UNITED FIRE GROUP INC – 10-K – 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 Operation should be read in conjunction with Part II, Item 8,
"Financial Statements and Supplementary Data." Amounts (except per share
amounts) are presented in thousands, unless otherwise noted.

FORWARD-LOOKING STATEMENTS

It is important to note that our actual results could differ materially from
those projected in any forward-looking statements in this Annual Report on Form
10-K. Please refer to "Forward-Looking Information" and Part I, Item 1A, "Risk
Factors" of this report for information concerning factors that could cause
actual results to differ materially from the forward-looking statements
contained in this Annual Report on Form 10-K.

BUSINESS OVERVIEW

Originally founded in 1946 as United Fire & Casualty Company, United Fire Group,
Inc. and its consolidated insurance company subsidiaries provide insurance
protection for individuals and businesses through several regional companies.
Our property and casualty insurance company subsidiaries are licensed in 50
states plus the District of Columbia and are represented by approximately 1,000
independent agencies.

Reportable Segments

Our property and casualty insurance business operates and reports as one
business segment. For more information, refer to Part I, Item 1 "Business" under
"General Description."

Pooling Arrangement

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

Geographic Concentration

Property and Casualty Insurance Business

For 2021, approximately 50.0 percent of our property and casualty premiums were
written in Texas, California, Iowa, Missouri and New Jersey.

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In 2021, 2020 and 2019 the direct statutory premiums written by our property and
casualty insurance operations were distributed as follows:

                                          Years Ended December 31,                              % of Total
(In Thousands)                       2021           2020           2019            2021             2020            2019
Texas                            $  158,676    $   192,841    $   205,420              17.4  %         18.1  %         18.0  %
California                          119,171        127,168        129,850              13.1            11.9            11.4
Iowa                                 73,097         91,176         96,052               8.0             8.6             8.4
Missouri                             55,693         72,527         73,735               6.1             6.8             6.4
New Jersey                           49,468         53,406         51,539               5.4             5.0             4.5
Louisiana                            39,280         45,168         46,827               4.3             4.2             4.1
Colorado                             38,761         46,394         54,907               4.3             4.4             4.8
Minnesota                            35,697         39,501         47,890               3.9             3.7             4.2
South Dakota                         30,429         35,166         35,036               3.3             3.3             3.1
Illinois                             29,755         39,562         40,443               3.3             3.7             3.5
All Other States                    281,485        322,409        361,673              30.9            30.3            31.6
Direct Statutory Premiums
Written                          $  911,512    $ 1,065,318    $ 1,143,372   

100.0 % 100.0 % 100.0 %

Sources of Revenue and Expense

We evaluate profit or loss based upon operating and investment results. Profit
or loss described in the following sections of this Management's Discussion and
Analysis is reported on a pre-tax basis. Our primary sources of revenue are
premiums and investment income. Major categories of expenses include losses and
loss settlement expenses, underwriting and other operating expenses.

Profit Factors

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

COVID-19

The spread of the COVID-19 virus, beginning in mid-March 2020, caused
significant financial market volatility, economic uncertainty and interruptions
to normal business activities. The COVID-19 pandemic has had a profound impact
on day-to-day life, financial markets and the economy in the United States. The
Company, in response to the challenges presented by the COVID-19 pandemic,
activated its pre-existing business continuity plans to respond to a pandemic in
mid-March 2020. With the exception of our essential services employees, UFG
dispatched its staff to work remotely for the safety, health and well-being of
our employees. We have been and continue to be fully operational during the
pandemic. In the second half of 2021, we gave employees the option to work fully
remote, a hybrid schedule or return to the workplace 100 percent of the time
depending on the position and with manager approval. Our employees who are
working in the office are following recommended health and safety policies. We
continue to evaluate our plan and will make any necessary adjustments in light
of the emergence of variant strains and current case counts where our offices
are located. We have implemented and will continue to implement any safety
measures necessary for the safety and health of our employees.

The implementation of our business continuity plans did not have a material
effect on our internal control environment. We believe our operational
processes, internal controls over financial reporting and disclosures, and
financial reporting systems are operating effectively in the present
environment.

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Nearly all of the policies we have issued contain contract language that
specifically excludes business interruption coverage for losses due to viruses
such as the COVID-19 pandemic, but we continue to carefully scrutinize each
claim and intend to afford coverage when appropriate. At this time, we expect
the effect of the COVID-19 pandemic on claims currently under our coverages to
be manageable, based on the information presently available. However, the
effects of the COVID-19 pandemic, including the emergence of variant strains,
continue to evolve and we cannot predict the extent to which our business,
results of operations, financial condition or liquidity will ultimately be
impacted. Additionally, if established written contract policy exclusions of
business interruption coverage for losses attributable to the COVID-19 pandemic
are voided or changed through legislation, regulations or interpretations by the
courts, such changes have the potential to materially increase claims, losses
and legal expenses which could impact our business, financial condition, results
of operations and liquidity.

We believe our current liquidity position is sufficient to maintain our current
operations and we have the ability to draw on our credit facility if needed. See
Part II, Item 8, Note 13 "Debt" for more information. Our share repurchase
program was suspended in mid-March 2020 and restarted in the first quarter of
2021. Also, the Company maintained the payment of quarterly cash dividends
during 2020 and 2021, with the dividends paid in December 2021 marking the 215th
consecutive quarter of paying dividends since March 1968.

Stockholders' equity increased to $879.1 million at December 31, 2021, from
$825.1 million at December 31, 2020. This increase was primarily attributed to a
net income of $80.6 million and change in liability for employee benefit plans
of $20.7 million, partially offset by shareholder dividends of $15.1 million and
a decrease in net unrealized investment gains on fixed maturity securities of
$33.3 million, net of tax.

We evaluate goodwill and other intangible assets for impairment at least on an
annual basis or whenever events or changes in circumstances indicate that it is
more likely than not that the carrying amount of goodwill and other intangible
assets may exceed their implied fair value. Goodwill is evaluated at the
reporting unit level, for which we have one reporting unit level. Any impairment
is charged to operations in the period that the impairment is identified. During
the third quarter of 2020, we completed our annual quantitative analysis of
goodwill. As a result of the quantitative analysis, we impaired the remaining
balance of our goodwill of $15.1 million as of September 30, 2020 based on the
following factors: (i) disruptions in the equity markets, specifically for
property and casualty insurance companies, as a result of the COVID-19 pandemic
and due to recent weather related catastrophes; (ii) recent elevated commercial
auto loss ratios; and (iii) the fair value of our stock trading significantly
below book value. The Company used a weighting of the income and market
approaches to determine the fair value of the reporting unit.

As of December 31, 2021, we intend to keep all assets currently leased and honor
the terms of the contracts. Also, we have four lease contracts where we are the
lessor which we evaluated for impairment. As of December 31, 2021, all payments
on these contracts had been received and we fully expect to receive all future
payments on time. In the event that we receive any lease-related relief provided
to mitigate the economic effects of the COVID-19 pandemic, we elect not to
evaluate whether or not the relief represents a lease modification.

The decline in certain sectors of the equity markets in 2020 due to the COVID-19
pandemic did have a material impact on the fair value of our investments in
equity securities and limited liability partnerships. The Company's investment
philosophy, objectives, approach and program have not changed as a result of the
COVID-19 pandemic. During 2021 we had a recovery in the fair value of equity
securities of $47.4 million and an increase in value of our investments in
limited liability partnerships of $9.7 million from the values reported at
December 31, 2020.

The Company has a highly rated fixed maturity portfolio, with low credit risk.
The Company recognized a decrease in unrealized gains of $33.3 million, net of
tax, at December 31, 2021 on its available-for-sale fixed maturity portfolio due
to a decrease in the size of the fixed maturity portfolio and an increase in
interest rates. In addition, we adopted new accounting guidance on January 1,
2020, which changes the measurement of credit losses for our investment in
available-for-sale fixed maturities and our mortgage loans and also impacts our
reinsurance receivables. The adoption of this new guidance resulted in an
immaterial allowance for credit losses to be recorded for each of these assets
on our balance sheet as of December 31, 2021. For more information on credit
losses, please
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refer to Part II, Item 8, Note 1 "Summary of Significant Accounting Policies"
and Note 2 "Summary of Investments" of this Annual Report on Form 10-K.

MEASUREMENT OF RESULTS

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

Management evaluates our operations by monitoring key measures of growth and
profitability. We believe that disclosure of certain non-GAAP financial measures
enhances investor understanding of our financial performance. The following
provides further explanation of the key measures management uses to evaluate our
results:

Catastrophe losses is a commonly used non-GAAP financial 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 of our financial results that it is more meaningful to
exclude extraordinary catastrophe losses and resulting litigation. The frequency
and severity of catastrophic losses we experience in any year affect our results
of operations and financial position. In analyzing the underwriting performance
of our property and casualty insurance 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.

                                    Years Ended December 31,
(In Thousands)                 2021           2020           2019
ISO catastrophes            $ 83,387       $ 141,425      $ 56,357
Non-ISO catastrophes (1)      15,230             579         8,011
Total catastrophes          $ 98,617       $ 142,004      $ 64,368

(1) Includes international assumed losses.

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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019

FINANCIAL HIGHLIGHTS

                                                         Years Ended December 31,                                     % Change
                                                                                                             2021                  2020
(In Thousands)                                2021                 2020                 2019               vs. 2020              vs. 2019
Revenues
Net premiums earned                      $   962,823          $ 1,055,082          $ 1,086,972                  (8.7) %              (2.9) %
Investment income, net of investment
expenses                                      55,778               39,670               60,414                  40.6                (34.3)

Net investment gains (losses)                 47,383              (32,395)              53,779                (246.3)                     NM
Other income                                     207                6,270                    -                 (96.7)                     NM
Total revenues                           $ 1,066,191          $ 1,068,627          $ 1,201,165                  (0.2) %             (11.0) %

Benefits, losses and expenses
Losses and loss settlement expenses      $   652,155          $   869,467          $   830,172                 (25.0) %               4.7  %
Amortization of deferred policy
acquisition costs                            203,432              210,252              216,699                  (3.2)                (3.0)
Other underwriting expenses                  110,574              143,332              137,415                 (22.9)                 4.3
Goodwill impairment                                -               15,091                    -                (100.0)                     NM
Interest expense                               3,187                    -                    -                       NM                 -

Total benefits, losses and expenses $ 969,348 $ 1,238,142

        $ 1,184,286                 (21.7) %               4.5  %

Income (loss) before income taxes $ 96,843 $ (169,515)

        $    16,879                (157.1)                     NM
Federal income tax expense (benefit)          16,249              (56,809)               2,059                (128.6)                     NM
Net income (loss)                        $    80,594          $  (112,706)         $    14,820                (171.5)                     NM

GAAP Ratios:
Net loss ratio (without catastrophes)           57.5  %              68.9  %              70.5  %              (16.5) %              (2.3) %
Catastrophes - effect on net loss ratio         10.2  %              13.5  %               5.9  %              (24.4) %             128.8  %
Net loss ratio(1)                               67.7  %              82.4  %              76.4  %              (17.8) %               7.9  %
Expense ratio(2)                                32.6  %              33.5  %              32.6  %               (2.7) %               2.8  %
Combined ratio(3)                              100.3  %             115.9  %             109.0  %              (13.5) %               6.3  %


NM = not meaningful
(1) The net loss ratio is calculated by dividing the sum of losses and loss
settlement expenses by net premiums earned. We use the net loss ratio as a
measure of the overall underwriting profitability of the insurance business we
write and to assess the adequacy of our pricing. Our net loss ratio is
meaningful in evaluating our financial results as reported in our Consolidated
Financial Statements.
(2) The 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.
(3) The combined ratio is a commonly used financial measure of property and
casualty underwriting performance. A combined ratio below 100.0 percent
generally indicates a profitable book of business. The combined ratio is the sum
of the net loss ratio and the underwriting expense ratio.

Net income reported in 2021 as compared to a net loss in 2020 was primarily due
to a decrease in losses and loss settlement expenses, a decrease in other
underwriting expenses, an increase in investment income and net investment gains
from an increase in the fair value of equity securities, as compared to net
investment losses for the same period in 2020. These were partially offset by a
decrease in net premiums earned.

In 2020, the decrease in net income compared to 2019 was primarily due to a
decrease in the fair value of equity securities, realized losses on sales of
equity securities, increases in losses and loss settlement expenses, namely from
catastrophe losses and an increase in severity of losses, decrease in net
premiums earned, a decrease in net investment income and goodwill impairment.

