10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-K

R Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2013

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

Commission File Number 001-34257

UNITED FIRE GROUP, INC.

(Exact name of registrant as specified in its charter)

Iowa	45-2302834
(State of Incorporation)	(IRS Employer Identification No.)

118 Second Avenue SE

Cedar Rapids, Iowa 52401

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (319) 399-5700

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	The NASDAQ Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES £ NO R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES R NO £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES R NO £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £ Accelerated filer R Non-accelerated filer £ Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES £ NO R

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2013 was approximately $592.4 million. For purposes of this calculation, all directors and executive officers of the registrant are considered affiliates. As of February 27, 2014, 25,369,693 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for its annual shareholder meeting to be held on May 21, 2014.

FORM 10-K TABLE OF CONTENTS

	Page
Forward-Looking Information	1
PART I:
Item 1. Business	2
Item 1A. Risk Factors	12
Item 1B. Unresolved Staff Comments	28
Item 2. Properties	28
Item 3. Legal Proceedings	29
Item 4. Mine Safety Disclosures	29
PART II:
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	30
Item 6. Selected Financial Data	33
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	78
Item 8. Financial Statements and Supplementary Data	79
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	134
Item 9A. Controls and Procedures	134
Item 9B. Other Information	137
PART III:
Item 10. Directors, Executive Officers and Corporate Governance	137
Item 11. Executive Compensation	139
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	139
Item 13. Certain Relationships and Related Transactions, and Director Independence	139
Item 14. Principal Accounting Fees and Services	139
PART IV:
Item 15. Exhibits, Financial Statement Schedules	141
Signatures	150
Exhibit 12
Exhibit 21
Exhibit 23.1
Exhibit 23.2
Exhibit 23.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

FORWARD-LOOKING INFORMATION

This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc., the industry in which we operate, and beliefs and assumptions made by management. Words such as “expect(s),” “anticipate(s),” “intend(s),” “plan(s),” “believe(s),” “continue(s),” “seek(s),” “estimate(s),” “goal(s),” “target(s),” “forecast(s),” “project(s),” “predict(s),” “should,” “could,” “may,” “will continue,” “might,” “hope,” “can” and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A “Risk Factors” of this report for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

Risks and uncertainties that may affect the actual financial condition and results of United Fire Group, Inc. include, but are not limited to, the following:

• The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy;

• Occurrence of catastrophic events, occurrence of significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;

• Developments in the domestic and global financial markets and “other-than-temporary” impairment losses that could affect our investment portfolio;

• The calculation and recovery of deferred policy acquisition costs (“DAC”);

• The valuation of pension and other postretirement benefit obligations;

• Our relationship with our agencies and agents;

• Our relationship with our reinsurers;

• The financial strength of our reinsurers;

• Our exposure to international catastrophes through our assumed reinsurance program;

• Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;

• Changes in general economic conditions, interest rates, industry trends, increase in competition and significant industry developments;

• Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products;

• Litigation or regulatory actions that could require us to pay significant damages or change the way we do business;

• Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; and

• The NASDAQ Global Select Market (“NASDAQ”) policies or regulations relating to corporate governance and the cost to comply.

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (“SEC”), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

1

PART I.

ITEM 1. BUSINESS

GENERAL DESCRIPTION

United Fire Group, Inc. (“United Fire”, the “Registrant”, the “Company”, “we”, “us”, or “our”) and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. Our insurance company subsidiaries are currently licensed as a property and casualty insurer in 43 states, plus the District of Columbia and as a life insurer in 37 states. United Fire & Casualty Company was incorporated in Iowa in January 1946. Our principal executive office is located at 118 Second Avenue SE, Cedar Rapids, Iowa 52401; telephone: 319-399-5700.

Holding Company Reorganization

On February 1, 2012, we completed a holding company reorganization (the “Reorganization”) of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization agreement was approved and adopted by United Fire & Casualty Company shareholders at a special meeting of shareholders held on January 24, 2012.

The Reorganization agreement provided for the merger of United Fire & Casualty Company with UFC MergeCo, Inc., with United Fire & Casualty Company surviving the merger as a wholly owned subsidiary of United Fire Group, Inc. Each share of common stock, par value $3.33 1/3 per share, of United Fire & Casualty Company issued and outstanding immediately prior to the effective time of the merger, converted into one duly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of United Fire Group, Inc. In addition, each outstanding option to purchase or other right to acquire shares of United Fire & Casualty Company common stock was automatically converted into an option to purchase or right to acquire, upon the same terms and conditions, an identical number of shares of United Fire Group, Inc. common stock.

Upon completion of the Reorganization, United Fire Group, Inc., an Iowa corporation, replaced United Fire & Casualty Company, an Iowa corporation, as the publicly held corporation, and the holders of United Fire & Casualty Company common stock now hold the same number of shares at the same ownership percentage of United Fire Group, Inc. as they held of United Fire & Casualty Company immediately prior to the Reorganization. On February 2, 2012, shares of United Fire Group, Inc. common stock commenced trading on the NASDAQ Global Select Market under the ticker symbol “UFCS.”

The directors and executive officers of United Fire Group, Inc. immediately following the Reorganization were the same individuals who were directors and executive officers, respectively, of United Fire & Casualty Company immediately prior to the Reorganization.

Immediately following the Reorganization, United Fire Group, Inc. owns 100 percent of one subsidiary, United Fire & Casualty Company. United Fire & Casualty Company owns 100 percent of seven subsidiaries: United Life Insurance Company, Addison Insurance Company, Mercer Insurance Group, Inc., Lafayette Insurance Company, United Fire & Indemnity Company, American Indemnity Financial Corporation and United Real Estate Holdings Company, LLC.

In addition, Mercer Insurance Group, Inc. owns 100 percent of two subsidiaries: Mercer Insurance Company and Financial Pacific Insurance Group, Inc. Mercer Insurance Company owns 100 percent of three subsidiaries: Mercer Insurance Company of New Jersey, Inc., Franklin Insurance Company and BICUS Services Corporation. Financial Pacific Insurance Group, Inc. owns 100% of one subsidiary: Financial Pacific Insurance Company. United Fire & Indemnity Company has one affiliate: United Fire Lloyds. American Indemnity Financial Corporation owns 100% of one subsidiary: Texas General Indemnity Company.

2

Acquisition of Mercer Insurance Group, Inc.

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group for $191.5 million. The acquisition was funded through a combination of cash and $79.9 million of short-term debt. Accordingly, the results of operations for Mercer Insurance Group have been included in the accompanying Consolidated Financial Statements from that date forward. After the acquisition, we market our products primarily in the Midwest, West, East Coast and South. In addition, the acquisition allowed us to diversify our exposure to weather and other catastrophe risks across our geographic markets.

This transaction was accounted for under the acquisition method in accordance with Accounting Standards Codification (“ASC”) 805 Business Combinations, using Mercer Insurance Group’s historical financial information and applying fair value estimates to the acquired assets, liabilities and commitments as of the acquisition date.

Employees

As of December 31, 2013, we employed 930 full-time employees and 13 part-time employees. We are not a party to any collective bargaining agreement.

Reportable Segments

We report our operations in two business segments: property and casualty insurance and life insurance. Our property and casualty insurance segment is comprised of commercial lines insurance, including surety bonds, personal lines insurance and assumed reinsurance. Our life insurance segment is comprised of deferred and immediate fixed annuities, universal life insurance products and traditional life insurance products. A table reflecting revenues, net income and assets attributable to our operating segments is included in Part II, Item 8, Note 10 “Segment Information.” All intercompany transactions have been eliminated in consolidation.

All of our property and casualty insurance subsidiaries and our affiliate belong to an intercompany reinsurance pooling arrangement, with the exception of Texas General Indemnity Company. Pooling arrangements permit 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. Under such arrangements, the members share substantially all of the insurance business that is written and allocate the combined premiums, losses and expenses based on percentages defined in the arrangement.

Our life insurance segment consists solely of the operations of United Life Insurance Company.

Available Information

United Fire provides free and timely access to all Company reports filed with the SEC in the Investor Relations section of our website at www.unitedfiregroup.com. Select “Financial Information” and then “SEC Filings” to view the list of filings, which includes annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, beneficial ownership reports on Forms 3, 4 and 5 and amendments to reports filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Exchange Act. Such reports are made available as soon as reasonably practicable after they are filed with or furnished to the SEC.

Our Code of Ethics and Business Conduct is also available at www.unitedfiregroup.com in the Investor Relations section. To view it, select “Corporate Governance” and then “Code of Ethics and Business Conduct.”

Free paper copies of any materials that we file with or furnish to the SEC can also be obtained by writing to Investor Relations, United Fire Group, Inc., 118 Second Avenue SE, Cedar Rapids, Iowa 52401.

MARKETING AND DISTRIBUTION

We market our products through our home office in Cedar Rapids, Iowa, and four regional locations: Westminster, Colorado, a suburb of Denver; Webster, Texas; Pennington, New Jersey; and Rocklin, California. We are represented

3

through approximately 1,200 independent property and casualty agencies and by approximately 1,000 independent life agencies.

Property and Casualty Insurance Segment

In 2013, 2012 and 2011 the direct statutory premiums written by our property and casualty insurance operations were distributed as follows:

	Years Ended December 31,						% of Total
(In Thousands)	2013		2012		2011		2013		2012		2011
Texas	$	104,775	$	88,046	$	74,845	13.9	%	12.9	%	12.9	%
Iowa	92,976		83,906		73,762		12.3		12.3		12.7
California	79,326		79,485		61,500		10.5		11.6		10.6
New Jersey	51,992		47,859		33,793		6.9		7.0		5.8
Missouri	47,787		44,736		42,202		6.3		6.6		7.3
Illinois	38,012		35,237		32,241		5.0		5.2		5.6
Louisiana	36,352		38,508		36,685		4.8		5.6		6.3
Colorado	36,014		31,790		29,250		4.8		4.7		5.0
All Other States	267,360		232,823		196,610		35.5		34.1		33.8
Direct Statutory Premiums Written	$	754,594	$	682,390	$	580,888	100.0	%	100.0	%	100.0	%

We staff our regional offices with underwriting, claims and marketing representatives and administrative technicians, all of whom provide support and assistance to the independent agencies. Also, home office staff technicians and specialists provide support to our subsidiaries, regional offices and independent agencies. We use management reports to monitor subsidiary and regional offices for overall results and conformity to our business policies.

Competition

The property and casualty insurance industry is highly competitive. We compete with numerous property and casualty insurance companies in the regional and national market, many of which are substantially larger and have considerably greater financial and other resources. Except for regulatory considerations, there are limited barriers to entry into the insurance industry. Our competitors may be domestic or foreign, as well as licensed or unlicensed. The exact number of competitors within the industry is not known. Insurers compete on the basis of reliability, financial strength and stability, ratings, underwriting consistency, service, business ethics, price, performance, capacity, policy terms and coverage conditions.

In addition, because our products are marketed exclusively through independent insurance agencies, most of which represent more than one company, we face competition within each agency and competition to retain qualified independent agents. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers.

Because we rely solely on independent agencies, we offer a competitive commissions program and a rewarding profit-sharing plan as incentives for agents to place high-quality property and casualty insurance business with us. We estimate property and casualty insurance agencies will receive profit-sharing payments of $19.2 million in 2014, based on profitable business produced by the agencies in 2013. In 2013 for 2012 business, agencies received $16.9 million in profit-sharing payments and in 2012 for 2011 business, agencies received $9.7 million in payments.

4

Our competitive advantages include our commitment to:

• Strong agency relationships —

◦ A stable workforce, with an average tenure of approximately 11.6 years, allows our agents to work with the same, highly-experienced personnel each day.

◦ Our organization is relatively flat, allowing our agents to be close to the highest levels of management and ensuring that our agents will receive answers quickly to their questions.

• Exceptional service — our agents and policyholders always have the option to speak with a real person.

• Fair and prompt claims handling — we view claims as an opportunity to prove to our customers that they have chosen the right insurance company.

• Disciplined underwriting — we empower our underwriters with the knowledge and tools needed to make good decisions for the Company.

• Superior loss control services — our loss control representatives make multiple visits to businesses and job sites each year to ensure safety.

• Effective and efficient use of technology — we use technology to provide enhanced service to our agents and policyholders, not to replace our personal relationships, but to reinforce them.

Life Insurance Segment

Our life insurance subsidiary markets its products primarily in the Midwest, East Coast and West. In 2013, 2012 and 2011 the direct statutory premiums written by our life insurance operations were distributed as follows:

	Years Ended December 31,						% of Total
(In Thousands)	2013		2012		2011		2013		2012		2011
Iowa	$	64,906	$	60,761	$	51,132	38.8	%	38.8	%	29.7	%
Illinois	19,375		16,312		17,643		11.6		10.4		10.2
Minnesota	16,074		16,987		20,409		9.6		10.8		11.9
Wisconsin	13,939		14,505		16,507		8.3		9.3		9.6
Nebraska	11,080		9,192		16,553		6.6		5.9		9.6
All Other States	41,923		38,800		49,915		25.1		24.8		29.0
Direct Statutory Premiums Written	$	167,297	$	156,557	$	172,159	100.0	%	100.0	%	100.0	%

Competition

We also encounter significant competition in all lines of our life and fixed annuity business from other life insurance companies and other providers of financial services. Since our products are marketed exclusively through independent life insurance agencies that typically represent more than one company, we face competition within our agencies. Competitors include companies that market their products through agents, as well as companies that sell directly to their customers. The exact number of competitors within the industry is not known.

To attract and maintain relationships with our independent life insurance agencies, we offer competitive commission rates and other sales incentives. Our life insurance segment achieves a competitive advantage by offering products that are simple and straightforward, by providing outstanding customer service, by being accessible to our agents and customers, and by using technology in a variety of ways to assist our agents and improve the delivery of service to our policyholders.

5

OPERATING SEGMENTS

Information specific to the reportable business segments in our operations, including products, pricing and seasonality of premiums written is incorporated by reference from Note 10 “Segment Information” contained in Part II, Item 8, “Financial Statements and Supplementary Data.” Additionally, for a detailed discussion of our operating results by segment, refer to the “Results of Operations” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

REINSURANCE

Incorporated by reference from Note 4 “Reinsurance” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

RESERVES

Property and Casualty Insurance Segment

Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.

Liabilities for loss and loss settlement expenses reflect management’s best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported (“IBNR”), based on known facts, circumstances, and historical trends.

The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer delays for claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will take action that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc. (“Regnier”), to render an opinion as to the adequacy of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.

On a quarterly basis, United Fire’s internal actuary performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a quarterly basis, the adequacy of carried reserves based on results from these actuarial analyses. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for “normal” types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate the recognition of specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

We do not discount loss reserves based on the time value of money. There are no material differences between our reserves established under U.S. generally accepted accounting principles (“GAAP”) and our statutory reserves.

The following table illustrates the change in our estimate of loss reserves for our property and casualty insurance companies for the years 2003 through 2013. The first section shows the amount of the liability, as originally reported, at the end of each calendar year in our Consolidated Financial Statements. These reserves represent the estimated amount of losses and loss settlement expenses for losses arising in that year and all prior years that are unpaid at the end of each year, including an estimate for our IBNR losses, net of applicable ceded reinsurance. The second section displays the cumulative amount of net losses and loss settlement expenses paid for each year with respect to that liability. The third section shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the losses for individual years. The last section compares the latest re-estimated amount with

6

the original estimate. Conditions and trends that have affected development of loss reserves in the past may not necessarily exist in the future. Accordingly, it would not be appropriate to project future redundancies or deficiencies based on this table.

(In Thousands)
Years Ended December 31,	2003		2004		2005			2006			2007			2008		2009		2010		2011 (1)		2012		2013
Gross liability for loss and loss settlement expenses	$	427,049	$	464,889	$	620,100		$	518,886		$	496,083		$	586,109	$	606,045	$	603,090	$	945,051	$	971,911	$	960,651
Ceded loss and loss settlement expenses	27,309		28,609		60,137			40,560			38,800			52,508		33,754		39,000		120,359		103,870		75,150
Net liability for loss and loss settlement expenses	$	399,740	$	436,280	$	559,963		$	478,326		$	457,283		$	533,601	$	572,291	$	564,090	$	824,692	$	868,041	$	885,501
Cumulative net paid as of:
One year later	$	100,895	$	110,016	$	230,455		$	148,593		$	140,149		$	195,524	$	165,046	$	146,653	$	194,156	$	216,026
Two years later	167,384		166,592		321,110			235,975			265,361			304,622		260,872		230,800		317,623
Three years later	203,861		213,144		380,294			332,768			345,092			373,765		312,451		283,837
Four years later	231,278		242,579		456,919			390,763			392,676			406,773		347,682
Five years later	250,787		264,015		502,455			422,669			416,656			429,477
Six years later	263,631		276,214		527,136			441,202			434,437
Seven years later	272,826		282,654		540,740			456,089
Eight years later	277,645		287,825		553,035
Nine years later	281,930		294,034
Ten years later	287,233
Net liability re-estimated as of:
End of year	$	399,740	$	436,280	$	559,963		$	478,326		$	457,283		$	533,601	$	572,291	$	564,090	$	824,692	$	868,041	$	885,501
One year later	361,153		358,796		534,998			433,125			457,831			559,816		526,413		502,995		751,265		810,554
Two years later	331,693		330,137		508,774			453,474			502,177			547,824		497,136		457,532		749,491
Three years later	317,187		319,335		538,451			497,629			503,992			537,912		461,677		431,213
Four years later	309,146		326,340		574,484			500,071			503,720			514,763		446,825
Five years later	316,227		327,626		582,343			507,507			494,027			503,175
Six years later	314,522		327,741		592,772			503,510			487,514
Seven years later	316,705		322,875		589,661			498,735
Eight years later	311,385		320,893		586,083
Nine years later	309,465		317,822
Ten years later	307,592
Net redundancy (deficiency)	$	92,148	$	118,458	$	(26,120	)	$	(20,409	)	$	(30,231	)	$	30,426	$	125,466	$	132,877	$	75,201	$	57,487
Net re-estimated liability	307,592		317,822		586,083			498,735			487,514			503,175		446,825		431,213		749,491		810,554
Re-estimated ceded loss and loss settlement expenses	$	37,788	$	39,499	$	99,239		$	66,468		$	60,917		$	70,006	$	55,129	$	56,548	$	93,205	$	91,050
Gross re-estimated liability	$	345,380	$	357,321	$	685,322		$	565,203		$	548,431		$	573,181	$	501,954	$	487,761	$	842,696	$	901,604
Gross redundancy (deficiency)	$	81,669	$	107,568	$	(65,222	)	$	(46,317	)	$	(52,348	)	$	12,928	$	104,091	$	115,329	$	102,355	$	70,307

(1) Amounts shown in the 2011 column of the table include both 2011 and prior to 2011 accident year development for Mercer Insurance Group, which was acquired on March 28, 2011 and accounted for in accordance with ASC 805 Business Combinations.

For a more detailed discussion of our loss reserves, refer to the “Critical Accounting Policies” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 “Reserves for Loss and Loss Settlement Expenses” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

Life Insurance Segment

We calculate the policy reserves reported in our Consolidated Financial Statements in accordance with GAAP. For our fixed annuities and universal life policies, we establish a benefit reserve at the time of policy issuance in an amount equal to the deposits received. Subsequently, we adjust the benefit reserve for any additional deposits, interest credited and partial or complete withdrawals, as well as insurance and other expense charges. We base policy reserves for other life products on the projected contractual benefits and expenses and interest rates

7

appropriate to those products. We base reserves for accident and health products, which are a minor portion of our reserves, on appropriate morbidity tables.

We determine reserves for statutory purposes based upon mortality rates and interest rates specified by Iowa state law. Our life insurance subsidiary’s reserves meet or exceed the minimum statutory requirements. Griffith, Ballard & Company, an independent actuary, assists us in developing and analyzing our reserves on both a GAAP and statutory basis.

For further discussion of our life insurance segment’s reserves, refer to the “Critical Accounting Policies” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

INVESTMENTS

Incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the headings “Investments” and “Critical Accounting Policies”; Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”; and Note 1 “Significant Accounting Policies” under the headings “Investments,” Note 2 “Summary of Investments,” and Note 3 “Fair Value of Financial Instruments,” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

REGULATION

The insurance industry is subject to comprehensive and detailed regulation and supervision. Each jurisdiction in which we operate has established supervisory agencies with broad administrative powers. While we are not aware of any currently proposed or recently enacted state or federal regulation that would have a material impact on our operations, we cannot predict the effect that future regulatory changes might have on us.

State Regulation

We are subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state, but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state regulatory agency. In general, such regulation is intended for the protection of those who purchase or use our insurance products, and not our shareholders. These rules have a substantial effect on our business and relate to a wide variety of matters including: insurance company licensing and examination and the licensing of agents and adjusters; price setting or premium rates; trade practices; approval of policy forms; claims practices; restrictions on transactions between our subsidiaries and their affiliates, including payment of dividends; investments; underwriting standards; advertising and marketing practices; and the collection, remittance and reporting of certain taxes, licenses and fees.

The state laws and regulations that have the most significant effect on our insurance operations and financial reporting are discussed below.

Insurance Holding Company Regulation

We are regulated as an insurance holding company system in the states of domicile of our property and casualty insurance companies and life insurance subsidiary: Iowa (United Fire & Casualty Company, United Life Insurance Company, and Addison Insurance Company), California (Financial Pacific Insurance Company), Colorado (Texas General Indemnity Company), Louisiana (Lafayette Insurance Company), New Jersey (Mercer Insurance Company of New Jersey, Inc.), Pennsylvania (Mercer Insurance Company and Franklin Insurance Company), and Texas (United Fire & Indemnity Company and United Fire Lloyds). These regulations require that we annually furnish financial and other information about the operations of the individual companies within our holding company system. Generally, the insurance codes of these states provide that notice to the state insurance commissioner is required before finalizing any transaction affecting the ownership or control of an insurer and before finalizing certain material transactions between an insurer and any person or entity within its holding company system. In addition, some of those transactions cannot be finalized without the commissioner’s prior approval.

8

In December 2010, the National Association of Insurance Commissioners (“NAIC”) adopted amendments to the Model Insurance Holding Company System Regulation Act and Regulation (the “Amended Model Act”) to introduce the concept of “enterprise risk” within an insurance company holding system. Enterprise risk is defined as any activity, circumstance, event or series of events involving one or more affiliates of an insurer that, if not remedied promptly, is likely to have a material adverse effect upon the financial condition or the liquidity of the insurer or its insurance holding company system as a whole. Most states have already adopted a version of the Amended Model Act. As adopted by the states in which our insurance companies are domiciled, the Amended Model Act imposes more extensive informational requirements on us, including requiring us to prepare an annual enterprise risk report that identifies the material risks within our insurance company holding system that could pose enterprise risk to our licensed insurers. Compliance with new reporting requirements under the Amended Model Act will begin for us in 2014 for the 2013 fiscal year.

Restrictions on Shareholder Dividends

As an insurance holding company with no independent operations or source of revenue, our capacity to pay dividends to our shareholders is based on the ability of our insurance company subsidiaries to pay dividends to us. The ability of our subsidiaries to pay dividends to us is regulated by the laws of their state of domicile. Under these laws, insurance companies must provide advance informational notice to the domicile state insurance regulatory authority prior to payment of any dividend or distribution to its shareholders. Prior approval from the state insurance regulatory authority must be obtained before payment of an extraordinary dividend as defined under the state’s insurance code. The amount of ordinary dividends that may be paid to us is subject to certain limitations, the amounts of which change each year. In all cases, we may pay dividends only from our earned surplus. Refer to the “Market Information” section of Part II, Item 5, “Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities,” and Note 6 “Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions,” contained in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information about the dividends we paid during 2013.

Price Regulation

Nearly all states have insurance laws requiring us to file rate schedules, policy or coverage forms, and other information with the state’s regulatory authority. In certain states, rate schedules, policy forms, or both, must be approved prior to use. While insurance laws vary from state to state, their objectives are generally the same: an insurance rate cannot be excessive, inadequate or unfairly discriminatory. The speed with which we can change our rates in response to competition or in response to increasing costs depends, in part, on the willingness of state regulators to allow adequate rates for the business we write.

Investment Regulation

We are subject to various state regulations requiring investment portfolio diversification and limiting the concentration of investments we may maintain in certain asset categories. Failure to comply with these regulations leads to the treatment of nonconforming investments as nonadmitted assets for purposes of measuring statutory surplus. Further, in some instances, state regulations require us to sell certain nonconforming investments.

Exiting Geographic Markets; Canceling and Nonrenewing Policies

Most states regulate our ability to exit a market. For example, states limit, to varying degrees, our ability to cancel and nonrenew insurance policies. Some states prohibit us from withdrawing one or more types of insurance business from the state, except upon prior regulatory approval. Regulations that limit policy cancellation and nonrenewal may restrict our ability to exit unprofitable markets.

Insurance Guaranty Associations

Each state has insurance guaranty association laws. Membership in a state’s insurance guaranty association is generally mandatory for insurers wishing to do business in that state. Under these laws, associations may assess their members for certain obligations that insolvent insurance companies have to their policyholders and claimants.

9

Typically, states assess each solvent association member with an amount related to that member’s proportionate share of business written by all association members within the state. Most state guaranty associations allow solvent insurers to recoup the assessments they are charged through future rate increases, surcharges or premium tax credits. However, there is no assurance that we will ultimately recover these assessments. We cannot predict the amount and timing of any future assessments or refunds under these laws.

Shared Market and Joint Underwriting Plans

State insurance regulations often require insurers to participate in assigned risk plans, reinsurance facilities and joint underwriting associations. These are mechanisms that generally provide applicants with various types of basic insurance coverage that may not otherwise be available to them through voluntary markets. Such mechanisms are most commonly instituted for automobile and workers’ compensation insurance, but many states also mandate participation in Fair Access to Insurance Requirements (“FAIR”) Plans or Windstorm Plans, which provide basic property coverage. Participation is based upon the amount of a company’s voluntary market share in a particular state for the classes of insurance involved. Policies written through these mechanisms may require different underwriting standards and may pose greater risk than those written through our voluntary application process.

Statutory Accounting Rules

For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, state laws require us to calculate and report certain data according to statutory accounting rules as defined in the NAIC Accounting Practices and Procedures Manual. While not a substitute for any GAAP measure of performance, statutory data frequently is used by industry analysts and other recognized reporting sources to facilitate comparisons of the performance of insurance companies.

Insurance Reserves

State insurance laws require that insurance companies analyze the adequacy of their reserves annually. Our appointed actuaries must submit an opinion that our statutory reserves are adequate to meet policy claims-paying obligations and related expenses.

Financial Solvency Ratios

The NAIC annually calculates 13 financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. A “usual range” of results for each of these ratios is used by insurance regulators as a benchmark. Departure from the usual range on four or more of the ratios could lead to inquiries from individual state insurance departments as to certain aspects of a company’s business. In addition to the financial ratios, states also require us to calculate a minimum capital requirement for each of our insurance companies based on individual company insurance risk factors. These “risk-based capital” results are used by state insurance regulators to identify companies that require regulatory attention or the initiation of regulatory action. At December 31, 2013, all of our insurance companies had capital well in excess of the required levels.

Federal Regulation

Although the federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal initiatives and legislation often have an impact on our business. These initiatives and legislation include tort reform proposals, proposals addressing natural catastrophe exposures, terrorism risk mechanisms, federal financial services reforms, various tax proposals affecting insurance companies, and possible regulatory limitations, impositions and restrictions arising from the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), and the Patient Protection and Affordable Care Act.

Various legislative and regulatory efforts to reform the tort liability system have, and will continue to, impact our industry. Although there has been some tort reform with positive impact to the insurance industry, new causes of action and theories of damages continue to be proposed in state court actions or by federal or state legislatures that continue to expand liability for insurers and their policyholders. For example, some state legislatures have from time to time considered legislation addressing direct actions against insurers related to bad faith claims. As a result of this

10

unpredictability in the law, insurance underwriting is expected to continue to be difficult in commercial lines, professional liability and other specialty coverages.

Dodd-Frank expanded the federal presence in insurance oversight and may increase regulatory requirements that are applicable to us. Dodd-Frank’s requirements include streamlining the state-based regulation of reinsurance and non-admitted insurance (property or casualty insurance placed from insurers that are eligible to accept insurance, but are not licensed to write insurance in a particular state). Dodd-Frank also established a new Federal Insurance Office within the U.S. Department of the Treasury that is authorized to, among other things, gather data and information to monitor aspects of the insurance industry, identify issues in the regulation of insurers about insurance matters, and preempt state insurance measures under certain circumstances.

Dodd-Frank also contains a number of provisions related to corporate governance and disclosure matters. In response to Dodd-Frank, the SEC has issued, or is expected to propose, rules regarding director independence, director and officer hedging activities, executive compensation clawback policies, compensation advisor independence, pay versus performance disclosures, internal pay equity disclosures, and shareholder proxy access. We will closely monitor future developments under Dodd-Frank for their impact on us, insurers of similar size and the insurance industry as a whole.

The Patient Protection and Affordable Care Act and the related amendments in the Health Care and Education Reconciliation Act may increase our operating costs and underwriting losses. This landmark legislation may lead to numerous changes in the health care industry that could create additional operating costs for us, particularly with respect to our workers’ compensation products.

FINANCIAL STRENGTH AND ISSUER CREDIT RATING

Our financial strength, as measured by statutory accounting principles, is regularly reviewed by an independent rating agency that assigns a rating based upon criteria such as results of operations, capital resources and minimum policyholders’ surplus requirements. An insurer’s financial strength rating is one of the primary factors evaluated by those in the market to purchase insurance. A poor rating indicates that there is an increased likelihood that the insurer could become insolvent and therefore not able to fulfill its obligations under the insurance policies it issues. This rating can also affect an insurer’s level of premium writings, the lines of business it can write and, for insurers like us that are also public registrants, the market value of its securities.

Except for one non-pooled insurance subsidiary that is in run-off status, our property and casualty insurers are rated by A.M. Best Company (“A.M. Best”) on a group basis. Our pooled property and casualty insurers have all received an “A” (Excellent) rating from A.M. Best. A.M. Best has designated our non-pooled insurance subsidiary in run-off as NR-3 (Rating Procedure Inapplicable). Our life insurance subsidiary has received an “A-” (Excellent) rating from A.M. Best. According to A.M. Best, companies rated “A” and “A-” have “an excellent ability to meet their ongoing obligations to policyholders.”

A.M. Best also assigns issuer credit ratings based on a company’s ability to repay its debts. All of our property and casualty insurers have received an issuer credit rating of “a” from A.M. Best, except for our non-pooled subsidiary which is in run-off status, and therefore not rated. Our life insurance subsidiary has received an issuer credit rating of “a-” from A.M. Best. Beginning in 2012, our holding company parent was also rated by A.M. Best, receiving an issuer credit rating of “bbb.”

11

ITEM 1A. RISK FACTORS

We provide readers with the following discussion of risks and uncertainties relevant to our business. These are factors that we believe could cause our actual results to differ materially from our historic or anticipated results. We could also be adversely affected by other factors, in addition to those listed here. Additional information concerning factors that could cause actual results to differ materially from those contained in the forward-looking statements is set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Relating to Our Business

The occurrence, frequency and severity of catastrophe losses are unpredictable and may adversely affect our results of operations, liquidity and financial condition.

Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders. Such catastrophic events consist of various natural disasters, including, but not limited to, hurricanes, tornadoes, windstorms, hailstorms, fires and wildfires, earthquakes, severe winter weather, tropical storms, volcanic eruptions and man-made disasters such as terrorist acts (including biological, chemical or radiological events), explosions, infrastructure failures and results from political instability. We have exposure to tropical storms and hurricanes along the Gulf Coast, Eastern and Southeastern coasts of the United States. We have exposure to tornadoes, windstorms and hail storms throughout the United States. We have exposure to earthquakes along the West Coast and the New Madrid Fault area. Our automobile and inland marine business also exposes us to losses arising from floods and other perils.

Property damage resulting from catastrophes is the greatest risk of loss we face in the ordinary course of our business. We have exposure to catastrophe losses under both our commercial insurance policies and our personal insurance policies. The losses from such a catastrophic event are a function of both the extent of our exposure, the frequency and severity of the events themselves and the level of reinsurance assumed and ceded. For example, the losses experienced from a tornado will vary on whether the location of the tornado was in a highly populated or unpopulated area, the concentration of insureds in that area and the severity of the tornado. Increases in the value and geographic concentration of insured property and the effects of inflation could increase the severity of claims from a catastrophic event.

Long-term weather trends may be changing and new types of catastrophe losses may be developing due to climate change; a phenomenon that has been associated with extreme weather events linked to rising temperatures, including effects on global weather patterns, greenhouse gases, sea, land and air temperature, sea levels, rain and snow. While the emerging science regarding climate change and its connection to extreme weather events is far from conclusive, in recent years there has been an increase in frequency and severity of tornadoes and hailstorms, and hurricanes are now impacting areas further inland than experienced in the recent past. Such changes in climate conditions could cause our underlying modeling data to be less accurate, limiting our ability to evaluate and manage our risk.

In addition, as with catastrophe losses generally, it can take a long time for us to determine our ultimate losses associated with a particular catastrophic event. Additionally the inability to access portions of the impacted area, the complexity of the losses, legal and regulatory uncertainty and the nature of the information available for certain catastrophic events may affect our ability to estimate the claims and claim adjustment expense reserves. Such complex factors include, but are not limited to: determining the cause of the damage, evaluating general liability exposures, estimating additional living expenses, the impact of demand surge, infrastructure disruption, fraud, business interruption costs and reinsurance collectability.

The timing of a catastrophic occurrence at the end or near the end of a reporting period may also affect the information available to us when estimating claims and claim adjustment expense reserves for the reporting period. As our claims experience for a particular catastrophe develops, we may be required to adjust our reserves to reflect our revised estimates of the total cost of claims. However, because the occurrence and severity of catastrophes are

12

inherently unpredictable and may vary significantly from year to year and region to region, historical results of operations may not be indicative of future results of operations.

Catastrophes may reduce our net income, cause substantial volatility in our financial results for any fiscal quarter or year or otherwise adversely affect our financial condition, liquidity or results of operations. Catastrophes may also negatively affect our ability to write new business.

Following catastrophes there are also sometimes legislative, administrative and judicial decisions that seek to expand insurance coverage for claims beyond the original intent of the policies or seek to prevent the application of deductibles. Our ability to manage catastrophic exposure may be limited by public policy considerations, the political environment, changes in the general economic climate and/or social responsibilities.

Our reserves for property and casualty insurance losses and loss settlement expenses and our life insurance reserves for future policy benefits are based on estimates and may be inadequate, adversely impacting our financial results.

We maintain insurance reserves to cover our estimated ultimate unpaid liability for claim and claim adjustment expenses, including the estimated cost of the claims adjustment process, for reported and unreported claims and for future policy benefits. Our reserves may prove to be inadequate, which may result in future charges to earnings and/or a downgrade of our financial strength rating or the financial strength ratings of our insurance company subsidiaries.

Insurance reserves represent our best estimate at a given point in time. They are not an exact calculation of liability but instead are complex estimates, which are a product of actuarial expertise and projection techniques from a number of assumptions and expectations about future events, many of which are highly uncertain.

The process of estimating claims and claims adjustment expense reserves involves a high degree of judgment. These estimates are based on historical data and the impact of various factors such as:

• actuarial and statistical projections of the cost of settlement and administration of claims reflecting facts and circumstances then known;

• historical claims information and loss emergence patterns;

• assessments of currently available data;

• estimates of future trends in claims severity and frequency;

• judicial theories of liability;

• economic factors such as inflation;

• estimates and assumptions regarding social, judicial and legislative trends, and actions such as class action lawsuits and judicial interpretation of coverages or policy exclusions; and

• the level of insurance fraud.

Many of these factors are not quantifiable. The inherent uncertainties of estimating reserves are greater for certain types of liabilities, particularly those in which the various considerations affecting the type of claim are subject to change and in which long periods of time may elapse before a definitive determination of liability is made. Reserve estimates are continually refined in a regular and ongoing process as experience develops and further claims are reported and settled.

Along with other insurers, we use models in assessing our exposure to catastrophe losses that assume various conditions and probability scenarios; however, these models do not necessarily accurately predict future losses or accurately measure losses currently incurred. Models for catastrophes use historical information about various catastrophes and details about our in-force business. While we use this information in our pricing and risk managements, there are limitations with respect to their usefulness in predicting losses in any reporting period. Such limitations lead to questionable predictive capability and post-event measurements that have not been well understood or proven to be sufficiently reliable. In addition, the models are not necessarily reflective of our state-

13

specific policy language, demand surge for labor and materials or loss settlement expenses, all of which are subject to wide variation.

For our life insurance business, we calculate life insurance product reserves based on our assumptions, including estimated premiums we will receive over the assumed life of the policy, the timing of the event covered by the insurance policy and the amount of benefits or claims to be paid. The premiums that we charge and the liabilities that we hold for future policy benefits are based on assumptions reflecting a number of factors, including the amount of premiums that we will receive in the future, rate of return on assets we purchase with premiums received, expected claims, mortality, morbidity, expenses and persistency, which is the measurement of the percentage of insurance policies remaining in force from year to year. However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot determine precisely the amounts we will ultimately pay to settle these liabilities. To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our liabilities, which may harm our financial strength and reduce our profitability.

For example, if mortality rates are higher than our pricing assumptions, we will be required to make greater claims payments on our life insurance policies than we had projected. Our results of operations may also be adversely impacted by an increase in morbidity rates.

Actual losses and loss settlement expenses paid might exceed our reserves. If our loss reserves are insufficient, or if we believe our loss reserves are insufficient to cover our actual loss and loss settlement expenses, we will have to increase our loss reserves and incur charges to our earnings, which could indicate that premium levels were insufficient. As such, deviations from one or more of these assumptions could result in a material adverse impact on our Consolidated Financial Statements and our financial strength rating or the financial strength ratings of our insurance company subsidiaries could be downgraded.

For a detailed discussion of our reserving process and the factors we consider in estimating reserves, refer to the “Critical Accounting Policies” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Our geographic concentration in both our property and casualty insurance and life insurance segments ties our performance to the business, economic and regulatory conditions of certain states.

The following states provided 49.9 percent of the direct statutory premium written for the property and casualty insurance segment in 2013: Texas (13.9 percent), Iowa (12.3 percent), California (10.5 percent), New Jersey (6.9 percent) and Missouri (6.3 percent). The following states provided 74.9 percent of the direct statutory premium written for the life insurance segment in 2013: Iowa (38.8 percent), Illinois (11.6 percent), Minnesota (9.6 percent), Wisconsin (8.3 percent), and Nebraska (6.6 percent).

Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do business. With respect to regulatory conditions, the NAIC and state legislators continually reexamine existing laws and regulations, specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws and regulations. In a time of financial uncertainty or a prolonged economic downturn, regulators may choose to adopt more restrictive insurance laws and regulations. Changes in regulatory or any other of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified. In addition, our exposure to severe losses from localized natural perils, such as hurricanes or hailstorms, is increased in those areas where we have written a significant amount of property insurance policies.

14

Unauthorized data access, cyber-attacks and other security breaches could have an adverse impact on our business and reputation.

We rely on computer systems to conduct our business for our customer service, marketing and sales activities, customer relationship management and producing financial statements. Our business and operations rely on secure and efficient processing, storage and transmission of customer and Company data, including personally identifiable information. Our ability to effectively operate our business depends upon our ability, and the ability of certain third party vendors and business partners, to access our computer systems to perform necessary business functions, such as providing quotes and product pricing, billing and processing premiums, administering claims, and reporting our financial results.

We retain confidential information on our computer systems, including customer information and proprietary business information belonging to us and our policyholders. Our business and operations depend upon our ability to safeguard this personally identifiable information. Our systems may be vulnerable to unauthorized access and hackers, computer viruses, and other scenarios in which our data may be compromised.

Cyber-security risks in particular include malicious software, unauthorized access to data and other electronic security breaches of our facilities, networks or databases, or those of our vendors. Any compromise of the security of our data could expose us to liability and harm our reputation, which could affect our business and results of operations. We continually enhance our operating procedures and internal controls to effectively support our business and comply with our regulatory and financial reporting requirements, but there can be no assurances that we will be able to implement security measures adequate to prevent every security breach.

Conditions in the global capital markets and the economy generally may weaken materially and adversely affect our business and results of operations.

Our results of operations, financial position and liquidity are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Recently, concerns over the depth and breadth of the economic recovery, overall level of U.S. national debt, extraordinary monetary accommodation by central banks, energy costs and geopolitical issues have contributed to increased uncertainty. These factors, combined with a lack of fiscal policy leadership, reduced business and consumer confidence and continued high unemployment, have negatively impacted the U.S. economy. Although conditions have gradually improved since the financial crisis of 2008-2009, a meaningful deterioration in economic activity and/or capital market liquidity could have an adverse impact on our results of operations.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. In addition, we may experience an elevated incidence of claims and lapses or surrenders of policies causing a change in our exposure.

We are subject to certain risks related to our investment portfolio that could negatively affect our profitability.

Investment income is an important component of our net income and overall profitability. We invest premiums received from policyholders and other available cash to generate investment income and capital appreciation, while also maintaining sufficient liquidity to pay covered claims, operating expenses and dividends. As discussed in detail below, general economic conditions, changes in financial markets and many other factors beyond our control can adversely affect the value of our investments and the realization of investment income.

We primarily manage our investment portfolio internally under required statutory guidelines and investment guidelines approved by our board of directors and the boards of directors of our subsidiaries. Although these guidelines stress diversification and capital preservation, our investments are subject to a variety of risks, including:

15

• Credit Risk - The value of our investment in marketable securities is subject to impairment as a result of deterioration in the creditworthiness of the issuer. Such impairments could reduce our net investment income and result in realized investment losses. The vast majority of our investments (97.5 percent at December 31, 2013) are made in investment-grade securities. Although we try to manage this risk by diversifying our portfolio and emphasizing credit quality, our investments are subject to losses as a result of a general downturn in the economy.

• Interest Rate Risk - A significant portion of our investment portfolio (90.6 percent at December 31, 2013) consists of fixed income securities, primarily corporate and municipal bonds (63.1 percent at December 31, 2013). These securities are sensitive to changes in interest rates. An increase in interest rates typically reduces the fair market value of fixed income securities, while a decline in interest rates reduces the investment income earned from future investments in fixed income securities. In recent periods, interest rates have been at or near historic lows. It is possible that this trend may continue for a prolonged period of time. We generally hold our fixed income securities to maturity, so our interest rate exposure does not usually result in realized losses. However, rising interest rates could result in a significant reduction of our book value. Low interest rates, and low investable yields, could adversely impact our net earnings as reinvested funds produce lower investment income.

Fluctuationsin interest rates may cause increased surrenders and withdrawals from our life insurance and annuity products. In periods of rising interest rates, or if long-term interest rates rise dramatically within a very short time period, certain segments of our life insurance and annuities businesses may be exposed to disintermediation risk, which refers to the risk that surrenders and withdrawals of life insurance policies and annuity contracts, along with policy loans, may increase as policyholders seek to buy products with perceived higher rates of return. This may require us to liquidate assets in an unrealized loss position. Due to the long-term nature of the liabilities associated with certain segments of our life insurance business, sustained declines in long-term interest rates may subject us to reinvestment risks and increased hedging costs. In other situations, a sudden change in interest rates may result in an unexpected change in the duration of certain life insurance liabilities, creating asset and liability duration mismatches.

Interest rates are highly sensitive to many factors beyond our control including general economic conditions, changes in governmental regulations and monetary policy, and national and international political conditions.

• Liquidity Risk - We seek to match the maturities of our investment portfolio with the estimated payment date of our loss and loss adjustment expense reserves to ensure strong liquidity and avoid having to liquidate securities to fund claims. Risk such as inadequate loss and loss adjustment reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. This could result in significant realized losses depending on the conditions of the general market, interest rates and credit profile of individual securities.

Further, our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the portion of the investment portfolio that is carried at fair value as reflected in our financial statements is not reflective of prices at which actual transactions could occur.

• Market Risk - Our investments are subject to risks inherent in the global financial system and capital markets. The value and risks of our investments may be adversely affected if the functioning of those markets is disrupted or otherwise affected by local, national or international events, such as: changes in regulation or tax policy; changes in legislation relating to bankruptcy or other proceedings; infrastructure failures; wars or terrorist attacks; the overall health of global economies; a significant change in inflation expectations; a significant devaluation of government or private sector credit and/or currency values; and

16

other factors or events not specifically attributable to changes in interest rates, credit losses, and liquidity needs.

• Credit Spread Risk - Our exposure to credit spreads primarily relates to market price variability and reinvestment risk associated with changes in credit spreads. Valuations may include assumptions or estimates that may have significant period-to-period changes from market volatility, which could have a material adverse effect on our results of operations or financial condition.

Our fixed maturity investment portfolio is invested substantially in state, municipal and political subdivision bonds. Our fixed maturity investment portfolio could be subject to default or impairment, in particular:

• Due to the impact of the financial crisis that occurred in 2008 and 2009, many states and local governments have been operating under deficits or projected deficits which may have an impact on the valuation of our municipal bond portfolio.

• There is a risk of widespread defaults which may increase if some issuers chose to voluntarily default instead of implementing fiscal measures such as increasing tax rates or reducing spending. Such risk may also increase if there are changes in legislation permitting states, municipalities and political subdivisions to file for bankruptcy protection where they were not permitted to before. Judicial interpretations in such bankruptcy proceedings may also adversely affect the collectability of principal and interest, and/or valuation of our bonds. Changes in tax laws impacting marginal tax rates, exemptions, deductions, credits and/or the preferred tax treatment of municipal obligations could also adversely affect the market value of municipal obligations. Since a large portion of our investment portfolio (23.0 percent at December 31, 2013) is invested in tax-exempt municipal obligations, any such changes in tax law could adversely affect the value of our investment portfolio.

We exercise prudence and significant judgment in analyzing and validating fair values, which are primarily provided by third parties, for securities in our investment portfolio, including those that are not regularly traded in active markets. We also exercise prudence and significant judgment in determining whether the impairment of particular investments is temporary or other-than-temporary. Due to the inherent uncertainties involved in these judgments, we may incur unrealized losses and subsequently conclude that other-than-temporary write downs of our investments are required.

Our success depends primarily on our ability to underwrite risks effectively and adequately price the risks we underwrite.

The results of our operations and our financial condition depend on our ability to underwrite and set premium rates accurately for a wide variety of risks. Adequate rates are necessary to generate premiums sufficient to pay losses, loss settlement expenses and underwriting expenses and to earn a profit. To price our products accurately, we must collect and properly analyze a substantial amount of data; develop, test and apply appropriate pricing techniques; closely monitor and timely recognize changes in trends; and project both severity and frequency of losses with reasonable accuracy. We could underprice risks which would adversely affect our profit margins. Conversely, we could overprice risks which could reduce our sales volume and competitiveness. Our ability to undertake these efforts successfully, and to price our products accurately, is subject to a number of risks and uncertainties, including but not limited to:

• the availability of sufficient reliable data and our ability to properly analyze available data;

• market and competitive conditions;

• changes in medical care expenses and restoration costs;

• our selection and application of appropriate pricing techniques; and

17

• changes in the regulatory market, applicable legal liability standards and in the civil litigation system generally.

The cyclical nature of the property and casualty insurance industry may affect our financial performance.

The property and casualty insurance industry is cyclical in nature and has historically been characterized by soft markets (periods of relatively high levels of price competition, less restrictive underwriting standards and generally low premium rates) followed by hard markets (periods of capital shortages resulting in a lack of insurance availability, relatively low levels of price competition, more selective underwriting of risks and relatively high premium rates). During soft markets, we may lose business to competitors offering competitive insurance at lower prices. We may reduce our premiums or limit premium increases leading to a reduction in our profit margins and revenues. We expect these cycles to continue.

The demand for property and casualty insurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. Fluctuations in demand and competition could produce underwriting results that would have a negative impact on the results of our operations and financial condition.

The effects of emerging claim and coverage issues and class action litigation on our business are uncertain.

We are subject to certain effects of emerging or potential claims and coverage issues that arise as industry practices and legal, judicial, social, economic and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number and/or size of claims, resulting in further increases in our reserves. The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict. Examples of these issues include:

• judicial expansion of policy coverage and the impact of new theories of liability;

• an increase of plaintiffs targeting property and casualty insurers, including us, in purported class action litigation regarding claims handling and other practices;

• medical developments that link health issues to particular causes, resulting in liability or workers’ compensation (for example, cumulative trauma);

• claims relating to unanticipated consequences of current or new technologies;

• an increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions;

• claims relating to potentially changing climate conditions, including higher frequency and severity of weather-related events; and

• adverse changes in loss cost trends, including inflationary pressure in medical cost and auto and home repair costs.

18

A downgrade or a potential downgrade in our financial strength or issuer credit ratings could result in a loss of business and could have a material adverse effect on our financial condition and results of operations.

Ratings are an important factor in establishing the competitive position of insurance companies. Third-party rating agencies assess and rate the claims-paying ability and creditworthiness of insurers and reinsurers based on criteria established by the agencies. A.M. Best rates our property and casualty insurance companies on a group basis. Our life insurance subsidiary receives a separate rating. Since 2012, A.M. Best has also given an issuer credit rating to our parent holding company. The table below shows the current ratings assigned to our companies by A.M. Best.

	Financial Strength Rating	Issuer Credit Rating	Rating Held Since
Property and Casualty Insurers*	A	a	1994
Life Insurer	A-	a-	1998
United Fire Group, Inc.	N/A	bbb	2012

* Except for one insurance subsidiary that is in run-off and designated NR-3 (Rating Procedure Inapplicable) by A.M. Best.

Financial strength and issuer credit ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength, creditworthiness and quality of insurers and reinsurers. These ratings are not evaluations directed to potential purchasers of our common stock and are not recommendations to buy, sell or hold our common stock. These ratings are subject to change at any time and could be revised downward or revoked at the sole discretion of the rating agency. Downgrades in our financial strength ratings could adversely affect our ability to access the capital markets or could lead to increased borrowing costs in the future. Perceptions of the Company by investors, producers, other businesses and consumers could also be significantly impaired.

We believe that the ratings assigned by A.M. Best are an important factor in marketing our products. Our ability to retain our existing business and to attract new business in our insurance operations depends on our ratings by this agency. Our failure to maintain our ratings, or any other adverse development with respect to our ratings, could cause our current and future independent agents and policyholders to choose to transact their business with more highly rated competitors. If A.M. Best downgrades our ratings or publicly indicates that our ratings are under review, it is likely that we will not be able to compete as effectively with our competitors and our ability to sell insurance policies could decline, leading to a decrease in our premium revenue and earnings. For example, many of our agencies and policyholders have guidelines that require us to have an A.M. Best financial strength rating of “A-” or higher. A reduction of our A.M. Best ratings below “A-” would prevent us from issuing policies to a portion of our current policyholders or other potential policyholders with ratings requirements. Additionally, a ratings downgrade could materially increase the number of surrenders for all or a portion of the net cash values by the owners of policies and contracts we have issued, and materially increase the number of withdrawals by policyholders of cash values from their policies.

A reduction in our issuer credit rating could limit our ability to access capital markets or significantly increase the cost to us of raising capital. The failure of our insurance company subsidiaries to maintain their current ratings could dissuade a lender or reinsurance company from conducting business with us. A ratings downgrade could also cause some of our existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations. It might also increase our interest or reinsurance costs.

We are exposed to credit risk in certain areas of our operations.

In addition to exposure to credit risk related to our investment portfolio, we are exposed to credit risk in several other areas of our business operations, including from:

• our reinsurers, who are obligated to us under our reinsurance agreements. See the risk factor titled “Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely manner, or at all,” for a discussion of the credit risk associated with our reinsurance program;

19

• some of our independent agents, who collect premiums from policyholders on our behalf and are required to remit the collected premiums to us;

• some of our policyholders, which may be significant; and

• our surety insurance operations, where we guarantee to a third party that our bonded principal will satisfy certain performance obligations (for example, as in a construction contract) or certain financial obligations. If our policyholder defaults, we may suffer losses and be unable to be reimbursed by our policyholder.

To a large degree, the credit risk we face is a function of the economy; accordingly, we face a greater risk during periods of economic downturn. While we attempt to manage these risks through underwriting and investment guidelines, collateral requirements and other oversight mechanisms, our efforts may not be successful. For example, collateral obtained may subsequently have little or no value. As a result, our exposure to credit risk could materially and adversely affect our results of operation and financial condition.

We are subject to comprehensive laws and regulations, changes to which may have an adverse effect on our financial condition and results of operations.

Insurance is a highly regulated industry. We are subject to extensive supervision and regulation by the states in which we operate. As a public company, we are also subject to increased regulation at the federal level. Our ability to comply with these laws and regulations and obtain necessary and timely regulatory action is, and will continue to be, critical to our success and ability to earn profits.

Examples of regulations that pose particular risks to our ability to earn profits include the following:

• Required licensing. Our insurance company subsidiaries operate under licenses issued by various state insurance departments. If a regulatory authority were to revoke an existing license or deny or delay granting a new license, our ability to continue to sell insurance or to enter or offer new insurance products in that market would be substantially impaired.

• Regulation of insurance rates, fees and approval of policy forms. The insurance laws of most states in which we operate require insurance companies to file insurance premium rate schedules and policy forms for review and approval. When our loss ratio compares favorably to that of the industry, state regulatory authorities may resist or delay our efforts to raise premium rates, even if the property and casualty industry generally is not experiencing regulatory resistance to premium rate increases. If premium rate increases we deem necessary are not approved, we may not be able to respond to market developments and increased costs in that state. State regulatory authorities may even impose premium rate rollbacks or require us to pay premium refunds to policyholders, affecting our profitability. If insurance policy forms we seek to use are not approved by a state insurance departments, our ability to offer new products and grow our business in that state could be substantially impaired.

• Restrictions on cancellation, nonrenewal or withdrawal. Many states have laws and regulations restricting an insurance company’s ability to cease or significantly reduce its sales of certain types of insurance in that state, except pursuant to a plan that is approved by the state insurance departments. These laws and regulations could limit our ability to exit or reduce our business in unprofitable markets or discontinue unprofitable products. For example, the State of Louisiana has a law prohibiting the nonrenewal of homeowners policies written for longer than three years except under certain circumstances, such as for nonpayment of premium or fraud committed by the insured. Additionally, our ability to adjust terms or increase pricing requires approval of regulatory authorities in certain states.

• Risk-based capital and capital adequacy requirements. Our insurance company subsidiaries and affiliate, are subject to risk-based capital requirements that require us to report our results of risk-based capital calculations to state insurance departments and the NAIC. These standards apply specified risk factors to various asset, premium and reserve components of statutory capital and surplus reported in our statutory

20

basis of accounting financial statements. Any failure to meet applicable risk based capital requirements or minimum statutory capital requirements could subject us or our subsidiaries and affiliate to further examination or corrective action by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

• Transactions between insurance companies and their affiliates. Transactions between us, our insurance company subsidiaries and our affiliates generally must be disclosed to, and in some cases approved by, state insurance departments. State insurance departments may refuse to approve or delay their approval of a transaction, which may impact our ability to innovate or operate efficiently.

• Required participation in guaranty funds and assigned risk pools. Certain states have enacted laws that require a property and casualty insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations where participating insurers are required to provide coverage for assigned risks. The number of risks assigned to us by these plans is based on our share of total premiums written in the voluntary insurance market for that state. Pricing is controlled by the plan, often restricting our ability to charge the premium rate we might otherwise charge. Wherever possible, we utilize a designated servicing carrier to fulfill our obligations under these plans. Designated servicing carriers charge us fees to issue policies, adjust and settle claims and handle administrative reporting on our behalf. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired premium rates, possibly leading to an unacceptable return on equity. While these facilities are generally designed so that the ultimate cost is borne by policyholders, the exposure to assessments and our ability to recoup these assessments through adequate premium rate increases may not offset each other in our financial statements. Moreover, even if they do offset each other, they may not offset each other in our financial statements for the same fiscal period, due to the ultimate timing of the assessments and recoupments or premium rate increases. Additionally, certain states require insurers to participate in guaranty funds to bear a portion of the unfunded obligations of impaired or insolvent insurance companies. These state funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.

• Restrictions on the amount, type, nature, quality and concentration of investments. The various states in which we are domiciled have certain restrictions on the amount, type, nature, quality and concentration of our investments. Generally speaking, these regulations require us to be conservative in the nature and quality of our investments and restrict our ability to invest in riskier, but often higher yield investments. These restrictions may make it more difficult for us to obtain our desired investment results.

• State and federal tax laws. Current federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products. Taxes, if any, are payable on income attributable to a distribution under the contract for the year in which the distribution is made. The U.S. Congress has, from time to time, considered legislation that would reduce or eliminate the benefit of such deferral of taxation on the accretion of value within life insurance and nonqualified annuity contracts. Enactment of this legislation, including a simplified “flat tax” income structure with an exemption from taxation for investment income, could result in fewer sales of our insurance, annuity and investment products.

In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning. In addition, we benefit from certain tax items, including but not limited to, tax-exempt bond interest, dividends-received deductions, tax credits (such as foreign tax credits) and insurance reserve deductions. From time to time, the U.S. Congress, as well as foreign, state and local governments, considers legislation that could reduce or eliminate the benefits associated with these tax items. If such legislation is adopted, our profitability could be negatively impacted. We continue to evaluate the impact that potential tax reform, which lacks sufficient detail and is relatively uncertain, may have on our future results of operations and financial condition.

