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, 2021. There have been no changes in our critical
accounting policies from December 31, 2021.

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, 2021.
Our Consolidated Financial Statements are prepared in accordance with GAAP. We
also prepare financial statements for each of our insurance company subsidiaries
based on statutory accounting principles and file them with insurance regulatory
authorities in the states where they do business.

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

BUSINESS OVERVIEW

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc.
("UFG, the "Company," "we," "us," or "our") and its consolidated insurance
subsidiaries provide insurance protection for individuals and businesses through
several regional offices. Our property and casualty insurance company
subsidiaries are licensed in 50 states plus the District of Columbia and are
represented by approximately 1,000 independent agencies.

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

Reportable Segments

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

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Lloyd's Syndicates

As of January 1, 2021, the Company became a member of Lloyd's of London
("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital
at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of
property and casualty and reinsurance business by Syndicate 1492, Syndicate
1729, Syndicate 1969, Syndicate 1971, Syndicate 4747, Syndicate 2988 and
Syndicate 1699. At June 30, 2022, 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 ("Nationwide") beginning in the third quarter of 2020.
Nationwide has been offering replacement policies to most of our personal lines
policyholders at the time of renewal. The transfer of policies is substantially
complete, with New Jersey being the only state where the Company has personal
lines policies in force as of June 30, 2022. These policies will lapse over the
next three years.

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 six-month period ended June 30, 2022, approximately 44.7 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 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.



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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 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.

As of June 30, 2022, 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 June 30, 2022, 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 Company's investment philosophy, objectives, approach and program have not
changed as a result of the COVID-19 pandemic.

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FINANCIAL HIGHLIGHTS
                                                     Three Months Ended June 30,                                     Six Months Ended June 30,
(In Thousands, Except Ratios)              2022                       2021                %                  2022                 2021                %
Revenues
Net premiums earned                  $     231,262                $ 224,703               2.9  %       $    465,490           $ 483,928              (3.8) %
Investment income, net of investment
expenses                                     9,180                   13,795             (33.5)               20,456              30,876             (33.7)

Net investment gains (losses)              (20,932)                   6,004                   NM            (21,397)             30,512            (170.1)
Other income (loss)                             26                      (90)           (128.9)                    1                (169)           (100.6)
Total revenues                       $     219,536                $ 244,412             (10.2) %       $    464,550           $ 545,147             (14.8) %

Benefits, Losses and Expenses
Losses and loss settlement expenses  $     151,508                $ 152,139              (0.4) %       $    281,884           $ 358,537             (21.4) %
Amortization of deferred policy
acquisition costs                           52,538                   46,007              14.2               103,009              99,272               3.8
Other underwriting expenses                 28,754                   28,400               1.2                57,398              46,768              22.7
Interest expense                               797                    1,594             (50.0)                1,594               1,594                 -

Total benefits, losses and expenses  $     233,597                $ 228,140               2.4  %       $    443,885           $ 506,171             

(12.3) %

Income (loss) before income taxes    $     (14,061)               $  16,272            (186.4) %       $     20,665           $  38,976             

(47.0)

Federal income tax expense (benefit)        (3,604)                   2,522            (242.9)                2,773               6,524             (57.5)
Net income (loss)                    $     (10,457)               $  13,750            (176.1)         $     17,892           $  32,452             (44.9) %

GAAP Ratios:
Net loss ratio (without
catastrophes)                                 53.4   %                 58.1  %           (8.1) %               53.3   %            63.6  %          (16.2) %
Catastrophes - effect on net loss
ratio                                         12.1                      9.6              26.0                   7.3                10.5             (30.5)
Net loss ratio(1)                             65.5   %                 67.7  %           (3.2) %               60.6   %            74.1  %          (18.2) %
Expense ratio(2)                              35.2                     33.1               6.3                  34.4                30.2              13.9
Combined ratio(3)                            100.7   %                100.8  %           (0.1) %               95.0   %           104.3  %           (8.9) %


(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
six-month periods ended June 30, 2022:

RESULTS OF OPERATIONS

For the three-month period ended June 30, 2022, net loss was $10.5 million
compared to a net income of $13.8 million for the same period of 2021. The
change was primarily due to a decrease in the fair value of our investments in
equity securities and a decrease in investment income partially offset by an
increase in net premiums earned.

