	6,380	$	(22,981)	$	(49,308)	$	(5,089)
Other comprehensive income (loss)	Other comprehensive income (loss)						Other comprehensive income (loss)
Change in net unrealized appreciation on investments	Change in net unrealized appreciation on investments	$	18,004	$	(82,965)		Change in net unrealized appreciation on investments	$	(43,245)	$	(65,415)	$	(44,857)	$	(199,071)
Change in liability for underfunded employee benefit plans	Change in liability for underfunded employee benefit plans	(820)		(4,591)			Change in liability for underfunded employee benefit plans	(820)		(4,591)		(2,460)		(13,774)
Other comprehensive income (loss), before tax and reclassification adjustments	Other comprehensive income (loss), before tax and reclassification adjustments	$	17,184	$	(87,556)		Other comprehensive income (loss), before tax and reclassification adjustments	$	(44,065)	$	(70,006)	$	(47,317)	$	(212,845)
Income tax effect	Income tax effect	(3,609)		18,387			Income tax effect	9,253		14,701		9,937		44,697
Other comprehensive income (loss), after tax, before reclassification adjustments	Other comprehensive income (loss), after tax, before reclassification adjustments	$	13,575	$	(69,169)		Other comprehensive income (loss), after tax, before reclassification adjustments	$	(34,812)	$	(55,305)	$	(37,380)	$	(168,148)
Reclassification adjustment for net investment losses included in income	Reclassification adjustment for net investment losses included in income	$	540	$	(318)		Reclassification adjustment for net investment losses included in income	$	79	$	1,079	$	771	$	1,478
Reclassification adjustment for employee benefit costs included in expense	Reclassification adjustment for employee benefit costs included in expense	52		900			Reclassification adjustment for employee benefit costs included in expense	51		900		155		2,700
Total reclassification adjustments, before tax	Total reclassification adjustments, before tax	$	592	$	582		Total reclassification adjustments, before tax	$	130	$	1,979	$	926	$	4,178
Income tax effect	Income tax effect	(124)		(122)			Income tax effect	(28)		(416)		(195)		(877)
Total reclassification adjustments, after tax	Total reclassification adjustments, after tax	$	468	$	460		Total reclassification adjustments, after tax	$	102	$	1,563	$	731	$	3,301
Comprehensive income (loss)	Comprehensive income (loss)	$	14,737	$	(40,360)		Comprehensive income (loss)	$	(28,330)	$	(76,723)	$	(85,957)	$	(169,936)
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	25,500,115		25,323,105			Diluted weighted average common shares outstanding	25,579,334		25,188,958		25,244,502		25,146,318
Earnings per common share:	Earnings per common share:						Earnings per common share:
Basic	Basic	$	0.03	$	1.13		Basic	$	0.25	$	(0.91)	$	(1.95)	$	(0.20)
Diluted	Diluted	0.03		1.12			Diluted	0.25		(0.91)		(1.95)		(0.20)

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

Table of Contents

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, 2023	Balance, January 1, 2023	25,210,541	$	25	$	207,030	$	620,555	$	(87,496)	$	740,114	Balance, January 1, 2023	25,210,541	$	25	$	207,030	$	620,555	$	(87,496)	$	740,114
Net income	Net income	—	—		—		694		—		694		Net income	—	—		—		694		—		694

Stock based compensation	Stock based compensation	21,012	—		980		—		—		980		Stock based compensation	21,012	—		980		—		—		980
Dividends on common stock ($0.16 per share)	Dividends on common stock ($0.16 per share)	—	—		—		(4,037)		—		(4,037)		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)	—	—		—		—		14,650		14,650		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)	—	—		—		—		(607)		(607)		Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(607)		(607)

Balance, March 31, 2023	Balance, March 31, 2023	25,231,553	$	25	$	208,010	$	617,213	$	(73,453)	$	751,795	Balance, March 31, 2023	25,231,553	$	25	$	208,010	$	617,213	$	(73,453)	$	751,795

Net income (loss)													Net income (loss)	—	$	—	$	—	$	(56,382)	$	—	$	(56,382)

Stock based compensation													Stock based compensation	31,396	—		977		—		—		977
Dividends on common stock ($0.16 per share)													Dividends on common stock ($0.16 per share)	—	—		—		(4,042)		—		(4,042)
Change in net unrealized investment appreciation (depreciation)(1)													Change in net unrealized investment appreciation (depreciation)(1)	—	—		—		—		(15,376)		(15,376)
Change in liability for underfunded employee benefit plans(2)													Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(606)		(606)

Balance, June 30, 2023													Balance, June 30, 2023	25,262.949	$	25	$	208,987	$	556,788	$	(89,435)	$	676,365

Net income (loss)													Net income (loss)	—	$	—	$	—	$	6,380	$	—	$	6,380
Shares repurchased													Shares repurchased	—	—		—		—		—		—
Stock based compensation													Stock based compensation	793	—		944		—		—		944
Dividends on common stock ($0.16 per share)													Dividends on common stock ($0.16 per share)	—	—		—		(4,042)		—		(4,042)
Change in net unrealized investment appreciation (depreciation)(1)													Change in net unrealized investment appreciation (depreciation)(1)	—	—		—		—		(34,103)		(34,103)
Change in liability for underfunded employee benefit plans(2)													Change in liability for underfunded employee benefit plans(2)	—	—		—		—		(607)		(607)

Balance, September 30, 2023													Balance, September 30, 2023	25,263,742	$	25	$	209,931	$	559,126	$	(124,145)	$	644,937

(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.

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

Balance, January 1, 2022 25,082,104 $ 25 $ 203,375 $ 621,384 $ 54,337 $ 879,121
Net income — — — 28,349 — 28,349
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

Table of Contents


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

Balance, January 1, 2022	25,082,104		$	25	$	203,375	$	621,384	$	54,337	$	879,121
Net income	—		—		—		28,349		—		28,349

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	—		$	—	$	—	$	(10,457)	$	—	$	(10,457)

Stock based compensation	67,404		—		2,159		—		—		2,159
Dividends on common stock ($0.15 per share)	—		—		—		(4,028)		—		(4,028)
Change in net unrealized investment appreciation(1)	—		—		—		—		(39,480)		(39,480)
Change in liability for underfunded employee benefit plans(2)	—		—		—		—		(2,916)		(2,916)

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 ($0.15 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

(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.

Table of Contents

United Fire Group, Inc.

Consolidated Statements of Cash Flows (Unaudited)


		Three Months Ended March 31,					Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		(In Thousands)	2023		2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	694	$	28,349	Net income	$	(49,308)	$	(5,089)
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	1,797		2,906		Net accretion of bond premium	5,238		6,969
Depreciation and amortization	Depreciation and amortization	2,646		1,668		Depreciation and amortization	7,841		8,079
Stock-based compensation expense	Stock-based compensation expense	1,076		979		Stock-based compensation expense	3,124		2,590
Net investment (gains) losses	Net investment (gains) losses	1,559		465		Net investment (gains) losses	2,384		35,647
Net cash flows from equity and trading investments	Net cash flows from equity and trading investments	8,523		18,387		Net cash flows from equity and trading investments	116,080		29,725
Deferred income tax expense (benefit)	Deferred income tax expense (benefit)	(2,182)		(1,234)		Deferred income tax expense (benefit)	(11,633)		(9,224)
Changes in:	Changes in:					Changes in:
Accrued investment income	Accrued investment income	(916)		(539)		Accrued investment income	(2,789)		(1,773)
Premiums receivable	Premiums receivable	(32,661)		(18,119)		Premiums receivable	(109,903)		(57,570)
Deferred policy acquisition costs	Deferred policy acquisition costs	(3,264)		(4,316)		Deferred policy acquisition costs	(21,067)		(14,930)
Reinsurance receivables	Reinsurance receivables	8,528		(7,173)		Reinsurance receivables	(40,692)		(28,145)
Prepaid reinsurance premiums	Prepaid reinsurance premiums	731		464		Prepaid reinsurance premiums	(10,125)		(2,814)
Income taxes receivable	Income taxes receivable	1,474		17,704		Income taxes receivable	(5,051)		(7,215)
Other assets	Other assets	(109)		(14,768)		Other assets	(1,596)		6,758
Losses and loss settlement expenses	Losses and loss settlement expenses	2,117		(26,274)		Losses and loss settlement expenses	139,644		(49,757)
Unearned premiums	Unearned premiums	16,410		6,318		Unearned premiums	86,275		48,560
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(14,859)		(3,469)		Accrued expenses and other liabilities	36,446		1,403

Other, net	Other, net	1,650		247		Other, net	4,638		6,993
Cash from operating activities	Cash from operating activities	(7,480)		(26,754)		Cash from operating activities	198,814		(24,704)

Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	$	(6,786)	$	1,595	Net cash provided by (used in) operating activities	$	149,506	$	(29,793)
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	$	9,868	$	—	Proceeds from sale of available-for-sale investments	$	48,749	$	83,409

Proceeds from call and maturity of available-for-sale investments	Proceeds from call and maturity of available-for-sale investments	20,424		65,407		Proceeds from call and maturity of available-for-sale investments	46,397		145,618
Proceeds from sale of other investments	Proceeds from sale of other investments	972		1,581		Proceeds from sale of other investments	3,482		3,243
Purchase of investments in mortgage loans	Purchase of investments in mortgage loans	(128)		—		Purchase of investments in mortgage loans	(8,137)		(103)
Purchase of investments available-for-sale	Purchase of investments available-for-sale	(53,832)		(82,942)		Purchase of investments available-for-sale	(232,216)		(262,359)
Purchase of other investments	Purchase of other investments	(7,190)		(1,597)		Purchase of other investments	(14,899)		(5,447)
Net purchases and sales of property and equipment	Net purchases and sales of property and equipment	(2,615)		(2,510)		Net purchases and sales of property and equipment	(8,037)		(2,675)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	$	(32,501)	$	(20,061)	Net cash provided by (used in) investing activities	$	(164,661)	$	(38,314)
Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Issuance of common stock	Issuance of common stock	$	(96)	$	(349)	Issuance of common stock	$	(223)	$	846

Payment of cash dividends	Payment of cash dividends	(4,037)		(3,767)		Payment of cash dividends	(12,122)		(11,826)
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	$	(4,133)	$	(4,116)	Net cash provided by (used in) financing activities	$	(12,345)	$	(10,980)

Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	$	(43,420)	$	(22,582)	Net Change in Cash and Cash Equivalents	$	(27,500)	$	(79,087)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	96,650		132,104		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	$	53,230	$	109,522	Cash and Cash Equivalents at End of Period	$	69,150	$	53,017

Supplemental Disclosures of Cash Flow Information	Supplemental Disclosures of Cash Flow Information					Supplemental Disclosures of Cash Flow Information
Income taxes paid	Income taxes paid	$	12	$	—	Income taxes paid	$	1,336	$	21,537
Interest paid	Interest paid	$	797	$	797	Interest paid	$	2,391	$	2,391

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

Table of Contents

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/A for the year ended December 31, 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 postretirement benefit obligations.

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/A for the year ended December 31, 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.

Lloyd's Syndicates

Table of Contents

~~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 5623. At ~~March 31,~~September 30, 2023, the Company's FAL investments were comprised of cash of ~~$23,661~~$24,383 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 ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023.




	Total
Recorded asset at beginning of period	$	104,225
Underwriting costs deferred	~~63,099~~202,768
Amortization of deferred policy acquisition costs	~~(59,835)~~(181,700)
Recorded asset at ~~March 31,~~September 30, 2023	$	~~107,489~~125,292

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”~~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 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)~~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, 2023, interest totaled $2,391 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as interest expense in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

Table of Contents

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 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 ~~$695~~$14,544 for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023 compared to an income tax ~~expense~~benefit of ~~$6,377~~$5,475 during the same period of 2022. Our effective tax rate for 2023 and 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 ~~March 31,~~September 30, 2023 or December 31, 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,~~September 30, 2023 or December 31, 2022.

For the ~~three-month period~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022, we made payments for income taxes totaling ~~$12.~~$1,336 and $21,537, respectively. We did not receive a federal tax refund for the nine-month period ended September 30, 2023. For the ~~three-month~~nine-month period ended ~~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,~~September 30, 2022, we received a federal tax refund of ~~$10,000.~~$10,789.

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.

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."

~~Table of Contents~~

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.

