UNITED FIRE GROUP INC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are representative of
significant judgments and uncertainties and that potentially may result in
materially different results under different assumptions and conditions. We base
our discussion and analysis of our consolidated financial condition and results
of operations on the amounts reported in our Consolidated Financial Statements,
which we have prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"). As we prepare these Consolidated Financial Statements, we
must make estimates and assumptions that affect the reported amounts of assets
and liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
for the reporting period. We evaluate our estimates on an ongoing basis. We base
our estimates on historical experience and on other assumptions that we believe
to be reasonable under the circumstances. Actual results could differ from those
estimates. Our critical accounting policies are more fully described in our
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for
the year ended December 31, 2020. There have been no changes in our critical
accounting policies from December 31, 2020.

INTRODUCTION

The purpose of this Management's Discussion and Analysis is to provide an
understanding of our results of operations and consolidated financial condition.
Our Management's Discussion and Analysis should be read in conjunction with our
Consolidated Financial Statements and related notes, including those in Part II,
Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.
Our Consolidated Financial Statements are prepared on the basis of GAAP. We also
prepare financial statements for each of our insurance company subsidiaries
based on statutory accounting principles and file them with insurance regulatory
authorities in the states where they do business.

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

BUSINESS OVERVIEW

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc.
("UFG," the "Registrant," the "Company," "we," "us," or "our") and its
consolidated insurance subsidiaries provide insurance protection for individuals
and businesses through several regional offices. Our property and casualty
insurance company subsidiaries are licensed in 50 states plus the District of
Columbia and are represented by approximately 1,000 independent agencies.
Our primary sources of revenue are premiums and investment income. Major
categories of expenses from our operations include losses and loss settlement
expenses, underwriting and other operating expenses.
Reportable Segments

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

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Lloyd's Syndicates
As of January 1, 2021, the Company became a member of Lloyd's of London
("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital
at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of
property and casualty and reinsurance business by Syndicate 1492, Syndicate
1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At September 30, 2021,
the Company's FAL investments were comprised of cash of $21.3 million on deposit
with Lloyd's in order to satisfy these FAL requirements.
Personal Lines Business

In May 2020, the Company entered into a renewal rights agreement for our
personal lines business, providing our independent insurance agents with the
opportunity to transfer their personal lines policies to Nationwide Mutual
Insurance Company beginning in the third quarter of 2020, subject to the receipt
of applicable regulatory approvals. As part of this agreement, Nationwide has
offered contracts to many of our personal lines agents across the country, with
the exception of agents in Louisiana. In Louisiana, we began non-renewing all
personal lines policies in January 2021. Nationwide has been offering
replacement policies to most of our personal lines policyholders at the time of
renewal. There are three categories of policies where they are refusing to offer
replacement coverage directly.

UFG's entry into a renewal rights agreement with Nationwide was completed as
part of our long-term strategic planning, allowing us to focus on the success of
our core commercial lines business, which represented 94 percent of our business
mix at the time of the agreement. It was not initiated as a result of market
conditions from the COVID-19 pandemic.

Pooling Arrangement

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

Geographic Concentration

For the nine-month period ended September 30, 2021, approximately 50.8 percent
of our property and casualty premiums were written in Texas, California, Iowa,
Missouri, and New Jersey.
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 are fully operational, but have limited some non-essential
travel. Our essential services employees are following recommended health and
safety policies. We are and will continue to monitor the state and federal
responses to the pandemic and, when appropriate, will


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adjust our operations in response. We have finalized our return to workplace
plan for our employees, which gives 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. On July 19, 2021, we implemented our
plan with a certain portion of our employees returning to the workplace and then
subsequently paused our plan due to the spread of the delta variant strain of
COVID-19 in August 2021. At this time, our plan is to continue to pause our
return to the workplace plan through December 31, 2021.

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.
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 will 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 anticipate that the larger impact on our financial condition and results of
operations will likely result from developments in the economy as a whole and
the effect on financial markets and the investments we hold in our investment
portfolio, premiums and demand for our products, and our ability to collect
premiums or any requirement to return premiums to policyholders. 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 1, Item
1, Note 8 "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 September 2021 marking the 214th consecutive
quarter of paying dividends since March 1968.

Stockholders' equity decreased to $814.5 million at September 30, 2021, from
$825.1 million at December 31, 2020. This decrease is primarily attributable to
shareholder dividends of $11.3 million and a decrease in net unrealized
investment gains on fixed maturity securities of $25.9 million, net of tax,
partially offset by net income of $22.9 million, during the first nine months of
2021.