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Premiums

The following table shows our premiums written and earned for 2021, 2020 and
2019:

                                                                                                                     % Change
(In Thousands)                                                                                             2021                    2020
Years ended December 31,                 2021                 2020                  2019                 vs. 2020                vs. 2019
Direct premiums written              $ 911,514           $ 1,065,318           $ 1,143,372                    (14.4) %                (6.8) %
Assumed premiums written               130,375                34,371                27,869                    279.3                   23.3
Ceded premiums written                (100,541)              (88,339)              (74,511)                    13.8                   18.6
Net premiums written(1)              $ 941,348           $ 1,011,350           $ 1,096,730                     (6.9) %                (7.8) %
Less: change in unearned premiums       25,112                40,317               (12,244)                   (37.7)                       NM
Less: change in prepaid reinsurance
premiums                                (3,637)                3,415                 2,486                   (206.5)                  37.4
Net premiums earned                  $ 962,823           $ 1,055,082           $ 1,086,972                     (8.7) %                (2.9) %


NM = not meaningful
(1) Net premiums written: Net premiums written is a non-GAAP measure. While not
a substitute for any GAAP measure of performance, net premiums written is
frequently used by industry analysts and other recognized reporting sources to
facilitate comparisons of the performance of insurance companies. Net premiums
written are the amount charged for insurance policy contracts issued and
recognized on an annualized basis at the effective date of the policy.
Management believes net premiums written are a meaningful measure for evaluating
insurance company sales performance and geographical expansion efforts. Net
premiums written for an insurance company consists of direct premiums written
and reinsurance assumed, less reinsurance ceded. Net premiums earned is
calculated on a pro rata basis over the terms of the respective policies.
Unearned premium reserves are established for the portion of premiums written
applicable to the unexpired term of insurance policy in force. The difference
between net premiums earned and net premiums written is the change in unearned
premiums and change in prepaid reinsurance premiums.

Net Premiums Written

Net premiums written comprise direct and assumed premiums written, less ceded
premiums written. Direct premiums written are the total policy premiums, net of
cancellations, associated with policies issued and underwritten by our property
and casualty insurance business. Assumed premiums written are the total premiums
associated with the insurance risk transferred to us by other insurance and
reinsurance companies pursuant to reinsurance contracts. Ceded premiums written
is the portion of direct premiums written that we cede to our reinsurers under
our reinsurance contracts. Net premiums earned are recognized ratably over the
life of a policy and differ from net premiums written, which are recognized on
the effective date of the policy.

Direct Premiums Written

Direct premiums written decreased $153.8 million in 2021 as compared to 2020
primarily due to our focus on improving profitability through non-renewal of
under-performing accounts in our commercial auto line of business and our exit
from the personal lines business which began in September 2020. Direct premiums
written decreased $78.1 million in 2020 as compared to 2019 primarily due to our
focus on improving profitability through non-renewal of underperforming accounts
in our commercial auto line of business, sale of the renewal rights of our
personal lines business to Nationwide and, to a lesser extent, a reduction due
to the COVID-19 pandemic.

Assumed Premiums Written

Assumed premiums written increased $96.0 million in 2021 as compared to 2020 due
to growth of our assumed book by the addition of new programs and cedant premium
growth.

Assumed premiums written increased $6.5 million in 2020 as compared to 2019 due
to growth of our assumed book by the addition of new programs and cedant premium
growth.


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Ceded Premiums Written

Direct and assumed premiums written are reduced by the ceded premiums that we
pay to reinsurers. For 2021, we ceded 13.8 percent more premiums to reinsurers
related to the Fund's at Lloyd's agreement offset by a decrease in written
premium for ICAT, decrease in reinstatement premium paid for CAT events, and
decreased placement of facultative reinsurance. For 2020, we ceded 18.6 percent
more premiums to reinsurers as a result of increased placement of facultative
reinsurance, continued growth in managing general agency contracts and ceded
reinstatement paid.

Losses and Loss Settlement Expenses

Climate Change and Catastrophe Exposures

Catastrophe losses are inherent risks of the property and casualty insurance
business. Catastrophic events include, without limitation, hurricanes,
tornadoes, earthquakes, hailstorms, wildfires, high winds, winter storms and
other natural disasters, along with man-made exposures to losses resulting from,
without limitation, acts of war, acts of terrorism and political instability.
Such events result in insured losses that can be, and may continue to be, a
material factor in our results of operations and financial position, as the
extent of losses from a catastrophe is a function of both the total amount of
insured exposure in an area affected by the event and the severity of the event.
Because the level of insured losses that may occur in any one year cannot be
accurately predicted, these losses contribute to fluctuations in our
year-to-year results of operations and financial position. Some types of
catastrophes are more likely to occur at certain times within the year than
others, which adds an element of seasonality to our property and casualty
insurance claims. Our property and casualty insurance business experiences some
seasonality with regard to premiums written, which are generally highest in
January and July and lowest during the fourth quarter. Losses and loss
settlement expenses incurred tend to remain consistent throughout the year, with
the exception of catastrophe losses, which generally are highest in the second
and third quarters. The frequency and severity of catastrophic events are
difficult to accurately predict in any year. However, some geographic locations
are more susceptible to these events than others.

We control our direct insurance exposures in regions that are prone to naturally
occurring catastrophic events through a combination of geographic
diversification, restrictions on the amount and location of new business
production in such regions, and reinsurance. We regularly assess our
concentration of risk exposures in natural catastrophe exposed areas and
consider the impacts of climate change and the unpredictability of future trends
in adjusting our geographic concentrations in emerging areas of the United
States. We have strategies and underwriting standards to manage these exposures
through individual risk selection, subject to regulatory constraints, and
through the purchase of catastrophe reinsurance coverage. We use catastrophe
modeling and a risk concentration management tool to monitor and control our
accumulations of potential losses in natural catastrophe exposed areas of the
United States, such as the Gulf and East Coasts, as well as in areas of exposure
in other countries where we are exposed to a portion of an insurer's
underwriting risk under our assumed reinsurance contracts.

Overall, the models indicate increased risk estimates for our exposure to
hurricanes in the U.S., but the impact of the models on our book of business
varies significantly among the regions that we model for hurricanes. Based on
our analysis, we have implemented more targeted underwriting and rate
initiatives in some regions. We intend to continue to take underwriting actions
and/or purchase additional reinsurance as necessary to reduce our exposure.

Catastrophe modeling generally relies on multiple inputs based on experience,
science, engineering and history, and the selection of those inputs requires a
significant amount of judgment. The modeling results may also fail to account
for risks that are outside the range of normal probability or are otherwise
unforeseen. Because of this, actual results may differ materially from those
derived from our modeling assumptions.

Despite our efforts to manage our catastrophe exposure, the occurrence of one or
more severe natural catastrophic events in heavily populated areas could have a
material effect on our results of operations, financial condition or liquidity.
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The process of estimating and establishing reserves for losses incurred from
catastrophic events is inherently uncertain and the actual ultimate cost of a
claim, net of reinsurance recoveries, may vary materially from the estimated
amount reserved. Although we reinsure a portion of our exposure, reinsurance may
prove to be inadequate if a major catastrophic event exceeds our reinsurance
limits or if we experience a number of small catastrophic events that
individually fall below our reinsurance retention level.

Catastrophe Losses

In 2021, our pre-tax catastrophe losses were $98.6 million, a decrease of
$43.4 million compared to $142.0 million in 2020 and an increase of $34.2
million as compared to $64.4 million in 2019. In 2021, our catastrophe losses
included 58 events. Catastrophe losses in 2021 added 10.2 percentage points to
the combined ratio, which is above our historical 10-year average of 7.3
percentage points.

In 2020, our pre-tax catastrophe losses were $142.0 million, an increase of
$77.6 million compared to $64.4 million in 2019 and an increase of $95.3 million
as compared to $46.7 million in 2018. In 2020, our catastrophe losses included
60 catastrophes with the largest event being the August Midwest derecho.
Catastrophe losses in 2020 added 13.5 percentage points to the combined ratio,
which is above our historical 10-year average of 7.4 percentage points.

Catastrophe Reinsurance

In 2021, we exceeded our catastrophe reinsurance retention level of $20.0
million with winter storm Uri which caused widespread freezing damages across
multiple states in February. Uri was a full retention loss, with losses in
excess of our stated reinsurance retention of $20.0 million. Total losses from
this storm, including assumed reinsurance, were $28.5 million with $7 million of
reinsurance recoveries. In 2021, we also exceeded our catastrophe reinsurance
retention level of $20.0 million from further loss development from the April
2020 Midwest hail storm. A majority of the losses occurred in 2020, with the
reinsurance retention level reached in 2021.

In 2020, we exceeded our catastrophe reinsurance retention level of $20.0
million with the August Midwest derecho, causing widespread storms and high
winds. The August Midwest derecho was a full retention loss, with losses in
excess of our stated reinsurance retention of $20.0 million. Total losses from
this storm incurred in 2020 were $101.8 million with $81.8 million of
reinsurance recoveries. In 2019, we did not exceed our catastrophe reinsurance
retention level of $20.0 million per event.

We use many reinsurers, both domestic and foreign, which helps us to avoid
concentrations of credit risk associated with our reinsurance. All reinsurers we
do business with must meet the following minimum criteria: capital and surplus
of at least $300.0 million and an A.M. Best rating or an S&P rating of at least
"A-." If a reinsurer is rated by both rating agencies, then both ratings must be
at least an "A-."










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The following table represents the primary reinsurers we utilize and their
financial strength ratings as of December 31, 2021:

Name of Reinsurer                         A.M. Best    S&P Rating
Everest Reinsurance Company(2)               A+            A+
General Reinsurance Corporation(2)           A++          AA+
Hannover Rueckversicherung AG (1) (2)        A+           AA-
Lloyd's                                       A            A+
Munich Re(2)                                 A+           AA-
Odyssey Re(2)                                 A            A-
Partner Re(1)(2)                             A+            A+
QBE Reinsurance Corporation(1)                A            A+

SCOR Reinsurance Company(1)(2)               A+           AA-
Toa Re(1)                                     A            A+

Transatlantic Re(1)                          A+            A+


(1)Primary reinsurers participating in the property and casualty excess of loss
programs.
(2)Primary reinsurers participating in the surety excess of loss program.

Refer to Part II, Item 8, Note 4 "Reinsurance" for further discussion of our
reinsurance programs.

Terrorism Coverage

The Terrorism Risk Insurance Program Reauthorization Act of 2019 ("TRIPRA") is
the fourth reauthorization of the law, which was previously reauthorized in
2005, 2007, and 2015. TRIPRA coverage is effective through December 31, 2027 and
preserves the current industry loss trigger of $200 million per year, and
gradually increased the industry-wide retention to $37.5 billion per year.
TRIPRA coverage includes most direct commercial lines of business, including
coverage for losses from nuclear, biological and chemical exposures if coverage
was afforded by an insurer, with exclusions for commercial automobile insurance,
burglary and theft insurance, surety, professional liability insurance and farm
owners multiple peril insurance. Under TRIPRA, each insurer has a deductible
amount, which is 20.0 percent of the prior year's direct commercial lines earned
premiums for the applicable lines of business, and retention of 15.0 percent
above the deductible. No insurer that has met its deductible shall be liable for
the payment of any portion of that amount that exceeds the annual aggregate loss
cap specified in TRIPRA. TRIPRA provides marketplace stability. As a result,
coverage for terrorist events in both the insurance and reinsurance markets is
often available. The amount of aggregate losses necessary for an act of
terrorism to be certified by the U.S. Secretary of Treasury, the Secretary of
State and the Attorney General was $200.0 million for 2021 and remains the same
for 2022. Our TRIPRA deductible was $139.8 million for 2021 and our TRIPRA
deductible is expected to be $132.6 million for 2022. Our catastrophe and
non-catastrophe reinsurance programs provide limited coverage for terrorism
exposure excluding nuclear, biological and chemical-related claims.

2021 Results

In 2021, our losses and loss settlement expenses were 25.0 percent lower than
2020 and our net loss ratio decreased 14.7 points. The decrease in losses and
loss settlement expenses was primarily due to a decrease in frequency and
severity of commercial auto liability losses and comparatively lower catastrophe
losses. In 2021, catastrophe losses were $98.6 million in both our direct
business and assumed reinsurance business as compared to $142.0 million in 2020.

2020 Results

In 2020, our losses and loss settlement expenses were 4.7 percent higher than
2019 and our net loss ratio increased 6.0 points. The increase was primarily
driven by an increase in the severity of losses from social inflation, an
increase in catastrophe losses and prior accident year reserve strengthening.
With the continued escalation of losses from social inflation, especially with
commercial auto and auto liability losses industry wide, we focused on
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continuing our strategic plan to reduce the size of our commercial auto book in
2021. By reducing commercial auto exposure units in underperforming accounts and
growing more profitable lines of business such as excess and surplus, surety and
assumed reinsurance, we achieved a better balance in our portfolio. Catastrophe
losses increased to $142.0 million in both our direct business and assumed
reinsurance business as compared to $64.4 million in 2019.