21

• Terrorism Risk Insurance. The Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) requires the federal government and the insurance industry to share in insured losses up to $100 billion per year resulting from future terrorist attacks within the U.S. For further information about TRIPRA and its effect on our operations, refer to the information in the “Results of Operations” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

• Accounting standards. Our Consolidated Financial Statements are subject to the application of GAAP accounting guidance, which is periodically revised and/or expanded by recognized authoritative bodies, including the Financial Accounting Standards Board (“FASB”). During the last several years, the SEC has been evaluating whether, when and how International Financial Reporting Standards (“IFRS”) should be incorporated into the U.S. financial reporting system. The FASB and the International Accounting Standards Board (“IASB”) are working on a long-term project to converge GAAP and IFRS. As part of this project, the FASB and IASB have been working to create a global insurance standard related to the recording of insurance contract liabilities. The boards both proposed models in June 2013, but there were significant differences in methodology. The U.S. has had guidance in place for several decades whereas there is currently no comprehensive IFRS standard for insurance contract liabilities. The boards both received comments on their proposed models and are re-deliberating accounting for insurance contracts. There is uncertainty as to what changes will be required under GAAP as a result of this project, and we are not able to predict at this time what impact the final adopted standard will have on our consolidated financial statements. There is also uncertainty whether we will be required to adopt IFRS or how the adoption of IFRS (or the convergence of GAAP and IFRS, including the project for valuing insurance contract liabilities) may impact our consolidated financial statements in the future. Changes in accounting standards may have an impact on the content and presentation of our financial results and could have adverse consequences on our financial results, including lower reported results of operations and shareholders’ equity and increased volatility and decreased comparability of our reported results with our historic results and with the results of other insurers.

• Corporate Governance and Public Disclosure Regulation. Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the Sarbanes-Oxley Act of 2002 and related SEC regulations, as well as the listing standards of the NASDAQ Stock Market, have created and are continuing to create uncertainty for public companies. While the federal government has not historically regulated the insurance business, in 2010 Dodd-Frank established a Federal Insurance Office within the U.S. Department of the Treasury. The Federal Insurance Office has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers, monitor aspects of the insurance industry, identify issues with regulation of insurers that could contribute to a systemic crisis in the insurance industry or the overall financial system, coordinate federal policy on international insurance matters and preempt state insurance measures under certain circumstances. While certain details and much of the impact of Dodd-Frank will not be known for some time, Dodd-Frank and other federal regulation adopted in the future may impose burdens on us, including impacting the ways we conduct our business, increasing compliance costs and duplicating state regulation. Additional regulation under these laws in the area of compensation disclosure, particularly regarding internal pay equity, officer and director hedging activities and compensation clawback policies is still expected.

• U.S. Social Security Administration’s Death Master File. We have received regulatory inquiries from certain state insurance regulators relating to compliance with unclaimed property laws and the use of data available on the U.S. Social Security Administration’s Death Master File (or a similar database) to identify instances where benefits under life insurance policies, annuities and retained asset accounts are payable. It is possible that other jurisdictions may pursue similar inquiries and that such inquiries may result in payments to beneficiaries, escheatment of funds deemed abandoned under state laws and changes to procedures for the identification and escheatment of abandoned property.

Compliance with these laws and regulations requires us to incur administrative costs that decrease our profits. These laws and regulations may also prevent or limit our ability to underwrite and price risks accurately, obtain timely

22

premium rate increases necessary to cover increased costs, discontinue unprofitable relationships or exit unprofitable markets and otherwise continue to operate our business profitably. In addition, our failure to comply with these laws and regulations could result in actions by state or federal regulators, including the imposition of fines and penalties or, in an extreme case, revocation of our ability to do business in one or more states. Finally, we could face individual, group and class action lawsuits by our policyholders and others for alleged violations of certain state laws and regulations. Each of these regulatory risks could have a negative effect on our profitability.

Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely manner, or at all.

As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of the risk that we and our insurance company subsidiaries and affiliates underwrite, by transferring (or ceding) part of the risk we have assumed to a reinsurance company in exchange for part of the premium we receive in connection with the risk. These reinsurance arrangements diversify our business and reduce our exposure to large losses or from hazards of an unusual nature. As of December 31, 2013, we ceded premium written of $50.7 million to our reinsurers.

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred, it does not eliminate our liability to our policyholders because we remain liable as the direct insurer on all of the reinsured risks. As a result we are subject to credit risk relating to our ability to recover amounts due from our reinsurers.

Our ability to collect reinsurance recoverable may be subject to uncertainty. Our losses must meet the qualifying conditions of the reinsurance agreement. Our reinsurance agreements are subject to specified limits and we would not have reinsurance coverage to the extent that it exceeds those limits. We are also subject to the risk that reinsurers may dispute their obligations to pay our claims. Reinsurers must have the financial capacity and willingness to make payments under the terms of a reinsurance agreement or program. Reinsurers may dispute amounts we believe are due to us. Particularly, following a major catastrophic event, our inability to collect a material recovery from a reinsurer on a timely basis, or at all, could have a material adverse effect on our liquidity, operating results and financial condition.

Market conditions determine the availability and cost of the reinsurance protection we purchase, which affects the level of our business profitability, as well as the level and types of risk we retain. Although we purposely work with several reinsurance intermediaries and reinsurers, we may be unable to maintain our current reinsurance facilities or obtain other reinsurance facilities in adequate amounts and at favorable premium rates. Moreover, there may be a situation in which we have more than two catastrophic events within one policy year. Because our current catastrophe reinsurance program only allows for one automatic reinstatement at an additional reinstatement premium, we would be required to obtain a new catastrophe reinsurance policy to maintain our current level of catastrophe reinsurance coverage. Such coverage may be difficult to obtain, particularly if it is necessary to do so during hurricane season following the second catastrophe. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposure to risk will increase or, if we are unwilling to bear an increase in net risk exposures, we will have to reduce the amount of risk we underwrite.

We face significant competitive pressures in our business that could cause demand for our products to fall or hinder our ability to introduce new products or services and keep pace with advances in technology, reducing our revenue and profitability.

The insurance industry is highly competitive and will likely remain that way for the foreseeable future. In our property and casualty insurance business and in our life insurance business we compete, and will continue to compete, with many major U.S. and non-U.S. insurers and smaller regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies, and diversified financial services companies, including banks, mutual funds, broker-dealers and asset-managers. Except for regulatory considerations, there are few barriers to entry in the insurance market. National banks, with their large existing customer bases, may increasingly compete with insurers as a result of court rulings allowing national banks to sell annuity products in some circumstances, and as a result of new legislation removing restrictions on bank affiliations with insurers. These

23

developments may increase competition, by increasing the number, size and financial strength of competitors who may be able to offer, due to economies of scale, more competitive pricing than we can.

Our competitors may attempt to increase their market share by lowering rates. In that case, we could experience reductions in our underwriting margins or sales of insurance policies. Losing business to competitors offering similar products at lower prices or who have a competitive advantage may adversely affect the results of our operations. Additionally, economic conditions may reduce the total volume of business available to us and our competitors.

We price our insurance products based on estimated profit margins, and we may not be able to react in a timely manner to reprice our insurance products to respond to changes in the market. Some of our competitors may be larger and have far greater financial, technology and marketing resources than we do. If new or existing competitors decide to target our policyholder base by offering similar or enhanced product offerings or technologies at lower prices than we are able to offer, our premium revenue and our profitability could decline.

Our products are marketed exclusively through independent insurance agencies, most of which represent more than one company. We face competition within each agency and competition to retain qualified independent agents. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers. In personal insurance, the use of comparative rating technologies has impacted our business and may continue to impact the entire industry. This has resulted in an increase in the total level of quote activity but a lower percentage of quotes have resulted in new business from customers. There is also the potential for similar technology to be used to compare rates for small business.

The successful implementation of our business model depends on our ability to adapt to evolving technologies and industry standards and introduce new products and services. There is no guarantee we will be able to introduce new or improved products, or that our products will achieve market acceptance. We may also not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements, causing our products or services to become obsolete.

Technology may be increasingly playing a role in our ability to be competitive. Innovations such as telematics and other usage-based methods of determining premiums may impact product design and pricing and may be an increasingly important factor in our ability to be competitive. Our competitive position may also be impacted by our ability to institute technology that collects and analyzes a wide variety of data points to make underwriting or other decisions.

Our business depends on the uninterrupted operations of our facilities, systems and business functions.

Our business depends on our employees’ or vendors’ ability to perform necessary business functions, such as processing new and renewal policies, providing customer service, making claims payments, facilitating collections and cancellations and performing actuarial functions necessary for pricing and product development. We increasingly rely on technology and systems to accomplish these business functions in an efficient and uninterrupted fashion. Our inability to access our facilities or a failure of technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis or affect the accuracy of transactions. If sustained or repeated, such a business interruption or system failure could result in a deterioration of our ability to write and process new and renewal business, serve our agents and policyholders or perform other necessary business functions as discussed above.

If a natural disaster or a terrorist act occurs, our company and employees could be directly adversely affected, depending on the nature of the event. We have an emergency preparedness plan that consists of the information and procedures required to enable rapid recovery from an occurrence, such as natural disaster or business disruption, which could potentially disable us for an extended period of time. This plan was successfully tested during 2008; both by the Midwest flooding that affected our corporate headquarters in Cedar Rapids, Iowa, and by Hurricane Ike that affected our Gulf Coast regional office in Galveston, Texas. It was also tested, to a lesser extent by Super Storm Sandy in 2012 that affected our East Coast regional office in Pennington, New Jersey.

24

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to and the cost of capital.

Although capital market conditions have improved, our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by continued volatility, uncertainty and disruptions in the capital and credit markets.

We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations. However, withdrawal and surrender levels may differ from anticipated levels for a variety of reasons, such as changes in economic conditions or changes in our claims paying ability and financial strength ratings. In the event our current internal sources of liquidity do not satisfy our needs, we have entered into a $100.0 million revolving unsecured credit facility that we can access. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity as well as customers’ or lenders’ perception of our long- or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us.

Disruptions, uncertainty or volatility in the capital and credit markets may limit our access to capital required to operate our business. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue shorter term securities than we prefer, utilize available internal resources or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility and liquidity.

We may experience difficulty in integrating acquisitions to our operations.

The successful integration of any newly acquired businesses into our operations will require, among other things:

• the timely receipt of any required regulatory approvals;

• the retention and assimilation of their key management, sales and other personnel;

• the coordination of their lines of insurance products and services;

• the adaptation of their technology, information systems and other processes; and

• the retention and transition of their customers.

Unexpected difficulties in integrating any acquisition could result in increased expenses and the diversion of management time and resources. If we do not successfully integrate any acquired business into our operations, we may not realize the anticipated benefits of the acquisition, which could have a material adverse impact on our financial condition and results of operations. Further, any potential acquisitions may require significant capital outlays and, if we issue equity or convertible debt securities to pay for an acquisition, the issuance may be dilutive to our existing shareholders.

The exclusions and limitations in our policies may not be enforceable.

Many of the policies we issue include exclusions and other conditions that define and limit coverage, which exclusions and conditions are designed to manage our exposure to certain types of risks and expanding theories of legal liability. In addition, many of our policies limit the period during which a policyholder may bring a claim under the policy, which period in many cases is shorter than the statutory period under which these claims can be brought by our policyholders. While these exclusions and limitations help us assess and control our loss exposure, it is possible that a court or regulatory authority could nullify or void an exclusion or limitation, or legislation could be enacted which modifies or bars the use of these exclusions and limitations. This could result in higher than anticipated losses by extending coverage beyond the intent of our underwriting. In some instances, these changes may not become apparent until sometime after we have issued the insurance policies that are affected by these changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a policy is issued.

25

Our internal controls are not fail-safe.

As a result of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control objectives have been or will be met, and that every instance of error or fraud has been or will be detected. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake.

The determination of the amount of allowances and impairments taken on our investments requires estimates and assumptions which are subject to differing interpretations and could materially impact our results of operations or financial position.

The determination of the amount of allowances and impairments vary by investment type and is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. There can be no assurance that our management has accurately assessed the level of impairments taken and allowances reflected in our financial statements. Furthermore, additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.

Additionally, our management considers a wide range of factors about the instrument issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the instrument and in assessing the prospects for recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential.

Risks Relating to Our Common Stock

The ability of our subsidiaries to pay dividends may affect our liquidity and ability to meet our obligations.

As a holding company, we have no significant independent operations of our own. Our principal source of funds are dividends and other payments received from our subsidiaries. We rely on those dividends for our liquidity and to meet our obligations to pay dividends to shareholders and make share repurchases. Dividends from those subsidiaries depend on their statutory surplus, earnings and regulatory restrictions.

State insurance laws limit the ability of insurance subsidiaries to pay dividends and require our insurance subsidiaries to maintain specified minimum levels of statutory capital and surplus. The actual ability to pay dividends may further be constrained by business and regulatory considerations, such as the impact of dividends on surplus, by our competitive position and by the amount of premiums that we can write. Ordinary dividend payments, or dividends that do not require prior approval by the insurance subsidiaries’ domiciliary state insurance regulator are generally limited to amounts determined by a formula which varies by jurisdiction. Extraordinary dividends on the other hand require prior regulatory approval by the insurance subsidiaries’ domiciliary state insurance regulator before they can be made.

In addition, competitive pressures generally require insurance companies to maintain insurance financial strength ratings. These restrictions and other regulatory requirements affect the ability of our insurance subsidiaries to make dividend payments to us. At times we may not be able to pay dividends on our common stock, or we may be required to seek prior approval from the applicable regulatory authority before we can pay any such dividends. In addition, the payment of dividends by us is within the discretion of our Board of Directors and will depend on numerous factors, including our financial condition, our capital requirements and other factors that our Board of Directors considers relevant.

The price of our common stock may be volatile.

The trading price of our common stock may fluctuate substantially due to a variety of factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and

26

could cause a loss in the amount invested in our shares of common stock. Factors that could cause fluctuations include, but are not limited to, the following:

• variations in our actual or anticipated operating results or changes in the expectations of financial market analysts with respect to our results;

• investor perceptions of the insurance industry in general and the Company in particular;

• market conditions in the insurance industry and any significant volatility in the market;

• major catastrophic events; and

• departure of key personnel.

Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management, prevent the sale of the Company or prevent or frustrate any attempt by shareholders to change the direction of the Company, each of which could diminish the value of our common stock.

Our articles of incorporation and bylaws, as well as applicable laws governing corporations and insurance companies, contain provisions that could impede an attempt to replace or remove our management or prevent the sale of the Company that, in either case, shareholders might consider being in their best interests. For example:

• our Board of Directors is divided into three classes. At any annual meeting of our shareholders, our shareholders have the right to appoint approximately one-third of the directors on our Board of Directors. Consequently, it will take at least two annual shareholder meetings to effect a change in control of our Board of Directors;

• our articles of incorporation limit the rights of shareholders to call special shareholder meetings;

• our articles of incorporation set the minimum number of directors constituting the entire Board of Directors at nine and the maximum at 15, and they require approval of holders of 60.0 percent of all outstanding shares to amend these provisions. Within the range, the Board of Directors may increase by one each year the number of directors serving on the Board of Directors;

• our articles of incorporation require the affirmative vote of 60.0 percent of all outstanding shares to approve any plan of merger, consolidation, or sale or exchange of all, or substantially all, of our assets;

• our Board of Directors may fill vacancies on the Board of Directors;

• our Board of Directors has the authority, without further approval of our shareholders, to issue shares of preferred stock having such rights, preferences and privileges as the Board of Directors may determine;

• Section 490.1110 of the Iowa Business Corporation Act imposes restrictions on mergers and other business combinations between us and any holder of 10.0 percent or more of our common stock; and

• Section 490.624A of the Iowa Business Corporation Act authorizes the terms and conditions of stock rights or options issued by us to include restrictions or conditions that preclude or limit the exercise, transfer, or receipt of such rights or options by a person, or group of persons, owning or offering to acquire a specified number or percentage of the outstanding common shares or other securities of the corporation.

Further, the insurance laws of Iowa and the states in which our insurance company subsidiaries are domiciled prohibit any person from acquiring direct or indirect control of us or our insurance company subsidiaries, generally

27

defined as owning or having the power to vote 10.0 percent or more of our outstanding voting stock, without the prior written approval of state regulators.

These provisions of our articles of incorporation and bylaws, and these state laws governing corporations and insurance companies, may discourage potential acquisition proposals. These provisions and state laws may also delay, deter or prevent a change of control of the Company, in particular through unsolicited transactions that some or all of our shareholders might consider to be desirable. As a result, efforts by our shareholders to change the direction or the Company’s management may be unsuccessful, and the existence of such provisions may adversely affect market prices for our common stock if they are viewed as discouraging takeover attempts.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own six buildings and related parking facilities in Cedar Rapids, Iowa. Three buildings are used as our corporate headquarters, and three buildings are available to commercial tenants as leased office space. Our corporate headquarters includes: a five-story office building, a two-story office building and an eight-story office building in which a portion of the first floor (approximately 6.0 percent of the building’s square footage) is leased to tenants. In December 2013, we acquired a three-building commercial real estate complex immediately adjacent to our corporate headquarters. This complex includes a three-story office building, a ten-story office building and a one-story office building which are available for lease to commercial tenants (approximately 41.0 percent of the complex’s square footage is leased). All six buildings are connected by a skywalk system. We also own a 250-space parking ramp for use by our employees. The parking ramp is located adjacent to our corporate headquarters upon one parcel of real estate that we own and another parcel that we lease with an option to purchase.

In addition, three of our regional office locations in Lock Haven, Pennsylvania, Pennington, New Jersey, and Rocklin, California, conduct operations in office space that we own. A portion of the Lock Haven (approximately 18.0 percent) and Pennington (approximately 5.0 percent) office space is currently leased to commercial tenants. We also own a tract of land adjacent to the Pennington office.

Our other two regional office locations in Westminster, Colorado, and Webster, Texas, and our claims office in Metairie, Louisiana, conduct operations in leased office space.

The following table shows a brief description of our owned and leased office space as of December 31, 2013. We believe our current facilities are adequate to meet our needs with additional space available for future expansion, if necessary, at each of our owned and leased facilities:

28

Location	Utilized by	Owned or Leased	Lease Expiration Date
Corporate Headquarters – Cedar Rapids, Iowa
118 Second Avenue SE	Corporate Administration, Property and Casualty Segment	Owned	N/A
119 Second Avenue SE	Corporate Administration, Life Insurance Segment	Owned	N/A
109 Second Street SE	Property and Casualty Segment	Owned	N/A
Commercial Office Complex – Cedar Rapids, Iowa
101 Second Street SE	Commercial Tenants	Owned	N/A
107 Second Street SE	Commercial Tenants	Owned	N/A
119 First Avenue SE	Currently Unoccupied	Owned	N/A
Denver Regional Office – Westminster, Colorado	Property and Casualty Segment	Leased	June 30, 2015
East Coast Regional Office –
Lock Haven Office – Lock Haven, Pennsylvania	Property and Casualty Segment	Owned	N/A
Pennington Office – Pennington, New Jersey	Property and Casualty Segment	Owned	N/A
Gulf Coast Regional Office – Galveston, Texas	Property and Casualty Segment	Leased	November 30, 2014
Gulf Coast Regional Office – Webster, Texas (1)	Property and Casualty Segment	Leased	January 15, 2021
New Orleans Claims Office – Metairie, Louisiana	Property and Casualty Segment	Leased	September 30, 2015
West Coast Regional Office – Rocklin, California	Property and Casualty Segment	Owned	N/A

(1) Our Gulf Coast Regional office relocated from Galveston, Texas to Webster, Texas in January 2014.

ITEM 3. LEGAL PROCEEDINGS

We are not party to any material legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

29

PART II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Shareholders

United Fire Group, Inc.’s common stock is traded on NASDAQ under the symbol “UFCS.” On February 27, 2014, there were 844 holders of record of United Fire Group, Inc. common stock. The number of record holders does not reflect shareholders who beneficially own common stock in nominee or street name, but does include participants in our employee stock purchase plan.

See Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Shareholders Matters” of this Form 10-K, which incorporates by reference our definitive Proxy Statement (the “2014 Proxy Statement”) for our annual meeting of shareholders to be held on May 21, 2014. The 2014 Proxy Statement will be filed with the SEC within 120 days after the end of our 2013 fiscal year and is incorporated herein by reference.

Dividends

Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

As a holding company with no independent operations of its own, United Fire Group, Inc. relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2013, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $53.7 million in dividend payments without prior regulatory approval.

The table in the following section shows the quarterly cash dividends declared in 2013 and 2012. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.

Additional information about these restrictions is incorporated by reference from Note 6 “Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

30

Market Information

The following table sets forth the high and low trading price as reported on NASDAQ for our common stock for the calendar periods indicated. These quotations reflect interdealer prices without retail markups, markdowns, or commissions and may not necessarily represent actual transactions.

	Share Price				Cash Dividends Declared
	High		Low
2013
Quarter Ended:
March 31	$	28.07	$	22.11	$	0.15
June 30	29.59		23.75		0.18
September 30	32.94		24.90		0.18
December 31	34.21		27.00		0.18
Year-end close: $28.66
2012
Quarter Ended:
March 31	$	21.16	$	17.88	$	0.15
June 30	22.31		15.90		0.15
September 30	26.07		18.55		0.15
December 31	26.33		18.49		0.15
Year-end close: $21.84

Issuer Purchases of Equity Securities

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

31

The following table provides information with respect to purchases of shares of common stock made by or on our behalf or by any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the year ended December 31, 2013:

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may be Purchased Under the Plans or Programs
1/1/13 - 1/31/13	—	$	—	—	1,129,720
2/1/13 - 2/28/13	—	—		—	1,129,720
3/1/13 - 3/31/13	—	—		—	1,129,720
4/1/13 - 4/30/13	—	—		—	1,129,720
5/1/13 - 5/31/13	3,577	27.56		3,577	1,126,143
6/1/13 - 6/30/13	—	—		—	1,126,143
7/1/13 - 7/31/13	—	—		—	1,126,143
8/1/13 - 8/31/13	—	—		—	1,126,143
9/1/13 - 9/30/13	—	—		—	1,126,143
10/1/13 - 10/31/13	—	—		—	1,126,143
11/1/13 - 11/30/13	—	—		—	1,126,143
12/1/13 - 12/31/13	56,026	27.58		56,026	1,070,117
Total	59,603			59,603

(1) Our share repurchase program was originally announced in August 2007. During 2012, our Board of Directors authorized us to purchase up to an additional 1,000,000 shares of common stock through August 2014.

United Fire Group, Inc. Common Stock Performance Graph

The following graph compares the performance of an investment in United Fire Group Inc.’s common stock from December 31, 2008 through December 31, 2013, with the Standard & Poor’s 500 Index (“S&P 500 Index”), and the Standard & Poor’s 600 Property and Casualty Index (“S&P 600 Property & Casualty Index”). The graph assumes $100 was invested on December 31, 2008, in our common stock and each of the below listed indices and that all dividends were reinvested on the date of payment without payment of any commissions. Dollar amounts in the graph are rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

32

The following table shows the data used in the Total Return performance graph above.

	Period Ended
Index	12/31/08		12/31/09		12/31/10		12/31/11		12/31/12		12/31/13
United Fire Group, Inc.	$	100.00	$	60.65	$	76.47	$	71.35	$	79.40	$	106.81
S&P 500 Index	100.00		126.46		145.51		148.59		172.37		228.19
S&P 600 P&C Index	100.00		86.22		105.13		115.00		124.57		158.77

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data derived from the Consolidated Financial Statements of United Fire Group, Inc. and its subsidiaries and affiliates. The data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data.”

33

(In Thousands, Except Per Share Data)
Years Ended December 31	2013			2012			2011			2010			2009
Consolidated Balance Sheet Data:
Total cash and investments	$	3,142,330		$	3,151,829		$	3,052,535		$	2,662,955		$	2,542,693
Total assets	3,720,672			3,694,653			3,618,924			3,007,439			2,902,544
Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance	960,651			971,911			945,051			603,090			606,045
Life insurance	1,472,132			1,498,176			1,476,281			1,389,331			1,321,600
Unearned premiums	340,464			311,650			288,991			200,341			206,010
Total liabilities	2,937,839			2,965,476			2,922,783			2,291,015			2,229,809
Net unrealized investment gains, after tax	116,601			144,096			124,376			102,649			82,491
Repurchase of United Fire Group, Inc. common stock	(1,644		)	(7,301		)	(12,433		)	(6,280		)	(1,545		)
Total stockholders’ equity	782,833			729,177			696,141			716,424			672,735
Book value per share	30.87			28.90			27.29			27.35			25.35
Consolidated Income Statement Data:
Revenues
Net premiums written	$	783,463		$	720,881		$	604,867		$	463,892		$	467,427
Net premiums earned	754,846			694,994			586,783			469,473			478,498
Investment income, net of investment expenses	112,799			111,905			109,494			111,685			106,075
Net realized investment gains (losses)	8,695			5,453			6,440			8,489			(13,179		)
Other income	702			891			2,291			1,425			799
Consolidated revenues	$	877,042		$	813,243		$	705,008		$	591,072		$	572,193
Losses and loss settlement expenses
Property and casualty insurance	437,354			439,137			407,831			289,437			365,721
Life insurance	21,461			20,569			22,558			20,359			16,773
Amortization of deferred policy acquisition costs (1)	153,677			141,834			153,176			113,371			114,893
Other underwriting expenses (1)	89,861			81,125			58,757			39,321			39,298
Net income (loss)	76,140			40,212			11			47,513			(10,441		)
Property and Casualty Insurance Segment Data:
Net premiums written	722,821			655,331			551,923			414,908			424,827
Net premiums earned	694,192			629,411			533,771			420,373			435,677
Net income (loss)	67,456			33,512			(7,639		)	34,726			(17,677		)
Combined ratio(2)	94.8		%	101.2		%	112.1		%	99.9		%	115.2		%
Life Insurance Segment Data:
Net premiums earned	60,654			65,583			53,012			49,100			42,821
Net income	8,684			6,700			7,650			12,787			7,236
Earnings Per Share Data:
Basic earnings (loss) per common share	3.01			1.58			—			1.81			(0.39		)
Diluted earnings (loss) per common share	2.98			1.58			—			1.80			(0.39		)
Other Supplemental Data:
Cash dividends declared per common share	0.69			0.60			0.60			0.60			0.60

(1) In 2012, we adopted new deferred policy acquisition cost accounting guidance on a prospective basis. As a result of the adoption, the amount of underwriting expenses eligible for deferral has decreased. For further information on the impact of adopting the new accounting guidance, please refer to Part II, Item 8, Note 1.

(2) 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.

34

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis should be read in conjunction with Part II, Item 6, “Selected Financial Data” and Part II, Item 8, “Financial Statements and Supplementary Data.” Amounts (except per share amounts) are presented in thousands, unless otherwise noted.

FORWARD-LOOKING STATEMENTS

It is important to note that our actual results could differ materially from those projected in forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in “Forward-Looking Information” and Part I, Item 1A, “Risk Factors” of this report.

BUSINESS OVERVIEW

Originally founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. (“United Fire”, the “Registrant”, the “Company”, “we”, “us”, “our”) and its consolidated insurance company subsidiaries provide insurance protection for individuals and businesses through several regional companies. Our property and casualty insurance company subsidiaries are licensed in 43 states plus the District of Columbia and are represented by approximately 1,200 independent agencies. Our life insurance subsidiary is licensed in 37 states and is represented by approximately 1,000 independent agencies.

Segments

We operate two business segments that are comprised of a wide range of products:

• property and casualty insurance, which includes commercial insurance, personal insurance, surety bonds and assumed reinsurance; and

• life insurance, which includes deferred and immediate annuities, universal life products and traditional life (primarily single premium whole life insurance) products.

We manage these business segments separately, as they generally do not share the same customer base, and they each have different products, pricing, and expense structures.

For 2013, property and casualty business accounted for approximately 92.0 percent of our net premiums earned, of which 90.5 percent was generated from commercial insurance. Life insurance business made up approximately 8.0 percent of our net premiums earned, of which over 67.7 percent was generated from traditional life insurance products.

Pooling Arrangement

All of our property and casualty insurance subsidiaries, with the exception of Texas General Indemnity Company, and our affiliate are members of an intercompany reinsurance pooling arrangement. Pooling arrangements permit 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 2013, approximately 50.0 percent of our property and casualty direct written premiums were written in Texas, Iowa, California, New Jersey, and Missouri; approximately 75.0 percent of our life insurance premiums were written in Iowa, Illinois, Minnesota, Wisconsin and Nebraska.

35

Sources of Revenue and Expense

We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of Management’s Discussion and Analysis is reported on a pre-tax basis. Additional segment information is presented in Part II, Item 8, Note 10 “Segment Information” to the Consolidated Financial Statements.

Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, future policy benefits, underwriting and other operating expenses and interest on policyholders’ accounts.

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 and effective and efficient use of technology.

MEASUREMENT OF RESULTS

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

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

Catastrophe losses is a commonly used non-GAAP financial measure, which utilizes the designations of the Insurance Services Office (ISO) and are reported with loss 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 catastrophic losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance segment, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in our periodic earnings.

	Years Ended December 31,
(In Thousands)	2013		2012		2011
ISO catastrophes	$	27,222	$	58,875	$	57,238
Non-ISO catastrophes (1)	2,994		5,847		23,555
Total catastrophes	$	30,216	$	64,722	$	80,793

(1) Includes international assumed losses.

36

CONSOLIDATED FINANCIAL HIGHLIGHTS

	Years Ended December 31,									% Change
										2013		2012
(In Thousands)	2013			2012			2011(1)			vs. 2012		vs. 2011
Revenues
Net premiums earned	$	754,846		$	694,994		$	586,783		8.6	%	18.4	%
Investment income, net of investment expenses	112,799			111,905			109,494			0.8		2.2
Net realized investment gains (losses)
Other-than-temporary impairment charges	(139		)	(4		)	(395		)	NM		99.0
All other net realized gains	8,834			5,457			6,835			61.9		(20.2	)
Total net realized investment gains	8,695			5,453			6,440			59.5		(15.3	)
Other income	702			891			2,291			(21.2	)	(61.1	)
Total revenues	$	877,042		$	813,243		$	705,008		7.8	%	15.4	%
Benefits, losses and expenses
Losses and loss settlement expenses	$	458,814		$	459,706		$	430,389		(0.2	)%	6.8	%
Increase in liability for future policy benefits	37,625			43,095			32,567			(12.7	)	32.3
Amortization of deferred policy acquisition costs	153,677			141,834			153,176			8.3		(7.4	)
Other underwriting expenses	89,861			81,125			58,757			10.8		38.1
Interest on policyholders’ accounts	35,163			41,409			42,834			(15.1	)	(3.3	)
Total benefits, losses and expenses	$	775,140		$	767,169		$	717,723		1.0	%	6.9	%
Income (loss) before income taxes	$	101,902		$	46,074		$	(12,715	)	121.2	%	NM
Federal income tax expense (benefit)	25,762			5,862			(12,726		)	NM		146.1	%
Net income	$	76,140		$	40,212		$	11		89.3	%	NM

NM = not meaningful

(1) The information presented for 2011 and after includes Mercer Insurance Group’s results after the March 28, 2011 acquisition date.

Consolidated Results of Operations

During 2013, the increase in net income was driven by growth in property and casualty premium revenue and a reduction in the combined ratio. Net premiums earned increased to $754.8 million compared to $695.0 million in 2012. This increase represents organic growth and is the result of a combination of rate increases across most commercial and personal lines and new business writings. The reduction in the combined ratio resulted from lower catastrophe losses.

In 2013, we continued to expand the geographical footprint of our life insurance subsidiary by receiving approval to operate in Nevada, after receiving approval in 2012 to operate in California, Maryland and Delaware and approval in 2011 to operate in New Jersey, North Carolina, Pennsylvania, Virginia and West Virginia, further leveraging the Mercer Insurance Group acquisition. Our life management team continues to improve service to our agents by increasing marketing support and automating life product processes.

During 2012 the increase in net income was driven by growth in property and casualty premium revenue and a reduction in the combined ratio. The reduction in the combined ratio resulted from lower catastrophe losses as well as improvement in non-catastrophe loss experience. In addition, the combined ratio improved due to an improvement in the expense ratio.

Net premiums earned increased to $695.0 million, compared to $586.8 million for the same period of 2011 due in part to the acquisition of Mercer Insurance Group in March 2011, which accounted for $34.9 million of additional earned premium. Our organic growth was $73.3 million over the same period of 2011.

37

Effective January 1, 2012, we prospectively adopted the change in accounting guidance that limits the amount of underwriting expenses eligible for deferral. The adoption of the updated accounting guidance resulted in the recognition of approximately $10.3 million ($8.7 million for our property and casualty insurance segment; $1.6 million for our life insurance segment) of additional expense during 2012 that we would not have recognized had the accounting guidance remained unchanged. This represents a reduction to net income of $0.26 per share. Refer to the “Deferred Policy Acquisition Costs” section of Part II, Item 8, Note 1 “Summary of Significant Accounting Policies” for further discussion of the impact of the updated accounting guidance on our reported results.

The year 2011 will be remembered for its devastating catastrophes, both domestic and abroad. According to various reports, 2011 was the costliest catastrophe year on record for the property and casualty insurance industry globally. We experienced losses in our direct and assumed books of business that negatively impacted our full-year results. However, premium rates increased across all lines of business, and there were some positive signs in the overall economy. Additionally, we took steps to improve and strengthen our underwriting guidelines in response to our catastrophe experiences. Internal analyses of our catastrophe exposures, utilizing various approaches including the results of the updated RMS Model Version 11, supported the underwriting changes.

We also focused on our capital management strategy through our stock repurchase program and by entering into a new banking relationship with KeyBank National Association that established a $100.0 million syndicated line of credit, allowing us to reduce our cash position.

During 2011, we began the process of integrating Mercer Insurance Group into our operations. The integration of the West Coast business of Mercer Insurance Group’s policy renewals into our processing systems was completed in 2012. We began the integration of the East Coast policy renewals into our processing systems which are on schedule to be completed at the end of 2015. In addition, effective January 1, 2012, we consolidated Mercer Insurance Group’s core and catastrophe reinsurance programs into our programs, resulting in increased coverage and reduction in Mercer Insurance Group’s historical costs.

At a special meeting held on January 24, 2012, our shareholders approved our reorganization into a new holding company structure. United Fire Group, Inc. has replaced United Fire & Casualty Company as the publicly held corporation, and United Fire & Casualty Company is now a wholly owned subsidiary of United Fire Group, Inc. In addition to creating a more streamlined corporate structure, the new holding company’s organizational documents enhanced our shareholders’ rights by reducing the percentage of shareholders required to amend our Articles of Incorporation, approve the merger or sale of substantially all Company assets, and call a special meeting. This new structure will potentially provide us with more flexibility to operate and finance our businesses, particularly if we should need to raise capital in the future.

38

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

Property and Casualty Insurance Segment

	Years Ended December 31,									% Change
										2013		2012
(In Thousands)	2013			2012			2011(1)			vs. 2012		vs. 2011
Net premiums written	$	722,821		$	655,331		$	551,923		10.3	%	18.7	%
Net premiums earned	$	694,192		$	629,411		$	533,771		10.3		17.9
Losses and loss settlement expenses	(437,353		)	(439,137		)	(407,831		)	(0.4	)	7.7
Amortization of deferred policy acquisition costs	(147,175		)	(134,444		)	(143,952		)	9.5		(6.6	)
Other underwriting expenses	(73,626		)	(63,620		)	(46,404		)	15.7		37.1
Underwriting gain (loss)	$	36,038		$	(7,790	)	$	(64,416	)	NM		(87.9	)%
Investment income, net of investment expenses	46,332			41,879			35,513			10.6	%	17.9	%
Net realized investment gains (losses)
Other-than-temporary impairment charges	(139		)	—			—			—	%	—	%
All other net realized gains	6,400			1,676			3,081			281.9		(45.6	)
Total net realized investment gains	6,261			1,676			3,081			273.6	%	(45.6	)%
Other income	88			316			1,592			(72.2	)	(80.2	)%
Income (loss) before income taxes	$	88,719		$	36,081		$	(24,230	)	145.9	%	NM
GAAP Ratios:
Net loss ratio (without catastrophes)	58.6		%	59.5		%	61.3		%	(1.5	)%	(2.9	)%
Catastrophes - effect on net loss ratio	4.4			10.3			15.1			(57.3	)	(31.8	)
Net loss ratio(2)	63.0		%	69.8		%	76.4		%	(9.7	)%	(8.6	)%
Expense ratio (3)	31.8			31.4			35.7			1.3		(12.0	)
Combined ratio(4)	94.8		%	101.2		%	112.1		%	(6.3	)%	(9.7	)%
Statutory Ratios:
Net loss ratio (without catastrophes)	58.9		%	60.2		%	61.3		%	(2.2	)%	(1.8	)%
Catastrophes - effect on net loss ratio	4.4			10.3			15.1			(57.3	)	(31.8	)
Net loss ratio(2)	63.3		%	70.5		%	76.4		%	(10.2	)%	(7.7	)%
Expense ratio (3)	32.0			31.3			32.2			2.2		(2.8	)
Combined ratio(4)	95.3		%	101.8		%	108.6		%	(6.4	)%	(6.3	)%

NM = not meaningful

(1) The information presented for 2011 and after includes Mercer Insurance Group’s results after the March 28, 2011 acquisition date.

(2) The net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. We use the net loss ratio as a measure of the overall underwriting profitability of the insurance business we write and to assess the adequacy of our pricing. Our net loss ratio is meaningful in evaluating our financial results as reported in our Consolidated Financial Statements.

(3) The GAAP expense ratio is calculated by dividing nondeferred 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. The statutory expense ratio is calculated in a similar fashion as GAAP but uses net premium written instead of net premium earned.

(4) 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.

For the year ended December 31, 2013, our property and casualty insurance segment reported income before income taxes of $88.7 million compared to income before income taxes of $36.1 million in the same period in 2012. The increase in income before income taxes during 2013 as compared to 2012 is primarily a result of a 10.3 percent increase in net premiums earned and a decrease in catastrophe losses discussed in more detail throughout this section.

For the year ended December 31, 2012, our property and casualty insurance segment reported income before income taxes of $36.1 million compared to losses before income taxes of $24.2 million in the same period in 2011. The increase in income before income taxes during 2012 as compared to 2011 is primarily a result of a 17.9 percent

39

increase in net premiums earned, a decrease in catastrophe losses, and a decrease in amortization of deferred policy acquisition costs, partially offset by an increase in underwriting expenses, and an increase in loss and loss settlement expenses.

Amortization of deferred policy acquisition costs decreased during 2012 as compared to 2011 due to a change in accounting guidance that limits the amount of underwriting expenses eligible for deferral. We prospectively adopted the new accounting guidance effective January 1, 2012. As a result, the amount of underwriting expenses eligible for deferral has decreased, which resulted in the recognition of $8.7 million of additional expense in 2012 in our property and casualty insurance segment than would have been recognized had the guidance remained the same.

Premiums

The following table shows our premiums written and earned for 2013, 2012 and 2011:

										% Change
(In Thousands)										2013		2012
Years ended December 31,	2013			2012			2011 (1)			vs. 2012		vs. 2011
Direct premiums written	$	754,594		$	682,390		$	580,890		10.6	%	17.5	%
Assumed premiums written	18,938			17,181			14,954			10.2		14.9
Ceded premiums written	(50,711		)	(44,240		)	(43,921		)	14.6		0.7
Net premiums written	$	722,821		$	655,331		$	551,923		10.3	%	18.7	%
Net premiums earned	694,192			629,411			533,771			10.3		17.9

(1) The information presented for 2011 and after includes Mercer Insurance Group’s results after the March 28, 2011 acquisition date.

Net Premiums Written

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

Direct Premiums Written

Direct premiums written increased $72.2 million in 2013 as compared to 2012 primarily due to organic growth and is the result of a combination of rate increases across most commercial and personal lines and new business writings.

Direct premiums written increased $101.5 million in 2012 as compared to 2011, of which $37.2 million resulted from our acquisition of Mercer Insurance Group. The remaining $64.3 million is due to organic growth, primarily the result of rate increases and an increase in audit premiums.

Assumed Premiums Written

Assumed premiums written increased $1.8 million in 2013 as compared to 2012 due to pricing increases in recent years, the addition of two new assumed programs and the renewal of our participation levels in all but one of our active assumed programs. We added two new programs to replace the lost premium from the program not renewed and to take advantage of areas where we had exposure capacity.  One of the new programs has worldwide exposure and the other has exposure in the United Kingdom and Japan. 

Assumed premiums written increased $2.2 million in 2012 as compared to 2011 due to pricing increases in recent years and our renewal of our participation levels in all of our active assumed programs, with the exception of one contract for which we decreased our participation level after a review of the results of our catastrophe experience.

40

Ceded Premiums Written

Direct and assumed premiums written are reduced by the ceded premiums that we pay to reinsurers. For 2013, ceded premiums written increased slightly compared to 2012 due to premium rate increases.

We consolidated Mercer Insurance Group’s non-catastrophe reinsurance programs into our programs, effective August 1, 2011 and their catastrophe reinsurance program into our programs, effective January 1, 2012, resulting in increased coverage and retentions for Mercer Insurance Group. The change in programs increased Mercer Insurance Group’s catastrophe protection from $55.0 million to $200.0 million and increased their catastrophe retention from $5.0 million to $20.0 million. Mercer Insurance Group’s non-catastrophe retention was increased from $1.0 million to $2.0 million and the surety retention was increased from $0.5 million to $1.5 million. We had no other significant changes to coverage, limits, or retentions for our catastrophe or non-catastrophe programs.

Losses and Loss Settlement Expenses

Catastrophe Exposures

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

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

A new version of a third-party catastrophe modeling tool that we and others in the insurance industry utilize for estimating potential losses from natural catastrophes was released in 2011. Overall, the model increased risk estimates for our exposure to hurricanes in the United States, but the impact of the new model on our book of business varies significantly among the regions that we model for hurricanes. Based on our analysis, and the indications of other catastrophe models, we have begun to implement more targeted underwriting and rate initiatives in some regions. We will continue to take underwriting actions and/or purchase additional reinsurance as necessary to reduce our exposure.

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

Despite our efforts to manage our catastrophe exposure, the occurrence of one or more severe natural catastrophic events in heavily populated areas could have a material effect on our results of operations, financial condition or liquidity.

41

The process of estimating and establishing reserves for losses incurred from catastrophic events is inherently uncertain and the actual ultimate cost of a claim, net of reinsurance recoveries, may vary materially from the estimated amount reserved. Although we reinsure a portion of our exposure, reinsurance may prove to be inadequate if a major catastrophic event exceeds our reinsurance limits or if we experience a number of small catastrophic events that individually fall below our reinsurance retention level.

Catastrophes Losses

In 2013, our pre-tax catastrophe losses were $30.2 million, a significant decrease as compared to $64.7 million and $80.8 million in 2012 and 2011, respectively. Our 2013 losses included 29 catastrophes, where our largest single pre-tax catastrophe loss totaled $4.0 million.

Our 2012 losses included Super Storm Sandy, which occurred in October 2012, which represented $25.0 million ($20.0 million direct and $5.0 million assumed) of incurred losses and 26 other catastrophes, where our largest single pre-tax catastrophe loss totaled $12.3 million.

Our 2011 losses were the result of several large natural disasters in both our direct business and assumed reinsurance business. The losses in our direct business totaled $59.7 million and resulted from a string of devastating tornadoes that tore through the southern United States in April 2011, followed by storms that included a multiple-vortex tornado that destroyed Joplin, Missouri in May 2011. In July 2011, a powerful, long-lasting straightline windstorm known as a derecho hit Iowa, and in August 2011, Hurricane Irene impacted our East Coast policyholders. Our assumed reinsurance business contributed $21.1 million of catastrophe losses from prior year development and current year losses as a result of natural disasters (i.e., earthquakes and tsunamis) in New Zealand and Japan.

Catastrophe Reinsurance

In 2013 and 2012, we did not exceed our catastrophe retention of $20.0 million. In 2011, only Mercer Insurance Group exceeded its $5.0 million catastrophe retention due to losses incurred from Hurricane Irene. Effective January 1, 2012, Mercer Insurance Group is included in our catastrophe reinsurance program.

Our planned exposure reduction in southern Louisiana that began after Hurricane Katrina was completed in 2011 and reduced our estimated 100-year maximum probable loss by over 60.0 percent. To maintain profitability of our remaining southern Louisiana business, we employed portfolio optimizing techniques (i.e., proximity to the coast, type of construction, the reduction of geographic risk concentration and higher deductibles) to reduce the impact of any one future catastrophe.

In 2011, we developed earthquake underwriting guidelines to significantly decrease our earthquake exposure in the New Madrid fault area of the Midwest. The guidelines were implemented with most agencies in the New Madrid fault area in July 2011. The reduction in exposure has occurred through business being non-renewed, moved by the agent, the use of sublimits rather than using full earthquake limits, and a waiver signed by the insured rejecting earthquake coverage.

We use many reinsurers, both domestic and foreign, which helps us to avoid concentrations of credit risk associated with our reinsurance. All reinsurers we do business with must meet the following minimum criteria: capital and surplus of at least $250.0 million and an A.M. Best rating or an S&P rating of at least “A-.” If a reinsurer is rated by both rating agencies, then both ratings must be at least an “A-.”

42

The following table represents the primary reinsurers we utilize and their financial strength ratings as of December 31, 2013:

Name of Reinsurer	A.M. Best	S&P Rating
Arch Reinsurance Company	A+	A+
FM Global	A+	N/A
Hannover Rueckversicherung AG (1) (2)	A+	AA-
Lloyd’s	A	A+
Partner Re	A+	A+
QBE Reinsurance Corporation (1)	A	A+
R&V Versicherung AG (2)	N/A	AA-
SCOR Reinsurance Company	A	A+
Tokio Millennium Re Ltd	A++	AA-

(1) Primary reinsurers participating on the property and casualty excess of loss programs.

(2) Primary reinsurers participating on the surety excess of loss program.

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

Terrorism Coverage

The Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) was signed into law on December 27, 2007. TRIPRA coverage includes most direct commercial lines of business, including coverage for losses from nuclear, biological and chemical exposures if coverage was afforded by an insurer, with exclusions for commercial automobile insurance, burglary and theft insurance, surety, professional liability insurance and farm owners multiple peril insurance. Under TRIPRA, each insurer has a deductible amount, which is 20.0 percent of the prior year’s direct commercial lines earned premiums for the applicable lines of business, and retention of 15.0 percent above the deductible. No insurer that has met its deductible shall be liable for the payment of any portion of that amount that exceeds the annual $100.0 billion aggregate loss cap specified in TRIPRA. TRIPRA provides marketplace stability. As a result, coverage for terrorist events in both the insurance and reinsurance markets is often available. The amount of aggregate losses necessary for an act of terrorism to be certified by the U.S. Secretary of Treasury, the Secretary of State and the Attorney General was $100.0 million for 2013 and remains the same for 2014. Our TRIPRA deductible was $82.1 million for 2013 and our TRIPRA deductible will be $89.5 million for 2014. Our catastrophe and non-catastrophe reinsurance programs provide limited coverage for terrorism exposure excluding nuclear, biological and chemical-related claims.

2013 Results

In 2013, our loss and loss settlement expenses were affected by a reduction of $34.5 million in catastrophe losses in both our direct business and assumed reinsurance business as compared to 2012, and also, to a lesser extent, by an improvement in our non-catastrophe results.

2012 Results

In 2012, our loss and loss settlement expenses were affected by catastrophe losses of $64.7 million in both our direct business and assumed reinsurance business as compared to $80.8 million in 2012. Our non-catastrophe results also improved, which is reflected in our favorable development of reserves established for claims that occurred in prior years of $73.4 million.

We experienced favorable reserve development in all lines of business with the exception of assumed reinsurance which adversely developed as a result of additional reported losses of $4.6 million on 2011 catastrophe activity, and direct commercial multi-peril, which experienced a slight deficiency. Other liability and products liability had a reduction in legal expenses as a result of an initiative we implemented in 2009, and an overall improvement in our underwriting results.

43

2011 Results

In 2011, our loss and loss settlement expenses were affected by significant catastrophe activity in both our direct business and assumed reinsurance business. However, our non-catastrophe results improved, which is reflected in our favorable development of reserves established for claims that occurred in prior years of $61.1 million, which included $6.5 million in adverse development from Hurricane Katrina as a result of our continuing resolution of outstanding claims litigation.

We experienced favorable reserve development in all lines of business with the exception of assumed reinsurance which adversely developed as a result of additional reported losses of $4.6 million on 2010 catastrophe activity, and direct commercial multi-peril, which experienced a slight deficiency. Our other liability and products liability lines had significant decreases in losses as a result of a lower level of required reserves for IBNR losses in 2011, a reduction in our legal expenses as a result of an initiative we implemented in 2009, and an overall improvement in our underwriting results.

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.

2013 Development

The property and casualty insurance segment experienced $57.5 million of favorable development in our net reserves for prior accident years for the year ended December 31, 2013. The favorable reserve development on prior year reserves was primarily related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability. The significant driver of the favorable reserve development in 2013 was the other liability line which contributed $33.5 million of the total, primarily due to additional recognition of relatively recent changes in reserve development patterns which have shown increased redundancies in reserves for reported claims along with relatively less need for IBNR claim reserves. Also, contributing to the favorable development in 2013, only to a lesser extent than the other liability line of business, were workers’ compensation, commercial auto liability and surety lines of business, which contributed $7.5 million, $6.3 million and $4.7 million, respectively, to the favorable reserve development.

44

2012 Development

In 2012 we experienced favorable reserve development of $73.4 million for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2012 was the other liability line which contributed $53.9 million of the total. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we observed a continuation of a trend, started in 2011, reducing the overall number of reported new construction defect claims and lower than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2012, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes of $8.4 million, with $3.9 million coming from accident year 2011 (Japan earthquake and tsunami, Thailand flood, and Christchurch, New Zealand earthquake) and $4.7 million from accident year 2010 (Canterbury, New Zealand earthquake).

2011 Development

In 2011, we experienced favorable reserve development of $61.1 million for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2011 was the other liability line which contributed $49.0 million of the total. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed an overall reduction in reported new construction defect claims and less than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Our commercial automobile liability line developed favorably in 2011 and contributed $10.9 million of the total. The favorable reserve development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed a lower level of latent claim development.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2011, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes of $10.6 million, with accident year 2010 (Canterbury, New Zealand earthquake) increasing by $11.6 million.

Reserve development amounts can vary significantly from year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business.

45

Net Loss Ratios by Line

The following table depicts our net loss ratio for 2013, 2012 and 2011:

Years ended December 31,	2013							2012							2011(1)
(In Thousands)	Net Premiums Earned		Net Losses and Loss Settlement Expenses Incurred			Net Loss Ratio		Net Premiums Earned		Net Losses and Loss Settlement Expenses Incurred			Net Loss Ratio		Net Premiums Earned		Net Losses and Loss Settlement Expenses Incurred			Net Loss Ratio
Commercial lines
Other liability	$	199,548	$	98,013		49.1	%	$	197,842	$	98,225		49.6	%	$	159,977	$	75,659		47.3	%
Fire and allied lines	165,081		95,158			57.6		131,975		110,429			83.7		117,812		123,418			104.8
Automobile	147,026		120,354			81.9		134,682		103,234			76.7		115,230		84,151			73.0
Workers’ compensation	81,616		73,179			89.7		68,643		52,017			75.8		54,404		47,153			86.7
Fidelity and surety	18,746		(2,201		)	(11.7	)	17,713		3,038			17.2		16,665		1,349			8.1
Other	1,861		126			6.8		991		265			26.7		854		(410		)	(48.0	)
Total commercial lines	$	613,878	$	384,629		62.7	%	$	551,846	$	367,208		66.5	%	$	464,942	$	331,320		71.3	%
Personal lines
Fire and allied lines	$	42,949	$	28,235		65.7	%	$	41,274	$	39,319		95.3	%	$	36,027	$	36,086		100.2	%
Automobile	22,185		16,872			76.1		20,890		15,372			73.6		18,744		15,542			82.9
Other	774		2,637			NM		928		(423		)	(45.6	)	797		97			12.2
Total personal lines	$	65,908	$	47,744		72.4	%	$	63,092	$	54,268		86.0	%	$	55,568	$	51,725		93.1	%
Reinsurance assumed	$	14,406	$	4,980		34.6	%	$	14,473	$	17,661		122.0	%	$	13,261	$	24,786		186.9	%
Total	$	694,192	$	437,353		63.0	%	$	629,411	$	439,137		69.8	%	$	533,771	$	407,831		76.4	%

NM=Not meaningful

(1) The information presented for 2011 and after includes Mercer Insurance Group’s results after the March 28, 2011 acquisition date.

46

Commercial Lines

The net loss ratio in our commercial lines of business, excluding assumed reinsurance, improved to 62.7 percent in 2013 from 66.5 percent in 2012 and 71.3 percent in 2011. The improvement in 2013 as compared to 2012 was primarily the result of an increase in net premiums earned and a reduction in catastrophe losses.

The improvement in 2012 as compared to 2011 was primarily the result of an increase in net premiums earned and a reduction in catastrophe losses.

Commercial Fire and Allied Lines

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

The improvement in the net loss ratio in 2013 as compared to 2012 was due to a combination of premium growth and a reduction in catastrophe losses. In 2013, net premiums earned in these lines increased 25.1 percent to $165.1 million as compared to 2012. The improvement in the net loss ratio in 2012 as compared to 2011, was due to an increase in premiums earned in these lines, which increased 12.0 percent to $132.0 million, primarily from an increase in renewal pricing. Also contributing to the improvement in 2012 was a decrease in catastrophe activity as compared to 2011.

Other Liability

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

In recent years, we began to use our loss control department more extensively in an attempt to return this line of business to a higher level of profitability. For example, our loss control department has representatives make multiple visits each year to businesses and job sites to ensure safety. We also non-renew accounts that no longer meet our underwriting or pricing guidelines. We avoid accounts that have become too underpriced for the risk.

Construction Defect Losses

Incurred losses from construction defect claims were $13.7 million in 2013 compared to $9.6 million and $11.1 million in 2012 and 2011, respectively. At December 31, 2013, we had $35.8 million in construction defect loss and loss settlement expense reserves (excluding IBNR reserves which is calculated at the overall other liability commercial line), which consisted of 2,102 claims. In comparison, at December 31, 2012, we had reserves of $34.0 million, excluding IBNR reserves, consisting of 1,839 claims.

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

We have exposure to construction defect liabilities in Colorado and surrounding states. We have historically insured small- to medium-sized contractors in this geographic area. In an effort to limit the number of future claims from multi-unit buildings, we implemented policy exclusions in 2009, later revised in 2010, that exclude liability coverage for contractors performing “residential structural” operations on any building project with more than 12 units or on single family homes in any subdivision where the contractor is working on more than 15 homes. The exclusions do not apply to remodeling or repair of an existing structure.  We also changed our underwriting

47

guidelines to add a professional liability exclusion when contractors prepare their own design work or blueprints and implemented the multi-family exclusion and tract home building limitation form for the state of Colorado and our other western states as a means to reduce our exposure in future years.  When offering commercial umbrella coverage for structural residential contractors, limits of liability are typically limited to a maximum of $2.0 million per occurrence.  Requests to provide additional insured status for “developers” are declined.

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

Other Liability Losses - Other Than Construction Defect

Within our other liability lines of business (other than construction defect), frequency as measured by claim counts indexed to net earned premium and average claim size, continued to decrease in 2013 as compared to 2012 and 2011, primarily due to better underwriting results.

Commercial Automobile

Our commercial automobile insurance covers physical damage to an insured’s vehicle, as well as liabilities to third parties. Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft, flood or other causes. Automobile liability insurance covers bodily injury, damage to property resulting from automobile accidents caused by the insured, uninsured or underinsured motorists and the legal costs of defending the insured against lawsuits. The deterioration in our commercial automobile insurance line in 2013 as compared to 2012 was the result of an increase in claim frequency.

Workers’ Compensation

We consider our workers’ compensation business to be a companion product; we rarely write stand-alone workers’ compensation policies. Our workers’ compensation insurance covers primarily small- to mid-size accounts.

The deterioration in our workers’ compensation line of business in 2013 was the result of an increase in claim frequency. The improvement in this line for 2012 was the result of a decrease in frequency. Generally changes in experience year-over-year in this line are considered normal fluctuations that typically occur in the workers’ compensation line of business.

The challenges faced by workers’ compensation insurance providers to attain profitability include the regulatory climates in some states that make it difficult to obtain appropriate premium rate increases and inflationary medical costs. Despite these pricing issues, we continue to believe that we can improve the results of this line of business. Consequently, we have increased the utilization of our loss control unit in the analysis of current risks, with the intent of increasing the quality of our workers’ compensation book of business. In 2011, we introduced predictive modeling analytics into our workers’ compensation underwriting process. We are currently using this model to assist us in risk selection, and we will continue to evaluate the model results.

Fidelity and Surety

Our surety products guarantee performance and payment by our bonded principals. Our contract bonds protect owners from failure to perform on the part of our principals. In addition, our surety bonds protect material suppliers and subcontractors from nonpayment by our contractors. When surety losses occur, our loss is determined by

48

estimating the cost to complete the remaining work and to pay the contractor’s unpaid bills, offset by contract funds due to the contractor, reinsurance, and the value of any collateral to which we may have access.

In 2013, our claims frequency decreased along with a release of IBNR reserves as a result of actual emergence of paid losses being less than expected. This resulted in the negative loss ratio in 2013.

In 2012, our claims frequency remained stable, yet we had an increase in our loss and loss settlement expenses, which is primarily the result of one large claim. In 2012, net premiums earned on the surety line increased by 6.3 percent to $17.7 million as compared to 2011. 

During 2013 and 2011, there were no claims that exceeded our $1.5 million reinsurance retention level. During 2012, there was one claim that exceeded our $1.5 million reinsurance retention level.

Personal Lines

Our personal lines consist primarily of fire and allied lines (including homeowners) and automobile lines. In 2013, catastrophe activity decreased resulting in a decrease in the net loss ratio as compared to 2012. Net premiums earned were up 4.5% as compared to 2012. Rate increases in the fire and allied lines are the primary driver of the increased premium while retention remained relatively unchanged.

While catastrophe activity remained elevated in 2012, primarily due to Super Storm Sandy, personal lines results improved as catastrophe losses decreased compared to 2011. Personal lines pricing remained consistent in 2012, with increases for homeowners’ line of business and personal auto line of business. Policy retention rates remained strong, up slightly during the year as compared to 2011.

We will continue pursuing opportunities to grow our personal lines business in the future. We have added within our CATography™ Underwriter tool the ability to determine whether the premium we charge for an exposure is adequate in areas where hurricanes and earthquakes occur. Some initiatives that we hope to implement include predictive analytics for the homeowners and automobile lines and data prefill, which is a data accessing methodology that allows for a more complete profile of our customers at the agent’s point of sale during the quotation process.