As of September 30, 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 September 30, 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, however those sectors have
now recovered as of September 30, 2021. The Company's investment philosophy,
objectives, approach and program have not changed as a result of the COVID-19
pandemic. During the nine-month period ended September 30, 2021 we had a
recovery in the fair value of equity securities of $20.5 million and an increase
in value of our investments in limited liability partnerships of $10.8 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 $25.9 million, net of
tax, at September 30, 2021 on its available-for-sale fixed maturity portfolio.
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


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be recorded for each of these assets on our balance sheet as of September 30,
2021. For more information on credit losses recognized in the three- and
nine-month periods ended September 30, 2021, please refer to the Note 1 and Note
2 to Unaudited Consolidated Financial Statements of this Form 10-Q.



















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FINANCIAL HIGHLIGHTS
                                                    Three Months Ended September 30,                               Nine Months Ended September 30,
(In Thousands, Except Ratios)                  2021                   2020                %                   2021                  2020                 %
Revenues
Net premiums earned                     $       238,909           $ 259,061              (7.8) %       $      722,837           $  791,519              (8.7) %
Investment income, net of investment
expenses                                         11,571               7,244              59.7                  42,447               22,303              

90.3

Net realized investment gains (losses)           (2,269)             15,212            (114.9)                 28,243              (62,416)           (145.2)
Other income                                        332                 604             (45.0)                    163                6,323             (97.4)
Total revenues                          $       248,543           $ 282,121             (11.9) %       $      793,690           $  757,729               4.7  %

Benefits, Losses and Expenses
Losses and loss settlement expenses     $       175,444           $ 234,693             (25.2) %       $      533,981           $  626,169             (14.7) %
Amortization of deferred policy
acquisition costs                                51,261              52,095              (1.6)                150,533              158,440              (5.0)
Other underwriting expenses                      35,468              35,470                 -                  82,236              114,020             (27.9)
Interest expense                                    797                   -                   NM                2,391                    -                   NM
Goodwill impairment                                   -              15,091                   NM                    -               15,091                   NM
Total benefits, losses and expenses     $       262,970           $ 337,349             (22.0) %       $      769,141           $  913,720             

(15.8) %

Income (loss) before income taxes $ (14,427) $ (55,228)

            (73.9) %       $       24,549           $ (155,991)     

(115.7)

Federal income tax expense (benefit)             (4,834)            (17,987)            (73.1)                  1,690              (52,176)           (103.2)
Net income (loss)                       $        (9,593)          $ (37,241)            (74.2)         $       22,859           $ (103,815)           (122.0) %

GAAP Ratios:
Net loss ratio (without catastrophes)              56.9   %            69.2  %          (17.8) %                 61.4   %             63.8  %           (3.8) %
Catastrophes - effect on net loss ratio            16.5                21.4             (22.9)                   12.5                 15.3             (18.3)
Net loss ratio(1)                                  73.4   %            90.6  %          (19.0) %                 73.9   %             79.1  %           (6.6) %
Expense ratio(2)                                   36.3                33.8               7.4                    32.2                 34.4              (6.4)
Combined ratio(3)                                 109.7   %           124.4  %          (11.8) %                106.1   %            113.5  %           (6.5) %


(1) The net loss ratio is calculated by dividing the sum of losses and loss
settlement expenses by net premiums earned. We use the net loss ratio as a
measure of the overall underwriting profitability of the insurance business we
write and to assess the adequacy of our pricing. Our net loss ratio is
meaningful in evaluating our financial results as reported in our unaudited
Consolidated Financial Statements.
(2) The expense ratio is calculated by dividing other underwriting expenses and
amortization of deferred policy acquisition costs by net premiums earned. The
expense ratio measures a company's operational efficiency in producing,
underwriting and administering its insurance business.
(3) The combined ratio is a commonly used financial measure of property and
casualty underwriting performance. A combined ratio below 100.0 percent
generally indicates a profitable book of business. The combined ratio is the sum
of the net loss ratio and the underwriting expense ratio.
NM = Not meaningful

The following is a summary of our financial performance for the three- and
nine-month periods ended September 30, 2021:

RESULTS OF OPERATIONS

For the three-month period ended September 30, 2021, net loss was $9.6 million
compared to a net loss of $37.2 million for the same period of 2020. The
decrease in the net loss reported in third quarter of 2021 as compared to third
quarter of 2020 was due to lower losses and loss settlement expenses and higher
net investment income partially offset by a decrease in net premiums earned and
net realized investment losses in third quarter of 2021 compared to net realized
investment gains in third quarter of 2020.



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For the nine-month period ended September 30, 2021, net income was $22.9 million
compared to a net loss of $103.8 million for the same period of 2020. The change
was primarily due to an increase in net realized investment gains from an
increase in the fair value of equity securities as compared to net realized
investment losses for the same period of 2020, a decrease in losses and loss
settlement expenses, a decrease in other underwriting expenses and an increase
in net investment income. These were partially offset by a decrease in net
premiums earned.