For the six-month period ended June 30, 2022, net income was $17.9 million
compared to a net income of $32.5 million for the same period of 2021. The
change was primarily due to a decrease in the fair value of our investments in
equity securities, a decrease in net premiums earned and a decrease in
investment income partially offset by a decrease in losses and loss settlement
expenses.


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Net premiums earned increased 2.9 percent and decreased 3.8 percent during the
three- and six-month periods ended June 30, 2022 compared to the same periods of
2021. Profitable growth is our primary consideration when putting new business
on the books. Beginning in second quarter of 2022, we started to see some
positive signs of growth after two years of focusing on improving profitability
through non-renewal of underperforming accounts in our commercial auto line of
business and our exit of the personal lines business.

Net investment income was $9.2 million for the second quarter of 2022 as
compared to $13.8 million for the same period in 2021. Year-to-date, net
investment income was $20.5 million compared to net investment income of $30.9
million for the same period in 2021. The decrease in net investment income in
the three- and six-month periods ended June 30, 2022 was primarily due to the
change in the fair value of our investments in limited liability partnerships.
The valuation of these investments in limited liability partnerships varies from
period to period due to the current equity market conditions, specifically
related to financial institutions.

The Company recognized net investment losses of $20.9 million during the second
quarter of 2022, compared to net investment gains of $6.0 million for the same
period in 2021. Year to date, the Company recognized net investment losses of
$21.4 million during the six-month period ended June 30, 2022, compared to net
investment gains of $30.5 million for the same period in 2021. The change in the
three- and six-month periods ended June 30, 2022 as compared to the same period
in 2021 was primarily due to the change in the fair value of our investments in
equity securities.

Losses and loss settlement expenses decreased by 0.4 percentage points and 21.4
percentage points during the three- and six-month periods ended June 30, 2022,
respectively, compared to the same period in 2021. The year-to-date change was
primarily driven by lower catastrophe losses and a decrease in frequency and
severity of claims.

The GAAP combined ratio decreased by 0.1 percentage point to 100.7 percent for
the second quarter of 2022, compared to 100.8 percent in the same period in
2021. For the six-month period ended June 30, 2022, the GAAP combined ratio
decreased 9.3 percentage points to 95.0 percent compared to 104.3 percent for
the six-month period ended June 30, 2021. The decrease in the combined ratio
during the three- and six-month periods ended June 30, 2022 as compared to the
same periods in 2021 was driven by a decrease in the net loss ratio.

The GAAP net loss ratio decreased 2.2 percentage points during the second
quarter of 2022 as compared to the same period in 2021. Year-to-date, the GAAP
net loss ratio decreased 13.5 percentage points to 60.6 percent compared to 74.1
percent for the six-month period ended June 30, 2021. The year-to-date change
was primarily driven by lower catastrophe losses and a decrease in the frequency
and severity of claims.

Pre-tax catastrophe losses in the second quarter of 2022 added 12.1 percentage
points to the combined ratio in second quarter of 2022, which is 1.0 percentage
point above our 10-year historical average for the second quarter. This compares
to 9.6 percentage points added to the combined ratio in the second quarter of
2021. During the second quarter of 2022, the higher than average catastrophe
losses were driven by 18 smaller catastrophic events which collectively resulted
in above average catastrophe losses. Year-to-date, catastrophe losses totaled
$34.2 million ($1.06 per diluted share) compared to $50.9 million ($1.58 per
diluted share) for the same period in 2021, which included losses from winter
storm Uri, which was a full retention loss, with losses in excess of our stated
reinsurance retention of $20.0 million.

The underwriting expense ratio for the second quarter of 2022 was 35.2 percent
compared to 33.1 percent for the second quarter of 2021. The increase is
primarily driven by an increase in technology and employee expenses.
Year-to-date, the underwriting expense ratio was 34.4 percent compared to 30.2
percent in the same period in 2021. The increase in the expense ratio during the
first half of 2022 was primarily due to the one-time benefit recognized in first
quarter of 2021 from the change in the design of our employee post-retirement
health benefit plan.

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

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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, cautiously pessimistic case
reserves, which we expect to result in some level of favorable development over
the course of settlement.