Assumed Reinsurance

Our assumed reinsurance is the business we choose to write by participating in programs insuring insurance companies. The net loss ratio in 2013 improvement was driven by the decrease in catastrophe losses. The net loss ratio in 2012 was impacted by catastrophe losses associated with Super Storm Sandy as well as the adverse reserve development from Thailand floods. The net loss ratio in 2011 was impacted by significant losses from natural disasters, including catastrophes in New Zealand and Japan.

In 2013, we renewed our participation in all but one of our assumed programs and added two new programs to our portfolio. Loss and loss settlement expenses assumed decreased in 2013 as compared to 2012 primarily due to a decrease in catastrophe losses. We added two new programs to replace the lost premium from the program not renewed and to take advantage of areas where we had exposure capacity.  One of the new programs has worldwide exposure and the other has exposure in the United Kingdom and Japan. 

In 2012, we renewed our participation in all of our assumed programs although with reduced participation in programs with heavier Northeast U.S. exposure, in response to the exposure added in this region from the Mercer Insurance Group acquisition. Loss and loss settlement expenses assumed were less than 2011 but still elevated from historic levels due to several natural disasters, primarily the Thailand floods and Super Storm Sandy.

In 2011, we renewed our participation in all of our assumed programs, while increasing the participation level on one contract, which generated the growth of our assumed premiums written and earned. Loss and loss settlement expenses increased significantly in 2011 due to several natural disasters, primarily in New Zealand and Japan, that impacted our assumed program.

49

Other Underwriting Expenses

Our underwriting expense ratio, which is a percentage of other underwriting expenses over net premiums earned, was 31.8 percent, 31.4 percent and 35.7 percent for 2013, 2012, and 2011, respectively. The increase in the underwriting expense ratio in 2013 was primarily driven by an increase in employee benefit costs and an increase in contingent commission expenses. In 2012, the decrease in the underwriting expense ratio was primarily due to expenses recorded in 2011 related to the Mercer Insurance Group acquisition, which was partially offset by the prospective adoption of new accounting guidance effective January 1, 2012 that limits the deferral of policy acquisition costs in 2012.

Life Insurance Segment Results

	Years Ended December 31,								% Change
									2013		2012
(In Thousands)	2013		2012			2011			vs. 2012		vs. 2011
Revenues
Net premiums earned	$	60,654	$	65,583		$	53,012		(7.5	)%	23.7	%
Investment income, net	66,467		70,026			73,981			(5.1	)%	(5.3	)%
Net realized investment gains (losses)
Other-than-temporary impairment charges	—		(4		)	(395		)	100.0	%	99.0	%
All other net realized gains	2,434		3,781			3,754			(35.6	)%	0.7	%
Net realized investment gains	2,434		3,777			3,359			(35.6	)%	12.4	%
Other income	614		575			699			6.8	%	(17.7	)%
Total revenues	$	130,169	$	139,961		$	131,051		(7.0	)%	6.8	%
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	21,461	$	20,569		$	22,558		4.3	%	(8.8	)%
Increase in liability for future policy benefits	37,625		43,095			32,567			(12.7	)%	32.3	%
Amortization of deferred policy acquisition costs	6,502		7,390			9,224			(12.0	)%	(19.9	)%
Other underwriting expenses	16,235		17,505			12,353			(7.3	)%	41.7	%
Interest on policyholders’ accounts	35,163		41,409			42,834			(15.1	)%	(3.3	)%
Total benefits, losses and expenses	$	116,986	$	129,968		$	119,536		(10.0	)%	8.7	%
Income before income taxes	$	13,183	$	9,993		$	11,515		31.9	%	(13.2	)%

United Life Insurance Company underwrites all of our life insurance business. Our principal life insurance products are deferred and immediate annuities, universal life products and traditional life (primarily single premium whole life insurance) products. We also underwrite and market other traditional products, including term life insurance and whole life insurance. Deferred and immediate annuities (65.6 percent), traditional life products (24.7 percent), universal life products (8.4 percent), and other life products (1.3 percent) comprised our 2013 life insurance premium revenues, as determined on the basis of statutory accounting principles. We do not write variable annuities or variable insurance products.

Income before income taxes for our life insurance segment totaled $13.2 million in 2013 compared to $10.0 million in 2012 and $11.5 million in 2011. The increase in net income before income taxes is primarily a result of a decrease in interest on policyholders’ accounts which is due to an increase in net withdrawals of annuity products and a smaller change in the liability for future policy benefits as a result of a decline in sales of single premium whole life products. These were partially offset by a decrease in net investment income as explained in more detail in the following paragraph.

In 2013, net investment income decreased 5.1 percent and 10.2 percent, respectively, as compared to 2012 and 2011. This was due to the decrease in invested assets, resulting from negative cash flows on annuity products, and a decrease in the reinvestment interest rates from the the continued low interest rate environment. For discussion of our consolidated investment results, see the “Investments” section contained in this Item.

50

Net premiums earned decreased 7.5 percent in 2013 as compared to 2012 primarily due to decreased sales of single premium whole life products. Net premiums earned was 23.7 percent higher in 2012 as compared to 2011 primarily due to increased sales of single premium whole life products.

Amortization of deferred policy acquisition costs decreased 12.0 percent in 2013 as compared to 2012 primarily as a result of lower sales and fewer costs being deferred due to the change in accounting guidance noted previously.

Underwriting expenses decreased 7.3 percent in 2013 as compared to 2012 due to a decrease in single premium whole life commissions related to the decrease in premiums as previously mentioned.

Deferred annuity deposits increased 18.1 percent in 2013, as compared to 2012, due to crediting rate increases which occurred in the latter half of 2013. Deferred annuity deposits decreased 24.8 percent in 2012 as compared to 2011 as we lowered the credited rate offered during the low interest rate environment.

Net cash outflow related to the Company’s annuity business was $77.7 million and $42.3 million in 2013 and 2012, respectively, compared to a net cash inflow of $17.6 million in 2011. This result is attributed to the activity described previously.

The fixed annuity deposits that we collect are not reported as net premiums earned under GAAP. Instead, we invest annuity deposits and record them as a liability for future policy benefits. The revenue that is generated from fixed annuity products consists of policy surrender charges and investment income. The difference between the yield we earn on our investment portfolio and the interest we credit on our fixed annuities is known as the investment spread. The investment spread is a major driver of the profitability for all of our annuity products.

Federal Income Taxes

We reported a federal income tax expense (benefit) of $25.8 million, $5.9 million and $(12.7) million in 2013, 2012, and 2011, respectively. The benefit in 2011 resulted from a taxable loss in our property and casualty insurance operations. Our effective federal tax rate varied from the statutory federal income tax expense rate of 35.0 percent in each year, due primarily to our portfolio of tax-exempt securities.

As of December 31, 2013, we have a net operating loss (“NOL”) carryforward of $7.8 million, which is due to our purchase of American Indemnity Financial Corporation in 1999. No NOLs will expire in 2014. 

Due to our determination that we may not be able to fully realize the benefits of the NOLs acquired in the purchase of American Indemnity Financial Corporation, which are only available to offset the future taxable income of our property and casualty insurance operations and are further limited as to the amount that can be utilized in any given year, we have recorded a valuation allowance against these NOLs that totaled $2.4 million at December 31, 2013. Based on a yearly review, we determine whether the benefit of the NOLs can be realized, and, if so, the decrease in the valuation allowance is recorded as a reduction to current federal income tax expense. If NOLs expire during the year, the decrease in the valuation allowance is offset with a corresponding decrease to the deferred income tax asset. The valuation allowance was reduced by $0.5 million in 2013 due to the realization of $1.6 million in NOLs.

As of December 31, 2013, we have alternative minimum tax (“AMT”) credit carryforwards of $0.5 million. These have an indefinite life and we expect to realize the entire benefit in the future.

51

INVESTMENTS

Investment Environment

In 2013, the financial markets and economy were again aided by the Federal Reserve (the “FED”), which took the lead in supporting financial markets and moving the economy forward by means of its accommodative monetary policy. Since the 2008-2009 financial market crises, the FED’s policy tools have consisted of (1) keeping short-term rates near zero percent, (2) intermittent bond buying programs (i.e., quantitative easing or “QE”), and (3) greater transparency and communication on future decisions.  The FED’s use of these tools has had a profound impact on investment returns, including in 2013. In early May, FED Chairman Ben Bernanke sparked a significant sell-off in U.S. Treasuries by declaring the central bank could potentially reduce the amount of asset purchases going forward (i.e., “tapering”). As investors speculated in the weeks that followed on when and how much the FED would taper, economic data, though mixed, began pointing towards a deeper, more sustainable recovery. Rates moved higher through the remainder of the year with the 10 year Treasury reaching 3.0 percent in September 2013 and again at end of the year. Overall, the increase in rates may be helpful, but investment yields still remain near historic lows given the high demand for income-producing assets. Equity markets produced large, broad-based returns, but this rally may not be sustainable. As markets transition to a less accommodative FED, underlying economic fundamentals will begin to have an increasing impact on the movement of both interest rates and equity valuations. We believe the balance of risks in our portfolio are appropriate and well-positioned given current market dynamics and opportunities.

Investment Philosophy

The Company’s assets are invested to meet liquidity needs and maximize after-tax returns while maintaining appropriate risk diversification.  The return on our portfolio is an important component of overall financial results, but quality and safety of principal is the highest priority of our investment program.  Our general investment philosophy is to purchase financial instruments with the expectation that we will hold them to their maturity.  However, close management of our available-for-sale portfolio is considered necessary to achieve portfolio objectives and maximize risk-adjusted returns as market conditions change. 

We work with our insurance company subsidiaries to develop an appropriate investment strategy that aligns with their business needs and supports United Fire’s strategic plan and risk appetite.  The portfolio is structured so as to be in compliance with state insurance laws that prescribe the quality, concentration and type of investments that may be made by insurance companies.  All but a small portion of our investment portfolio is managed internally.

Investment Portfolio

Our invested assets at December 31, 2013 totaled $3.1 billion, compared to $3.0 billion at December 31, 2012, an increase of $5.8 million. At December 31, 2013, fixed maturity securities and equity securities comprised 90.5 percent and 7.6 percent of our investment portfolio, respectively. Because the primary purpose of the investment portfolio is to fund future claims payments, we utilize a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep less cash on hand in the low interest rate environment. If additional cash is needed we have an ability to borrow funds available under our revolving credit facility.

Composition

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

52

The composition of our investment portfolio at December 31, 2013 is presented at carrying value in the following table:

	Property & Casualty Insurance Segment				Life Insurance Segment				Total
			Percent				Percent				Percent
(In Thousands)			of Total				of Total				of Total
Fixed maturities: (1)
Held-to-maturity	$	316	—	%	$	340	—	%	$	656	—	%
Available-for-sale	1,197,892		82.8		1,553,364		96.8		2,751,256		90.2
Trading securities	9,940		0.7		—		—		9,940		0.3
Equity securities:
Available-for-sale	202,560		14.0		26,808		1.7		229,368		7.5
Trading securities	2,487		0.2		—		—		2,487		0.1
Mortgage loans	—		—		4,423		0.3		4,423		0.2
Policy loans	—		—		6,261		0.4		6,261		0.2
Other long-term investments	32,292		2.2		12,654		0.8		44,946		1.5
Short-term investments	800		0.1		—		—		800		—
Total	$	1,446,287	100.0	%	$	1,603,850	100.0	%	$	3,050,137	100.0	%

(1) Available-for-sale and trading fixed maturities are carried at fair value. Held-to-maturity fixed maturities are carried at amortized cost.

At December 31, 2013, we classified $2.8 billion, or 99.6 percent, of our fixed maturities portfolio as available-for-sale, compared to $2.8 billion, or 99.5 percent, at December 31, 2012. We classify our remaining fixed maturities as held-to-maturity or trading. We record held-to-maturity securities at amortized cost. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.

As of December 31, 2013 and 2012, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

Credit Quality

The following table shows the composition of fixed maturity securities held in our available-for-sale, held-to-maturity and trading security portfolios, by credit rating at December 31, 2013 and 2012. Information contained in the table is generally based upon the issue credit ratings provided by Moody’s, unless the rating is unavailable, in which case we obtain it from Standard & Poor’s.

(In Thousands)	December 31, 2013				December 31, 2012
Rating	Carrying Value		% of Total		Carrying Value		% of Total
AAA	$	761,017	27.5	%	$	481,754	17.1	%
AA	537,527		19.5		646,516		22.9
A	564,396		20.4		632,962		22.4
Baa/BBB	830,735		30.1		998,818		35.4
Other/Not Rated	68,177		2.5		63,036		2.2
	$	2,761,852	100.0	%	$	2,823,086	100.0	%

Duration

Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement used to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal effect on these accounts. The primary purpose for matching invested assets and reserve liabilities is liquidity. With appropriate matching, our investments

53

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.

Group

The weighted average effective duration of our portfolio of fixed maturity securities, at December 31, 2013, was 5.0 years compared to 4.0 years at December 31, 2012.

Property and Casualty Insurance Segment

The weighted average effective duration of our portfolio of fixed maturity securities was 4.9 years at December 31, 2013 compared to 4.0 years at December 31, 2012.

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at December 31, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

(In Thousands)	Held-To-Maturity				Available-For-Sale				Trading
	Amortized		Fair		Amortized		Fair		Amortized		Fair
December 31, 2013	Cost		Value		Cost		Value		Cost		Value
Due in one year or less	$	—	$	—	$	30,807	$	30,992	$	1,350	$	1,359
Due after one year through five years	315		318		481,851		508,510		3,762		5,147
Due after five years through 10 years	—		—		327,660		339,337		—		—
Due after 10 years	—		—		214,567		198,844		2,937		3,434
Asset-backed securities	—		—		650		702		—		—
Mortgage-backed securities	1		1		19,141		19,273		—		—
Collateralized mortgage obligations	—		—		104,280		100,234		—		—
	$	316	$	319	$	1,178,956	$	1,197,892	$	8,049	$	9,940

Life Insurance Segment

The weighted average effective duration of our portfolio of fixed maturity securities, at December 31, 2013 was 5.0 years compared to 4.0 years at December 31, 2012.

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at December 31, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

54

(In Thousands)	Held-To-Maturity				Available-For-Sale
	Amortized		Fair		Amortized		Fair
December 31, 2013	Cost		Value		Cost		Value
Due in one year or less	$	135	$	136	$	200,253	$	203,930
Due after one year through five years	—		—		468,233		488,352
Due after five years through 10 years	—		—		521,271		515,819
Due after 10 years	—		—		153,187		144,648
Asset-backed securities	—		—		3,069		3,293
Mortgage-backed securities	205		214		2,893		2,793
Collateralized mortgage obligations	—		—		205,695		194,529
	$	340	$	350	$	1,554,601	$	1,553,364

Investment Results

We invest the premiums received from our policyholders and annuitants in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, changes in interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. In our life insurance segment, net investment income decreased 5.1 percent in 2013, compared with the same period of 2012, due to a lower asset base and historically low yields that reduce our investment income. We are maintaining our investment philosophy of purchasing quality investments rated investment grade or better.

In our property and casualty insurance segment, an increase in the value of our investments in limited liability partnerships contributed to the increase of 10.6 percent in net investment income in 2013, compared with the same period of 2012. The increases were somewhat offset by the impact of low investment yields. Our property and casualty insurance segment holds certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in the value of these investments recorded in investment income.

We regularly monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

Changes in unrealized gains and losses on available-for-sale securities do not affect net income and earnings per share but do impact comprehensive income, stockholders’ equity and book value per share. We believe that any unrealized losses on our available-for-sale securities at December 31, 2013, are temporary based upon our current analysis of the issuers of the securities that we hold and current market events. It is possible that we could recognize impairment charges in future periods on securities that we own at December 31, 2013, if future events and information cause us to determine that a decline in value is other-than-temporary. However, we endeavor to invest in high quality assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs.  

55

Our investment results are summarized in the following table:

(In Thousands)										% Change
										2013		2012
As of and for the Years Ended December 31,	2013			2012			2011			vs. 2012		vs. 2011
Investment income, net	$	112,799		$	111,905		$	109,494		0.8	%	2.2	%
Net realized investment gains (losses)
Other-than-temporary impairment charges	$	(139	)	$	(4	)	$	(395	)	NM		99.0
All other net realized gains	8,834			5,457			6,835			61.9		(20.2	)
Total net realized investment gains	$	8,695		$	5,453		$	6,440		59.5	%	(15.3	)%
Net unrealized investment gains, after tax	$	116,601		$	144,096		$	124,376		(19.1	)%	15.9	%

NM=not meaningful

Net Investment Income

In 2013, our investment income, net of investment expenses, increased $0.9 million to $112.8 million as compared to 2012, primarily due to an increase in value of investments that are accounted for under the equity method of accounting somewhat offset by the impact of low investment yields.

In 2012, our investment income, net of investment expenses, increased $2.4 million to $111.9 million as compared to 2011. Net investment income benefited from having a full year of Mercer Insurance Group’s results included in 2012 along with an increase in value of investments that are accounted for under the equity method of accounting both somewhat offset by the impact of low investment yields.

The following table summarizes the components of net investment income:

(In Thousands) Years Ended December 31,	2013		2012		2011
Investment income
Interest on fixed maturities	$	101,950	$	108,517	$	109,467
Dividends on equity securities	5,806		5,354		4,628
Income (loss) on other long-term investments
Interest	1,194		232		224
Change in value (1)	7,030		2,562		(137		)
Interest on mortgage loans	266		279		285
Interest on short-term investments	6		10		4
Interest on cash and cash equivalents	239		290		913
Other	1,632		825		969
Total investment income	$	118,123	$	118,069	$	116,353
Less investment expenses	5,324		6,164		6,859
Investment income, net	$	112,799	$	111,905	$	109,494

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

In 2013, 86.3 percentof our gross investment income originated from interest on fixed maturities, compared to 91.9 percent and 94.1 percent in 2012 and 2011, respectively.

56

The following table details our annualized yield on average invested assets for 2013, 2012 and 2011, which is based on our invested assets (including money market accounts) at the beginning and end of the year divided by net investment income:

(In Thousands)
Years ended December 31,	Average Invested Assets		Investment Income, Net		Annualized Yield on Average Invested Assets
2013	$	3,088,962	$	112,799	3.7	%
2012	3,026,267		111,905		3.7
2011	2,744,095		109,494		4.0

Net Realized Investment Gains and Losses

In 2013, 2012 and 2011, we reported net realized investment gains of $8.7 million, $5.5 million and $6.4 million, respectively. The following table summarizes the components of our net realized investment gains or losses:

(In Thousands) Years Ended December 31,	2013			2012			2011
Net realized investment gains (losses)
Net realized gains (losses):
Fixed maturities:
Held-to-maturity	$	1		$	12		$	8
Available-for-sale	3,211			3,408			4,776
Trading securities
Change in fair value	1,183			683			(539		)
Sales	788			406			(326		)
Equity securities:
Available-for-sale	3,739			698			2,988
Trading securities
Change in fair value	(126		)	250			(4		)
Sales	38			—			—
Other long-term investments	—			—			(68		)
Other-than-temporary-impairment charges:
Fixed maturities	(139		)	—			(395		)
Equity securities	—			(4		)	—
Total net realized investment gains	$	8,695		$	5,453		$	6,440

Net Unrealized Investment Gains and Losses

As of December 31, 2013, net unrealized investment gains, after tax, totaled $116.6 million, compared to $144.1 million and $124.4 million as of December 31, 2012 and 2011, respectively. The decrease in unrealized gains in 2013 resulted from a decrease in the fair value of the fixed maturity portfolio partially offset by an increase in the equity portfolio. The increase in unrealized gains in 2012 resulted from an increase in fair value of both the fixed maturity and equity portfolios. In 2011, our acquisition of Mercer Insurance Group increased our holdings of fixed maturity securities that, in connection with a decrease in market interest rates, led to an increase in our net unrealized investment gains. We have and will continue to closely monitor market conditions and evaluate the long-term impact of the market volatility experienced in recent years on all of our investment holdings.

57

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

(In Thousands) Years Ended December 31,	2013			2012			2011
Changes in net unrealized investment gains (losses):
Available-for-sale fixed maturity securities	$	(132,579	)	$	15,816		$	34,699
Equity securities	48,176			19,339			(4,675		)
Deferred policy acquisition costs	42,102			(4,821		)	3,402
Income tax effect	14,806			(10,614		)	(11,699		)
Total change in net unrealized investment gains, net of tax	$	(27,495	)	$	19,720		$	21,727

Market Risk

Our Consolidated Balance Sheets include financial instruments whose fair values are subject to market risk. The active management of market risk is integral to our operations. Market risk is the potential for loss due to a decrease in the fair value of securities resulting from uncontrollable fluctuations such as: interest rate risk, equity price risk, foreign exchange risk, credit risk, inflation, or world political conditions. Our primary market risk exposure is to changes in interest rates. We also have limited exposure to equity price risk and foreign exchange risk.

Interest Rate Risk

Interest rate risk is the price sensitivity of a fixed maturity security or portfolio of securities to changes in interest rates. We invest in fixed maturity and other interest rate sensitive securities. While it is generally our intent to hold our investments in fixed maturity securities to maturity, we have classified a majority of our fixed maturity portfolio as available-for-sale. Available-for-sale fixed maturity securities are carried at fair value on the Consolidated Balance Sheets with unrealized gains or losses reported net of tax in accumulated other comprehensive income.

Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of our fixed maturity securities. Additionally, fair values of interest rate sensitive securities may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

Market Risk and Duration

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

Duration relates primarily to our life insurance segment because the long-term nature of these reserve liabilities increases the importance of projecting estimated cash flows over an extended time frame. At December 31, 2013, our life insurance segment had $925.8 million in deferred annuity liabilities for which investments in fixed maturity securities were specifically allocated.

The duration of the life insurance segment’s investment portfolio must take into consideration interest rate risk. This is accomplished through the use of sensitivity analysis, which measures the price sensitivity of the fixed maturities to changes in interest rates. The alternative valuations of the investment portfolio, given the various hypothetical interest rate changes utilized by the sensitivity analysis, allow management to revalue the potential cash flow from the investment portfolio under varying market interest rate scenarios. Duration can then be recalculated at the differing levels of projected cash flows.

58

Impact of Interest Rate Changes

The amounts set forth in the following table detail the impact of hypothetical interest rate changes on the fair value of fixed maturity securities held at December 31, 2013. The sensitivity analysis measures the change in fair values arising from immediate changes in selected interest rate scenarios. We employed hypothetical parallel shifts in the yield curve of plus or minus 100 and 200 basis points in the simulations. Additionally, based upon the yield curve shifts, we employ estimates of prepayment speeds for mortgage-related products and the likelihood of call or put options being exercised within the simulations. According to this analysis, at current levels of interest rates, the duration of the investments supporting the deferred annuity liabilities is 0.18 years shorter than the projected duration of the liabilities. If interest rates increase by 100 or 200 basis points, the duration of the investments supporting the deferred annuity liabilities would be 0.57 years and 1.71 years longer, respectively, than the projected duration of the liabilities.

The selection of a 100-basis-point and 200-basis-point increase or decrease in interest rates should not be construed as a prediction by our management of future market events, but rather as an illustration of the potential impact of an event.

December 31, 2013,	-200 Basis		-100 Basis				+100 Basis		+ 200 Basis
(In Thousands)	Points		Points		Base		Points		Points
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	254	$	254	$	254	$	253	$	253
Corporate bonds - financial services	215		207		200		193		186
Mortgage-backed securities	222		219		215		211		207
Total Held-to-Maturity Fixed Maturities	$	691	$	680	$	669	$	657	$	646
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	35,276	$	34,572	$	33,895	$	33,242	$	32,612
U.S. government agency	298,115		290,485		269,583		243,947		220,210
States, municipalities and political subdivisions	773,064		743,120		713,907		658,448		657,761
Foreign bonds	184,484		178,509		172,856		167,504		162,431
Public utilities	234,763		226,478		218,576		211,067		204,007
Corporate bonds
Energy	172,862		166,800		161,010		155,483		150,249
Industrials	256,866		246,641		237,028		227,999		219,516
Consumer goods and services	182,722		175,073		167,914		161,210		154,930
Health care	101,775		97,211		92,946		88,958		85,230
Technology, media and telecommunications	135,145		127,754		120,966		114,718		108,958
Financial services	259,898		250,512		241,751		233,534		225,811
Mortgage backed securities	22,969		22,700		22,066		21,072		19,877
Collateralized mortgage obligations	336,111		319,167		294,763		267,704		241,453
Asset-backed securities	4,155		4,074		3,995		3,919		3,846
Total Available-For-Sale Fixed Maturities	$	2,998,205	$	2,883,096	$	2,751,256	$	2,588,805	$	2,486,891
TRADING
Fixed maturities
Bonds
Foreign bonds	$	1,268	$	1,260	$	1,253	$	1,246	$	1,239
Corporate bonds
Industrial	1,203		1,162		1,122		1,084		1,047
Consumer	107		106		106		106		105
Health care	1,226		1,189		1,154		1,121		1,088
Financial services	2,076		1,992		1,866		1,704		1,544
Technology, media and telecommunications	2,763		2,373		2,054		1,792		1,576
Redeemable preferred stock	2,385		2,385		2,385		2,385		2,385
Total Trading Fixed Maturities	$	11,028	$	10,467	$	9,940	$	9,438	$	8,984
Total Fixed Maturity Securities	$	3,009,924	$	2,894,243	$	2,761,865	$	2,598,900	$	2,496,521

59

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

Equity Price Risk

Equity price risk is the potential loss arising from changes in the fair value of equity securities held in our portfolio. The carrying values of our equity securities are based on quoted market prices as of the balance sheet date. Market prices of equity securities, in general, are subject to fluctuations that could cause the amount to be realized upon the future sale of the securities to differ significantly from the current reported value. The fluctuations may result from perceived changes in the underlying economic characteristics of the issuer of securities, the relative price of alternative investments, general market conditions, and supply and demand imbalances for a particular security.

Impact of Price Change

The following table details the effect on the fair value of our investments in equity securities for a positive and negative 10 percent price change at December 31, 2013:

(In Thousands)	-10%		Base		+10%
Estimated fair value of equity securities	$	208,670	$	231,855	$	255,041

Foreign Currency Exchange Rate Risk

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

Credit Risk

We base our investment decisions on the credit characteristics of individual securities; however, we have within our municipal bond portfolio a number of securities whose ratings were enhanced by third-party insurance for the payment of principal and interest in the event of an issuer default. A downgrade in the credit ratings of the insurers of these securities in 2013 and 2012 resulted in a corresponding downgrade in the ratings of the securities. Of the insured municipal securities in our investment portfolio, 94.9 percent and 95.0 percent were rated single “A” or above, and 83.8 percent and 88.9 percent were rated “AA” or above at December 31, 2013 and 2012, respectively, without the benefit of insurance. Due to the underlying financial strength of the issuers of the securities, we believe that the loss of insurance would not have a material impact on our operations, financial position, or liquidity.

We have no direct exposure in any of the guarantors of our investments. Our largest indirect exposure with a single guarantor totaled $114.2 million or 29.7 percent of our insured municipal securities at December 31, 2013, as compared to $138.6 million or 30.3 percent at December 31, 2012. Our five largest indirect exposures to financial guarantors accounted for 79.9 percent and 79.3 percent of our insured municipal securities at December 31, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, annuity deposits, 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, policyholder benefits under life insurance contracts, annuity withdrawals, 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

60

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 and future policyholder benefits of the underlying insurance policies, and annuity withdrawals. The majority of our assets are invested in available-for-sale fixed maturity securities.

The following table displays a summary of cash sources and uses in 2013, 2012 and 2011:

Cash Flow Summary	Years Ended December 31,
(In Thousands)	2013			2012			2011
Cash provided by (used in)
Operating activities	$	161,491		$	172,076		$	74,431
Investing activities	(101,986		)	(111,340		)	(175,192		)
Financing activities	(74,778		)	(97,797		)	65,231
Net decrease in cash and cash equivalents	$	(15,273	)	$	(37,061	)	$	(35,530	)

Operating Activities

Net cash flows provided by operating activities totaled $161.5 million, $172.1 million and $74.4 million in 2013, 2012 and 2011, respectively. Operating cash flows in 2013 reflect an increase in net withdrawals of annuity products offset by a higher level of property and casualty premiums collected and a lower level of property and casualty loss payments. Operating cash flows in 2012 reflect a higher level of property and casualty premiums collected, and a lower level of property and casualty loss payments from the prior year. Operating cash flows in 2011 reflected a higher level of loss and loss settlement expense payments, and a lower level of investment income received compared to prior year.

Our cash flows from operations were sufficient to meet our liquidity needs for 2013, 2012 and 2011.

Investing Activities

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

In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, $1.1 billion, or 40.7 percent of our fixed maturity portfolio will mature.

We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At December 31, 2013, our cash and cash equivalents included $37.8 million related to these money market accounts, compared to $45.6 million at December 31, 2012.

61

Net cash flows used in investing activities totaled $102.0 million, $111.3 million and $175.2 million in 2013, 2012 and 2011, respectively. In 2013, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments that totaled $508.3 million compared to $555.6 million and $610.0 million for the same period in 2012 and 2011, respectively. The cash inflows over the last three years primarily relate to redemptions of fixed maturity securities that are reinvested at lower interest rates as interest rates have been declining during this period.

Our cash outflows for investment purchases totaled $601.8 million in 2013, compared to $663.8 million and $598.5 million for the same period in 2012 and 2011, respectively. We also had a net cash outflow in 2011 of $172.6 million related to our acquisition of Mercer Insurance Group.

Financing Activities

Net cash flows provided by (used in) financing activities totaled $(74.8) million, $(97.8) million and $65.2 million in 2013, 2012 and 2011, respectively. In 2013 we had $58.6 million of net annuity withdrawals. In 2012, we repaid the remaining balance of $45.0 million outstanding on our credit facility and we also fully repaid the $15.6 million of trust preferred securities previously issued by Mercer Insurance Group. In the first quarter of 2011, we borrowed $79.9 million to partially finance the purchase of Mercer Insurance Group.

Dividends

Dividends paid to shareholders totaled $17.5 million, $15.3 million and $15.5 million in 2013, 2012 and 2011, respectively. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

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

As a holding company with no independent operations of its own, United Fire Group, Inc. relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2013, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $53.7 million in dividend payments without prior regulatory approval. These restrictions will not have a material impact in meeting our cash obligations.

Stock Repurchases

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

During 2013, 2012 and 2011, pursuant to authorization by our Board of Directors, we repurchased 59,603; 340,159; and 702,947 shares of our common stock respectively, which used cash totaling $1.6 million in 2013, $7.3 million in 2012 and $12.4 million in 2011. At December 31, 2013, we were authorized to purchase an additional 1,070,117 shares of our common stock under our share repurchase program, which expires in August 2014.

62

Credit Facilities

In December 2011, United Fire entered into a credit agreement with a syndicate of financial institutions as lenders. KeyBank National Association is the administrative agent, lead arranger, sole book runner, swingline lender, and letter of credit issuer, and Bankers Trust Company is the syndication agent. The four-year credit agreement provides for a $100.0 million unsecured revolving credit facility that includes a $20.0 million letter of credit subfacility and a swing line subfacility in the amount of up to $5.0 million. As of December 31, 2013, there were no balances outstanding under this credit agreement.

On June 4, 2013, United Fire & Casualty Company, United Fire Group, Inc. and the syndicated lenders entered into an Assignment, Joinder, Assumption, and Release Agreement (the “Joinder Agreement”) transferring the obligations under the credit agreement from United Fire & Casualty Company to United Fire Group, Inc. Effective with the execution of the Joinder Agreement, United Fire & Casualty Company was released from any further obligations under the credit agreement.

If no event of default has occurred or is continuing to occur, and certain other conditions are satisfied, during the term of this credit facility, we have the right to increase the total facility from $100.0 million up to $125.0 million. The credit facility is available for general corporate purposes, including working capital, acquisitions and liquidity purposes. Principal of the credit facility is due in full at maturity, on December 22, 2015. The interest rate is based on our monthly choice of either a base rate or the London Interbank Offered Rate (“LIBOR”) plus, in each case, a calculated margin amount. A commitment fee on each lender’s unused commitment under the credit facility is also payable quarterly.

The credit agreement contains customary representations, covenants and events of default, including certain covenants that limit or restrict our ability to engage in certain activities. Subject to certain exceptions, these activities include restricting our ability to sell or transfer assets or enter into a merger or consolidate with another company, grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into leaseback transactions, or incur certain indebtedness. The credit agreement contains certain financial covenants including covenants that require us to maintain a minimum consolidated net worth, a debt to capitalization ratio and minimum stockholders’ equity. As of December 31, 2013, we have not been in default and were in compliance with all covenants of the credit agreement.

Stockholders’ Equity

Stockholders’ equity increased 7.4 percent to $782.8 million at December 31, 2013, from $729.2 million at December 31, 2012. The increase was primarily attributable to net income of $76.1 million offset by a decrease in net unrealized investment gains of $27.5 million, net of tax, and by stockholder dividends of $17.5 million. As of December 31, 2013, the book value per share of our common stock was $30.87, compared to $28.90 at December 31, 2012.

Risk-Based Capital

The National Association of Insurance Commissioners (“NAIC”) adopted risk-based capital requirements, which requires us to calculate a minimum capital requirement for each of our insurance companies based on individual company insurance risk factors. These “risk-based capital” results are used by state insurance regulators to identify companies that require regulatory attention or the initiation of regulatory action. At December 31, 2013, all of our insurance companies had capital well in excess of required levels.

63

Contractual Obligations and Commitments

The following table shows our contractual obligations and commitments, including our estimated payments due by period, at December 31, 2013:

(In Thousands)	Payments Due By Period
Contractual Obligations	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Future policy benefit reserves (1)	$	2,065,760	$	246,618	$	447,086	$	335,252	$	1,036,804
Loss and loss settlement expense reserves	960,651		296,129		271,870		120,451		272,201
Operating leases	24,177		7,340		8,928		4,690		3,219
Profit-sharing commissions	19,216		19,216		—		—		—
Pension plan contributions	6,260		6,260		—		—		—
Total	$	3,076,064	$	575,563	$	727,884	$	460,393	$	1,312,224

(1) This projection of our obligation for future policy benefits considers only actual future cash outflows. The future policy benefit reserves presented on the Consolidated Balance Sheets is the net present value of the benefits to be paid, less the net present value of future net premiums.

Future Policy Benefits

The amounts presented for future payments to be made to policyholders and beneficiaries must be actuarially estimated and are not determinable from the contract. The projected payments are based on our current assumptions for mortality, morbidity and policy lapse, but are not discounted with respect to interest. Additionally, the projected payments are based on the assumption that the holders of our annuities and life insurance policies will withdraw their account balances upon the expiration of their contracts. Policies must remain in force for the policyholder or beneficiary to receive the benefit under the policy. Depending on the terms of a particular policy, future premiums from the policyholder may be required for the policy to remain in force. In contrast, the future policy benefit reserves for our life insurance segment presented on the Consolidated Balance Sheets are generally based on historical assumptions for mortality and policy lapse rates and are on a discounted basis. Accordingly, the amounts presented above for future policy benefit reserves significantly exceeds the amount of future policy benefit reserves reported on our Consolidated Balance Sheets at December 31, 2013.

Loss and Loss Settlement Expense Reserves

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

Operating Leases

Our operating lease obligations are for the rental of office space, vehicles, computer equipment and office equipment. For further discussion of our operating leases, refer to Part II, Item 8, Note 13 “Lease Commitments.”

Profit-Sharing Commissions

We offer our agents a profit-sharing plan as an incentive for them to place high-quality property and casualty insurance business with us. Based on business produced by the agencies in 2013, we estimate property and casualty agencies will receive profit-sharing payments of $19.2 million in 2014.

Pension Plan Payments

We estimated the pension contribution for 2014 in accordance with the Pension Protection Act of 2006 (the “Act”). Contributions for future years are dependent on a number of factors, including actual performance versus

64

assumptions made at the time of the actuarial valuations and maintaining certain funding levels relative to regulatory requirements. Contributions in 2014, and in future years, are expected to be at least equal to the IRS minimum required contribution in accordance with the Act.

Off-Balance Sheet Arrangements

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2017 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $1.1 million at December 31, 2013.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that may potentially result in materially different results under different assumptions and conditions. We base our discussion and analysis of our results of operations and financial condition on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with GAAP. As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions we believe to be reasonable under the circumstances. Actual results could differ from those estimates. We believe our most critical accounting policies are as follows.

Investment Valuation

Upon acquisition, we classify investments in marketable securities as held-to-maturity, available-for-sale, or trading. We record investments in held-to-maturity fixed maturity securities at amortized cost. We record available-for-sale fixed maturity securities, trading securities and equity securities at fair value. Other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. We record mortgage loans at their unpaid principal balance and policy loans at the outstanding loan amount due from policyholders.

In general, investment securities are exposed to various risks, such as interest rate risk, credit risk, and overall market volatility risk. Therefore, it is reasonably possible that changes in the fair value of our investment securities that are reported at fair value will occur in the near term and such changes could materially affect the amounts reported in the Consolidated Financial Statements. Also, it is reasonably possible that changes in the value of our investments in limited liability partnerships could occur in the future and such changes could materially affect our results of operations as reported in our Consolidated Financial Statements.

Fair Value Measurement

We value our available-for-sale fixed maturity, trading securities, equity securities, short-term investments and money market accounts at fair value in accordance with the current accounting guidance on fair value measurements. We exclude unrealized appreciation or depreciation on investments carried at fair value, with the exception of trading securities, from net income, and report it, net of applicable deferred income taxes, as a component of accumulated other comprehensive income in stockholders’ equity.

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

65

is based on the lowest priority level input that is significant to the fair value measurement of the financial instrument.

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

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

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

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

Transfers between levels, if any, are recorded as of the beginning of the reporting period.

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

We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. In our opinion, the pricing obtained at December 31, 2013 was reasonable.

In order to determine the proper classification in the fair value hierarchy for each security where the price is obtained from an independent pricing service, we obtain and evaluate the vendors’ pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications which are consistent with the applicable accounting guidance on fair value measurements.

We review our fair value hierarchy categorizations on a quarterly basis, at which time the classification of certain financial instruments may change if the input observations have changed.

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of securities that are categorized as Level 2 is determined by management after reviewing market prices obtained from independent pricing services and brokers. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the reporting date. Our independent pricing services and brokers obtain prices from reputable pricing vendors in the marketplace. They continually monitor and review the external pricing sources, while actively participating to resolve any pricing issues that may arise.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities and certain other securities that were determined to be other-than-temporarily impaired in a prior period and for which an active market does not currently exist.

The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2

66

securities. If pricing cannot be obtained from these sources, which occurs on a limited basis, management will perform a cash flow analysis using an appropriate risk-adjusted discount rate on the underlying security to estimate fair value.

The fair value of our Level 3 impaired securities was determined primarily based upon management’s assumptions regarding the timing and amount of future cash inflows. If a security has been written down or the issuer is in bankruptcy, management relies in part on outside opinions from rating agencies, our lien position on the security, general economic conditions and management’s expertise to determine fair value. We have the ability and the positive intent to hold securities until such time that we are able to recover all or a portion of our original investment. If the impaired security does not have a market at the balance sheet date, management will estimate the security’s fair value based on other securities in the market. Management will continue to monitor securities after the balance sheet date to confirm that their estimated fair value is reasonable.

For further discussion on fair value measurements and disclosures refer to Note 3 “Fair Value of Financial Instruments” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

Other-Than-Temporary Impairment Charges

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires OTTI charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

At December 31, 2013 and 2012, we had a number of securities where fair value was less than our cost basis. The total unrealized loss on these securities was $59.8 million at December 31, 2013, compared with $4.6 million at December 31, 2012. At December 31, 2013, the largest pre-tax unrealized loss on an individual equity security was $0.1 million. Our rationale for not recording OTTI charges on these securities is discussed in Part II, Item 8, Note 2 “Summary of Investments.”

Deferred Policy Acquisition Costs — Property and Casualty Insurance Segment

We record an asset for certain costs of underwriting new business, primarily commissions, premium taxes and variable underwriting and policy issue expenses that have been deferred. At December 31, 2013 and 2012, our DAC asset was $67.7 million and $64.9 million, respectively.

We prospectively adopted new DAC accounting guidance effective January 1, 2012 which limits the amount of underwriting expenses eligible for deferral. The adoption of the new guidance resulted in $8.7 million additional expense recognized in the Consolidated Statement of Income and Comprehensive Income in 2012, as compared to 2011, in our property and casualty insurance segment than would have been had the guidance remained the same. In compliance with the new accounting guidance, the amount of underwriting compensation expense eligible for deferral is based on time studies and a ratio of success in policy placement. The 2013 DAC asset has been computed on a comparable basis at December 31, 2013 and 2012.

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

67

To calculate the premium deficiency charge by line of business, we estimate an expected loss and loss settlement expense ratio which is based on an analysis of actual experience of the line of business in the most recent three-year period. This calculation is performed on a quarterly basis. The expected loss and loss settlement expense ratios are the only assumptions we utilize in our premium deficiency calculation. Changes in these assumptions can have a significant impact on the amount of premium deficiency charge recognized for a line of business.

The following table illustrates the hypothetical impact on the premium deficiency charge recorded for the quarter ended December 31, 2013, of reasonably likely changes in the assumed loss and loss settlement expense ratios utilized for purposes of this calculation. The entire impact of these changes would be recognized through income as other underwriting expenses. The following table illustrates the impact of potential changes in the expected loss and loss settlement expense ratios for all lines of business on the premium deficiency charge. The base amount indicated below is the actual premium deficiency charge recorded as an offset against the DAC asset established as of the quarter ended December 31, 2013:

Sensitivity Analysis — Impact of Changes in Assumed Loss and Loss Settlement Expense Ratios
(In Thousands)	-10%		-5%		Base		+5%		+10%
Premium deficiency charge estimated	$	16	$	1,015	$	3,777	$	5,003	$	8,320

Actual future results could differ materially from our assumptions used to calculate the recorded DAC asset. Changes in our assumed loss and loss settlement expense ratios in the future would impact the amount of deferred costs in the period such changes in assumptions are made. The premium deficiency charge calculated for 2013, was $3.8 million as compared to the premium deficiency charge of $2.3 million calculated for 2012. The increase in the premium deficiency charge resulted in a comparatively smaller DAC asset at December 31, 2013, than at December 31, 2012.

Deferred Policy Acquisition Costs — Life Insurance Segment

Costs that vary with and relate to the successful acquisition of life insurance and annuity business are deferred. Such costs consist principally of commissions and related variable underwriting, agency and policy issue expenses. At December 31, 2013 and 2012, our DAC asset was $82.4 million and $40.4 million, respectively.

As discussed in the Property and Casualty Segment, the DAC asset was impacted by a change in accounting guidance that limits the amount of underwriting expenses eligible for deferral. We prospectively adopted the new accounting guidance effective January 1, 2012 that resulted in the recognition of $1.6 million of additional expense in 2012 in our life insurance segment. The 2013 DAC asset has been computed on a comparable basis at December 31, 2013 and 2012.

We defer and amortize policy acquisition costs on traditional life insurance policies over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. The expected total premium revenue is based upon the premium requirement of each policy and assumptions for mortality, morbidity, persistency and investment returns at policy issuance. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits. Absent a premium deficiency, variability in amortization after policy issuance is caused only by variability in premium volumes.

We defer policy acquisition costs related to non-traditional business and amortize these costs in proportion to the ratio of the expected annual gross profits to the expected total gross profits. The components of expected gross profits include investment spread, mortality and expense margins and surrender charges. Of these factors, we anticipate that assumptions for investment returns, expenses and persistency are reasonably likely to have a significant impact on the rate of DAC amortization each year.

We periodically review estimates of expected profitability and evaluate the need to “unlock” or revise the assumptions for the amortization of the DAC asset related to our non-traditional business. The primary assumptions utilized when estimating future profitability relate to interest rate spread, mortality experience and policy lapse experience. The table below illustrates the impact that a reasonably likely change in our assumptions used to

68

estimate expected gross profits would have on the DAC asset for our non-traditional business recorded as of December 31, 2013. The entire impact of the changes illustrated would be recognized through income as an increase or decrease to amortization expense:

Sensitivity Analysis — Impact of changes in assumptions on DAC asset (In Thousands)
Changes in assumptions	-10%		+10%
Mortality experience	$	8,320	$	1,391
Policy lapse experience	7,094		3,036
Changes in assumptions	-1%		+1%
Interest rate spread	$	2,831	$	7,133

A material change in these assumptions could have a significant negative or positive effect on our reported DAC asset, earnings and stockholders’ equity.

The DAC asset recorded in connection with our non-traditional business is also adjusted with respect to estimated expected gross profits as a result of changes in the net unrealized gains or losses on available-for-sale fixed maturity securities allocated to support the block of fixed annuities and universal life policies. That is, because we carry available-for-sale fixed maturity securities at fair value, we make an adjustment to the DAC asset equal to the change in amortization that would have been recorded if we had sold such securities at their stated fair value and reinvested the proceeds at current yields. We include this adjustment, which is called “shadow” DAC, net of tax, as a component of accumulated other comprehensive income. At December 31, 2013 and 2012, the “shadow” DAC adjustment increased our DAC asset by $3.4 million and decreased our DAC asset by $38.7 million, respectively.

Loss and Loss Settlement Expenses — Property and Casualty Insurance Segment

Reserves for losses and loss settlement expenses are reported using our best estimate of ultimate liability for claims that occurred prior to the end of any given reporting period, but have not yet been paid. Before credit for reinsurance recoverables, these reserves were $960.7 million and $971.9 million at December 31, 2013 and 2012, respectively. We purchase reinsurance to mitigate the impact of large losses and catastrophic events. Loss and loss settlement expense reserves ceded to reinsurers were $75.2 million for 2013 and $103.9 million for 2012. Our reserves, before credit for reinsurance recoverables, by line of business as of December 31, 2013, were as follows:

(In Thousands)	Case Basis		IBNR		Loss Settlement Expense		Total Reserves
Commercial lines
Fire and allied lines	$	38,723	$	17,158	$	17,843	$	73,724
Other liability	165,345		122,190		200,055		487,590
Automobile	89,992		32,115		27,762		149,869
Workers’ compensation	150,728		7,470		27,776		185,974
Fidelity and surety	4,648		2,720		566		7,934
Miscellaneous	304		782		436		1,522
Total commercial lines	$	449,740	$	182,435	$	274,438	$	906,613
Personal lines
Automobile	$	5,638	$	1,445	$	1,775	$	8,858
Fire and allied lines	10,825		4,150		3,933		18,908
Miscellaneous	1,301		280		610		2,191
Total personal lines	$	17,764	$	5,875	$	6,318	$	29,957
Reinsurance assumed	17,064		6,790		227		24,081
Total	$	484,568	$	195,100	$	280,983	$	960,651

69

Case-Basis Reserves

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

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

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

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

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

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

Our long-tail lines of business include workers’ compensation and other liability. In addition, certain product lines such as personal and commercial auto, commercial multi-peril and surety include both long-tail coverages and short-tail coverages. For many liability claims, significant periods of time, ranging up to several years, may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement of the claim. As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses. In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and the legal environment. Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability than for short-tail coverages.

70

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

Incurred But Not Reported (IBNR) Reserves

On a quarterly basis, United Fire’s internal actuary performed a detailed analysis of IBNR reserves. This analysis uses various loss projections methods (paid and reported loss development) to provide several estimates of ultimate loss (or loss adjustment expense (“LAE”)) for each individual year and line of business. Results of the projection methods are compared and a point estimate of ultimate loss (or LAE) is established. The specific projection methods used to establish point estimates vary depending on what is deemed most appropriate for a particular line of business and year. In general, results of several methods are averaged together to provide a final point estimate. IBNR estimates are derived by subtracting reported loss from projected ultimate loss.

United Fire’s internal actuary compares results from the most recent analysis of IBNR reserves (both internal and from Regnier). Senior management meets with our internal actuary and controller quarterly to review the adequacy of carried IBNR reserves based on results from these actuarial analyses and makes adjustments for changes in business and other factors not completely captured by the actuarial analyses. There are two fundamental types or sources of IBNR reserves. We record IBNR for “normal”types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate. This method of establishing our IBNR reserves has consistently resulted in aggregate reserve levels that management believes are reasonable in comparison to the reserve estimates indicated by the actuarial analyses.

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

Loss Settlement Expense Reserves

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

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

71

Reinsurance Reserves

The estimation of assumed and ceded reinsurance loss and loss settlement expense reserves is subject to the same factors as the estimation of loss and loss settlement expense reserves. In addition to those factors, which give rise to inherent uncertainties in establishing loss and loss settlement expense reserves, there exists a delay in our receipt of reported claims for assumed business due to the procedure of having claims first reported through one or more intermediary insurers or reinsurers.

Key Assumptions

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

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

As an example, if our loss and loss settlement expense reserves of $960.7 million as of December 31, 2013, is 10.0 percent inadequate, we would experience a reduction in future pre-tax earnings of up to $96.1 million. This reduction could be recorded in one year or multiple years, depending on when we identify the deficiency. The deficiency would also affect our financial position in that our equity would be reduced by an amount equivalent to the reduction in net income. Any deficiency that would be recognized in our loss and loss settlement expense reserves usually does not have a material effect on our liquidity because the claims have not been paid. Conversely, if our estimates of ultimate unpaid loss and loss settlement expense reserves prove to be redundant, our future earnings and financial position would be improved. We believe our reserving philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. Our approach is consistent year-to-year and produces a reasonable range of reserves that is better than experiencing year-to-year uncertainty as to the adequacy of our reserves.

We are unable to reasonably quantify the impact of changes in our key assumptions utilized to establish individual case-basis reserves on our total reported reserve because the impact of these changes would be unique to each specific case-basis reserve established. However, based on historical experience, we believe that aggregate case-basis reserve volatility levels of 5.0 percent and 10.0 percent can be attributed to the ultimate development of our net case-basis reserves. The impact to pre-tax earnings would be a decrease if the reserves were to be adjusted upwards and an increase if the reserves were to be adjusted downwards. The table below details the impact of this development volatility on our reported net case-basis reserves at December 31, 2013:

(In Thousands)
Change in level of net case-basis reserve development	5%		10%
Impact on reported net case-basis reserves	$	21,508	$	43,016

Due to the formula-based nature of our IBNR and loss settlement expense reserve calculations, changes in the key assumptions utilized to generate these reserves can result in a quantifiable impact on our reported results. It is not possible to isolate and measure the potential impact of just one of these factors, and future loss trends could be

72

partially impacted by all factors concurrently. Nevertheless, it is meaningful to view the sensitivity of the reserves to potential changes in these variables. To demonstrate the sensitivity of reserves to changes in significant assumptions, the following example is presented. The amounts reflect the pre-tax impact on earnings from a hypothetical percentage change in the calculation of IBNR and loss settlement expense reserves at December 31, 2013. The impact to pre-tax earnings would be a decrease if the reserves were to be adjusted upwards and an increase if the reserves were to be adjusted downwards. We believe that the changes presented are reasonably likely based upon an analysis of our historical IBNR and loss settlement expense reserve experience.

(In Thousands)
Change in claim frequency and claim severity assumptions	5%		10%
Impact due to change in IBNR reserving assumptions	$	9,387	$	18,774

(In Thousands)
Change in LAE paid to losses paid ratio	1%		2%
Impact due to change in LAE reserving assumptions	$	2,676	$	5,352

In 2013, we did not change the key assumptions on which we based our reserving calculations. In estimating our 2013 loss and loss settlement expense reserves, we did not anticipate future events or conditions that were inconsistent with past development patterns.

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

Other Liability Reserves

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

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

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

Our reserve for other liability claims at December 31, 2013, is $487.6 million and consists of 5,592 claims,compared with $522.7 million, consisting of 5,331 claims at December 31, 2012. Of the $487.6 million total reserve for other liability claims,$159.6 millionis identified as defense costs and $10.2 million is identified as general overhead required in the settlement of claims.

Included in the other liability line of business are gross reserves for construction defect losses and loss settlement expenses. Construction defect is a liability allegation relating to defective work performed in the construction of structures such as commercial buildings, apartments, condominiums, single family dwellings or other housing, as

73

well as the sale of defective building materials. These claims seek recovery due to damage caused by alleged deficient construction techniques or workmanship. At December 31, 2013, we had $35.8 million in construction defect loss and loss settlement expense reserves, excluding IBNR reserves that are calculated for the overall other liability commercial line, which consisted of 2,102 claims. At December 31, 2012, our reserves, excluding IBNR reserves, totaled $34.0 million, which consisted of 1,839 claims. The reporting of such claims can be delayed, as the statute of limitations can be up to 10 years. Also, court decisions in recent years have expanded insurers’ exposure to construction defect claims. As a result, claims may be reported more than 10 years after a project has been completed, as litigation can proceed for several years before an insurance company is identified as a potential contributor. Claims have also emerged from parties claiming additional insured status on policies issued to other parties, such as contractors seeking coverage from a subcontractor’s policy.

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

Asbestos and Environmental Reserves

Included in the other liability and assumed reinsurance lines of business are reserves for asbestos and other environmental losses and loss settlement expenses. At December 31, 2013 and 2012, we had $4.6 million and $1.7 million, respectively, in direct and assumed asbestos and environmental loss reserves. In addition, we had ceded asbestos and environmental loss reserves of $3.5 million and $0.4 million at December 31, 2013 and 2012, respectively. The estimation of loss reserves for environmental claims and claims related to long-term exposure to asbestos and other substances is one of the most difficult aspects of establishing reserves, especially given the inherent uncertainties surrounding such claims. Although we record our best estimate of loss and loss settlement expense reserves, the ultimate amounts paid upon settlement of such claims may be more or less than the amount of the reserves, because of the significant uncertainties involved and the likelihood that these uncertainties will not be resolved for many years.

Workers’ Compensation Reserves

Like the other liability line of business, workers’ compensation losses and loss settlement expense reserves are based upon variables that create imprecision in estimating the ultimate reserve. Estimates for workers’ compensation are particularly sensitive to assumptions about medical cost inflation, which has been steadily increasing over the past few years. Other variables that we consider and that contribute to the uncertainty in establishing reserves for workers’ compensation claims include: state legislative and regulatory environments; trends in jury awards; and mortality rates. Because of these variables, the process of reserving for the ultimate loss and loss settlement expense to be incurred requires the use of informed judgment and is inherently uncertain. Consequently, actual loss and loss settlement expense reserves may deviate from our estimates. Such deviations may be significant. Our reserve for workers’ compensation claims at December 31, 2013, is $186.0 million and consists of 2,348 claims, compared with $162.3 million, consisting of 2,117 claims, at December 31, 2012.

Reserve Development

The following reserve development section should be read in conjunction with the “Results of Operations” section of this Item 7.

In 2013, 2012 and 2011, we recognized a favorable development in our net reserves for prior accident years totaling $57.5 million, $73.4 million and $61.1 million, respectively.

The factors contributing to our year-to-year redundancy include: establishing reserves at their ultimate expected loss amount as soon as practicable after information becomes available, which produces, on average, prudently

74

conservative case reserves; using claims negotiation to control the size of settlements; assuming that we have liability for all claims, even though the issue of liability may, in some cases, be resolved in our favor; promoting claims management services to encourage return-to-work programs, case management by nurses for serious injuries and management of medical provider services and billings; and using programs and services to help prevent fraud and to assist in favorably resolving cases.

Based upon our comparison of carried reserves to actual claims experience over the last several years, we believe that using company historical premium and claims data to establish reserves for losses and loss settlement expenses results in adequate and reasonable reserves. Reserve development is discussed in more detail under the heading “Reserve Development” in the “Property and Casualty Insurance Segment” of the “Results of Operations” section in this Item.

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

(In Thousands)
Hypothetical Reserve Development Volatility Levels	-10%			-5%			+5%			+10%
Impact on loss and loss settlement expenses
Other liability	$	(48,759	)	$	(24,379	)	$	24,379		$	48,759
Workers’ compensation	(18,597		)	(9,299		)	9,299			18,597
Automobile	(15,873		)	(7,936		)	7,936			15,873
Hypothetical Reserve Development Volatility Levels	-5		%	-3		%	3		%	5		%
Impact on loss and loss settlement expenses
All other lines	$	(6,418	)	$	(3,851	)	$	3,851		$	6,418

Independent Actuary

We engage an independent actuarial firm to render an opinion as to the reasonableness of the statutory reserves internal management establishes. During 2013 and 2012, we engaged the services of Regnier Consulting Group, Inc. (“Regnier”) as our independent actuarial firm for the property and casualty insurance segment. We anticipate that this engagement will continue in 2014.

It is management’s policy to utilize staff adjusters to develop our estimate of case-basis loss reserves. IBNR and loss settlement expense reserves are established through various formulae that utilize pertinent, recent Company historical data. The calculations are supplemented with knowledge of current trends and events that could result in adjustments to the level of IBNR and loss settlement expense reserves. On an annual basis, we compare our estimate of total reserves to the estimates prepared by Regnier by line of business to ensure that our estimates are within the actuary’s acceptable range. Regnier performs a review of loss and loss settlement expense reserves at each year end using generally accepted actuarial guidelines to ensure that the recorded reserves appear reasonable. Our net reserves for losses and loss settlement expenses as of December 31, 2013 and 2012 were $885.5 million and $868.0 million, respectively. In 2013 and 2012, after considering the independent actuary’s range of reasonable estimates, management believed that carried reserves were reasonable and therefore did not adjust the recorded amount.

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

75

emergence based on reported losses. The two methods utilized by Regnier to project loss expenses are: paid expenses-to-paid loss and paid expense-to-ultimate loss.

Future Policy Benefits and Losses, Claims and Loss Settlement Expenses — Life Insurance Segment

We establish reserves for amounts that are payable under traditional insurance policies, including traditional life products, disability income and income annuities. Reserves are calculated as the present value of future benefits expected to be paid, reduced by the present value of future expected premiums. Our estimates use methods and underlying assumptions that are in accordance with GAAP and applicable actuarial standards. The key assumptions that we utilize in establishing reserves are mortality, morbidity, policy lapse, renewal, retirement, investment returns, inflation and expenses. Future investment return assumptions are determined based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy lapse assumptions are based on our experience. Expense assumptions include the estimated effects of inflation and expenses to be incurred beyond the premium-paying period. These assumptions are established at the time the policy is issued, are consistent with the assumptions for determining DAC amortization for these contracts, and are generally not changed during the policy coverage period. However, if actual experience emerges in a manner that is significantly adverse relative to the original assumptions, adjustments to reserves (or DAC) may be required resulting in a charge to earnings which could have a material adverse effect on our operating results and financial condition.