Table of Contents

The Company and certain related parties are not the primary ~~beneficiary~~beneficiaries largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at ~~March 31,~~September 30, 2023 was ~~$2,998~~$2,650 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 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 for which the Company may be held ~~accountable for.~~accountable. The ultimate LGD percentage is estimated after considering ~~Moody’s~~Moody's experience with unsecured year 1one bond recovery rates from 1983-2017. The allowance calculated as of ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2023, the Company had a credit loss allowance for reinsurance receivables of ~~$94.~~$130.


Rollforward of credit loss allowance for reinsurance receivables:
	As of
	~~March 31,~~September 30, 2023
Beginning balance, January 1, 2023	$	82
Current-period provision for expected credit losses	48

~~Recoveries of amounts previously written off, if any~~	12
Ending balance of the allowance for reinsurance receivables, ~~March 31,~~September 30, 2023	$	94130

~~Table of Contents~~

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.

Table of Contents

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 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%1 percent excise tax on corporate stock repurchases. The effective date of these provisions iswas January 1, 2023. The Company does not expect to be subject to CAMT in 2023 and does not expect the IRA to have a material impact on the ~~Company’s~~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 our available-for-sale fixed maturity portfolio, presented on a consolidated basis, as of ~~March 31,~~September 30, 2023 and December 31, 2022, is provided below:

1112

Table of Contents


March 31, 2023
September 30, 2023														September 30, 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	$	15,635	$	10	$	829	$	14,816	$	—	$	14,816	U.S. Treasury	$	68,133	$	—	$	1,260	$	66,873	$	—	$	66,873
U.S. government agency	U.S. government agency	91,069		17		8,938		82,148		—		82,148		U.S. government agency	104,695		16		12,813		91,898		—		91,898
States, municipalities and political subdivisions	States, municipalities and political subdivisions													States, municipalities and political subdivisions
General obligations:	General obligations:													General obligations:
Midwest	Midwest	58,832		213		157		58,888		—		58,888		Midwest	58,724		—		1,843		56,881		—		56,881
Northeast	Northeast	11,475		25		24		11,476		—		11,476		Northeast	11,440		—		441		10,999		—		10,999
South	South	63,842		130		501		63,471		—		63,471		South	55,335		—		2,201		53,134		—		53,134
West	West	86,916		183		389		86,710		—		86,710		West	78,044		—		2,718		75,326		—		75,326
Special revenue:	Special revenue:													Special revenue:
Midwest	Midwest	102,938		472		400		103,010		—		103,010		Midwest	101,204		1		4,327		96,878		—		96,878
Northeast	Northeast	55,161		166		713		54,614		—		54,614		Northeast	52,836		—		2,284		50,552		—		50,552
South	South	180,683		561		2,279		178,965		—		178,965		South	168,395		—		8,895		159,500		—		159,500
West	West	113,332		401		831		112,902		—		112,902		West	105,521		—		5,005		100,516		—		100,516
Foreign bonds	Foreign bonds	38,119		—		3,818		34,301		—		34,301		Foreign bonds	21,251		—		2,915		18,336		—		18,336
Public utilities	Public utilities	146,966		260		11,515		135,711		—		135,711		Public utilities	143,162		14		15,759		127,417		—		127,417
Corporate bonds	Corporate bonds													Corporate bonds
Energy	Energy	36,614		—		2,188		34,426		—		34,426		Energy	45,368		—		3,768		41,600		—		41,600
Industrials	Industrials	63,760		267		4,628		59,399		—		59,399		Industrials	73,635		38		7,705		65,968		—		65,968
Consumer goods and services	Consumer goods and services	100,455		54		8,757		91,752		—		91,752		Consumer goods and services	100,300		—		11,794		88,506		—		88,506
Health care	Health care	34,960		124		4,587		30,497		—		30,497		Health care	37,903		—		6,366		31,537		—		31,537
Technology, media and telecommunications	Technology, media and telecommunications	69,144		21		5,869		63,296		—		63,296		Technology, media and telecommunications	90,285		—		10,037		80,248		—		80,248
Financial services	Financial services	135,098		637		9,356		126,379		179		126,200		Financial services	145,477		—		12,315		133,162		126		133,036
Mortgage-backed securities	Mortgage-backed securities	25,959		—		2,425		23,534		—		23,534		Mortgage-backed securities	24,470		—		3,463		21,007		—		21,007
Collateralized mortgage obligations	Collateralized mortgage obligations													Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	102,127		12		12,636		89,503		—		89,503		Government national mortgage association	163,893		—		17,223		146,670		—		146,670
Federal home loan mortgage corporation	Federal home loan mortgage corporation	93,395		43		11,984		81,454		—		81,454		Federal home loan mortgage corporation	88,565		—		16,716		71,849		—		71,849
Federal national mortgage association	Federal national mortgage association	53,846		152		4,227		49,771		—		49,771		Federal national mortgage association	52,114		—		6,227		45,887		—		45,887
Asset-backed securities	Asset-backed securities	3,923		512		110		4,325		—		4,325		Asset-backed securities	3,575		456		137		3,894		—		3,894

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,684,249	$	4,260	$	97,161	$	1,591,348	$	179	$	1,591,169	Total Available-for-Sale Fixed Maturities	$	1,794,325	$	525	$	156,212	$	1,638,638	$	126	$	1,638,512

1213

Table of Contents


December 31, 2022
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value		Allowance for Credit Losses		Carrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	15,684	$	—	$	1,009	$	14,675	$	—	$	14,675
U.S. government agency	94,092		35		9,721		84,406		—		84,406
States, municipalities and political subdivisions
General obligations:
Midwest	61,191		185		263		61,113		—		61,113
Northeast	15,518		18		73		15,463		—		15,463
South	64,851		57		927		63,981		—		63,981
West	87,094		163		712		86,545		—		86,545
Special revenue:
Midwest	103,107		224		1,065		102,266		—		102,266
Northeast	55,292		76		1,148		54,220		—		54,220
South	184,108		278		3,529		180,857		—		180,857
West	113,594		275		1,657		112,212		—		112,212
Foreign bonds	36,129		—		4,480		31,649		—		31,649
Public utilities	138,752		65		13,406		125,411		—		125,411
Corporate bonds
Energy	36,507		—		3,298		33,209		—		33,209
Industrials	58,334		62		5,554		52,842		—		52,842
Consumer goods and services	100,539		—		10,598		89,941		—		89,941
Health care	32,987		24		5,419		27,592		—		27,592
Technology, media and telecommunications	67,193		—		7,253		59,940		—		59,940
Financial services	132,849		851		9,408		124,292		3		124,289
Mortgage-backed securities	20,450		—		2,750		17,700		—		17,700
Collateralized mortgage obligations
Government national mortgage association	97,839		—		13,291		84,548		—		84,548
Federal home loan mortgage corporation	92,366		—		13,528		78,838		—		78,838
Federal national mortgage association	50,272		5		4,891		45,386		—		45,386
Asset-backed securities	3,932		466		145		4,253		—		4,253

Total Available-for-Sale Fixed Maturities	$	1,662,680	$	2,784	$	114,125	$	1,551,339	$	3	$	1,551,336

1314

Table of Contents

Maturities

The amortized cost and fair value of available-for-sale fixed maturity securities at ~~March 31,~~September 30, 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
March 31, 2023		Amortized Cost		Fair Value
September 30, 2023							September 30, 2023	Amortized Cost		Fair Value
Due in one year or less	Due in one year or less	$	41,386	$	41,220		Due in one year or less	$	84,646	$	84,052
Due after one year through five years	Due after one year through five years	479,517		467,682			Due after one year through five years	518,815		496,253
Due after five years through 10 years	Due after five years through 10 years	545,965		516,102			Due after five years through 10 years	530,822		476,969
Due after 10 years	Due after 10 years	338,131		317,757			Due after 10 years	327,424		292,056
Asset-backed securities	Asset-backed securities	3,923		4,325			Asset-backed securities	3,575		3,894
Mortgage-backed securities	Mortgage-backed securities	25,959		23,534			Mortgage-backed securities	24,470		21,007
Collateralized mortgage obligations	Collateralized mortgage obligations	249,368		220,728			Collateralized mortgage obligations	304,573		264,407
		$	1,684,249	$	1,591,348			$	1,794,325	$	1,638,638

Net Investment Gains and Losses

Net 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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022				2023		2022		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	$	(178)	$	333		Available-for-sale	$	(19)	$	(98)	$	(445)	$	(1,397)
Allowance for credit losses	Allowance for credit losses	(176)		—			Allowance for credit losses	(125)		(91)		(123)		(91)

Equity securities	Equity securities						Equity securities
Change in the fair value	Change in the fair value	(1,705)		(989)			Change in the fair value	204		(13,078)		(1,960)		(32,403)
Sales	Sales	500		206			Sales	(2,085)		(93)		150		(1,767)
Mortgage loans allowance for credit losses	Mortgage loans allowance for credit losses	—		5			Mortgage loans allowance for credit losses	1		—		(5)		5
Other long-term investments	Other long-term investments	(186)		(20)			Other long-term investments	64		(187)		(245)		(229)

Real estate							Real estate	—		(703)		47		235
Total net investment gains (losses)	Total net investment gains (losses)	$	(1,745)	$	(465)		Total net investment gains (losses)	$	(1,960)	$	(14,250)	$	(2,581)	$	(35,647)

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


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022				2023		2022		2023		2022
Proceeds from sales	Proceeds from sales	$	9,868	$	—		Proceeds from sales	$	4,940	$	18,399	$	48,749	$	83,409
Gross realized gains	Gross realized gains	11		333			Gross realized gains	—		12		121		459
Gross realized losses	Gross realized losses	189		—			Gross realized losses	19		110		566		1,857

1415

Table of Contents

Funding Commitment

Pursuant to ~~an agreement~~agreements with ~~one of~~ our limited liability partnership investments, we are contractually committed through July 10, 2030 to make capital contributions upon the request of certain of the ~~partnership.~~partnerships. Our remaining potential contractual obligation was ~~$39,958~~$32,248 at ~~March 31,~~September 30, 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 minimum notice, with four possible repurchase dates per year after the three-year lockup period has concluded. The fair value of the investment at ~~March 31,~~September 30, 2023 was ~~$24,667~~$25,218 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:


		Three Months Ended March 31,					Nine Months Ended September 30,
		2023		2022			2023		2022
Change in net unrealized investment appreciation (depreciation)	Change in net unrealized investment appreciation (depreciation)					Change in net unrealized investment appreciation (depreciation)
Available-for-sale fixed maturities	Available-for-sale fixed maturities	$	18,544	$	(83,283)	Available-for-sale fixed maturities	$	(44,087)	$	(197,594)
Income tax effect	Income tax effect	(3,894)		17,490		Income tax effect	9,258		41,495
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)	Total change in net unrealized investment appreciation (depreciation), net of tax	$	(34,829)	$	(156,099)

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 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 ~~March 31,~~September 30, 2023.



Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
	As of
	~~March 31,~~September 30, 2023
Beginning balance, January 1, 2023	$	3
Additions to the allowance for credit losses for which credit losses were not previously recorded	~~176~~123
Reductions for securities sold during the period (realized)	—
Write-offs charged against the allowance	—
Recoveries of amounts previously written off	—
Ending balance, ~~March 31,~~September 30, 2023	$	~~179~~126

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 ~~March 31,~~September 30, 2023 and December 31, 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.