Reserve Development

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


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

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

2021 Development

The property and casualty insurance business experienced $48.9 million of
favorable development in our net reserves for prior accident years for the
twelve-month period ended December 31, 2021. Two lines contributed the majority
of favorable development with the largest contribution coming from commercial
automobile which had $43.3 million favorable development, followed by workers'
compensation which had $10.9 million favorable development. All other individual
lines, with the exception of commercial other liability, experienced favorable
development. Commercial other liability experienced $20.7 million of unfavorable
development. The favorable development for commercial automobile was from both
loss and loss adjustment expense ("LAE") where reductions of reserves for unpaid
liabilities were more than sufficient to offset actual paid loss and paid LAE.
The favorable development for workers compensation was from both loss and LAE
and for loss the reductions in reserves for reported claims were more than
sufficient to offset paid loss; reductions in reserves for IBNR claims also
contributed favorable development in addition to LAE where reductions in
reserves more than sufficient to offset payments. Commercial other liability
experienced unfavorable development due to paid loss which was greater than
reductions in reserves for unpaid loss; LAE developed favorably and partially
offset the unfavorable loss development.

2020 Development

The property and casualty insurance business experienced $17.7 million of
favorable development in our net reserves for prior accident years for the
twelve-month period ended December 31, 2020. Four lines contributed the majority
of favorable development with the largest contribution coming from workers'
compensation which had $25.4 million favorable development followed by
commercial fire and allied lines which had $10.7 million

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favorable development. The two other lines which experienced favorable
development were fidelity and surety with $2.1 million favorable development and
personal automobile with $1.9 million favorable development. The favorable
development for workers' compensation was primarily from reductions in reserves
for reported claims which were more than sufficient to offset paid loss.
Reductions in reserves for IBNR claims also contributed favorable development in
addition to LAE where reductions in reserves more than sufficient to offset
payments. Commercial fire and allied lines developed favorably because
reductions in reserves for reported claims combined with reductions in reserves
for IBNR claims were more than sufficient to offset paid loss; LAE also
contributed favorable development with reductions in reserves more than
sufficient to offset payments. Fidelity and surety loss developed favorably
because a reduction in reserves for IBNR claims was more than sufficient to
offset both paid loss and increases in reserves for reported claims. The
personal automobile line of business developed favorably because reductions of
reserves for reported claims combined with reductions of reserves for IBNR
claims were more than sufficient to offset paid loss; LAE also contributed
favorable development with reductions in reserves more than sufficient to offset
payments. Much of the favorable development was offset by unfavorable
development from three lines with the largest contribution coming from
commercial liability which experienced $12.8 million unfavorable development.
The two other lines which experienced unfavorable development were reinsurance
assumed with $6.4 million unfavorable development and commercial automobile with
$4.0 million unfavorable development. The commercial liability line of business
experienced unfavorable development due to paid loss which was greater than
reductions in reserves for unpaid loss; LAE developed favorably and partially
offset the unfavorable loss development. The unfavorable development for the
reinsurance assumed line of business was due to paid loss which was greater than
reductions in reserves for unpaid loss. The commercial automobile line of
business experienced unfavorable development because paid loss was greater than
reductions in reserves for unpaid loss, but a portion of the unfavorable loss
development was offset by favorable development from LAE where payments were
more than offset by reductions of reserves for unpaid loss adjustment expense.
On an all lines combined basis, favorable development is attributable to LAE
which continues to benefit from additional litigation management efforts. The
lines of business not mentioned individually above contributed an additional
combined total of $0.8 million of favorable development.

2019 Development

The property and casualty insurance business experienced $5.3 million of
favorable development in our net reserves for prior accident years for the year
ended December 31, 2019. Four lines contributed favorable development with the
largest contribution coming from workers' compensation, which had $37.3 million
favorable development. The three other lines that experienced favorable
development were fidelity and surety with $3.1 million favorable development,
commercial fire and allied lines with $2.3 million favorable development, and
personal automobile with $1.2 million favorable development. The favorable
development for workers' compensation was primarily from reductions in reserves
for reported claims which were more than sufficient to offset paid loss; LAE
also contributed favorable development with reductions in reserves more than
sufficient to offset payments. Fidelity and surety loss developed favorably
because reductions in claim reserves and salvage recoveries were more than
sufficient to offset loss payments. Commercial fire and allied lines developed
favorably due to paid LAE where reductions in reserves for unpaid LAE were more
than sufficient to offset payments. Personal automobile developed favorably
primarily due to paid LAE where reductions in reserves for unpaid LAE were more
than sufficient to offset payments. Much of the favorable development was offset
by unfavorable development from two lines with the largest contribution coming
from commercial liability which experienced $35.0 million unfavorable
development. The other line which experienced unfavorable development was
commercial automobile with $3.4 million unfavorable development. Commercial
liability experienced unfavorable development primarily due to paid loss which
was greater than reductions in reserves for unpaid loss. Paid LAE also
contributed to the unfavorable result in commercial liability. Commercial
automobile experienced unfavorable development because paid loss was greater
than reductions in reserves for unpaid loss, but a portion of the unfavorable
loss development was offset by favorable development from LAE. On an all lines
combined basis, favorable development is attributable to LAE which continues to
benefit from additional litigation management efforts. The lines of business not
mentioned individually above contributed an additional total of $0.2 million of
unfavorable development in the aggregate.

Reserve development amounts can vary significantly from 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

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years and lines of business.

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Net Loss Ratios by Line

The following table depicts our net loss ratios for 2021, 2020 and 2019:

Years ended December 31,                                    2021                                                               2020                                                                2019
                                                      Net Losses and                                                      Net Losses and                                                      Net Losses and
                                 Net Premiums         Loss Settlement                               Net Premiums          Loss Settlement                               Net Premiums          Loss Settlement

(In Thousands)                      Earned           Expenses Incurred       Net Loss Ratio            Earned            Expenses Incurred       Net Loss Ratio            Earned            Expenses Incurred       Net Loss Ratio
Commercial lines
Other liability                 $   299,961          $      184,794                  61.6  %       $    316,098          $      200,280                  63.4  %       $    318,412          $      205,695                  64.6  %
Fire and allied lines               238,881                 177,136                  74.2               245,454                 228,305                  93.0               244,010                 185,033                  75.8
Automobile                          248,135                 181,119                  73.0               296,444                 290,891                  98.1               314,755                 332,740                 105.7
Workers' compensation                61,690                  43,790                  71.0                75,953                  29,463                  38.8                87,376                  25,784                  29.5
Fidelity and surety                  30,989                   2,913                   9.4                28,001                     707                   2.5                25,539                     240                   0.9
Other                                 1,313                     251                  19.1                 1,530                     261                  17.1                 1,710                     105                   6.1

Total commercial lines $ 880,969 $ 590,003

          67.0  %       $    963,480          $      749,907                  77.8  %       $    991,802          $      749,597                  75.6  %

Personal lines
Fire and allied lines           $    14,604          $       20,215                 138.4  %       $     32,061          $       66,815                 208.4  %       $     41,195          $       40,783                  99.0  %
Automobile                            7,144                   5,784                  81.0                27,976                  21,535                  77.0                30,882                  26,920                  87.2
Other                                   361                    (216)                (59.8)                1,148                   3,741                 325.9                 1,232                     132                  10.7
Total personal lines            $    22,109          $       25,783                 116.6  %       $     61,185          $       92,091                 150.5  %       $     73,309          $       67,835                  92.5  %
Reinsurance assumed             $    59,745          $       36,369                  60.9  %       $     30,417          $       27,469                  90.3  %       $     21,861          $       12,740                  58.3  %
Total                           $   962,823          $      652,155                  67.7  %       $  1,055,082          $      869,467                  82.4  %       $  1,086,972          $      830,172                  76.4  %







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Commercial Lines

The net loss ratio in our commercial lines of business, excluding assumed
reinsurance, was 67.0 percent in 2021 compared to 77.8 percent in 2020 and 75.6
percent in 2019. The net loss ratio in 2021 decreased compared to 2020 primarily
due to comparatively lower catastrophe losses and a decrease in frequency and
severity of commercial auto liability losses. The net loss ratio in 2020
increased compared to 2019 primarily due to an increase in catastrophe losses.

Other Liability

Other liability is business insurance covering bodily injury and property damage
arising from general business operations, accidents on the insured's premises
and products manufactured or sold. Because of the long-tail nature of liability
claims, significant periods of time, ranging up to several years, may elapse
between the occurrence of the loss, the reporting of the loss to us and the
settlement of the claim.

In recent years, we began to use our loss control department more extensively in
an attempt to return this line of business to a higher level of profitability.
For example, our loss control department has representatives who make multiple
visits each year to businesses and job sites to ensure safety. We also do not
renew accounts that no longer meet our underwriting or pricing guidelines. We
avoid accounts that have become too underpriced for the risk.

Construction Defect Losses

Incurred losses from construction defect claims were $24.6 million in 2021
compared to $14.8 million and $19.4 million in 2020 and 2019, respectively. At
December 31, 2021, we had $86.8 million in construction defect loss and loss
settlement expense reserves (excluding IBNR reserves which are calculated at the
overall other liability commercial line), which consisted of 4,496 claims. In
comparison, at December 31, 2020, we had reserves of $73.6 million, excluding
IBNR reserves, consisting of 3,983 claims. Our West Coast region continue to be
the origin of the majority of the construction defect claim activity.

Construction defect claims generally relate to allegedly defective work
performed in the construction of structures such as apartments, condominiums,
single family dwellings or other housing, as well as the sale of defective
building materials. Such claims seek recovery due to damage caused by alleged
deficient construction techniques or workmanship. The reporting of such claims
can be quite delayed due to an extended statute of limitations, sometimes up to
ten years. Court decisions have expanded insurers' exposure to construction
defect claims as well. Defense costs are also a part of the insured expenses
covered by liability policies and can be significant, sometimes greater than the
cost of the actual paid claims.

We have exposure to construction defect liabilities in Colorado and surrounding
states. We have historically insured small- to medium-sized contractors in this
geographic area. In an effort to limit the number of future claims from
multi-unit buildings, we implemented policy exclusions in 2009, later revised in
2010, that exclude liability coverage for contractors performing "residential
structural" operations on any building project with more than 12 units or on
single family homes in any subdivision where the contractor is working on more
than 15 homes. The exclusions do not apply to remodeling or repair of an
existing structure. We also changed our underwriting guidelines to add a
professional liability exclusion when contractors prepare their own design work
or blueprints and implemented the multi-family exclusion and tract home building
limitation form for the state of Colorado and our other western states as a
means to reduce our exposure in future years. When offering commercial umbrella
coverage for structural residential contractors, limits of liability are
typically limited to a maximum of $2.0 million per occurrence. Requests to
provide additional insured status for "developers" are declined.

As a result of our acquisition of Mercer Insurance Group, Inc. in 2011, we added
construction defect exposure in the states of California, Nevada and
Arizona. Mercer Insurance Group, Inc. has been writing in these states for more
than 20 years. In order to minimize our exposure to construction defect claims
in this region, we continually review the coverage we offer and our pricing
models. In an effort to limit our exposure from residential multi-unit
buildings, we started including condominium and townhouse construction policy
exclusions in 2012 for our contracting policies in this region. For the majority
of our residential contractors we limit the size of any tracts the
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contractor is working on to 25 homes or less and do not include a continuous
trigger with our designated work exclusion. In a majority of the policies in our
small service, repair and remodel contractors program, we have a favorable new
residential construction exclusion. We also apply strict guidelines when
additional insured forms are required and changed our underwriting guidelines to
limit our exposure to large, multi-party construction defect claims.

Commercial Fire and Allied Lines

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

The net loss ratio improved 18.8 percentage points in 2021 compared to 2020. The
improvement is attributable to a decrease in catastrophe losses in 2021 as
compared to 2020.

Commercial Automobile

Our commercial automobile insurance covers physical damage to an insured's
vehicle, as well as liabilities to third parties. Automobile physical damage
insurance covers loss or damage to vehicles from collision, vandalism, fire,
theft, flood or other causes. Automobile liability insurance covers bodily
injury, damage to property resulting from automobile accidents caused by the
insured, uninsured or under-insured motorists and the legal costs of defending
the insured against lawsuits.

The net loss ratio improved 25.1 percentage points in 2021 compared to 2020. The
improvement is attributable to a decrease in frequency and severity of
commercial auto losses, which is the direct result of our strategic plan to
increase the quality of our commercial auto book of business through non
renewing underperforming accounts and rate increases.