The third quarter of 2020, also included a one-time adjustment to write off
goodwill of $15.1 million. This goodwill related to the acquisition of Mercer
Insurance Group, Inc. in 2011.

Net premiums earned decreased 7.8 percent and 8.7 percent during the three- and
nine-month periods ended September 30, 2021 compared to the same periods of
2020, respectively. The decrease in the three- and nine-month periods ended
September 30, 2021 was 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 of the personal lines business which began in September
2020.

Net investment income was $11.6 million for the third quarter of 2021 as
compared to net investment income of $7.2 million for the same period in 2020.
Year-to-date, net investment income was $42.4 million compared to net investment
income of $22.3 million for the same period in 2020. The increase in net
investment income in the three- and nine-month periods ended September 30, 2021
was due to an increase in the fair value of our investments in limited liability
partnerships in the first nine months of 2021 as compared to the same periods in
2020. The valuation of these investments in limited liability partnerships
varies from period to period due to the current equity market conditions,
specifically related to financial institutions.

The Company recognized net realized investment losses of $2.3 million during the
third quarter of 2021, compared to net realized investment gains of $15.2
million for the same period in 2020. Year to date, the Company recognized net
realized investment gains of $28.2 million during the third quarter of 2021,
compared to net realized investment losses of $62.4 million for the same period
in 2020. The change in the three- and nine-month periods ended September 30,
2021, as compared to the same periods in 2020, was primarily due to the change
in the fair value of equity securities.

Losses and loss settlement expenses decreased by 25.2 percentage points and 14.7
percent percentage points during the three- and nine-month periods ended
September 30, 2021, respectively, compared to the same periods in 2020. For the
three- and nine-month periods ended September 30, 2021, the decrease in losses
and loss settlement expenses was primarily due to a decrease in catastrophe
losses and frequency and severity of commercial auto liability losses.

The GAAP combined ratio decreased by 14.7 percentage points to 109.7 percent for
the third quarter of 2021, compared to 124.4 percent in the same period in 2020.
For the nine-month period ended September 30, 2021, combined ratio decreased by
7.4 percentage points to 106.1 percent compared to 113.5 percentage points in
the same period in 2020. For the nine-month period ended September 30, 2021, the
decrease in the combined ratio was primarily driven by a decrease in the net
loss ratio.

The GAAP net loss ratio decreased 17.2 percentage points and 5.2 percentage
points during three- and nine-month periods ended September 30, 2021 as compared
to the same periods in 2020. The decrease in the net loss ratio during the
three- and nine-month periods ended September 30, 2021 as compared to the same
periods in 2020 was primarily due to comparatively lower catastrophe losses and
a decrease in the frequency and severity of commercial auto liability losses.

Pre-tax catastrophe losses in the third quarter of 2021 were lower when compared
to third quarter of 2020, with catastrophe losses adding 16.5 percentage points
to the combined ratio in 2021 as compared to 21.4 percentage points in 2020.
Year-to-date, pre-tax catastrophe losses were 12.5 percentage points as compared
to 15.3 percentage points during the same period in 2020. The most significant
catastrophe losses in the third quarter of 2021 were from Hurricane Ida on our
commercial and personal lines of business and from the European floods on our
reinsurance assumed line of business. In the third quarter of 2020, the most
significant catastrophe losses were from the August


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Midwest derecho and Hurricane Laura. Our 10-year historical average for third
quarter catastrophe losses is 9.2 percentage points added to the combined ratio.

The expense ratio for the third quarter of 2021 was 36.3 percent compared to
33.8 percent for the third quarter in 2020. Year-to-date, the expense ratio was
32.2 percent compared to 34.4 percent as compared to the same period in 2020.
The increase in the third quarter of 2021 was primarily due to improved
performance in our book of business resulting in additions to profit sharing for
our agents, employees, and program business. The decrease in the underwriting
expense ratio year-to-date as compared to the same periods in 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.

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

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

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

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

2021 Development

The property and casualty insurance business experienced $11.1 million and $26.0
million of favorable development in our net reserves for prior accident years
for the three- and nine-month periods ended September 30, 2021, respectively.
For the three-month period ended September 30, 2021 the majority of favorable
development was from commercial auto with $11.0 favorable development followed
by commercial fire and allied lines with $4.1 million favorable development. The
favorable development was partially offset by $7.1 million of unfavorable
development in commercial liability. All other lines of insurance, in total,
contributed $3.1 million of favorable development during the quarter. The
favorable development for commercial fire and allied lines was from both loss
and loss adjustment expense ("LAE") where reductions in reserves were more than
sufficient to offset payments. The favorable development for commercial
automobile was from LAE where reductions in reserves were more than sufficient
to offset paid LAE. The unfavorable development for commercial liability was
from loss where reductions in loss reserves were not sufficient to offset paid
loss.