1516

Table of Contents


March 31, 2023		Less than 12 months					12 months or longer					Total
September 30, 2023																September 30, 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	—	$	—	$	—	6	$	12,633	$	829	$	12,633	$	829	U.S. Treasury	5	$	54,358	$	390	6	$	12,515	$	870	$	66,873	$	1,260
U.S. government agency	U.S. government agency	14	42,728		2,554		12	36,407		6,384		79,135		8,938		U.S. government agency	3	10,643		336		25	75,239		12,477		85,882		12,813
States, municipalities and political subdivisions	States, municipalities and political subdivisions															States, municipalities and political subdivisions
General obligations	General obligations															General obligations
Midwest	Midwest	8	12,164		96		1	7,779		61		19,943		157		Midwest	30	45,359		1,360		3	10,357		483		55,716		1,843
Northeast	Northeast	1	3,499		24		—	—		—		3,499		24		Northeast	4	7,716		214		1	3,283		227		10,999		441
South	South	12	25,768		351		4	10,864		150		36,632		501		South	23	37,383		989		9	15,751		1,212		53,134		2,201
West	West	18	39,985		284		1	7,248		105		47,233		389		West	26	54,944		1,498		8	20,382		1,220		75,326		2,718
Special revenue	Special revenue															Special revenue
Midwest	Midwest	17	36,384		312		2	3,627		88		40,011		400		Midwest	38	71,273		2,694		11	22,054		1,633		93,327		4,327
Northeast	Northeast	8	23,746		236		4	12,001		477		35,747		713		Northeast	11	27,061		956		8	23,491		1,328		50,552		2,284
South	South	41	85,197		1,481		10	18,098		798		103,295		2,279		South	42	95,076		3,480		33	64,424		5,415		159,500		8,895
West	West	26	53,685		646		6	11,776		185		65,461		831		West	39	59,134		2,017		19	41,380		2,988		100,514		5,005
Foreign bonds	Foreign bonds	7	18,236		1,033		7	16,065		2,785		34,301		3,818		Foreign bonds	—	—		—		9	18,336		2,915		18,336		2,915
Public utilities	Public utilities	24	57,437		2,288		31	65,964		9,227		123,401		11,515		Public utilities	7	17,689		621		49	109,217		15,138		126,906		15,759
Corporate bonds	Corporate bonds															Corporate bonds
Energy	Energy	13	27,485		788		2	6,941		1,400		34,426		2,188		Energy	4	8,604		294		15	32,996		3,474		41,600		3,768
Industrials	Industrials	10	26,075		626		12	20,941		4,002		47,016		4,628		Industrials	6	14,842		331		22	47,010		7,374		61,852		7,705
Consumer goods and services	Consumer goods and services	19	52,538		1,651		14	33,182		7,106		85,720		8,757		Consumer goods and services	7	22,863		976		28	65,643		10,818		88,506		11,794
Health care	Health care	4	9,101		222		7	17,455		4,365		26,556		4,587		Health care	3	6,604		223		11	24,933		6,143		31,537		6,366
Technology, media and telecommunications	Technology, media and telecommunications	17	36,541		953		11	23,737		4,916		60,278		5,869		Technology, media and telecommunications	5	17,505		865		28	61,492		9,172		78,997		10,037
Financial services	Financial services	30	72,896		3,847		16	41,551		5,509		114,447		9,356		Financial services	10	24,655		1,090		44	108,507		11,225		133,162		12,315
Mortgage-backed securities	Mortgage-backed securities	26	7,058		67		26	16,475		2,358		23,533		2,425		Mortgage-backed securities	4	5,656		195		48	15,352		3,268		21,008		3,463
Collateralized mortgage obligations	Collateralized mortgage obligations															Collateralized mortgage obligations
Government National Mortgage Association	Government National Mortgage Association	9	16,349		673		33	70,165		11,963		86,514		12,636		Government National Mortgage Association	18	75,767		1,169		40	70,903		16,054		146,670		17,223
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 Home Loan Mortgage Corporation	3	7,655		2,523		32	64,194		14,193		71,849		16,716
Federal National Mortgage Association	Federal National Mortgage Association	6	10,479		220		14	29,668		4,007		40,147		4,227		Federal National Mortgage Association	6	14,078		421		20	31,810		5,806		45,888		6,227
Asset-backed securities	Asset-backed securities	1	3,475		110		—	—		—		3,475		110		Asset-backed securities	—	—		—		1	3,095		137		3,095		137

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	318	$	672,151	$	20,486	250	$	529,681	$	76,675	$	1,201,832	$	97,161	Total Available-for-Sale Fixed Maturities	294	$	678,865	$	22,642	470	$	942,364	$	133,570	$	1,621,229	$	156,212

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.

1617

Table of Contents



December 31, 2022	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	4	$	6,656	$	212	4	$	8,019	$	797	$	14,675	$	1,009
U.S. government agency	24	70,158		5,606		3	11,242		4,115		81,400		9,721
States, municipalities and political subdivisions
General obligations
Midwest	16	29,089		263		—	—		—		29,089		263
Northeast	4	8,576		73		—	—		—		8,576		73
South	24	48,235		927		—	—		—		48,235		927
West	27	62,652		711		—	—		—		62,652		711
Special revenue
Midwest	35	67,101		1,065		—	—		—		67,101		1,065
Northeast	14	37,484		1,148		—	—		—		37,484		1,148
South	58	126,388		3,124		1	866		405		127,254		3,529
West	39	83,622		1,658		—	—		—		83,622		1,658
Foreign bonds	9	21,377		1,861		5	10,272		2,619		31,649		4,480
Public utilities	45	101,867		8,737		9	19,979		4,669		121,846		13,406
Corporate bonds
Energy	15	28,612		1,930		1	4,597		1,368		33,209		3,298
Industrials	21	43,639		3,542		4	7,049		2,012		50,688		5,554
Consumer goods and services	28	69,320		4,440		7	20,620		6,157		89,940		10,597
Health care	5	9,829		487		6	15,928		4,933		25,757		5,420
Technology, media and telecommunications	23	49,970		3,279		5	9,970		3,974		59,940		7,253
Financial services	40	101,411		6,997		5	11,236		2,208		112,647		9,205
Mortgage-backed securities	38	7,909		1,056		12	9,791		1,693		17,700		2,749
Collateralized mortgage obligations
Government National Mortgage Association	29	48,898		4,500		12	35,650		8,791		84,548		13,291
Federal Home Loan Mortgage Corporation	21	35,456		5,629		19	43,383		7,900		78,839		13,529
Federal National Mortgage Association	14	24,146		1,281		7	16,674		3,611		40,820		4,892
Asset-backed securities	1	3,452		145		—	—		—		3,452		145

Total Available-for-Sale Fixed Maturities	534	$	1,085,847	$	58,671	100	$	225,276	$	55,252	$	1,311,123	$	113,923

1718

Table of Contents

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

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

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

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.

1819

Table of Contents

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

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

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Supplemental Executive Retirement and Deferral Plan (the "Executive Retirement Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of ~~March 31,~~September 30, 2023, the cash surrender value of the COLI policies was ~~$11,568~~$11,000 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 flow analysis.

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


		March 31, 2023				December 31, 2022					September 30, 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	$	1,591,348	$	1,591,169	$	1,551,339	$	1,551,336	Available-for-sale securities	$	1,638,638	$	1,638,512	$	1,551,339	$	1,551,336

Equity securities	Equity securities	159,378		159,378		169,106		169,106		Equity securities	51,217		51,217		169,106		169,106
Mortgage loans	Mortgage loans	35,240		37,863		35,302		37,898		Mortgage loans	42,280		45,534		35,302		37,898
Other long-term investments	Other long-term investments	91,003		91,003		86,276		86,276		Other long-term investments	93,836		93,836		86,276		86,276
Short-term investments	Short-term investments	275		275		275		275		Short-term investments	—		—		275		275
Cash and cash equivalents	Cash and cash equivalents	53,230		53,230		96,650		96,650		Cash and cash equivalents	69,150		69,150		96,650		96,650
Corporate-owned life insurance	Corporate-owned life insurance	11,568		11,568		10,588		10,588		Corporate-owned life insurance	11,000		11,000		10,588		10,588
Liabilities	Liabilities									Liabilities
Long Term Debt	Long Term Debt	37,696		50,000		36,168		50,000		Long Term Debt	34,456		50,000		36,168		50,000

1920

Table of Contents

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


March 31, 2023				Fair Value Measurements
September 30, 2023										September 30, 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	$	14,816	$	—	$	14,816	$	—	U.S. Treasury	$	66,873	$	—	$	66,873	$	—
U.S. government agency	U.S. government agency	82,148		—		82,148		—		U.S. government agency	91,898		—		91,898		—
States, municipalities and political subdivisions	States, municipalities and political subdivisions									States, municipalities and political subdivisions
General obligations	General obligations									General obligations
Midwest	Midwest	58,888		—		58,888		—		Midwest	56,881		—		56,881		—
Northeast	Northeast	11,476		—		11,476		—		Northeast	10,999		—		10,999		—
South	South	63,471		—		63,471		—		South	53,134		—		53,134		—
West	West	86,710		—		86,710		—		West	75,326		—		75,326		—
Special revenue	Special revenue									Special revenue
Midwest	Midwest	103,010		—		103,010		—		Midwest	96,878		—		96,878		—
Northeast	Northeast	54,614		—		54,614		—		Northeast	50,552		—		50,552		—
South	South	178,965		—		178,965		—		South	159,500		—		159,500		—
West	West	112,902		—		112,902		—		West	100,516		—		100,516		—
Foreign bonds	Foreign bonds	34,301		—		34,301		—		Foreign bonds	18,336		—		18,336		—
Public utilities	Public utilities	135,711		—		135,711		—		Public utilities	127,417		—		127,417		—
Corporate bonds	Corporate bonds									Corporate bonds
Energy	Energy	34,426		—		34,426		—		Energy	41,600		—		41,600		—
Industrials	Industrials	59,399		—		59,399		—		Industrials	65,968		—		65,968		—
Consumer goods and services	Consumer goods and services	91,752		—		91,752		—		Consumer goods and services	88,506		—		88,506		—
Health care	Health care	30,497		—		30,497		—		Health care	31,537		—		31,537		—
Technology, media and telecommunications	Technology, media and telecommunications	63,296		—		63,296		—		Technology, media and telecommunications	80,248		—		80,248		—
Financial services	Financial services	126,379		—		120,966		5,413		Financial services	133,162		—		128,462		4,700
Mortgage-backed securities	Mortgage-backed securities	23,534		—		23,534		—		Mortgage-backed securities	21,007		—		21,007		—
Collateralized mortgage obligations	Collateralized mortgage obligations									Collateralized mortgage obligations
Government national mortgage association	Government national mortgage association	89,503		—		89,503		—		Government national mortgage association	146,670		—		146,670		—
Federal home loan mortgage corporation	Federal home loan mortgage corporation	81,454		—		81,454		—		Federal home loan mortgage corporation	71,849		—		71,849		—
Federal national mortgage association	Federal national mortgage association	49,771		—		49,771		—		Federal national mortgage association	45,887		—		45,887		—
Asset-backed securities	Asset-backed securities	4,325		—		3,474		851		Asset-backed securities	3,894		—		3,095		799

Total Available-for-Sale Fixed Maturities	Total Available-for-Sale Fixed Maturities	$	1,591,348	$	—	$	1,585,084	$	6,264	Total Available-for-Sale Fixed Maturities	$	1,638,638	$	—	$	1,633,139	$	5,499

EQUITY SECURITIES	EQUITY SECURITIES									EQUITY SECURITIES
Common stocks	Common stocks									Common stocks
Public utilities	Public utilities	$	14,200	$	14,200	$	—	$	—	Public utilities	$	3,703	$	3,703	$	—	$	—
Energy	Energy	19,812		19,812		—		—		Energy	9,536		9,536		—		—
Industrials	Industrials	28,536		28,536		—		—		Industrials	13,023		13,023		—		—
Consumer goods and services	Consumer goods and services	37,262		37,262		—		—		Consumer goods and services	11,127		11,127		—		—
Health care	Health care	7,585		7,585		—		—		Health care	1,959		1,959		—		—

2021

Table of Contents


Technology, media and telecommunications	Technology, media and telecommunications	27,290		27,290		—		—		Technology, media and telecommunications	5,612		5,612		—		—
Financial services	Financial services	24,693		24,693		—		—		Financial services	6,257		6,257		—		—

Total Equity Securities	Total Equity Securities	$	159,378	$	159,378	$	—	$	—	Total Equity Securities	$	51,217	$	51,217	$	—	$	—
Short-Term Investments	Short-Term Investments	$	275	$	275	$	—	$	—	Short-Term Investments	$	—	$	—	$	—	$	—
Money Market Accounts	Money Market Accounts	$	17,962	$	17,962	$	—	$	—	Money Market Accounts	$	13,977	$	13,977	$	—	$	—
Corporate-Owned Life Insurance	Corporate-Owned Life Insurance	$	11,568	$	—	$	11,568	$	—	Corporate-Owned Life Insurance	$	11,000	$	—	$	11,000	$	—
Total Assets Measured at Fair Value	Total Assets Measured at Fair Value	$	1,780,531	$	177,615	$	1,596,652	$	6,264	Total Assets Measured at Fair Value	$	1,714,832	$	65,194	$	1,644,139	$	5,499