For limited pay traditional life products, we periodically determine if any profit occurs at the issuance of a contract that should be deferred over the life of that contract. To the extent that this occurs, we establish an unearned revenue liability at issuance that is amortized over the anticipated life of the contract.

We periodically review the adequacy of these reserves and recoverability of DAC for these contracts on an aggregate basis using actual experience. In the event that actual experience is significantly adverse compared to the original assumptions, any remaining unamortized DAC asset must be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required. The effects of changes in reserve estimates are reported in the results of operations in the period in which the changes are determined. We have not made any changes in our methods or assumptions for estimating reserves in the past three years. However, we anticipate that changes in mortality, investment and reinvestment yields, and policy termination assumptions are the factors that would most likely require an adjustment to these reserves or related DAC asset.

Liabilities for future policy benefits for disability claims are estimated using the present value of benefits method and experience assumptions as to claim terminations, expenses and interest.

Other reserves include claims that have been reported but not settled and IBNR reserves for claims on life and disability income insurance. We use our own historical experience and other assumptions such as any known or anticipated developments or trends to establish reserves for these unsettled or unreported claims. The effects of changes in our estimated reserves are included in our results of operations in the period in which the changes occur.

Our reserves for universal life and deferred annuity contracts are based upon the policyholders’ current account value. Acquisition expenses are amortized in relation to expected gross profits forecast based upon current best estimates of anticipated premium income, investment earnings, benefits and expenses. Annually, we review our estimates of reserves and the related DAC asset and compare them with actual experience. Differences between actual experience and the assumptions that we used in the pricing of these policies, guarantees and riders, and in the establishment of the related reserves will result in variances in profit for the underlying contract. The effects of the changes in such estimated reserves are included in our results of operations in the period in which the changes occur.

The following table reflects the estimated pre-tax impact to DAC, net of unearned revenue liabilities to our universal life and fixed annuity products that could occur in a twelve-month period because of an unlocking adjustment due to reasonably likely changes in significant assumptions. Changes in assumptions of the same magnitude in the opposite direction would have an impact of a similar magnitude but opposite direction of the examples provided.

76

Assumption	Determination Methodology	Potential One-Time Effect on DAC Asset, Net of Unearned Revenue Liabilities
Mortality Experience	Based on our mortality experience with consideration given to industry experience and trends	A 10.0% increase in expected mortality experience for all future years would result in a reduction in DAC and an increase in current period amortization expense of $2.7 million.
Surrender Rates	Based on our policy surrender experience with consideration given to industry experience and trends	A 10.0% increase in expected surrender rates for all future years would result in a reduction in DAC and an increase in current period amortization expense of $2.1 million.
Interest Spreads	Based on our expected future investment returns and expected future crediting rates applied to policyholder account balances; future crediting rates include constraints imposed by policy guarantees	A 10-basis-point reduction in future interest rate spreads would result in a reduction in DAC and an increase in current period amortization expense of $1.9 million.
Maintenance Expenses	Based on our experience using an internal expense allocation methodology	A 10.0% increase in future maintenance expenses would result in a reduction in DAC and an increase in current period amortization expense of $0.6 million.

Independent Actuary

We engage an independent actuarial firm to render an opinion as to the reasonableness of the statutory reserves we establish. Statutory reserves are established using considerably more conservative assumptions regarding future investment earnings and contractual benefit payments than are used for GAAP reserves. During 2013 and 2012, we engaged the services of Griffith, Ballard and Company as our independent actuarial firm for the life insurance segment. We anticipate that this engagement will continue in 2014.

Pension and Postretirement Benefit Obligations

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

A change in any one or more of these assumptions is likely to result in an ultimate liability different from the original actuarial estimate. Such changes in estimates may be material. For example, a 100 basis point decrease in our estimated discount rate would increase the pension and postretirement benefit obligation at December 31, 2013, by $20.3 million and $6.8 million, respectively, while a 100 basis point increase in the rate would decrease the benefit obligation at December 31, 2013, by $16.2 million and $8.3 million, respectively.

In addition, for the postretirement benefit plan, a 100 basis point increase in the medical trend rate would increase the postretirement benefit obligation at December 31, 2013, by $6.8 million, while a 100 basis point decrease in the medical trend rate would decrease the benefit obligation at December 31, 2013, by $8.3 million.

A 100 basis point decrease in our estimated long-term rate of return on pension plan assets would increase the benefit expense for the year ended December 31, 2013, by $0.9 million, while a 100 basis point increase in the rate would decrease benefit expense by $0.9 million, for the same period.

77

For the postretirement benefit plan, an increase in our estimated medical trend rate would increase the benefit expense for the year ended December 31, 2013, by $1.3 million, while a 100 basis point decrease in the rate would decrease benefit expense by $1.0 million, for the same period.

Recently Issued Accounting Standards

Adopted Accounting Standards in 2013

Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires significant items that are reclassified out of accumulated other comprehensive income (“AOCI”) to net income in their entirety in the same reporting period, to be reported to show the effect of the reclassifications on the respective line items of the statement where net income is presented. These reclassifications can be presented either on the face of the statement where net income is presented or in the notes to the financial statements. For items that are not reclassified to net income in their entirety in the same reporting period, a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The new guidance also requires companies to report changes in the accumulated balances of each component of AOCI. This new guidance was effective for annual and interim periods beginning after December 15, 2012. The Company adopted the new guidance effective January 1, 2013. The adoption of the new guidance affects presentation only and therefore had no impact on the Company’s results of operations or financial position.

Pending Adoption of Accounting Standards

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new guidance is effective for annual and interim periods beginning after December 15, 2013. The Company currently does not have any liability for unrecognized tax benefits. Therefore, the adoption of the new guidance in not expected to have an impact on the Company’s financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and

Results of Operations” under the headings “Investments” and “Market Risk.”

78

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

United Fire Group, Inc. Consolidated Balance Sheets
	December 31,
(In Thousands, Except Share Data)	2013		2012
ASSETS
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $669 in 2013 and $1,681 in 2012)	$	656	$	1,655
Available-for-sale, at fair value (amortized cost $2,733,557 in 2013 and $2,657,800 in 2012)	2,751,256		2,808,078
Trading securities, at fair value (amortized cost $8,049 in 2013 and $12,645 in 2012)	9,940		13,353
Equity securities
Available-for-sale, at fair value (cost $70,957 in 2013 and $66,892 in 2012)	229,368		177,127
Trading securities, at fair value (cost $2,367 in 2013 and $1,772 in 2012)	2,487		2,018
Mortgage loans	4,423		4,633
Policy loans	6,261		6,671
Other long-term investments	44,946		30,028
Short-term investments	800		800
	3,050,137		3,044,363
Cash and cash equivalents	92,193		107,466
Accrued investment income	27,923		30,375
Premiums receivable (net of allowance for doubtful accounts of $896 in 2013 and $866 in 2012)	218,635		188,289
Deferred policy acquisition costs	150,092		105,300
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $36,972 in 2013 and $34,093 in 2012)	47,218		43,090
Reinsurance receivables and recoverables	87,451		114,399
Prepaid reinsurance premiums	3,160		2,963
Income taxes receivable	1,786		16,536
Goodwill and net intangible assets	27,047		28,259
Other assets	15,030		13,613
TOTAL ASSETS	$	3,720,672	$	3,694,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance	$	960,651	$	971,911
Life insurance	1,472,132		1,498,176
Unearned premiums	340,464		311,650
Accrued expenses and other liabilities	142,677		164,111
Deferred income taxes	21,915		19,628
TOTAL LIABILITIES	$	2,937,839	$	2,965,476
Stockholders’ Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,360,893 and 25,227,463 shares issued and outstanding in 2013 and 2012, respectively	$	25	$	25
Additional paid-in capital	211,574		208,536
Retained earnings	484,084		425,428
Accumulated other comprehensive income, net of tax	87,150		95,188
TOTAL STOCKHOLDERS’ EQUITY	$	782,833	$	729,177
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,720,672	$	3,694,653

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

79

United Fire Group, Inc.

Consolidated Statements of Income and Comprehensive Income

	For the Years Ended December 31,
(In Thousands, Except Share Data)	2013			2012			2011
Revenues
Net premiums earned	$	754,846		$	694,994		$	586,783
Investment income, net of investment expenses	112,799			111,905			109,494
Net realized investment gains (losses)
Other-than-temporary impairment charges	(139		)	(4		)	(395		)
All other net realized gains (includes reclassifications for net unrealized gains on available-for-sale securities of $6,812 in 2013; $4,102 in 2012; and $7,369 in 2011 previously included in accumulated other comprehensive income)	8,834			5,457			6,835
Total net realized investment gains	8,695			5,453			6,440
Other income	702			891			2,291
Total revenues	$	877,042		$	813,243		$	705,008
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	458,814		$	459,706		$	430,389
Increase in liability for future policy benefits	37,625			43,095			32,567
Amortization of deferred policy acquisition costs	153,677			141,834			153,176
Other underwriting expenses (includes reclassifications for employee benefit costs of $5,868 in 2013; $4,971 in 2012; and $2,570 in 2011 previously included in accumulated other comprehensive income)	89,861			81,125			58,757
Interest on policyholders’ accounts	35,163			41,409			42,834
Total benefits, losses and expenses	$	775,140		$	767,169		$	717,723
Income (loss) before income taxes	$	101,902		$	46,074		$	(12,715	)
Federal income tax expense (benefit) (includes reclassifications of ($331) in 2013; $304 in 2012; and ($1,680) in 2011 previously included in accumulated other comprehensive income)	25,762			5,862			(12,726		)
Net income	$	76,140		$	40,212		$	11
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	$	(35,489	)	$	34,436		$	40,795
Change in liability for underfunded employee benefit plans	24,066			(15,922		)	(27,528		)
Other comprehensive income (loss), before tax and reclassification adjustments	(11,423		)	18,514			13,267
Income tax effect	3,998			(6,477		)	(4,540		)
Other comprehensive income (loss), after tax, before reclassification adjustments	(7,425		)	12,037			8,727
Reclassification adjustment for net realized gains included in income	(6,812		)	(4,102		)	(7,369		)
Reclassification adjustment for employee benefit costs included in expense	5,868			4,971			2,570
Total reclassification adjustments, before tax	(944		)	869			(4,799		)
Income tax effect	331			(304		)	1,680
Total reclassification adjustments, after tax	(613		)	565			(3,119		)
Comprehensive income	$	68,102		$	52,814		$	5,619
Weighted average common shares outstanding	25,325,695			25,447,918			25,878,535
Basic earnings per common share	$	3.01		$	1.58		$	—
Diluted earnings per common share	2.98			1.58			—

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

80

United Fire Group, Inc.

Consolidated Statement of Stockholders’ Equity

	For the Years Ended December 31,
(In Thousands, Except Share Data)	2013			2012			2011
Common stock
Balance, beginning of year	$	25		$	25		$	26
Shares repurchased (59,603 in 2013; 340,159 in 2012; and 702,947 in 2011)	—			—			(1		)
Shares issued for stock-based awards (193,033 in 2013; 87,363 in 2012; and 12,745 in 2011)	—			—			—
Balance, end of year	$	25		$	25		$	25
Additional paid-in capital
Balance, beginning of year	$	208,536		$	213,045		$	223,439
Compensation expense and related tax benefit for stock-based award grants	1,289			1,686			1,830
Shares repurchased	(1,644		)	(7,301		)	(12,432		)
Shares issued for stock-based awards	3,393			1,106			208
Balance, end of year	$	211,574		$	208,536		$	213,045
Retained earnings
Balance, beginning of year	$	425,428		$	400,485		$	415,981
Net income	76,140			40,212			11
Dividends on common stock ($0.69 per share in 2013; $0.60 per share in 2012 and 2011)	(17,484		)	(15,269		)	(15,507		)
Balance, end of year	$	484,084		$	425,428		$	400,485
Accumulated other comprehensive income, net of tax
Balance, beginning of year	$	95,188		$	82,586		$	76,978
Change in net unrealized investment appreciation (1)	(27,495		)	19,720			21,727
Change in liability for underfunded employee benefit plans (2)	19,457			(7,118		)	(16,119		)
Balance, end of year	$	87,150		$	95,188		$	82,586
Summary of changes
Balance, beginning of year	$	729,177		$	696,141		$	716,424
Net income	76,140			40,212			11
All other changes in stockholders’ equity accounts	(22,484		)	(7,176		)	(20,294		)
Balance, end of year	$	782,833		$	729,177		$	696,141

(1) The change in net unrealized appreciation is net of reclassification adjustments and income taxes.

(2) The change in liability for underfunded employee benefit plans is net of income taxes.

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

81

United Fire Group, Inc.

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
(In Thousands)	2013			2012			2011
Cash Flows From Operating Activities
Net income	$	76,140		$	40,212		$	11
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	15,291			15,183			11,638
Depreciation and amortization	5,603			7,979			5,583
Stock-based compensation expense	1,777			1,764			1,829
Net realized investment gains	(8,695		)	(5,453		)	(6,440		)
Net cash flows from trading investments	3,852			403			(1,993		)
Deferred income tax expense (benefit)	(368		)	7,452			(6,288		)
Changes in:
Accrued investment income	2,452			1,844			499
Premiums receivable	(30,346		)	(15,941		)	(12,067		)
Deferred policy acquisition costs	(2,690		)	(3,467		)	11,709
Reinsurance receivables	26,948			14,175			(23,649		)
Prepaid reinsurance premiums	(197		)	3,228			1,684
Income taxes receivable	14,750			10,206			(6,310		)
Other assets	(1,417		)	3,603			9,970
Future policy benefits and losses, claims and loss settlement expenses	21,251			64,384			67,302
Unearned premiums	28,814			22,659			16,401
Accrued expenses and other liabilities	8,499			14,950			3,504
Deferred income taxes	6,983			(8,234		)	(82		)
Other, net	(7,156		)	(2,871		)	1,130
Total adjustments	$	85,351		$	131,864		$	74,420
Net cash provided by operating activities	$	161,491		$	172,076		$	74,431
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	$	23,007		$	20,324		$	39,496
Proceeds from call and maturity of held-to-maturity investments	1,004			2,709			2,243
Proceeds from call and maturity of available-for-sale investments	477,071			527,720			563,515
Proceeds from short-term and other investments	7,170			4,810			4,741
Purchase of held-to-maturity investments	—			(200		)	—
Purchase of available-for-sale investments	(587,412		)	(653,467		)	(595,162		)
Purchase of short-term and other investments	(14,375		)	(10,350		)	(3,357		)
Net purchases and sales of property and equipment	(8,451		)	(2,886		)	(14,048		)
Acquisition of property and casualty company, net of cash acquired	—			—			(172,620		)
Net cash used in investing activities	$	(101,986	)	$	(111,340	)	$	(175,192	)
Cash Flows From Financing Activities
Policyholders’ account balances
Deposits to investment and universal life contracts	$	150,272		$	141,252		$	170,678
Withdrawals from investment and universal life contracts	(208,827		)	(156,881		)	(119,716		)
Borrowings of short-term debt	—			—			124,900
Repayment of short-term debt	—			(45,000		)	(82,900		)
Repayment of trust preferred securities	—			(15,626		)	—
Payment of cash dividends	(17,484		)	(15,269		)	(15,507		)
Repurchase of common stock	(1,644		)	(7,301		)	(12,433		)
Issuance of common stock	3,393			1,106			208
Tax impact from issuance of common stock	(488		)	(78		)	1
Net cash (used in) provided by financing activities	$	(74,778	)	$	(97,797	)	$	65,231
Net Change in Cash and Cash Equivalents	$	(15,273	)	$	(37,061	)	$	(35,530	)
Cash and Cash Equivalents at Beginning of Year	107,466			144,527			180,057
Cash and Cash Equivalents at End of Year	$	92,193		$	107,466		$	144,527

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

82

Index of Notes to Consolidated Financial Statements	Page
Note 1. Summary of Significant Accounting Policies	84
Note 2. Summary of Investments	90
Note 3. Fair Value of Financial Instruments	98
Note 4. Reinsurance	106
Note 5. Reserves for Loss and Loss Settlement Expenses	108
Note 6. Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions	110
Note 7. Federal Income Tax	112
Note 8. Employee Benefits	114
Note 9. Stock-Based Compensation	120
Note 10. Segment Information	123
Note 11. Quarterly Supplementary Financial Information (Unaudited)	127
Note 12. Earnings Per Common Share	127
Note 13. Lease Commitments	128
Note 14. Debt	128
Note 15. Intangible Assets	129
Note 16. Accumulated Other Comprehensive Income	130
Note 17. Business Combinations	130

83

UNITED FIRE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, unless otherwise noted)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

United Fire Group, Inc. (“United Fire”, the “Registrant”, the “Company”,“we,” “us,” or “our”) and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. We report our operations in two business segments: property and casualty insurance and life insurance. Our insurance company subsidiaries are licensed as a property and casualty insurer in 43 states, plus the District of Columbia, and as a life insurer in 37 states.

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group, Inc. for $191,475. The acquisition was funded through a combination of cash and $79,900 of short-term debt. Accordingly, the results of operations for Mercer Insurance Group, Inc. have been included in the accompanying consolidated financial statements from that date forward. The acquisition allowed us to diversify our exposure to weather and other catastrophe risks across our geographic markets. In connection with the acquisition transaction, we incurred $8,318 of transaction costs, which included $5,540 of expense related to change in control payments made to the former executive officers of Mercer Insurance Group, Inc.

Holding Company Reorganization

On February 1, 2012, United Fire & Casualty Company completed a corporate reorganization (the “Reorganization”) that resulted in the creation of United Fire Group, Inc., an Iowa corporation, as the holding company and sole owner of United Fire & Casualty Company. In connection with the Reorganization, each share of United Fire & Casualty Company common stock (par value $3.33 1/3 per share) that was issued and outstanding immediately prior to the effective date was automatically converted into a share of United Fire Group, Inc. common stock (par value $0.001 per share). In addition, each outstanding option to purchase or other right to acquire shares of United Fire & Casualty Company common stock was automatically converted into an option to purchase or right to acquire, upon the same terms and conditions, an identical number of shares of United Fire Group, Inc. common stock. United Fire Group, Inc. became the publicly held corporation upon completion of the Reorganization.

We have accounted for the Reorganization as a merger of entities under common control, which is similar to the former “pooling of interests method” to account for business combinations. Accordingly, the accompanying Consolidated Financial Statements include the consolidated financial position and results of operations of United Fire & Casualty Company on the same basis as was historically presented, except that the amount reported for common stock at par value has been retrospectively restated to report the par value of United Fire Group, Inc. common stock. The resulting difference has been recorded in additional paid-in capital for all periods presented.

Principles of Consolidation

The accompanying Consolidated Financial Statements include United Fire and its wholly owned subsidiaries: United Fire & Casualty Company, United Real Estate Holdings Company, LLC, United Life Insurance Company (“United Life”), Addison Insurance Company, American Indemnity Financial Corporation, Lafayette Insurance Company, United Fire & Indemnity Company, Texas General Indemnity Company (currently in run-off) and Mercer Insurance Group, Inc., which includes BICUS Services Corporation (currently inactive), Financial Pacific Insurance Company, Financial Pacific Insurance Group, Inc., Franklin Insurance Company, Mercer Insurance Company, and Mercer Insurance Company of New Jersey, Inc. (collectively, “Mercer Insurance Group”).

United Fire Lloyds, an affiliate of United Fire & Indemnity Company, is organized as a Texas Lloyds plan, which is an aggregation of underwriters who, under a common name, engage in the business of insurance through a corporate attorney-in-fact. United Fire Lloyds is financially and operationally controlled by United Fire & Indemnity Company, its corporate attorney-in-fact, pursuant to three types of agreements: trust agreements between United Fire

84

& Indemnity Company and certain individuals who agree to serve as trustees; articles of agreement among the trustees who agree to act as underwriters to establish how the Lloyds plan will be operated; and powers of attorney from each of the underwriters appointing a corporate attorney-in-fact, who is authorized to operate the Lloyds plan. Because United Fire & Indemnity Company can name the trustees, the Lloyds plan is perpetual, subject only to United Fire & Indemnity Company’s desire to terminate it.

United Fire & Indemnity Company provides all of the statutory capital necessary for the formation of the Lloyds plan by contributing capital to each of the trustees. The trust agreements require the trustees to become underwriters of the Lloyds plan, to contribute the capital to the Lloyds plan, to sign the articles of agreement and to appoint the attorney-in-fact. The trust agreements also require the trustees to pay to United Fire & Indemnity Company all of the profits and benefits received by the trustees as underwriters of the Lloyds plan, which means that United Fire & Indemnity Company has the right to receive 100 percent of the gains and profits from the Lloyds plan. The trustees serve at the pleasure of United Fire & Indemnity Company, which may remove a trustee and replace that trustee at any time. Termination of a trustee must be accompanied by the resignation of the trustee as an underwriter, so that the trustee can obtain the capital contribution from the Lloyds plan to reimburse United Fire & Indemnity Company. By retaining the ability to terminate trustees, United Fire & Indemnity Company possesses the ability to name and remove the underwriters.

United Real Estate Holdings, LLC, formed in 2013, is a wholly owned subsidiary of United Fire & Casualty Company and is organized as an Iowa Limited Liability Corporation, an unincorporated association formed for the purpose of holding United Fire & Casualty Company’s ownership in commercial real estate.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those followed in preparing our statutory reports to insurance regulatory authorities. Our stand-alone financial statements submitted to insurance regulatory authorities are presented on the basis of accounting practices prescribed or permitted by the insurance departments of the states in which we are domiciled (“statutory accounting principles”).

In the preparation of the accompanying Consolidated Financial Statements, we have evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables (for net realizable value); future policy benefits and losses, claims and loss settlement expenses; and pension and postretirement benefit obligations.

Property and Casualty Insurance Business

Premiums written are deferred and recorded as earned premium on a daily pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of insurance policies in force. Premiums receivable are presented net of an estimated allowance for doubtful accounts, which is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders.

To establish loss and loss settlement expense reserves, we make estimates and assumptions about the future development of claims. Actual results could differ materially from those estimates, which are subjective, complex

85

and inherently uncertain. When we establish and adjust reserves, we do so given our knowledge at the time of the circumstances and facts of known claims. To the extent that we have overestimated or underestimated our loss and loss settlement expense reserves, we adjust the reserves in the period in which such adjustment is determined.

We record our best estimate of reserves for claim litigation that arises in the ordinary course of business. We consider all of our pending litigation as of December 31, 2013 to be ordinary, routine and incidental to our business.

Life Insurance Business

Our whole life and term insurance (i.e., traditional business) premiums are reported as earned when due and benefits and expenses are associated with premium income in order to result in the recognition of profits over the lives of the related contracts. Premiums receivable are presented net of an estimated allowance for doubtful accounts. Income annuities with life contingencies (single premium immediate annuities and supplementary contracts) have premium recorded and any related expense charge fees recorded as income and expense when the contract is issued. On universal life and deferred annuity policies (i.e., non-traditional business), income and expenses are reported when charged and credited to policyholder account balances in order to result in recognition of profits over the lives of the related contracts. We accomplish this by means of a provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Liabilities for future policy benefits for traditional products are computed by the net level premium method, using interest assumptions ranging from 4.5 percent to 6.0 percent and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued. Liabilities for non-traditional business are stated at policyholder account values before surrender charges. Liabilities for traditional immediate annuities are based primarily upon future anticipated cash flows using assumptions for mortality and interest rates. Liabilities for deferred annuities are carried at the account value.

Reinsurance

Premiums earned and losses and loss settlement expenses incurred are reported net of reinsurance ceded. Ceded insurance business is accounted for on a basis consistent with the original policies issued and the terms of the reinsurance contracts. Refer to Note 4 “Reinsurance” for a discussion of our reinsurance activities.

Investments

Investments in fixed maturities include bonds and redeemable preferred stocks. Our investments in held-to-maturity fixed maturities are recorded at amortized cost. Our investments in available-for-sale fixed maturities and trading securities are recorded at fair value.

Investments in equity securities, which include common and non-redeemable preferred stocks, are classified as available-for-sale or trading and are recorded at fair value.

Changes in unrealized appreciation and depreciation, with respect to available-for-sale fixed maturities and equity securities, are reported as a component of accumulated other comprehensive income, net of applicable deferred income taxes, in stockholders’ equity.

Other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. Mortgage loans are recorded at their unpaid principal balance. Policy loans are recorded at the outstanding loan amount due from policyholders. Included in investments at December 31, 2013 and 2012, are securities on deposit with, or available to, various regulatory authorities as required by law, with fair values of $1,620,505 and $1,736,466, respectively.

In 2013, 2012 and 2011, we recorded a pre-tax realized loss of $139, $4 and $395, respectively, as a result of the recognition of other-than-temporary impairment (“OTTI”) charges on certain holdings in our investment portfolio. None of the OTTI charges were considered to have a noncredit related loss component. We review all of our investment holdings for appropriate valuation on an ongoing basis. Refer to Note 2 “Summary of Investments” for a discussion of our accounting policy for impairment recognition.

86

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.

In 2013, 2012, and 2011, we made payments for income taxes of $13,628, $11,920 and $570, respectively. In addition, we received federal tax refunds of $8,744 and $15,798 in 2013 and 2012, respectively, that resulted from the utilization of our 2009 net operating losses and net capital losses in the carryback period. No tax refunds were received in 2011. We made no interest payments in 2013. In 2012 and 2011, we made interest payments of $961 and $1,926, respectively. These payments exclude interest credited to policyholders’ accounts.

Deferred Policy Acquisition Costs (“DAC”)

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC that are reported in the accompanying Consolidated Financial Statements:

Property & Casualty	2013			2012			2011
Recorded asset at beginning of year	$	64,947		$	60,668		$	44,681
Underwriting costs deferred	149,891			138,723			132,503
Amortization of deferred policy acquisition costs	(147,175		)	(132,771		)	(118,189		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
Recorded asset at end of year	$	67,663		$	64,947		$	60,668
Life Insurance
Recorded asset at beginning of year	$	40,353		$	45,986		$	42,843
Underwriting costs deferred	6,476			6,578			8,965
Amortization of deferred policy acquisition costs	(6,502		)	(7,390		)	(9,224		)
	$	40,327		$	45,174		$	42,584
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	82,429		$	40,353		$	45,986
Total
Recorded asset at beginning of year	$	105,300		$	106,654		$	87,524
Underwriting costs deferred	156,367			145,301			141,468
Amortization of deferred policy acquisition costs	(153,677		)	(140,161		)	(127,413		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
	$	107,990		$	110,121		$	103,252
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	150,092		$	105,300		$	106,654

Property and casualty policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses to be incurred and certain other costs expected to be incurred as the premium is earned.

87

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset, or “shadow” DAC, to net unrealized investment appreciation as of the balance sheet date. The “shadow” DAC adjustment increased the DAC asset by $3,407 and decreased the DAC asset by $38,695 at December 31, 2013 and 2012, respectively.

In October 2010, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be incremental and directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Acquisition costs that are not eligible for deferral are to be charged to expense in the period incurred.

Effective January 1, 2012, we elected to adopt the updated accounting guidance on a prospective basis. As a result of the adoption, the amount of underwriting expenses eligible for deferral has decreased. After consideration of our normal recoverability assessment and the amortization pattern of our deferred policy acquisition costs, we recognized approximately $10,291 more expense (pretax) in 2012 than we would have had the guidance remained the same. The impact of the adoption on the amounts reported in the accompanying Consolidated Statements of Income and Comprehensive Income was an increase to other underwriting expenses of $25,528, a decrease to deferred policy acquisition cost amortization of $15,237 and a reduction in net income of $6,689 or $0.26 per share. The 2013 DAC asset has been computed on a comparable basis at December 31, 2013 and 2012.

Property, Equipment and Depreciation

Property and equipment is presented at cost less accumulated depreciation. At December 31, 2013, the Company had property and equipment of $47,218, which included buildings of $29,072, land of $7,163, furniture and fixtures of $2,707, computer equipment and software of $3,197 and an airplane of $5,079. At December 31, 2012, the Company had property and equipment of $43,090, which included buildings of $25,186, land of $6,879, furniture and fixtures of $1,024, computer equipment and software of $3,076 and an airplane of $6,925. Expenditures for maintenance and repairs are generally expensed as incurred. We periodically review these assets for impairment whenever events or changes in business circumstances indicate that the carrying value of the underlying asset may not be recoverable. A loss would be recognized if the estimated fair value of the asset were less than its carrying value.

Depreciation is computed primarily by the straight-line method over the following estimated useful lives:

	Useful Life
Computer equipment	Three years
Furniture and fixtures	Seven years
Leasehold improvements	Shorter of the lease term or useful life of the asset
Real estate	Seven to thirty-nine years
Software	Three years

Depreciation expense totaled $4,391, $5,440 and $3,661 for 2013, 2012 and 2011, respectively.

88

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the tangible assets acquired and liabilities assumed. We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed its implied fair value. Goodwill is evaluated at the reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. In 2013 and 2012, we performed a qualitative assessment of our goodwill. As a result of this assessment, we did not recognize an impairment charge on our goodwill in 2013 or 2012.

Our intangible assets, which consist primarily of agency relationships, trade names, licenses, and software, are being amortized by the straight-line method over periods ranging from 2 years to 15 years, with the exception of licenses, which are indefinite-lived and not amortized. We performed a qualitative assessment of our intangible assets. As a result of this assessment, we did not recognize an impairment charge on our intangible assets in 2013, 2012 and 2011. Amortization expense, which is allocated to the property and casualty insurance segment, totaled $1,212, $2,539 and $1,922 for 2013, 2012 and 2011, respectively.

Income Taxes

Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders’ equity and do not impact federal income tax expense.

We did not recognize any liability for unrecognized tax benefits at December 31, 2013, or 2012 or at any time during 2013, 2012, and 2011. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2009. The Internal Revenue Service is conducting a routine examination of our income tax return for the 2011 tax year.

Stock-Based Compensation

We currently have two equity compensation plans. One plan allows us to grant restricted and unrestricted stock, stock appreciation rights, incentive stock options, and non-qualified stock options to employees. The other plan allows us to grant restricted and non-qualified stock options to non-employee directors.

We utilize the Black-Scholes option pricing method to establish the fair value of non-qualified stock options granted under our equity compensation plans. Our determination of the fair value of stock options on the date of grant using this option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected volatility in our stock price, the expected term of the award, the expected dividends to be paid over the term of the award and the expected risk-free interest rate. Any changes in these assumptions may materially affect the estimated fair value of the award. For our restricted and unrestricted stock awards, we utilize the fair value of our common stock on the date of grant to establish the fair value of the award. Refer to Note 9 “Stock-Based Compensation” for further discussion.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by and dividends to stockholders.

89

Recently Issued Accounting Standards

Adopted Accounting Standards in 2013

Comprehensive Income

In February 2013, the FASB issued guidance that requires significant items that are reclassified out of accumulated other comprehensive income (“AOCI”) to net income in their entirety in the same reporting period, to be reported to show the effect of the reclassifications on the respective line items of the statement where net income is presented. These reclassifications can be presented either on the face of the statement where net income is presented or in the notes to the financial statements. For items that are not reclassified to net income in their entirety in the same reporting period a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The new guidance also requires companies to report changes in the accumulated balances of each component of AOCI. This new guidance was effective for annual and interim periods beginning after December 15, 2012. The Company adopted the new guidance effective January 1, 2013. The adoption of the new guidance affects presentation only and therefore had no impact on the Company’s results of operations or financial position.

Pending Adoption of Accounting Standards

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new guidance is effective for annual and interim periods beginning after December 15, 2013. The Company currently does not have any liability for unrecognized tax benefits. Therefore, the adoption of the new guidance is not expected to have an impact on the Company’s financial position or results of operations.

NOTE 2. SUMMARY OF INVESTMENTS

Fair Value of Investments

The table that follows is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities as of December 31, 2013 and 2012.

90

December 31, 2013
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	250	$	4	$	—	$	254
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	206		9		—		215
Total Held-to-Maturity Fixed Maturities	$	656	$	13	$	—	$	669
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,612	$	423	$	140	$	33,895
U.S. government agency	287,988		258		18,663		269,583
States, municipalities and political subdivisions	690,461		34,151		10,705		713,907
Foreign bonds	167,390		5,863		397		172,856
Public utilities	213,479		6,873		1,776		218,576
Corporate bonds
Energy	157,620		4,398		1,008		161,010
Industrials	234,221		5,626		2,819		237,028
Consumer goods and services	165,565		3,770		1,421		167,914
Health care	91,008		3,138		1,200		92,946
Technology, media and telecommunications	121,746		2,541		3,321		120,966
Financial services	234,739		7,735		723		241,751
Mortgage-backed securities	22,034		323		291		22,066
Collateralized mortgage obligations	309,975		1,707		16,919		294,763
Asset-backed securities	3,719		276		—		3,995
Total Available-For-Sale Fixed Maturities	$	2,733,557	$	77,082	$	59,383	$	2,751,256
Equity securities
Common stocks
Public utilities	$	7,231	$	9,068	$	27	$	16,272
Energy	5,094		9,269		—		14,363
Industrials	13,308		32,823		32		46,099
Consumer goods and services	10,363		10,895		—		21,258
Health care	7,920		17,078		—		24,998
Technology, media and telecommunications	6,204		7,183		83		13,304
Financial services	15,853		72,537		128		88,262
Nonredeemable preferred stocks	4,984		5		177		4,812
Total Available-for-Sale Equity Securities	$	70,957	$	158,858	$	447	$	229,368
Total Available-for-Sale Securities	$	2,804,514	$	235,940	$	59,830	$	2,980,624

91

December 31, 2012
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	1,185	$	11	$	—	$	1,196
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	256		15		—		271
Collateralized mortgage obligations	14		—		—		14
Total Held-to-Maturity Fixed Maturities	$	1,655	$	26	$	—	$	1,681
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	37,887	$	939	$	5	$	38,821
U.S. government agency	45,566		429		67		45,928
States, municipalities and political subdivisions	739,752		55,572		819		794,505
Foreign bonds	207,359		11,863		62		219,160
Public utilities	232,550		15,208		32		247,726
Corporate bonds
Energy	169,973		9,758		—		179,731
Industrials	280,185		13,690		212		293,663
Consumer goods and services	193,313		9,813		151		202,975
Health care	115,654		7,111		80		122,685
Technology, media and telecommunications	123,660		6,909		198		130,371
Financial services	271,061		13,858		1,059		283,860
Mortgage-backed securities	27,940		888		21		28,807
Collateralized mortgage obligations	208,042		7,702		1,160		214,584
Asset-backed securities	4,480		406		—		4,886
Redeemable preferred stocks	378		—		2		376
Total Available-For-Sale Fixed Maturities	$	2,657,800	$	154,146	$	3,868	$	2,808,078
Equity securities
Common stocks
Public utilities	$	7,231	$	7,268	$	83	$	14,416
Energy	5,094		6,903		—		11,997
Industrials	13,031		19,827		174		32,684
Consumer goods and services	10,394		8,535		50		18,879
Health care	7,920		10,286		125		18,081
Technology, media and telecommunications	5,367		5,155		95		10,427
Financial services	15,701		52,936		145		68,492
Nonredeemable preferred stocks	2,154		25		28		2,151
Total Available-for-Sale Equity Securities	$	66,892	$	110,935	$	700	$	177,127
Total Available-for-Sale Securities	$	2,724,692	$	265,081	$	4,568	$	2,985,205

92

Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at December 31, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

	Held-To-Maturity				Available-For-Sale				Trading
December 31, 2013	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	135	$	136	$	231,060	$	234,922	$	1,350	$	1,359
Due after one year through five years	315		318		950,084		996,862		3,762		5,147
Due after five years through 10 years	—		—		848,931		855,156		—		—
Due after 10 years	—		—		367,754		343,492		2,937		3,434
Asset-backed securities	—		—		3,719		3,995		—		—
Mortgage-backed securities	206		215		22,034		22,066		—		—
Collateralized mortgage obligations	—		—		309,975		294,763		—		—
	$	656	$	669	$	2,733,557	$	2,751,256	$	8,049	$	9,940

Net Realized Investment Gains and Losses

Net realized gains (losses) on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of net realized investment gains (losses) for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Net realized investment gains (losses)
Fixed maturities:
Held-to-maturity	$	1		$	12		$	8
Available-for-sale	3,211			3,408			4,776
Trading securities
Change in fair value	1,183			683			(539		)
Sales	788			406			(326		)
Equity securities:
Available-for-sale	3,739			698			2,988
Trading securities
Change in fair value	(126		)	250			(4		)
Sales	38			—			—
Other long-term investments	—			—			(68		)
Other-than-temporary-impairment charges:
Fixed maturities	(139		)	—			(395		)
Equity securities	—			(4		)	—
Total net realized investment gains	$	8,695		$	5,453		$	6,440

The proceeds and gross realized gains (losses) on the sale of available-for-sale securities for 2013, 2012 and 2011, were as follows:

	2013		2012			2011
Proceeds from sales	$	23,007	$	20,324		$	39,496
Gross realized gains	451		513			1,144
Gross realized losses	—		(37		)	(1,562		)

There were no sales of held-to-maturity securities in 2013, 2012 and 2011.

93

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains and losses. Our portfolio of trading securities had a fair value of $12,427 and $15,371 at December 31, 2013 and 2012, respectively.

Net Investment Income

Net investment income for the years ended December 31, 2013, 2012 and 2011, is comprised of the following:

Years Ended December 31,	2013		2012		2011
Investment income
Interest on fixed maturities	$	101,950	$	108,517	$	109,467
Dividends on equity securities	5,806		5,354		4,628
Income (loss) on other long-term investments
Investment income	1,194		232		224
Change in value (1)	7,030		2,562		(137		)
Interest on mortgage loans	266		279		285
Interest on short-term investments	6		10		4
Interest on cash and cash equivalents	239		290		913
Other	1,632		825		969
Total investment income	$	118,123	$	118,069	$	116,353
Less investment expenses	5,324		6,164		6,859
Net investment income	$	112,799	$	111,905	$	109,494

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

Off-Balance Sheet Arrangements

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2017 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $1,050 at December 31, 2013.

Unrealized Appreciation and Depreciation

A summary of changes in net unrealized investment appreciation for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	(132,579	)	$	15,816		$	34,699
Equity securities	48,176			19,339			(4,675		)
Deferred policy acquisition costs	42,102			(4,821		)	3,402
Income tax effect	14,806			(10,614		)	(11,699		)
Total change in net unrealized investment appreciation, net of tax	$	(27,495	)	$	19,720		$	21,727

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires OTTI charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

94

The tables on the following pages summarize our fixed maturity and equity securities that were in an unrealized loss position at December 31, 2013 and 2012. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possible that we could recognize OTTI charges in future periods on securities held at December 31, 2013, if future events or information cause us to determine that a decline in fair value is other-than-temporary.

We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss which resulted in the recognition of a $139 and $395 credit loss OTTI in our Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2013 and 2011, respectively. There were no OTTI losses on fixed maturity securities recognized in 2012. We believe the unrealized depreciation in value of other securities in our fixed maturity portfolio is primarily attributable to changes in market interest rates and not the credit quality of the issuer. 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.

We have evaluated the near-term prospects of the issuers of our equity securities in relation to the severity and duration of the unrealized loss which resulted in the recognition of a $4 OTTI in our Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2012. There were no OTTI losses on equity securities recognized in 2013 or 2011. Our largest unrealized loss greater than 12 months on an individual equity security at December 31, 2013 was $58. We have no intention to sell any of these securities prior to a recovery in value, but will continue to monitor the fair value reported for these securities as part of our overall process to evaluate investments for OTTI recognition.

95

December 31, 2013	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	10	$	9,196	$	140	—	$	—	$	—	$	9,196	$	140
U.S. government agency	101	256,203		18,019		2	4,356		644		260,559		18,663
States, municipalities and political subdivisions	136	97,950		7,423		29	29,670		3,282		127,620		10,705
Foreign bonds	10	20,832		397		—	—		—		20,832		397
Public utilities	31	61,582		1,776		—	—		—		61,582		1,776
Corporate bonds
Energy	9	23,735		1,008		—	—		—		23,735		1,008
Industrials	34	77,788		2,819		—	—		—		77,788		2,819
Consumer goods and services	31	58,833		1,276		6	3,218		145		62,051		1,421
Health care	10	25,888		942		2	4,427		258		30,315		1,200
Technology, media and telecommunications	18	58,105		2,147		2	7,468		1,174		65,573		3,321
Financial services	7	15,191		720		1	1,525		3		16,716		723
Mortgage-backed securities	16	4,476		177		6	3,113		114		7,589		291
Collateralized mortgage obligations	111	208,855		11,062		23	55,184		5,857		264,039		16,919
Total Available-for-Sale Fixed Maturities	524	$	918,634	$	47,906	71	$	108,961	$	11,477	$	1,027,595	$	59,383
Equity securities
Common stocks
Public utilities	—	$	—	$	—	3	$	281	$	27	$	281	$	27
Industrials	1	1		1		2	81		31		82		32
Technology, media and telecommunications	—	—		—		6	206		83		206		83
Financial services	—	—		—		4	215		128		215		128
Nonredeemable preferred stocks	3	3,493		116		2	1,170		61		4,663		177
Total Available-for-Sale Equity Securities	4	$	3,494	$	117	17	$	1,953	$	330	$	5,447	$	447
Total Available-for-Sale Securities	528	$	922,128	$	48,023	88	$	110,914	$	11,807	$	1,033,042	$	59,830

96

December 31, 2012	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	2	$	1,724	$	5	—	$	—	$	—	$	1,724	$	5
U.S. government agency	5	17,654		67		—	—		—		17,654		67
States, municipalities and political subdivisions	31	41,775		819		—	—		—		41,775		819
Foreign bonds	1	3,323		48		1	558		14		3,881		62
Public utilities	2	3,155		32		—	—		—		3,155		32
Corporate bonds
Industrials	4	12,194		109		1	2,897		103		15,091		212
Consumer goods and services	—	—		—		7	4,606		151		4,606		151
Health care	3	7,416		80		—	—		—		7,416		80
Technology, media and telecommunications	5	13,402		198		—	—		—		13,402		198
Financial services	2	1,005		1		24	24,693		1,058		25,698		1,059
Mortgage-backed securities	7	4,472		21		—	—		—		4,472		21
Collateralized mortgage obligations	27	74,702		1,004		1	29		156		74,731		1,160
Redeemable preferred stocks	2	376		2		—	—		—		376		2
Total Available-for-Sale Fixed Maturities	91	$	181,198	$	2,386	34	$	32,783	$	1,482	$	213,981	$	3,868
Equity securities
Common stocks
Public utilities	3	$	225	$	83	—	$	—	$	—	$	225	$	83
Industrials	4	482		52		9	621		122		1,103		174
Consumer goods and services	2	280		19		4	372		31		652		50
Health care	1	31		2		3	896		123		927		125
Technology, media and telecommunications	5	241		7		7	581		88		822		95
Financial services	1	47		19		7	1,109		126		1,156		145
Nonredeemable preferred stocks	—	—		—		2	1,203		28		1,203		28
Total Available-for-Sale Equity Securities	16	$	1,306	$	182	32	$	4,782	$	518	$	6,088	$	700
Total Available-for-Sale Securities	107	$	182,504	$	2,568	66	$	37,565	$	2,000	$	220,069	$	4,568

97

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

We estimate the fair value of our financial instruments based on relevant market information or by discounting estimated future cash flows at estimated current market discount rates appropriate to the specific asset or liability.

In most cases, we use quoted market prices to determine the fair value of fixed maturities, equity securities, trading securities and short-term investments. When quoted market prices do not exist, we base estimates of fair values on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management’s own assumptions about the assumptions a market participant would use in pricing the financial instrument.

The fair value of our mortgage loans is determined by modeling performed by us based on the stated principal and coupon payments provided for in the loan agreement. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security’s fair value, which is a Level 3 fair value measurement.

The fair value of our policy loans is equivalent to carrying value, which is a reasonable estimate of fair value. We do not make policy loans for amounts in excess of the cash surrender value of the related policy. In all instances, the policy loans are fully collateralized by the related liability for future policy benefits for traditional insurance policies or by the policyholders’ account balance for non-traditional policies.

Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The values of the partnerships are determined by the fund managers primarily based on the fair value of the underlying investments held. In management’s opinion, these values represent fair value.

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

Policy reserves are developed and recorded for deferred annuities, which is an interest-sensitive product, and income annuities. The fair value of the reserve liability for these annuity products is based upon an estimate of the discounted pre-tax cash flows that are forecast for the underlying business, which is a Level 3 fair value measurement. We base the discount rate on the current U.S. Treasury spot yield curve, which is then risk-adjusted for nonperformance risk and, for interest-sensitive business, market risk factors. The risk-adjusted discount rate is developed using interest rates that are available in the market and representative of the risks applicable to the underlying business.

98

A summary of the carrying value and estimated fair value of our financial instruments at December 31, 2013 and 2012 is as follows:

	December 31, 2013				December 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	669	$	656	$	1,681	$	1,655
Available-for-sale securities	2,751,256		2,751,256		2,808,078		2,808,078
Trading securities	9,940		9,940		13,353		13,353
Equity securities:
Available-for-sale securities	229,368		229,368		177,127		177,127
Trading securities	2,487		2,487		2,018		2,018
Mortgage loans	4,724		4,423		5,037		4,633
Policy loans	6,261		6,261		6,671		6,671
Other long-term investments	44,946		44,946		30,028		30,028
Short-term investments	800		800		800		800
Cash and cash equivalents	92,193		92,193		107,466		107,466
Accrued investment income	27,923		27,923		30,375		30,375
Liabilities
Policy reserves
Annuity (accumulations) (1)	$	941,636	$	925,832	$	1,043,866	$	983,579
Annuity (benefit payments)	140,276		94,805		139,213		93,701

(1) Annuity accumulations represent deferred annuity contracts that are currently earning interest.

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

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

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

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

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

Transfers between levels, if any, are recorded as of the beginning of the reporting period.

To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. We obtain one price for each security. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers

99

with whom we have had several years of experience and who have demonstrated knowledge of the subject security. We request and utilize one broker quote per security.

We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. In our opinion, the pricing obtained at December 31, 2013 and 2012 was reasonable.

In order to determine the proper classification in the fair value hierarchy for each security where the price is obtained from an independent pricing service, we obtain and evaluate the vendors’ pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.

We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed.

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis in our Consolidated Balance Sheets at December 31, 2013 and 2012:

100

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,895	$	—	$	33,895	$	—
U.S. government agency	269,583		—		269,583		—
States, municipalities and political subdivisions	713,907		—		713,209		698
Foreign bonds	172,856		—		172,856		—
Public utilities	218,576		—		218,576		—
Corporate bonds
Energy	161,010		—		161,010		—
Industrials	237,028		—		237,028		—
Consumer goods and services	167,914		—		166,460		1,454
Health care	92,946		—		92,946		—
Technology, media and telecommunications	120,966		—		120,966		—
Financial services	241,751		—		229,725		12,026
Mortgage-backed securities	22,066		—		22,066		—
Collateralized mortgage obligations	294,763		—		294,763		—
Asset-backed securities	3,995		—		1,966		2,029
Total Available-For-Sale Fixed Maturities	$	2,751,256	$	—	$	2,735,049	$	16,207
Equity securities
Common stocks
Public utilities	$	16,272	$	16,272	$	—	$	—
Energy	14,363		14,363		—		—
Industrials	46,099		46,083		16		—
Consumer goods and services	21,258		21,258		—		—
Health care	24,998		24,998		—		—
Technology, media and telecommunications	13,304		13,304		—		—
Financial services	88,262		84,419		62		3,781
Nonredeemable preferred stocks	4,812		1,714		3,098		—
Total Available-for-Sale Equity Securities	$	229,368	$	222,411	$	3,176	$	3,781
Total Available-for-Sale Securities	$	2,980,624	$	222,411	$	2,738,225	$	19,988
TRADING
Bonds
Foreign bonds	$	1,253	$	—	$	1,253	$	—
Corporate bonds
Industrials	1,122		—		1,122		—
Consumer goods and services	106		—		106		—
Health care	1,154		—		1,154		—
Technology, media and telecommunications	2,054		—		2,054		—
Financial services	1,866		—		1,866		—
Redeemable preferred stocks	2,385		2,385		—		—

101

Equity securities
Energy	563		563		—		—
Consumer goods and services	39		39		—		—
Health care	332		332		—		—
Nonredeemable preferred stocks	1,553		1,553		—		—
Total Trading Securities	$	12,427	$	4,872	$	7,555	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	37,811	$	37,811	$	—	$	—
Total Assets Measured at Fair Value	$	3,031,662	$	265,894	$	2,745,780	$	19,988

102

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	38,821	$	—	$	38,821	$	—
U.S. government agency	45,928		—		45,928		—
States, municipalities and political subdivisions	794,505		—		793,755		750
Foreign bonds	219,160		—		218,602		558
Public utilities	247,726		—		247,726		—
Corporate bonds
Energy	179,731		—		179,731		—
Industrials	293,663		—		290,766		2,897
Consumer goods and services	202,975		—		201,633		1,342
Health care	122,685		—		122,685		—
Technology, media and telecommunications	130,371		—		130,371		—
Financial services	283,860		—		271,991		11,869
Mortgage-backed securities	28,807		—		28,807		—
Collateralized mortgage obligations	214,584		—		214,584		—
Asset-backed securities	4,886		—		2,398		2,488
Redeemable preferred stocks	376		376		—		—
Total Available-For-Sale Fixed Maturities	$	2,808,078	$	376	$	2,787,798	$	19,904
Equity securities
Common stocks
Public utilities	$	14,416	$	14,416	$	—	$	—
Energy	11,997		11,997		—		—
Industrials	32,684		32,658		26		—
Consumer goods and services	18,879		18,879		—		—
Health care	18,081		18,081		—		—
Technology, media and telecommunications	10,427		10,427		—		—
Financial services	68,492		64,800		56		3,636
Nonredeemable preferred stocks	2,151		1,906		245		—
Total Available-for-Sale Equity Securities	$	177,127	$	173,164	$	327	$	3,636
Total Available-for-Sale Securities	$	2,985,205	$	173,540	$	2,788,125	$	23,540
TRADING
Bonds
Foreign bonds	$	1,379	$	—	$	1,379	$	—
Corporate bonds
Industrials	1,299		—		1,299		—
Consumer goods and services	1,532		—		1,532		—
Health care	1,824		—		1,824		—
Technology, media and telecommunications	2,250		—		2,250		—

103

Financial services	1,486		—		1,486		—
Redeemable preferred stocks	3,583		3,583		—		—
Equity securities - health care	303		303		—		—
Nonredeemable preferred stocks	1,715		1,715		—		—
Total Trading Securities	$	15,371	$	5,601	$	9,770	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	45,613	$	45,613	$	—	$	—
Total Assets Measured at Fair Value	$	3,046,989	$	225,554	$	2,797,895	$	23,540

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of securities that are categorized as Level 2 is determined by management after reviewing market prices obtained from independent pricing services and brokers. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the reporting date. Our independent pricing services and brokers obtain prices from reputable pricing vendors in the marketplace. They continually monitor and review the external pricing sources, while actively participating to resolve any pricing issues that may arise.

For the year ended December 31, 2013, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities. There were no transfers of securities between Level 1 and Level 2 during the period.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities and certain other securities that were determined to be other-than-temporarily impaired in a prior period and for which an active market does not currently exist.

The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. If pricing cannot be obtained from these sources, which occurs on a limited basis, management will perform a cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value.

104

The following table provides a summary of the changes in fair value of our Level 3 securities for 2013:

	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2013	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540
Realized gains (1)	—			35			—			—			—			35
Unrealized gains (losses) (1)	83			14			1,277			(53		)	(28		)	1,293
Purchases	—			—			105			—			173			278
Disposals	(135		)	(607		)	(4,010		)	(406		)	—			(5,158		)
Balance at December 31, 2013	$	698		$	—		$	13,480		$	2,029		$	3,781		$	19,988

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on scheduled calls.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2012:

(In Thousands)	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2012	$	880		$	836		$	20,285		$	315		$	3,526		$	25,842
Realized gains (1)	—			—			646			—			—			646
Unrealized gains (losses) (1)	—			7			(352		)	(13		)	(23		)	(381		)
Purchases	—			—			5			—			179			184
Disposals	(130		)	(285		)	(4,476		)	(121		)	(50		)	(5,062		)
Transfers in	—			—			—			2,307			52			2,359
Transfers out	—			—			—			—			(48		)	(48		)
Balance at December 31, 2012	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on calls or sinking fund bonds, in accordance with the indentures. The reported transfers are the result of stale pricing due to a lack of current trading activity for the underlying securities.

105

NOTE 4. REINSURANCE

Property and Casualty Insurance Segment

Ceded and Assumed Reinsurance

Reinsurance is a contract by which one insurer, called the reinsurer, agrees to cover, under certain defined circumstances, a portion of the losses incurred by a primary insurer if a claim is made under a policy issued by the primary insurer. Our property and casualty insurance companies follow the industry practice of reinsuring a portion of their exposure by ceding to reinsurers a portion of the premium received and a portion of the risk under the policies written. We purchase reinsurance to reduce the net liability on individual risks to predetermined limits and to protect us against catastrophic losses from a single catastrophe, such as a hurricane or tornado. We do not engage in any reinsurance transactions classified as finite risk reinsurance.

We account for premiums, written and earned, and losses incurred net of reinsurance ceded. The ceding of insurance does not legally discharge us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its obligation. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition and there were no reinsurance balances at December 31, 2013, for which collection is at risk that would result in a material impact on our Consolidated Financial Statements. The amount of reinsurance recoverable on paid losses totaled $6,090 and $4,669 at December 31, 2013 and 2012, respectively.

We also assume both property and casualty insurance from other insurance or reinsurance companies. Most of the business we have assumed is property insurance, with an emphasis on catastrophe coverage.

Premiums and loss and loss settlement expenses related to our ceded and assumed business are as follows:

Years Ended December 31,	2013			2012		2011
Ceded Business
Ceded premiums written	$	50,711		$	44,240	$	43,921
Ceded premiums earned	50,514			47,467		45,604
Loss and loss settlement expenses ceded(1)	(8,552		)	5,525		39,335
Assumed Business
Assumed premiums written	$	18,938		$	17,181	$	14,954
Assumed premiums earned	18,485			16,889		14,869
Loss and loss settlement expenses assumed	8,268			16,873		24,151

(1) In 2013, a reduction in our direct IBNR reserves caused a corresponding reduction in ceded IBNR reserves.  This factor, coupled with a lack of significant large losses exceeding our reinsurance retentions resulted in negative loss and loss settlement expenses ceded for the year.  

In 2013, we renewed our participation in all but one of our assumed programs and added two new programs to our portfolio. Loss and loss settlement expenses assumed decreased in 2013 as compared to 2012 primarily due to a decrease in catastrophe losses. We added two new programs to replace the lost premium from the program not renewed and to take advantage of areas where we had exposure capacity.  One of the new programs has worldwide exposure and the other has exposure in the United Kingdom and Japan. 

In 2012, we renewed our participation in all of our assumed programs. We reduced our participation in programs with heavier Northeast U.S. exposure in response to the exposure added in this region from the Mercer Insurance Group acquisition. Loss and loss settlement expenses assumed were less than 2011, but were still elevated from historic levels due to several natural disasters, primarily the Thailand floods and Super Storm Sandy.

106

In 2011, we renewed our participation in all of our assumed programs, while increasing the participation level on one contract, that generated the growth of our assumed premiums written and earned. Loss and loss settlement expenses were higher than historical levels due to several natural disasters, primarily in New Zealand and Japan, that impacted our assumed program.

Refer to Note 5 “Reserves for Loss and Loss Settlement Expenses” for an analysis of changes in our overall property and casualty insurance reserves.

Reinsurance Programs and Retentions

We have several programs that provide reinsurance coverage. This reinsurance coverage limits the risk of loss that we retain by reinsuring direct risks in excess of our retention limits. The following table provides a summary of our primary reinsurance programs. Retention amounts reflect the accumulated retentions and co-participation of all layers within a program. In 2012, we added a $3,000 aggregate annual deductible to our core program multi-line (casualty excess and property excess).

	2013, 2012 & 2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss	$	2,000	$	40,000	100	%	of	$	38,000
Property excess of loss	2,000		15,000		100	%	of	$	13,000
Surety excess of loss	1,500		28,000		91	%	of	$	26,500
Property catastrophe, excess	20,000		200,000		95	%	of	$	180,000
Boiler and machinery	N/A		50,000		100	%	of	$	50,000

The following table provides a summary of Mercer Insurance Group’s primary reinsurance programs for 2011:

	2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss (1)	$	1,000	$	5,000	100	%	of	$	4,000
Property excess of loss (1)	1,000		10,000		100	%	of	$	9,000
Umbrella excess of loss(1)	1,000		11,000		75	%	of first	$	1,000
					100	%	of remaining	$	9,000
Surety excess of loss	500		4,500		90	%	of	$	4,000
							less	$500 deductible
Property catastrophe, excess(2)	5,000		55,000		100	%	of	$	50,000

(1) On August 1, 2011, Mercer Insurance Group’s reinsurance retention and limits were changed to match those of the Company.

(2) On January 1, 2012, Mercer Insurance Group’s catastrophe reinsurance programs were changed to match those of the Company.

If we incur catastrophe losses and loss settlement expenses that exceed the coverage limits of our reinsurance program, our property catastrophe program provides one guaranteed reinstatement. In such an instance, we are required to pay the reinsurers a reinstatement premium equal to the full amount of the original premium, which will reinstate the full amount of reinsurance available under the property catastrophe program.

Life Insurance Segment

Ceded and Assumed Reinsurance

United Life purchases reinsurance to limit the dollar amount of any one risk of loss. Our retention on standard individual life cases is $300. Our accidental death benefit rider on an individual policy is reinsured at 100 percent, up to a maximum benefit of $250. Our group coverage, both life and accidental death and dismemberment, is reinsured at 50.0 percent. Catastrophe excess reinsurance coverage applies when three or more insureds die in a catastrophic accident. For catastrophe excess claims, we retain the first $1,000 of ultimate net loss and the reinsurer agrees to indemnify us for the excess up to a maximum of $5,000. We supplement this coverage when appropriate

107

with “known concentration” coverage. Known concentration coverage is typically tied to a specific event and time period, with a threshold of a minimum number of lives involved in the event, minimum event deductible (stated retention limit) and a maximum payout.