Workers' Compensation

We consider our workers' compensation business to be a companion product; we
rarely write stand-alone workers' compensation policies. Our workers'
compensation insurance covers primarily small- to mid-size accounts. The net
loss ratio deteriorated 32.2 percentage points in 2021 compared to 2020. This
line has experienced an increase in frequency of losses, a decline in rates for
several consecutive years and a decrease in favorable prior accident year
reserved development, which is a direct results of an improvement in our
reserving accuracy.

Competitive market conditions continue in 2021 for workers' compensation
business, putting downward pressure on rates. The challenges faced by workers'
compensation insurance providers to attain profitability include the regulatory
climates in some states that make it difficult to obtain appropriate premium
rate increases and inflationary medical costs. Consequently, we have increased
the utilization of our loss control unit in the analysis of current risks, with
the intention of increasing the quality of our workers' compensation book of
business. We are currently using these modeling analytics to assist us in risk
selection, and we will continue to evaluate the model results.

Fidelity and Surety

Our surety products guarantee performance and payment by our bonded principals.
Our contract bonds protect owners from failure to perform on the part of our
principals. In addition, our surety bonds protect material suppliers and
subcontractors from nonpayment by our contractors. When surety losses occur, our
loss is determined by estimating the cost to complete the remaining work and to
pay the contractor's unpaid bills, offset by contract funds due to the
contractor, reinsurance, and the value of any collateral to which we may have
access.

The net loss ratio deteriorated 6.9 percentage points in 2021 compared to 2020.
This line continues to perform above expectations with a low loss ratio of 9.4
percent as compared to 2.5 percent in 2020. The deterioration is due to an
increase in severity of losses in 2021 as compared to 2020.
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Personal Lines

Our personal lines consist primarily of fire and allied lines (including
homeowners) and automobile lines. The net loss ratio improved 33.9 percentage
points in 2021 compared to 2020. The improvement is primarily attributable to a
decrease in catastrophe losses in 2021 as compared to 2020. Net premiums earned
decreased due to the renewal rights agreement for our personal lines business we
entered into in May 2020, 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.

Assumed Reinsurance

Our assumed reinsurance portfolio is comprised of contracts that provide
reinsurance protection to insurance companies. We only reinsure companies with
strong leadership and a sound reputation. The corporate strategy for our
reinsurance business is to diversify our overall underwriting risk profile. We
capitalize on profitable opportunities and only underwrite programs that are
material in size. As part of our underwriting process, we require our
reinsurance business to focus on long-term relationships.

Through our disciplined underwriting approach, our assumed reinsurance net
written premium grew to $91.3 million in 2021 compared to $31.1 million in 2020.
The net loss ratio improved 29.4 percentage points in 2021 compared to 2020. The
improvement is attributable to favorable loss experience, attractive reinsurance
rates, and a reduction in IBNR reserves. In 2022, we plan to continue to grow
our assumed reinsurance business.

Underwriting Expense Ratio

Our underwriting expense ratio, which is a percentage of other underwriting
expenses over net premiums earned, was 32.6 percent, 33.5 percent and 32.6
percent for 2021, 2020, and 2019, respectively. The decrease in the expense
ratio in 2021 as compared to 2020 was primarily due to the change in the design
of our employee post-retirement benefit plans and a decrease in the acceleration
of the amortization of our deferred acquisition costs due to improved
profitability in our commercial auto line of business. The increase in the
expense ratio during in 2020 as compared to 2019 was primarily due to our
continued investment in technology, including our multi-year Oasis project, an
upgrade to our technology platform designed to enhance core underwriting
decisions, selection of risks and productivity.












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Federal Income Taxes

We reported a federal income tax expense on a consolidated basis of $16.3
million or 16.8 percent of pre-tax income in 2021. In 2020, federal income tax
benefit on a consolidated basis was $56.8 million or 33.5 percent of pre-tax
loss and federal income tax expense on a consolidated basis was $2.1 million or
12.2 percent of pre-tax income in 2019.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19
pandemic. The CARES Act, among other things, permits net operating loss ("NOL")
carryovers and carrybacks to offset 100 percent of taxable income for taxable
years beginning before 2021. In addition, the CARES Act allows NOLs incurred in
2018, 2019, and 2020 to be carried back to each of the five preceding taxable
years to generate a refund of previously paid income taxes. The Company has
considered the implications of the CARES Act on its tax provision and has
included an income tax benefit of $18.6 million as the result of this Act in
2020.

As of December 31, 2021, we had no alternative minimum tax credit carryforwards.

INVESTMENTS

Investment Environment

2021 began with optimism as a new president took office promising a return to
political stability and policy focused on growing the economy and creating
opportunity for a greater number of Americans. Economic and capital market
expectations were lifted by additional fiscal stimulus and initial vaccination
success. Through this period the United States Federal Rserve System ("Federal
Reserve") maintained assurances of continued accommodation and transparent
forward guidance.

Beginning in late July, the COVID-19 Delta variant swept through major economies
and over the course of August and September with case counts, hospitalizations
and deaths rivaled prior waves. Another COVID-19 variant (Omicron), emerged late
in November and proved even more contagious than Delta. Together, the two
variants catalyzed supply-side inflationary pressures, upending the labor force
and global supply chains, while the long-anticipated rotation from goods to
services spending failed to materialize.

The prospect of inflation beyond "transitory" became the theme in the fourth
quarter as consecutive pricing reports broke cycle records going back to the
1980s. Beginning in October, the Federal Reserve started the conversation about
tapering asset purchases. In December the taper accelerated, and capital markets
began to digest the prospect of three to four rate hikes in 2022, the first of
which could occur as soon as the first quarter.

Overall, the investment environment remains challenging with the U.S. equity
market seeing stretched valuations only encountered a handful of times in
history. Fixed income markets face the prospect of unanchored short-term rate
expectations and significant questions surrounding Federal Reserve balance sheet
run-off. We believe the risk to consensus expectations is to the downside. While
the U.S. consumer continues to appear healthy by nearly all measures,
inflationary supply-side pressures are proving stubbornly persistent and
increasingly beyond the reach of policy to control. Our investment program is
designed specifically to outperform during periods of market uncertainty.

Investment Philosophy

The Company's assets are invested to preserve capital and maximize after-tax
returns while maintaining an appropriate balance of risk. The return on our
portfolio is an important component of overall financial results, but quality
and safety of principal is the highest priority of our investment program. Our
general investment philosophy is to purchase financial instruments with the
expectation that we will hold them to their maturity. However, active management
of our portfolio is considered necessary to appropriately manage risk, achieve
portfolio objectives and maximize investment income as market conditions
change.

Each of our insurance company subsidiaries develops an appropriate investment
strategy that aligns with its business needs and supports United Fire's
strategic plan and risk appetite. The portfolio is structured so as to be in

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compliance with state insurance laws that prescribe the quality, concentration
and type of investments that may be made by insurance companies.

Investment Portfolio

Our invested assets at December 31, 2021 totaled $2,064.7 million, compared to
$2,149.2 million at December 31, 2020, a decrease of $84.5 million. At
December 31, 2021, fixed maturity securities and equity securities comprised
83.3 percent and 10.3 percent of our investment portfolio, respectively. Because
the primary purpose of the investment portfolio is to fund future claims
payments, we utilize 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 an 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
and regulatory requirements. 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 December 31, 2021 is presented at
carrying value in the following table:

                                                 Percent
(In Thousands)                                   of Total
Fixed maturities:

Available-for-sale            $ 1,719,790          83.3  %

Equity securities                 213,401          10.3

Mortgage loans                     47,130           2.3

Other long-term investments        84,090           4.1
Short-term investments                275             -
Total                         $ 2,064,686         100.0  %



At December 31, 2021 and December 31, 2020, our fixed maturities portfolio is
classified as available-for-sale. Available-for-sale fixed maturity securities
are carried at fair value, with changes in fair value recognized as a component
of accumulated other comprehensive income in stockholders' equity. We record
convertible redeemable preferred debt securities and equity securities at fair
value, with any changes in fair value recognized in earnings.

As of December 31, 2021 and 2020, we did not have direct exposure to investments
in subprime mortgages or other credit enhancement vehicles.

Credit Quality

The following table shows the composition of fixed maturity securities held in
our available-for-sale and trading security portfolios by credit rating at
December 31, 2021 and 2020. Information contained in the table is generally
based upon the issue credit ratings provided by Moody's, unless the rating is
unavailable, in which case we obtain it from Standard & Poor's.
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(In Thousands)             December 31, 2021                        December 31, 2020
Rating                 Carrying Value      % of Total        Carrying Value         % of Total
AAA               $         670,222            39.0  %     $         817,142            44.8  %
AA                          586,426            34.1                  639,011            35.0
A                           209,076            12.2                  182,011            10.0
Baa/BBB                     241,547            14.0                  172,078             9.4
Other/Not Rated              12,519             0.7                   15,196             0.8
                  $       1,719,790           100.0  %     $       1,825,438           100.0  %



Duration

Our investment portfolio is invested primarily in fixed maturity securities
whose fair value is susceptible to market risk, specifically interest rate
changes. Duration is a measurement used 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.

The weighted average effective duration of our portfolio of fixed maturity
securities was 3.9 years at December 31, 2021 compared to 3.4 years at
December 31, 2020.

The amortized cost and fair value of available-for-sale and trading fixed
maturity securities at December 31, 2021, by contractual maturity, are shown in
the following table. 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.

(In Thousands)                                      Available-For-Sale
                                                               Amortized          Fair
December 31, 2021                                                Cost             Value
Due in one year or less                                      $    63,120      $    63,776
Due after one year through five years                            475,467    

496,231

Due after five years through 10 years                            386,274          403,830
Due after 10 years                                               427,411          450,959
Asset-backed securities                                              325              925
Mortgage-backed securities                                        25,077           25,013
Collateralized mortgage obligations                              279,125          279,056
                                                             $ 1,656,799      $ 1,719,790



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,
changes in 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. Net investment income increased 40.6 percent in 2021, compared with the
same period of 2020 and was primarily due to the change in the fair value of our
investments in limited liability partnerships. The valuation of our investments
in limited liability partnerships varies from period to period due to current
equity market conditions. We expect to maintain our investment philosophy of
purchasing quality investments rated investment grade or better.
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An allowance for credit losses is recorded based on a number of factors
including the current economic conditions, management's expectations of future
economic conditions and performance indicators, such as market value vs.
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
December 31, 2021:

Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:

                                                                                             As of
                                                                                          December 31, 2021
Beginning balance, January 1, 2021                                                  $                  5

Recoveries of amounts previously written off                                                          (5)
Ending balance, December 31, 2021                                                   $                  -


Changes in unrealized gains and losses on available-for-sale fixed maturity
securities do not affect net income and earnings per share but do impact
comprehensive income, stockholders' equity and book value per share. We believe
that any unrealized losses on our available-for-sale fixed-maturity securities
at December 31, 2021 are temporary based upon our current analysis of the
issuers of the securities that we hold and current market conditions. We invest
in high quality assets to provide protection from future credit quality issues.
Non-credit related unrealized gains and 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.

Net Investment Income

In 2021, our investment income, net of investment expenses, increased $16.1
million to $55.8 million as compared to 2020, primarily due to the change in the
fair value of our investments in limited liability partnerships.

In 2020, our investment income, net of investment expenses, decreased
$20.7 million to $39.7 million as compared to 2019, primarily due to the change
in the fair value of our investments in limited liability partnerships, a
decrease in interest on fixed maturities and interest on cash and cash
equivalents due to declining interest rates.

The following table summarizes the components of net investment income:

(In Thousands)
Years Ended December 31,                     2021          2020          

2019

Investment income from operations:
Interest on fixed maturities              $ 43,224      $ 46,478      $ 

50,274

Dividends on equity securities               5,031         6,368         

7,842

Income on other long-term investments
Interest                                     4,481         1,890         3,115
Change in value (1)                          9,699        (9,633)        1,114
Interest on mortgage loans                   1,995         1,949         1,595
Interest on short-term investments              18           107           

522

Interest on cash and cash equivalents          252           763         

2,681

Other                                          152           205           

252

Total investment income from operations   $ 64,852      $ 48,127      $ 67,395
Less investment expenses                     9,074         8,457         6,981
Net investment income                     $ 55,778      $ 39,670      $ 60,414

(1)Represents the change in value of our interests in limited liability
partnerships that are recorded on the equity method of accounting.

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In 2021, 66.7 percent of our gross investment income originated from interest on
fixed maturities, compared to 96.6 percent and 74.6 percent in 2020 and 2019,
respectively.