December 31, 2022			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	14,675	$	—	$	14,675	$	—
U.S. government agency	84,406		—		84,406		—
States, municipalities and political subdivisions
General obligations
Midwest	61,113		—		61,113		—
Northeast	15,463		—		15,463		—
South	63,981		—		63,981		—
West	86,545		—		86,545		—
Special revenue
Midwest	102,266		—		102,266		—
Northeast	54,220		—		54,220		—
South	180,857		—		180,857		—
West	112,212		—		112,212		—
Foreign bonds	31,649		—		31,649		—
Public utilities	125,411		—		125,411		—
Corporate bonds
Energy	33,209		—		33,209		—
Industrials	52,842		—		52,842		—
Consumer goods and services	89,941		—		89,941		—
Health care	27,592		—		27,592		—
Technology, media and telecommunications	59,940		—		59,940		—
Financial services	124,292		—		118,617		5,675
Mortgage-backed securities	17,700		—		17,700		—
Collateralized mortgage obligations
Government national mortgage association	84,548		—		84,548		—
Federal home loan mortgage corporation	78,838		—		78,838		—
Federal national mortgage association	45,386		—		45,386		—
Asset-backed securities	4,253		—		3,452		801

Total Available-for-Sale Fixed Maturities	$	1,551,339	$	—	$	1,544,863	$	6,476

2122

Table of Contents


EQUITY SECURITIES
Common stocks
Public utilities	$	14,846	$	14,846	$	—	$	—
Energy	19,743		19,743		—		—
Industrials	27,163		27,163		—		—
Consumer goods and services	43,139		43,139		—		—
Health care	7,981		7,981		—		—
Technology, media and telecommunications	28,213		28,213		—		—
Financial services	28,021		28,021		—		—

Total Equity Securities	$	169,106	$	169,106	$	—	$	—
Short-Term Investments	$	275	$	275	$	—	$	—
Money Market Accounts	$	31,289	$	31,289	$	—	$	—
Corporate-Owned Life Insurance	$	10,588	$	—	$	10,588	$	—
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 ~~March 31,~~September 30, 2023 and December 31, 2022 was reasonable.

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

2223

Table of Contents

valuation processes. A change in significant unobservable inputs may result in a significantly higher or lower fair value measurement as of the reporting date.

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

Quantitative Information about Level 3 Fair Value Measurements

Fair Value at

Valuation Technique(s)

Unobservable inputs

Range of weighted average significant unobservable inputs

~~March 31,~~September 30, 2023

Fixed Maturities corporate

~~5,413~~4,700

~~Discounted cash flow~~Third-party valuation

~~Discount Rates~~Offered quotes

~~3.5%~~90.0% - ~~7.5%~~100.0%

Fixed Maturities asset-backed securities

~~851~~799

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 ~~March 31,~~September 30, 2023:

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


	Corporate bonds		Asset-backed securities		Total
Beginning Balance - July 1, 2023	$	4,765	$	837	$	5,602

Net unrealized gains (losses)(1)	(65)		(38)		(103)





Ending Balance - September 30, 2023	$	4,700	$	799	$	5,499

(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, 2023:


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

Net unrealized gains (losses)(1)	(975)		(2)		(977)





Ending Balance - September 30, 2023	$	4,700	$	799	$	5,499

(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 ~~March 31,~~September 30, 2023 and December 31, 2022:


Commercial Mortgage Loans	Commercial Mortgage Loans					Commercial Mortgage Loans
		March 31, 2023		December 31, 2022			September 30, 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%	$	29,113	$	29,231	Less than 65%	$	36,883	$	29,231
65%-75%	65%-75%	8,799		8,716		65%-75%	8,706		8,716
Total amortized cost	Total amortized cost	$	37,912	$	37,947	Total amortized cost	$	45,589	$	37,947
Allowance for mortgage loan losses	Allowance for mortgage loan losses	(49)		(49)		Allowance for mortgage loan losses	(55)		(49)
Mortgage loans, net	Mortgage loans, net	$	37,863	$	37,898	Mortgage loans, net	$	45,534	$	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 %

2324

Table of Contents

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, 2023				December 31, 2022
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	3,245	7.1	%	$	3,245	8.6	%
Southern Atlantic	17,265		37.8		9,397		24.7
East South Central	7,591		16.7		7,783		20.5
New England	6,588		14.5		6,588		17.4
Middle Atlantic	6,020		13.2		6,139		16.2
Mountain	1,992		4.4		1,992		5.2
West North Central	2,888		6.3		2,803		7.4
Total mortgage loans at amortized cost	$	45,589	100.0	%	$	37,947	100.0	%

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


Mortgage Loans by Property Type
	September 30, 2023				December 31, 2022
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Multifamily	$	8,536	18.7	%	$	8,493	22.4	%
Office	11,030		24.3		11,267		29.7
Industrial	10,003		21.9		10,056		26.5
Retail	10,000		21.9		1,992		5.2
Mixed use/Other	6,020		13.2		6,139		16.2
Total mortgage loans at amortized cost	$	45,589	100.0	%	$	37,947	100.0	%


Amortized Cost Basis by Year of Origination and Credit Quality Indicator
	2023		2022		2020		2019		2018		Total
Commercial mortgage loans:
Risk Rating:
1-2 internal grade	$	8,136	$	100	5,292		$	7,897	$	17,576	$	39,001
3-4 internal grade	—		—		—		—		6,588		6,588
5 internal grade	—		—		—		—		—		—
6 internal grade	—		—		—		—		—		—
7 internal grade	—		—		—		—		—		—
Total commercial mortgage loans	$	8,136	$	100	$	5,292	$	7,897	$	24,164	$	45,589
Current-period write-offs	—		—		—		—		—		—
Current-period recoveries	—		—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	—	$	—	$	—	$	—

Commercial mortgage loans carrying value excludes accrued interest of ~~$133.~~$173. As of ~~March 31,~~September 30, 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 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 March 31, 2023, the Company had an allowance for mortgage loan losses of $49, summarized in the following rollforward:


~~Rollforward of allowance for mortgage loan losses:~~
	~~As of~~
	~~March 31, 2023~~
~~Beginning balance, January 1, 2023~~	$	49
~~Current-period provision for expected credit losses~~	—


~~Ending balance of the allowance for mortgage loan losses, March 31, 2023~~	$	49

2425

Table of Contents

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, 2023, the Company had an allowance for mortgage loan losses of $55, summarized in the following rollforward:


Rollforward of allowance for mortgage loan losses:
	As of
	September 30, 2023
Beginning balance, January 1, 2023	$	49
Current-period provision for expected credit losses	6


Ending balance of the allowance for mortgage loan losses, September 30, 2023	$	55

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 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.~~on an annual basis. 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 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.

2526

Table of Contents

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



		March 31, 2023		December 31, 2022			September 30, 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	$	1,497,274	$	1,514,265	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	(146,875)		(112,900)		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	$	1,350,399	$	1,401,365	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	$	170,534	$	624,411	Current year	$	538,941	$	624,411
Prior years	Prior years	4,063		12,890		Prior years	59,184		12,890
Total incurred	Total incurred	$	174,597	$	637,301	Total incurred	$	598,125	$	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	$	16,401	$	215,891	Current year	$	131,408	$	215,891
Prior years	Prior years	145,831		472,377		Prior years	371,723		472,377
Total paid	Total paid	$	162,232	$	688,268	Total paid	$	503,131	$	688,268
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	Net liability for losses and loss settlement expenses at end of period	$	1,445,394	$	1,350,399
Ceded losses and loss settlement expenses	Ceded losses and loss settlement expenses	136,627		146,875		Ceded losses and loss settlement expenses	191,525		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	$	1,499,391	$	1,497,274	Gross liability for losses and loss settlement expenses at end of period	$	1,636,918	$	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. 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~~Changes in external and internal environments must be considered carefully when relying on prior development ~~cannot be used~~patterns to project future reserve ~~redundancies or deficiencies.~~positions.

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.

Reserve Development

During 2023, the Company made additional refinements to its reserve review processes and analyses, including increased segmentation on unique exposures, which resulted in deeper insights and understanding of loss experience

2627

Table of Contents

~~Reserve Development~~

and significant movements in reserve development across a range of commercial liability lines of business. The significant driver of the ~~unfavorable~~ reserve ~~development~~strengthening was an increase in the three-month period ended 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 flat with unfavorable development in commerciallong-tailed other liability reserves primarily due to increased loss cost trends related to economic and ~~workers' compensation~~social inflation. The commercial auto line of business also experienced reserve strengthening in reaction to continuing loss trends in post-2020 accident years. These increases were offset by favorable development in workers' compensation and fire and allied ~~lines and commercial automobile.~~lines.

The significant drivers of the unfavorable reserve development in 2022 were commercial other liability and commercial fire and allied 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~~loss adjustment expense ("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 driven by catastrophe losses and increased severity on non-catastrophe claims, which was greater than reductions in reserves for unpaid loss and ~~LAE driven by catastrophe losses and increased severity on non-catastrophe claims.~~LAE. The favorable development for commercial automobile was from both loss and LAE where reductions of reserves for unpaid liabilities were more than sufficient to offset actual paid loss. Paid LAE reductions in reserves for IBNR claims also contributed favorable development in addition to LAE where reductions in reserves were more than sufficient to offset payments.

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 March 31,		2023		2022		2023		2022
Three Months Ended September 30,										Three Months Ended September 30,	2023		2022		2023		2022

Net periodic benefit cost	Net periodic benefit cost									Net periodic benefit cost
Service cost	Service cost	$	954	$	1,120	$	—	$	—	Service cost	$	954	$	1,120	$	—	$	—
Interest cost	Interest cost	2,526		1,933		—		1		Interest cost	2,526		1,933		—		1
Expected return on plan assets	Expected return on plan assets	(3,756)		(4,723)		—		—		Expected return on plan assets	(3,756)		(4,723)		—		—
Amortization of prior service credit	Amortization of prior service credit	(820)		(820)		—		(3,771)		Amortization of prior service credit	(820)		(820)		—		(3,771)
Amortization of net loss	Amortization of net loss	52		194		—		706		Amortization of net loss	52		194		—		706

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



	Pension Plan				Postretirement Benefit Plan
Nine Months Ended September 30,	2023		2022		2023		2022

Net periodic benefit cost
Service cost	$	2,863	$	3,361	$	—	$	—
Interest cost	7,579		5,798		—		2
Expected return on plan assets	(11,269)		(14,168)		—		—
Amortization of prior service credit	(2,460)		(2,460)		—		(11,314)
Amortization of net loss	155		583		—		2,118

Net periodic benefit cost	$	(3,131)	$	(6,887)	$	—	$	(9,194)

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."

Table of Contents

In January 2021, the Company changed the postretirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. ~~The impact of this decision~~A related, previously disclosed adjustment is ~~reflected in the table above, with a one-time adjustment presented in the line "Special event plan closure" and~~being amortized through an additional one-time adjustment in the line "Amortization of prior service credit". 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/A for the year ended December 31, 2022 that we are not required to make a contribution to the pension plan for 2023.

~~Table of Contents~~

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 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 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 ~~March 31,~~September 30, 2023, there were ~~1,112,116~~1,108,419 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. The Board of Directors, in its discretion, has also delegated authority to management to grant a limited number of restricted stock units in situations where the Company is seeking to recruit or retain individuals.