2022 Development

The property and casualty insurance business experienced $8.6 million and $15.4
million of favorable development in our net reserves for prior accident years
for the three- and six-month periods ended June 30, 2022, respectively. For the
six-month period ended June 30, 2022 the overall favorable development was
primarily driven by the changes in two lines of business: commercial automobile
line of business and commercial other liability line of business, each with
$16.5 million and $ 9.4 million, respectively, in net ultimate loss & LAE
estimates. The favorable reserve development was partially offset by $10.6 of
net unfavorable reserve development for all other lines of business including
commercial fire and allied line of business with an $8.7 million increase and
workers compensation with a $2.4 million increase.

2021 Development

The property and casualty insurance business experienced $1.8 million and $15.0
million of favorable development in our net reserves for prior accident years
for the three- and six-month periods ended June 30, 2021, respectively. For the
six-month period ended June 30, 2021 the majority of favorable development was
from the commercial automobile line of business with $10.4 million favorable
development, followed by the workers' compensation line of business with $6.1
million favorable development. These were partially offset by unfavorable
development from the commercial liability line of business with $10.0 million.
All other lines of insurance, in total, contributed $8.5 million of favorable
development.

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 June 30, 2022, 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 June 30,                                2022                                                          2021
                                                      Net Losses                                                    Net Losses
                                                       and Loss                                                      and Loss
                                      Net             Settlement               Net                  Net             Settlement               Net
(In Thousands, Except Ratios)       Premiums           Expenses                Loss               Premiums           Expenses                Loss
Unaudited                            Earned            Incurred               Ratio                Earned            Incurred               Ratio
Commercial lines
Other liability                   $  74,523          $   37,320                   50.1  %       $  74,654          $   44,723                   59.9  %
Fire and allied lines                53,350              51,304                   96.2             58,277              42,203                   72.4
Automobile                           52,756              42,595                   80.7             63,270              42,396                   67.0
Workers' compensation                13,737              13,155                   95.8             15,575              14,556                   93.5
Fidelity and surety                   8,824               1,750                   19.8              7,137               1,012                   14.2
Miscellaneous                           271                 (18)                  (6.6)               335                  16                    4.8
Total commercial lines            $ 203,461          $  146,106                   71.8  %       $ 219,248          $  144,906                   66.1  %

Personal lines
Fire and allied lines             $     648          $     (242)                 (37.3)         $   4,340          $    6,409                  147.7  %
Automobile                                -                (415)                       NM           2,295               2,261                   98.5
Miscellaneous                            15                 (72)                       NM             110              (1,450)                       NM
Total personal lines              $     663          $     (729)                (110.0)         $   6,745          $    7,220                  107.0  %
Reinsurance assumed               $  27,138          $    6,131                   22.6          $  (1,290)         $       13                        NM

Total                             $ 231,262          $  151,508                   65.5  %       $ 224,703          $  152,139                   67.7  %


NM = Not meaningful


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Six Months Ended June 30,                                  2022                                                          2021
                                                      Net Losses                                                    Net Losses
                                                       and Loss                                                      and Loss
                                      Net             Settlement               Net                  Net             Settlement               Net
(In Thousands, Except Ratios)       Premiums           Expenses                Loss               Premiums           Expenses                Loss
Unaudited                            Earned            Incurred               Ratio                Earned            Incurred               Ratio
Commercial lines
Other liability                   $ 145,092          $   74,121                   51.1  %       $ 150,013          $   86,870                   57.9  %
Fire and allied lines               112,098              96,540                   86.1            116,609             105,177                   90.2
Automobile                          105,988              74,928                   70.7            129,247             109,598                   84.8
Workers' compensation                28,346              18,233                   64.3             32,077              22,336                   69.6
Fidelity and surety                  16,944               2,125                   12.5             14,497               2,091                   14.4
Miscellaneous                           550                 144                   26.2                684                  (2)                  (0.3)
Total commercial lines            $ 409,018          $  266,091                   65.1  %       $ 443,127          $  326,070                   73.6  %

Personal lines
Fire and allied lines             $   1,598          $      949                   59.4  %       $  10,561          $   11,018                  104.3  %
Automobile                                1              (1,144)                       NM           6,335               5,561                   87.8
Miscellaneous                            32                 (90)                (281.3)               287              (1,360)                       NM
Total personal lines              $   1,631          $     (285)                 (17.5)         $  17,183          $   15,219                   88.6
Reinsurance assumed               $  54,841          $   16,078                   29.3          $  23,618          $   17,248                   73.0