The following table details our annualized yield on average invested assets for
2021 , 2020, and 2019, which is based on our invested assets (including money
market accounts) at the beginning and end of the year divided by net investment
income:

(In Thousands)
                                Average            Investment         Annualized Yield on
Years ended December 31,    Invested Assets       Income, Net       Average Invested Assets
2021                       $      2,141,022      $     55,778                         2.6  %
2020                              2,169,220            39,670                         1.8  %
2019                              2,120,916            60,414                         2.8  %

Net Investment Gains and Losses

The following table summarizes the components of our net investment gains or
losses:

(In Thousands)
Years Ended December 31,                  2021          2020           2019

Net investment gains (losses):

Fixed maturities:
Available-for-sale                     $   (277)     $   1,787      $    655
Allowance for credit losses                   5             (5)            -
Trading securities
Change in fair value                          -         (3,314)        1,351
Sales                                         -          2,950         1,993
Equity securities

Change in fair value                     30,682         (6,875)       51,231
Sales                                    14,444        (26,906)          725
Mortgage loans                                5             (4)          (26)

  Real Estate                              (256)           (28)     $ (2,150)

Total net investment gains (losses) $ 47,383 $ (32,395) $ 53,779

Net Unrealized Investment Gains and Losses

As of December 31, 2021, net unrealized investment gains, after tax, totaled
$49.8 million compared to unrealized gains of $83.1 million and unrealized gains
of $47.3 million as of December 31, 2020 and 2019, respectively. The decrease in
net unrealized investment gains in 2021 was primarily the result of a decrease
in fixed maturity securities held and a change in the value of the fixed
maturity portfolio due to higher interest rates during 2021.

The increase in net unrealized investment gains in 2020 was primarily the result
of an increase in the
value of the fixed maturity portfolio due to lower interest rates during 2020.
The increase in net unrealized investment gains in 2019 was primarily the result
of an increase in the value of the fixed maturity portfolio due to lower
interest rates during 2019.









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The following table summarizes the change in our net unrealized investment gains
(losses):

(In Thousands)
Years Ended December 31,                                   2021                2020                 2019

Changes in net unrealized investment gains (losses):
Available-for-sale fixed maturity securities

           $  (42,159)         $   45,305          $    71,648

Income tax effect                                           8,858              (9,514)             (15,046)

Total change in net unrealized investment gains
(losses), net of tax                                   $  (33,301)         $   35,791          $    56,602


MARKET RISK

Our Consolidated Balance Sheets include financial instruments whose fair values
are subject to market risk. The active management of market risk is integral to
our operations. Market risk is the potential for loss due to a decrease in the
fair value of securities resulting from uncontrollable fluctuations, such as:
interest rate risk, equity price risk, foreign exchange risk, credit risk,
inflation, or geopolitical conditions. Our primary market risk exposures are:
changes in interest rates, deterioration of credit quality in specific issuers,
sectors or the economy as a whole, and an unforeseen decrease in the liquidity
of securities we hold. We have no foreign exchange risk.

Interest Rate Risk

Interest rate risk is the price sensitivity of a fixed income maturity security
or portfolio of securities to changes in level of interest rates. Generally,
there is an inverse relationship between changes in interest rates and changes
in the price of a fixed income/maturity security. Plainly stated, if interest
rates go up (down), bond prices go down (up). A vast majority of our holdings
are fixed income maturity and other interest rate sensitive securities that will
decrease (increase) in value as interest rates increase (decrease). While it is
generally our intent to hold our investments in fixed maturity securities to
maturity, we have classified a majority of our fixed maturity portfolio as
available-for-sale. Available-for-sale fixed income maturity securities are
carried at fair value on the Consolidated Balance Sheets with unrealized gains
or losses reported net of tax in Accumulated Other Comprehensive Income. A
change in the prevailing interest rates generally translates into a change in
the fair value of our fixed income/maturity securities, and by extension, our
overall book value.

Market Risk and Duration

We analyze potential changes in the value of our investment portfolio due to the
market risk factors noted above within the overall context of asset and
liability management. A technique we use in the management of our investment
portfolio is the calculation of duration. Our actuaries estimate the payout
pattern of our reserve liabilities to determine their duration, which is the
present value of the weighted average payments expressed in years. We then
establish a target duration for our investment portfolio so that at any given
time the estimated cash generated by the investment portfolio will closely match
the estimated cash required for the payment of the related reserves. We
structure the investment portfolio to meet the target duration to achieve the
required cash flow, based on liquidity and market risk factors.

Impact of Interest Rate Changes

The amounts set forth in the following table detail the impact of hypothetical
interest rate changes on the fair value of fixed maturity securities held at
December 31, 2021. The sensitivity analysis measures the change in fair values
arising from immediate changes in selected interest rate scenarios. We employed
hypothetical parallel shifts in the yield curve of plus or minus 100 and 200
basis points in the simulations. Additionally, based upon the yield curve
shifts, we employ estimates of prepayment speeds for mortgage-related products
and the likelihood of call or put options being exercised within the
simulations.

The selection of a 100-basis-point and 200-basis-point increase or decrease in
interest rates should not be construed as a prediction by our management of
future market events, but rather as an illustration of the potential impact of
an event.
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December 31, 2021                              -200 Basis           -100 Basis                                +100 Basis          + 200 Basis
(In Thousands)                                   Points               Points                Base                Points               Points

AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury                                $    44,387          $    43,132          $    41,923          $    40,759          $    39,638
U.S. government agency                            67,305               64,400               61,667               58,806               55,528
States, municipalities and political
subdivisions
 General obligations:
   Midwest                                        77,029               75,667               74,346               72,975               70,964
   Northeast                                      23,577               23,163               22,762               22,350               21,785
   South                                          98,652               96,295               94,044               91,834               88,948
   West                                          104,855              101,912               99,078               96,233               92,816
  Special revenue:
   Midwest                                       129,869              125,993              122,289              118,636              114,154
   Northeast                                      64,582               62,099               59,732               57,426               54,811
   South                                         232,381              223,824              215,670              207,592              197,874
   West                                          144,446              139,431              134,649              129,906              123,984
Foreign bonds                                     33,916               32,375               30,906               29,514               28,205
Public utilities                                 119,261              113,175              107,493              102,174               97,175
Corporate bonds
Energy                                            35,708               34,149               32,681               31,296               29,982
Industrials                                       64,897               60,815               57,171               53,879               50,891
Consumer goods and services                       82,124               77,202               72,844               68,961               65,475
Health care                                       33,252               30,156               27,429               25,022               22,891
Technology, media and telecommunications          65,731               61,361               57,497               54,058               50,974
Financial services                               109,794              106,121              102,615               99,253               96,038
Mortgage backed securities                        26,230               25,563               25,013               24,174               23,091
Collateralized mortgage obligations
Government national mortgage association         118,491              114,476              110,518              105,368               99,517
Federal home loan mortgage corporation           126,280              122,909              119,989              115,349              109,798
Federal national mortgage association             50,705               49,526               48,549               46,942               44,926
Asset-backed securities                            1,993                1,357                  925                  630                  430

Total Available-For-Sale Fixed Maturities $ 1,855,465 $ 1,785,101 $ 1,719,790 $ 1,653,137 $ 1,579,895

To the extent actual results differ from the assumptions utilized, our duration
and interest rate measures could be significantly affected. As a result, these
calculations may not fully capture the impact of nonparallel changes in the
relationship between short-term and long-term interest rates.

Equity Price Risk

Equity price risk is the potential loss arising from changes in the fair value
(i.e., market price) of equity securities held in our portfolio. Changes in the
price of an equity security may be due to a change in the future earnings
capacity or strategic outlook of the security issuer, and what investors are
willing to pay for those future earnings and related strategy. The carrying
values of our equity securities are based on quoted market prices, from an
independent source, as of the balance sheet date. Market prices of equity
securities, in general, are subject to fluctuations that could cause the amount
to be realized upon the future sale of the securities to differ significantly
from the current reported value. The fluctuations may result from perceived
changes in the underlying economic characteristics of the security issuer, the
relative price of alternative investments, general market conditions, and
supply/demand factors related to a particular security.




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Impact of Price Change

The following table details the effect on the fair value of our investments in
equity securities for a positive and negative 10 percent price change at
December 31, 2021:

(In Thousands)                                     -10%           Base           +10%

Estimated fair value of equity securities $ 192,061 $ 213,401

$ 234,741

Foreign Currency Exchange Rate Risk

Foreign currency exchange rate risk arises from the possibility that changes in
foreign exchange rates will impact our transactions with foreign reinsurers
relating to the settlement of amounts due to or from foreign reinsurers in the
normal course of business. We consider this risk to be immaterial to our
operations.

Credit Risk

Credit risk is the willingness and ability of a borrower to repay on time and in
full any principal and interest due to the lender. Losses related to credit risk
are realized through the income statement and have a direct impact on the
earnings of UFG. Given the vast majority of our holdings are fixed income
maturity securities, we view credit risk as our primary investment risk. Our
internal Investment Department has developed and maintains a rigorous
underwriting process to analyze and measure the expected frequency and severity
of loss (i.e., credit quality) for government, agency, municipal, structured
security, and corporate bond issuers. The objective is to maintain the
appropriate balance of risk in our portfolio, consistent with our Investment
Policy Statement and conservative investment style, and ensure the portfolio is
compensated appropriately for the credit risk it holds. We do have within our
municipal bond holdings a small number of securities whose ratings were enhanced
by third-party insurance for the payment of principal and interest in the event
of an issuer default. Of the insured municipal securities in our investment
portfolio, 99.6 percent and 99.5 percent were rated "A" or above, and 96.0
percent and 95.8 percent were rated "AA" or above at December 31, 2021 and 2020,
respectively, without the benefit of insurance. Due to the underlying financial
strength of the issuers of the securities, we believe that the loss of insurance
would not have a material impact on our operations, financial position, or
liquidity.

We have no direct exposure in any of the guarantors of our investments. Our
largest indirect exposure with a single guarantor totaled $9.4 million or
29.8 percent of our insured municipal securities at December 31, 2021, as
compared to $9.7 million or 21.0 percent at December 31, 2020. Our five largest
indirect exposures to financial guarantors accounted for $35.6 million and $37.6
million of our municipal securities at December 31, 2021 and 2020, respectively.

LIQUIDITY AND CAPITAL RESOURCES

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

We monitor our capital adequacy to support our business on a regular basis. The
future capital requirements of our business will depend on many factors,
including our ability to write new business successfully and to establish
premium rates and reserves at levels sufficient to cover losses. Our ability to
underwrite is largely dependent upon the quality of our claims paying and
financial strength ratings as evaluated by independent rating agencies. In
particular, we require (1) sufficient capital to maintain our financial strength
ratings, as issued by various rating agencies, at a level considered necessary
by management to enable our insurance company subsidiaries to compete and (2)
sufficient capital to enable our insurance company subsidiaries to meet the
capital adequacy tests performed by regulatory agencies in the United States.
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Cash outflows may be variable because of the uncertainty regarding settlement
dates for losses. In addition, the timing and amount of individual catastrophe
losses are inherently unpredictable and could increase our liquidity
requirements. The timing and amount of reinsurance recoveries may be affected by
reinsurer solvency and reinsurance coverage disputes.

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

The following table displays a summary of cash sources and uses in 2021, 2020
and 2019:

Cash Flow Summary                                               Years Ended December 31,
(In Thousands)                                        2021                2020                2019
Cash provided by (used in)
Operating activities                              $  29,917           $  41,435           $   93,752
Investing activities                                 31,731             (92,871)               4,501
Financing activities                                (17,492)             18,662              (41,985)
Net increase (decrease) in cash and cash
equivalents                                       $  44,156           $ (32,774)          $   56,268



Our cash flows were sufficient to meet our current liquidity needs for the
full-year periods ended December 31, 2021, 2020 and 2019 and we anticipate they
will be sufficient to meet our future liquidity needs. We also have the ability
to draw on our credit facility if needed. See Part II, Item 8, Note 13 "Debt"
for more information.

Operating Activities

Net cash flows provided by operating activities totaled $29.9 million, $41.4
million and $93.8 million in 2021, 2020 and 2019, respectively. Our cash flows
from operating activities were sufficient to meet our liquidity needs for 2021,
2020 and 2019.

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 portfolio, see the "Investment Portfolio" section contained in
this Item.

In addition to investment income, possible sales of investments and proceeds
from calls or maturities of fixed maturity securities also can provide
liquidity. During the next five years, $0.5 billion, or 31.4 percent of our
fixed maturity portfolio will mature.

We invest funds required for short-term cash needs primarily in money market
accounts, which are classified as cash equivalents. At December 31, 2021, our
cash and cash equivalents included $43.5 million related to these money market
accounts, compared to $24.8 million at December 31, 2020.

Net cash flows provided in investing activities totaled $31.7 million in 2021
and used by investing activities totaled $92.9 million and provided in investing
activities totaled $4.5 million in 2020 and 2019, respectively. In 2021, we had
cash inflows from scheduled and unscheduled investment maturities, redemptions,
prepayments, and sales of investments that totaled $451.1 million compared to
$376.2 million and $311.7 million for the same period in 2020 and 2019,
respectively.