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:

Authorized Shares Available for Future Award Grants Three Months Ended March 31, 2023 From Inception to March 31, 2023
Beginning balance 1,342,119 1,900,000
Additional shares authorized — 2,150,000
Number of awards granted (250,897) (3,873,038)
Number of awards forfeited or expired 20,894 935,154
Ending balance 1,112,116 1,112,116
Number of option awards exercised 4,000 1,537,336
Number of unrestricted stock awards granted — 10,090
Number of restricted stock awards vested 15,257 283,102

Table of Contents


Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2023	From Inception to September 30, 2023
Beginning balance	1,342,119	1,900,000
Additional shares authorized	—	2,150,000
Number of awards granted	(305,241)	(3,927,382)
Number of awards forfeited or expired	71,541	985,801
Ending balance	1,108,419	1,108,419
Number of option awards exercised	4,000	1,537,336
Number of unrestricted stock awards granted	—	10,090
Number of restricted stock awards vested	28,100	295,945

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~~Company's shareholders approved amendments to the Director Stock Plan, previously approved by the ~~Company’s~~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

~~Table of Contents~~

(iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At ~~March 31,~~September 30, 2023, the Company had ~~123,397~~103,600 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	Three Months Ended March 31, 2023	From Inception to March 31, 2023	Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2023	From Inception to September 30, 2023
Beginning balance	Beginning balance	123,397	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	—	(355,238)	Number of awards granted	(31,380)	(386,618)
Number of awards forfeited or expired	Number of awards forfeited or expired	—	28,635	Number of awards forfeited or expired	11,583	40,218
Ending balance	Ending balance	123,397	123,397	Ending balance	103,600	103,600
Number of option awards exercised	Number of option awards exercised	1,755	152,336	Number of option awards exercised	1,755	152,336
Number of restricted stock awards vested	Number of restricted stock awards vested	—	117,001	Number of restricted stock awards vested	—	117,001

Stock-Based Compensation Expense

For the three-month periods ended ~~March 31,~~September 30, 2023 and 2022, we recognized stock-based compensation expense of ~~$1,076 a~~$949 and $828, respectively. For the nine-month periods ended September 30, 2023 and 2022, we recognized stock-based compensation expense of $3,124 and $2,590, respe~~nd $979, respectively.~~ctively.

As of ~~March 31,~~September 30, 2023, we had ~~$7,126~~$6,542 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 2023 and

Table of Contents

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.


2023	2023	$	2,477	2023	$	1,034
2024	2024	2,826		2024	3,364
2025	2025	1,626		2025	1,878
2026	2026	197		2026	266
2027	2027	—		2027	—
Total	Total	$	7,126	Total	$	6,542

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

~~Table of Contents~~

weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

The components of basic and diluted earnings per share were as follows for the ~~three-month~~three- and nine-month periods ended ~~March 31,~~September 30, 2023 and 2022:


		Three Months Ended March 31,									Three Months Ended September 30,
(In Thousands, Except Share Data)	(In Thousands, Except Share Data)	2023				2022				(In Thousands, Except Share Data)	2023				2022
		Basic		Diluted		Basic		Diluted			Basic		Diluted		Basic		Diluted
Net income (loss)	Net income (loss)	$	694	$	694	$	28,349	$	28,349	Net income (loss)	$	6,380	$	6,380	$	(22,981)	$	(22,981)
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,220,437		25,220,437		25,100,885		25,100,885		Weighted-average common shares outstanding	25,263,523		25,263,523		25,188,958		25,188,958
Add dilutive effect of restricted stock unit awards	Add dilutive effect of restricted stock unit awards	—		279,678		—		222,220		Add dilutive effect of restricted stock unit awards	—		295,997		—		—
Add dilutive effect of stock options	Add dilutive effect of stock options	—		—		—		—		Add dilutive effect of stock options	—		19,814		—		—
Weighted-average common shares outstanding	Weighted-average common shares outstanding	25,220,437		25,500,115		25,100,885		25,323,105		Weighted-average common shares outstanding	25,263,523		25,579,334		25,188,958		25,188,958
Earnings (loss) per common share	Earnings (loss) per common share	$	0.03	$	0.03	$	1.13	$	1.12	Earnings (loss) per common share	$	0.25	$	0.25	$	(0.91)	$	(0.91)
Awards excluded from diluted earnings per share calculation(1)	Awards excluded from diluted earnings per share calculation(1)	—		737,629		—		822,375		Awards excluded from diluted earnings per share calculation(1)	—		837,482		—		392,062

(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.

Table of Contents


	Nine Months Ended September 30,
(In Thousands, Except Share Data)	2023				2022
	Basic		Diluted		Basic		Diluted
Net income (loss)	$	(49,308)	$	(49,308)	$	(5,089)	$	(5,089)
Weighted-average common shares outstanding	25,244,502		25,244,502		25,146,318		25,146,318
Add dilutive effect of restricted stock unit awards	—		—		—		—
Add dilutive effect of stock options	—		—		—		—
Weighted-average common shares outstanding	25,244,502		25,244,502		25,146,318		25,146,318
Earnings (loss) per common share	$	(1.95)	$	(1.95)	$	(0.20)	$	(0.20)
Awards excluded from diluted earnings per share calculation(1)	—		814,636		—		479,981

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

NOTE 8. 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 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)~~successor's) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date, as set forth in the table below. For the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, interest expense totaled ~~$797.~~$2,391. Payment of interest is subject to approval by the Iowa Insurance Division. On August 18, 2023, the Company received a downgrade from AM Best on the Financial Strength Rating (FSR) to A- (Excellent) from A (Excellent). As a result of this downgrade, the interest rate on the long term debt will increase to 6.875%, beginning with the December 15, 2023 payment, in accordance with the table below.


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

3033

Table of Contents

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, issuing lender, swing-line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing-line loan for working capital and other general corporate purposes. The 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.

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 ~~March 31,~~September 30, 2023 and 2022, ~~respectively.~~respectively and the Company has not utilized this facility since its inception. For the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022, we did not incur any interest expense related to the credit facility. ~~We were~~

As of June 30, 2023, the Company was not in compliance with the minimum net worth covenant in the Credit Agreement. On August 7, 2023, Wells Fargo and the Company entered into an amended agreement and waiver which revised the minimum net worth covenant to reduce the requirements through the maturity of the agreement on March 31, 2024. As of September 30, 2023, the Company was in compliance with all covenants ~~under~~in the Credit ~~Agreement at March 31, 2023.~~Agreement.

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 ~~March 31,~~September 30, 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 January 1, 2023		(88,369)		873		$	(87,496)
Balance as of June 30, 2023								Balance as of June 30, 2023	(89,094)		(341)		$	(89,435)
Change in accumulated other comprehensive income (loss) before reclassifications	Change in accumulated other comprehensive income (loss) before reclassifications	14,223		(648)		13,575		Change in accumulated other comprehensive income (loss) before reclassifications	(34,166)		(646)		(34,812)
Reclassification adjustments from accumulated other comprehensive income (loss)	Reclassification adjustments from accumulated other comprehensive income (loss)	427		41		468		Reclassification adjustments from accumulated other comprehensive income (loss)	62		40		102
Balance as of March 31, 2023		$	(73,719)	$	266	$	(73,453)
Balance as of September 30, 2023								Balance as of September 30, 2023	$	(123,198)	$	(947)	$	(124,145)

(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, 2023:

Table of Contents


			Liability for
	Net unrealized		underfunded
	appreciation		employee
	on investments		benefit costs(1)		Total
Balance as of January 1, 2023	(88,369)		873		$	(87,496)
Change in accumulated other comprehensive income before reclassifications	(35,438)		(1,942)		(37,380)
Reclassification adjustments from accumulated other comprehensive income (loss)	609		122		731
Balance as of September 30, 2023	$	(123,198)	$	(947)	$	(124,145)

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 ~~March 31,~~September 30, 2023, we have leases with remaining terms of one year to 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-month~~three- and nine-month periods ended ~~March 31,~~September 30, 2023 and 2022:

~~Table of Contents~~


		Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
		2023		2022				2023		2022		2023		2022

Components of lease expense:	Components of lease expense:						Components of lease expense:
Operating lease expense	Operating lease expense	$	2,188	$	2,177		Operating lease expense	$	2,255	$	2,201	$	6,653	$	6,569
Less sublease income	Less sublease income	167		53			Less sublease income	305		53		732		160
Net lease expense	Net lease expense	2,021		2,124			Net lease expense	1,950		2,148		5,921		6,409
Cash flows information related to leases:	Cash flows information related to leases:						Cash flows information related to leases:
Operating cash outflow from operating leases	Operating cash outflow from operating leases	2,052		2,143			Operating cash outflow from operating leases	1,952		2,170		5,996		6,471

3235

Table of Contents

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

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

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K/A for the year ended December 31, 2022. There have been no changes in our critical accounting policies from December 31, 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/A for the year ended December 31, 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.

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~~and 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."

3336

Table of Contents

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 5623. At ~~March 31,~~September 30, 2023, the Company's FAL investments were comprised of cash of ~~$23.7~~$24.4 million on deposit with Lloyd's in order to satisfy these FAL requirements.

Personal Lines Business

In May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual Insurance Company beginning in the third quarter of 2020. The majority of this transfer was completed by December 31, 2021. There is an immaterial amount of personal lines business remaining primarily in New Jersey as of ~~March 31,~~September 30, 2023. The business remaining in New Jersey is scheduled to lapse by the 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~~participant's own surplus level.

Geographic Concentration

For the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, approximately ~~46.9~~47.6 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and 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.

3437

Table of Contents

FINANCIAL HIGHLIGHTS


		Three Months Ended March 31,								Three Months Ended September 30,					Nine Months Ended September 30,
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)	2023			2022			%			(In Thousands, Except Ratios)	2023			2022			%		2023			2022			%
Revenues	Revenues										Revenues
Net premiums earned	Net premiums earned	$	256,127		$	234,228		9.3	%		Net premiums earned	$	259,456		$	238,256		8.9	%	$	770,221		$	703,746		9.4	%
Investment income, net of investment expenses	Investment income, net of investment expenses	12,722			11,276			12.8			Investment income, net of investment expenses	16,459			11,606			41.8		40,508			32,062			26.3

Net investment gains (losses)	Net investment gains (losses)	(1,745)			(465)			(275.3)			Net investment gains (losses)	(1,960)			(14,250)			86.2		(2,581)			(35,647)			92.8
Other income (loss)	Other income (loss)	—			(25)			100.0			Other income (loss)	—			(39)			100.0		—			(38)			100.0
Total revenues	Total revenues	$	267,104		$	245,014		9.0	%		Total revenues	$	273,955		$	235,573		16.3	%	$	808,148		$	700,123		15.4	%

Benefits, Losses and Expenses	Benefits, Losses and Expenses										Benefits, Losses and Expenses
Losses and loss settlement expenses	Losses and loss settlement expenses	$	174,597		$	130,376		33.9	%		Losses and loss settlement expenses	$	172,798		$	182,411		(5.3)	%	$	598,125		$	464,295		28.8	%
Amortization of deferred policy acquisition costs	Amortization of deferred policy acquisition costs	59,835			50,471			18.6			Amortization of deferred policy acquisition costs	62,709			53,107			18.1		181,700			156,116			16.4
Other underwriting expenses	Other underwriting expenses	31,876			28,644			11.3			Other underwriting expenses	29,275			30,487			(4.0)		89,784			87,885			2.2
Interest expense	Interest expense	797			797			—			Interest expense	797			797			—		2,391			2,391			—

Total benefits, losses and expenses	Total benefits, losses and expenses	$	267,105		$	210,288		27.0	%		Total benefits, losses and expenses	$	265,579		$	266,802		(0.5)	%	$	872,000		$	710,687		22.7	%

Income (loss) before income taxes	Income (loss) before income taxes	$	(1)		$	34,726		(100.0)	%		Income (loss) before income taxes	$	8,376		$	(31,229)		126.8	%	$	(63,852)		$	(10,564)		(504.4)
Federal income tax expense (benefit)	Federal income tax expense (benefit)	(695)			6,377			(110.9)			Federal income tax expense (benefit)	1,996			(8,248)			124.2		(14,544)			(5,475)			NM
Net income (loss)	Net income (loss)	$	694		$	28,349		(97.6)			Net income (loss)	$	6,380		$	(22,981)		127.8		$	(49,308)		$	(5,089)		(868.9)	%

GAAP Ratios:	GAAP Ratios:										GAAP Ratios:
Net underlying loss ratio (1)	Net underlying loss ratio (1)	63.5		%	57.5		%	10.4	%		Net underlying loss ratio (1)	60.5		%	60.4		%	0.2	%	62.9		%	58.9		%	6.8	%
Catastrophes - effect on net loss ratio (1)	Catastrophes - effect on net loss ratio (1)	4.6			2.6			76.9			Catastrophes - effect on net loss ratio (1)	5.9			11.4			(48.2)		7.8			8.7			(10.3)
Reserve development-effect on net loss ratio (1)		0.1			(4.4)			102.3
Reserve development - effect on net loss ratio (1)											Reserve development - effect on net loss ratio (1)	0.2			4.8			(95.8)		7.0			(1.6)			537.5
Net loss ratio (2)	Net loss ratio (2)	68.2		%	55.7		%	22.4	%		Net loss ratio (2)	66.6		%	76.6		%	(13.1)	%	77.7		%	66.0		%	17.7	%
Expense ratio (3)	Expense ratio (3)	35.8			33.8			5.9			Expense ratio (3)	35.5			35.1			1.1		35.3			34.6			2.0
Combined ratio (4)	Combined ratio (4)	104.0		%	89.5		%	16.2	%		Combined ratio (4)	102.1		%	111.7		%	(8.6)	%	113.0		%	100.6		%	12.3	%

(1) 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 Consolidated Financial Statements.