Premiums and losses and loss settlement expenses related to our ceded business is as follows:

Years Ended December 31,	2013		2012		2011
Ceded Business
Ceded insurance in-force	$	1,112,688	$	1,083,410	$	974,556
Ceded premiums earned	2,792		2,621		2,318
Loss and loss settlement expenses ceded	1,971		2,435		3,786

The ceding of insurance does not legally discharge United Life from primary liability under its policies. United Life must pay the loss if the reinsurer fails to meet its obligations. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition. Approximately 99.0 percent of ceded life insurance in force as of December 31, 2013, has been ceded to five reinsurers.

NOTE 5. RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES

Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported (“IBNR”), the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts, which are based on management’s best estimates. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.

108

The following table provides an analysis of changes in our property and casualty loss and loss settlement expense reserves for 2013, 2012 and 2011 (net of reinsurance amounts):

Years Ended December 31,	2013			2012			2011
Gross liability for losses and loss settlement expenses at beginning of year	$	971,911		$	945,051		$	603,090
Ceded loss and loss settlement expenses	(103,870		)	(120,359		)	(39,000		)
Net liability for losses and loss settlement expenses at beginning of year	$	868,041		$	824,692		$	564,090
Reserves acquired in Mercer Insurance Group acquisition, net	—			—			252,598
Beginning balance, as adjusted	$	868,041		$	824,692		$	816,688
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	494,841		$	512,564		$	468,926
Prior years	(57,487		)	(73,427		)	(61,095		)
Total incurred	$	437,354		$	439,137		$	407,831
Losses and loss settlement expense payments for claims occurring during
Current year	$	203,868		$	201,632		$	253,175
Prior years	216,026			194,156			146,653
Total paid	$	419,894		$	395,788		$	399,828
Net liability for losses and loss settlement expenses at end of year	$	885,501		$	868,041		$	824,692
Ceded loss and loss settlement expenses	75,150			103,870			120,359
Gross liability for losses and loss settlement expenses at end of year	$	960,651		$	971,911		$	945,051

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss 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.

The favorable reserve development in 2013 on prior year reserves was primarily related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability. The significant driver of the favorable reserve development in 2013 was the other liability line, primarily due to additional recognition of relatively recent changes in reserve development patterns which have shown increased redundancies in reserves for reported claims along with relatively less need for IBNR claim reserves. Also, contributing to the favorable development in 2013, only to a lesser extent than the other liability line of business, were workers’ compensation, commercial auto liability and surety lines of business

In 2012 we experienced favorable reserve development for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2012 was the other liability line. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we observed a continuation of a trend, started in 2011, reducing the overall number of reported new

109

construction defect claims and lower than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2012, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes from accident year 2011 (Japan earthquake and tsunami, Thailand flood, and Christchurch, New Zealand earthquake) and from accident year 2010 (Canterbury, New Zealand earthquake).

In 2011, we experienced favorable reserve development for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2011 was the other liability line. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed an overall reduction in reported new construction defect claims and less than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Our commercial automobile liability line developed favorably in 2011. The favorable reserve development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed a lower level of latent claim development.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2011, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes from accident year 2010 (Canterbury, New Zealand earthquake).

Generally, we base reserves for each claim on the estimated ultimate exposure for that claim, determined from a prudently conservative point of view. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. While we realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves, our approach is better than experiencing year-to-year uncertainty as to the adequacy of our reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.

We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.

110

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

Statutory capital and surplus in regards to policyholders at December 31, 2013, 2012 and 2011 and statutory net income for the years then ended are as follows:

	Statutory Capital and Surplus		Statutory Net Income
2013
Property and casualty (1)	$	665,772	$	84,255
Life, accident and health	157,974		5,942
2012
Property and casualty (1)	$	585,986	$	34,468
Life, accident and health	158,720		7,420
2011
Property and casualty (1)	$	565,843	$	10,529
Life, accident and health	167,164		6,180

(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.

State insurance holding company laws and regulations generally require approval from the insurer’s domicile state insurance Commissioner for any material transaction or extraordinary dividend. For property and casualty insurers, a material transaction is defined as any sale, loan, exchange, transfer or guarantee with an affiliate where the aggregate value of the transaction exceeds 25 percent of the insurer’s policyholders’ surplus or three percent of its admitted assets (measured at December 31 of the preceding year), whichever is less. For life insurers, a material transaction with an affiliate is defined as a transaction with an aggregate value exceeding three percent of the life insurer’s admitted assets (measured at December 31 of the preceding year).

State laws and regulations generally limit the amount of funds that an insurance company may distribute to a parent as a dividend without Commissioner approval. As a holding company with no independent operations of its own, United Fire Group, Inc. relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2013, our insurance company subsidiary, United Fire & Casualty is able to make a maximum of $53,702 in dividend payments without prior approval. At December 31, 2013, we were in compliance with applicable state laws and regulations. These restrictions will not have a material impact in meeting our cash obligations. In addition, United Fire Group, Inc. maintains a credit agreement, as discussed in Part II, Note 8 “Debt”, which permits us to borrow up to an aggregate principal amount of $125,000.

We paid dividends to our common shareholders of $17,484, $15,269 and $15,507 in 2013, 2012 and 2011, respectively. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

In 2013, 2012 and 2011 United Fire & Casualty Company received dividends from its wholly-owned subsidiaries of $26,335, $19,750 and $11,450, respectively. In 2013 and 2012, United Fire & Casualty Company paid dividends to

111

United Fire Group, Inc. totaling $13,175 and $26,950, respectively. These intercompany dividend payments are eliminated for reporting in our Consolidated Financial Statements.

A majority of our custodial assets are subject to a tri-party agreement between one of our subsidiary companies, United Life Insurance Company (“United Life”), the custodian, and the Iowa Insurance Commissioner. Under this agreement, as long as United Life maintains the minimum aggregate value of securities in the account (based on its legal reserve requirements), it is free to invest, withdraw or loan these funds or pay dividends using these funds without approval from the Commissioner. Investment of these funds is subject to the same limitations on asset class and credit quality imposed by the Commissioner on all insurance company invested assets. Investment income derived from these custodied funds is available for general corporate purposes and to satisfy corporate obligations without approval from the Commissioner.

At December 31, 2013, United Life had net admitted assets, on a statutory basis, of $1,648,019, $210,938 in excess of its legal reserve requirement. Therefore, any restriction on funds deposited by United Life with the Iowa Insurance Commissioner would not materially affect its financial position or results of operations and its cash flows are sufficient to meet its operational requirements. Under the material transaction and dividend standards described above, United Life would be able to enter into an affiliate transaction and/or pay a dividend of $5,797 without approval from the Commissioner.

Our property and casualty and life insurance subsidiaries are required to prepare and file statutory-basis financial statements in conformity with the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director. 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 material permitted accounting practices were used to prepare our statutory-basis financial statements during 2013, 2012 and 2011. Statutory accounting principles primarily differ from GAAP in that policy acquisition and certain sales inducement costs are charged to expense as incurred, goodwill is amortized, certain fair value adjustments related to the acquisition of Mercer Insurance Group are recorded for GAAP and not recorded for statutory accounting, 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.

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, 2013.

NOTE 7. FEDERAL INCOME TAX

Federal income tax expense (benefit) is composed of the following:

Years Ended December 31,	2013		2012			2011
Current	$	19,146	$	6,644		$	(3,517	)
Deferred	6,616		(782		)	(9,209		)
Total	$	25,762	$	5,862		$	(12,726	)

112

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 35.0 percent to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:

Years Ended December 31,	2013			2012			2011
Computed expected income tax expense (benefit)	$	35,666		$	16,126		$	(4,451	)
Tax-exempt municipal bond interest income	(7,732		)	(8,027		)	(7,908		)
Nontaxable dividend income	(1,053		)	(1,004		)	(859		)
Valuation allowance reduction	(548		)	(547		)	—
Acquisition related expenses	—			42			860
Other, net	(571		)	(728		)	(368		)
Federal income tax expense (benefit)	$	25,762		$	5,862		$	(12,726	)

The significant components of our net deferred tax liability at December 31, 2013 and 2012, are as follows:

December 31,	2013			2012
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities	$	55,402		$	38,582
All other securities	6,201			52,563
Deferred policy acquisition costs	47,809			32,086
Prepaid pension cost	2,556			2,271
Net bond discount accretion	2,069			3,896
Depreciation	2,355			579
Revaluation of investment basis (1)	3,595			4,345
Identifiable intangible assets (1)	4,056			6,615
Other	7,530			4,414
Gross deferred tax liability	$	131,573		$	145,351
Deferred tax assets
Financial statement reserves in excess of income tax reserves	$	39,041		$	40,992
Unearned premium adjustment	23,502			21,578
Net operating loss carryforwards	2,361			3,481
Underfunded benefit plan obligation	15,858			26,335
Postretirement benefits other than pensions	12,342			10,240
Other-than-temporary impairment of investments	5,222			5,715
Contingent ceding commission accrual	3,726			4,822
Compensation expense related to stock options	4,062			3,928
AMT credit carryforward	476			7,713
Other	5,429			3,828
Gross deferred tax asset	$	112,019		$	128,632
Valuation allowance	(2,361		)	(2,909		)
Deferred tax asset	$	109,658		$	125,723
Net deferred tax liability	$	21,915		$	19,628

(1) Related to our acquisition of Mercer Insurance Group.

Due to our determination that we may not be able to fully realize the benefits of the net operating losses (“NOLs”) acquired in the purchase of American Indemnity Financial Corporation in 1999, which are only available to offset the future taxable income of our property and casualty insurance operations and are further limited as to the amount that can be utilized in any given year, we have recorded a valuation allowance against these NOLs that totaled

113

$2,361 and $2,909, respectively, at December 31, 2013 and 2012. Based on a yearly review, we determine whether the benefit of the NOLs can be realized, and, if so, the decrease in the valuation allowance is recorded as a reduction to current federal income tax expense. If NOLs expire during the year, the decrease in the valuation allowance is offset with a corresponding decrease to the deferred income tax asset. The valuation allowance was reduced by $548 during 2013 due to the realization of $1,565 in NOLs. No portion of the NOLs expired in 2013 or will expire in 2014.

The alternative minimum tax (“AMT”) credit carryforward of $476 has an indefinite life. We expect to realize the benefits from the AMT credit carryforward and the NOL other than as noted above.

NOTE 8. EMPLOYEE BENEFITS

We offer various benefits to our employees including a noncontributory defined benefit pension plan, an employee/retiree health and dental benefit plan, a profit-sharing plan and an employee stock ownership plan.

Pension and Postretirement Benefit Plans

We offer a noncontributory defined benefit pension plan in which all of our employees are eligible to participate after they have completed one year of service, attained 21 years of age and have met the hourly service requirements. Retirement benefits under our pension plan are based on the number of years of service and level of compensation. Our policy to fund the pension plan on a current basis to not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, is to assure that plan assets will be adequate to provide retirement benefits. We estimate that we will contribute approximately $6,260 to the pension plan in 2014.

We also offer a health and dental benefit plan to all of our eligible employees and retirees that consists of two programs: (1) the self-funded employee health and dental benefit plan and (2) the self-funded retiree health and dental benefit plan (the “postretirement benefit plan”). The postretirement benefit plan provides health and dental benefits to our retirees (and covered dependents) who have met the service and participation requirements stipulated by the postretirement benefit plan. The third party administrators for the postretirement benefit plan are responsible for making medical and dental care benefit payments. Participants are required to submit claims for reimbursement or payment to the claims administrator within twelve months after the end of the calendar year in which the charges were incurred. An unfunded benefit obligation is reported for the postretirement benefit plan in the accompanying Consolidated Balance Sheets.

Investment Policies and Strategies

Our investment policy and objective for the pension plan is to generate long-term capital growth and income, by way of a diversified investment portfolio along with appropriate employer contributions, which will allow us to provide for the pension plan’s benefit obligation.

The investments held by the pension plan at December 31, 2013, include the following asset categories:

• Fixed income securities, which may include bonds, and convertible securities;

• Equity securities, which may include various types of stock, such as large-cap, mid-cap, small-cap, and international stocks;

• Pooled separate accounts includes two separate funds, a bond and mortgage separate account and a real estate separate account;

• An arbitrage fund, which is a fund that takes advantage of price discrepancies, primarily equity securities, for the same asset in different markets;

• A group annuity contract that is administered by United Life, a subsidiary of United Fire; and

• Cash and cash equivalents, which include money market funds.

114

We have an internal investment/retirement committee, which includes our Chief Executive Officer, Chief Investment Officer, and Executive Vice President, all of whom receive monthly information on the value of the pension plan assets and their performance. Quarterly, the committee meets to review and discuss the performance of the pension plan assets as well as the allocation of investments within the pension plan.

As of December 31, 2013, we had seven external investment managers that are allowed to exercise investment discretion, subject to limitations, if any, established by the investment/retirement committee. We utilize multiple investment managers in order to maximize the pension plan’s investment return while mitigating risk. None of our investment managers uses leverage in managing the pension plan. Annually, the investment/retirement committee meets with each investment manager to review the investment manager’s goals, objectives and the performance of the assets they manage. The decision to establish or terminate a relationship with an investment manager is at the discretion of our investment/retirement committee.

We consider historical experience for comparable investments and the target allocations we have established for the various asset categories of the pension plan to determine the expected long-term rate of return, which is an assumption as to the average rate of earnings expected on the pension plan funds invested, or to be invested, by the pension plan, to provide for the settlement of benefits included in the projected pension benefit obligation. Investment securities, in general, are exposed to various risks, such as fluctuating interest rates, credit standing of the issuer of the security and overall market volatility. Annually, we perform an analysis of expected long-term rates of return based on the composition and allocation of our pension plan assets and recent economic conditions.

The following is a summary of the pension plan’s actual and target asset allocations at December 31, 2013 and 2012, by asset category:

Pension Plan Assets									Target
	2013		% of Total		2012		% of Total		Allocation
Fixed maturity securities - corporate bonds	$	4,489	4.9	%	$	4,830	6.4	%	0	%	-	25	%
Redeemable preferred stock	1,381		1.5		1,113		1.5		0	%	-	20	%
Equity securities	39,481		42.8		41,091		54.6		50	%	-	70	%
Pooled separate accounts
Bond and mortgage separate account fund	5,657		6.1		—		—		0	%		40	%
U.S. property separate account fund	8,763		9.5		—		—		0	%		25	%
Arbitrage fund	5,516		6.0		5,363		7.1		0	%	-	15	%
United Life annuity	8,101		8.8		7,900		10.5		5	%	-	15	%
Cash and cash equivalents(1)	18,831		20.4		14,979		19.9		0	%	-	10	%
Total plan assets	$	92,219	100.0	%	$	75,276	100.0	%

(1) Cash and cash equivalents balance as a percent of total plan assets exceeded the target allocation in 2013 as we were in the process of reducing the number of external investment managers and moving funds between managers in early 2014.

The investment return expectations for the pension plan are used to develop the asset allocation based on the specific needs of the pension plan. Accordingly, equity securities comprise the largest portion of our pension plan assets, as they yield the highest rate of return. The United Life annuity, which is the fourth largest asset category and was originally written by our life insurance subsidiary in 1976, provides a guaranteed rate of return. The interest rate on the group annuity contract is determined annually.

The availability of assets held in cash and cash equivalents enables the pension plan to mitigate market risk that is associated with other types of investments and allows the pension plan to maintain liquidity both for the purpose of making future benefit payments to participants and their beneficiaries and for future investment opportunities.

115

Valuation of Investments

Fixed Maturity and Equity Securities

Investments in fixed maturity and equity securities are stated at fair value based upon quoted market prices reported on recognized securities exchanges on the last business day of the year. Purchases and sales of securities are recorded as of the trade date.

Pooled Separate Accounts

The pension plan invested in two pooled separate account funds in 2013, a bond and mortgage separate account fund and a U.S. property separate account fund. Investments in the bond and mortgage separate account fund are stated at fair value as provided by the administrator of the fund based on the fair value of the underlying assets owned by the fund. The fair value measurement is classified within Level 2 of the fair value hierarchy. The fair value of the investments in the U.S property separate account fund is provided by the administrator of the fund based on the net asset value of the fund. The net asset value is based on the fair value of the underlying properties included in the fund. The fair value measurement is classified within Level 3 of the fair value hierarchy. We have not adjusted the net asset value provided by the custodian.

Arbitrage Fund

The fair value of the arbitrage fund is determined based on its net asset value, which is obtained from the custodian and determined monthly with issuances and redemptions of units of the fund made, based on the net asset value per unit as determined on the valuation date. We have not adjusted the net asset value provided by the custodian.

United Life Annuity

The United Life group annuity contract, which is a deposit administration contract, is stated at contract value as determined by United Life. Under the group annuity contract, the plan’s investment account is credited with compound interest on the average account balance for the year. The interest rate is equivalent to the ratio of net investment income to mean assets of United Life, net of investment expenses.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of insured cash and money market funds held with various financial institutions. Interest is earned on a daily basis. The fair value of these funds approximates their cost basis due to their short-term nature.

Fair Value Measurement

The following tables present the categorization of the pension plan’s assets measured at fair value on a recurring basis at December 31, 2013 and 2012:

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,489	$	—	$	4,489	$	—
Redeemable preferred stock	1,381		1,381		—		—
Equity securities	39,481		39,481		—		—
Pooled separate accounts
Bond and mortgage separate account fund	5,657		—		5,657		—
U.S. property separate account fund	8,763		—		—		8,763
Arbitrage fund	5,516		—		5,516		—
Money market funds	17,323		17,323		—		—
Total assets measured at fair value	$	82,610	$	58,185	$	15,662	$	8,763

116

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,830	$	—	$	4,830	$	—
Redeemable preferred stock	1,113		1,113		—		—
Equity securities	41,091		41,091		—		—
Arbitrage fund	5,363		—		5,363		—
Money market funds	12,856		12,856		—		—
Total assets measured at fair value	$	65,253	$	55,060	$	10,193	$	—

There were no transfers of assets in or out of Level 1 or Level 2 during the period.

The fair value of investments categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of fixed maturity securities categorized as Level 2 is determined by management based on fair value information reported in the custodial statements, which is derived from recent trading activity of the underlying security in the financial markets. These securities represent various taxable bonds held by the pension plan.

The fair value of the arbitrage fund is categorized as Level 2 since there are no restrictions as to the pension plan’s ability to redeem its investment at the net asset value of the fund as of the reporting date.  

The following table provides a summary of the changes in fair value of the pension plan’s Level 3 securities for 2013:

	U.S. property separate account fund
Balance at January 1, 2013	$	—
Unrealized gains	763
Purchases	8,000
Balance at December 31, 2013	$	8,763

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan’s benefit obligations as of December 31. In estimating the discount rate, we look to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the respective plan’s benefit obligations.

Assumptions Used to Determine Benefit Obligations

The following actuarial assumptions were used to determine the reported plan benefit obligations at December 31:

Weighted-average assumptions as of	Pension Benefits				Postretirement Benefits
December 31,	2013		2012		2013		2012
Discount rate	4.84	%	4.00	%	4.84	%	4.00	%
Rate of compensation increase	3.50		3.50		N/A		N/A

117

Increasing interest rates resulted in a significant increase in the discount rates we use to value our respective plan’s benefit obligations at December 31, 2013 compared to December 31, 2012. As a result, the valuation of the benefit obligations has decreased, which has increased the funded status of those plans as disclosed later in this section.

Assumptions Used to Determine Net Periodic Benefit Cost

The following actuarial assumptions were used at January 1 to determine our reported net periodic benefit costs for the year ended December 31:

Weighted-average assumptions as of	Pension Benefits						Postretirement Benefits
January 1,	2013		2012		2011		2013		2012		2011
Discount rate	4.00	%	4.50	%	5.50	%	4.00	%	4.50	%	5.50	%
Expected long-term rate of return on plan assets	7.50		8.00		8.25		N/A		N/A		N/A
Rate of compensation increase	3.50		3.75		4.00		N/A		N/A		N/A

Assumed Health Care Cost Trend Rates

	Health Care Benefits				Dental Claims
Years Ended December 31,	2013		2012		2013		2012
Health care cost trend rates assumed for next year	7.00	%	10.00	%	4.00	%	5.25	%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)	4.50	%	5.25	%	N/A		N/A
Year that the rate reaches the ultimate trend rate	2019		2018		N/A		N/A

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A 1.0 percent change in assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
Effect on the net periodic postretirement health care benefit cost	$	1,287	$	(1,023	)
Effect on the accumulated postretirement benefit obligation	8,328		(6,782		)

118

Benefit Obligation and Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and funded status of our plans:

	Pension Benefits						Postretirement Benefits
Years Ended December 31,	2013			2012			2013			2012
Reconciliation of benefit obligation
Benefit obligation at beginning of year	$	131,382		$	111,340		$	44,395		$	36,334
Service cost	6,300			5,129			3,875			3,010
Interest cost	5,175			5,049			1,759			1,695
Actuarial (gain) loss	(15,161		)	12,841			(1,449		)	3,380
Benefit payments and adjustments	(4,344		)	(2,977		)	374			(24		)
Benefit obligation at end of year (1)	$	123,352		$	131,382		$	48,954		$	44,395
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year	$	75,276		$	65,267		$	—		$	—
Actual return on plan assets	14,287			6,236			—			—
Employer contributions	7,000			6,750			374			24
Benefit payments and adjustments	(4,344		)	(2,977		)	(374		)	(24		)
Fair value of plan assets at end of year	$	92,219		$	75,276		$	—		$	—
Funded status at end of year	$	(31,133	)	$	(56,106	)	$	(48,954	)	$	(44,395	)

(1) For the pension plan, the benefit obligation is the projected benefit obligation. For the postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation.

Our accumulated pension benefit obligation was $106,207 and $109,229 at December 31, 2013 and 2012, respectively.

The following table displays the effect that the unrecognized prior service cost and unrecognized actuarial loss of our plans had on AOCI, as reported in the accompanying Consolidated Balance Sheets:

	Pension Benefits				Postretirement Benefits
Years Ended December 31	2013		2012		2013		2012
Amounts recognized in AOCI
Unrecognized prior service cost	$	—	$	—	$	—	$	—
Unrecognized actuarial loss	32,162		60,647		13,147		14,596
Total amounts recognized in AOCI	$	32,162	$	60,647	$	13,147	$	14,596

We anticipate amortization of the net actuarial losses for our pension plan in 2014 to be $2,174. We anticipate amortization of the net actuarial losses for our postretirement benefit plan in 2014 to be $898.

119

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:

	Pension Plan									Postretirement Benefit Plan
Years Ended December 31,	2013			2012			2011			2013		2012			2011
Net periodic benefit cost
Service cost	$	6,300		$	5,129		$	3,166		$	3,875	$	3,010		$	1,985
Interest cost	5,175			5,049			4,761			1,759		1,695			1,590
Expected return on plan assets	(5,772		)	(5,345		)	(5,288		)	—		—			—
Amortization of prior service cost	—			8			10			—		(6		)	(32		)
Amortization of net loss	4,989			4,415			2,368			879		554			224
Net periodic benefit cost	$	10,692		$	9,256		$	5,017		$	6,513	$	5,253		$	3,767

Effective July 1, 2012, the former employees of Mercer Insurance Group, Inc. became eligible to participate in our pension plan. The inclusion of these employees resulted in an additional $854 of net periodic benefit cost recognized for 2012.

Projected Benefit Payments

The following table summarizes the expected benefits to be paid from our plans over the next 10 years:

	2014		2015		2016		2017		2018		2019 - 2023
Pension benefits	$	3,990	$	4,270	$	4,580	$	4,920	$	5,350	$	35,640
Postretirement benefits	$	1,130	$	1,250	$	1,380	$	1,540	$	1,750	$	13,360

Profit-Sharing Plan and Employee Stock Ownership Plan

We have a profit-sharing plan in which employees who meet service requirements are eligible to participate. The amount of our contribution is discretionary and is determined annually, but cannot exceed the amount deductible for federal income tax purposes. Our contribution to the profit-sharing plan for 2013, 2012 and 2011, was $6,029, $1,812 and $1,092, respectively.

We have an employee stock ownership plan (the “ESOP”) for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the ESOP upon completion of one year of service, meeting the hourly employment requirements and attaining 21 years of age. Contributions to the ESOP are made at our discretion. When made, these contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. We can make contributions in stock or cash, which the trustee uses to acquire shares of our stock to allocate to participants’ accounts. As of December 31, 2013 and 2012, the ESOP owned 220,468 and 224,041 shares of United Fire common stock, respectively. Shares owned by the ESOP are included in shares issued and outstanding for purposes of calculating earnings per share, and dividends paid on the shares are charged to retained earnings. We did not make any contributions to the ESOP in 2013. We made contributions to the ESOP of $100 in 2012, and $175 in 2011.

NOTE 9. STOCK-BASED COMPENSATION

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the “2008 Stock Plan”) authorized the issuance of restricted and unrestricted stock awards, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of United Fire common stock to employees, with 353,649 authorized shares remaining available for future issuance at December 31, 2013. The 2008 Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of

120

the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the 2008 Stock Plan. Pursuant to the 2008 Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with United Fire.

Options granted pursuant to the 2008 Stock Plan are granted to buy shares of United Fire’s common stock at the market value of the stock on the date of grant. All outstanding option awards vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the 2008 Stock Plan are granted at the market value of our common stock on the date of the grant. Restricted stock awards fully vest after 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time United Fire common stock will be issued to the awardee. All awards are generally granted free of charge to the eligible employees of United Fire as designated by the Board of Directors.

The activity in the 2008 Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	568,746		1,900,000
Number of awards granted	(238,672	)	(1,682,496	)
Number of awards forfeited or expired	23,575		136,145
Ending balance	353,649		353,649
Number of option awards exercised	154,926		381,768
Number of unrestricted stock awards granted	935		4,555
Number of restricted stock awards vested	18,576		18,576

Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. 2005 Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan (the “Director Plan”) authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of United Fire’s common stock to non-employee directors. At December 31, 2013, we had 103,912 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when options and restricted stock shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options and restricted stock (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option agreement or restricted stock agreement. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Plan.

The activity in the Director Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	130,012		300,000
Number of awards granted	(26,100	)	(202,091	)
Number of awards forfeited or expired	—		6,003
Ending balance	103,912		103,912
Number of option awards exercised	3,156		3,156
Number of restricted stock awards vested	6,402		6,402

121

Stock-Based Compensation Expense

In 2013, 2012, and 2011, we recognized stock-based compensation expense of $1,777, $1,764 and $1,829, respectively.

As of December 31, 2013, we had $3,272 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized in subsequent years according to the following table, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.

2014	$	1,228
2015	994
2016	569
2017	423
2018	58
Total	$	3,272

Analysis of Award Activity

The analysis below details the award activity for 2013 and the awards outstanding at December 31, 2013, for both of our plans and ad hoc options, which were granted prior to the adoption of the other plans:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2013	1,242,442		$	27.78
Granted	233,348		24.41
Exercised	(168,482	)	19.98
Forfeited or expired	(19,998	)	31.58
Outstanding at December 31, 2013	1,287,310		$	28.13	5.31	$	4,524
Exercisable at December 31, 2013	803,568		$	31.66	3.91	$	1,425

Intrinsic value is the difference between our share price on the last day of trading (i.e., December 31, 2013) and the price of the options when granted and represents the value that would have been received by option holders had they exercised their options on that date. These values change based on the fair market value of our shares. The intrinsic value of options exercised totaled $1,383, $229 and $35 in 2013, 2012 and 2011, respectively.

The analysis below details the award activity for the restricted stock awards outstanding at December 31, 2013:

Restricted stock awards	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2013	54,338		$	25.01
Granted	30,489		24.78
Vested	(24,978	)	30.38
Non-vested at December 31, 2013	59,849		$	22.70

In 2013, 2012 and 2011 we recognized $407, $329 and $245, respectively, in compensation expense related to the restricted stock awards. At December 31, 2013, we had $790 in compensation expense that has yet to be recognized through our results of operations related to the restricted stock awards. The intrinsic value of the non-vested restricted stock awards outstanding totaled $358, $1,187 and $1,013 at December 31, 2013, 2012 and 2011, respectively.

122

Assumptions

The weighted-average grant-date fair value of the options granted under our plans has been estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

December 31,	2013			2012			2011
Risk-free interest rate	1.37		%	1.37		%	2.99		%
Expected volatility	34.32		%	37.06		%	55.47		%
Expected option life (in years)	7			7			7
Expected dividends (in dollars)	$	0.69		$	0.60		$	0.60
Weighted-average grant-date fair value of options granted during the year (in dollars)	$	6.64		$	5.90		$	8.99

The following table summarizes information regarding the stock options outstanding and exercisable at December 31, 2013:

				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number Outstanding (in shares)	Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Exercise Price		Number Exercisable (in shares)	Weighted-Average Exercise Price
$	15.01	-	21.00	331,017	7.04	$	19.88	115,218	$	19.47
21.01		-	28.00	317,815	7.88	23.57		70,932	23.50
28.01		-	35.00	338,478	3.52	32.74		317,418	32.99
35.01		-	41.00	300,000	2.71	36.85		300,000	36.85
$	15.01	-	41.00	1,287,310	5.31	$	28.13	803,568	$	31.66

NOTE 10. SEGMENT INFORMATION

We have two reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance segment has six domestic locations from which it conducts its business. The life insurance segment operates from our home office. The accounting policies of the segments are the same as those described in Note 1 to our Consolidated Financial Statements. We analyze results based on profitability (i.e., loss ratios), expenses and return on equity. Because all of our insurance is sold domestically, we have no revenues allocable to foreign operations.

Property and Casualty Insurance Segment

We write both commercial and personal lines of property and casualty insurance. We focus on our commercial lines, which represented 90.5 percent of our property and casualty insurance premiums earned for 2013. Our personal lines represented 9.5 percent of our property and casualty insurance premiums earned for 2013.

Products

Our primary commercial policies are tailored business packages that include the following coverages: fire and allied lines, other liability, automobile, workers’ compensation and surety. Our personal lines consist primarily of automobile and fire and allied lines coverage, including homeowners.

Pricing

Pricing levels for our property and casualty insurance products are influenced by many factors, including an estimation of expected losses, the expenses of producing, issuing and servicing business and managing claims, the time value of money associated with such loss and expense cash flows, and a reasonable allowance for profit. We have a disciplined approach to underwriting and risk management that emphasizes profitable growth rather than

123

premium volume or market share. Our insurance company subsidiaries are subject to state laws and regulations regarding rate and policy form approvals. The applicable state laws and regulations establish standards in certain lines of business to ensure that rates are not excessive, inadequate, unfairly discriminatory, or used to engage in unfair price competition. Our ability to increase rates and the relative timing of the process are dependent upon each respective state’s requirements, as well as the competitive market environment.

Seasonality

Our property and casualty insurance segment experiences some seasonality with regard to premiums written, which are generally highest in January and July and lowest during the fourth quarter. Although we experience some seasonality in our premiums written, premiums are earned ratably over the period of coverage. Losses and loss settlement expenses incurred tend to remain consistent throughout the year, with the exception of catastrophe losses. Catastrophes inherently are unpredictable and can occur at any time during the year from man-made or natural disaster events that include, but which are not limited to, hail, tornadoes, hurricanes and windstorms.

Life Insurance Segment

Products

United Life Insurance Company underwrites all of our life insurance business and sells annuities. Our principal products are single premium annuities, universal life products and traditional life (primarily single premium whole life insurance) products. We also underwrite and market other traditional products, including term life insurance and whole life insurance. We do not write variable annuities or variable insurance products.

Life insurance in force, before ceded reinsurance, totaled $5,300,209 and $5,206,087 as of December 31, 2013 and 2012, respectively. Traditional life insurance products represented 66.7 percent and 65.4 percent of our insurance in-force at December 31, 2013 and 2012, respectively. Universal life insurance represented 28.4 percent and 29.8 percent of insurance in force at December 31, 2013 and 2012, respectively.

Pricing

Premiums for our life and health insurance products are based on assumptions with respect to mortality, morbidity, investment yields, expenses, and lapses and are also affected by state laws and regulations, as well as competition. Pricing assumptions are based on our experience, as well as the industry in general, depending upon the factor being considered. The actual profit or loss produced by a product will vary from the anticipated profit if the actual experience differs from the assumptions used in pricing the product.

124

Premiums Earned by Segment

The following table sets forth our net premiums earned by segment before intersegment eliminations:

Years Ended December 31,	2013		2012		2011
Property and Casualty Insurance Segment
Net premiums earned
Fire and allied lines	$	208,030	$	173,249	$	153,839
Other liability	199,548		197,842		159,977
Automobile	169,211		155,572		133,974
Workers’ compensation	81,616		68,643		54,404
Fidelity and surety	18,746		17,713		16,665
Reinsurance assumed	14,406		14,473		13,261
Other	2,635		1,919		1,651
Total net premiums earned	$	694,192	$	629,411	$	533,771
Life Insurance Segment
Net premiums earned
Ordinary life (excluding universal life)	$	38,875	$	44,468	$	30,374
Universal life policy fees	11,871		11,768		10,995
Accident and health	1,302		1,363		1,472
Immediate annuities with life contingencies	8,837		8,158		10,276
Other	261		274		262
Total net premiums earned	$	61,146	$	66,031	$	53,379

Total revenue by segment includes sales to external customers and intersegment sales that are eliminated to arrive at the total revenues as reported in the accompanying Consolidated Statements of Income and Comprehensive Income. We account for intersegment sales on the same basis as sales to external customers.

The following table sets forth certain data for each of our business segments and is reconciled to our Consolidated Financial Statements. Depreciation and amortization expense and property and equipment acquisitions for 2013, 2012 and 2011, are reported in the property and casualty insurance segment.

125

	2013			2012			2011
Property and Casualty Insurance:
Revenues:
Net premiums earned	$	694,192		$	629,411		$	533,771
Investment income, net of investment expenses	46,279			40,305			35,690
Net realized investment gains	6,260			3,896			3,066
Other income	88			316			1,592
Total revenues before eliminations	$	746,819		$	673,928		$	574,119
Intersegment eliminations	53			(646		)	(162		)
Total revenues	$	746,872		$	673,282		$	573,957
Net income (loss) before income taxes:
Revenues	$	746,819		$	673,928		$	574,119
Benefit, losses and expenses	658,645			637,648			598,684
Total net income (loss) before eliminations	$	88,174		$	36,280		$	(24,565	)
Intersegment eliminations	545			(199		)	335
Income (loss) before income taxes	$	88,719		$	36,081		$	(24,230	)
Income tax expense (benefit)	21,263			2,569			(16,591		)
Net income (loss)	$	67,456		$	33,512		$	(7,639	)
Assets
Total segment	$	2,218,464		$	2,149,356		$	2,117,352
Intersegment eliminations	(223,395		)	(244,041		)	(252,205		)
Total assets	$	1,995,069		$	1,905,315		$	1,865,147
Life Insurance:
Revenues:
Net premiums earned	$	61,146		$	66,031		$	53,379
Investment income, net of investment expenses	66,467			70,026			73,977
Net realized investment gains	2,434			3,777			3,647
Other income	614			575			699
Total revenues before eliminations	$	130,661		$	140,409		$	131,702
Intersegment eliminations	(491		)	(448		)	(651		)
Total revenues	$	130,170		$	139,961		$	131,051
Net income before income taxes:
Revenues	$	130,661		$	140,409		$	131,702
Benefit, losses and expenses	117,159			130,135			119,712
Total net income before eliminations	$	13,502		$	10,274		$	11,990
Intersegment eliminations	(319		)	(281		)	(475		)
Income before income taxes	$	13,183		$	9,993		$	11,515
Income tax expense	4,499			3,293			3,865
Net income	$	8,684		$	6,700		$	7,650
Assets	$	1,725,603		$	1,789,338		$	1,753,777
Consolidated Totals:
Total revenues	$	877,042		$	813,243		$	705,008
Total net income	$	76,140		$	40,212		$	11
Total assets	$	3,720,672		$	3,694,653		$	3,618,924

126

NOTE 11. QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth our selected unaudited quarterly financial information:

(In Thousands Except Share Data)
Quarters	First		Second		Third		Fourth			Total
Year Ended December 31, 2013
Total revenues	$	205,305	$	219,719	$	223,024	$	228,994		$	877,042
Income before income taxes	29,850		20,318		14,395		37,339			101,902
Net income	$	22,393	$	15,496	$	11,725	$	26,526		$	76,140
Basic earnings per share (1)	$	0.89	$	0.61	$	0.46	$	1.04		$	3.01
Diluted earnings per share (1)	0.88		0.61		0.45		1.04			2.98
Year Ended December 31, 2012
Total revenues	$	193,699	$	199,646	$	206,581	$	213,317		$	813,243
Income (loss) before income taxes	24,876		19,177		10,020		(7,999		)	46,074
Net income (loss)	$	19,184	$	14,716	$	8,730	$	(2,418	)	$	40,212
Basic earnings (loss) per share (1)	$	0.75	$	0.58	$	0.34	$	(0.10	)	$	1.58
Diluted earnings (loss) per share (1)	0.75		0.58		0.34		(0.10		)	1.58

(1) The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

NOTE 12. EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options and restricted stock awards.

We determine the dilutive effect of our outstanding stock options using the “treasury stock” method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

The components of basic and diluted earnings per share were as follows:

	Years Ended December 31,
	2013				2012				2011
(In Thousands Except Per Share Data)	Basic		Diluted		Basic		Diluted		Basic		Diluted
Net income	$	76,140	$	76,140	$	40,212	$	40,212	$	11	$	11
Weighted-average common shares outstanding	25,325,695		25,325,695		25,447,918		25,447,918		25,878,535		25,878,535
Add dilutive effect of restricted stock awards	—		59,849		—		54,338		—		50,206
Add dilutive effect of stock options	—		145,831		—		2,270		—		30,108
Weighted-average common shares	25,325,695		25,531,375		25,447,918		25,504,526		25,878,535		25,958,849
Earnings per common share	$	3.01	$	2.98	$	1.58	$	1.58	$	—	$	—
Awards excluded from diluted calculation(1)	—		638,478		—		901,008		—		989,047

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

127

NOTE 13. LEASE COMMITMENTS

At December 31, 2013, we were obligated under noncancelable operating lease agreements for office space, vehicles, computer equipment and office equipment. Most of our leases include renewal options, purchase options or both. These provisions may be exercised by us upon the expiration of the related lease agreements. Rental expense under our operating lease agreements was $6,521, $6,017 and $5,232 for 2013, 2012 and 2011, respectively. Our most significant lease arrangement is for office space for our regional office in Galveston, Texas. This lease expires in November 2014. The annual lease payments for this office space total approximately $2,105.

At December 31, 2013, our future minimum rental payments are as follows:

2014	$	7,340
2015	4,829
2016	4,099
2017	3,186
2018	1,504
Thereafter	3,219
Total	$	24,177

NOTE 14. DEBT

In December 2011, United Fire entered into a credit agreement with a syndicate of financial institutions as lenders. KeyBank National Association is the administrative agent, lead arranger, sole book runner, swingline lender, and letter of credit issuer, and Bankers Trust Company is the syndication agent. The four-year credit agreement provides for a $100,000 unsecured revolving credit facility that includes a $20,000 letter of credit subfacility and a swing line subfacility in the amount of up to $5,000.

On June 4, 2013, United Fire & Casualty Company, United Fire Group, Inc. and the syndicated lenders entered into an Assignment, Joinder, Assumption, and Release Agreement (the “Joinder Agreement”) transferring the obligations under the credit agreement from United Fire & Casualty Company to United Fire Group, Inc. Effective with the execution of the Joinder Agreement, United Fire & Casualty Company was released from any further obligations under the credit agreement.

During the term of this credit agreement, we have the right to increase the total credit facility from $100,000 up to $125,000 if no event of default has occurred and is continuing and certain other conditions are satisfied. The credit facility is available for general corporate purposes, including working capital, acquisitions and liquidity purposes. Any principal outstanding under the credit facility is due in full at maturity, on December 22, 2015. The interest rate is based on our monthly choice of either a base rate or the London Interbank Offered Rate (“LIBOR”) plus, in each case, a calculated margin amount. A commitment fee on each lender’s unused commitment under the credit facility is also payable quarterly.

The credit agreement contains customary representations, covenants and events of default, including certain covenants that limit or restrict our ability to engage in certain activities. Subject to certain exceptions, these activities include restricting our ability to sell or transfer assets or enter into a merger or consolidate with another company, grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into leaseback transactions, or incur certain indebtedness. The credit agreement contains certain financial covenants including covenants that require us to maintain a minimum consolidated net worth, a debt to capitalization ratio and minimum stockholders’ equity.

There was no outstanding balance on the credit facility at December 31, 2013 or 2012. We did not incur any interest expense related to this credit facility in 2013 or 2011. We incurred $780 in interest expense related to this credit facility in 2012. We were in compliance with all covenants of the credit agreement at December 31, 2013.

128

In connection with our acquisition of Mercer Insurance Group on March 28, 2011, we acquired three statutory trusts with outstanding issuances of trust preferred securities balances as of the acquisition date of $15,614. We redeemed each of the trusts and related issuances in full in 2012. We incurred $509 and $1,055 of interest expense related to these trust preferred securities for 2012 and 2011, respectively.

NOTE 15. INTANGIBLE ASSETS

The carrying value of our goodwill was $15,091 at both December 31, 2013 and 2012, respectively. The goodwill is fully allocated to our property and casualty insurance segment.

Our major classes of intangible assets are presented in the following table:

	Year Ended December 31,
	2013			2012
Agency relationships	$	10,338		$	10,338
Accumulated amortization - agency relationships	(3,017		)	(2,380		)
	$	7,321		$	7,958
Software	$	3,260		$	3,260
Accumulated amortization - software	(3,260		)	(2,853		)
	$	—		$	407
Trade names	$	1,978		$	1,978
Accumulated amortization - trade names	(363		)	(231		)
	$	1,615		$	1,747
Favorable contract	$	286		$	286
Accumulated amortization - favorable contract	(286		)	(250		)
	$	—		$	36
State insurance licenses (1)	$	3,020		$	3,020
Net intangible assets	$	11,956		$	13,168

(1) The intangible asset for licenses has an indefinite life and therefore is not amortized.

The estimated useful lives assigned to our major classes of amortizable intangible assets are as follows:

	Useful Life
Agency relationships	Fifteen years
Software	Two years
Trade names	Fifteen years
Favorable contract	Two years

Our estimated aggregate amortization expense for each of the next five years is as follows:

2014	$	769
2015	769
2016	769
2017	769
2018	719

129

NOTE 16. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2013, 2012 and 2011:

				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs			Total
Balance as of January 1, 2011	$	102,649		$	(25,671	)	$	76,978
Change in accumulated other comprehensive income before reclassifications	26,517			(17,790		)	8,727
Reclassification adjustments from accumulated other comprehensive income	(4,790		)	1,671			(3,119		)
Balance as of December 31, 2011	$	124,376		$	(41,790	)	$	82,586
Change in accumulated other comprehensive income before reclassifications	22,386			(10,349		)	12,037
Reclassification adjustments from accumulated other comprehensive income	(2,666		)	3,231			565
Balance as of December 31, 2012	$	144,096		$	(48,908	)	$	95,188
Change in accumulated other comprehensive income before reclassifications	(23,068		)	15,643			(7,425		)
Reclassification adjustments from accumulated other comprehensive income	(4,427		)	3,814			(613		)
Balance as of December 31, 2013	$	116,601		$	(29,451	)	$	87,150

NOTE 17. BUSINESS COMBINATIONS

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group, Inc. for $191,475. The acquisition was funded through a combination of cash and $79,900 of short-term debt. Accordingly, the results of operations for Mercer Insurance Group, Inc. have been included in the accompanying consolidated financial statements from that date forward. There were no acquisitions in 2013 and 2012.

The excess of the purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed through the acquisition of Mercer Insurance Group at the acquisition date has been allocated to goodwill and intangible assets of our property and casualty insurance segment.

130

The following is a summary of the fair value of the tangible and intangible assets acquired and liabilities assumed of Mercer Insurance Group at the date of acquisition:

	March 28, 2011
Assets
Available-for-sale fixed maturity securities	$	401,548
Equity securities	10,266
Short-term investments	400
Cash and cash equivalents	18,855
Accrued investment income	3,741
Premiums receivable	35,822
Value of business acquired	27,436
Property and equipment	14,985
Reinsurance receivables and recoverables	58,193
Prepaid reinsurance premiums	6,289
Income taxes receivable	2,657
Deferred income taxes	2,837
Goodwill and intangible assets	32,293
Other assets	11,353
Total assets	$	626,675
Liabilities
Reserves for losses, claims and loss settlement expenses	$	310,647
Unearned premiums	72,249
Accrued expenses and other liabilities	33,690
Debt	3,000
Trust preferred securities	15,614
Total liabilities	$	435,200
Total net assets acquired	$	191,475

The fair value of available-for-sale fixed maturity securities is primarily based on quoted prices for similar financial instruments in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument. The fair value of equity securities is primarily based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.

The fair value of reserves for losses, claims and loss settlement expenses related to incurred claims and reinsurance receivables and recoverables is determined using a valuation model that is based on actuarial estimates of future cash flows for the underwriting liabilities. These future cash flows are adjusted for the time value of money using duration-matched risk-free interest rates that approximate current U.S. Treasury bill rates and a risk margin to compensate the acquirer for the risk associated with these liabilities.

The value of business acquired (“VOBA”) at the acquisition date is an intangible asset relating to the difference between the unearned premium reserves acquired in the transaction and the estimated fair value of the unexpired insurance policies, which consists of two components: (1) a provision for loss and loss settlement expenses that will be incurred as the premium is earned and (2) a provision for policy maintenance costs related to servicing those policies until they expire. Loss and loss settlement expenses are valued in a manner identical to that used for loss reserve valuation. Policy maintenance costs are valued based on estimates of future cash flows that are discounted to present value using duration-matched risk-free interest rates. VOBA is reported as a component of deferred policy acquisition costs in the accompanying Consolidated Balance Sheets and is amortized over a twelve-month period from the acquisition date in proportion to the timing of the estimated underwriting profit associated with the in-force business. The amortization pattern for the VOBA asset will be greater in the initial months subsequent to the acquisition date in correlation to the remaining term of the policies that were underwritten by Mercer Insurance Group. We recorded amortization expense of $1,673 and $25,763 in 2012 and 2011, respectively.

The fair value of property and equipment related to land and buildings approximates the appraised value of the respective assets at the acquisition date.

The fair value of the intangible asset for agency relationships was established using the excess earnings method, which is an income approach based on estimated financial projections developed by management using market participant assumptions. Fair value has been estimated as the present value of the benefits anticipated from our continued relationship with these

131

agencies that are in excess of the return required on the investment in contributory assets necessary to realize those benefits. The rate used to discount the net benefits is based on a risk-adjusted rate that takes into consideration market-based rates of return and is representative of the relative risk of the acquired asset.

The fair value of the intangible asset for software was established using the replacement cost method, which estimates the cost to recreate the utility of the subject asset in consideration of the technological and functional obsolescence of the acquired software.

The fair value of the intangible asset for trade names was established using the relief from royalty method, which treats the trade name as being licensed in an arm’s length transaction to a third party. A review was performed of comparable arm’s length royalty or license agreements involving assets that reflect similar risk and return investment characteristics with the subject trade name. The royalty rate selected is then multiplied by the net revenue expected to be generated by the trade names over the course of the assumed life of the trade names. The product of the royalty rate and the revenue provides an estimate of the royalty income that could be generated hypothetically by licensing the subject trade name.

The fair value of the intangible asset for licenses was estimated by assigning values to state insurance licenses to determine the value of the company if it were sold as a “shell company” (i.e., no policies in force but with the license to write business in certain states). Value is derived from the states having limited the number of insurers licensed or from the significant expense of obtaining a new license from the state.

The fair value of all other tangible assets and liabilities approximates their carrying values at the acquisition date due to their short-term duration.

The following is a summary of our unaudited pro forma historical results as if Mercer Insurance Group had been acquired on January 1, 2011:

	Year Ended December 31,
	2011
Revenue	$	741,833
Net income (1)	8,139
Basic earnings per share	0.31
Diluted earnings per share	0.31

(1) The year ended December 31, 2011 excludes transaction related expenses incurred that reduced net income by $11.9 million.

The unaudited pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at January 1, 2011, and they are not necessarily indicative of future operating results. Annualized revenues of Mercer Insurance Group were $145,868 for 2011. Total revenues and net loss related to Mercer Insurance Group for the year ended December 31, 2011 recorded in the accompanying Consolidated Statements of Income and Comprehensive Income were $109,043 and $14,650, respectively.

132

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

United Fire Group, Inc.

We have audited the accompanying consolidated balance sheets of United Fire Group, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Fire Group, Inc. at December 31, 2013 and 2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2012 United Fire Group, Inc. changed its method of accounting for costs associated with acquiring or renewing insurance contracts.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), United Fire Group, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report, dated March 5, 2014, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP  

Ernst & Young LLP 

Chicago, Illinois

March 5, 2014

133

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of United Fire Group, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. United Fire Group, Inc.’s internal control over financial reporting is a process designed under the supervision of its Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its Consolidated Financial Statements for external purposes in accordance with U.S. generally accepted accounting principles.

As of December 31, 2013, United Fire Group, Inc.’s management assessed the effectiveness of United Fire Group Inc.’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). Based on the assessment, United Fire Group, Inc.’s management determined that effective internal control over financial reporting is maintained as of December 31, 2013, based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements of United Fire Group, Inc. included in this Annual Report on Form 10-K, has audited the effectiveness of internal control over financial reporting as of December 31, 2013. Their attestation report, which expresses an unqualified opinion on the effectiveness of United Fire Group, Inc.’s internal control over financial reporting as of December 31, 2013, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”

Dated: March 5, 2014

/s/ Randy A. Ramlo

Randy A. Ramlo

Chief Executive Officer

/s/ Dianne M. Lyons

Dianne M. Lyons

Chief Financial Officer

134

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

United Fire Group, Inc.

We have audited United Fire Group, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria) . United Fire Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, United Fire Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2013 and 2012 and the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2013 of United Fire Group, Inc. and our report dated March 5, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Ernst & Young LLP

Chicago, Illinois

March 5, 2014

135

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15 and 15d-15) that occurred during the fiscal quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

136

ITEM 9B. OTHER INFORMATION

None.

PART III.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS AND CERTAIN SIGNIFICANT EMPLOYEES

The following table sets forth information as of December 31, 2013, concerning the following executive officers and other significant employees:

Name	Age	Position
Randy A. Ramlo (1)	52	President and Chief Executive Officer
Michael T. Wilkins (1)	50	Executive Vice President, Corporate Administration
Dianne M. Lyons (1)	50	Vice President and Chief Financial Officer
Brian S. Berta	49	Vice President, Great Lakes regional office
David E. Conner (1)	55	Vice President and Chief Claims Officer
Raymond E. Dudonis	57	Vice President, East Coast regional office
Barrie W. Ernst (1)	59	Vice President and Chief Investment Officer
Kevin W. Helbing	48	Controller
David L. Hellen	61	Vice President, Denver regional office
Joseph B. Johnson	61	Vice President, Gulf Coast regional office
David A. Lange	56	Corporate Secretary and Fidelity and Surety Claims Manager
Janice A. Martin	52	Treasurer
Scott A. Minkel	51	Vice President, Information Services
Dennis J. Richmann	49	Vice President, Fidelity and Surety
Corey J. Ruehle	40	Vice President, Midwest regional office
Neal R. Scharmer (1)	57	Vice President, General Counsel and Corporate Secretary
Michael J. Sheeley (1)	53	Vice President and Chief Operating Officer, United Life Insurance Company
Allen R. Sorensen	55	Vice President, Corporate Underwriting
Colleen R. Sova	58	Vice President, Corporate Marketing
Timothy G. Spain	61	Vice President, Human Resources
Edward E. Sullivan	57	Vice President, West Coast regional office

(1) Executive Officers

A brief description of the business experience of these officers follows.

Randy A. Ramlo became our President and Chief Executive Officer in May 2007. He previously served us as Chief Operating Officer from May 2006 until May 2007, as Executive Vice President from May 2004 until May 2007, and as Vice President, Fidelity and Surety, from November 2001 until May 2004. He also worked as an underwriting manager in our Great Lakes region. Mr. Ramlo began his employment with us as an underwriter in 1984.

Michael T. Wilkins became our Executive Vice President, Corporate Administration, in May 2007. He was our Senior Vice President, Corporate Administration, from May 2004 until May 2007, our Vice President, Corporate Administration, from August 2002 until May 2004 and the resident Vice President in our Lincoln regional office from 1998 until 2002. Prior to 1998, Mr. Wilkins held various other positions within the Company since joining us in 1985.

137

Dianne M. Lyons was appointed Chief Financial Officer in May 2006. She was appointed Vice President in May 2003 and served as our Controller from 1999 until May 2006. Ms. Lyons has been employed by us in the accounting department since 1983.

Brian S. Berta is Vice President of our Great Lakes region, a position he has held since May 2006. Mr. Berta previously worked as an underwriting manager in our Great Lakes region and has been employed by us since 1993.

David E. Conner has served as our Vice President and Chief Claims Officer since January 2005. Mr. Conner has served in various capacities within the claims department, including claims manager and Assistant Vice President, since joining us in 1998.

Raymond E. Dudonis was appointed Vice President of our East Coast regional office in August 2011. Mr. Dudonis had been a member of the Mercer Insurance Group’s management team since December of 2006, serving as an Assistant Vice President of Underwriting in its Pennington, New Jersey office at the time of the acquisition in March of 2011. Mr. Dudonis has over 32 years of experience in the insurance industry.

Barrie W. Ernst is our Vice President and Chief Investment Officer. He joined us in August 2002. Previously, Mr. Ernst served as Senior Vice President of SCI Financial Group, Cedar Rapids, Iowa, where he worked from 1980 to 2002. SCI Financial Group was a regional financial services firm providing brokerage, insurance and related services to its clients.

Kevin W. Helbing joined us as our Controller in February 2008. Mr. Helbing was previously employed by Marsh U.S.A. in Iowa City, Iowa, as Vice President, Treasury, from April 2007 until February 2008. From March 2001 until April 2007, Mr. Helbing was employed by Marsh Advantage America, first as an accounting manager and then as Assistant Vice President and Controller. Marsh U.S.A. and Marsh Advantage America design, manage and administer insurance and risk programs for businesses.

David L. Hellen serves as Vice President of our Denver regional office; a position he has held since 1988. We have employed Mr. Hellen since 1975.

Joseph B. Johnson was named Vice President of our Gulf Coast regional office in May 2007, after having served as branch manager since August 2006. Mr. Johnson has over 27 years of experience in the insurance industry. From August 2001 until August 2006, he served as Vice President of insurance operations for Beacon Insurance Group in Wichita Falls, Texas.

David A. Lange has served as one of our Corporate Secretaries since 1997.  He has been our surety claims manager since 1987. Mr. Lange began his employment with us in 1981, with an interruption in service from 1984 until 1987.

Janice A. Martin was named Treasurer in May 2008. Ms. Martin has served in various capacities since joining us in 1988, including as a tax accountant and as tax manager since January 2006.

Scott A. Minkel is our Vice President, Information Services, a position he has held since May 2007. Mr. Minkel previously served in various capacities within the information services department since joining us in 1984, including as Assistant Vice President, Director of Information Services and programming manager.

Dennis J. Richmann was named our Vice President, Fidelity and Surety, in May 2006. He has been employed by us in various capacities since joining us in August 1988, most recently as surety bond underwriting manager.

Corey J. Ruehle was named Vice President of our Midwest regional office in May 2013. He has served us in various capacities since joining us in in February 2001, including Branch Manager, Assistant Vice President and Underwriting Manager, underwriting supervisor, senior commercial underwriter and commercial underwriter. From 1996 until 2001, Mr. Ruehle worked in various underwriting positions for Allied Insurance.

Neal R. Scharmer was appointed our Vice President and General Counsel in May 2001 and Corporate Secretary in May 2006. He joined us in 1995.

138

Michael J. Sheeley was appointed Vice President and Chief Operating Officer of our life insurance subsidiary, United Life Insurance Company, in March 2011. Prior to assuming leadership of United Life Insurance Company, Mr. Sheeley served us as personal lines underwriting manager from 1991 to 2011. He has also served in various capacities including commercial underwriting and claims since joining us in 1985.

Allen R. Sorensen became our Vice President, Corporate Underwriting, in May 2006. Mr. Sorensen began his career with us in June 1981 and has served us in various capacities, including underwriting, product support and product automation.

Colleen R. Sova serves as our Vice President, Corporate Marketing, a position she has held since July 2013. Ms. Sova has previously served us in a variety of capacities since joining us in 1981, including as Vice President and Director of e-Solutions, Assistant Vice President and Director of e-Solutions, Director of Claims Administration, claims supervisor and claims adjuster.

Timothy G. Spain became our Vice President, Human Resources, in July 2006. Mr. Spain began his employment with us in December 1994 as our training director.

Edward E. Sullivan joined us as Vice President of our West Coast regional office in February 2012. Mr. Sullivan has over 26 years of experience in the insurance industry, most recently serving as Personal Lines Sales Manager for The Hartford Financial Services Group, Inc., an insurance and financial services company, in its Rancho Cordova, California office.

The information required by this Item regarding our directors and corporate governance matters is included under the captions “Board of Directors,” subheading “Corporate Governance” and “Proposal One-Election of Directors,” in our 2014 Proxy Statement and is incorporated herein by reference. The information required by this Item regarding our Code of Ethics is included under the caption “Board of Directors,” subheading “Corporate Governance,” subpart “Code of Ethics” in our 2014 Proxy Statement and is incorporated herein by reference. The information required by this Item regarding compliance with Section 16(a) of the Exchange Act is included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2014 Proxy Statement and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item regarding our executive compensation and our Compensation Committee Report is included under the caption “Executive Compensation” and the subheading “Report of the Compensation Committee” in our 2014 Proxy Statement and is incorporated herein by reference. The information required by this Item regarding Compensation Committee interlocks and insider participation is included under the caption “Board of Directors,” subheading “Committees of the Board,” subheading “Compensation Committee,” subpart “Compensation Committee Interlocks and Insider Participation” in our 2014 Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required under this Item is included under the captions “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management” and “Securities Authorized for Issuance under Equity Compensation Plans” in our 2014 Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item is included under the caption “Transactions with Related Persons” in our 2014 Proxy Statement and is incorporated herein by reference.

