NOTE 6. STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS

Statutory capital and surplus in regards to policyholders at December 31, 2011, 2010 and 2009 and statutory net income (loss) for the years then ended are as follows:



(In Thousands)	Statutory Capital and Surplus		Statutory Net Income (Loss)
2011
Property and casualty (1)	$	565,843	$	10,529
Life, accident and health	167,164		6,180
2010
Property and casualty (1)	$	594,308	$	52,803
Life, accident and health	158,379		13,443
2009
Property and casualty (1)	$	556,265	$	(12,350	)
Life, accident and health	160,179		3,523


(1)	Because United Fire & Casualty Company owns United Life Insurance Company, the property and casualty statutory capital and surplus includes life, accident and health statutory capital and surplus, and therefore represents our total consolidated statutory capital and surplus.

All states require domiciled insurance companies to prepare statutory-basis financial statements in conformity with the National Association of Insurance Commissioner’s (“NAIC”) Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director. Statutory accounting practices primarily differ from GAAP in that policy acquisition and certain sales inducement costs are charged to expense as incurred, life insurance reserves are established based on different actuarial assumptions and the values reported for investments, pension obligations and deferred taxes are established on a different basis.

Our property and casualty and life insurance subsidiaries are required to file financial statements with state regulatory authorities. The accounting principles used to prepare these statutory-basis financial statements follow prescribed or permitted accounting practices that differ from GAAP. Prescribed statutory accounting principles include state laws, regulations and general administrative rules issued by the state of domicile, as well as a variety of publications and manuals of the NAIC. Permitted accounting practices encompass all accounting practices not prescribed, but allowed by the state of domicile. No permitted accounting practices were used to prepare our statutory-basis financial statements during 2011, 2010 and 2009.

We are directed by the state insurance departments’ solvency regulations to calculate a required minimum level of statutory capital and surplus based on insurance risk factors. The risk-based capital results are used by the NAIC and state insurance departments to identify companies that merit regulatory attention or the initiation of regulatory action. Both United Life and United Fire & Casualty Company and its property and casualty insurance subsidiaries and affiliate had statutory capital and surplus in regards to policyholders well in excess of their required levels at December 31, 2011.

The State of Iowa Insurance Department governs the amount of dividends that we may pay to stockholders without prior approval by the department. Based on these restrictions, we are allowed to make a maximum of $56,584,000 in dividend distributions to stockholders in 2012 without prior approval. We paid dividends of $15,507,000, $15,774,000 and $15,951,000 in 2011, 2010 and 2009, respectively. Dividend payments by the insurance subsidiaries to United Fire Group, Inc. are subject to similar restrictions in the states in which they are domiciled. In 2011, United Fire & Casualty Company received dividends from Addison Insurance Company, American Indemnity Financial Corporation, and Lafayette Insurance Company for $3,000,000, $1,700,000 and $6,750,000, respectively. In 2010 and 2009, United Fire & Casualty Company received a dividend from United Life of $15,000,000 and $4,000,000, respectively. These intercompany dividend payments are eliminated in our Consolidated Financial Statements.