(3) Expense ratio is calculated by dividing 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.

(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-month period ended March 31, 2023:~~

RESULTS OF OPERATIONS

For the three-month period ended ~~March 31,~~September 30, 2023, net income was ~~$0.7~~$6.4 million compared to a net ~~income~~loss of ~~$28.3~~$23.0 million for the same period of 2022. The change was primarily due to an increase in earned premium, net investment gains and lower loss and LAE in the third quarter of 2023 compared to net investment losses for the same period in 2022.

For the nine-month period ended September 30, 2023, net loss was $49.3 million compared to a net loss of $5.1 million for the same period of 2022. The change was primarily due to higher loss and ~~loss adjustment expenses~~LAE offset by an increase in earned ~~premium.~~

~~Net premiums earned increased 9.3 percent during the three-month period ended March 31, 2023~~premium and net investment gains compared to net investment losses for the same period ofin 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 three-month period ended

3538

Table of Contents

~~March 31,~~

Net premiums earned increased 8.9 percent and 9.4 percent during the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods of 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 fire and allied lines. For the three-month period ended September 30, 2023, the overall average increase in renewal premiums was ~~7.4%,~~11.0 percent, with ~~2.9%~~2.6 percent from exposure changes and ~~4.5%~~8.4 percent from rate increases. Excluding the workers' compensation line of business, the overall average increase in renewal premiums was ~~8.9%,~~12.4 percent, with ~~3.1%~~2.7 percent from exposures changes and ~~5.8%~~9.7 percent from rate increases. Ceded premiums included reinstatement premiums for surety coverage due to large losses of $4.7 million and $10.5 million for the three- and nine-month periods ended September 30, 2023, respectively.

Net investment income was ~~$12.7~~$16.5 million for the ~~first~~third quarter of 2023 as compared to ~~$11.3~~$11.6 million for the same period in 2022. ~~The first quarter of 2023 experienced~~Income from our fixed income portfolio increased ~~fixed maturity income of $2.4~~$1.7 million which was a result of higher investment yields due to higher interest rates. ~~This was partially offset by~~Income from cash and cash equivalents increased $1.7 million. Income on other long-term investments resulted in an additional $2.4 million of income as the ~~change in fair value of our investments in limited liability partnerships. The~~ valuation of ~~these~~the investments in limited liability partnerships varies from period to period due to the current market conditions. Dividends on equity ~~market conditions, specifically related~~securities decreased $0.7 million from the same period in 2022. Net investment income for the nine-month period ended September 30, 2023 was $8.4 million higher compared to ~~financial institutions.~~the same period of 2022. The higher investment yields from our fixed income portfolio contributed $5.3 million, interest received on cash and cash equivalent balances increased $4.6 million and the change in value of our limited liability partnerships increased $0.5 million, offset by a decrease in dividends on equity securities of $0.9 million due to a strategic reallocation of equity securities to fixed income assets over the past two quarters and an increase in investment expenses of $1.1 million.

The Company recognized net investment losses of ~~$1.7~~$2.0 million during the ~~first~~third quarter of 2023, compared to net investment losses of ~~$0.5~~$14.3 million for the same period in 2022. Year-to-date, the Company recognized net investment losses of $2.6 million and $35.6 million during the nine-month periods ended September 30, 2023 and 2022, respectively. The change in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023 as compared to the same period in 2022 was primarily due to the change in the fair value of our investments in equity securities.

Losses and loss settlement expenses decreased by 5.3 percent and increased ~~by 33.9~~28.8 percent during the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, compared to the same periods of 2022. The reduction during the three-month period ~~of 2022,~~was driven by a reduction in catastrophe losses and a reduction in unfavorable prior-year reserve development. The increase during the nine-month period was driven by an increase in prior year reserve development and underlying losses due primarily to the impact of emerging loss ~~trends that led to adverse prior period~~trends. Unfavorable reserve development was driven primarily by long-tail other liability lines of business as described previously in the ~~third and fourth quarters~~Reserve Development section in Note 4. The increase in underlying losses during the nine-month period is due to a small number of ~~2022~~large surety losses as well as increased ceded reinsurance costs and higher retentions across the broader portfolio. There is an additional underlying loss increase attributable to a shift in accident year loss ratio assumed reinsurance ~~business.~~business as discussed in previous quarters. This business continues to perform in line with our expectations. These underlying loss increases are offset by improved profitability in other lines of business, namely in standard umbrella, where enhanced metrics have increased visibility into historic rate levels and profit outlook.

The GAAP combined ratio decreased by 9.6 percentage points to 102.1 percent for the third quarter of 2023, compared to 111.7 percent in the same period in 2022. The improvement was driven by a decrease in prior year reserve strengthening of 4.6 percentage points and a decrease in catastrophe loss contributing 5.5 percentage points, offset by an increase in underwriting expenses of 0.4 percentage points and an increase in the underlying loss ratio of 0.1 percentage points. The GAAP combined ratio increased by ~~14.5~~12.4 percentage points to ~~104.0~~113.0 percent for the ~~first quarter of~~ nine-month period ended September 30, 2023,, compared to ~~89.5~~100.6 percent in the same period in 2022. The deterioration was driven by an increase in the underlying loss ratio of ~~6.0~~4.0 percentage points, ~~unfavorable~~ prior period reserve ~~development~~strengthening in the current ~~quarter~~year compared to favorable development in the prior period leading to an increase of ~~4.5~~8.6 percentage points, ~~and increases~~an increase in underwriting expenses contributing 0.7 percentage points, offset by a decrease in catastrophe loss ~~and underwriting expenses~~ contributing ~~2.0~~0.9 percentage ~~points each.~~points. Each of these are explained in more detail below.

The net loss ratio decreased 10.0 percentage points to 66.6 percent for the third quarter of 2023, compared to 76.6 percent in the same period in 2022. The decrease was driven by reduced prior period reserve strengthening and

Table of Contents

lower catastrophe losses. Catastrophe losses are discussed below. Prior period reserve strengthening was 0.2 percent this quarter compared to 4.8 percent in the third quarter of 2022, driven by less unfavorable development in the third quarter of 2023 on other liability long-tail lines. The underlying loss ratio increased 0.1 percentage points to 60.5 percent for the third quarter of 2023, compared to 60.4 percent in the same period in 2022. This increase was driven by a small number of large surety losses and increases in assumed reinsurance, offset by improved profitability in other lines. These impacts are discussed in more detail in the loss and loss adjustment expense commentary above.

The net loss ratio increased ~~12.5~~11.7 percentage points to 77.7 percent during the ~~first quarter of~~nine-month period ended September 30, 2023, as compared to 66.0 percent in the same period in 2022. The underlying loss ratio of ~~63.5%~~62.9 percent increased ~~6.0~~4.0 percentage points ~~which~~during the nine-month period ended September 30, 2023, compared to 58.9 percent in the same period in 2022. This is primarily due to a small number of large surety losses and associated reinsurance reinstatement premium in the quarter in addition to the impact of increased ceded reinsurance costs on 1/1/2023 renewals. Assumed reinsurance is also experiencing a higher underlying loss ratio as compared to this time last year. Prior period reserve development was ~~partially~~7.0 percent unfavorable year-to-date through September 30, 2023, as compared to 1.6 percent favorable in the same period last year. The prior period reserve strengthening in 2023 is primarily driven by ~~the impacts of the third and fourth quarter 2022 reserve strengthening~~an increase 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 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. Unfavorablecommercial auto, offset by workers' compensation and fire and allied lines. The prior period reserve ~~development~~release in 2022 was ~~0.1% this quarter compared to favorable development of 4.4% in the first quarter of 2022.~~primarily driven by commercial auto and workers' compensation, offset by other liability.

Pre-tax catastrophe losses in the ~~first~~third quarter of 2023 added ~~4.6~~5.9 percentage points to the combined ratio compared to ~~2.6~~11.4 percentage points added to the combined ratio in the ~~first~~third quarter of ~~2022. Elevated severe weather losses resulted in this increase of 2.0~~2022, and added 7.8 percentage points to the year-to-date loss ratio this year as compared to ~~last year. The catastrophe loss ratio was 1.3~~8.7 percentage points ~~above our 10-year~~during the same time period in 2022. Catastrophe losses were below expectations during the third quarter of 2023 and were approximately 6.0 points below the five-year historic mean catastrophe loss ratio ~~and in line with our 5-year historical average~~ for the ~~first quarter.~~third quarter of 2023.

The underwriting expense ratio for the ~~first~~third quarter of 2023 was ~~35.8~~35.5 percent compared to ~~33.8~~35.1 percent for the ~~first~~third quarter of 2022, an increase of 0.4 percentage points. The impact of surety reinsurance reinstatement premiums offset ongoing actions to sustainably reduce expenses. In addition to reducing expenses through careful vacancy management, we took the additional step to implement a voluntary early retirement program that we anticipate will provide ongoing benefits to our expense ratio in 2024. The underwriting expense ratio for the nine-months ended September 30, 2023 was 35.1 percent compared to 34.6 percent for the same time period of 2022. The ~~expense ratio increased 2.0 percentage points compared to the first quarter of 2022 as~~increase is a result of strategic investments in talent and technology, ~~as well as~~surety reinsurance reinstatement premiums, and changes to our post-retirement benefit plans that reduced expenses in 2022 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

~~Table of Contents~~

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

Table of Contents

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, 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~~$4.4 million ~~unfavorable development~~and $59.2 million reserve strengthening in ~~our~~ net reserves for prior accident years for the ~~three-month~~three- and nine-month periods ended September 30, 2023, respectively. During the first half of 2023, the Company made additional advancements to its reserve review processes and analyses, including increased segmentation on unique exposures, which resulted in deeper insights and understanding of loss experience and significant movements in reserve development across a range of commercial liability lines of business. The significant driver of the reserve strengthening in the nine-month period ended ~~March 31, 2023. This~~September 30, 2023 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~~an increase in ~~assumed reinsurance. Non-catastrophe reserve development was flat with unfavorable development in commercial~~long-tailed other liability reserves primarily due to increased loss cost trends related to economic and ~~workers' compensation~~social inflation. The commercial auto line of business also experienced reserve strengthening in reaction to continuing loss trends in post-2020 accident years. These increases were offset by favorable development in workers' compensation and fire and allied ~~lines and commercial automobile.~~lines.

2022 Development

The property and casualty insurance business experienced ~~$6.7~~$14.1 million of unfavorable development and $1.2 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 ~~March 31, 2022. The majority of~~September 30, 2022 the ~~favorable development came from the commercial automobile line of business which had $12.7 million favorable development. Partially offsetting the favorable~~unfavorable development was ~~unfavorable development from three lines of business: commercial~~primarily driven by $31.7 million other liability ~~experienced $3.7~~and $5.4 million ~~of unfavorable development,~~ commercial fire and allied ~~experienced $2.9 million of unfavorable development, and reinsurance assumed experienced $2.3 million of unfavorable development. All other~~ lines of business ~~in total, contributed $2.9 million of favorable development. The~~offset by favorable development ~~for~~in commercial automobile and workers' compensation lines of business of $12.4 million and $11.6 million, respectively. For the nine-month period ended September 30, 2022 the overall favorable development was ~~from both~~primarily driven by commercial automobile lines of business and the workers' compensation line of business, with $28.9 million and $9.2 million, respectively, in net ultimate loss ~~and~~& loss adjustment expense ~~("LAE") where reductions of reserves~~estimates. The favorable reserve development was partially offset by unfavorable reserve development for ~~unpaid liabilities were more than sufficient to offset actual paid loss and paid LAE. Commercial~~$22.2 million other liability ~~experienced unfavorable development primarily from paid LAE which was greater than reductions in reserves for unpaid LAE. Commercial~~and $14.1 million 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.lines.