139

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required under this Item is included under the caption “Proposal Three - Ratification of the Audit Committee’s Appointment of Independent Registered Public Accounting Firm,” subheading “Information About Our Independent Registered Public Accounting Firm” in our 2014 Proxy Statement and is incorporated herein by reference.

140

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

We have filed the following documents as part of this Annual Report on Form 10-K:

	Page
(a) 1. Financial Statements
Consolidated Balance Sheets at December 31, 2013 and 2012	79
Consolidated Statements of Income and Comprehensive Income for the three years ended December 31, 2013	80
Consolidated Statements of Stockholders’ Equity for the three years ended December 31, 2013	81
Consolidated Statements of Cash Flows for the three years ended December 31, 2013	82
Notes to Consolidated Financial Statements	84
(a) 2. Financial Statement Schedules required to be filed by Item 8 of this Form:
Schedule I. Summary of Investments — Other than Investments in Related Parties	142
Schedule II. Condensed Financial Statements of Parent Company	143
Schedule III: Supplementary Insurance Information	146
Schedule IV: Reinsurance	147
Schedule V: Valuation and Qualifying Accounts	148
Schedule VI: Supplemental Information Concerning Property and Casualty Insurance Operations	149
All other schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Consolidated Financial Statements.
(a) 3. See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.

141

Schedule I. Summary of Investments — Other than Investments in Related Parties

December 31, 2013	(In thousands)
	Cost or Amortized Cost				Amounts at Which Shown in Balance Sheet
Type of Investment			Fair Value
Fixed maturities
Bonds
United States Government and government agencies and authorities	$	321,600	$	303,478	$	303,478
States, municipalities and political subdivisions	690,711		714,161		714,157
Foreign governments	168,640		174,109		174,109
Public utilities	213,479		218,576		218,576
All other bonds	1,345,926		1,349,156		1,349,147
Redeemable preferred stock	1,906		2,385		2,385
Total fixed maturities	$	2,742,262	$	2,761,865	$	2,761,852
Equity securities
Common stocks
Public utilities	$	7,231	$	16,272	$	16,272
Banks, trusts and insurance companies	15,853		88,262		88,262
Industrial, miscellaneous and all other	43,753		120,956		120,956
Nonredeemable preferred stocks	6,487		6,365		6,365
Total equity securities	$	73,324	$	231,855	$	231,855
Mortgage loans on real estate	$	4,423	$	4,724	$	4,423
Policy loans	6,261		6,261		6,261
Other long-term investments	41,343		44,946		44,946
Short-term investments	800		800		800
Total investments	$	2,868,413	$	3,050,451	$	3,050,137

142

Schedule II. Condensed Financial Statements of Parent Company

United Fire Group, Inc. (parent company only)

Condensed Balance Sheet

	December 31,
(In thousands, except share data)	2013		2012
ASSETS
Fixed maturities, held-to-maturity, at amortized cost (fair value $200 in 2013 and $200 in 2012)	$	200	$	200
Investment in subsidiary	778,843		723,705
Cash and cash equivalents	3,253		5,140
Federal income tax receivable	537		131
Investment income receivable	1		1
Total assets	$	782,834	$	729,177
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	1	$	—
Stockholders’ equity
Common stock, $0.001 par value, authorized 75,000,000 shares; 25,360,893 and 25,277,463 issued and outstanding in 2013 and 2012, respectively	$	25	$	25
Additional paid-in capital	211,574		208,536
Retained earnings	484,084		425,428
Accumulated other comprehensive income, net of tax	87,150		95,188
Total stockholders’ equity	$	782,833	$	729,177
Total liabilities and stockholders’ equity	$	782,834	$	729,177

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

143

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statement of Income and Comprehensive Income

	For the Years Ended December 31,
(In thousands)	2013			2012(1)
Revenues
Investment income	$	23		$	13
Total revenues	23			13
Expenses
Other operating expenses	172			158
Total expenses	172			158
Loss before income taxes and equity in net income of subsidiary	(149		)	(145		)
Federal income tax benefit	(49		)	(51		)
Net loss before equity in net income of subsidiary	$	(100	)	$	(94	)
Equity in net income of subsidiary	76,240			40,306
Net income	$	76,140		$	40,212
Other comprehensive income (loss)
Change in unrealized appreciation on investments held by subsidiary	$	(35,489	)	$	34,436
Change in liability for underfunded employee benefit plans of subsidiary	24,066			(15,922		)
Other comprehensive income (loss), before tax and reclassification adjustments	$	(11,423	)	$	18,514
Income tax effect	3,998			(6,477		)
Other comprehensive income (loss), after tax, before reclassification adjustments	$	(7,425	)	$	12,037
Reclassification adjustment for net realized gains of the subsidiary included in income	(6,812		)	(4,102		)
Reclassification adjustment for employee benefit costs of the subsidiary included in expense	5,868			4,971
Total reclassification adjustments, before tax	$	(944	)	$	869
Income tax effect	331			(304		)
Total reclassification adjustments, after tax	$	(613	)	$	565
Comprehensive income	$	68,102		$	52,814

(1) The Condensed Statement of Income and Comprehensive Income includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

On February 1, 2012, we completed a holding company reorganization (the “Reorganization”) of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization agreement was approved and adopted by United Fire & Casualty Company's shareholders at a special meeting held on January 24, 2012.

United Fire Group, Inc. and its subsidiaries file a consolidated federal income tax return. The federal income tax provision represents an allocation under it’s tax allocation agreements.

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

144

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statement of Cash Flows

	For the Years Ended December 31,
(In thousands)	2013			2012(1)
Cash Flows From Operating Activities
Net income	$	76,140		$	40,212
Adjustments to reconcile net income to net cash provided by operating activities
Equity in net income of subsidiary	(76,240		)	(40,306		)
Dividends received from subsidiary	13,175			26,950
Other, net	1,261			26
Total adjustments	(61,804		)	(13,330		)
Net cash provided by operating activities	$	14,336		$	26,882
Cash Flows From Investing Activities
Purchase of held-to-maturity investments	$	—		$	(200	)
Net cash used in investing activities	$	—		$	(200	)
Cash Flows From Financing Activities
Repurchase of common stock	$	(1,644	)	$	(7,301	)
Issuance of common stock	3,393			1,106
Tax impact from issuance of common stock	(488		)	(78		)
Payment of cash dividends	(17,484		)	(15,269		)
Net cash used in financing activities	$	(16,223	)	$	(21,542	)
Net Change in Cash and Cash Equivalents	$	(1,887	)	$	5,140
Cash and Cash Equivalents at Beginning of Period	5,140			—
Cash and Cash Equivalents at End of Year	$	3,253		$	5,140

(1) The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

On February 1, 2012, we completed a holding company reorganization (the “Reorganization”) of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization agreement was approved and adopted by United Fire & Casualty Company's shareholders at a special meeting held on January 24, 2012.

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

145

Schedule III. Supplementary Insurance Information

(In thousands)	Deferred Policy Acquisition Costs		Future Policy Benefits, Losses, Claims and Loss Expenses		Unearned Premiums		Earned Premium Revenue		Investment Income, Net		Benefits, Claims, Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs (3)		Other Underwriting Expenses		Interest on Policyholders’ Accounts		Premiums Written (2)
Year Ended December 31, 2013
Property and casualty	$	67,663	$	960,651	$	340,387	$	694,192	$	46,332	$	437,354	$	147,175	$	73,626	$	—	$	722,821
Life, accident and health (1)	82,429		1,472,132		77		60,654		66,467		59,085		6,502		16,235		35,163		—
Total	$	150,092	$	2,432,783	$	340,464	$	754,846	$	112,799	$	496,439	$	153,677	$	89,861	$	35,163	$	722,821
Year Ended December 31, 2012
Property and casualty	$	64,947	$	971,911	$	311,561	$	629,411	$	41,879	$	439,137	$	134,444	$	63,620	$	—	$	655,331
Life, accident and health (1)	40,353		1,498,176		89		65,583		70,026		63,664		7,390		17,505		41,409		—
Total	$	105,300	$	2,470,087	$	311,650	$	694,994	$	111,905	$	502,801	$	141,834	$	81,125	$	41,409	$	655,331
Year Ended December 31, 2011
Property and casualty	$	60,668	$	945,051	$	288,868	$	533,771	$	35,513	$	407,831	$	143,952	$	46,404	$	—	$	551,923
Life, accident and health (1)	45,986		1,476,281		123		53,012		73,981		55,125		9,224		12,353		42,834		—
Total	$	106,654	$	2,421,332	$	288,991	$	586,783	$	109,494	$	462,956	$	153,176	$	58,757	$	42,834	$	551,923

(1) Annuity deposits are included in future policy benefits, losses, claims and loss expenses.

(2) Pursuant to Regulation S-X, premiums written does not apply to life insurance companies.

(3) 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

146

Schedule IV. Reinsurance

(In thousands)	Gross Amount		Ceded to Other Companies		Assumed From Other Companies		Net Amount		Percentage of Amount Assumed to Net Earned
Year Ended December 31, 2013
Life insurance in force	$	5,300,305	$	1,112,688	$	4	$	4,187,621
Premiums earned
Property and casualty insurance	$	726,221	$	50,514	$	18,485	$	694,192	2.66	%
Life, accident and health insurance	63,446		2,792		—		60,654		—	%
Total	$	789,667	$	53,306	$	18,485	$	754,846	2.45	%
Year Ended December 31, 2012
Life insurance in force	$	5,206,065	$	1,083,410	$	22	$	4,122,677
Premiums earned
Property and casualty insurance	$	659,989	$	47,467	$	16,889	$	629,411	2.68	%
Life, accident and health insurance	68,204		2,621		—		65,583		—	%
Total	$	728,193	$	50,088	$	16,889	$	694,994	2.43	%
Year Ended December 31, 2011
Life insurance in force	$	4,916,833	$	974,556	$	42	$	3,942,319
Premiums earned
Property and casualty insurance	$	564,506	$	45,604	$	14,869	$	533,771	2.79	%
Life, accident and health insurance	55,330		2,318		—		53,012		—	%
Total	$	619,836	$	47,922	$	14,869	$	586,783	2.53	%

147

Schedule V. Valuation And Qualifying Accounts

(In thousands)	Balance at beginning of period		Charged to costs and expenses		Deductions		Balance at end of period
Description
Allowance for bad debts
Year Ended December 31, 2013	$	866	$	30	$	—	$	896
Year Ended December 31, 2012	825		41		—		866
Year Ended December 31, 2011	1,001		—		176		825
Deferred tax asset valuation allowance (1)
Year Ended December 31, 2013	$	2,909	$	—	$	548	$	2,361
Year Ended December 31, 2012	3,456		—		547		2,909
Year Ended December 31, 2011	4,004		—		548		3,456

(1) Recorded in connection with the purchase of American Indemnity Financial Corporation in 1999.

148

Schedule VI. Supplemental Information Concerning Property and Casualty Insurance Operations

(In thousands)
Affiliation with Registrant: United Fire & Casualty Company and consolidated property and casualty subsidiaries													Claims and Claim Adjustment Expenses Incurred Related to:					Amortization of Deferred Policy Acquisition Costs (1)
			Reserves for Unpaid Claims and Claim Adjustment Expenses						Net Realized Investment Gains (Losses)
	Deferred Policy Acquisition Costs										Net Investment Income									Paid Claims and Claim Adjustment Expenses
					Unearned Premiums		Earned Premiums						Current Year		Prior Years							Premiums Written
2013	$	67,663	$	960,651	$	340,387	$	694,192	$	6,260	$	46,332	$	494,841	$	(57,487	)	$	147,175	$	419,894	$	722,821
2012	$	64,947	$	971,911	$	311,561	$	629,411	$	1,676	$	41,879	$	512,564	$	(73,427	)	$	134,444	$	395,788	$	655,331
2011	$	60,668	$	945,051	$	288,868	$	533,771	$	3,081	$	35,513	$	468,926	$	(61,095	)	$	143,952	$	399,828	$	551,923

(1) 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

149

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNITED FIRE GROUP, INC.

By:	/s/ Randy A. Ramlo
	Randy A. Ramlo, Chief Executive Officer, Director and Principal Executive Officer
Date:	3/5/2014
By:	/s/ Dianne M. Lyons
	Dianne M. Lyons, Vice President, Chief Financial Officer and Principal Accounting Officer
Date:	3/5/2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By	/s/ Jack B. Evans	By	/s/ John P. Besong
	Jack B. Evans, Chairman and Director		John P. Besong, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ Scott L. Carlton	By:	/s/ Christopher R. Drahozal
	Scott L. Carlton, Director		Christopher R. Drahozal, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ Douglas M. Hultquist	By	/s/ Casey D. Mahon
	Douglas M. Hultquist, Director		Casey D. Mahon, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ George D. Milligan	By	/s/ James W. Noyce
	George D. Milligan, Director		James W. Noyce, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ Michael W. Phillips	By	/s/ Mary K. Quass
	Michael W. Phillips, Director		Mary K. Quass, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ John A. Rife	By	/s/ Kyle D. Skogman
	John A. Rife, Vice Chairman and Director		Kyle D. Skogman, Director
Date	3/5/2014	Date	3/5/2014
By	/s/ Susan E. Voss
	Susan E. Voss, Director
Date	3/5/2014

150

Exhibit Index

				Incorporated by reference
Exhibit number		Exhibit description	Filed herewith	Form	Period ending	Exhibit	Filing date
2.1		Agreement and Plan of Reorganization among United Fire & Casualty Company, United Fire Group, Inc. and UFC MergeCo, Inc.		8-K		2.1	5/25/2011
3.1		Articles of Incorporation of United Fire Group, Inc.		S-4		Annex II	5/25/2011
3.2		Bylaws of United Fire Group, Inc.		S-4		Annex III	5/25/2011
10.1		Employee Stock Purchase Plan		10-K	12/31/2007	10.2	2/27/2008
10.2	*	2005 Non-qualified Non-employee Director Stock Option and Restricted Stock Plan (as amended)		DEF14A		4.6	4/20/2011
10.4	*	United Fire Group, Inc. Amended and Restated Annual Incentive Plan (Amended February 24, 2012)		10-K	12/31/2011	10.4	3/15/2012
10.5	*	Non-qualified Deferred Compensation Plan		10-Q	9/30/2007	10.3	10/25/2007
10.6	*	Form of Non-qualified Employee Stock Option Agreement under the 2008 Stock Plan		10-K	12/31/2007	10.7	2/27/2008
10.7	*	Form of Option Issued Pursuant to the 2005 Non-qualified Non-employee Director Stock Option and Restricted Stock Plan		10-K	12/31/2007	10.8	2/27/2008
10.8	*	2008 Stock Plan		8-K		99.1	5/22/2008
10.9	*	Form of Stock Award Agreement under the 2008 Stock Plan		8-K		99.2	5/22/2008
10.10	*	Form of Non-qualified Stock Option Agreement for the Purchase of Stock under the 2008 Stock Plan		8-K		99.3	5/22/2008
10.11	*	Form of Incentive Stock Option Agreement for the Purchase of Stock under the 2008 Stock Plan		8-K		99.4	5/22/2008
10.12	*	Amendment to Non-qualified Stock Option Agreements for John A. Rife		8-K/A		99.1	2/24/2009
10.13		Credit Agreement between United Fire & Casualty Company and syndicated lenders		8-K		10.1	12/23/2011
10.14		First Amendment to Credit Agreement between United Fire & Casualty Company and syndicated lenders		8-K		10.1	1/30/2012
10.15	*	Form of Restricted Stock Agreement under the 2005 Non-qualified Non-employee Director Stock Option and Restricted Stock Plan		10-K	12/31/2011	10.14	3/15/2012
10.16	*	United Fire Group, Inc. Plan for Allocation of Equity Compensation to Management Team		10-K	12/31/2011	10.15	3/15/2012
10.17	*	Deferred Compensation Plan for United Fire Group, Inc. Non-Employee Directors		8-K		10.1	11/19/2012
10.18		Second Amendment to Credit Agreement between United Fire & Casualty Company and syndicated lenders		8-K		10.1	12/21/2012
10.19		Assignment, Joinder, Assumption, and Release Agreement, between and among United Fire Group, Inc., United Fire & Casualty Company, a syndicate of financial institutions, as lenders party thereto, and KeyBank National Association, as Administrative Agent, Lead Arranger, Sole Book Runner, Swingline Lender, and Letter of Credit Issuer		8-K		10.1	6/5/2013

*Indicates a management contract or compensatory plan or arrangement.

151

Exhibit Index

			Incorporated by reference
Exhibit number	Exhibit description	Filed herewith	Form	Period ending	Exhibit	Filing date
11	Statement Re Computation of Per Share Earnings. All information required by Exhibit 11 is presented within Note 12 of the Notes to Consolidated Financial Statements	X
12	Statement Re Computation of Ratios	X
14	Code of Ethics		8-K/A		14.1	1/31/2013
21	Subsidiaries of the Registrant	X
23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm	X
23.2	Consent of Griffith, Ballard & Company, Independent Actuary	X
23.3	Consent of Regnier Consulting Group, Inc., Independent Actuary	X
31.1	Certification of Randy A. Ramlo Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
31.2	Certification of Dianne M. Lyons Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	X
32.1	Certification of Randy A. Ramlo Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
32.2	Certification of Dianne M. Lyons Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	X
101.1	The following financial information from United Fire Group, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2013 formatted in XBRL: (i) Consolidated Balance Sheets at December 31, 2013 and 2012; (ii) Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2013, 2012 and 2011; (iii) Consolidated Statement of Stockholders’ Equity for the years ended December 31, 2013, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011; and (v) Notes to Consolidated Financial Statements.	X

*Indicates a management contract or compensatory plan or arrangement.

152

EX-12

EXHIBIT 12. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

(In Thousands)
Years ended December 31	2013	2012	2011		2010	2009
Earnings
Income (loss) before income taxes	101,902	46,074	(12,715	)	58,383	(28,706	)
Add: fixed charges	36,467	42,612	43,868		43,889	42,494
Total earnings	138,369	88,686	31,153		102,272	13,788
Fixed charges
Interest on policyholders’ accounts	35,163	41,409	42,834		42,988	41,652
Portion of rent representative of interest factor	1,304	1,203	1,034		901	842
Total fixed charges	36,467	42,612	43,868		43,889	42,494
Ratio of earnings to fixed charges	3.79	2.08	0.71		2.33	0.32

EX-21

EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT

Subsidiary	Jurisdiction of Organization	% of Ownership by United Fire Group, Inc. or one of its Subsidiaries
United Fire & Casualty Company	Iowa	100 % owned by United Fire Group, Inc.
United Life Insurance Company	Iowa	100 % owned by United Fire & Casualty Company
Addison Insurance Company	Iowa	100 % owned by United Fire & Casualty Company
Lafayette Insurance Company	Louisiana	100 % owned by United Fire & Casualty Company
United Fire & Indemnity Company	Texas	100 % owned by United Fire & Casualty Company
American Indemnity Financial Corporation	Delaware	100 % owned by United Fire & Casualty Company
Texas General Indemnity Company	Colorado	100 % owned by American Indemnity Financial Corporation
United Fire Lloyds	Texas	Operationally and financially controlled by United Fire & Indemnity Company
Mercer Insurance Group, Inc.	Pennsylvania	100 % owned by United Fire & Casualty Company
Mercer Insurance Company	Pennsylvania	100 % owned by Mercer Insurance Group, Inc.
Mercer Insurance Company of New Jersey, Inc.	New Jersey	100 % owned by Mercer Insurance Company
Franklin Insurance Company	Pennsylvania	100 % owned by Mercer Insurance Company
BICUS Services Corporation	Pennsylvania	100 % owned by Mercer Insurance Company
Financial Pacific Insurance Group, Inc.	Delaware	100 % owned by Mercer Insurance Group, Inc.
Financial Pacific Insurance Company	California	100 % owned by Financial Pacific Insurance Group, Inc.
United Real Estate Holdings, LLC	Iowa	100 % owned by United Fire & Casualty Company

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements of United Fire Group, Inc.

(United Fire) described in the following table of our reports dated March 5, 2014, with respect to the consolidated financial statements and schedules of United Fire and the effectiveness of internal control over financial reporting of United Fire included in this Annual Report (Form 10-K) of United Fire for the year ended December 31, 2013.

Registration Statement
Form	Number	Purpose
S-8	333-42895	Pertaining to United Fire's employee stock purchase plan
S-8	333-63103	Pertaining to United Fire's non-qualified employee stock option plan
S-8	333-107041	Pertaining to the United Fire Group 401(k) plan
S-8	333-129923/ 333-178095	Pertaining to United Fire's 2005 non-qualified non-employee director stock option and restricted stock plan
S-8	333-151074	Pertaining to United Fire's 2008 Stock Plan

/s/ Ernst & Young LLP

Ernst & Young LLP

Chicago, Illinois

March 5, 2014

EX-23.2

EXHIBIT 23.2

Consent of Independent Actuary

We consent to the use of and reference to our name in the Annual Report on Form 10-K of United Fire Group, Inc. (“United Fire”) for the year ended December 31, 2013 in Item 1, “Business” under the heading “Reserves” under the subheading “Life Insurance Segment” and in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the subheading “Critical Accounting Policies” under the heading “Independent Actuary” under “Future Policy Benefits and Losses, Claims and Loss Settlement Expenses - Life Insurance Segment.” We also consent to the incorporation by reference of such use and reference into the Registration Statements of United Fire described in the following table:

Registration Statement
Form	Number	Purpose
S-8	333-42895	Pertaining to United Fire's employee stock purchase plan
S-8	333-63103	Pertaining to United Fire's non-qualified employee stock option plan
S-8	333-107041	Pertaining to the United Fire Group 401(k) plan
S-8	333-129923/ 333-178095	Pertaining to United Fire's 2005 non-qualified non-employee director stock option and restricted stock plan
S-8	333-151074	Pertaining to United Fire's 2008 Stock Plan

March 5, 2014	/s/ Steve Griffith
	Griffith, Ballard and Company
	President

EX-23.3

EXHIBIT 23.3

Consent of Independent Actuary

We consent to the use of and reference to our name in the Annual Report on Form 10-K of United Fire Group, Inc. (“United Fire”) for the year ended December 31, 2013 in Item 1. “Business” under the heading “Reserves” under the subheading “Property and Casualty Insurance Segment” and Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the heading “Critical Accounting Policies” under the subheadings “Incurred But Not Reported (IBNR) Reserves” and “Independent Actuary” under “Loss and Loss Settlement Expenses - Property and Casualty Insurance Segment.” We also consent to the incorporation by reference of such use and reference into the Registration Statements of United Fire described in the following table:

Registration Statement
Form	Number	Purpose
S-8	333-42895	Pertaining to United Fire's employee stock purchase plan
S-8	333-63103	Pertaining to United Fire's non-qualified employee stock option plan
S-8	333-107041	Pertaining to the United Fire Group 401(k) plan
S-8	333-129923/ 333-178095	Pertaining to United Fire's 2005 non-qualified non-employee director stock option and restricted stock plan
S-8	333-151074	Pertaining to United Fire's 2008 Stock Plan

March 5, 2014	/s/ Steven J. Regnier
	Regnier Consulting Group, Inc.
	Steven J. Regnier, President

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Randy A. Ramlo, certify that:

1. I have reviewed this annual report on Form 10-K of United Fire Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the Consolidated Financial Statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	March 5, 2014
		/s/ Randy A. Ramlo
		Randy A. Ramlo
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dianne M. Lyons, certify that:

1. I have reviewed this annual report on Form 10-K of United Fire Group, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the Consolidated Financial Statements and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	March 5, 2014
		/s/ Dianne M. Lyons
		Dianne M. Lyons
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of United Fire Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randy A. Ramlo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	March 5, 2014
		/s/ Randy A. Ramlo
		Randy A. Ramlo
		Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to United Fire Group, Inc. and will be retained by United Fire Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of United Fire Group, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dianne M. Lyons, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date:	March 5, 2014
		/s/ Dianne M. Lyons
		Dianne M. Lyons
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to United Fire Group, Inc. and will be retained by United Fire Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

FEDERAL INCOME TAX (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Federal Income Tax Expense (Benefit)

Federal income tax expense (benefit) is composed of the following:

Years Ended December 31,	2013		2012			2011
Current	$	19,146	$	6,644		$	(3,517	)
Deferred	6,616		(782		)	(9,209		)
Total	$	25,762	$	5,862		$	(12,726	)

Income Tax Rate Reconciliation

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 35.0 percent to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:

Years Ended December 31,	2013			2012			2011
Computed expected income tax expense (benefit)	$	35,666		$	16,126		$	(4,451	)
Tax-exempt municipal bond interest income	(7,732		)	(8,027		)	(7,908		)
Nontaxable dividend income	(1,053		)	(1,004		)	(859		)
Valuation allowance reduction	(548		)	(547		)	—
Acquisition related expenses	—			42			860
Other, net	(571		)	(728		)	(368		)
Federal income tax expense (benefit)	$	25,762		$	5,862		$	(12,726	)

Deferred Tax Liabilities

The significant components of our net deferred tax liability at December 31, 2013 and 2012, are as follows:

December 31,	2013			2012
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities	$	55,402		$	38,582
All other securities	6,201			52,563
Deferred policy acquisition costs	47,809			32,086
Prepaid pension cost	2,556			2,271
Net bond discount accretion	2,069			3,896
Depreciation	2,355			579
Revaluation of investment basis (1)	3,595			4,345
Identifiable intangible assets (1)	4,056			6,615
Other	7,530			4,414
Gross deferred tax liability	$	131,573		$	145,351
Deferred tax assets
Financial statement reserves in excess of income tax reserves	$	39,041		$	40,992
Unearned premium adjustment	23,502			21,578
Net operating loss carryforwards	2,361			3,481
Underfunded benefit plan obligation	15,858			26,335
Postretirement benefits other than pensions	12,342			10,240
Other-than-temporary impairment of investments	5,222			5,715
Contingent ceding commission accrual	3,726			4,822
Compensation expense related to stock options	4,062			3,928
AMT credit carryforward	476			7,713
Other	5,429			3,828
Gross deferred tax asset	$	112,019		$	128,632
Valuation allowance	(2,361		)	(2,909		)
Deferred tax asset	$	109,658		$	125,723
Net deferred tax liability	$	21,915		$	19,628

(1) Related to our acquisition of Mercer Insurance Group.

XML

SUMMARY OF INVESTMENTS (Net Realized Investment Gains and Losses) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	$ 8,695	$ 5,453	$ 6,440
Available-for-sale Securities [Abstract]
Proceeds from sales	23,007	20,324	39,496
Gross realized gains	451	513	1,144
Gross realized losses	0	(37)	(1,562)
Fixed Maturities [Member] | Held-to-maturity Securities [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	1	12	8
Fixed Maturities [Member] | Available-for-sale Securities [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	3,211	3,408	4,776
Fixed Maturities [Member] | Trading Securities, Change in Fair Value [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	1,183	683	(539)
Fixed Maturities [Member] | Trading Securities, Sales [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	788	406	(326)
Fixed Maturities [Member] | Other-than-temporary-impairment Charges [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	(139)	0	(395)
Equity Securities [Member] | Available-for-sale Securities [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	3,739	698	2,988
Equity Securities [Member] | Trading Securities, Change in Fair Value [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	(126)	250	(4)
Equity Securities [Member] | Trading Securities, Sales [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	38	0	0
Equity Securities [Member] | Other-than-temporary-impairment Charges [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	0	(4)	0
Other Long-term Investments [Member]
Gain (Loss) on Investments [Line Items]
Net realized investment gains (losses)	$ 0	$ 0	$ (68)

XML

BUSINESS COMBINATIONS (Tables)

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

The following is a summary of the fair value of the tangible and intangible assets acquired and liabilities assumed of Mercer Insurance Group at the date of acquisition:

	March 28, 2011
Assets
Available-for-sale fixed maturity securities	$	401,548
Equity securities	10,266
Short-term investments	400
Cash and cash equivalents	18,855
Accrued investment income	3,741
Premiums receivable	35,822
Value of business acquired	27,436
Property and equipment	14,985
Reinsurance receivables and recoverables	58,193
Prepaid reinsurance premiums	6,289
Income taxes receivable	2,657
Deferred income taxes	2,837
Goodwill and intangible assets	32,293
Other assets	11,353
Total assets	$	626,675
Liabilities
Reserves for losses, claims and loss settlement expenses	$	310,647
Unearned premiums	72,249
Accrued expenses and other liabilities	33,690
Debt	3,000
Trust preferred securities	15,614
Total liabilities	$	435,200
Total net assets acquired	$	191,475

Business Acquisition, Pro Forma Information

The following is a summary of our unaudited pro forma historical results as if Mercer Insurance Group had been acquired on January 1, 2011:

	Year Ended December 31,
	2011
Revenue	$	741,833
Net income (1)	8,139
Basic earnings per share	0.31
Diluted earnings per share	0.31

(1) The year ended December 31, 2011 excludes transaction related expenses incurred that reduced net income by $11.9 million.

XML

FEDERAL INCOME TAX (Net Deferred Tax Liabilities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Deferred tax liabilities
Deferred policy acquisition costs	$ 47,809		$ 32,086
Prepaid pension cost	2,556		2,271
Net bond discount accretion	2,069		3,896
Depreciation	2,355		579
Revaluation of investment basis	3,595	[1]	4,345	[1]
Identifiable intangible assets	4,056	[1]	6,615	[1]
Other	7,530		4,414
Gross deferred tax liability	131,573		145,351
Deferred tax assets
Financial statement reserves in excess of income tax reserves	39,041		40,992
Unearned premium adjustment	23,502		21,578
Net operating loss carryforwards	2,361		3,481
Underfunded benefit plan obligation	15,858		26,335
Postretirement benefits other than pensions	12,342		10,240
Other-than-temporary impairment of investments	5,222		5,715
Contingent ceding commission accrual	3,726	[1]	4,822	[1]
Compensation expense related to stock options	4,062		3,928
AMT credit carryforward	476		7,713
Other	5,429		3,828
Gross deferred tax asset	112,019		128,632
Valuation allowance	(2,361)		(2,909)
Deferred tax asset	109,658		125,723
Net deferred tax liability	21,915		19,628
Equity Securities [Member]
Deferred tax liabilities
Net unrealized appreciation on investment securities	55,402		38,582
All Other Securities [Member]
Deferred tax liabilities
Net unrealized appreciation on investment securities	$ 6,201		$ 52,563

[1] Related to our acquisition of Mercer Insurance Group

XML

SUMMARY OF INVESTMENTS (Net Investment Income) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Other	$ 1,632		$ 825		$ 969
Total investment income	118,123		118,069		116,353
Less investment expense	5,324		6,164		6,859
Net Investment income	112,799		111,905		109,494
Fixed Maturities [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Interest income	101,950		108,517		109,467
Equity Securities [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Dividend income	5,806		5,354		4,628
Other Long-term Investments [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Interest income	1,194		232		224
Other Long-term Investments [Member] | Change in Value [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Other	7,030	[1]	2,562	[1]	(137)	[1]
Mortgage Backed Securities [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Interest income	266		279		285
Short-term Investments [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Interest income	6		10		4
Cash and Cash Equivalents [Member]
Schedule of Investment Income, Reported Amounts, by Category [Line Items]
Interest income	$ 239		$ 290		$ 913

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

XML

EMPLOYEE BENEFITS (AOCI) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Unrecognized prior service cost	$ 0	$ 0
Unrecognized actuarial loss	32,162	60,647
Total amounts recognized in AOCI	32,162	60,647
Anticipated amortization of net actuarial losses in next fiscal year	2,174
Postretirement Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Unrecognized prior service cost	0	0
Unrecognized actuarial loss	13,147	14,596
Total amounts recognized in AOCI	13,147	14,596
Anticipated amortization of net actuarial losses in next fiscal year	$ 898

XML

Schedule II. Condensed Financial Statements of Parent Company (Condensed Statement of Cash Flows) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Cash Flows From Operating Activities
Net income	$ 76,140		$ 40,212		$ 11
Adjustments to reconcile net income to net cash provided by operating activities
Other, net	(7,156)		(2,871)		1,130
Total adjustments	85,351		131,864		74,420
Net cash provided by operating activities	161,491		172,076		74,431
Cash Flows From Investing Activities
Purchase of held-to-maturity investments	0		(200)		0
Net cash used in investing activities	(101,986)		(111,340)		(175,192)
Cash Flows From Financing Activities
Repurchase of common stock	(1,644)		(7,301)		(12,433)
Issuance of common stock	3,393		1,106		208
Tax impact from issuance of common stock	(488)		(78)		1
Net cash (used in) provided by financing activities	(74,778)		(97,797)		65,231
Net Change in Cash and Cash Equivalents	(15,273)		(37,061)		(35,530)
Cash and Cash Equivalents at Beginning of Year	107,466		144,527		180,057
Cash and Cash Equivalents at End of Year	92,193		107,466		144,527
United Fire Group, Inc. [Member]
Cash Flows From Operating Activities
Net income	76,140		40,212	[1],[2]
Adjustments to reconcile net income to net cash provided by operating activities
Equity in net income of subsidiary	(76,240)		(40,306)	[1],[2]
Dividends received from subsidiary	13,175		26,950	[1]
Other, net	1,261		26	[1]
Total adjustments	(61,804)		(13,330)	[1]
Net cash provided by operating activities	14,336		26,882	[1]
Cash Flows From Investing Activities
Purchase of held-to-maturity investments	0		(200)	[1]
Net cash used in investing activities	0		(200)	[1]
Cash Flows From Financing Activities
Repurchase of common stock	(1,644)		(7,301)	[1]
Issuance of common stock	3,393		1,106	[1]
Tax impact from issuance of common stock	(488)		(78)	[1]
Payment of cash dividends	(17,484)		(15,269)	[1]
Net cash (used in) provided by financing activities	(16,223)		(21,542)	[1]
Net Change in Cash and Cash Equivalents	(1,887)		5,140	[1]
Cash and Cash Equivalents at Beginning of Year	5,140	[1]	0	[1]
Cash and Cash Equivalents at End of Year	$ 3,253		$ 5,140	[1]

[1] The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

[2] The Condensed Statement of Income and Comprehensive Income includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

XML

INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived and Indefinite-Lived Intangible Assets

Our major classes of intangible assets are presented in the following table:

	Year Ended December 31,
	2013			2012
Agency relationships	$	10,338		$	10,338
Accumulated amortization - agency relationships	(3,017		)	(2,380		)
	$	7,321		$	7,958
Software	$	3,260		$	3,260
Accumulated amortization - software	(3,260		)	(2,853		)
	$	—		$	407
Trade names	$	1,978		$	1,978
Accumulated amortization - trade names	(363		)	(231		)
	$	1,615		$	1,747
Favorable contract	$	286		$	286
Accumulated amortization - favorable contract	(286		)	(250		)
	$	—		$	36
State insurance licenses (1)	$	3,020		$	3,020
Net intangible assets	$	11,956		$	13,168

(1) The intangible asset for licenses has an indefinite life and therefore is not amortized.

Schedule Of Finite Lived Intangible Assets Useful Lives By Major Class

The estimated useful lives assigned to our major classes of amortizable intangible assets are as follows:

	Useful Life
Agency relationships	Fifteen years
Software	Two years
Trade names	Fifteen years
Favorable contract	Two years

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Our estimated aggregate amortization expense for each of the next five years is as follows:

2014	$	769
2015	769
2016	769
2017	769
2018	719

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Deferred Policy Acquisition Costs

The following table is a summary of the components of DAC that are reported in the accompanying Consolidated Financial Statements:

Property & Casualty	2013			2012			2011
Recorded asset at beginning of year	$	64,947		$	60,668		$	44,681
Underwriting costs deferred	149,891			138,723			132,503
Amortization of deferred policy acquisition costs	(147,175		)	(132,771		)	(118,189		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
Recorded asset at end of year	$	67,663		$	64,947		$	60,668
Life Insurance
Recorded asset at beginning of year	$	40,353		$	45,986		$	42,843
Underwriting costs deferred	6,476			6,578			8,965
Amortization of deferred policy acquisition costs	(6,502		)	(7,390		)	(9,224		)
	$	40,327		$	45,174		$	42,584
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	82,429		$	40,353		$	45,986
Total
Recorded asset at beginning of year	$	105,300		$	106,654		$	87,524
Underwriting costs deferred	156,367			145,301			141,468
Amortization of deferred policy acquisition costs	(153,677		)	(140,161		)	(127,413		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
	$	107,990		$	110,121		$	103,252
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	150,092		$	105,300		$	106,654

Schedule of Estimated Useful Lives

Depreciation is computed primarily by the straight-line method over the following estimated useful lives:

	Useful Life
Computer equipment	Three years
Furniture and fixtures	Seven years
Leasehold improvements	Shorter of the lease term or useful life of the asset
Real estate	Seven to thirty-nine years
Software	Three years

XML

EMPLOYEE BENEFITS (Net Periodic Benefit Cost) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Pension Plan [Member]
Net periodic benefit cost
Service cost	$ 6,300	$ 5,129	$ 3,166
Interest cost	5,175	5,049	4,761
Expected return on plan assets	(5,772)	(5,345)	(5,288)
Amortization of prior service cost	0	8	10
Amortization of net loss	4,989	4,415	2,368
Net periodic benefit cost	10,692	9,256	5,017
Postretirement Benefit Plan [Member]
Net periodic benefit cost
Service cost	3,875	3,010	1,985
Interest cost	1,759	1,695	1,590
Expected return on plan assets	0	0	0
Amortization of prior service cost	0	(6)	(32)
Amortization of net loss	879	554	224
Net periodic benefit cost	6,513	5,253	3,767
Mercer Insurance Group [Member] | Pension Plan [Member]
Net periodic benefit cost
Net periodic benefit cost		$ 854

XML

EMPLOYEE BENEFITS (Asset Allocation) (Details) (Pension Plan [Member], USD $) In Thousands, unless otherwise specified				12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Fixed Maturity Securities - Corporate Bonds [Member]	Dec. 31, 2012 Fixed Maturity Securities - Corporate Bonds [Member]	Dec. 31, 2013 Redeemable Preferred Stocks [Member]	Dec. 31, 2012 Redeemable Preferred Stocks [Member]	Dec. 31, 2013 Equity Securities [Member]	Dec. 31, 2012 Equity Securities [Member]	Dec. 31, 2013 Bond and Mortgage Separate Account Fund [Member]	Dec. 31, 2012 Bond and Mortgage Separate Account Fund [Member]	Dec. 31, 2013 U.S. Property Separate Account Fund [Member]	Dec. 31, 2012 U.S. Property Separate Account Fund [Member]	Dec. 31, 2013 Arbitrage Fund [Member]	Dec. 31, 2012 Arbitrage Fund [Member]	Dec. 31, 2013 United Life Annuity [Member]	Dec. 31, 2012 United Life Annuity [Member]	Dec. 31, 2013 Cash and Cash Equivalents [Member]		Dec. 31, 2012 Cash and Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Plan assets	$ 92,219	$ 75,276	$ 65,267	$ 4,489	$ 4,830	$ 1,381	$ 1,113	$ 39,481	$ 41,091	$ 5,657	$ 0	$ 8,763	$ 0	$ 5,516	$ 5,363	$ 8,101	$ 7,900	$ 18,831		$ 14,979
Actual % of Total	100.00%	100.00%		4.90%	6.40%	1.50%	1.50%	42.80%	54.60%	6.10%	0.00%	9.50%	0.00%	6.00%	7.10%	8.80%	10.50%	20.40%	[1]	19.90%	[1]
Target Allocation, Minimum Percentage				0.00%		0.00%		50.00%		0.00%		0.00%		0.00%		5.00%		0.00%
Target Allocations, Maximum Percentage				25.00%		20.00%		70.00%		40.00%		25.00%		15.00%		15.00%		10.00%

[1] Cash and cash equivalents balance as a percent of total plan assets exceeded the target allocation in 2013 as we were in the process of reducing the number of external investment managers and moving funds between managers in early 2014.

XML

SEGMENT INFORMATION (Segments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Net premiums earned									$ 754,846	$ 694,994	$ 586,783
Investment income, net of investment expenses									112,799	111,905	109,494
Net realized investment gains									8,695	5,453	6,440
Other income									702	891	2,291
Total revenues	228,994	223,024	219,719	205,305	213,317	206,581	199,646	193,699	877,042	813,243	705,008
Benefits, losses and expenses									775,140	767,169	717,723
Income (loss) before income taxes	37,339	14,395	20,318	29,850	(7,999)	10,020	19,177	24,876	101,902	46,074	(12,715)
Income tax expense (benefit)									25,762	5,862	(12,726)
Net income (loss)	26,526	11,725	15,496	22,393	(2,418)	8,730	14,716	19,184	76,140	40,212	11
TOTAL ASSETS	3,720,672				3,694,653				3,720,672	3,694,653	3,618,924
Property and Casualty Insurance [Member]
Segment Reporting Information [Line Items]
Total revenues									746,872	673,282	573,957
Income (loss) before income taxes									88,719	36,081	(24,230)
Income tax expense (benefit)									21,263	2,569	(16,591)
Net income (loss)									67,456	33,512	(7,639)
TOTAL ASSETS	1,995,069				1,905,315				1,995,069	1,905,315	1,865,147
Life Insurance [Member]
Segment Reporting Information [Line Items]
Total revenues									130,170	139,961	131,051
Income (loss) before income taxes									13,183	9,993	11,515
Income tax expense (benefit)									4,499	3,293	3,865
Net income (loss)									8,684	6,700	7,650
TOTAL ASSETS	1,725,603				1,789,338				1,725,603	1,789,338	1,753,777
Operating Segments [Member] | Property and Casualty Insurance [Member]
Segment Reporting Information [Line Items]
Net premiums earned									694,192	629,411	533,771
Investment income, net of investment expenses									46,279	40,305	35,690
Net realized investment gains									6,260	3,896	3,066
Other income									88	316	1,592
Total revenues									746,819	673,928	574,119
Benefits, losses and expenses									658,645	637,648	598,684
Total net income (loss) before eliminations									88,174	36,280	(24,565)
TOTAL ASSETS	2,218,464				2,149,356				2,218,464	2,149,356	2,117,352
Operating Segments [Member] | Life Insurance [Member]
Segment Reporting Information [Line Items]
Net premiums earned									61,146	66,031	53,379
Investment income, net of investment expenses									66,467	70,026	73,977
Net realized investment gains									2,434	3,777	3,647
Other income									614	575	699
Total revenues									130,661	140,409	131,702
Benefits, losses and expenses									117,159	130,135	119,712
Total net income (loss) before eliminations									13,502	10,274	11,990
Intersegment Elimination [Member] | Property and Casualty Insurance [Member]
Segment Reporting Information [Line Items]
Total revenues									53	(646)	(162)
Intersegment eliminations									545	(199)	335
TOTAL ASSETS	(223,395)				(244,041)				(223,395)	(244,041)	(252,205)
Intersegment Elimination [Member] | Life Insurance [Member]
Segment Reporting Information [Line Items]
Total revenues									(491)	(448)	(651)
Intersegment eliminations									$ (319)	$ (281)	$ (475)

XML

SUMMARY OF INVESTMENTS (Investments in Unrealized Loss Position) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013 issues	Dec. 31, 2012 issues
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	528	107
Less than 12 months, Fair Value	$ 922,128	$ 182,504
Less than 12 months, Gross Unrealized Depreciation	48,023	2,568
12 months or longer, Number of Issues	88	66
12 months or longer, Fair Value	110,914	37,565
12 months or longer, Gross Unrealized Depreciation	11,807	2,000
Total, Fair Value	1,033,042	220,069
Total, Gross Unrealized Depreciation	59,830	4,568
Fixed Maturities [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	524	91
Less than 12 months, Fair Value	918,634	181,198
Less than 12 months, Gross Unrealized Depreciation	47,906	2,386
12 months or longer, Number of Issues	71	34
12 months or longer, Fair Value	108,961	32,783
12 months or longer, Gross Unrealized Depreciation	11,477	1,482
Total, Fair Value	1,027,595	213,981
Total, Gross Unrealized Depreciation	59,383	3,868
U.S. Treasury [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	10	2
Less than 12 months, Fair Value	9,196	1,724
Less than 12 months, Gross Unrealized Depreciation	140	5
12 months or longer, Number of Issues	0	0
12 months or longer, Fair Value	0	0
12 months or longer, Gross Unrealized Depreciation	0	0
Total, Fair Value	9,196	1,724
Total, Gross Unrealized Depreciation	140	5
U.S. Government Agency [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	101	5
Less than 12 months, Fair Value	256,203	17,654
Less than 12 months, Gross Unrealized Depreciation	18,019	67
12 months or longer, Number of Issues	2	0
12 months or longer, Fair Value	4,356	0
12 months or longer, Gross Unrealized Depreciation	644	0
Total, Fair Value	260,559	17,654
Total, Gross Unrealized Depreciation	18,663	67
States, Municipalities and Political Subdivisions [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	136	31
Less than 12 months, Fair Value	97,950	41,775
Less than 12 months, Gross Unrealized Depreciation	7,423	819
12 months or longer, Number of Issues	29	0
12 months or longer, Fair Value	29,670	0
12 months or longer, Gross Unrealized Depreciation	3,282	0
Total, Fair Value	127,620	41,775
Total, Gross Unrealized Depreciation	10,705	819
Foreign Bonds [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	10	1
Less than 12 months, Fair Value	20,832	3,323
Less than 12 months, Gross Unrealized Depreciation	397	48
12 months or longer, Number of Issues	0	1
12 months or longer, Fair Value	0	558
12 months or longer, Gross Unrealized Depreciation	0	14
Total, Fair Value	20,832	3,881
Total, Gross Unrealized Depreciation	397	62
Public Utilities [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	31	2
Less than 12 months, Fair Value	61,582	3,155
Less than 12 months, Gross Unrealized Depreciation	1,776	32
12 months or longer, Number of Issues	0	0
12 months or longer, Fair Value	0	0
12 months or longer, Gross Unrealized Depreciation	0	0
Total, Fair Value	61,582	3,155
Total, Gross Unrealized Depreciation	1,776	32
Corporate Bonds [Member] | Energy [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	9
Less than 12 months, Fair Value	23,735
Less than 12 months, Gross Unrealized Depreciation	1,008
12 months or longer, Number of Issues	0
12 months or longer, Fair Value	0
12 months or longer, Gross Unrealized Depreciation	0
Total, Fair Value	23,735
Total, Gross Unrealized Depreciation	1,008
Corporate Bonds [Member] | Industrials [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	34	4
Less than 12 months, Fair Value	77,788	12,194
Less than 12 months, Gross Unrealized Depreciation	2,819	109
12 months or longer, Number of Issues	0	1
12 months or longer, Fair Value	0	2,897
12 months or longer, Gross Unrealized Depreciation	0	103
Total, Fair Value	77,788	15,091
Total, Gross Unrealized Depreciation	2,819	212
Corporate Bonds [Member] | Consumer Goods and Services [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	31	0
Less than 12 months, Fair Value	58,833	0
Less than 12 months, Gross Unrealized Depreciation	1,276	0
12 months or longer, Number of Issues	6	7
12 months or longer, Fair Value	3,218	4,606
12 months or longer, Gross Unrealized Depreciation	145	151
Total, Fair Value	62,051	4,606
Total, Gross Unrealized Depreciation	1,421	151
Corporate Bonds [Member] | Health Care [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	10	3
Less than 12 months, Fair Value	25,888	7,416
Less than 12 months, Gross Unrealized Depreciation	942	80
12 months or longer, Number of Issues	2	0
12 months or longer, Fair Value	4,427	0
12 months or longer, Gross Unrealized Depreciation	258	0
Total, Fair Value	30,315	7,416
Total, Gross Unrealized Depreciation	1,200	80
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	18	5
Less than 12 months, Fair Value	58,105	13,402
Less than 12 months, Gross Unrealized Depreciation	2,147	198
12 months or longer, Number of Issues	2	0
12 months or longer, Fair Value	7,468	0
12 months or longer, Gross Unrealized Depreciation	1,174	0
Total, Fair Value	65,573	13,402
Total, Gross Unrealized Depreciation	3,321	198
Corporate Bonds [Member] | Financial Services [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	7	2
Less than 12 months, Fair Value	15,191	1,005
Less than 12 months, Gross Unrealized Depreciation	720	1
12 months or longer, Number of Issues	1	24
12 months or longer, Fair Value	1,525	24,693
12 months or longer, Gross Unrealized Depreciation	3	1,058
Total, Fair Value	16,716	25,698
Total, Gross Unrealized Depreciation	723	1,059
Mortgage Backed Securities [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	16	7
Less than 12 months, Fair Value	4,476	4,472
Less than 12 months, Gross Unrealized Depreciation	177	21
12 months or longer, Number of Issues	6	0
12 months or longer, Fair Value	3,113	0
12 months or longer, Gross Unrealized Depreciation	114	0
Total, Fair Value	7,589	4,472
Total, Gross Unrealized Depreciation	291	21
Collateralized Mortgage Obligations [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	111	27
Less than 12 months, Fair Value	208,855	74,702
Less than 12 months, Gross Unrealized Depreciation	11,062	1,004
12 months or longer, Number of Issues	23	1
12 months or longer, Fair Value	55,184	29
12 months or longer, Gross Unrealized Depreciation	5,857	156
Total, Fair Value	264,039	74,731
Total, Gross Unrealized Depreciation	16,919	1,160
Equity Securities [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	4	16
Less than 12 months, Fair Value	3,494	1,306
Less than 12 months, Gross Unrealized Depreciation	117	182
12 months or longer, Number of Issues	17	32
12 months or longer, Fair Value	1,953	4,782
12 months or longer, Gross Unrealized Depreciation	330	518
Total, Fair Value	5,447	6,088
Total, Gross Unrealized Depreciation	447	700
Redeemable Preferred Stocks [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues		2
Less than 12 months, Fair Value		376
Less than 12 months, Gross Unrealized Depreciation		2
12 months or longer, Number of Issues		0
12 months or longer, Fair Value		0
12 months or longer, Gross Unrealized Depreciation		0
Total, Fair Value		376
Total, Gross Unrealized Depreciation		2
Common Stock [Member] | Public Utilities [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	0	3
Less than 12 months, Fair Value	0	225
Less than 12 months, Gross Unrealized Depreciation	0	83
12 months or longer, Number of Issues	3	0
12 months or longer, Fair Value	281	0
12 months or longer, Gross Unrealized Depreciation	27	0
Total, Fair Value	281	225
Total, Gross Unrealized Depreciation	27	83
Common Stock [Member] | Industrials [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	1	4
Less than 12 months, Fair Value	1	482
Less than 12 months, Gross Unrealized Depreciation	1	52
12 months or longer, Number of Issues	2	9
12 months or longer, Fair Value	81	621
12 months or longer, Gross Unrealized Depreciation	31	122
Total, Fair Value	82	1,103
Total, Gross Unrealized Depreciation	32	174
Common Stock [Member] | Consumer Goods and Services [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues		2
Less than 12 months, Fair Value		280
Less than 12 months, Gross Unrealized Depreciation		19
12 months or longer, Number of Issues		4
12 months or longer, Fair Value		372
12 months or longer, Gross Unrealized Depreciation		31
Total, Fair Value		652
Total, Gross Unrealized Depreciation		50
Common Stock [Member] | Health Care [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues		1
Less than 12 months, Fair Value		31
Less than 12 months, Gross Unrealized Depreciation		2
12 months or longer, Number of Issues		3
12 months or longer, Fair Value		896
12 months or longer, Gross Unrealized Depreciation		123
Total, Fair Value		927
Total, Gross Unrealized Depreciation		125
Common Stock [Member] | Technology, Media and Telecommunications [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	0	5
Less than 12 months, Fair Value	0	241
Less than 12 months, Gross Unrealized Depreciation	0	7
12 months or longer, Number of Issues	6	7
12 months or longer, Fair Value	206	581
12 months or longer, Gross Unrealized Depreciation	83	88
Total, Fair Value	206	822
Total, Gross Unrealized Depreciation	83	95
Common Stock [Member] | Financial Services [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	0	1
Less than 12 months, Fair Value	0	47
Less than 12 months, Gross Unrealized Depreciation	0	19
12 months or longer, Number of Issues	4	7
12 months or longer, Fair Value	215	1,109
12 months or longer, Gross Unrealized Depreciation	128	126
Total, Fair Value	215	1,156
Total, Gross Unrealized Depreciation	128	145
Nonredeemable Preferred Stocks [Member]
AVAILABLE-FOR-SALE
Less than 12 months, Number of Issues	3	0
Less than 12 months, Fair Value	3,493	0
Less than 12 months, Gross Unrealized Depreciation	116	0
12 months or longer, Number of Issues	2	2
12 months or longer, Fair Value	1,170	1,203
12 months or longer, Gross Unrealized Depreciation	61	28
Total, Fair Value	4,663	1,203
Total, Gross Unrealized Depreciation	$ 177	$ 28

XML

EMPLOYEE BENEFITS (Assumptions) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Pension Plan [Member]
Assumptions Used to Determine Benefit Obligations [Abstract]
Discount rate	4.84%	4.00%
Rate of compensation increase	3.50%	3.50%
Assumptions Used to Determine Net Periodic Benefit Cost [Abstract]
Discount rate	4.00%	4.50%	5.50%
Expected long-term rate of return on plan assets	7.50%	8.00%	8.25%
Rate of compensation increase	3.50%	3.75%	4.00%
Postretirement Benefit Plan [Member]
Assumptions Used to Determine Benefit Obligations [Abstract]
Discount rate	4.84%	4.00%
Assumptions Used to Determine Net Periodic Benefit Cost [Abstract]
Discount rate	4.00%	4.50%	5.50%
Effect of One-Percentage Point Change in Assumed Health Care Cost Trend Rates [Abstract]
Effect of 1% increase on the net periodic postretirement health care benefit cost	$ 1,287
Effect of 1% decrease on the net periodic postretirement health care benefit cost	(1,023)
Effect of 1% increase on the accumulated postretirement benefit obligation	8,328
Effect of 1% decrease on the accumulated postretirement benefit obligation	$ (6,782)
Health Care Benefits [Member]
Assumed Health Care Cost Trend Rates [Abstract]
Health care cost trend rates assumed for next year	7.00%	10.00%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)	4.50%	5.25%
Dental Claims [Member]
Assumed Health Care Cost Trend Rates [Abstract]
Health care cost trend rates assumed for next year	4.00%	5.25%

XML

STOCK-BASED COMPENSATION (Exercise Price Range) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range (in usd per share)	$ 15.01
Range of Exercise Prices, Upper Range (in usd per share)	$ 41
Options Outstanding, Number Outstanding (in shares)	1,287,310
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	5 years 3 months 21 days
Options Outstanding, Weighted-Average Exercise Price (in usd per share)	$ 28.13
Number Exercisable (in shares)	803,568
Weighted-Average Exercise Price (in usd per share)	$ 31.66
Exercise Price $15.01 to $21.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range (in usd per share)	$ 15.01
Range of Exercise Prices, Upper Range (in usd per share)	$ 21.00
Options Outstanding, Number Outstanding (in shares)	331,017
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	7 years 0 months 14 days
Options Outstanding, Weighted-Average Exercise Price (in usd per share)	$ 19.88
Number Exercisable (in shares)	115,218
Weighted-Average Exercise Price (in usd per share)	$ 19.47
Exercise Price $21.01 to $28.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range (in usd per share)	$ 21.01
Range of Exercise Prices, Upper Range (in usd per share)	$ 28.00
Options Outstanding, Number Outstanding (in shares)	317,815
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	7 years 10 months 17 days
Options Outstanding, Weighted-Average Exercise Price (in usd per share)	$ 23.57
Number Exercisable (in shares)	70,932
Weighted-Average Exercise Price (in usd per share)	$ 23.50
Exercise Price $28.01 to $35.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range (in usd per share)	$ 28.01
Range of Exercise Prices, Upper Range (in usd per share)	$ 35
Options Outstanding, Number Outstanding (in shares)	338,478
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	3 years 6 months 7 days
Options Outstanding, Weighted-Average Exercise Price (in usd per share)	$ 32.74
Number Exercisable (in shares)	317,418
Weighted-Average Exercise Price (in usd per share)	$ 32.99
Exercise Price $35.01 to $41.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Range (in usd per share)	$ 35.01
Range of Exercise Prices, Upper Range (in usd per share)	$ 41
Options Outstanding, Number Outstanding (in shares)	300,000
Options Outstanding, Weighted-Average Remaining Contractual Life (in years)	2 years 8 months 15 days
Options Outstanding, Weighted-Average Exercise Price (in usd per share)	$ 36.85
Number Exercisable (in shares)	300,000
Weighted-Average Exercise Price (in usd per share)	$ 36.85

XML

EMPLOYEE BENEFITS (Profit-Sharing Plan and ESOP) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
ESOP, Minimum requisite service period	1 year
ESOP, minimum participant age	21 years
Number of United Fire Group, Inc. common stock shares owned in the ESOP	220,468	224,041
Employer contributions to ESOP		$ 100	$ 175
Profit-Sharing Plan [Member]
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Employer contribution to the profit-sharing plan	$ 6,029	$ 1,812	$ 1,092

XML

SEGMENT INFORMATION (Narratives) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 segments	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of reportable business segments	2
Life insurance in force before ceded reinsurance	$ 5,300,305	$ 5,206,065	$ 4,916,833
Property and Casualty Insurance [Member]
Segment Reporting Information [Line Items]
Number of domestic business locations	6
Property and Casualty Insurance [Member] | Commercial Lines [Member] | Product Concentration Risk [Member] | Sales Revenue, Segment [Member]
Segment Reporting Information [Line Items]
Percentage of insurance in force	90.50%
Property and Casualty Insurance [Member] | Personal Lines [Member] | Product Concentration Risk [Member] | Sales Revenue, Segment [Member]
Segment Reporting Information [Line Items]
Percentage of insurance in force	9.50%
Life Insurance [Member]
Segment Reporting Information [Line Items]
Life insurance in force before ceded reinsurance	$ 5,300,209	$ 5,206,087
Life Insurance [Member] | Traditional Life [Member] | Product Concentration Risk [Member] | Sales Revenue, Segment [Member]
Segment Reporting Information [Line Items]
Percentage of insurance in force	66.70%	65.40%
Life Insurance [Member] | Universal Life [Member] | Product Concentration Risk [Member] | Sales Revenue, Segment [Member]
Segment Reporting Information [Line Items]
Percentage of insurance in force	28.40%	29.80%

XML

EMPLOYEE BENEFITS (Obligation and Funded Status) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Pension Benefits [Member]
Reconciliation of benefit obligation [Roll Forward]
Benefit obligation at beginning of year	$ 131,382	[1]	$ 111,340
Service cost	6,300		5,129		3,166
Interest cost	5,175		5,049		4,761
Actuarial loss	(15,161)		12,841
Benefits payments and adjustments	(4,344)		(2,977)
Benefit obligation at end of year	123,352	[1]	131,382	[1]	111,340
Reconciliation of fair value of plan assets [Roll Forward]
Fair value of plan assets at beginning of year	75,276		65,267
Actual return on plan assets	14,287		6,236
Employer contributions	7,000		6,750
Benefits payments and adjustments	(4,344)		(2,977)
Fair value of plan assets at end of year	92,219		75,276		65,267
Funded status at end of year	(31,133)		(56,106)
Accumulated pension benefit obligation	106,207	[1]	109,229	[1]
Postretirement Benefits [Member]
Reconciliation of benefit obligation [Roll Forward]
Benefit obligation at beginning of year	44,395	[1]	36,334
Service cost	3,875		3,010		1,985
Interest cost	1,759		1,695		1,590
Actuarial loss	(1,449)		3,380
Benefits payments and adjustments	(374)		(24)
Benefit obligation at end of year	48,954	[1]	44,395	[1]	36,334
Reconciliation of fair value of plan assets [Roll Forward]
Fair value of plan assets at beginning of year	0		0
Actual return on plan assets	0		0
Employer contributions	374		24
Benefits payments and adjustments	(374)		(24)
Fair value of plan assets at end of year	0		0		0
Funded status at end of year	$ (48,954)		$ (44,395)

[1] For the pension plan, the benefit obligation is the projected benefit obligation. For the postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation.