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For the nine-month period ended September 30, 2021 the majority of favorable
development was from commercial automobile with $21.5 million favorable
development, followed by workers' compensation with $7.7 million favorable
development, commercial fire and allied lines with $5.6 million favorable
development, and personal fire and allied lines with $4.0 million favorable
development. Partially offsetting this was unfavorable development was
contributed primarily by commercial liability with $17.1 million of unfavorable
development. All other lines of insurance, in total, contributed $4.3 million of
favorable development. The favorable development for commercial automobile was
from LAE where reductions in reserves were more than sufficient to offset paid
LAE. Workers' compensation favorable development came from both loss and LAE;
reserve reductions for both items were more than sufficient to offset payments.
The favorable development for commercial fire and allied lines was from LAE
where reductions in reserves were more than sufficient to offset paid LAE. The
favorable development for personal fire and allied lines came from both loss and
LAE; reserve reductions for both items were more than sufficient to offset
payments. The unfavorable development for commercial liability is attributed to
paid loss which was greater than the reductions of unpaid claim reserves; paid
loss adjustment expense was more than offset by reductions of reserves for
unpaid LAE.

2020 Development

The property and casualty insurance business experienced $6.3 million and $30.0
million of favorable development in our net reserves for prior accident years
for the three- and nine-month periods ended September 30, 2020, respectively.
For the three-month period ended September 30, 2020, the majority of favorable
development was from the combination of workers' compensation with $5.6 million
favorable development and commercial liability with $5.5 million favorable
development. Partially offsetting favorable development was commercial
automobile with $2.2 million of unfavorable development and reinsurance assumed
with $1.6 million of unfavorable development. The favorable development for
workers' compensation was primarily from reductions in claim reserves which were
more than sufficient to offset paid loss. The favorable development for
commercial liability was due to the combination of both loss and loss adjustment
expense where reserve reductions were more than sufficient to offset payments.
The adverse development for commercial automobile was attributed to an increase
in severity of losses with paid losses greater than the reductions of unpaid
claim reserves, paid LAE was more than offset by reductions of reserves for
unpaid LAE. All other lines of insurance, in total, contributed $1.0 million of
unfavorable development during the third quarter of 2020.

For the nine-month period ended September 30, 2020 the majority of favorable
development was from workers' compensation with $21.6 million favorable
development, followed by commercial fire and allied lines which contributed
$12.6 million of favorable development. Partially offsetting favorable
development was reinsurance assumed with $4.4 million of unfavorable development
and commercial automobile with $2.1 million of unfavorable development. The
favorable development for workers' compensation was primarily from reductions in
claim reserves which were more than sufficient to offset paid loss. The adverse
development for reinsurance assumed was attributed to paid loss which was
greater than the reductions of unpaid claim reserves. All other lines of
insurance, in total, contributed $2.3 million of favorable development during
the third quarter of 2020.

Development amounts can vary significantly from quarter-to-quarter and
year-to-year depending on a number of factors, including the number of claims
settled and the settlement terms, and are subject to reallocation between
accident years and lines of business. At September 30, 2021, our total reserves
were within our actuarial estimates.


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The following tables display our net premiums earned, net losses and loss
settlement expenses and net loss ratio by line of business:
Three Months Ended September 30,

                             2021                                                         2020
                                                        Net Losses                                                   Net Losses
                                                         and Loss                                                     and Loss
                                        Net             Settlement               Net                 Net             Settlement               Net
(In Thousands, Except Ratios)         Premiums           Expenses          

    Loss               Premiums           Expenses                Loss
Unaudited                              Earned            Incurred               Ratio               Earned            Incurred               Ratio
Commercial lines
Other liability                     $  75,559          $   47,416                  62.8  %       $  78,302          $   45,111                   57.6  %
Fire and allied lines                  60,457              44,855                  74.2             59,267              52,436                   88.5
Automobile                             60,991              42,034                  68.9             73,403              82,675                  112.6
Workers' compensation                  15,183              11,265                  74.2             19,245              10,250                   53.3
Fidelity and surety                     7,939                 909                  11.4              7,356                (128)                  (1.7)
Miscellaneous                             323                 176                  54.5                378                  78                   20.6
Total commercial lines              $ 220,452          $  146,655                  66.5  %       $ 237,951          $  190,422                   80.0  %

Personal lines
Fire and allied lines               $   2,559          $   11,382                       NM       $   5,144          $   29,451                        NM
Automobile                                734                 343                  46.7              7,055               8,322                  118.0
Miscellaneous                              50                  (9)                (18.0)               295                 (97)                 (32.9)
Total personal lines                $   3,343          $   11,716                       NM       $  12,494          $   37,676                        

NM

Reinsurance assumed                 $  15,114          $   17,073                 113.0  %       $   8,616          $    6,595                   76.5  %