Our cash outflows for investment purchases totaled $405.4 million in 2021,
compared to $450.2 million and $274.7 million for the same period in 2020 and
2019, respectively.

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Financing Activities

Net cash flows used by financing activities totaled $17.5 million in 2021 and
provided in financing activities totaled $18.7 million and used by financing
activities totaled $42.0 million in 2020 and 2019, respectively. The net cash
flows used by financing activities in 2021 is primarily the payment of cash
dividends of $15.1 million and share repurchases of $2.0 million. The net cash
flows provided in financing activities in 2020 is primarily from borrowings of
long term debt of $50.0 million offset by the payment of cash dividends of $28.5
million.

Contractual Obligations and Commitments

The following table shows our contractual obligations and commitments, including
our estimated payments due by period at December 31, 2021. Time periods of less
than one year are consider short-term cash obligations and time periods greater
than one year are considered long-term cash obligations.

(In Thousands)                                                       Payments Due By Period
                                                       Less Than             One to              Three to            More Than
Contractual Obligations              Total              One Year          

Three Years Five Years Five Years

Loss and loss settlement expense
reserves                         $ 1,514,265          $ 576,482          $    521,146          $  194,902          $  221,735
Long term debt                       110,565              3,188                 6,376               6,376              94,625
Operating leases                      32,294              8,299                13,226               9,540               1,229
Profit-sharing commissions            15,080             15,080
Pension plan contributions             4,000              4,000
Total                            $ 1,676,204          $ 607,049          $    540,748          $  210,818          $  317,589

Loss and Loss Settlement Expense Reserves

The amounts presented are estimates of the dollar amounts and time periods in
which we expect to pay out our gross loss and loss settlement expense reserves.
Because the timing of future payments may vary from the stated contractual
obligation, these amounts are estimates based upon historical payment patterns
and may not represent actual future payments. Refer to "Critical Accounting
Policies - Losses and Loss Settlement Expenses" in this section for further
discussion.

Long term debt

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

UFG sold an aggregate $50.0 million of notes due 2040 to the Note Purchasers.
One note with a principal amount of $35.0 million was issued to Federated Mutual
and one note with a principal amount of $15.0 million was issued to Federated
Life.

Interest payments will be paid quarterly on March 15, June 15, September 15 and
December 15 of each year (each such date, an "Interest Payment Date"). The
interest rate will equal the rate that corresponds to the A.M. Best Co. (or its
successor's) financial strength rating for members of the United Fire & Casualty
Pooled Group as of the applicable Interest Payment Date. As of December 31,
2021, interest expense totaled $3,187. Payment of interest is subject to
approval by the Iowa Insurance Division.

Operating Leases

Our operating lease obligations are for the rental of office space, vehicles,
computer equipment and office equipment. For further discussion of our operating
leases, refer to Part II, Item 8, Note 12 "Lease Commitments."
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Profit-Sharing Commissions

We offer our agents a profit-sharing plan as an incentive for them to place
high-quality property and casualty insurance business with us. Based on business
produced by the agencies in 2021, property and casualty agencies expect to
receive profit-sharing payments of $15.1 million in 2022.

Pension Plan Payments

We estimate the pension contribution for 2022 in accordance with the Pension
Protection Act of 2006 (the "Act"). Contributions for future years are dependent
on a number of factors, including actual performance versus assumptions made at
the time of the actuarial valuations and maintaining certain funding levels
relative to regulatory requirements. Contributions in 2022, and in future years,
are expected to be at least equal to the IRS minimum required contribution in
accordance with the Act.

Commitments for Capital Expenditures

Dividends

Dividends paid to shareholders totaled $15.1 million, $28.5 million and $32.7
million in 2021, 2020 and 2019, respectively. Our practice has been to pay
quarterly cash dividends, which we have paid every quarter since March 1968.

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

As a holding company with no independent operations of its own, United Fire
Group, Inc. relies on dividends received from its insurance company subsidiaries
in order to pay dividends to its common shareholders. Dividends payable by our
insurance subsidiaries are governed by the laws in the states in which they are
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 December 31, 2021, our
insurance company subsidiary, United Fire & Casualty, is able to make a maximum
of $57.2 million in dividend payments without prior regulatory approval. These
restrictions are not expected to have a material impact in meeting our cash
obligations.

Share Repurchases

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

During 2021, 2020 and 2019, pursuant to authorization by our Board of Directors,
we repurchased 67,651, 70,467, and 258,756 shares of our common stock,
respectively, which used cash totaling $2.0 million in 2021, $2.7 million in
2020 and $11.7 million in 2019. At December 31, 2021, we were authorized to
purchase an additional 1,719,326 shares of our common stock under our share
repurchase program, which expires in August 2022.

Credit Facilities

Information specific to our credit facilities is incorporated by reference from
Note 13 "Debt" contained in Part II, Item 8. As of December 31, 2021, we were in
compliance with all financial covenants of the Credit Agreement (the
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"Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"),
as administrative agent (the "Administrative Agent"), issuing lender, swing-line
lender and lender, and the other lenders from time to time party thereto
(collectively with Wells Fargo, the "Lenders").

Stockholders' Equity

Stockholders' equity increased 6.5 percent to $879.1 million at December 31,
2021, from $825.1 million at December 31, 2020. The increase is primarily
attributed to net income of $80.6 million and change in liability for employee
benefit plans of $20.7 million, partially offset by stockholder dividends of
$15.1 million and a decrease in net unrealized investment gains net of tax of
$33.3 million. As of December 31, 2021, the book value per share of our common
stock was $35.05, compared to $32.93 at December 31, 2020.

Risk-Based Capital

The NAIC adopted risk-based capital requirements, which requires us to calculate
a minimum capital requirement for each of our insurance companies based on
individual company insurance risk factors. These "risk-based capital" results
are used by state insurance regulators to identify companies that require
regulatory attention or the initiation of regulatory action. At December 31,
2021, all of our insurance companies had capital well in excess of required
levels.

Funding Commitments

We hold investments in limited liability partnerships as part of our investment
strategy. Pursuant to agreements with our limited liability partnership
investments, we are contractually committed through July 10, 2030 to make
capital contributions upon request of the partnerships. Our remaining potential
contractual obligation was $11.1 million at December 31, 2021.

In addition, the Company invested $25,000 in December 2019 in a limited
liability partnership investment fund which is subject to a 3-year lockup with a
60 day minimum notice, with 4 possible repurchase dates per year, after the
3-year lockup period is met. The fair value of the investment at December 31,
2021 was $24,771 and there are no remaining capital contributions with this
investment.

These partnerships are included in our other long term investments on the
Consolidated Balance Sheets with a current fair value of $84.1 million, or 4.1%
of our total invested assets, at December 31, 2021.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are representative of
significant judgments and uncertainties and that may potentially result in
materially different results under different assumptions and conditions. We base
our discussion and analysis of our results of operations and financial condition
on the amounts reported in our Consolidated Financial Statements, which we have
prepared in accordance with 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 we believe to be reasonable under the circumstances. Actual results
could differ from those estimates. We believe our most critical accounting
policies are as follows.

Investment Valuation

Upon acquisition, we classify investments in marketable securities as
held-to-maturity, available-for-sale, or trading. We record investments in
available-for-sale and trading fixed maturity securities and equity securities
at fair value. Other long-term investments consist primarily of our interests in
limited liability partnerships that are recorded on the equity method of
accounting. We record mortgage loans at their amortized cost less any valuation
allowance.
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In general, investment securities are exposed to various risks, such as interest
rate risk, credit risk, and overall market volatility risk. Therefore, it is
reasonably possible that changes in the fair value of our investment securities
that are reported at fair value will occur in the near term and such changes
could materially affect the amounts reported in the Consolidated Financial
Statements. Also, it is reasonably possible that changes in the value of our
investments in trading securities and limited liability partnerships could occur
in the future and such changes could materially affect our results of operations
as reported in our Consolidated Financial Statements.

Fair Value Measurement

Information specific to the fair value measurement of our financial instruments
and disclosures is incorporated by reference from Note 3 "Fair Value of
Financial Instruments" contained in Part II, Item 8.

Deferred Policy Acquisition Costs ("DAC")

We record an asset for certain costs of underwriting new business, primarily
commissions, premium taxes and variable underwriting and policy issue expenses
that have been deferred. The amount of underwriting compensation expense
eligible for deferral is based on time studies and a ratio of success in policy
placement. At December 31, 2021 and 2020, our DAC asset was $91.4 million and
$87.1 million, respectively.

The DAC asset is amortized over the life of the policies written, generally one
year. We assess the recoverability of DAC on a quarterly basis by line of
business. This assessment is performed by comparing recorded unearned premium to
the sum of unamortized DAC and estimates of expected losses and loss settlement
expenses. If the sum of these costs exceeds the amount of recorded unearned
premium (i.e., the line of business is expected to generate an operating loss),
the excess is recognized in current period other underwriting expenses as an
offset against the established DAC asset. We refer to this offset as a premium
deficiency charge.

To calculate the premium deficiency charge by line of business, we estimate an
expected loss and loss settlement expense ratio which is based on our best
estimate of future losses for each line of business. This calculation is
performed on a quarterly basis and developed in conjunction with our quarterly
reserving process. The expected loss and loss settlement expense ratios are the
only assumptions we utilize in our premium deficiency calculation. Changes in
these assumptions can have a significant impact on the amount of premium
deficiency charge recognized for a line of business. The premium deficiency
calculation is aggregated by line of business in a manner consistent with how
the policies are currently being marketed and managed.

The following table illustrates the hypothetical impact on the premium
deficiency charge recorded for the quarter ended December 31, 2021, of
reasonably likely changes in the assumed loss and loss settlement expense ratios
utilized for purposes of this calculation. The entire impact of these changes
would be recognized through income as other underwriting expenses. The following
table illustrates the impact of potential changes in the expected loss and loss
settlement expense ratios for all lines of business on the premium deficiency
charge. The base amount indicated below is the actual premium deficiency charge
recorded as an offset against the DAC asset established as of the quarter ended
December 31, 2021:

Sensitivity Analysis - Impact of Changes in Projected Loss and Loss Settlement Expense Ratios
(In Thousands)

                         -10%               -5%              Base               +5%              +10%

Premium deficiency charge estimated $ 1,341 $ 1,635 $ 2,903 $ 8,832 $ 16,193

Actual future results could differ materially from our assumptions used to
calculate the recorded DAC asset. Changes in our assumed loss and loss
settlement expense ratios in the future would impact the amount of deferred
costs in the period such changes in assumptions are made. The premium deficiency
charge calculated for the quarter ended December 31, 2021 was $2.9 million
compared to the premium deficiency charge of $1.5 million calculated for the
same period of 2020.



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Losses and Loss Settlement Expenses

Reserves for losses and loss settlement expenses are reported using our best
estimate of ultimate liability for claims that occurred prior to the end of any
given reporting period, but have not yet been paid. Before credit for
reinsurance recoverables, these reserves were $1,514.3 million and $1,578.1
million at December 31, 2021 and 2020, respectively. We purchase reinsurance to
mitigate the impact of large losses and catastrophic events. Loss and loss
settlement expense reserves ceded to reinsurers were $112.9 million for 2021 and
$131.8 million for 2020. Our reserves, before credit for reinsurance
recoverables, by line of business as of December 31, 2021, were as follows:

                                                            Loss
                                                         Settlement
(In Thousands)            Case Basis        IBNR          Expense        Total Reserves
Commercial lines
Fire and allied lines    $  100,626      $  22,190      $   28,157      $       150,973
Other liability             364,718        118,625         187,607              670,950
Automobile                  310,632         35,159          79,436              425,227
Workers' compensation       137,868          5,000          24,230              167,098
Fidelity and surety           2,124          2,520              99                4,743
Miscellaneous                   666            553              93                1,312
Total commercial lines   $  916,634      $ 184,047      $  319,622      $     1,420,303
Personal lines
Automobile               $    9,093      $     581      $    1,392      $        11,066
Fire and allied lines        11,069          2,116           1,343               14,528
Miscellaneous                 1,076            175             305                1,556
Total personal lines     $   21,238      $   2,872      $    3,040      $        27,150
Reinsurance assumed          22,855         43,792             165               66,812
Total                    $  960,727      $ 230,711      $  322,827      $     1,514,265


Case-Basis Reserves

For each of our lines of business, with respect to reported claims, we establish
reserves on a case-by-case basis. Our experienced claims personnel estimate
these case-basis reserves using adjusting guidelines established by management.
Our goal is to set the case-basis reserves at the ultimate expected loss amount
as soon as possible after information about the claim becomes available.