XML

FEDERAL INCOME TAX (Narratives) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Valuation Allowance [Line Items]
Effective income tax rate	35.00%
Valuation allowance	$ 2,361	$ 2,909
Realization of NOLs	1,565
Alternative minimum tax credit carryforward	476	7,713
Valuation Allowance, Operating Loss Carryforwards [Member]
Valuation Allowance [Line Items]
Reduction in valuation allowance	$ 548

XML

BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

BUSINESS COMBINATIONS

BUSINESS COMBINATIONS

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group, Inc. for $191,475. The acquisition was funded through a combination of cash and $79,900 of short-term debt. Accordingly, the results of operations for Mercer Insurance Group, Inc. have been included in the accompanying consolidated financial statements from that date forward. There were no acquisitions in 2013 and 2012.

The excess of the purchase price over the estimated fair value of the tangible assets acquired and liabilities assumed through the acquisition of Mercer Insurance Group at the acquisition date has been allocated to goodwill and intangible assets of our property and casualty insurance segment.

The following is a summary of the fair value of the tangible and intangible assets acquired and liabilities assumed of Mercer Insurance Group at the date of acquisition:

	March 28, 2011
Assets
Available-for-sale fixed maturity securities	$	401,548
Equity securities	10,266
Short-term investments	400
Cash and cash equivalents	18,855
Accrued investment income	3,741
Premiums receivable	35,822
Value of business acquired	27,436
Property and equipment	14,985
Reinsurance receivables and recoverables	58,193
Prepaid reinsurance premiums	6,289
Income taxes receivable	2,657
Deferred income taxes	2,837
Goodwill and intangible assets	32,293
Other assets	11,353
Total assets	$	626,675
Liabilities
Reserves for losses, claims and loss settlement expenses	$	310,647
Unearned premiums	72,249
Accrued expenses and other liabilities	33,690
Debt	3,000
Trust preferred securities	15,614
Total liabilities	$	435,200
Total net assets acquired	$	191,475

The fair value of available-for-sale fixed maturity securities is primarily based on quoted prices for similar financial instruments in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument. The fair value of equity securities is primarily based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.

The fair value of reserves for losses, claims and loss settlement expenses related to incurred claims and reinsurance receivables and recoverables is determined using a valuation model that is based on actuarial estimates of future cash flows for the underwriting liabilities. These future cash flows are adjusted for the time value of money using duration-matched risk-free interest rates that approximate current U.S. Treasury bill rates and a risk margin to compensate the acquirer for the risk associated with these liabilities.

The value of business acquired (“VOBA”) at the acquisition date is an intangible asset relating to the difference between the unearned premium reserves acquired in the transaction and the estimated fair value of the unexpired insurance policies, which consists of two components: (1) a provision for loss and loss settlement expenses that will be incurred as the premium is earned and (2) a provision for policy maintenance costs related to servicing those policies until they expire. Loss and loss settlement expenses are valued in a manner identical to that used for loss reserve valuation. Policy maintenance costs are valued based on estimates of future cash flows that are discounted to present value using duration-matched risk-free interest rates. VOBA is reported as a component of deferred policy acquisition costs in the accompanying Consolidated Balance Sheets and is amortized over a twelve-month period from the acquisition date in proportion to the timing of the estimated underwriting profit associated with the in-force business. The amortization pattern for the VOBA asset will be greater in the initial months subsequent to the acquisition date in correlation to the remaining term of the policies that were underwritten by Mercer Insurance Group. We recorded amortization expense of $1,673 and $25,763 in 2012 and 2011, respectively.

The fair value of property and equipment related to land and buildings approximates the appraised value of the respective assets at the acquisition date.

The fair value of the intangible asset for agency relationships was established using the excess earnings method, which is an income approach based on estimated financial projections developed by management using market participant assumptions. Fair value has been estimated as the present value of the benefits anticipated from our continued relationship with these agencies that are in excess of the return required on the investment in contributory assets necessary to realize those benefits. The rate used to discount the net benefits is based on a risk-adjusted rate that takes into consideration market-based rates of return and is representative of the relative risk of the acquired asset.

The fair value of the intangible asset for software was established using the replacement cost method, which estimates the cost to recreate the utility of the subject asset in consideration of the technological and functional obsolescence of the acquired software.

The fair value of the intangible asset for trade names was established using the relief from royalty method, which treats the trade name as being licensed in an arm’s length transaction to a third party. A review was performed of comparable arm’s length royalty or license agreements involving assets that reflect similar risk and return investment characteristics with the subject trade name. The royalty rate selected is then multiplied by the net revenue expected to be generated by the trade names over the course of the assumed life of the trade names. The product of the royalty rate and the revenue provides an estimate of the royalty income that could be generated hypothetically by licensing the subject trade name.

The fair value of the intangible asset for licenses was estimated by assigning values to state insurance licenses to determine the value of the company if it were sold as a “shell company” (i.e., no policies in force but with the license to write business in certain states). Value is derived from the states having limited the number of insurers licensed or from the significant expense of obtaining a new license from the state.

The fair value of all other tangible assets and liabilities approximates their carrying values at the acquisition date due to their short-term duration.

The following is a summary of our unaudited pro forma historical results as if Mercer Insurance Group had been acquired on January 1, 2011:

	Year Ended December 31,
	2011
Revenue	$	741,833
Net income (1)	8,139
Basic earnings per share	0.31
Diluted earnings per share	0.31

(1) The year ended December 31, 2011 excludes transaction related expenses incurred that reduced net income by $11.9 million.

The unaudited pro forma results above have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at January 1, 2011, and they are not necessarily indicative of future operating results. Annualized revenues of Mercer Insurance Group were $145,868 for 2011. Total revenues and net loss related to Mercer Insurance Group for the year ended December 31, 2011 recorded in the accompanying Consolidated Statements of Income and Comprehensive Income were $109,043 and $14,650, respectively.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Deferred Policy Acquisition Costs) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward]
Recorded asset at beginning of year	$ 105,300	$ 106,654	$ 87,524
Underwriting costs deferred	156,367	145,301	141,468
Amortization of deferred policy acquisition costs	(153,677)	(140,161)	(127,413)
Value of business acquired	0	0	27,436
Amortization of value of business acquired	0	(1,673)	(25,763)
Ending unamortized deferred policy acquisition costs	107,990	110,121	103,252
Change in shadow deferred policy acquisition costs	42,102	(4,821)	3,402
Recorded asset at end of year	150,092	105,300	106,654
Property and Casualty Insurance [Member]
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward]
Recorded asset at beginning of year	64,947	60,668	44,681
Underwriting costs deferred	149,891	138,723	132,503
Amortization of deferred policy acquisition costs	(147,175)	(132,771)	(118,189)
Value of business acquired	0	0	27,436
Amortization of value of business acquired	0	(1,673)	(25,763)
Recorded asset at end of year	67,663	64,947	60,668
Life Insurance [Member]
Movement Analysis of Deferred Policy Acquisition Costs [Roll Forward]
Recorded asset at beginning of year	40,353	45,986	42,843
Underwriting costs deferred	6,476	6,578	8,965
Amortization of deferred policy acquisition costs	(6,502)	(7,390)	(9,224)
Ending unamortized deferred policy acquisition costs	40,327	45,174	42,584
Change in shadow deferred policy acquisition costs	42,102	(4,821)	3,402
Recorded asset at end of year	$ 82,429	$ 40,353	$ 45,986

XML

SEGMENT INFORMATION (Tables)

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Premiums Earned by Segments

The following table sets forth our net premiums earned by segment before intersegment eliminations:

Years Ended December 31,	2013		2012		2011
Property and Casualty Insurance Segment
Net premiums earned
Fire and allied lines	$	208,030	$	173,249	$	153,839
Other liability	199,548		197,842		159,977
Automobile	169,211		155,572		133,974
Workers’ compensation	81,616		68,643		54,404
Fidelity and surety	18,746		17,713		16,665
Reinsurance assumed	14,406		14,473		13,261
Other	2,635		1,919		1,651
Total net premiums earned	$	694,192	$	629,411	$	533,771
Life Insurance Segment
Net premiums earned
Ordinary life (excluding universal life)	$	38,875	$	44,468	$	30,374
Universal life policy fees	11,871		11,768		10,995
Accident and health	1,302		1,363		1,472
Immediate annuities with life contingencies	8,837		8,158		10,276
Other	261		274		262
Total net premiums earned	$	61,146	$	66,031	$	53,379

Segment Reporting Information

The following table sets forth certain data for each of our business segments and is reconciled to our Consolidated Financial Statements. Depreciation and amortization expense and property and equipment acquisitions for 2013, 2012 and 2011, are reported in the property and casualty insurance segment.

	2013			2012			2011
Property and Casualty Insurance:
Revenues:
Net premiums earned	$	694,192		$	629,411		$	533,771
Investment income, net of investment expenses	46,279			40,305			35,690
Net realized investment gains	6,260			3,896			3,066
Other income	88			316			1,592
Total revenues before eliminations	$	746,819		$	673,928		$	574,119
Intersegment eliminations	53			(646		)	(162		)
Total revenues	$	746,872		$	673,282		$	573,957
Net income (loss) before income taxes:
Revenues	$	746,819		$	673,928		$	574,119
Benefit, losses and expenses	658,645			637,648			598,684
Total net income (loss) before eliminations	$	88,174		$	36,280		$	(24,565	)
Intersegment eliminations	545			(199		)	335
Income (loss) before income taxes	$	88,719		$	36,081		$	(24,230	)
Income tax expense (benefit)	21,263			2,569			(16,591		)
Net income (loss)	$	67,456		$	33,512		$	(7,639	)
Assets
Total segment	$	2,218,464		$	2,149,356		$	2,117,352
Intersegment eliminations	(223,395		)	(244,041		)	(252,205		)
Total assets	$	1,995,069		$	1,905,315		$	1,865,147
Life Insurance:
Revenues:
Net premiums earned	$	61,146		$	66,031		$	53,379
Investment income, net of investment expenses	66,467			70,026			73,977
Net realized investment gains	2,434			3,777			3,647
Other income	614			575			699
Total revenues before eliminations	$	130,661		$	140,409		$	131,702
Intersegment eliminations	(491		)	(448		)	(651		)
Total revenues	$	130,170		$	139,961		$	131,051
Net income before income taxes:
Revenues	$	130,661		$	140,409		$	131,702
Benefit, losses and expenses	117,159			130,135			119,712
Total net income before eliminations	$	13,502		$	10,274		$	11,990
Intersegment eliminations	(319		)	(281		)	(475		)
Income before income taxes	$	13,183		$	9,993		$	11,515
Income tax expense	4,499			3,293			3,865
Net income	$	8,684		$	6,700		$	7,650
Assets	$	1,725,603		$	1,789,338		$	1,753,777
Consolidated Totals:
Total revenues	$	877,042		$	813,243		$	705,008
Total net income	$	76,140		$	40,212		$	11
Total assets	$	3,720,672		$	3,694,653		$	3,618,924

XML

EMPLOYEE BENEFITS (Change in Fair Value of Pension Plan Assets) (Details) (Pension Plan [Member], USD $) In Thousands, unless otherwise specified				12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Level 3 [Member]
Defined Benefit Plan, Change in Fair Value of Plan Assets [Roll Forward]
Fair value of plan assets at beginning of year	$ 92,219	$ 75,276	$ 65,267	$ 0
Unrealized gains				763
Purchases				8,000
Fair value of plan assets at end of year	$ 92,219	$ 75,276	$ 65,267	$ 8,763

XML

BUSINESS COMBINATIONS (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	12 Months Ended
	Mar. 28, 2011	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Business Acquisition [Line Items]
Amortization of the value of business acquired asset		$ 0	$ 1,673	$ 25,763
Mercer Insurance Group [Member]
Business Acquisition [Line Items]
Value of Business Acquired (VOBA), Amortization Period		12 months
Amortization of the value of business acquired asset			1,673	25,763
Percentage of outstanding common stock acquired	100.00%
Total consideration of business combination	191,475
Short-term debt used for acquisition funding	$ 79,900

XML

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES (Tables)

12 Months Ended

Dec. 31, 2013

Insurance Loss Reserves [Abstract]

Change in Property and Casualty Loss and Loss Settlement Expense Reserve

The following table provides an analysis of changes in our property and casualty loss and loss settlement expense reserves for 2013, 2012 and 2011 (net of reinsurance amounts):

Years Ended December 31,	2013			2012			2011
Gross liability for losses and loss settlement expenses at beginning of year	$	971,911		$	945,051		$	603,090
Ceded loss and loss settlement expenses	(103,870		)	(120,359		)	(39,000		)
Net liability for losses and loss settlement expenses at beginning of year	$	868,041		$	824,692		$	564,090
Reserves acquired in Mercer Insurance Group acquisition, net	—			—			252,598
Beginning balance, as adjusted	$	868,041		$	824,692		$	816,688
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	494,841		$	512,564		$	468,926
Prior years	(57,487		)	(73,427		)	(61,095		)
Total incurred	$	437,354		$	439,137		$	407,831
Losses and loss settlement expense payments for claims occurring during
Current year	$	203,868		$	201,632		$	253,175
Prior years	216,026			194,156			146,653
Total paid	$	419,894		$	395,788		$	399,828
Net liability for losses and loss settlement expenses at end of year	$	885,501		$	868,041		$	824,692
Ceded loss and loss settlement expenses	75,150			103,870			120,359
Gross liability for losses and loss settlement expenses at end of year	$	960,651		$	971,911		$	945,051

XML

SUMMARY OF INVESTMENTS (Fair Value of Investments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Held-To-Maturity
Cost or Amortized Cost	$ 656	$ 1,655
Fair Value	669	1,681
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	2,804,514	2,724,692
Gross Unrealized Appreciation	235,940	265,081
Gross Unrealized Depreciation	59,830	4,568
Fair Value	2,980,624	2,985,205
Fixed Maturities [Member]
Held-To-Maturity
Cost or Amortized Cost	656	1,655
Gross Unrealized Appreciation	13	26
Gross Unrealized Depreciation	0	0
Fair Value	669	1,681
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	2,733,557	2,657,800
Gross Unrealized Appreciation	77,082	154,146
Gross Unrealized Depreciation	59,383	3,868
Fair Value	2,751,256	2,808,078
U.S. Treasury [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	33,612	37,887
Gross Unrealized Appreciation	423	939
Gross Unrealized Depreciation	140	5
Fair Value	33,895	38,821
U.S. Government Agency [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	287,988	45,566
Gross Unrealized Appreciation	258	429
Gross Unrealized Depreciation	18,663	67
Fair Value	269,583	45,928
States, Municipalities and Political Subdivisions [Member]
Held-To-Maturity
Cost or Amortized Cost	250	1,185
Gross Unrealized Appreciation	4	11
Gross Unrealized Depreciation	0	0
Fair Value	254	1,196
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	690,461	739,752
Gross Unrealized Appreciation	34,151	55,572
Gross Unrealized Depreciation	10,705	819
Fair Value	713,907	794,505
Foreign Bonds [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	167,390	207,359
Gross Unrealized Appreciation	5,863	11,863
Gross Unrealized Depreciation	397	62
Fair Value	172,856	219,160
Public Utilities [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	213,479	232,550
Gross Unrealized Appreciation	6,873	15,208
Gross Unrealized Depreciation	1,776	32
Fair Value	218,576	247,726
Corporate Bonds [Member]
Held-To-Maturity
Cost or Amortized Cost		200
Gross Unrealized Appreciation		0
Gross Unrealized Depreciation		0
Fair Value		200
Corporate Bonds [Member] | Energy [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	157,620	169,973
Gross Unrealized Appreciation	4,398	9,758
Gross Unrealized Depreciation	1,008	0
Fair Value	161,010	179,731
Corporate Bonds [Member] | Industrials [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	234,221	280,185
Gross Unrealized Appreciation	5,626	13,690
Gross Unrealized Depreciation	2,819	212
Fair Value	237,028	293,663
Corporate Bonds [Member] | Consumer Goods and Services [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	165,565	193,313
Gross Unrealized Appreciation	3,770	9,813
Gross Unrealized Depreciation	1,421	151
Fair Value	167,914	202,975
Corporate Bonds [Member] | Health Care [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	91,008	115,654
Gross Unrealized Appreciation	3,138	7,111
Gross Unrealized Depreciation	1,200	80
Fair Value	92,946	122,685
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	121,746	123,660
Gross Unrealized Appreciation	2,541	6,909
Gross Unrealized Depreciation	3,321	198
Fair Value	120,966	130,371
Corporate Bonds [Member] | Financial Services [Member]
Held-To-Maturity
Cost or Amortized Cost	200
Gross Unrealized Appreciation	0
Gross Unrealized Depreciation	0
Fair Value	200
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	234,739	271,061
Gross Unrealized Appreciation	7,735	13,858
Gross Unrealized Depreciation	723	1,059
Fair Value	241,751	283,860
Mortgage Backed Securities [Member]
Held-To-Maturity
Cost or Amortized Cost	206	256
Gross Unrealized Appreciation	9	15
Gross Unrealized Depreciation	0	0
Fair Value	215	271
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	22,034	27,940
Gross Unrealized Appreciation	323	888
Gross Unrealized Depreciation	291	21
Fair Value	22,066	28,807
Collateralized Mortgage Obligations [Member]
Held-To-Maturity
Cost or Amortized Cost		14
Gross Unrealized Appreciation		0
Gross Unrealized Depreciation		0
Fair Value		14
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	309,975	208,042
Gross Unrealized Appreciation	1,707	7,702
Gross Unrealized Depreciation	16,919	1,160
Fair Value	294,763	214,584
Asset-Backed Securities [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	3,719	4,480
Gross Unrealized Appreciation	276	406
Gross Unrealized Depreciation	0	0
Fair Value	3,995	4,886
Redeemable Preferred Stocks [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost		378
Gross Unrealized Appreciation		0
Gross Unrealized Depreciation		2
Fair Value		376
Equity Securities [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	70,957	66,892
Gross Unrealized Appreciation	158,858	110,935
Gross Unrealized Depreciation	447	700
Fair Value	229,368	177,127
Common Stock [Member] | Public Utilities [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	7,231	7,231
Gross Unrealized Appreciation	9,068	7,268
Gross Unrealized Depreciation	27	83
Fair Value	16,272	14,416
Common Stock [Member] | Energy [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	5,094	5,094
Gross Unrealized Appreciation	9,269	6,903
Gross Unrealized Depreciation	0	0
Fair Value	14,363	11,997
Common Stock [Member] | Industrials [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	13,308	13,031
Gross Unrealized Appreciation	32,823	19,827
Gross Unrealized Depreciation	32	174
Fair Value	46,099	32,684
Common Stock [Member] | Consumer Goods and Services [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	10,363	10,394
Gross Unrealized Appreciation	10,895	8,535
Gross Unrealized Depreciation	0	50
Fair Value	21,258	18,879
Common Stock [Member] | Health Care [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	7,920	7,920
Gross Unrealized Appreciation	17,078	10,286
Gross Unrealized Depreciation	0	125
Fair Value	24,998	18,081
Common Stock [Member] | Technology, Media and Telecommunications [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	6,204	5,367
Gross Unrealized Appreciation	7,183	5,155
Gross Unrealized Depreciation	83	95
Fair Value	13,304	10,427
Common Stock [Member] | Financial Services [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	15,853	15,701
Gross Unrealized Appreciation	72,537	52,936
Gross Unrealized Depreciation	128	145
Fair Value	88,262	68,492
Nonredeemable Preferred Stocks [Member]
Available-for-sale Securities [Abstract]
Cost or Amortized Cost	4,984	2,154
Gross Unrealized Appreciation	5	25
Gross Unrealized Depreciation	177	28
Fair Value	$ 4,812	$ 2,151

XML

STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS (Details) (USD $)	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Statutory Accounting Practices [Line Items]
Payment of cash dividends	$ 17,484,000		$ 15,269,000		$ 15,507,000
United Fire & Casualty Company [Member]
Statutory Accounting Practices [Line Items]
Intercompany dividend payments that are eliminated in Consolidated Financial Statements	13,175,000		26,950,000
Subsidiaries [Member]
Statutory Accounting Practices [Line Items]
Intercompany dividend payments that are eliminated in Consolidated Financial Statements	26,335,000		19,750,000		11,450,000
United Life [Member]
Statutory Accounting Practices [Line Items]
Statutory Capital and Surplus	1,648,019,000
Net assets on statutory basis, in excess of the legal reserve requirement	210,938,000
Amount of dividend payment without approval from the commissioner	5,797,000
State of Iowa Insurance Department [Member]
Statutory Accounting Practices [Line Items]
Maximum dividend distribution in 2013 without prior approval	53,702,000
Revolving Credit Facility [Member]
Statutory Accounting Practices [Line Items]
Maximum borrowing capacity	125,000,000
Property and Casualty Insurance [Member]
Statutory Accounting Practices [Line Items]
Statutory Capital and Surplus	665,772,000	[1]	585,986,000	[1]	565,843,000	[1]
Statutory Net Income	84,255,000	[1]	34,468,000	[1]	10,529,000	[1]
Life, Accident and Health [Member]
Statutory Accounting Practices [Line Items]
Statutory Capital and Surplus	157,974,000		158,720,000		167,164,000
Statutory Net Income	$ 5,942,000		$ 7,420,000		$ 6,180,000

[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.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Level 3 Securities) (Details) (Recurring [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	$ 23,540		$ 25,842
Realized gains	35	[1]	646	[1]
Unrealized gains (losses)	1,293	[1]	(381)	[1]
Purchases	278		184
Disposals	(5,158)		(5,062)
Transfers in			2,359
Transfers out			(48)
Ending Balance	19,988		23,540
States, Municipalities and Political Subdivisions [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	750		880
Realized gains	0	[1]	0	[1]
Unrealized gains (losses)	83	[1]	0	[1]
Purchases	0		0
Disposals	(135)		(130)
Transfers in			0
Transfers out			0
Ending Balance	698		750
Foreign Bonds [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	558		836
Realized gains	35	[1]	0	[1]
Unrealized gains (losses)	14	[1]	7	[1]
Purchases	0		0
Disposals	(607)		(285)
Transfers in			0
Transfers out			0
Ending Balance	0		558
Corporate Bonds [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	16,108		20,285
Realized gains	0	[1]	646	[1]
Unrealized gains (losses)	1,277	[1]	(352)	[1]
Purchases	105		5
Disposals	(4,010)		(4,476)
Transfers in			0
Transfers out			0
Ending Balance	13,480		16,108
Asset-Backed Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	2,488		315
Realized gains	0	[1]	0	[1]
Unrealized gains (losses)	(53)	[1]	(13)	[1]
Purchases	0		0
Disposals	(406)		(121)
Transfers in			2,307
Transfers out			0
Ending Balance	2,029		2,488
Equities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	3,636		3,526
Realized gains	0	[1]	0	[1]
Unrealized gains (losses)	(28)	[1]	(23)	[1]
Purchases	173		179
Disposals	0		(50)
Transfers in			52
Transfers out			(48)
Ending Balance	$ 3,781		$ 3,636

[1] Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Components of Accumulated Other Comprehensive Income (Loss)

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2013, 2012 and 2011:

				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs			Total
Balance as of January 1, 2011	$	102,649		$	(25,671	)	$	76,978
Change in accumulated other comprehensive income before reclassifications	26,517			(17,790		)	8,727
Reclassification adjustments from accumulated other comprehensive income	(4,790		)	1,671			(3,119		)
Balance as of December 31, 2011	$	124,376		$	(41,790	)	$	82,586
Change in accumulated other comprehensive income before reclassifications	22,386			(10,349		)	12,037
Reclassification adjustments from accumulated other comprehensive income	(2,666		)	3,231			565
Balance as of December 31, 2012	$	144,096		$	(48,908	)	$	95,188
Change in accumulated other comprehensive income before reclassifications	(23,068		)	15,643			(7,425		)
Reclassification adjustments from accumulated other comprehensive income	(4,427		)	3,814			(613		)
Balance as of December 31, 2013	$	116,601		$	(29,451	)	$	87,150

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

United Fire Group, Inc. (“United Fire”, the “Registrant”, the “Company”,“we,” “us,” or “our”) and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. We report our operations in two business segments: property and casualty insurance and life insurance. Our insurance company subsidiaries are licensed as a property and casualty insurer in 43 states, plus the District of Columbia, and as a life insurer in 37 states.

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group, Inc. for $191,475. The acquisition was funded through a combination of cash and $79,900 of short-term debt. Accordingly, the results of operations for Mercer Insurance Group, Inc. have been included in the accompanying consolidated financial statements from that date forward. The acquisition allowed us to diversify our exposure to weather and other catastrophe risks across our geographic markets. In connection with the acquisition transaction, we incurred $8,318 of transaction costs, which included $5,540 of expense related to change in control payments made to the former executive officers of Mercer Insurance Group, Inc.

Holding Company Reorganization

On February 1, 2012, United Fire & Casualty Company completed a corporate reorganization (the “Reorganization”) that resulted in the creation of United Fire Group, Inc., an Iowa corporation, as the holding company and sole owner of United Fire & Casualty Company. In connection with the Reorganization, each share of United Fire & Casualty Company common stock (par value $3.33 1/3 per share) that was issued and outstanding immediately prior to the effective date was automatically converted into a share of United Fire Group, Inc. common stock (par value $0.001 per share). In addition, each outstanding option to purchase or other right to acquire shares of United Fire & Casualty Company common stock was automatically converted into an option to purchase or right to acquire, upon the same terms and conditions, an identical number of shares of United Fire Group, Inc. common stock. United Fire Group, Inc. became the publicly held corporation upon completion of the Reorganization.

We have accounted for the Reorganization as a merger of entities under common control, which is similar to the former “pooling of interests method” to account for business combinations. Accordingly, the accompanying Consolidated Financial Statements include the consolidated financial position and results of operations of United Fire & Casualty Company on the same basis as was historically presented, except that the amount reported for common stock at par value has been retrospectively restated to report the par value of United Fire Group, Inc. common stock. The resulting difference has been recorded in additional paid-in capital for all periods presented.

Principles of Consolidation

The accompanying Consolidated Financial Statements include United Fire and its wholly owned subsidiaries: United Fire & Casualty Company, United Real Estate Holdings Company, LLC, United Life Insurance Company (“United Life”), Addison Insurance Company, American Indemnity Financial Corporation, Lafayette Insurance Company, United Fire & Indemnity Company, Texas General Indemnity Company (currently in run-off) and Mercer Insurance Group, Inc., which includes BICUS Services Corporation (currently inactive), Financial Pacific Insurance Company, Financial Pacific Insurance Group, Inc., Franklin Insurance Company, Mercer Insurance Company, and Mercer Insurance Company of New Jersey, Inc. (collectively, “Mercer Insurance Group”).

United Fire Lloyds, an affiliate of United Fire & Indemnity Company, is organized as a Texas Lloyds plan, which is an aggregation of underwriters who, under a common name, engage in the business of insurance through a corporate attorney-in-fact. United Fire Lloyds is financially and operationally controlled by United Fire & Indemnity Company, its corporate attorney-in-fact, pursuant to three types of agreements: trust agreements between United Fire & Indemnity Company and certain individuals who agree to serve as trustees; articles of agreement among the trustees who agree to act as underwriters to establish how the Lloyds plan will be operated; and powers of attorney from each of the underwriters appointing a corporate attorney-in-fact, who is authorized to operate the Lloyds plan. Because United Fire & Indemnity Company can name the trustees, the Lloyds plan is perpetual, subject only to United Fire & Indemnity Company’s desire to terminate it.

United Fire & Indemnity Company provides all of the statutory capital necessary for the formation of the Lloyds plan by contributing capital to each of the trustees. The trust agreements require the trustees to become underwriters of the Lloyds plan, to contribute the capital to the Lloyds plan, to sign the articles of agreement and to appoint the attorney-in-fact. The trust agreements also require the trustees to pay to United Fire & Indemnity Company all of the profits and benefits received by the trustees as underwriters of the Lloyds plan, which means that United Fire & Indemnity Company has the right to receive 100 percent of the gains and profits from the Lloyds plan. The trustees serve at the pleasure of United Fire & Indemnity Company, which may remove a trustee and replace that trustee at any time. Termination of a trustee must be accompanied by the resignation of the trustee as an underwriter, so that the trustee can obtain the capital contribution from the Lloyds plan to reimburse United Fire & Indemnity Company. By retaining the ability to terminate trustees, United Fire & Indemnity Company possesses the ability to name and remove the underwriters.

United Real Estate Holdings, LLC, formed in 2013, is a wholly owned subsidiary of United Fire & Casualty Company and is organized as an Iowa Limited Liability Corporation, an unincorporated association formed for the purpose of holding United Fire & Casualty Company’s ownership in commercial real estate.

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those followed in preparing our statutory reports to insurance regulatory authorities. Our stand-alone financial statements submitted to insurance regulatory authorities are presented on the basis of accounting practices prescribed or permitted by the insurance departments of the states in which we are domiciled (“statutory accounting principles”).

In the preparation of the accompanying Consolidated Financial Statements, we have evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables (for net realizable value); future policy benefits and losses, claims and loss settlement expenses; and pension and postretirement benefit obligations.

Property and Casualty Insurance Business

Premiums written are deferred and recorded as earned premium on a daily pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of insurance policies in force. Premiums receivable are presented net of an estimated allowance for doubtful accounts, which is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders.

To establish loss and loss settlement expense reserves, we make estimates and assumptions about the future development of claims. Actual results could differ materially from those estimates, which are subjective, complex and inherently uncertain. When we establish and adjust reserves, we do so given our knowledge at the time of the circumstances and facts of known claims. To the extent that we have overestimated or underestimated our loss and loss settlement expense reserves, we adjust the reserves in the period in which such adjustment is determined.

We record our best estimate of reserves for claim litigation that arises in the ordinary course of business. We consider all of our pending litigation as of December 31, 2013 to be ordinary, routine and incidental to our business.

Life Insurance Business

Our whole life and term insurance (i.e., traditional business) premiums are reported as earned when due and benefits and expenses are associated with premium income in order to result in the recognition of profits over the lives of the related contracts. Premiums receivable are presented net of an estimated allowance for doubtful accounts. Income annuities with life contingencies (single premium immediate annuities and supplementary contracts) have premium recorded and any related expense charge fees recorded as income and expense when the contract is issued. On universal life and deferred annuity policies (i.e., non-traditional business), income and expenses are reported when charged and credited to policyholder account balances in order to result in recognition of profits over the lives of the related contracts. We accomplish this by means of a provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Liabilities for future policy benefits for traditional products are computed by the net level premium method, using interest assumptions ranging from 4.5 percent to 6.0 percent and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued. Liabilities for non-traditional business are stated at policyholder account values before surrender charges. Liabilities for traditional immediate annuities are based primarily upon future anticipated cash flows using assumptions for mortality and interest rates. Liabilities for deferred annuities are carried at the account value.

Reinsurance

Premiums earned and losses and loss settlement expenses incurred are reported net of reinsurance ceded. Ceded insurance business is accounted for on a basis consistent with the original policies issued and the terms of the reinsurance contracts. Refer to Note 4 “Reinsurance” for a discussion of our reinsurance activities.

Investments

Investments in fixed maturities include bonds and redeemable preferred stocks. Our investments in held-to-maturity fixed maturities are recorded at amortized cost. Our investments in available-for-sale fixed maturities and trading securities are recorded at fair value.

Investments in equity securities, which include common and non-redeemable preferred stocks, are classified as available-for-sale or trading and are recorded at fair value.

Changes in unrealized appreciation and depreciation, with respect to available-for-sale fixed maturities and equity securities, are reported as a component of accumulated other comprehensive income, net of applicable deferred income taxes, in stockholders’ equity.

Other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. Mortgage loans are recorded at their unpaid principal balance. Policy loans are recorded at the outstanding loan amount due from policyholders. Included in investments at December 31, 2013 and 2012, are securities on deposit with, or available to, various regulatory authorities as required by law, with fair values of $1,620,505 and $1,736,466, respectively.

In 2013, 2012 and 2011, we recorded a pre-tax realized loss of $139, $4 and $395, respectively, as a result of the recognition of other-than-temporary impairment (“OTTI”) charges on certain holdings in our investment portfolio. None of the OTTI charges were considered to have a noncredit related loss component. We review all of our investment holdings for appropriate valuation on an ongoing basis. Refer to Note 2 “Summary of Investments” for a discussion of our accounting policy for impairment recognition.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.

In 2013, 2012, and 2011, we made payments for income taxes of $13,628, $11,920 and $570, respectively. In addition, we received federal tax refunds of $8,744 and $15,798 in 2013 and 2012, respectively, that resulted from the utilization of our 2009 net operating losses and net capital losses in the carryback period. No tax refunds were received in 2011. We made no interest payments in 2013. In 2012 and 2011, we made interest payments of $961 and $1,926, respectively. These payments exclude interest credited to policyholders’ accounts.

Deferred Policy Acquisition Costs (“DAC”)

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC that are reported in the accompanying Consolidated Financial Statements:

Property & Casualty	2013			2012			2011
Recorded asset at beginning of year	$	64,947		$	60,668		$	44,681
Underwriting costs deferred	149,891			138,723			132,503
Amortization of deferred policy acquisition costs	(147,175		)	(132,771		)	(118,189		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
Recorded asset at end of year	$	67,663		$	64,947		$	60,668
Life Insurance
Recorded asset at beginning of year	$	40,353		$	45,986		$	42,843
Underwriting costs deferred	6,476			6,578			8,965
Amortization of deferred policy acquisition costs	(6,502		)	(7,390		)	(9,224		)
	$	40,327		$	45,174		$	42,584
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	82,429		$	40,353		$	45,986
Total
Recorded asset at beginning of year	$	105,300		$	106,654		$	87,524
Underwriting costs deferred	156,367			145,301			141,468
Amortization of deferred policy acquisition costs	(153,677		)	(140,161		)	(127,413		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
	$	107,990		$	110,121		$	103,252
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	150,092		$	105,300		$	106,654

Property and casualty policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses to be incurred and certain other costs expected to be incurred as the premium is earned.

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset, or “shadow” DAC, to net unrealized investment appreciation as of the balance sheet date. The “shadow” DAC adjustment increased the DAC asset by $3,407 and decreased the DAC asset by $38,695 at December 31, 2013 and 2012, respectively.

In October 2010, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be incremental and directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Acquisition costs that are not eligible for deferral are to be charged to expense in the period incurred.

Effective January 1, 2012, we elected to adopt the updated accounting guidance on a prospective basis. As a result of the adoption, the amount of underwriting expenses eligible for deferral has decreased. After consideration of our normal recoverability assessment and the amortization pattern of our deferred policy acquisition costs, we recognized approximately $10,291 more expense (pretax) in 2012 than we would have had the guidance remained the same. The impact of the adoption on the amounts reported in the accompanying Consolidated Statements of Income and Comprehensive Income was an increase to other underwriting expenses of $25,528, a decrease to deferred policy acquisition cost amortization of $15,237 and a reduction in net income of $6,689 or $0.26 per share. The 2013 DAC asset has been computed on a comparable basis at December 31, 2013 and 2012.

Property, Equipment and Depreciation

Property and equipment is presented at cost less accumulated depreciation. At December 31, 2013, the Company had property and equipment of $47,218, which included buildings of $29,072, land of $7,163, furniture and fixtures of $2,707, computer equipment and software of $3,197 and an airplane of $5,079. At December 31, 2012, the Company had property and equipment of $43,090, which included buildings of $25,186, land of $6,879, furniture and fixtures of $1,024, computer equipment and software of $3,076 and an airplane of $6,925. Expenditures for maintenance and repairs are generally expensed as incurred. We periodically review these assets for impairment whenever events or changes in business circumstances indicate that the carrying value of the underlying asset may not be recoverable. A loss would be recognized if the estimated fair value of the asset were less than its carrying value.

Depreciation is computed primarily by the straight-line method over the following estimated useful lives:

	Useful Life
Computer equipment	Three years
Furniture and fixtures	Seven years
Leasehold improvements	Shorter of the lease term or useful life of the asset
Real estate	Seven to thirty-nine years
Software	Three years

Depreciation expense totaled $4,391, $5,440 and $3,661 for 2013, 2012 and 2011, respectively.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the tangible assets acquired and liabilities assumed. We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed its implied fair value. Goodwill is evaluated at the reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. In 2013 and 2012, we performed a qualitative assessment of our goodwill. As a result of this assessment, we did not recognize an impairment charge on our goodwill in 2013 or 2012.

Our intangible assets, which consist primarily of agency relationships, trade names, licenses, and software, are being amortized by the straight-line method over periods ranging from 2 years to 15 years, with the exception of licenses, which are indefinite-lived and not amortized. We performed a qualitative assessment of our intangible assets. As a result of this assessment, we did not recognize an impairment charge on our intangible assets in 2013, 2012 and 2011. Amortization expense, which is allocated to the property and casualty insurance segment, totaled $1,212, $2,539 and $1,922 for 2013, 2012 and 2011, respectively.

Income Taxes

Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders’ equity and do not impact federal income tax expense.

We did not recognize any liability for unrecognized tax benefits at December 31, 2013, or 2012 or at any time during 2013, 2012, and 2011. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2009. The Internal Revenue Service is conducting a routine examination of our income tax return for the 2011 tax year.

Stock-Based Compensation

We currently have two equity compensation plans. One plan allows us to grant restricted and unrestricted stock, stock appreciation rights, incentive stock options, and non-qualified stock options to employees. The other plan allows us to grant restricted and non-qualified stock options to non-employee directors.

We utilize the Black-Scholes option pricing method to establish the fair value of non-qualified stock options granted under our equity compensation plans. Our determination of the fair value of stock options on the date of grant using this option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected volatility in our stock price, the expected term of the award, the expected dividends to be paid over the term of the award and the expected risk-free interest rate. Any changes in these assumptions may materially affect the estimated fair value of the award. For our restricted and unrestricted stock awards, we utilize the fair value of our common stock on the date of grant to establish the fair value of the award. Refer to Note 9 “Stock-Based Compensation” for further discussion.

Comprehensive Income

Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by and dividends to stockholders.

Recently Issued Accounting Standards

Adopted Accounting Standards in 2013

Comprehensive Income

In February 2013, the FASB issued guidance that requires significant items that are reclassified out of accumulated other comprehensive income (“AOCI”) to net income in their entirety in the same reporting period, to be reported to show the effect of the reclassifications on the respective line items of the statement where net income is presented. These reclassifications can be presented either on the face of the statement where net income is presented or in the notes to the financial statements. For items that are not reclassified to net income in their entirety in the same reporting period a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The new guidance also requires companies to report changes in the accumulated balances of each component of AOCI. This new guidance was effective for annual and interim periods beginning after December 15, 2012. The Company adopted the new guidance effective January 1, 2013. The adoption of the new guidance affects presentation only and therefore had no impact on the Company’s results of operations or financial position.

Pending Adoption of Accounting Standards

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new guidance is effective for annual and interim periods beginning after December 15, 2013. The Company currently does not have any liability for unrecognized tax benefits. Therefore, the adoption of the new guidance is not expected to have an impact on the Company’s financial position or results of operations.

XML

REINSURANCE (Ceded and Assumed Reinsurance) (Details) (Property and Casualty Insurance [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Property and Casualty Insurance [Member]
Reinsurance [Line Items]
Ceded premiums written	$ 50,711		$ 44,240		$ 43,921
Ceded premiums earned	50,514		47,467		45,604
Loss and loss settlement expenses ceded	(8,552)	[1]	5,525	[1]	39,335	[1]
Assumed premiums written	18,938		17,181		14,954
Assumed premiums earned	18,485		16,889		14,869
Loss and loss settlement expenses assumed	$ 8,268		$ 16,873		$ 24,151

[1] In 2013, a reduction in our direct IBNR reserves caused a corresponding reduction in ceded IBNR reserves. This factor, coupled with a lack of significant large losses exceeding our reinsurance retentions resulted in negative loss and loss settlement expenses ceded for the year.

XML

QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Data [Abstract]

Schedule of Quarterly Financial Information

The following table sets forth our selected unaudited quarterly financial information:

(In Thousands Except Share Data)
Quarters	First		Second		Third		Fourth			Total
Year Ended December 31, 2013
Total revenues	$	205,305	$	219,719	$	223,024	$	228,994		$	877,042
Income before income taxes	29,850		20,318		14,395		37,339			101,902
Net income	$	22,393	$	15,496	$	11,725	$	26,526		$	76,140
Basic earnings per share (1)	$	0.89	$	0.61	$	0.46	$	1.04		$	3.01
Diluted earnings per share (1)	0.88		0.61		0.45		1.04			2.98
Year Ended December 31, 2012
Total revenues	$	193,699	$	199,646	$	206,581	$	213,317		$	813,243
Income (loss) before income taxes	24,876		19,177		10,020		(7,999		)	46,074
Net income (loss)	$	19,184	$	14,716	$	8,730	$	(2,418	)	$	40,212
Basic earnings (loss) per share (1)	$	0.75	$	0.58	$	0.34	$	(0.10	)	$	1.58
Diluted earnings (loss) per share (1)	0.75		0.58		0.34		(0.10		)	1.58

(1) The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

XML

Schedule IV. Reinsurance

12 Months Ended

Dec. 31, 2013

Supplemental Schedule of Reinsurance Premiums for Insurance Companies [Abstract]

Reinsurance

Schedule IV. Reinsurance

(In thousands)	Gross Amount		Ceded to Other Companies		Assumed From Other Companies		Net Amount		Percentage of Amount Assumed to Net Earned
Year Ended December 31, 2013
Life insurance in force	$	5,300,305	$	1,112,688	$	4	$	4,187,621
Premiums earned
Property and casualty insurance	$	726,221	$	50,514	$	18,485	$	694,192	2.66	%
Life, accident and health insurance	63,446		2,792		—		60,654		—	%
Total	$	789,667	$	53,306	$	18,485	$	754,846	2.45	%
Year Ended December 31, 2012
Life insurance in force	$	5,206,065	$	1,083,410	$	22	$	4,122,677
Premiums earned
Property and casualty insurance	$	659,989	$	47,467	$	16,889	$	629,411	2.68	%
Life, accident and health insurance	68,204		2,621		—		65,583		—	%
Total	$	728,193	$	50,088	$	16,889	$	694,994	2.43	%
Year Ended December 31, 2011
Life insurance in force	$	4,916,833	$	974,556	$	42	$	3,942,319
Premiums earned
Property and casualty insurance	$	564,506	$	45,604	$	14,869	$	533,771	2.79	%
Life, accident and health insurance	55,330		2,318		—		53,012		—	%
Total	$	619,836	$	47,922	$	14,869	$	586,783	2.53	%

XML

Schedule III. Supplementary Insurance Information

12 Months Ended

Dec. 31, 2013

Supplementary Insurance Information [Abstract]

Supplementary Insurance Information

Schedule III. Supplementary Insurance Information

(In thousands)	Deferred Policy Acquisition Costs		Future Policy Benefits, Losses, Claims and Loss Expenses		Unearned Premiums		Earned Premium Revenue		Investment Income, Net		Benefits, Claims, Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs (3)		Other Underwriting Expenses		Interest on Policyholders’ Accounts		Premiums Written (2)
Year Ended December 31, 2013
Property and casualty	$	67,663	$	960,651	$	340,387	$	694,192	$	46,332	$	437,354	$	147,175	$	73,626	$	—	$	722,821
Life, accident and health (1)	82,429		1,472,132		77		60,654		66,467		59,085		6,502		16,235		35,163		—
Total	$	150,092	$	2,432,783	$	340,464	$	754,846	$	112,799	$	496,439	$	153,677	$	89,861	$	35,163	$	722,821
Year Ended December 31, 2012
Property and casualty	$	64,947	$	971,911	$	311,561	$	629,411	$	41,879	$	439,137	$	134,444	$	63,620	$	—	$	655,331
Life, accident and health (1)	40,353		1,498,176		89		65,583		70,026		63,664		7,390		17,505		41,409		—
Total	$	105,300	$	2,470,087	$	311,650	$	694,994	$	111,905	$	502,801	$	141,834	$	81,125	$	41,409	$	655,331
Year Ended December 31, 2011
Property and casualty	$	60,668	$	945,051	$	288,868	$	533,771	$	35,513	$	407,831	$	143,952	$	46,404	$	—	$	551,923
Life, accident and health (1)	45,986		1,476,281		123		53,012		73,981		55,125		9,224		12,353		42,834		—
Total	$	106,654	$	2,421,332	$	288,991	$	586,783	$	109,494	$	462,956	$	153,176	$	58,757	$	42,834	$	551,923

(1) Annuity deposits are included in future policy benefits, losses, claims and loss expenses.

(2) Pursuant to Regulation S-X, premiums written does not apply to life insurance companies.

(3) 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

XML

Schedule I. Summary of Investments - Other than Investments in Related Parties (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	$ 2,868,413
Fair Value	3,050,451
Amounts at Which Shown in Balance Sheet	3,050,137
Fixed Maturities [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	2,742,262
Fair Value	2,761,865
Amounts at Which Shown in Balance Sheet	2,761,852
United States Government and Government Agencies and Authorities [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	321,600
Fair Value	303,478
Amounts at Which Shown in Balance Sheet	303,478
States, Municipalities and Political Subdivisions [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	690,711
Fair Value	714,161
Amounts at Which Shown in Balance Sheet	714,157
Foreign Government [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	168,640
Fair Value	174,109
Amounts at Which Shown in Balance Sheet	174,109
Public Utilities [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	213,479
Fair Value	218,576
Amounts at Which Shown in Balance Sheet	218,576
All Other Bonds [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	1,345,926
Fair Value	1,349,156
Amounts at Which Shown in Balance Sheet	1,349,147
Redeemable Preferred Stocks [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	1,906
Fair Value	2,385
Amounts at Which Shown in Balance Sheet	2,385
Equity Securities, Investment Summary [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	73,324
Fair Value	231,855
Amounts at Which Shown in Balance Sheet	231,855
Public Utility [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	7,231
Fair Value	16,272
Amounts at Which Shown in Balance Sheet	16,272
Banks, Trust and Insurance [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	15,853
Fair Value	88,262
Amounts at Which Shown in Balance Sheet	88,262
Industrial, Miscellaneous, and All Others [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	43,753
Fair Value	120,956
Amounts at Which Shown in Balance Sheet	120,956
Nonredeemable Preferred Stocks [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	6,487
Fair Value	6,365
Amounts at Which Shown in Balance Sheet	6,365
Mortgage Loans on Real Estate [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	4,423
Fair Value	4,724
Amounts at Which Shown in Balance Sheet	4,423
Policy Loans [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	6,261
Fair Value	6,261
Amounts at Which Shown in Balance Sheet	6,261
Other Long-term Investments [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	41,343
Fair Value	44,946
Amounts at Which Shown in Balance Sheet	44,946
Short-term Investments [Member]
Summary of Investments, Other than Investments in Related Parties, Reportable Data [Line Items]
Cost or Amortized Cost	800
Fair Value	800
Amounts at Which Shown in Balance Sheet	$ 800

XML

SUMMARY OF INVESTMENTS (Unrealized Appreciation and Depreciation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Unrealized Gain (Loss) on Investments [Abstract]
Available-for-sale fixed maturities	$ (132,579)	$ 15,816	$ 34,699
Equity securities	48,176	19,339	(4,675)
Deferred policy acquisition costs	42,102	(4,821)	3,402
Income tax effect	14,806	(10,614)	(11,699)
Total change in net unrealized investment appreciation, net of tax	$ (27,495)	$ 19,720	$ 21,727

XML

EARNINGS PER COMMON SHARE (Tables)

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Basic and Diluted Earnings per Share

The components of basic and diluted earnings per share were as follows:

	Years Ended December 31,
	2013				2012				2011
(In Thousands Except Per Share Data)	Basic		Diluted		Basic		Diluted		Basic		Diluted
Net income	$	76,140	$	76,140	$	40,212	$	40,212	$	11	$	11
Weighted-average common shares outstanding	25,325,695		25,325,695		25,447,918		25,447,918		25,878,535		25,878,535
Add dilutive effect of restricted stock awards	—		59,849		—		54,338		—		50,206
Add dilutive effect of stock options	—		145,831		—		2,270		—		30,108
Weighted-average common shares	25,325,695		25,531,375		25,447,918		25,504,526		25,878,535		25,958,849
Earnings per common share	$	3.01	$	2.98	$	1.58	$	1.58	$	—	$	—
Awards excluded from diluted calculation(1)	—		638,478		—		901,008		—		989,047

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

XML

Schedule V. Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2013

Valuation and Qualifying Accounts [Abstract]

Valuation and Qualifying Accounts

Schedule V. Valuation And Qualifying Accounts

(In thousands)	Balance at beginning of period		Charged to costs and expenses		Deductions		Balance at end of period
Description
Allowance for bad debts
Year Ended December 31, 2013	$	866	$	30	$	—	$	896
Year Ended December 31, 2012	825		41		—		866
Year Ended December 31, 2011	1,001		—		176		825
Deferred tax asset valuation allowance (1)
Year Ended December 31, 2013	$	2,909	$	—	$	548	$	2,361
Year Ended December 31, 2012	3,456		—		547		2,909
Year Ended December 31, 2011	4,004		—		548		3,456

(1) Recorded in connection with the purchase of American Indemnity Financial Corporation in 1999.

XML

Schedule VI. Supplemental Information Concerning Property and Casualty Insurance Operations

12 Months Ended

Dec. 31, 2013

Supplemental Information for Property, Casualty Insurance Underwriters [Abstract]

Supplemental Information Concerning Property and Casualty Insurance Operations

Schedule VI. Supplemental Information Concerning Property and Casualty Insurance Operations

(In thousands)
Affiliation with Registrant: United Fire & Casualty Company and consolidated property and casualty subsidiaries													Claims and Claim Adjustment Expenses Incurred Related to:					Amortization of Deferred Policy Acquisition Costs (1)
			Reserves for Unpaid Claims and Claim Adjustment Expenses						Net Realized Investment Gains (Losses)
	Deferred Policy Acquisition Costs										Net Investment Income									Paid Claims and Claim Adjustment Expenses
					Unearned Premiums		Earned Premiums						Current Year		Prior Years							Premiums Written
2013	$	67,663	$	960,651	$	340,387	$	694,192	$	6,260	$	46,332	$	494,841	$	(57,487	)	$	147,175	$	419,894	$	722,821
2012	$	64,947	$	971,911	$	311,561	$	629,411	$	1,676	$	41,879	$	512,564	$	(73,427	)	$	134,444	$	395,788	$	655,331
2011	$	60,668	$	945,051	$	288,868	$	533,771	$	3,081	$	35,513	$	468,926	$	(61,095	)	$	143,952	$	399,828	$	551,923

(1) 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cash Flows From Operating Activities
Net income	$ 76,140	$ 40,212	$ 11
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	15,291	15,183	11,638
Depreciation and amortization	5,603	7,979	5,583
Stock-based compensation expense	1,777	1,764	1,829
Net realized investment gains	(8,695)	(5,453)	(6,440)
Net cash flows from trading investments	3,852	403	(1,993)
Deferred income tax expense (benefit)	(368)	7,452	(6,288)
Changes in:
Accrued investment income	2,452	1,844	499
Premiums receivable	(30,346)	(15,941)	(12,067)
Deferred policy acquisition costs	(2,690)	(3,467)	11,709
Reinsurance receivables	26,948	14,175	(23,649)
Prepaid reinsurance premiums	(197)	3,228	1,684
Income taxes receivable	14,750	10,206	(6,310)
Other assets	(1,417)	3,603	9,970
Future policy benefits and losses, claims and loss settlement expenses	21,251	64,384	67,302
Unearned premiums	28,814	22,659	16,401
Accrued expenses and other liabilities	8,499	14,950	3,504
Deferred income taxes	6,983	(8,234)	(82)
Other, net	(7,156)	(2,871)	1,130
Total adjustments	85,351	131,864	74,420
Net cash provided by operating activities	161,491	172,076	74,431
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	23,007	20,324	39,496
Proceeds from call and maturity of held-to-maturity investments	1,004	2,709	2,243
Proceeds from call and maturity of available-for-sale investments	477,071	527,720	563,515
Proceeds from short-term and other investments	7,170	4,810	4,741
Purchase of held-to-maturity investments	0	(200)	0
Purchase of available-for-sale investments	(587,412)	(653,467)	(595,162)
Purchase of short-term and other investments	(14,375)	(10,350)	(3,357)
Net purchases and sales of property and equipment	(8,451)	(2,886)	(14,048)
Acquisition of property and casualty company, net of cash acquired	0	0	(172,620)
Net cash used in investing activities	(101,986)	(111,340)	(175,192)
Policyholders’ account balances
Deposits to investment and universal life contracts	150,272	141,252	170,678
Withdrawals from investment and universal life contracts	(208,827)	(156,881)	(119,716)
Borrowings of short-term debt	0	0	124,900
Repayment of short-term debt	0	(45,000)	(82,900)
Repayment of trust preferred securities	0	(15,626)	0
Payment of cash dividends	(17,484)	(15,269)	(15,507)
Repurchase of common stock	(1,644)	(7,301)	(12,433)
Issuance of common stock	3,393	1,106	208
Tax impact from issuance of common stock	(488)	(78)	1
Net cash (used in) provided by financing activities	(74,778)	(97,797)	65,231
Net Change in Cash and Cash Equivalents	(15,273)	(37,061)	(35,530)
Cash and Cash Equivalents at Beginning of Year	107,466	144,527	180,057
Cash and Cash Equivalents at End of Year	$ 92,193	$ 107,466	$ 144,527

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2013

Significant Accounting Policies [Line Items]

Principles of Consolidation

Principles of Consolidation

The accompanying Consolidated Financial Statements include United Fire and its wholly owned subsidiaries: United Fire & Casualty Company, United Real Estate Holdings Company, LLC, United Life Insurance Company (“United Life”), Addison Insurance Company, American Indemnity Financial Corporation, Lafayette Insurance Company, United Fire & Indemnity Company, Texas General Indemnity Company (currently in run-off) and Mercer Insurance Group, Inc., which includes BICUS Services Corporation (currently inactive), Financial Pacific Insurance Company, Financial Pacific Insurance Group, Inc., Franklin Insurance Company, Mercer Insurance Company, and Mercer Insurance Company of New Jersey, Inc. (collectively, “Mercer Insurance Group”).

United Fire Lloyds, an affiliate of United Fire & Indemnity Company, is organized as a Texas Lloyds plan, which is an aggregation of underwriters who, under a common name, engage in the business of insurance through a corporate attorney-in-fact. United Fire Lloyds is financially and operationally controlled by United Fire & Indemnity Company, its corporate attorney-in-fact, pursuant to three types of agreements: trust agreements between United Fire & Indemnity Company and certain individuals who agree to serve as trustees; articles of agreement among the trustees who agree to act as underwriters to establish how the Lloyds plan will be operated; and powers of attorney from each of the underwriters appointing a corporate attorney-in-fact, who is authorized to operate the Lloyds plan. Because United Fire & Indemnity Company can name the trustees, the Lloyds plan is perpetual, subject only to United Fire & Indemnity Company’s desire to terminate it.

United Fire & Indemnity Company provides all of the statutory capital necessary for the formation of the Lloyds plan by contributing capital to each of the trustees. The trust agreements require the trustees to become underwriters of the Lloyds plan, to contribute the capital to the Lloyds plan, to sign the articles of agreement and to appoint the attorney-in-fact. The trust agreements also require the trustees to pay to United Fire & Indemnity Company all of the profits and benefits received by the trustees as underwriters of the Lloyds plan, which means that United Fire & Indemnity Company has the right to receive 100 percent of the gains and profits from the Lloyds plan. The trustees serve at the pleasure of United Fire & Indemnity Company, which may remove a trustee and replace that trustee at any time. Termination of a trustee must be accompanied by the resignation of the trustee as an underwriter, so that the trustee can obtain the capital contribution from the Lloyds plan to reimburse United Fire & Indemnity Company. By retaining the ability to terminate trustees, United Fire & Indemnity Company possesses the ability to name and remove the underwriters.