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 ~~March 31,~~September 30, 2023, our total reserves were within a reasonable range of our actuarial estimates.

3741

Table of Contents

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


Three Months Ended March 31,		2023						2022
Three Months Ended September 30,														Three Months Ended September 30,	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)	$	78,405	$	52,844	67.4	%	$	70,569	$	36,801	52.1	%	Other liability(1)	$	78,090	$	34,466	44.1	%	$	80,231	$	85,738	106.9	%
Fire and allied lines(2)	Fire and allied lines(2)	56,466		45,881		81.3		58,748		45,236		77.0		Fire and allied lines(2)	64,531		53,602		83.1		60,263		47,857		79.4
Automobile	Automobile	48,972		36,781		75.1		53,232		32,333		60.7		Automobile	53,929		46,186		85.6		51,939		32,093		61.8
Workers' compensation	Workers' compensation	13,245		8,051		60.8		14,609		5,078		34.8		Workers' compensation	13,366		9,616		71.9		14,043		(1,888)		(13.4)
Surety(3)	Surety(3)	11,946		1,221		10.2		8,120		375		4.6		Surety(3)	9,279		6,575		70.9		9,756		3,598		36.9
Miscellaneous	Miscellaneous	265		137		51.7		279		162		58.1		Miscellaneous	883		112		12.7		267		449		168.2
Total commercial lines	Total commercial lines	$	209,299	$	144,915	69.2	%	$	205,557	$	119,985	58.4	%	Total commercial lines	$	220,078	$	150,557	68.4	%	$	216,499	$	167,847	77.5	%

Personal lines	Personal lines													Personal lines
Fire and allied lines(4)	Fire and allied lines(4)	$	1,952	$	2,186	112.0	%	$	950	$	1,191	125.4		Fire and allied lines(4)	$	1,616	$	1,304	80.7	%	$	529	$	1,195	225.9
Automobile	Automobile	—		(254)		NM		1		(729)		NM		Automobile	—		49		NM		(1)		(775)		NM
Miscellaneous	Miscellaneous	7		(46)		NM		17		(18)		(105.9)		Miscellaneous	5		(83)		NM		10		(1,020)		NM
Total personal lines	Total personal lines	$	1,959	$	1,886	96.3	%	$	968	$	444	45.9	%	Total personal lines	$	1,621	$	1,270	78.3	%	$	538	$	(600)	(111.5)	%
Assumed reinsurance	Assumed reinsurance	$	44,869	$	27,796	61.9	%	$	27,703	$	9,947	35.9	%	Assumed reinsurance	$	37,757	$	20,971	55.5	%	$	21,219	$	15,164	71.5	%

Total	Total	$	256,127	$	174,597	68.2	%	$	234,228	$	130,376	55.7	%	Total	$	259,456	$	172,798	66.6	%	$	238,256	$	182,411	76.6	%

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

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

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

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

NM = Not meaningful

Table of Contents


Nine Months Ended September 30,	2023						2022
			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	$	237,523	$	194,115	81.7	%	$	225,323	$	159,859	70.9	%
Fire and allied lines	182,805		151,539		82.9		172,361		144,397		83.8
Automobile	154,806		136,875		88.4		157,927		107,021		67.8
Workers' compensation	40,413		19,316		47.8		42,389		16,345		38.6
Surety	27,611		15,668		56.7		26,700		5,723		21.4
Miscellaneous	1,522		277		18.2		817		593		72.6
Total commercial lines	$	644,680	$	517,790	80.3	%	$	625,517	$	433,938	69.4	%

Personal lines
Fire and allied lines	$	4,568	$	3,631	79.5	%	$	2,127	$	2,144	100.8	%
Automobile	—		(326)		NM		—		(1,919)		NM
Miscellaneous	18		(148)		NM		42		(1,110)		NM
Total personal lines	$	4,586	$	3,157	68.8	%	$	2,169	$	(885)	(40.8)	%
Assumed reinsurance	$	120,955	$	77,178	63.8	%	$	76,060	$	31,242	41.1	%

Total	$	770,221	$	598,125	77.7	%	$	703,746	$	464,295	66.0	%

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

•Other liability lines - The net loss ratio improved 62.8 percentage points and deteriorated ~~15.3~~10.8 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, as compared to the same periods in 2022. The improvement in the three-month period ~~ended March 31, 2023~~was driven by a reduction in prior year reserve strengthening as compared to the same period last year. In the third quarter of 2022, reserves were strengthened on other liability lines concentrated in supported umbrella and construction defect exposures, increasing the prospective view of loss costs in these long-tailed lines. This strengthening did not occur in the third quarter of 2023, resulting in an improved net loss ratio as compared to the third quarter of 2022. ~~This~~In addition, the underlying loss ratio also improved in the third quarter of 2023 from the same period last year due to a reduced outlook for supported umbrella driven by improved analytics that brought a greater understanding of historical umbrella rate levels. The deterioration in the nine-month period ended September 30, 2023 is related to an increase in ~~severity driven by~~the estimation of evolving loss trends primarily affecting construction defect and ~~an increase in frequency in standard umbrella.~~excess and surplus lines excess casualty. During the last half of 2022 and first half of 2023, a combination of deeper analytical insights and emerging claim experience has increased our view of potential exposure within this line. Our prospective view of loss costs in these long-tailed lines has increased ~~during the~~since this time last ~~half of 2022.~~year.

•Commercial fire and allied lines - The net loss ratio deteriorated ~~4.3~~3.7 percentage points and improved 0.9 percentage points in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, respectively, as compared to the same periods in 2022. The deterioration in the three-month period ~~in 2022 primarily~~is due to ~~an increase in~~increased underlying losses offset by lower catastrophe losses. The ~~first quarter of~~improvement in the nine-month period is due to favorable prior period development in 2023 ~~experienced both~~versus unfavorable development ~~from prior year catastrophes as well as~~in 2022, offset by higher catastrophe losses ~~from winter storms~~ and ~~wind and hail events that occurred in the current quarter. In addition, there has been a modest impact from increased ceded reinsurance costs and higher retentions across the broader portfolio.~~underlying losses.

3843

Table of Contents

•Commercial automobile - The net loss ratio deteriorated ~~14.4~~23.8 percentage points and 20.6 percentage points in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, respectively, as compared to the same ~~period~~periods in ~~2022 primarily due to favorable~~2022. This was driven by a strengthening of prior year ~~reserve development being smaller~~reserves in ~~2023~~the current year in reaction to continuing loss trends, as compared to ~~2022. Benefits from our specialized claims operating model drove favorable emergence~~a release of reserves in ~~2022.~~prior periods.

•Workers' compensation - The net loss ratio deteriorated ~~26.0~~85.3 percentage points and 9.2 percentage points in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, respectively, as compared to the same ~~period~~periods in 2022 primarily related to ~~unfavorable~~significant favorable prior year reserve development in the ~~current quarter~~prior periods.

•Surety - The net loss ratio deteriorated 34.0 percentage points and 35.3 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, as compared to ~~favorable reserve development in~~ the same ~~period of 2022. There was also~~periods in 2022 primarily due to a small number of large ~~losses~~claims and associated reinsurance reinstatement premiums. This business has historically delivered strong profitability, but can experience occasional periods of volatility. In addition, we are seeing a broader increase in ~~the current quarter contributing to the increase.~~risk within this line that aligns with macro-economic conditions, including inflation.

•Assumed reinsurance - The net loss ratio improved 16.0 percentage points and deteriorated ~~26.0~~22.7 percentage points in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, respectively, as compared to the same ~~period~~periods in 2022. ~~This deterioration is driven by a favorable release of catastrophe reserves that occurred~~The improvement in the ~~first~~three-month period is a result of a reduction in catastrophe losses due to initial reserves for Hurricane Ian in 2022. The material change in the nine-month results was due to the continued enhanced analysis of this book of business. As discussed in our second quarter of ~~2022, and growth~~2023 results, this review resulted in ~~reinsurance treaties~~adjustments in the allocation of loss reserves to better align with ~~less exposure to catastrophes.~~the exposures.

Financial Condition

Stockholders' equity ~~increased~~decreased to ~~$751.8~~$644.9 million at ~~March 31,~~September 30, 2023, from $740.1 million at December 31, 2022. The Company's book value per share was ~~$29.80,~~$25.53, which is ~~an increase~~a decrease of ~~$0.44~~$3.83 per share, or ~~1.5~~13.0 percent, from December 31, ~~2022~~.2022. The ~~increase~~decrease is primarily attributable to ~~the $14.7~~net loss of $49.3 million, ~~increase in the~~ net unrealized ~~value from our~~depreciation after tax of $34.8 million on fixed maturity securities, ~~net of tax,~~ and ~~net income of $0.7 million, offset by~~ shareholder dividends of ~~$4.0~~$12.1 million during the first ~~three~~nine months of 2023.

Investment Portfolio

Our invested assets totaled ~~$1.9~~$1.8 billion at ~~March 31,~~September 30, 2023, compared to $1.8 billion at December 31, 2022, ~~an increase~~a decrease of ~~$34.8~~$15.8 million. At ~~March 31,~~September 30, 2023, fixed maturity securities and equity securities made up ~~84.7~~89.6 percent and ~~8.5~~2.8 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government 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 ~~March 31,~~September 30, 2023 is presented at carrying value in the following table:

3944

Table of Contents


		Property & Casualty Insurance					Property & Casualty Insurance
				Percent					Percent
(In Thousands, Except Ratios)	(In Thousands, Except Ratios)			of Total		(In Thousands, Except Ratios)			of Total
Fixed maturities (1)	Fixed maturities (1)					Fixed maturities (1)
Available-for-sale	Available-for-sale	$	1,591,169	84.7	%	Available-for-sale	$	1,638,512	89.6	%

Equity securities	Equity securities	159,378		8.5		Equity securities	51,217		2.8
Mortgage loans	Mortgage loans	37,863		2.0		Mortgage loans	45,534		2.5
Other long-term investments	Other long-term investments	91,003		4.8		Other long-term investments	93,836		5.1
Short-term investments	Short-term investments	275		—		Short-term investments	—		—
Total	Total	$	1,879,688	100.0	%	Total	$	1,829,099	100.0	%

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

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

4045

Table of Contents

Credit Quality

The table below shows the composition of fixed maturity securities held in our available-for-sale security portfolios by credit rating at ~~March 31,~~September 30, 2023 and December 31, 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)	March 31, 2023				December 31, 2022				(In Thousands, Except Ratios)	September 30, 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	$	551,231	34.6	%	$	540,485	34.8	%	AAA	$	634,694	38.7	%	$	540,485	34.8	%
AA	AA	486,406		30.6		482,369		31.1		AA	444,910		27.2		482,369		31.1
A	A	239,669		15.1		232,668		15.0		A	234,433		14.3		232,668		15.0
Baa/BBB	Baa/BBB	300,632		18.9		278,247		17.9		Baa/BBB	304,011		18.6		278,247		17.9
Other/Not Rated	Other/Not Rated	13,231		0.8		17,567		1.1		Other/Not Rated	20,464		1.2		17,567		1.1
		$	1,591,169	100.0	%	$	1,551,336	100.0	%		$	1,638,512	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~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, compared with the same ~~period~~periods of 2022 primarily due to the higher yields in the fixed income portfolio, ~~offset by~~reinvestment in the ~~change~~fixed income portfolio, higher income on cash and cash equivalents, and an increase 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 yield excluding net unrealized investment gains/losses and expenses~~

4146

Table of Contents


Investment Results
(unaudited)	Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)	2023			2022			Change %		2023			2022			Change %
Investment income:
Interest on fixed maturities	$	14,472		$	12,792		13.1	%	$	41,192		$	35,879		14.8	%
Dividends on equity securities	639			1,325			(51.8)	%	3,067			3,934			(22.0)	%
Income on other long-term investments	1,093			(1,348)			181.1	%	(3,491)			(3,959)			11.8	%
Other	2,574			891			188.9	%	6,868			2,279			201.4	%
Total investment income	$	18,778		$	13,660		37.5	%	$	47,636		$	38,133		24.9	%
Less investment expenses	2,319			2,054			12.9	%	7,128			6,071			17.4	%
Net investment income	$	16,459		$	11,606		41.8	%	$	40,508		$	32,062		26.3	%


Average yields:


Fixed income securities:
Pre-tax (1)	3.35		%	3.07		%	0.28	%	3.20		%	2.88		%	0.31	%

(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-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, the change in total value of our investments in limited liability partnerships resulted in aninvestment income of $1.1 million and investment loss of ~~$1.1~~$3.5 million, respectively, as compared to investment ~~income~~losses of ~~$0.5~~$1.3 million and $4.0 million in the same ~~period~~periods of 2022.