Total                               $ 238,909          $  175,444                  73.4  %       $ 259,061          $  234,693                   90.6  %


NM = Not meaningful
























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Nine Months Ended September 30,                              2021                                                         2020
                                                        Net Losses                                                   Net Losses
                                                         and Loss                                                     and Loss
                                        Net             Settlement               Net                 Net             Settlement               Net
(In Thousands, Except Ratios)         Premiums           Expenses          

    Loss               Premiums           Expenses                Loss
Unaudited                              Earned            Incurred               Ratio               Earned            Incurred               Ratio
Commercial lines
Other liability                     $ 225,572          $  134,286                  59.5  %       $ 235,018          $  135,748                   57.8  %
Fire and allied lines                 177,066             150,032                  84.7            183,528             171,416                   93.4
Automobile                            190,238             151,632                  79.7            225,103             205,994                   91.5
Workers' compensation                  47,260              33,601                  71.1             57,873              24,205                   41.8
Fidelity and surety                    22,436               3,000                  13.4             20,106                  14                    0.1
Miscellaneous                           1,007                 174                  17.3              1,158                 266                   23.0
Total commercial lines              $ 663,579          $  472,725                  71.2  %       $ 722,786          $  537,643                   74.4  %

Personal lines
Fire and allied lines               $  13,120          $   22,400                 170.7  %       $  24,933          $   55,372                  222.1  %
Automobile                              7,069               5,904                  83.5             22,203              15,935                   71.8
Miscellaneous                             337              (1,369)                      NM             905               2,561                  283.0
Total personal lines                $  20,526          $   26,935                 131.2  %       $  48,041          $   73,868                  153.8  %
Reinsurance assumed                 $  38,732          $   34,321                  88.6  %       $  20,692          $   14,658                   70.8  %

Total                               $ 722,837          $  533,981                  73.9  %       $ 791,519          $  626,169                   79.1  %


NM = Not meaningful

Below are explanations regarding significant changes in the net loss ratios by
line of business:
•Commercial fire and allied lines - The net loss ratio improved 14.3 and 8.7
percentage points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The improvement is primarily
due to lower comparable catastrophe losses in the three and nine-month periods
ended September 30, 2021 as compared to the same periods of 2020 along with a
decrease in LAE expenses.

•Commercial automobile - The net loss ratio improved 43.7 and 11.8 percentage
points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The improvement in the three
and nine-month periods ended September 30, 2021 is a direct result of our
strategic plan to improve the profitability of this line of business through
non-renew underperforming commercial auto accounts and seeking rate increase,
which has led to a reduction in claims frequency and severity and a decrease in
the number of commercial auto exposure units.

•Workers' compensation - The net loss ratio deteriorated 20.9 and 29.3
percentage points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The deterioration is
primarily attributable to paid loss for large claims, which have been more
severe in the three and nine-month periods ended September 30, 2021 as compared
to the same periods in 2020.

•Fidelity and surety - The net loss ratio deteriorated 13.1 and 13.3 percentage
points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The deterioration is
primarily attributable to paid loss for large claims and large claims that were
reported during the first and second quarters of 2021 as compared to the absence
of large claims during 2020.


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•Personal fire and allied lines - The net loss ratio improved 127.7 and 51.4
percentage points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The improvement is primarily
due to lower comparable catastrophe losses in the three and nine-month periods
ended September 30, 2021 as compared to the same periods of 2020.

•Reinsurance assumed - The net loss ratio deteriorated 36.5 and 17.8 percentage
points in the three and nine-month periods ended September 30, 2021,
respectively, compared to the same periods of 2020. The deterioration is
primarily due to higher catastrophe losses in the three and nine-month periods
ended September 30, 2021 as compared to the same periods of 2020.

Financial Condition

Stockholders' equity decreased to $814.5 million at September 30, 2021, from
$825.1 million at December 31, 2020. The Company's book value per share was
$32.48, which is a decrease of $0.45 per share, or 1.4 percent from December 31,
2020. The decrease is primarily attributable to a decrease in net unrealized
investment gains on fixed maturity securities of $25.9 million, net of tax, and
shareholder dividends of $11.3 million, partially offset by net income of $22.9
million during the first nine months of 2021.

Investment Portfolio

Our invested assets totaled $2.1 billion at September 30, 2021, compared to $2.1
billion at December 31, 2020, a decrease of $93.1 million. At September 30,
2021, fixed maturity securities and equity securities made up 84.0 percent and
9.8 percent of the value of our investment portfolio, respectively. Because the
primary purpose of our investment portfolio is to fund future claims payments,
we use a conservative investment philosophy, investing in a diversified
portfolio of high-quality, intermediate-term taxable corporate bonds, taxable
U.S. government bonds and tax-exempt U.S. municipal bonds.