Establishing the case reserve for an individual claim is subjective and complex,
requiring us to estimate future payments and values that will be sufficient to
settle an individual claim. Setting a reserve for an individual claim is an
inherently uncertain process. When we establish and adjust individual claim
reserves, we do so based on our knowledge of the circumstances and facts of the
claim. Upon notice of a claim, we establish a preliminary (average claim cost)
reserve based on the limited claim information initially reported. Subsequently,
we conduct an investigation of each reported claim, which allows us to more
fully understand the factors contributing to the loss and our potential
exposure. This investigation may extend over a long period of time. As our claim
investigation progresses, and as our claims personnel identify trends in claims
activity, we may refine and adjust our estimates of case reserves. To evaluate
and refine our overall reserving process, we track and monitor all claims until
they are settled and paid in full, with all salvage and subrogation claims being
resolved.

Most of our insurance policies are written on an occurrence basis that provides
coverage if a loss occurs during the policy period, even if the insured reports
the loss many years later. For example, some liability claims for construction
defect coverage are reported 10 years or more after the policy period, and the
workers' compensation coverage provided by our policies pays unlimited medical
benefits for the duration of the claimant's injury up to the lifetime of the
claimant. In addition, final settlement of certain claims can be delayed for
years due to litigation or other reasons. Reserves for these claims require us
to estimate future costs, including the effect of judicial actions,
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litigation trends and medical cost inflation, among others. Reserve development
can occur over time as conditions and circumstances change many years after the
policy was issued and/or the loss occurred.

Our loss reserves include amounts related to both short-tail and long-tail lines
of business. "Tail" refers to the time period between the occurrence of a loss
and the ultimate settlement of the claim. A short-tail insurance product is one
where ultimate losses are known and settled comparatively quickly. Ultimate
losses under a long-tail insurance product are sometimes not known and settled
for many years. The longer the time span between the incidence of a loss and the
settlement of the claim, the more the ultimate settlement amount can vary from
the reserves initially established. Accordingly, long-tail insurance products
can have significant implications on the reserving process.

Our short-tail lines of business include fire and allied lines, homeowners,
commercial property, auto physical damage and inland marine. The amounts of the
case-based reserves that we establish for claims in these lines depend upon
various factors, such as individual claim facts (including type of coverage and
severity of loss), our historical loss experience and trends in general economic
conditions (including changes in replacement costs, medical costs and
inflation).

For short-tail lines of business, the estimation of case-basis loss reserves is
less complex than for long-tail lines because the claims relate to tangible
property. Because of the relatively short time from claim occurrence to
settlement, actual losses typically do not vary significantly from reserve
estimates.

Our long-tail lines of business include workers' compensation and other
liability. In addition, certain product lines such as commercial auto,
commercial multi-peril and surety include both long-tail coverages and
short-tail coverages. For many long-tail liability claims, significant periods
of time, ranging up to several years, may elapse between the occurrence of the
loss, the reporting of the loss to us and the settlement 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 than for
short-tail coverages.

The amounts of the case-basis loss reserves that we establish for claims in
long-tail lines of business depends upon various factors, including individual
claim facts (including type of coverage, severity of loss and underlying policy
limits), company historical loss experience, changes in underwriting practice,
legislative enactments, judicial decisions, legal developments in the awarding
of damages, changes in political attitudes and trends in general economic
conditions, including inflation. As with our short-tail lines of business, we
review and make changes to long-tail case-based reserves based on our review of
continually evolving facts as they become available to us during the claims
settlement process. Our adjustments to case-based reserves are reported in the
financial statements in the period that new information arises about the claim.
Examples of facts that become known that could cause us to change our case-based
reserves include, but are not limited to: evidence that loss severity is
different than previously assessed; new claimants who have presented claims; and
the assessment that no coverage exists.

Incurred But Not Reported Reserves

On a quarterly basis, the Company's internal actuary performs a detailed
analysis of IBNR reserves. This analysis uses various loss projection methods to
provide several estimates of ultimate loss (or loss adjustment expense (LAE))
for each individual year and line of business. The loss projection methods
include paid loss development; reported loss development; expected loss
emergence based on paid losses; and expected loss emergence based on reported
losses. The two methods utilized by our internal actuary to project loss
settlement expenses are paid expenses development and development of the ratio
of paid expense versus paid loss. Results of the projection methods are compared
and a point estimate of ultimate loss (or LAE) is established for each
individual year and line of business. The specific projection methods used to
establish point estimates vary depending on what is deemed most appropriate for
a particular line of business and year. Results of these methods are usually
averaged together to provide a final point estimate. Given that there are
several inputs depending on the line of business, the methods
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may be averaged and modified based on changes known to management or trends in
the market. IBNR estimates are derived by subtracting reported loss from the
final point estimate loss.

Senior management meets with our internal actuary and controller quarterly to
review the adequacy of carried IBNR reserves based on results from this
actuarial analysis and makes adjustments for changes in business and other
factors not completely captured by the data within the actuarial analysis. There
are two fundamental types or sources of IBNR reserves. We record IBNR 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 specific IBNR reserves because an analysis of existing historical
data would not provide an appropriate estimate. This method of establishing our
IBNR reserves has consistently resulted in aggregate reserve levels that
management believes are reasonable in comparison to the reserve estimates
indicated by the actuarial analysis.

For our short-tail lines of business, IBNR reserves constitute a small portion
of the overall reserves. These claims are generally reported and settled shortly
after the loss occurs. In our long-tail lines of business, IBNR reserves
constitute a relatively higher proportion of total reserves, because, for many
liability claims, significant periods of time may elapse between the initial
occurrence of the loss, the reporting of the loss to us, and the ultimate
settlement of the claim.

Loss Settlement Expense Reserves

Loss settlement expense reserves include amounts ultimately allocable to
individual claims, as well as amounts required for the general overhead of the
claims handling operation that are not specifically allocable to individual
claims. We do not establish loss settlement expense reserves on a claim-by-claim
basis. Instead, on a quarterly basis, our internal actuary performs a detailed
statistical analysis (using historical data) to estimate the required reserve
for unpaid loss settlement expenses. On a monthly basis, the required reserve
estimate is adjusted to reflect additional earned exposure and expense payments
that have occurred subsequent to completion of the quarterly analysis.

LAE is composed of two distinct kinds of expenses which are allocated LAE
("ALAE") and unallocated LAE ("ULAE"). These two expense types have different
purposes and characteristics which necessitates different estimation methods in
order to provide a valid quarterly estimate of the required reserve for unpaid
expense which is generally referred to as an LAE IBNR reserve.

Reserves for unpaid ALAE are estimated quarterly by line of business for each
individual accident year using three methods: (1) Paid development, (2) Expected
emergence of ALAE, and (3) Development of the ratio of paid ALAE to paid loss.
Each of the three methods produces an estimate of the ultimate ALAE cost for an
individual accident year and the final estimate is generally a weighted average
of the various methods. Inception to date paid ALAE is subtracted from the final
ultimate ALAE estimate to provide the estimated ALAE IBNR reserve for each
individual accident year.

Reserves for unpaid ULAE are estimated quarterly by line of business for each
individual accident year using a single method. This method consists of applying
a percentage factor to unpaid loss reserves. The percentage factor used differs
by line of business and is evaluated and established on an annual basis using
year-end data. The percentage factor is evaluated and selected after reviewing
the ratio of paid ULAE to paid loss using calendar year data for the most recent
five years.

Generally, the loss settlement expense reserves for long-tail lines of business
are a greater portion of the overall reserves, as there are often substantial
legal fees and other costs associated with the complex liability claims that are
associated with long-tail coverages. Because short-tail lines of business settle
much more quickly and the costs are easier to determine, loss settlement expense
reserves for such claims constitute a smaller portion of the total reserves.

Reinsurance Reserves

The estimation of assumed and ceded reinsurance loss and loss settlement expense
reserves is subject to the same factors as the estimation of loss and loss
settlement expense reserves. In addition to those factors, which give rise to

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inherent uncertainties in establishing loss and loss settlement expense
reserves, there exists a delay in our receipt of reported claims for assumed
business due to the procedure of having claims first reported through one or
more intermediary insurers or reinsurers.

Reserves for assumed reinsurance are established using methods and techniques
identical to those used for direct lines of business. The additional delay
inherent in assumed reinsurance reporting is considered in our reserving process
and payment is not problematic. Assumed reinsurance, like every independent line
of business, has unique reporting and payment patterns that are reviewed as part
of the reserve estimation process.

There are three distinct types of reserves ceded to reinsurers: (1) reported
claim reserves, (2) loss IBNR, and (3) LAE IBNR. Ceded reserves for reported
claims are calculated by subtracting the primary retention from the claim value
established by our claim adjuster. Ceded loss IBNR originates from our boiler
and machinery business which is 100 percent reinsured. For this business ceded
loss IBNR is equal to direct loss IBNR. Boiler and machinery business is
included in our commercial fire and allied line of business. We will cede some
LAE expenses when we cede loss. Our ceded LAE IBNR is estimated based on our
ceded unpaid loss reserves and the general relation, by line of business,
between LAE and loss. Our primary retention was $2.0 million for 2012 through
2015 and increased to $2.5 million for 2016 through 2021.

Key Assumptions

Our internal and external actuaries and management use a number of key
assumptions in establishing an estimate of loss and loss settlement expense
reserves, including the following assumptions: future loss settlement expenses
can be estimated based on the Company's historical ratios of loss settlement
expenses paid to losses; the Company's case-basis reserves reflect the most
up-to-date information available about the unique circumstances of each
individual claim; no new judicial decisions or regulatory actions will increase
our case-basis obligations; historical aggregate claim reporting and payment
patterns will continue into the future consistent with the observable past;
significant unique and unusual claim events have been identified and appropriate
adjustments have been made; and, to the best of our knowledge, there are no new
latent trends that would impact our case-basis reserves.

Our key assumptions are subject to change as actual claims occur and as we gain
additional information about the variables that underlie our assumptions.
Accordingly, management reviews and updates these assumptions periodically to
ensure that the assumptions continue to be valid. If necessary, management makes
changes not only in the estimates derived from the use of these assumptions, but
also in the assumptions themselves. Due to the inherent uncertainty in the loss
reserving process, management believes that there is a reasonable chance that
modification to key assumptions could individually, or in aggregate, result in
reserve levels that are either significantly above or below the actual amount
for which the related claims will eventually settle.

As an example, if our loss and loss settlement expense reserves of $1,514.3
million as of December 31, 2021, is 10.0 percent inadequate, we would experience
a reduction in future pre-tax earnings of up to $151.4 million. This reduction
could be recorded in one year or multiple years, depending on when we identify
the deficiency. The deficiency would also affect our financial position in that
our equity would be reduced by an amount equivalent to the reduction in net
income. Any deficiency that would be recognized in our loss and loss settlement
expense reserves usually does not have a material effect on our liquidity
because the claims have not been paid. Conversely, if our estimates of ultimate
unpaid loss and loss settlement expense reserves prove to be redundant, our
future earnings and financial position would be improved. We believe our
reserving philosophy, coupled with what we believe to be aggressive and
successful claims management and loss settlement practices, has resulted in
year-to-year redundancies in reserves. We believe our approach produces recorded
reserves that are reasonable as to their relative position within a range of
reasonable reserves from year-to-year.

We are unable to reasonably quantify the impact of changes in our key
assumptions utilized to establish individual case-basis reserves on our total
reported reserves because the impact of these changes would be unique to each
specific case-basis reserve established. However, based on historical
experience, we believe that aggregate case-basis reserve volatility levels of
5.0 percent and 10.0 percent can be attributed to the ultimate development of
our net case-basis reserves. The impact to pre-tax earnings would be a decrease
if the reserves were to be adjusted upwards
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and an increase if the reserves were to be adjusted downwards. The table below
details the impact of this development volatility on our reported net case-basis
reserves at December 31, 2021:

(In Thousands)
Change in level of net case-basis reserve development        5%           10%
Impact on reported net case-basis reserves               $ 43,343      $ 

86,687

Due to the formula-based nature of our IBNR and loss settlement expense reserve
calculations, changes in the key assumptions utilized to generate these reserves
can impact our reported results. It is not possible to isolate and measure the
potential impact of just one of these factors, and future loss trends could be
partially impacted by all factors concurrently. Nevertheless, it is meaningful
to view the sensitivity of the reserves to potential changes in these variables
such as claim frequency and severity. To demonstrate the sensitivity of reserves
to changes in significant assumptions, the following example is presented. The
amounts reflect the pre-tax impact on earnings from a hypothetical percentage
change in the calculation of IBNR and loss settlement expense reserves at
December 31, 2021. The impact to pre-tax earnings would be a decrease if the
reserves were to be adjusted upwards and an increase if the reserves were to be
adjusted downwards. We believe that the changes presented are reasonably likely
based upon an analysis of our historical IBNR and loss settlement expense
reserve experience.