We had net investment losses of ~~$1.7~~$2.0 million and $2.6 million during the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023, respectively, as compared to net investment losses of ~~$0.5~~$14.3 million and $35.6 million in the same ~~period~~periods of 2022. The change in the ~~three-month period~~three- and nine-month periods ended ~~March 31,~~September 30, 2023 as compared to the same ~~period~~periods in 2022 was primarily due to the ~~change~~increase in the fair value of our investments in equity securities ~~investments~~ driven by equity market losses in ~~2023.~~2022.

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 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 ~~March 31,~~September 30, 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 adjustment is the change in commercial market price appreciation or change in gross domestic product, with every point of fall leading to an increase in loss reserve. Local market economics are also considered. On a quarterly basis, quantitative

Table of Contents

credit risk metrics, including for example, cash flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations.

LIQUIDITY AND CAPITAL RESOURCES

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

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

~~Table~~On August 18, 2023, the Company received a credit rating downgrade from AM Best. The Financial Strength Rating (FSR) was downgraded to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) was downgraded to "a-" (Excellent) from "a" (Excellent) of ~~Contents~~

the property/casualty subsidiaries of United Fire Group, Inc. Concurrently, AM Best has downgraded the Long-Term ICR to "bbb-" (Good) from "bbb" (Good) of UFG. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. The Company has not experienced material impacts to its business or financial results as a result of the downgrade, but is subject to heightened risks associated with any further potential downgrades. Please see Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q for more information.

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


Cash Flow Summary	Cash Flow Summary	Three Months Ended March 31,				Cash Flow Summary	Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022		(In Thousands)	2023		2022
Cash provided by (used in)	Cash provided by (used in)					Cash provided by (used in)
Operating activities	Operating activities	$	(6,786)	$	1,595	Operating activities	$	149,506	$	(29,793)
Investing activities	Investing activities	(32,501)		(20,061)		Investing activities	(164,661)		(38,314)
Financing activities	Financing activities	(4,133)		(4,116)		Financing activities	(12,345)		(10,980)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	$	(43,420)	$	(22,582)	Net change in cash and cash equivalents	$	(27,500)	$	(79,087)

Our cash flows were sufficient to meet our liquidity needs for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022 and we anticipate they will be sufficient to meet our future liquidity needs for at least the next ~~twelve~~12 months. We also have the ability to draw on our credit facility if needed.

Table of Contents

Operating Activities

Net cash flows from operating ~~activities ha~~activitieds had inflows of $149.5 million and outflows of ~~$6.8 million and inflows of $1.6~~$29.8 million for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022, respectively. In the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, the net operating cash ~~outflows~~inflows were driven by premium and investment inflows offsetting loss and expense ~~outflows not being fully offset by premium and reinsurance related cash inflows.~~outflows.

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 can also ~~can~~ provide liquidity. During the next five years, ~~$522.1~~$606.0 million, or ~~32.8~~37.0 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 ~~March 31,~~September 30, 2023, our cash and cash equivalents included ~~$18.0~~$14.0 million related to these money market accounts, compared to $31.3 million at December 31, 2022.

Net cash flows used by investing activities were ~~$32.5~~$164.7 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, compared to net cash flows used by investing activities of ~~$20.1~~$38.3 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022. For the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of ~~$31.3~~$98.6 million and ~~$67.0~~$232.3 million, respectively. Our cash outflows for investment purchases were ~~$61.2~~$255.3 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, compared to ~~$84.5~~$267.9 million for the same period of 2022.

~~Table of Contents~~

Financing Activities

Net cash flows used in financing activities ~~was $4.1~~were $12.3 million for the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023, ~~which was flat~~an increase of $1.4 million compared to ~~$4.1~~$11.0 million used in the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2022.

Credit Facilities

On March 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"), a 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~~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~~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 ~~March 31,~~September 30, 2023 and 2022, there were no balances outstanding under the Credit Agreement. For the ~~three-month~~nine-month period ended ~~March 31,~~September 30, 2023 and 2022, we did not incur any interest expense related to the credit facility. As of September 30, 2023, the Company was in compliance with the minimum net worth covenant in the Credit Agreement. For further discussion of the Credit Agreement, refer to Part I, Item 1, Note 8 "Debt."

Dividends

Dividends paid to shareholders totaled ~~$4.0~~$12.1 million and ~~$3.8~~$11.8 million in the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022, respectively. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

Table of Contents

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 of the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at ~~March 31,~~September 30, 2023, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, is able to make a maximum of ~~$62.8~~$59.8 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 ~~increased~~decreased to ~~$751.8~~$644.9 million at ~~March 31,~~September 30, 2023, from $740.1 million at December 31, 2022. The Company's b~~ook~~book value per share was ~~$29.80,~~$25.53, which is ~~an increase~~a decrease of ~~$0.44~~$3.83 per share, or ~~1.5~~13.0 percent, from December 31, 2022. The ~~increase~~decrease is primarily attributable to ~~the $14.7~~net loss of $49.3 million, ~~increase in the~~ net unrealized ~~value from our~~depreciation after tax of $34.8 million on fixed maturity securities, ~~net of tax,~~ and ~~net income of $0.7 million, offset by~~ shareholder dividends of ~~$4.0~~$12.1 million during the first ~~three~~nine months of 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 the request of certain of the ~~partnership.~~partnerships. Our remaining potential contractual obligation was ~~$40.0~~$32.2 million at ~~March 31,~~September 30, 2023.

~~Table of Contents~~

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 lockup with a 60-day minimum notice, with 4four possible repurchase dates per year after the three-year lockup period has concluded. The fair value of the investment at ~~March 31,~~September 30, 2023 was ~~$24.7~~$25.2 million and there are no remaining capital contribution obligations with this investment.

4550

Table of Contents

MEASUREMENT OF RESULTS

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

Catastrophe losses is an operational measure 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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	(In Thousands)	2023		2022			(In Thousands)	2023		2022		2023		2022
ISO catastrophes	ISO catastrophes	$	12,562	$	7,905		ISO catastrophes	$	10,749	$	27,816	$	56,354	$	62,179
Non-ISO catastrophes (1)	Non-ISO catastrophes (1)	(898)		(1,728)			Non-ISO catastrophes (1)	4,546		(607)		3,705		(806)
Total catastrophes	Total catastrophes	$	11,664	$	6,177		Total catastrophes	$	15,295	$	27,209	$	60,059	$	61,373

(1) This number includes international assumed losses.

4651

Table of Contents

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 ~~March 31,~~September 30, 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~~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.

4752

Table of Contents

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of ~~March 31,~~September 30, 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/A for the year ended December 31, 2022 filed with the SEC on March 1, ~~2023.~~ 2023 and additionally by the following additional and updated risk factors:

AM Best recently announced a downgrade of the credit ratings of UFG and its property/casualty subsidiaries. A further downgrade in our financial strength or issuer credit ratings could result in a loss of business and could have a material adverse effect on our financial condition, results of operations and liquidity.

Ratings are an important factor in establishing the competitive position of insurance companies. Third-party rating agencies assess and rate the claims-paying ability, balance sheet strength and creditworthiness of insurers and reinsurers based on criteria established by the agencies. A.M. Best rates our property and casualty insurance companies on a group basis. Since 2012, A.M. Best has also provided an issuer credit rating to our parent holding company.

Financial strength and issuer credit ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength, creditworthiness and quality of insurers and reinsurers. These ratings are not evaluations directed to potential purchasers of our common stock, and are not recommendations to buy, sell or hold our common stock. These ratings are subject to change at any time and could be revised upward or downward or revoked at the discretion of the rating agency.

On August 18, 2023, UFG and our property/casualty subsidiaries received a rating downgrade from A.M. Best. For our property/casualty subsidiaries, the Financial Strength Rating (FSR) was downgraded to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) was downgraded to "a-" (Excellent) from "a" (Excellent). Concurrently, for UFG, AM Best has downgraded the Long-Term ICR to "bbb-" (Good) from "bbb" (Good). The outlook of these ratings has been revised to stable from negative.

The recent downgrades and any further downgrades in our financial strength ratings could adversely affect our ability to transact our current business, access the capital markets, lead to increased borrowing costs, or elevate interest rates. For more information, see Note 8 "Debt" in the Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q. Perceptions of the Company by investors, producers, other businesses and consumers could also be significantly impaired.

The ratings assigned by A.M. Best are an important factor in marketing our products. Our ability to retain our existing business, and to attract new business in our insurance operations is affected by our ratings from A.M. Best. Failure to maintain our ratings, or any other further adverse changes with respect to our ratings, could motivate current and future independent agents and policyholders to choose to transact their business with more highly rated competitors. If A.M. Best further downgrades our ratings or publicly indicates that our ratings are under review, it is possible that we will not be able to compete as effectively, leading to a decrease in premium revenue and earnings. For example, many of our agencies and policyholders have guidelines that require us to have an A.M. Best financial strength rating of "A-" or higher. A reduction of our A.M. Best ratings below "A-" could prevent us from issuing policies to a portion of our current policyholders or other potential policyholders with ratings requirements.

The failure of our insurance company subsidiaries to maintain their current ratings could dissuade a lender or reinsurance company from conducting business with us. A further ratings downgrade could also cause some of our

Table of Contents

existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations.

Our stock price could become more volatile and your investment could lose value.

The market price of our common stock historically has been, and we expect will continue to be, subject to fluctuations. These fluctuations may be due to our operating results or factors specific to our operations (including those discussed in our risk factors), changes in securities analysts’ estimates of our future financial performance, ratings or recommendations, our results falling below our expectations and analysts’ and investors’ expectations, the failure of our capital return programs to meet analysts’ and investors’ expectations, significant catastrophe events, departure of key personnel, cyberattacks, or factors largely outside of our control, including those affecting the property and casualty insurance industry. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the actual operating performance of listed companies. These fluctuations could adversely affect the price of our common stock.

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 Board of Directors reauthorized the share repurchase program in November 2022 through August 2024. There are ~~1,528,886~~1,719,326 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 ~~March 31,~~September 30, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

~~None.~~Securities Trading Plans of Officers and Directors

UFG has an Insider Trading Policy applicable to all individuals, including officers and directors of UFG, who have access to nonpublic information about UFG which limits the periods during which officers and directors are allowed to trade in Company securities. UFG's Insider Trading Policy permits trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), referred to as "Rule 10b5-1 trading plans." Under UFG's Insider Trading Policy, enactment of a Rule 10b5-1 trading plan by an officer or director requires approval by UFG's Nominating & Governance Committee, the Chief Executive Officer, or the Chief Financial Officer. During the third quarter of 2023, none of UFG's directors or officers adopted or terminated Rule 10b5-1 trading plans and none of UFG's directors or officers adopted or terminated a non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(c) of Regulation S-K).

4854

Table of Contents

ITEM 6. EXHIBITS

Exhibit number

Exhibit description

Furnished herewith

Filed herewith

10.1*10.1

~~Amended executive employment offer letter~~Credit Facility Amendment and Waiver Agreement, dated August 7, 2023 (incorporated by reference to ~~Julie Stephenson, Chief Operating Officer, dated March 1, 2023~~Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2023)

31.1

Certification of Kevin J. 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 J. 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 ~~March 31,~~September 30, 2023 formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Balance Sheets as of ~~March 31,~~September 30, 2023 (unaudited) and December 31, 2022; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the ~~three-months~~three- and nine -months ended ~~March 31,~~September 30, 2023 and 2022; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the ~~three-months~~three- and nine -months ended ~~March 31,~~September 30, 2023 and 2022; (iv) Consolidated Statements of Cash Flows (unaudited) for the ~~three-months~~nine -months ended ~~March 31,~~September 30, 2023 and 2022; 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.

4955

~~Table of Contents~~

SIGNATURES

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


UNITED FIRE GROUP, INC.
(Registrant)

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


~~May 9,~~November 2, 2023						~~May 9,~~November 2, 2023
(Date)						(Date)


	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