Composition

We develop our investment strategies based on a number of factors, including
estimated duration of reserve liabilities, short- and long-term liquidity needs,
projected tax status, general economic conditions, expected rates of inflation,
regulatory requirements, interest rates and credit quality of assets. We
administer our investment portfolio based on investment guidelines approved by
management and the investment committee of our Board of Directors that comply
with applicable statutory regulations.

The composition of our investment portfolio at September 30, 2021 is presented
at carrying value in the following table:

                                        Property & Casualty Insurance
                                                                      Percent
(In Thousands, Except Ratios)                                        of Total
Fixed maturities (1)
Available-for-sale              $                  1,727,601          84.0  %

Equity securities                                    200,876           9.8
Mortgage loans                                        47,254           2.2
Other long-term investments                           80,162           4.0
Short-term investments                                   175             -
Total                           $                  2,056,068         100.0  %

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

As of September 30, 2021 and December 31, 2020, we did not have direct exposure
to investments in subprime mortgages or other credit enhancement vehicles.

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Credit Quality

The table below shows the composition of fixed maturity securities held in our
available-for-sale and trading security portfolios, by credit rating at
September 30, 2021 and December 31, 2020. Information contained in the table is
generally based upon the issued credit ratings provided by Moody's, unless the
rating is unavailable, in which case we obtain credit ratings from Standard &
Poor's.
(In Thousands, Except Ratios)                  September 30, 2021                                      December 31, 2020
Rating                              Carrying Value               % of Total                Carrying Value               % of Total
AAA                              $         696,706                       40.3  %        $         817,142                       44.8  %
AA                                         602,097                       34.9                     639,011                       35.0
A                                          198,812                       11.5                     182,011                       10.0
Baa/BBB                                    217,423                       12.6                     172,078                        9.4
Other/Not Rated                             12,563                        0.7                      15,196                        0.8
                                 $       1,727,601                      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 we use to quantify our inherent interest rate
risk and analyze our ability to match our invested assets to our reserve
liabilities. If our invested assets and reserve liabilities have similar
durations, then any change in interest rates will have an equal effect on these
accounts. The primary purpose for matching invested assets and reserve
liabilities is liquidity. With appropriate matching, our investments will mature
when cash is needed, preventing the need to liquidate other assets prematurely.
Mismatches in the duration of assets and liabilities can cause significant
fluctuations in our results of operations.
Investment Results
We invest the premiums received from our policyholders in order to generate
investment income, which is an important component of our revenues and
profitability. The amount of investment income that we are able to generate is
affected by many factors, some of which are beyond our control. Some of these
factors are volatility in the financial markets, economic growth, inflation,
interest rates, world political conditions, terrorist attacks or threats of
terrorism, adverse events affecting other companies in our industry or the
industries in which we invest and other unpredictable national or world events.
Our net investment income increased in the three- and nine-month periods ended
September 30, 2021, compared with the same period of 2020 primarily due to the
change in value of our investments in limited liability partnerships.
We hold certain investments in limited liability partnerships that are recorded
on the equity method of accounting, with changes in value of these investments
recorded in investment income. In the three- and nine-month periods ended
September 30, 2021, the change in value of our investments in limited liability
partnerships resulted in investment income of $1.3 million and $10.8 million as
compared to an investment income of $4.7 million and $13.8 million in the same
periods of 2020.
We had net realized investment losses of $2.3 million and net realized
investment gains of $28.2 million, respectively, during the three- and
nine-month periods ended September 30, 2021, as compared to net realized
investment gains of $15.2 million and net realized investment losses of $62.4
million in the same periods of 2020. The change in the three- and nine-month
periods ended September 30, 2021 as compared to the same periods in 2020 was
primarily due to the change in the fair value of equity securities.
We regularly monitor the difference between our cost basis and the estimated
fair value of our investments. For our available-for-sale fixed-maturity
portfolio an allowance for credit losses is recorded net of available-for-sale
fixed maturities in the Consolidated Balance Sheets and a corresponding credit
loss recognized as a realized loss or gain in the Consolidated Statements of
Income and Comprehensive Income. The Company determines if an allowance for
credit losses is recorded based on a number of factors including the current
economic conditions, management's