Total                             $ 465,490          $  281,884                   60.6  %       $ 483,928          $  358,537                   74.1  %

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 deteriorated 23.8
percentage points and improved 4.1 percentage points, respectively, in the
three- and six-month periods ended June 30, 2022 as compared to the same periods
in 2021. The change in both periods is attributable to the change in catastrophe
losses. Pre-tax catastrophe losses in the second quarter of 2022 added 12.1
percentage points to the combined ratio in second quarter of 2022, which is 1.0
percentage point above our 10-year historical average for second quarter
catastrophe losses of 11.1 percentage points added to the combined ratio. This
compares to 9.6 percentage points added to the combined ratio in the second
quarter of 2021. During the second quarter of 2022, the higher than average
catastrophe losses was driven by 18 smaller catastrophic events which
collectively resulted in above average catastrophe losses. Year-to-date,
catastrophe losses totaled $34.2 million ($1.06 per diluted share) compared to
$50.9 million ($1.58 per diluted share) for the same period in 2021, which
included losses from winter storm Uri, which was a full retention loss, with
losses in excess of our stated reinsurance retention of $20.0 million.

•Commercial automobile - The net loss ratio deteriorated 13.7 percentage points
and improved 14.1 percentage points, respectively, in the three- and six-month
periods ended June 30, 2022 as compared to the same periods in 2021. The
deterioration in the second quarter of 2022 was primarily due to changes in IBNR
reserves. There were net releases of IBNR in both second quarter 2021 and 2022
due to a decrease in frequency and severity of claims. However, the release in
second quarter 2021 was significantly larger than second quarter 2022.
Year-to-date, the improvement is attributable to a decrease in 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.



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•Reinsurance assumed - The net loss ratio improved 43.7 percentage points in the
six-month period ended June 30, 2022 as compared to the same period of 2021. The
improvement is attributable to favorable loss experience and attractive
reinsurance rates.

Financial Condition

Stockholders' equity decreased to $780.9 million at June 30, 2022, from $879.1
million at December 31, 2021. The Company's book value per share was $31.00,
which is a decrease of $4.05 per share, or 11.6 percent, from December 31, 2021.
The decrease is primarily attributable to the $105.3 million decrease in the net
unrealized value from our fixed maturity securities, net of tax, and shareholder
dividends of $7.8 million, partially offset by net income of $17.9 million
during the first six months of 2022.

Investment Portfolio

Our invested assets totaled $1.9 billion at June 30, 2022, compared to $2.1
billion at December 31, 2021, a decrease of $175.9 million. At June 30, 2022,
fixed maturity securities and equity securities made up 84.6 percent and 8.6
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 June 30, 2022 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              $                  1,597,284          84.6  %

Equity securities                                    163,241           8.6
Mortgage loans                                        46,887           2.5
Other long-term investments                           81,146           4.3
Short-term investments                                   275             -
Total                           $                  1,888,833         100.0  %

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

As of June 30, 2022 and December 31, 2021, 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 June 30,
2022 and December 31, 2021. 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)                    June 30, 2022                                       December 31, 2021
Rating                             Carrying Value              % of Total                Carrying Value               % of Total
AAA                              $       566,340                       35.4  %        $         670,222                       39.0  %
AA                                       518,875                       32.5                     586,426                       34.1
A                                        234,627                       14.7                     209,076                       12.2
Baa/BBB                                  263,066                       16.5                     241,547                       14.0
Other/Not Rated                           14,376                        0.9                      12,519                        0.7
                                 $     1,597,284                      100.0  %        $       1,719,790                      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 decreased in the three- and six-month periods ended
June 30, 2022, compared with the same period of 2021 primarily due to the change
in the fair value of our investments in limited liability partnerships.

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 six-month periods ended June
30, 2022, the change in value of our investments in limited liability
partnerships resulted in an investment loss of $3.9 million and $4.1 million as
compared to investment income of $2.5 million and $9.5 million in the same
periods of 2021.

We had net investment losses of $20.9 million and $21.4 million during the
three- and six-month periods ended June 30, 2022, as compared to net investment
gains of $6.0 million and $30.5 million in the same periods of 2021. The change
in the three- and six-month periods ended June 30, 2022 as compared to the same
periods in 2021 was primarily due to the change in the fair value of our equity
securities investments.