(In Thousands)
Change in claim frequency and claim severity assumptions        5%          

10%

Impact due to change in IBNR reserving assumptions $ 11,153 $ 22,307

(In Thousands)
Change in LAE paid to losses paid ratio                  1%           2%

Impact due to change in LAE reserving assumptions $ 3,114 $ 6,229

In 2021, we did not change the key method through which we develop our
assumptions on which we based our reserving calculations. In estimating our 2021
loss and loss settlement expense reserves, we did not anticipate future events
or conditions that were inconsistent with past development patterns.

Certain of our lines of business are subject to the potential for greater loss
and loss settlement expense development than others, which are discussed below:

Other Liability Reserves

Other liability is considered a long-tail line of business, as it can take a
relatively long period of time to settle claims from prior accident years. This
is partly due to the lag time between the date a loss or event occurs that
triggers coverage and the date when the claim is actually reported. Defense
costs are also a part of the insured expenses covered by liability policies and
can be significant, sometimes greater than the cost of the actual paid claims.
For the majority of our products, defense costs are outside of the policy limit,
meaning that the amounts paid for defense costs are not subtracted from the
available policy limit.

Factors that can cause reserve uncertainty in estimating reserves in this line
include: reporting time lags; the number of parties involved in the underlying
tort action; whether the "event" triggering coverage is confined to only one
time period or is spread over multiple time periods; the potential dollars
involved in the individual claim actions; whether such claims were reasonably
foreseeable and intended to be covered at the time the contracts were written
(i.e., coverage disputes); and the potential for mass claim actions.

Claims with longer reporting time lags may result in greater inherent risk. This
is especially true for alleged claims with a latency feature, particularly where
courts have ruled that coverage is spread over multiple policy years, hence
involving multiple defendants (and their insurers and reinsurers) and multiple
policies (thereby increasing the potential dollars involved and the underlying
settlement complexity). Claims with long latencies also increase the
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potential time lag between writing a policy in a certain market and the
recognition that such policy has potential mass tort and/or latent claim
exposure.

Our reserve for other liability claims at December 31, 2021, was $671.0 million
and consisted of 5,113 claims, compared with $652.3 million, consisting of 5,895
claims at December 31, 2020. Of the $671.0 million total reserve for other
liability claims, $151.3 million is identified as defense costs and $36.3
million is identified as general overhead required in the settlement of claims.

Included in the other liability line of business are gross reserves for
construction defect losses and loss settlement expenses. Construction defect is
a liability allegation relating to defective work performed in the construction
of structures such as commercial buildings, apartments, condominiums, single
family dwellings or other housing, as well as the sale of defective building
materials. These claims seek recovery due to damage caused by alleged deficient
construction techniques or workmanship. At December 31, 2021, we had $86.8
million in construction defect loss and loss settlement expense reserves,
excluding IBNR reserves that are calculated for the overall other liability
commercial line, which consisted of 4,496 claims. At December 31, 2020, our
reserves, excluding IBNR reserves, totaled $73.6 million, which consisted of
3,983 claims. The reporting of such claims can be delayed, as the statute of
limitations can be up to 10 years. Court decisions in recent years have expanded
insurers' exposure to construction defect claims. As a result, claims may be
reported more than 10 years after a project has been completed, as litigation
can proceed for several years before an insurance company is identified as a
potential contributor. Claims have also emerged from parties claiming additional
insured status on policies issued to other parties, such as contractors seeking
coverage from a subcontractor's policy.

In addition to these issues, other variables also contribute to a high degree of
uncertainty in establishing reserves for construction defect claims. These
variables include: whether coverage exists; when losses occur; the size of each
loss; expectations for future interpretive rulings concerning contract
provisions; and the extent to which the assertion of these claims will expand
geographically. In recent years, we have implemented various underwriting
measures that we anticipate will mitigate the amount of construction defect
losses experienced. These initiatives include increased care regarding
additional insured endorsements; stricter underwriting guidelines on the writing
of residential contractors; and an increased utilization of loss control.

Asbestos and Environmental Reserves

Included in the other liability and assumed reinsurance lines of business are
reserves for asbestos and other environmental losses and loss settlement
expenses. At December 31, 2021 and 2020, we had $2.5 million and $2.5 million,
respectively, in direct and assumed asbestos and environmental loss reserves.
The estimation of loss reserves for environmental claims and claims related to
long-term exposure to asbestos and other substances is one of the most difficult
aspects of establishing reserves, especially given the inherent uncertainties
surrounding such claims. Although we record our best estimate of loss and loss
settlement expense reserves, the ultimate amounts paid upon settlement of such
claims may be more or less than the amount of the reserves, because of the
significant uncertainties involved and the likelihood that these uncertainties
will not be resolved for many years.

Commercial Auto Reserves

Commercial auto claim reserves are established at exposure based on information
either known and provided or obtained through the investigation, with some
pessimism built in. Incorporated are the perspective and experience the claims
staff has acquired, which may include assumptions as to how the claim will
develop over time, and with a slightly pessimistic view. Exposures are
identified and reserves established within 30 to 60 days depending on the
complexity of the case.

Workers' Compensation Reserves

Like the other liability line of business, workers' compensation losses and loss
settlement expense reserves are based upon variables that create imprecision in
estimating the ultimate reserve. Estimates for workers' compensation are
particularly sensitive to assumptions about medical cost inflation, which has
been steadily increasing over the past few years. Other variables that we
consider and that contribute to the uncertainty in establishing reserves for
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workers' compensation claims include: state legislative and regulatory
environments; trends in jury awards; and mortality rates. Because of these
variables, the process of reserving for the ultimate loss and loss settlement
expense to be incurred requires the use of informed judgment and is inherently
uncertain. Consequently, actual loss and loss settlement expense reserves may
deviate from our estimates. Such deviations may be significant. Our reserve for
workers' compensation claims at December 31, 2021 was $167.1 million and
consisted of 2,028 claims, compared with $173.6 million, consisting of 3,192
claims, at December 31, 2020.

Reserve Development

The following reserve development section should be read in conjunction with the
"Results of Operations for the Years Ended December 31, 2021, 2020 and 2019"
section of this Item 7.

In 2021, 2020 and 2019, we recognized a favorable development in our net
reserves for prior accident years totaling $48.9 million, $17.7 million and $5.3
million, respectively.

The factors contributing to our year-to-year redundancy include: establishing
reserves at their ultimate expected loss amount as soon as practicable after
information becomes available, which produces, on average, cautiously
pessimistic case reserves; using claims negotiation to control the size of
settlements; assuming that we have liability for all claims, even though the
issue of liability may, in some cases, be resolved in our favor; promoting
claims management services to encourage return-to-work programs; case management
by nurses for serious injuries and management of medical provider services and
billings; and using programs and services to help prevent fraud and to assist in
favorably resolving cases.

Based upon our comparison of carried reserves to actual claims experience over
the last several years, we believe that using our Company's historical premium
and claims data to establish reserves for losses and loss settlement expenses
results in adequate and reasonable reserves. Reserve development is discussed in
more detail under the heading "Reserve Development" in the "Results of
Operations for the Years Ended December 31, 2021, 2020 and 2019" section in this
Item 7.

The following table details the pre-tax impact on our property and casualty
insurance business' financial results and financial condition of reasonably
likely reserve development. Our lines of business that have historically been
most susceptible to significant volatility in reserve development have been
shown separately and utilize hypothetical levels of volatility of 5.0 percent
and 10.0 percent. Our other, less volatile, lines of business have been
aggregated and utilize hypothetical levels of volatility of 3.0 percent and 5.0
percent.

(In Thousands)
Hypothetical Reserve Development Volatility
Levels                                          -10%               -5%                +5%              +10%
Impact on loss and loss settlement expenses
Other liability                             $ (67,095)         $ (33,547)         $ 33,547          $ 67,095
Workers' compensation                         (16,710)            (8,355)            8,355            16,710
Automobile                                    (43,629)           (21,815)           21,815            43,629

Hypothetical Reserve Development Volatility
Levels                                          -5%                -3%                +3%               +5%
Impact on loss and loss settlement expenses
All other lines                             $ (11,996)         $  (7,198)         $  7,198          $ 11,996


Independent Actuary

We engage an independent actuarial firm to render an opinion as to the
reasonableness of the statutory reserves internal management establishes. During
2021 and 2020, we engaged the services of Regnier as our independent actuarial
firm for the property and casualty insurance business. We anticipate that this
engagement will continue in 2022.
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It is management's policy to utilize staff adjusters to develop our estimate of
case-basis loss reserves. IBNR and loss settlement expense reserves are
established through various formulae that utilize pertinent, recent Company
historical data. The calculations are supplemented with knowledge of current
trends and events that could result in adjustments to the level of IBNR and loss
settlement expense reserves. On a quarterly basis, we compare our estimate of
total reserves to the estimates prepared by Regnier by line of business to
ensure that our estimates are within the actuary's acceptable range. Regnier
performs a review of loss and loss settlement expense reserves at each year end
using generally accepted actuarial guidelines to ensure that the recorded
reserves appear reasonable. Our net reserves for losses and loss settlement
expenses as of December 31, 2021 and 2020 were $1,401.4 million and $1,446.3
million, respectively. In 2021 and 2020, after considering the independent
actuary's range of reasonable estimates, management believes that carried
reserves were reasonable and therefore did not adjust the recorded amount.

Regnier uses four projection methods in its actuarial analysis of our loss
reserves and uses two projection methods in its actuarial analysis of our loss
settlement expense reserves. Based on the results of the projection methods, the
actuaries select an actuarial point estimate of the reserves, which is compared
to our carried reserves to evaluate the reasonableness of the carried reserves.
The four methods utilized by Regnier to project losses are: paid loss
development; reported loss development; expected loss emergence based on paid
losses; and expected loss emergence based on reported losses. The two methods
utilized by Regnier to project loss expenses are: paid expenses-to-paid loss and
paid expense-to-ultimate loss.

Pension and Post-Retirement Benefit Obligations

The process of estimating our pension and post-retirement benefit obligations
and related benefit expense is inherently uncertain, and the actual cost of
benefits may vary materially from the estimates recorded. These liabilities are
particularly volatile due to their long-term nature and are based on several
assumptions. The main assumptions used in the valuation of our benefit
obligations are: estimated mortality of the employees and retirees eligible for
benefits; estimated expected long-term rates of return on investments; estimated
compensation increases; estimated employee turnover; estimated medical expense
trend rate; and estimated rate used to discount the ultimate estimated liability
to a present value. We engage a consulting actuary from Principal Financial
Group, an independent firm, to assist in evaluating and establishing assumptions
used in the valuation of our benefit obligations.

A change in any one or more of these assumptions is likely to result in an
ultimate liability different from the original actuarial estimate. Such changes
in estimates may be material. For example, a 100 basis point decrease in our
estimated discount rate would increase the pension at December 31, 2021 by $50.4
million while a 100 basis point increase in the rate would decrease the benefit
obligation $39.3 million.

A 100 basis point decrease in our estimated long-term rate of return on pension
plan assets would increase the benefit expense for the year ended December 31,
2021, by $2.8 million, while a 100 basis point increase in the rate would
decrease benefit expense by $2.8 million, for the same period.

The post-retirement benefit obligation is less than $1.0 million at December 31,
2021 due to the plan closure at the end of 2022, therefore any change in the
discount rate will be immaterial to the benefit obligation.

Goodwill

As described in Part II, Item 8, Note 14 "Intangible Assets," the Company
performed a quantitative impairment analysis on its one reporting unit and
recognized an impairment charge of $15.1 million for the year ended December 31,
2020. The Company tests goodwill for impairment annually, during the third
quarter, or more frequently if events or changes in circumstances indicate that
goodwill might be impaired. An impairment charge is recognized for the amount by
which the carrying amount exceeds the reporting unit's fair value. The Company
used a weighting of the income and market approaches to determine the fair value
of the reporting unit. The impairment was based on the following factors: (i)
disruptions in the equity markets, specifically for property and casualty
insurance companies, as a result of the COVID-19 pandemic and due to the current
year weather related catastrophes; and (ii) the fair value of our stock trading
significantly below book value.
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The Company's quantitative goodwill impairment test involved estimating the fair
value of the Company, which was sensitive to significant assumptions, such as
forecasted revenues and loss and loss settlement expenses, discount rate, and
terminal growth rate which are used in the income approach and comparable
publicly traded companies and estimated valuation multiples which are used in
the market approach.

Recently Issued Accounting Standards

Information specific to accounting standards that we adopted in 2021 or pending
accounting standards that we expect to adopt in the future is incorporated by
reference from Note 1 "Summary of Significant Accounting Policies" contained in
Part II, Item 8, "Financial Statements and Supplementary Data."

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item 7A is incorporated by reference from Part II,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" under the headings "Investments" and "Market Risk."
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