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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.
Non-credit related changes in unrealized gains and losses on available-for-sale
fixed maturity securities are recognized as a component of other comprehensive
income, impact stockholders' equity and book value per share, but do not affect
net income. We believe that any unrealized losses on our available-for-sale
securities at September 30, 2021 are temporary based upon our current analysis
of the issuers of the securities that we hold and current market conditions. We
have no intent to sell, and it is more likely than not that we will not be
required to sell, these securities until the fair value recovers to at least
equal our cost basis or the securities mature.
For mortgage loans, an allowance for losses is established based on historical
loss information of the collective pool of the Company's commercial mortgage
loan investments that have similar risk characteristics. This allowance is
presented as a separate line in the Consolidated Balance Sheets with an offset
to "Net realized investment gains (losses)" in the Consolidated Statements of
Income and Comprehensive Income.
To calculate the allowance for mortgage loan losses, the Company starts with
historical loan experience to predict the future expected losses and then layers
on a market-linked adjustment. An example of a market linked adjustment is the
change in commercial market price appreciation or change in gross domestic
product, with every point of fall leading to an increase in loss reserve. Local
market economics are also considered. On a quarterly basis, quantitative credit
risk metrics, including for example, cash-flows, rent rolls and financial
statements are reviewed for each loan to determine if it is performing in line
with its expectations.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures our ability to generate sufficient cash flows to meet our
short- and long-term cash obligations. Our cash inflows are primarily a result
of the receipt of premiums, reinsurance recoveries, sales or maturities of
investments, and investment income. Cash provided from these sources is used to
fund the payment of losses and loss settlement expenses, the purchase of
investments, operating expenses, dividends, pension plan contributions, and in
recent years, common stock repurchases.
We monitor our capital adequacy to support our business on a regular basis. The
future capital requirements of our business will depend on many factors,
including our ability to write new business successfully and to establish
premium rates and reserves at levels sufficient to cover losses. Our ability to
underwrite is largely dependent upon the quality of our claims paying and
financial strength ratings as evaluated by independent rating agencies. In
particular, we require (1) sufficient capital to maintain our financial strength
ratings, as issued by various rating agencies, at a level considered necessary
by management to enable our insurance company subsidiaries to compete and (2)
sufficient capital to enable our insurance company subsidiaries to meet the
capital adequacy tests performed by regulatory agencies in the United States.
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.





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The following table displays a consolidated summary of cash sources and uses for
the nine-month periods ended September 30, 2021 and 2020:
Cash Flow Summary                                            Nine Months Ended September 30,
(In Thousands)                                                 2021                    2020
Cash provided by (used in)
Operating activities                                    $        18,188          $      (12,868)
Investing activities                                             40,358                  19,836
Financing activities                                            (13,722)                (28,086)
Net increase in cash and cash equivalents               $        44,824     

$ (21,118)

Our cash flows were sufficient to meet our liquidity needs for the nine-month
periods ended September 30, 2021 and 2020 and we anticipate they will be
sufficient to meet our future liquidity needs for at least the next twelve
months. We also have the ability to draw on our credit facility if needed.
Operating Activities
Net cash flows from operating activities had inflows of $18.2 million and
outflows of $12.9 million for the nine-month periods ended September 30, 2021
and 2020, respectively.
Investing Activities
Cash in excess of operating requirements is generally invested in fixed maturity
securities and equity securities. Fixed maturities provide regular interest
payments and allow us to match the duration of our liabilities. Equity
securities provide dividend income, potential dividend income growth and
potential appreciation. For further discussion of our investments, including our
philosophy and our strategy for our portfolio, see the "Investment Portfolio"
section of this Item 2.
In addition to investment income, possible sales of investments and proceeds
from calls or maturities of fixed maturity securities also can provide
liquidity. During the next five years, $526.8 million, or 30.5 percent, of our
fixed maturity portfolio will mature.
We invest funds required for short-term cash needs primarily in money market
accounts, which are classified as cash equivalents. At September 30, 2021, our
cash and cash equivalents included $20.6 million related to these money market
accounts, compared to $24.8 million at December 31, 2020.
Net cash flows provided by investing activities were $40.4 million for the
nine-month period ended September 30, 2021, compared to net cash flows provided
by investing activities of $19.8 million for the nine-month period ending
September 30, 2020. For the nine-month periods ended September 30, 2021 and
2020, we had cash inflows from scheduled and unscheduled investment maturities,
redemptions, prepayments, and sales of investments of $389.0 million and $261.7
million, respectively.
Our cash outflows for investment purchases were $337.7 million for the
nine-month period ended September 30, 2021, compared to $226.4 million for the
same period of 2020.
Financing Activities
Net cash flows used in financing activities was $13.7 million for the nine-month
period ended September 30, 2021 which decreased $14.4 million compared to $28.1
million used in the nine-month period ended September 30, 2020.
Credit Facilities

On March 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"),
wholly owned subsidiary of United Fire Group, Inc. entered into a credit
agreement (the "Credit Agreement") with Wells Fargo Bank, National