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


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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 June 30, 2022 are temporary based upon our current analysis of the
issuers of the securities that we hold and current market conditions. We have no
intent to sell, and it is more likely than not that we will not be required to
sell, these securities until the fair value recovers to at least equal our cost
basis or the securities mature.

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

To calculate the allowance for mortgage loan losses, the Company starts with
historical loan experience to predict the future expected losses and then layers
on a market-linked adjustment. An example of a market linked adjustment is the
change in commercial market price appreciation or change in gross domestic
product, with every point of fall leading to an increase in loss reserve. Local
market economics are also considered. On a quarterly basis, quantitative 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 six-month periods ended June 30, 2022 and 2021:

     Cash Flow Summary                                Six Months Ended June

30,

     (In Thousands)                                      2022              

2021

Cash provided by (used in)

     Operating activities                      $      (15,874)              $ 34,830
     Investing activities                             (17,529)                 4,699
     Financing activities                              (6,767)                (8,958)

     Net change in cash and cash equivalents   $      (40,170)             

$ 30,571

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

Operating Activities

Net cash flows from operating activities had outflows of $15.9 million and
inflows of $34.8 million for the six-month periods ended June 30, 2022 and 2021,
respectively. In the six-month period ended June 30, 2022, the net operating
cash outflows were driven by the expansion of our assumed reinsurance business
and the acceleration of timing of payments related to the settlement of claims.

Investing Activities

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

In addition to investment income, possible sales of investments and proceeds
from calls or maturities of fixed maturity securities also can provide
liquidity. During the next five years, $500.9 million, 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 June 30, 2022, our cash
and cash equivalents included $41.5 million related to these money market
accounts, compared to $43.4 million at December 31, 2021.

Net cash flows used by investing activities were $17.5 million outflow for the
six-month period ended June 30, 2022, compared to net cash flows provided by
investing activities of $4.7 million inflow for the six-month period ended June
30, 2021. For the six-month periods ended June 30, 2022 and 2021, we had cash
inflows from scheduled and unscheduled investment maturities, redemptions,
prepayments, and sales of investments of $171.7 million and $272.4 million,
respectively.

Our cash outflows for investment purchases were $190.0 million for the six-month
period ended June 30, 2022, compared to $260.2 million for the same period of
2021.

Financing Activities

Net cash flows used in financing activities was $6.8 million for the six-month
period ended June 30, 2022 which decreased $2.2 million compared to $9.0 million
used in the six-month period ended June 30, 2021.





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Credit Facilities

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

Dividends

Dividends paid to shareholders totaled $7.8 million and $7.5 million in the
six-month periods ended June 30, 2022 and 2021, respectively. Our practice has
been to pay quarterly cash dividends, which we have paid every quarter since
March 1968.

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

As a holding company with no independent operations of its own, we rely on
dividends received from our insurance company subsidiaries in order to pay
dividends to our common shareholders. Dividends payable by our insurance
subsidiaries are governed by the laws 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 June 30, 2022, UFG's sole direct insurance company subsidiary,
United Fire & Casualty Company, is able to make a maximum of $68.4 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 $780.9 million at June 30, 2022, from $879.1
million at December 31, 2021. The Company's book value per share was $31.00,
which is a decrease of $4.05 per share, or 11.6 percent, from December 31, 2021.
The decrease is primarily attributable to the $105.3 million decrease in the net
unrealized value from our fixed maturity securities, net of tax, stockholders'
dividends of $7.8 million, partially offset by net income of $17.9 million
during the first six months of 2022.

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 $19.8 million at June 30, 2022.

In addition, the Company invested $25.0 million in December 2019 in a limited
liability partnership investment fund that is subject to a three year lockup
with a 60 day minimum notice, with 4 possible repurchase dates per year after
the three-year lockup period has concluded. The fair value of the investment at
June 30, 2022 was $24.8 million and there are no remaining capital contribution
obligations with this investment.



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MEASUREMENT OF RESULTS

Management evaluates our operations by monitoring key measures of growth and
profitability. The following section provides further explanation of the 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 June 30,                   Six Months Ended June 30,
(In Thousands)                                2022                   2021                  2022                  2021
ISO catastrophes                        $       26,459          $    21,082          $      34,364          $    48,171
Non-ISO catastrophes (1)                         1,529                  531                   (199)               2,688
Total catastrophes                      $       27,988          $    21,613          $      34,165          $    50,859

(1) This number includes international assumed losses.

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