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Association ("Wells Fargo"), as administrative agent, issuing lender, swing line
lender and lender, and the other lenders from time to time party thereto
(collectively with Wells Fargo, the "Lenders"), providing for a $50,000
revolving credit facility, which includes a $20,000 letter of credit
sub-facility and a $5,000 swing line loan for working capital and other general
corporate purposes. The Credit Agreement is provided on an unsecured basis, and
the Borrower has the option to increase the Credit Agreement by $100,000 if
agreed to by the Lenders providing such incremental facility. As of
September 30, 2021 and 2020, there were no balances outstanding under the Credit
Agreement. For the nine-month period ended September 30, 2021 and 2020, we did
not incur any interest expense related to the credit facility. For further
discussion of the Credit Agreement, refer to Part I, Item 1, Note 8 "Debt."
Dividends
Dividends paid to shareholders totaled $11.3 million and $24.8 million in the
nine-month periods ended September 30, 2021 and 2020, respectively. Our practice
has been to pay quarterly cash dividends, which we have paid every quarter since
March 1968.
Payments of any future dividends and the amounts of such dividends will depend
upon factors such as net income, financial condition, capital requirements, and
general business conditions. We will only pay dividends if declared by our Board
of Directors out of legally available funds.
As a holding company with no independent operations of its own, we rely on
dividends received from our insurance company subsidiaries in order to pay
dividends to our common shareholders. Dividends payable by our insurance
subsidiaries are governed by the laws in the states in which they are domiciled,
and if applicable, commercially domiciled. In all cases, these state laws permit
the payment of dividends only from earned surplus arising from business
operations. For example, under Iowa law, the maximum dividend or distribution
that may be paid within a 12-month period without prior approval of the Iowa
Insurance Commissioner is generally restricted to the greater of 10 percent of
statutory surplus as of the preceding December 31, or net income of the
preceding calendar year on a statutory basis, not greater than earned statutory
surplus. Other states in which our insurance company subsidiaries are domiciled
may impose similar restrictions on dividends and distributions. Based on these
restrictions, at September 30, 2021, UFG's sole direct insurance company
subsidiary, United Fire & Casualty Company, is able to make a maximum of $53.2
million in dividend payments without prior regulatory approval. We do not
believe that these restrictions have a material impact in meeting the cash
obligations of UFG.
Stockholders' Equity
Stockholders' equity decreased to $814.5 million at September 30, 2021, from
$825.1 million at December 31, 2020. The Company's book value per share was
$32.48, which is a decrease of $0.45 per share, or 1.4 percent, from
December 31, 2020. The decrease is primarily attributable to a decrease in net
unrealized investment gains on fixed maturity securities of $25.9 million, net
of tax, and shareholder dividends of $11.3 million, partially offset by net
income of $22.9 million during the first nine months of 2021.


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OFF BALANCE SHEET ARRANGEMENTS

Funding Commitments

Pursuant to an agreement with one of our limited liability partnership
investments, we are contractually committed through July 10, 2030, to make
capital contributions upon request of the partnership. Our remaining potential
contractual obligation was $2.6 million at September 30, 2021.

In addition, the Company invested $25.0 million in December 2019 in a limited
liability partnership investment fund which is subject to a three year lockup
with a 60 day minimum notice, with 4 possible repurchase dates per year after
the three year lockup period is met. The fair value of the investment at
September 30, 2021 was $24.8 million and there are no remaining capital
contribution obligations with this investment.


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

Catastrophe losses is a commonly used financial measure that uses the
designations of the Insurance Services Office ("ISO") and are reported with
losses and loss settlement expense amounts net of reinsurance recoverables,
unless specified otherwise. According to the ISO, a catastrophe loss is defined
as a single unpredictable incident or series of closely related incidents that
result in $25.0 million or more in U.S. industry-wide direct insured losses to
property and that affect a significant number of insureds and insurers ("ISO
catastrophe"). In addition to ISO catastrophes, we also include as catastrophes
those events ("non-ISO catastrophes"), which may include U.S. or international
losses that we believe are, or will be, material to our operations, either in
amount or in number of claims made. Management, at times, may determine for
comparison purposes that it is more meaningful to exclude extraordinary
catastrophe losses and resulting litigation. The frequency and severity of
catastrophe losses we experience in any year affect our results of operations
and financial position. In analyzing the underwriting performance of our
property and casualty insurance business, we evaluate performance both including
and excluding catastrophe losses. Portions of our catastrophe losses may be
recoverable under our catastrophe reinsurance agreements. We include a
discussion of the impact of catastrophes because we believe it is meaningful for
investors to understand the variability in our periodic earnings.
                                            Three Months Ended September 30,               Nine Months Ended September 30,
(In Thousands)                                 2021                    2020                   2021                   2020
ISO catastrophes                        $         33,105          $    

54,878 $ 81,277 $ 121,089
Non-ISO catastrophes (1)

                           6,361                  483                    9,049                  172
Total catastrophes                      $         39,466          $    55,361          $        90,326          $   121,261

(1) This number includes international assumed losses.

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