United Real Estate Holdings, LLC, formed in 2013, is a wholly owned subsidiary of United Fire & Casualty Company and is organized as an Iowa Limited Liability Corporation, an unincorporated association formed for the purpose of holding United Fire & Casualty Company’s ownership in commercial real estate.

Basis of Presentation

Basis of Presentation

The accompanying Consolidated Financial Statements have been prepared on the basis of U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those followed in preparing our statutory reports to insurance regulatory authorities. Our stand-alone financial statements submitted to insurance regulatory authorities are presented on the basis of accounting practices prescribed or permitted by the insurance departments of the states in which we are domiciled (“statutory accounting principles”).

In the preparation of the accompanying Consolidated Financial Statements, we have evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure.

Certain prior year amounts have been reclassified to conform to the current year presentation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables (for net realizable value); future policy benefits and losses, claims and loss settlement expenses; and pension and postretirement benefit obligations.

Universal Life and Annuity Policies

On universal life and deferred annuity policies (i.e., non-traditional business), income and expenses are reported when charged and credited to policyholder account balances in order to result in recognition of profits over the lives of the related contracts. We accomplish this by means of a provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

Reinsurance

Reinsurance

Premiums earned and losses and loss settlement expenses incurred are reported net of reinsurance ceded. Ceded insurance business is accounted for on a basis consistent with the original policies issued and the terms of the reinsurance contracts.

Investments

Investments

Investments in fixed maturities include bonds and redeemable preferred stocks. Our investments in held-to-maturity fixed maturities are recorded at amortized cost. Our investments in available-for-sale fixed maturities and trading securities are recorded at fair value.

Investments in equity securities, which include common and non-redeemable preferred stocks, are classified as available-for-sale or trading and are recorded at fair value.

Changes in unrealized appreciation and depreciation, with respect to available-for-sale fixed maturities and equity securities, are reported as a component of accumulated other comprehensive income, net of applicable deferred income taxes, in stockholders’ equity.

Other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. Mortgage loans are recorded at their unpaid principal balance. Policy loans are recorded at the outstanding loan amount due from policyholders. Included in investments at December 31, 2013 and 2012, are securities on deposit with, or available to, various regulatory authorities as required by law, with fair values of $1,620,505 and $1,736,466, respectively.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, and non-negotiable certificates of deposit with original maturities of three months or less.

Property, Equipment and Depreciation

Property, Equipment and Depreciation

Property and equipment is presented at cost less accumulated depreciation. At December 31, 2013, the Company had property and equipment of $47,218, which included buildings of $29,072, land of $7,163, furniture and fixtures of $2,707, computer equipment and software of $3,197 and an airplane of $5,079. At December 31, 2012, the Company had property and equipment of $43,090, which included buildings of $25,186, land of $6,879, furniture and fixtures of $1,024, computer equipment and software of $3,076 and an airplane of $6,925. Expenditures for maintenance and repairs are generally expensed as incurred. We periodically review these assets for impairment whenever events or changes in business circumstances indicate that the carrying value of the underlying asset may not be recoverable. A loss would be recognized if the estimated fair value of the asset were less than its carrying value.

Depreciation is computed primarily by the straight-line method over the following estimated useful lives:

	Useful Life
Computer equipment	Three years
Furniture and fixtures	Seven years
Leasehold improvements	Shorter of the lease term or useful life of the asset
Real estate	Seven to thirty-nine years
Software	Three years

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise as a result of business combinations and consist of the excess of the fair value of consideration paid over the tangible assets acquired and liabilities assumed. We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed its implied fair value. Goodwill is evaluated at the reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. In 2013 and 2012, we performed a qualitative assessment of our goodwill. As a result of this assessment, we did not recognize an impairment charge on our goodwill in 2013 or 2012.

Our intangible assets, which consist primarily of agency relationships, trade names, licenses, and software, are being amortized by the straight-line method over periods ranging from 2 years to 15 years, with the exception of licenses, which are indefinite-lived and not amortized.

Income Taxes

Income Taxes

Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders’ equity and do not impact federal income tax expense.

We did not recognize any liability for unrecognized tax benefits at December 31, 2013, or 2012 or at any time during 2013, 2012, and 2011. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.

Stock-Based Compensation

Stock-Based Compensation

We currently have two equity compensation plans. One plan allows us to grant restricted and unrestricted stock, stock appreciation rights, incentive stock options, and non-qualified stock options to employees. The other plan allows us to grant restricted and non-qualified stock options to non-employee directors.

We utilize the Black-Scholes option pricing method to establish the fair value of non-qualified stock options granted under our equity compensation plans. Our determination of the fair value of stock options on the date of grant using this option-pricing model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, which include the expected volatility in our stock price, the expected term of the award, the expected dividends to be paid over the term of the award and the expected risk-free interest rate. Any changes in these assumptions may materially affect the estimated fair value of the award. For our restricted and unrestricted stock awards, we utilize the fair value of our common stock on the date of grant to establish the fair value of the award.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

Adopted Accounting Standards in 2013

Comprehensive Income

In February 2013, the FASB issued guidance that requires significant items that are reclassified out of accumulated other comprehensive income (“AOCI”) to net income in their entirety in the same reporting period, to be reported to show the effect of the reclassifications on the respective line items of the statement where net income is presented. These reclassifications can be presented either on the face of the statement where net income is presented or in the notes to the financial statements. For items that are not reclassified to net income in their entirety in the same reporting period a cross reference to other disclosures currently required under GAAP is required in the notes to the financial statements. The new guidance also requires companies to report changes in the accumulated balances of each component of AOCI. This new guidance was effective for annual and interim periods beginning after December 15, 2012. The Company adopted the new guidance effective January 1, 2013. The adoption of the new guidance affects presentation only and therefore had no impact on the Company’s results of operations or financial position.

Pending Adoption of Accounting Standards

In July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This new guidance is effective for annual and interim periods beginning after December 15, 2013. The Company currently does not have any liability for unrecognized tax benefits. Therefore, the adoption of the new guidance is not expected to have an impact on the Company’s financial position or results of operations.

Property and Casualty Insurance [Member]

Significant Accounting Policies [Line Items]

Life Insurance Business

Premiums written are deferred and recorded as earned premium on a daily pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of insurance policies in force.

Loss and Loss Settlement Expense Reserves

To establish loss and loss settlement expense reserves, we make estimates and assumptions about the future development of claims. Actual results could differ materially from those estimates, which are subjective, complex and inherently uncertain. When we establish and adjust reserves, we do so given our knowledge at the time of the circumstances and facts of known claims. To the extent that we have overestimated or underestimated our loss and loss settlement expense reserves, we adjust the reserves in the period in which such adjustment is determined.

Premiums Receivable

Premiums receivable are presented net of an estimated allowance for doubtful accounts, which is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs (“DAC”)

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred.

Life Insurance [Member]

Significant Accounting Policies [Line Items]

Life Insurance Business

Life Insurance Business

Our whole life and term insurance (i.e., traditional business) premiums are reported as earned when due and benefits and expenses are associated with premium income in order to result in the recognition of profits over the lives of the related contracts.

Premiums Receivable

Premiums receivable are presented net of an estimated allowance for doubtful accounts.

Future Policy Benefits Liability

Liabilities for future policy benefits for traditional products are computed by the net level premium method, using interest assumptions ranging from 4.5 percent to 6.0 percent and withdrawal, mortality and morbidity assumptions appropriate at the time the policies were issued. Liabilities for non-traditional business are stated at policyholder account values before surrender charges. Liabilities for traditional immediate annuities are based primarily upon future anticipated cash flows using assumptions for mortality and interest rates. Liabilities for deferred annuities are carried at the account value.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs (“DAC”)

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC that are reported in the accompanying Consolidated Financial Statements:

Property & Casualty	2013			2012			2011
Recorded asset at beginning of year	$	64,947		$	60,668		$	44,681
Underwriting costs deferred	149,891			138,723			132,503
Amortization of deferred policy acquisition costs	(147,175		)	(132,771		)	(118,189		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
Recorded asset at end of year	$	67,663		$	64,947		$	60,668
Life Insurance
Recorded asset at beginning of year	$	40,353		$	45,986		$	42,843
Underwriting costs deferred	6,476			6,578			8,965
Amortization of deferred policy acquisition costs	(6,502		)	(7,390		)	(9,224		)
	$	40,327		$	45,174		$	42,584
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	82,429		$	40,353		$	45,986
Total
Recorded asset at beginning of year	$	105,300		$	106,654		$	87,524
Underwriting costs deferred	156,367			145,301			141,468
Amortization of deferred policy acquisition costs	(153,677		)	(140,161		)	(127,413		)
Value of business acquired	—			—			27,436
Amortization of value of business acquired	—			(1,673		)	(25,763		)
	$	107,990		$	110,121		$	103,252
Change in “shadow” deferred policy acquisition costs	42,102			(4,821		)	3,402
Recorded asset at end of year	$	150,092		$	105,300		$	106,654

Property and casualty policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses to be incurred and certain other costs expected to be incurred as the premium is earned.

For traditional life insurance policies, DAC is amortized to income over the premium-paying period in proportion to the ratio of the expected annual premium revenue to the expected total premium revenue. Expected premium revenue and gross profits are based on the same mortality and withdrawal assumptions used in determining future policy benefits. These assumptions are not revised after policy issuance unless the recorded DAC asset is deemed to be unrecoverable from future expected profits.

For non-traditional life insurance policies, DAC is amortized over the anticipated terms in proportion to the ratio of the expected annual gross profits to the total expected gross profits. Changes in the amount or timing of expected gross profits result in adjustments to the cumulative amortization of these costs. The effect on amortization of DAC for revisions to estimated gross profits is reported in earnings in the period the estimated gross profits are revised.

The effect on DAC that results from the assumed realization of unrealized gains (losses) on investments allocated to non-traditional life insurance business is recognized with an offset, or “shadow” DAC, to net unrealized investment appreciation as of the balance sheet date. The “shadow” DAC adjustment increased the DAC asset by $3,407 and decreased the DAC asset by $38,695 at December 31, 2013 and 2012, respectively.

In October 2010, the Financial Accounting Standards Board (“FASB”) issued updated accounting guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be incremental and directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. Acquisition costs that are not eligible for deferral are to be charged to expense in the period incurred.

XML

STOCK-BASED COMPENSATION (Analysis of Stock Options Award Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Shares
Outstanding at beginning of period (in shares)	1,242,442
Granted (in shares)	233,348
Exercised (in shares)	(168,482)
Forfeited or expired (in shares)	(19,998)
Outstanding at end of period ( in shares)	1,287,310	1,242,442
Exercisable at end of period (in shares)	803,568
Weighted-Average Exercise Price
Outstanding at beginning of period (in usd per share)	$ 27.78
Granted (in usd per share)	$ 24.41
Exercised (in usd per share)	$ 19.98
Forfeited or expired (in usd per share)	$ 31.58
Outstanding at end of period (in usd per share)	$ 28.13	$ 27.78
Exercisable at end of period (in usd per share)	$ 31.66
Outstanding at end of period, Weighted-Average Remaining Life (in years)	5 years 3 months 21 days
Exercisable at end of period, Weighted-Average Remaining Life (in years)	3 years 10 months 27 days
Outstanding at end of period, Aggregate Intrinsic Value	$ 4,524
Outstanding at end of period, Aggregate Intrinsic Value	1,425
Intrinsic value of options exercised	$ 1,383	$ 229	$ 35

XML

EMPLOYEE BENEFITS (Tables)

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Actual and Target Allocation of Plan Assets

The following is a summary of the pension plan’s actual and target asset allocations at December 31, 2013 and 2012, by asset category:

Pension Plan Assets									Target
	2013		% of Total		2012		% of Total		Allocation
Fixed maturity securities - corporate bonds	$	4,489	4.9	%	$	4,830	6.4	%	0	%	-	25	%
Redeemable preferred stock	1,381		1.5		1,113		1.5		0	%	-	20	%
Equity securities	39,481		42.8		41,091		54.6		50	%	-	70	%
Pooled separate accounts
Bond and mortgage separate account fund	5,657		6.1		—		—		0	%		40	%
U.S. property separate account fund	8,763		9.5		—		—		0	%		25	%
Arbitrage fund	5,516		6.0		5,363		7.1		0	%	-	15	%
United Life annuity	8,101		8.8		7,900		10.5		5	%	-	15	%
Cash and cash equivalents(1)	18,831		20.4		14,979		19.9		0	%	-	10	%
Total plan assets	$	92,219	100.0	%	$	75,276	100.0	%

Fair Value Measurement

The following tables present the categorization of the pension plan’s assets measured at fair value on a recurring basis at December 31, 2013 and 2012:

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,489	$	—	$	4,489	$	—
Redeemable preferred stock	1,381		1,381		—		—
Equity securities	39,481		39,481		—		—
Pooled separate accounts
Bond and mortgage separate account fund	5,657		—		5,657		—
U.S. property separate account fund	8,763		—		—		8,763
Arbitrage fund	5,516		—		5,516		—
Money market funds	17,323		17,323		—		—
Total assets measured at fair value	$	82,610	$	58,185	$	15,662	$	8,763

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,830	$	—	$	4,830	$	—
Redeemable preferred stock	1,113		1,113		—		—
Equity securities	41,091		41,091		—		—
Arbitrage fund	5,363		—		5,363		—
Money market funds	12,856		12,856		—		—
Total assets measured at fair value	$	65,253	$	55,060	$	10,193	$	—

Schedule of Changes in Fair Value of Pension Plan Assets

The following table provides a summary of the changes in fair value of the pension plan’s Level 3 securities for 2013:

	U.S. property separate account fund
Balance at January 1, 2013	$	—
Unrealized gains	763
Purchases	8,000
Balance at December 31, 2013	$	8,763

Schedule of Assumptions Used

The following actuarial assumptions were used at January 1 to determine our reported net periodic benefit costs for the year ended December 31:

Weighted-average assumptions as of	Pension Benefits						Postretirement Benefits
January 1,	2013		2012		2011		2013		2012		2011
Discount rate	4.00	%	4.50	%	5.50	%	4.00	%	4.50	%	5.50	%
Expected long-term rate of return on plan assets	7.50		8.00		8.25		N/A		N/A		N/A
Rate of compensation increase	3.50		3.75		4.00		N/A		N/A		N/A

The following actuarial assumptions were used to determine the reported plan benefit obligations at December 31:

Weighted-average assumptions as of	Pension Benefits				Postretirement Benefits
December 31,	2013		2012		2013		2012
Discount rate	4.84	%	4.00	%	4.84	%	4.00	%
Rate of compensation increase	3.50		3.50		N/A		N/A

Schedule of Health Care Cost Trend Rates

Assumed Health Care Cost Trend Rates

	Health Care Benefits				Dental Claims
Years Ended December 31,	2013		2012		2013		2012
Health care cost trend rates assumed for next year	7.00	%	10.00	%	4.00	%	5.25	%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)	4.50	%	5.25	%	N/A		N/A
Year that the rate reaches the ultimate trend rate	2019		2018		N/A		N/A

Schedule of Effect of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates

A 1.0 percent change in assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
Effect on the net periodic postretirement health care benefit cost	$	1,287	$	(1,023	)
Effect on the accumulated postretirement benefit obligation	8,328		(6,782		)

Reconciliation of Benefit Obligations, Plan Assets, and Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and funded status of our plans:

	Pension Benefits						Postretirement Benefits
Years Ended December 31,	2013			2012			2013			2012
Reconciliation of benefit obligation
Benefit obligation at beginning of year	$	131,382		$	111,340		$	44,395		$	36,334
Service cost	6,300			5,129			3,875			3,010
Interest cost	5,175			5,049			1,759			1,695
Actuarial (gain) loss	(15,161		)	12,841			(1,449		)	3,380
Benefit payments and adjustments	(4,344		)	(2,977		)	374			(24		)
Benefit obligation at end of year (1)	$	123,352		$	131,382		$	48,954		$	44,395
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year	$	75,276		$	65,267		$	—		$	—
Actual return on plan assets	14,287			6,236			—			—
Employer contributions	7,000			6,750			374			24
Benefit payments and adjustments	(4,344		)	(2,977		)	(374		)	(24		)
Fair value of plan assets at end of year	$	92,219		$	75,276		$	—		$	—
Funded status at end of year	$	(31,133	)	$	(56,106	)	$	(48,954	)	$	(44,395	)

(1) For the pension plan, the benefit obligation is the projected benefit obligation. For the postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation.

Schedule of Amounts Recognized in AOCI

The following table displays the effect that the unrecognized prior service cost and unrecognized actuarial loss of our plans had on AOCI, as reported in the accompanying Consolidated Balance Sheets:

	Pension Benefits				Postretirement Benefits
Years Ended December 31	2013		2012		2013		2012
Amounts recognized in AOCI
Unrecognized prior service cost	$	—	$	—	$	—	$	—
Unrecognized actuarial loss	32,162		60,647		13,147		14,596
Total amounts recognized in AOCI	$	32,162	$	60,647	$	13,147	$	14,596

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:

	Pension Plan									Postretirement Benefit Plan
Years Ended December 31,	2013			2012			2011			2013		2012			2011
Net periodic benefit cost
Service cost	$	6,300		$	5,129		$	3,166		$	3,875	$	3,010		$	1,985
Interest cost	5,175			5,049			4,761			1,759		1,695			1,590
Expected return on plan assets	(5,772		)	(5,345		)	(5,288		)	—		—			—
Amortization of prior service cost	—			8			10			—		(6		)	(32		)
Amortization of net loss	4,989			4,415			2,368			879		554			224
Net periodic benefit cost	$	10,692		$	9,256		$	5,017		$	6,513	$	5,253		$	3,767

Projected Benefit Payments

The following table summarizes the expected benefits to be paid from our plans over the next 10 years:

	2014		2015		2016		2017		2018		2019 - 2023
Pension benefits	$	3,990	$	4,270	$	4,580	$	4,920	$	5,350	$	35,640
Postretirement benefits	$	1,130	$	1,250	$	1,380	$	1,540	$	1,750	$	13,360

XML

SUMMARY OF INVESTMENTS (Maturities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Held-To-Maturity, Amortized Cost
Amortized Cost	$ 656	$ 1,655
Held-To-Maturity, Fair Value
Fair Value	669	1,681
Available-For-Sale, Amortized Cost
Amortized Cost	2,804,514	2,724,692
Available-For-Sale, Fair Value
Fair Value	2,980,624	2,985,205
Trading, Fair Value
Fair Value	9,940	13,353
Asset-Backed Securities [Member]
Available-For-Sale, Amortized Cost
Amortized Cost	3,719	4,480
Available-For-Sale, Fair Value
Fair Value	3,995	4,886
Mortgage Backed Securities [Member]
Held-To-Maturity, Amortized Cost
Amortized Cost	206	256
Held-To-Maturity, Fair Value
Fair Value	215	271
Available-For-Sale, Amortized Cost
Amortized Cost	22,034	27,940
Available-For-Sale, Fair Value
Fair Value	22,066	28,807
Collateralized Mortgage Obligations [Member]
Held-To-Maturity, Amortized Cost
Amortized Cost		14
Held-To-Maturity, Fair Value
Fair Value		14
Available-For-Sale, Amortized Cost
Amortized Cost	309,975	208,042
Available-For-Sale, Fair Value
Fair Value	294,763	214,584
Fixed Maturities [Member]
Held-To-Maturity, Amortized Cost
Due in one year or less	135
Due after one year through five years	315
Due after five years through 10 years	0
Due after 10 years	0
Amortized Cost	656
Held-To-Maturity, Fair Value
Due in one year or less	136
Due after one year through five years	318
Due after five years through 10 years	0
Due after 10 years	0
Fair Value	669
Available-For-Sale, Amortized Cost
Due in one year or less	231,060
Due after one year through five years	950,084
Due after five years through 10 years	848,931
Due after 10 years	367,754
Amortized Cost	2,733,557
Available-For-Sale, Fair Value
Due in one year or less	234,922
Due after one year through five years	996,862
Due after five years through 10 years	855,156
Due after 10 years	343,492
Fair Value	2,751,256
Trading, Amortized Cost
Due in one year or less	1,350
Due after one year through five years	3,762
Due after five years through 10 years	0
Due after 10 years	2,937
Amortized Cost	8,049
Trading, Fair Value
Due in one year or less	1,359
Due after one year through five years	5,147
Due after five years through 10 years	0
Due after 10 years	3,434
Fair Value	9,940
Fixed Maturities [Member] | Asset-Backed Securities [Member]
Held-To-Maturity, Amortized Cost
Not categorized by contractual maturity	0
Held-To-Maturity, Fair Value
Not categorized by contractual maturity	0
Available-For-Sale, Amortized Cost
Not categorized by contractual maturity	3,719
Available-For-Sale, Fair Value
Not categorized by contractual maturity	3,995
Fixed Maturities [Member] | Mortgage Backed Securities [Member]
Held-To-Maturity, Amortized Cost
Not categorized by contractual maturity	206
Held-To-Maturity, Fair Value
Not categorized by contractual maturity	215
Available-For-Sale, Amortized Cost
Not categorized by contractual maturity	22,034
Available-For-Sale, Fair Value
Not categorized by contractual maturity	22,066
Fixed Maturities [Member] | Collateralized Mortgage Obligations [Member]
Held-To-Maturity, Amortized Cost
Not categorized by contractual maturity	0
Held-To-Maturity, Fair Value
Not categorized by contractual maturity	0
Available-For-Sale, Amortized Cost
Not categorized by contractual maturity	309,975
Available-For-Sale, Fair Value
Not categorized by contractual maturity	$ 294,763

XML

EMPLOYEE BENEFITS (Narratives) (Details) (Pension Plan [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 persons
Pension Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Eligibility, minimum required service period	1 year
Eligibility, minimum age	21 years
Estimated employer contribution in next fiscal year	$ 6,260
Number of exernal investment managers	7

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fixed maturities
Held-to-maturity, at amortized cost (fair value $669 in 2013 and $1,681 in 2012)	$ 656	$ 1,655
Available-for-sale, at fair value (amortized cost $2,733,557 in 2013 and $2,657,800 in 2012)	2,751,256	2,808,078
Trading securities, at fair value (amortized cost $8,049 in 2013 and $12,645 in 2012)	9,940	13,353
Equity securities
Available-for-sale, at fair value (cost $70,957 in 2013 and $66,892 in 2012)	229,368	177,127
Trading securities, at fair value (cost $2,367 in 2013 and $1,772 in 2012)	2,487	2,018
Mortgage loans	4,423	4,633
Policy loans	6,261	6,671
Other long-term investments	44,946	30,028
Short-term investments	800	800
Total Investments	3,050,137	3,044,363
Cash and cash equivalents	92,193	107,466
Accrued investment income	27,923	30,375
Premiums receivable (net of allowance for doubtful accounts of $896 in 2013 and $866 in 2012)	218,635	188,289
Deferred policy acquisition costs	150,092	105,300
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $36,972 in 2013 and $34,093 in 2012)	47,218	43,090
Reinsurance receivables and recoverables	87,451	114,399
Prepaid reinsurance premiums	3,160	2,963
Income taxes receivable	1,786	16,536
Goodwill and net intangible assets	27,047	28,259
Other assets	15,030	13,613
TOTAL ASSETS	3,720,672	3,694,653
Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance	960,651	971,911
Life insurance	1,472,132	1,498,176
Unearned premiums	340,464	311,650
Accrued expenses and other liabilities	142,677	164,111
Deferred income taxes	21,915	19,628
TOTAL LIABILITIES	2,937,839	2,965,476
Stockholders' Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,360,893 and 25,227,463 shares issued and outstanding in 2013 and 2012, respectively	25	25
Additional paid-in capital	211,574	208,536
Retained earnings	484,084	425,428
Accumulated other comprehensive income, net of tax	87,150	95,188
TOTAL STOCKHOLDERS' EQUITY	782,833	729,177
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 3,720,672	$ 3,694,653

XML

LEASE COMMITMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Leases [Abstract]

Contractual Obligation, Fiscal Year Maturity Schedule

At December 31, 2013, our future minimum rental payments are as follows:

2014	$	7,340
2015	4,829
2016	4,099
2017	3,186
2018	1,504
Thereafter	3,219
Total	$	24,177

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance as of beginning of period	$ 95,188	$ 82,586	$ 76,978
Change in accumulated other comprehensive income before reclassifications	(7,425)	12,037	8,727
Reclassification adjustments from accumulated other comprehensive income	(613)	565	(3,119)
Balance as of end of period	87,150	95,188	82,586
Net Unrealized Appreciation on Investments [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance as of beginning of period	144,096	124,376	102,649
Change in accumulated other comprehensive income before reclassifications	(23,068)	22,386	26,517
Reclassification adjustments from accumulated other comprehensive income	(4,427)	(2,666)	(4,790)
Balance as of end of period	116,601	144,096	124,376
Liability for Underfunded Employee Benefit Costs [Member]
Increase (Decrease) in Accumulated Other Comprehensive Income [Roll Forward]
Balance as of beginning of period	(48,908)	(41,790)	(25,671)
Change in accumulated other comprehensive income before reclassifications	15,643	(10,349)	(17,790)
Reclassification adjustments from accumulated other comprehensive income	3,814	3,231	1,671
Balance as of end of period	$ (29,451)	$ (48,908)	$ (41,790)

XML

Consolidated Statement of Stockholders' Equity (USD $) In Thousands, unless otherwise specified		Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income, Net of Tax [Member]
Balance, beginning of year at Dec. 31, 2010		$ 716,424	$ 26	$ 223,439	$ 415,981	$ 76,978
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Compensation expense and related tax benefit for stock-based award grants				1,830
Shares repurchased			(1)	(12,432)
Shares issued for stock-based awards			0	208
Net income		11			11
Dividends on common stock ($0.69 per share in 2013; $0.60 per share in 2012 and 2011)					(15,507)
Change in net unrealized investment appreciation	[1]					21,727
Change in liability for underfunded employee benefit plans	[2]					(16,119)
All other changes in stockholders' equity accounts		(20,294)
Balance, end of year at Dec. 31, 2011		696,141	25	213,045	400,485	82,586
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Compensation expense and related tax benefit for stock-based award grants				1,686
Shares repurchased			0	(7,301)
Shares issued for stock-based awards			0	1,106
Net income		40,212			40,212
Dividends on common stock ($0.69 per share in 2013; $0.60 per share in 2012 and 2011)					(15,269)
Change in net unrealized investment appreciation	[1]					19,720
Change in liability for underfunded employee benefit plans	[2]					(7,118)
All other changes in stockholders' equity accounts		(7,176)
Balance, end of year at Dec. 31, 2012		729,177	25	208,536	425,428	95,188
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Compensation expense and related tax benefit for stock-based award grants				1,289
Shares repurchased			0	(1,644)
Shares issued for stock-based awards			0	3,393
Net income		76,140			76,140
Dividends on common stock ($0.69 per share in 2013; $0.60 per share in 2012 and 2011)					(17,484)
Change in net unrealized investment appreciation	[1]					(27,495)
Change in liability for underfunded employee benefit plans	[2]					19,457
All other changes in stockholders' equity accounts		(22,484)
Balance, end of year at Dec. 31, 2013		$ 782,833	$ 25	$ 211,574	$ 484,084	$ 87,150

[1] The change in net unrealized appreciation is net of reclassification adjustments and income taxes.

[2] The change in liability for underfunded employee benefit plans is net of income taxes.

XML

DEBT (Trust Preferred Securities) (Details) (Mercer Insurance Group [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended		0 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Mar. 28, 2011 Trust Preferred Securities [Member] issues
Financial Instruments Subject to Mandatory Redemption by Settlement [Line Items]
Number of issuances of securities assumed with acquisition			3
Outstanding balance of the securities assumed with acquisition			$ 15,614
Interest expense, trust preferred securities	$ 509	$ 1,055

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Carrying Value and Estimated Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013		Dec. 31, 2012
Investments
Held-to-maturity fixed maturities	$ 669		$ 1,681
Available-for-sale securities	2,980,624		2,985,205
Trading securities	12,427		15,371
Fair Value [Member]
Investments
Mortgage loans	4,724		5,037
Policy loans	6,261		6,671
Other long-term investments	44,946		30,028
Short-term investments	800		800
Cash and cash equivalents	92,193		107,466
Accrued investment income	27,923		30,375
Policy reserves
Annuity (accumulations)	941,636	[1]	1,043,866	[1]
Annuity (benefit payments)	140,276		139,213
Fair Value [Member] | Fixed Maturities [Member]
Investments
Held-to-maturity fixed maturities	669		1,681
Available-for-sale securities	2,751,256		2,808,078
Trading securities	9,940		13,353
Fair Value [Member] | Equity Securities [Member]
Investments
Available-for-sale securities	229,368		177,127
Trading securities	2,487		2,018
Carrying Value [Member]
Investments
Mortgage loans	4,423		4,633
Policy loans	6,261		6,671
Other long-term investments	44,946		30,028
Short-term investments	800		800
Cash and cash equivalents	92,193		107,466
Accrued investment income	27,923		30,375
Policy reserves
Annuity (accumulations)	925,832	[1]	983,579	[1]
Annuity (benefit payments)	94,805		93,701
Carrying Value [Member] | Fixed Maturities [Member]
Investments
Held-to-maturity fixed maturities	656		1,655
Available-for-sale securities	2,751,256		2,808,078
Trading securities	9,940		13,353
Carrying Value [Member] | Equity Securities [Member]
Investments
Available-for-sale securities	229,368		177,127
Trading securities	$ 2,487		$ 2,018

[1] Annuity accumulations represent deferred annuity contracts that are currently earning interest.

XML

BUSINESS COMBINATIONS (Pro Forma Information) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended			0 Months Ended	12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Mar. 28, 2011 Mercer Insurance Group [Member]	Dec. 31, 2011 Mercer Insurance Group [Member]
Business Acquisition [Line Items]
Annualized revenues													$ 145,868
Revenues	228,994	223,024	219,719	205,305	213,317	206,581	199,646	193,699	877,042	813,243	705,008		109,043
Net loss	(26,526)	(11,725)	(15,496)	(22,393)	2,418	(8,730)	(14,716)	(19,184)	(76,140)	(40,212)	(11)		14,650
Pro Forma Historical Results
Revenue													741,833
Net income													8,139	[1]
Basic earnings per share (in usd per share)													$ 0.31
Diluted earnings per share (in usd per share)													$ 0.31
Transaction related expenses												$ 8,318	$ 11,900

[1] The year ended December 31, 2011 excludes transaction related expenses incurred that reduced net income by $11.9 million.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Carrying Value and Estimated Fair Value of Financial Instruments

A summary of the carrying value and estimated fair value of our financial instruments at December 31, 2013 and 2012 is as follows:

	December 31, 2013				December 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	669	$	656	$	1,681	$	1,655
Available-for-sale securities	2,751,256		2,751,256		2,808,078		2,808,078
Trading securities	9,940		9,940		13,353		13,353
Equity securities:
Available-for-sale securities	229,368		229,368		177,127		177,127
Trading securities	2,487		2,487		2,018		2,018
Mortgage loans	4,724		4,423		5,037		4,633
Policy loans	6,261		6,261		6,671		6,671
Other long-term investments	44,946		44,946		30,028		30,028
Short-term investments	800		800		800		800
Cash and cash equivalents	92,193		92,193		107,466		107,466
Accrued investment income	27,923		27,923		30,375		30,375
Liabilities
Policy reserves
Annuity (accumulations) (1)	$	941,636	$	925,832	$	1,043,866	$	983,579
Annuity (benefit payments)	140,276		94,805		139,213		93,701

(1) Annuity accumulations represent deferred annuity contracts that are currently earning interest.

Financial Instruments Measured at Fair Value on Recurring Basis

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis in our Consolidated Balance Sheets at December 31, 2013 and 2012:

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,895	$	—	$	33,895	$	—
U.S. government agency	269,583		—		269,583		—
States, municipalities and political subdivisions	713,907		—		713,209		698
Foreign bonds	172,856		—		172,856		—
Public utilities	218,576		—		218,576		—
Corporate bonds
Energy	161,010		—		161,010		—
Industrials	237,028		—		237,028		—
Consumer goods and services	167,914		—		166,460		1,454
Health care	92,946		—		92,946		—
Technology, media and telecommunications	120,966		—		120,966		—
Financial services	241,751		—		229,725		12,026
Mortgage-backed securities	22,066		—		22,066		—
Collateralized mortgage obligations	294,763		—		294,763		—
Asset-backed securities	3,995		—		1,966		2,029
Total Available-For-Sale Fixed Maturities	$	2,751,256	$	—	$	2,735,049	$	16,207
Equity securities
Common stocks
Public utilities	$	16,272	$	16,272	$	—	$	—
Energy	14,363		14,363		—		—
Industrials	46,099		46,083		16		—
Consumer goods and services	21,258		21,258		—		—
Health care	24,998		24,998		—		—
Technology, media and telecommunications	13,304		13,304		—		—
Financial services	88,262		84,419		62		3,781
Nonredeemable preferred stocks	4,812		1,714		3,098		—
Total Available-for-Sale Equity Securities	$	229,368	$	222,411	$	3,176	$	3,781
Total Available-for-Sale Securities	$	2,980,624	$	222,411	$	2,738,225	$	19,988
TRADING
Bonds
Foreign bonds	$	1,253	$	—	$	1,253	$	—
Corporate bonds
Industrials	1,122		—		1,122		—
Consumer goods and services	106		—		106		—
Health care	1,154		—		1,154		—
Technology, media and telecommunications	2,054		—		2,054		—
Financial services	1,866		—		1,866		—
Redeemable preferred stocks	2,385		2,385		—		—

Equity securities
Energy	563		563		—		—
Consumer goods and services	39		39		—		—
Health care	332		332		—		—
Nonredeemable preferred stocks	1,553		1,553		—		—
Total Trading Securities	$	12,427	$	4,872	$	7,555	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	37,811	$	37,811	$	—	$	—
Total Assets Measured at Fair Value	$	3,031,662	$	265,894	$	2,745,780	$	19,988

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	38,821	$	—	$	38,821	$	—
U.S. government agency	45,928		—		45,928		—
States, municipalities and political subdivisions	794,505		—		793,755		750
Foreign bonds	219,160		—		218,602		558
Public utilities	247,726		—		247,726		—
Corporate bonds
Energy	179,731		—		179,731		—
Industrials	293,663		—		290,766		2,897
Consumer goods and services	202,975		—		201,633		1,342
Health care	122,685		—		122,685		—
Technology, media and telecommunications	130,371		—		130,371		—
Financial services	283,860		—		271,991		11,869
Mortgage-backed securities	28,807		—		28,807		—
Collateralized mortgage obligations	214,584		—		214,584		—
Asset-backed securities	4,886		—		2,398		2,488
Redeemable preferred stocks	376		376		—		—
Total Available-For-Sale Fixed Maturities	$	2,808,078	$	376	$	2,787,798	$	19,904
Equity securities
Common stocks
Public utilities	$	14,416	$	14,416	$	—	$	—
Energy	11,997		11,997		—		—
Industrials	32,684		32,658		26		—
Consumer goods and services	18,879		18,879		—		—
Health care	18,081		18,081		—		—
Technology, media and telecommunications	10,427		10,427		—		—
Financial services	68,492		64,800		56		3,636
Nonredeemable preferred stocks	2,151		1,906		245		—
Total Available-for-Sale Equity Securities	$	177,127	$	173,164	$	327	$	3,636
Total Available-for-Sale Securities	$	2,985,205	$	173,540	$	2,788,125	$	23,540
TRADING
Bonds
Foreign bonds	$	1,379	$	—	$	1,379	$	—
Corporate bonds
Industrials	1,299		—		1,299		—
Consumer goods and services	1,532		—		1,532		—
Health care	1,824		—		1,824		—
Technology, media and telecommunications	2,250		—		2,250		—

Financial services	1,486		—		1,486		—
Redeemable preferred stocks	3,583		3,583		—		—
Equity securities - health care	303		303		—		—
Nonredeemable preferred stocks	1,715		1,715		—		—
Total Trading Securities	$	15,371	$	5,601	$	9,770	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	45,613	$	45,613	$	—	$	—
Total Assets Measured at Fair Value	$	3,046,989	$	225,554	$	2,797,895	$	23,540

Changes in Fair Value of Level 3 Securities

The following table provides a summary of the changes in fair value of our Level 3 securities for 2013:

	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2013	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540
Realized gains (1)	—			35			—			—			—			35
Unrealized gains (losses) (1)	83			14			1,277			(53		)	(28		)	1,293
Purchases	—			—			105			—			173			278
Disposals	(135		)	(607		)	(4,010		)	(406		)	—			(5,158		)
Balance at December 31, 2013	$	698		$	—		$	13,480		$	2,029		$	3,781		$	19,988

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on scheduled calls.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2012:

(In Thousands)	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2012	$	880		$	836		$	20,285		$	315		$	3,526		$	25,842
Realized gains (1)	—			—			646			—			—			646
Unrealized gains (losses) (1)	—			7			(352		)	(13		)	(23		)	(381		)
Purchases	—			—			5			—			179			184
Disposals	(130		)	(285		)	(4,476		)	(121		)	(50		)	(5,062		)
Transfers in	—			—			—			2,307			52			2,359
Transfers out	—			—			—			—			(48		)	(48		)
Balance at December 31, 2012	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

XML

REINSURANCE (Narratives) (Details) (USD $)					12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Property and Casualty Insurance [Member]	Dec. 31, 2012 Property and Casualty Insurance [Member]	Dec. 31, 2012 Property and Casualty Insurance [Member] Casualty Excess and Property Excess [Member]	Dec. 31, 2013 Life Insurance [Member] insurance_agencies	Dec. 31, 2013 Life Insurance [Member] Top Five Reinsurers [Member]	Dec. 31, 2013 Life Insurance [Member] Individual Insurance Policies [Member]	Dec. 31, 2013 Life Insurance [Member] Group Insurance Policies [Member]	Dec. 31, 2013 Life Insurance [Member] Catastrophe [Member]
Reinsurance [Line Items]
Reinsurance recoverables	$ 87,451,000	$ 114,399,000	$ 6,090,000	$ 4,669,000
Aggregate annual deductible					3,000,000
Stated retention								300,000		1,000,000
Percentage of coverage								100.00%	50.00%
Reinsurance coverage amount								$ 250,000		$ 5,000,000
Percentage of insurance in force							99.00%
Number of reinsurers ceded approximately 99% of ceded life insurance in force						5

XML

DEBT

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

DEBT

DEBT

In December 2011, United Fire entered into a credit agreement with a syndicate of financial institutions as lenders. KeyBank National Association is the administrative agent, lead arranger, sole book runner, swingline lender, and letter of credit issuer, and Bankers Trust Company is the syndication agent. The four-year credit agreement provides for a $100,000 unsecured revolving credit facility that includes a $20,000 letter of credit subfacility and a swing line subfacility in the amount of up to $5,000.

On June 4, 2013, United Fire & Casualty Company, United Fire Group, Inc. and the syndicated lenders entered into an Assignment, Joinder, Assumption, and Release Agreement (the “Joinder Agreement”) transferring the obligations under the credit agreement from United Fire & Casualty Company to United Fire Group, Inc. Effective with the execution of the Joinder Agreement, United Fire & Casualty Company was released from any further obligations under the credit agreement.

During the term of this credit agreement, we have the right to increase the total credit facility from $100,000 up to $125,000 if no event of default has occurred and is continuing and certain other conditions are satisfied. The credit facility is available for general corporate purposes, including working capital, acquisitions and liquidity purposes. Any principal outstanding under the credit facility is due in full at maturity, on December 22, 2015. The interest rate is based on our monthly choice of either a base rate or the London Interbank Offered Rate (“LIBOR”) plus, in each case, a calculated margin amount. A commitment fee on each lender’s unused commitment under the credit facility is also payable quarterly.

The credit agreement contains customary representations, covenants and events of default, including certain covenants that limit or restrict our ability to engage in certain activities. Subject to certain exceptions, these activities include restricting our ability to sell or transfer assets or enter into a merger or consolidate with another company, grant certain types of security interests, incur certain types of liens, impose restrictions on subsidiary dividends, enter into leaseback transactions, or incur certain indebtedness. The credit agreement contains certain financial covenants including covenants that require us to maintain a minimum consolidated net worth, a debt to capitalization ratio and minimum stockholders’ equity.

There was no outstanding balance on the credit facility at December 31, 2013 or 2012. We did not incur any interest expense related to this credit facility in 2013 or 2011. We incurred $780 in interest expense related to this credit facility in 2012. We were in compliance with all covenants of the credit agreement at December 31, 2013.

In connection with our acquisition of Mercer Insurance Group on March 28, 2011, we acquired three statutory trusts with outstanding issuances of trust preferred securities balances as of the acquisition date of $15,614. We redeemed each of the trusts and related issuances in full in 2012. We incurred $509 and $1,055 of interest expense related to these trust preferred securities for 2012 and 2011, respectively.

XML

REINSURANCE (Tables)

12 Months Ended

Dec. 31, 2013

Property and Casualty Insurance [Member]

Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]

Ceded and Assumed Reinsurance

Premiums and loss and loss settlement expenses related to our ceded and assumed business are as follows:

Years Ended December 31,	2013			2012		2011
Ceded Business
Ceded premiums written	$	50,711		$	44,240	$	43,921
Ceded premiums earned	50,514			47,467		45,604
Loss and loss settlement expenses ceded(1)	(8,552		)	5,525		39,335
Assumed Business
Assumed premiums written	$	18,938		$	17,181	$	14,954
Assumed premiums earned	18,485			16,889		14,869
Loss and loss settlement expenses assumed	8,268			16,873		24,151

(1) In 2013, a reduction in our direct IBNR reserves caused a corresponding reduction in ceded IBNR reserves.  This factor, coupled with a lack of significant large losses exceeding our reinsurance retentions resulted in negative loss and loss settlement expenses ceded for the year.  

Reinsurance Programs and Retentions

The following table provides a summary of our primary reinsurance programs. Retention amounts reflect the accumulated retentions and co-participation of all layers within a program. In 2012, we added a $3,000 aggregate annual deductible to our core program multi-line (casualty excess and property excess).

	2013, 2012 & 2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss	$	2,000	$	40,000	100	%	of	$	38,000
Property excess of loss	2,000		15,000		100	%	of	$	13,000
Surety excess of loss	1,500		28,000		91	%	of	$	26,500
Property catastrophe, excess	20,000		200,000		95	%	of	$	180,000
Boiler and machinery	N/A		50,000		100	%	of	$	50,000

The following table provides a summary of Mercer Insurance Group’s primary reinsurance programs for 2011:

	2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss (1)	$	1,000	$	5,000	100	%	of	$	4,000
Property excess of loss (1)	1,000		10,000		100	%	of	$	9,000
Umbrella excess of loss(1)	1,000		11,000		75	%	of first	$	1,000
					100	%	of remaining	$	9,000
Surety excess of loss	500		4,500		90	%	of	$	4,000
							less	$500 deductible
Property catastrophe, excess(2)	5,000		55,000		100	%	of	$	50,000

Life Insurance [Member]

Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]

Ceded and Assumed Reinsurance

Premiums and losses and loss settlement expenses related to our ceded business is as follows:

Years Ended December 31,	2013		2012		2011
Ceded Business
Ceded insurance in-force	$	1,112,688	$	1,083,410	$	974,556
Ceded premiums earned	2,792		2,621		2,318
Loss and loss settlement expenses ceded	1,971		2,435		3,786

XML

BUSINESS COMBINATIONS (Assets Acquired and Liabilities Assumed) (Details) (Mercer Insurance Group [Member], USD $) In Thousands, unless otherwise specified	Mar. 28, 2011
Assets
Short-term investments	$ 400
Cash and cash equivalents	18,855
Accrued investment income	3,741
Premiums receivable	35,822
Value of business acquired	27,436
Property and equipment	14,985
Reinsurance receivables and recoverables	58,193
Prepaid reinsurance premiums	6,289
Income taxes receivable	2,657
Deferred income taxes	2,837
Goodwill and intangible assets	32,293
Other assets	11,353
Total assets	626,675
Liabilities
Reserves for losses, claims and loss settlement expenses	310,647
Unearned premiums	72,249
Accrued expenses and other liabilities	33,690
Debt	3,000
Trust preferred securities	15,614
Total liabilities	435,200
Total net assets acquired	191,475
Available-for-sale Securities [Member] | Fixed Maturities [Member]
Assets
Debt and equity securities	401,548
Equity Securities [Member]
Assets
Debt and equity securities	$ 10,266

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME (Notes)

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2013, 2012 and 2011:

				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs			Total
Balance as of January 1, 2011	$	102,649		$	(25,671	)	$	76,978
Change in accumulated other comprehensive income before reclassifications	26,517			(17,790		)	8,727
Reclassification adjustments from accumulated other comprehensive income	(4,790		)	1,671			(3,119		)
Balance as of December 31, 2011	$	124,376		$	(41,790	)	$	82,586
Change in accumulated other comprehensive income before reclassifications	22,386			(10,349		)	12,037
Reclassification adjustments from accumulated other comprehensive income	(2,666		)	3,231			565
Balance as of December 31, 2012	$	144,096		$	(48,908	)	$	95,188
Change in accumulated other comprehensive income before reclassifications	(23,068		)	15,643			(7,425		)
Reclassification adjustments from accumulated other comprehensive income	(4,427		)	3,814			(613		)
Balance as of December 31, 2013	$	116,601		$	(29,451	)	$	87,150

XML

FEDERAL INCOME TAX (Income Tax) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Current	$ 19,146	$ 6,644	$ (3,517)
Deferred	6,616	(782)	(9,209)
Federal income tax expense (benefit)	$ 25,762	$ 5,862	$ (12,726)

XML

Schedule VI. Supplemental Information Concerning Property and Casualty Insurance Operations (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Supplemental Information for Property, Casualty Insurance Underwriters [Line Items]
Net Realized Investment Gains (Losses)	$ 8,695		$ 5,453		$ 6,440
Amortization of the value of business acquired asset	0		1,673		25,763
Mercer Insurance Group [Member]
Supplemental Information for Property, Casualty Insurance Underwriters [Line Items]
Amortization of the value of business acquired asset			1,673		25,763
Consolidated Property and Casualty Insurance Entity [Member]
Supplemental Information for Property, Casualty Insurance Underwriters [Line Items]
Deferred Policy Acquisition Costs	67,663		64,947		60,668
Reserves for Unpaid Claims and Claims Adjustment Expenses	960,651		971,911		945,051
Unearned Premiums	340,387		311,561		288,868
Earned Premiums	694,192		629,411		533,771
Net Realized Investment Gains (Losses)	6,260		1,676		3,081
Net Investment Income	46,332		41,879		35,513
Current Year Claims and Claim Adjustment Expenses	494,841		512,564		468,926
Prior Year Claims and Claim Adjustment Expenses	(57,487)		(73,427)		(61,095)
Amortization of Deferred Policy Acquisition Costs	147,175	[1]	134,444	[1]	143,952	[1]
Paid Claims and Claim Adjustment Expenses	419,894		395,788		399,828
Premiums Written	$ 722,821		$ 655,331		$ 551,923

[1] 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

XML

Consolidated Statements of Stockholders' Equity (Parentheticals) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Statement of Stockholders' Equity [Abstract]
Shares issued for stock-based awards (in shares)	193,033	87,363	12,745
Dividends on common stock (in usd per share)	$ 0.69	$ 0.60	$ 0.60
Shares repurchased (in shares)	59,603	340,159	702,947

XML

Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Balance Sheet Related Disclosures [Abstract]
Fixed maturities, Held-to-maturity securities, at fair value	$ 669	$ 1,681
Fixed maturities, Available-for-sale securities, at amortized cost	2,733,557	2,657,800
Fixed maturities, Trading securities, at amortized cost	8,049	12,645
Equity Securities, Available-for-sale securities, at amortized cost	70,957	66,892
Equity Securities, Trading securities, at amortized cost	2,367	1,772
Allowance for doubtful accounts	896	866
Property and equipment accumulated depreciation	$ 36,972	$ 34,093
Common stock, par value per share (in usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	25,360,893	25,227,463
Common stock, shares outstanding	25,360,893	25,227,463

XML

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Non-Qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the “2008 Stock Plan”) authorized the issuance of restricted and unrestricted stock awards, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of United Fire common stock to employees, with 353,649 authorized shares remaining available for future issuance at December 31, 2013. The 2008 Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the 2008 Stock Plan. Pursuant to the 2008 Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees who are in positions of substantial responsibility with United Fire.

Options granted pursuant to the 2008 Stock Plan are granted to buy shares of United Fire’s common stock at the market value of the stock on the date of grant. All outstanding option awards vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the 2008 Stock Plan are granted at the market value of our common stock on the date of the grant. Restricted stock awards fully vest after 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time United Fire common stock will be issued to the awardee. All awards are generally granted free of charge to the eligible employees of United Fire as designated by the Board of Directors.

The activity in the 2008 Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	568,746		1,900,000
Number of awards granted	(238,672	)	(1,682,496	)
Number of awards forfeited or expired	23,575		136,145
Ending balance	353,649		353,649
Number of option awards exercised	154,926		381,768
Number of unrestricted stock awards granted	935		4,555
Number of restricted stock awards vested	18,576		18,576

Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan

The United Fire Group, Inc. 2005 Non-Qualified Non-Employee Director Stock Option and Restricted Stock Plan (the “Director Plan”) authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of United Fire’s common stock to non-employee directors. At December 31, 2013, we had 103,912 authorized shares available for future issuance.

The Board of Directors has the authority to determine which non-employee directors receive awards, when options and restricted stock shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options and restricted stock (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option agreement or restricted stock agreement. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Plan.

The activity in the Director Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	130,012		300,000
Number of awards granted	(26,100	)	(202,091	)
Number of awards forfeited or expired	—		6,003
Ending balance	103,912		103,912
Number of option awards exercised	3,156		3,156
Number of restricted stock awards vested	6,402		6,402

Stock-Based Compensation Expense

In 2013, 2012, and 2011, we recognized stock-based compensation expense of $1,777, $1,764 and $1,829, respectively.

As of December 31, 2013, we had $3,272 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized in subsequent years according to the following table, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.

2014	$	1,228
2015	994
2016	569
2017	423
2018	58
Total	$	3,272

Analysis of Award Activity

The analysis below details the award activity for 2013 and the awards outstanding at December 31, 2013, for both of our plans and ad hoc options, which were granted prior to the adoption of the other plans:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2013	1,242,442		$	27.78
Granted	233,348		24.41
Exercised	(168,482	)	19.98
Forfeited or expired	(19,998	)	31.58
Outstanding at December 31, 2013	1,287,310		$	28.13	5.31	$	4,524
Exercisable at December 31, 2013	803,568		$	31.66	3.91	$	1,425

Intrinsic value is the difference between our share price on the last day of trading (i.e., December 31, 2013) and the price of the options when granted and represents the value that would have been received by option holders had they exercised their options on that date. These values change based on the fair market value of our shares. The intrinsic value of options exercised totaled $1,383, $229 and $35 in 2013, 2012 and 2011, respectively.

The analysis below details the award activity for the restricted stock awards outstanding at December 31, 2013:

Restricted stock awards	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2013	54,338		$	25.01
Granted	30,489		24.78
Vested	(24,978	)	30.38
Non-vested at December 31, 2013	59,849		$	22.70

In 2013, 2012 and 2011 we recognized $407, $329 and $245, respectively, in compensation expense related to the restricted stock awards. At December 31, 2013, we had $790 in compensation expense that has yet to be recognized through our results of operations related to the restricted stock awards. The intrinsic value of the non-vested restricted stock awards outstanding totaled $358, $1,187 and $1,013 at December 31, 2013, 2012 and 2011, respectively.

Assumptions

The weighted-average grant-date fair value of the options granted under our plans has been estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

December 31,	2013			2012			2011
Risk-free interest rate	1.37		%	1.37		%	2.99		%
Expected volatility	34.32		%	37.06		%	55.47		%
Expected option life (in years)	7			7			7
Expected dividends (in dollars)	$	0.69		$	0.60		$	0.60
Weighted-average grant-date fair value of options granted during the year (in dollars)	$	6.64		$	5.90		$	8.99

The following table summarizes information regarding the stock options outstanding and exercisable at December 31, 2013:

				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number Outstanding (in shares)	Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Exercise Price		Number Exercisable (in shares)	Weighted-Average Exercise Price
$	15.01	-	21.00	331,017	7.04	$	19.88	115,218	$	19.47
21.01		-	28.00	317,815	7.88	23.57		70,932	23.50
28.01		-	35.00	338,478	3.52	32.74		317,418	32.99
35.01		-	41.00	300,000	2.71	36.85		300,000	36.85
$	15.01	-	41.00	1,287,310	5.31	$	28.13	803,568	$	31.66

XML

Schedule II. Condensed Financial Statements of Parent Company (Condensed Statement of Income and Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011
Revenues
Investment income									$ 112,799	$ 111,905		$ 109,494
Total revenues	228,994	223,024	219,719	205,305	213,317	206,581	199,646	193,699	877,042	813,243		705,008
Expenses
Income (loss) before income taxes	37,339	14,395	20,318	29,850	(7,999)	10,020	19,177	24,876	101,902	46,074		(12,715)
Federal income tax benefit									25,762	5,862		(12,726)
Net income	26,526	11,725	15,496	22,393	(2,418)	8,730	14,716	19,184	76,140	40,212		11
Other comprehensive income (loss)
Change in unrealized appreciation on investments held by subsidiary									(35,489)	34,436		40,795
Change in liability for underfunded employee benefit plans									24,066	(15,922)		(27,528)
Other comprehensive income (loss), before tax and reclassification adjustments									(11,423)	18,514		13,267
Income tax effect									3,998	(6,477)		(4,540)
Other comprehensive income (loss), after tax, before reclassification adjustments									(7,425)	12,037		8,727
Reclassifications for unrealized net gains on available-for-sale securities									(6,812)	(4,102)		(7,369)
Reclassification adjustment for employee benefit costs included in expense									5,868	4,971		2,570
Total reclassification adjustments, before tax									(944)	869		(4,799)
Income tax effect									331	(304)		1,680
Total reclassification adjustments, after tax									(613)	565		(3,119)
Comprehensive income									68,102	52,814		5,619
United Fire Group, Inc. [Member]
Revenues
Investment income									23	13	[1]
Total revenues									23	13	[1]
Expenses
Other operating expenses									172	158	[1]
Total expenses									172	158	[1]
Income (loss) before income taxes									(149)	(145)	[1]
Federal income tax benefit									(49)	(51)	[1]
Net loss before equity in net income of subsidiary									(100)	(94)
Equity in net income of subsidiary									76,240	40,306	[1],[2]
Net income									76,140	40,212	[1],[2]
Other comprehensive income (loss)
Change in unrealized appreciation on investments held by subsidiary									(35,489)	34,436	[1]
Change in liability for underfunded employee benefit plans									24,066	(15,922)	[1]
Other comprehensive income (loss), before tax and reclassification adjustments									(11,423)	18,514	[1]
Income tax effect									3,998	(6,477)	[1]
Other comprehensive income (loss), after tax, before reclassification adjustments									(7,425)	12,037	[1]
Reclassifications for unrealized net gains on available-for-sale securities									(6,812)	(4,102)	[1]
Reclassification adjustment for employee benefit costs included in expense									5,868	4,971	[1]
Total reclassification adjustments, before tax									(944)	869	[1]
Income tax effect									331	(304)	[1]
Total reclassification adjustments, after tax									(613)	565	[1]
Comprehensive income									$ 68,102	$ 52,814	[1]

[1] The Condensed Statement of Income and Comprehensive Income includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

[2] The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

XML

DEBT (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Credit agreement term	4 years
Current borrowing capacity	$ 100,000,000
Maximum borrowing capacity	125,000,000
Interest expense incurred		780,000
Letter of Credit [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity	20,000,000
Swing Line of Credit [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 5,000,000

XML

EARNINGS PER COMMON SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended															12 Months Ended
	Dec. 31, 2013		Sep. 30, 2013	Jun. 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Basic and Diluted Earnings per Share [Line Items]
Net income	$ 26,526		$ 11,725	$ 15,496		$ 22,393		$ (2,418)		$ 8,730		$ 14,716		$ 19,184		$ 76,140		$ 40,212		$ 11
Weighted-average common shares outstanding																25,325,695		25,447,918		25,878,535
Weighted-average common shares, Diluted																25,531,375		25,504,526		25,958,849
Basic earnings per common share (in usd per share)	$ 1.04	[1]	$ 0.46	$ 0.61	[1]	$ 0.89	[1]	$ (0.10)	[1]	$ 0.34	[1]	$ 0.58	[1]	$ 0.75	[1]	$ 3.01		$ 1.58	[1]	$ 0.00
Diluted earnings per common share (in usd per share)	$ 1.04	[1]	$ 0.45	$ 0.61	[1]	$ 0.88	[1]	$ (0.10)	[1]	$ 0.34	[1]	$ 0.58	[1]	$ 0.75	[1]	$ 2.98		$ 1.58	[1]	$ 0.00
Awards excluded from diluted calculation																638,478	[2]	901,008	[2]	989,047	[2]
Restricted Stock Awards [Member]
Basic and Diluted Earnings per Share [Line Items]
Add dilutive effect of share-based awards outstanding																59,849		54,338		50,206
Stock Options [Member]
Basic and Diluted Earnings per Share [Line Items]
Add dilutive effect of share-based awards outstanding																145,831		2,270		30,108

[1] The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

[2] Outstanding awards that are not “in-the-money” are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.

XML

Document and Entity Information (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Feb. 27, 2014	Jun. 30, 2013
Document and Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Trading Symbol	UFCS
Entity Registrant Name	UNITED FIRE GROUP INC
Entity Central Index Key	0000101199
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		25,369,693
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 592.4

XML

SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

We have two reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance segment has six domestic locations from which it conducts its business. The life insurance segment operates from our home office. The accounting policies of the segments are the same as those described in Note 1 to our Consolidated Financial Statements. We analyze results based on profitability (i.e., loss ratios), expenses and return on equity. Because all of our insurance is sold domestically, we have no revenues allocable to foreign operations.

Property and Casualty Insurance Segment

We write both commercial and personal lines of property and casualty insurance. We focus on our commercial lines, which represented 90.5 percent of our property and casualty insurance premiums earned for 2013. Our personal lines represented 9.5 percent of our property and casualty insurance premiums earned for 2013.

Products

Our primary commercial policies are tailored business packages that include the following coverages: fire and allied lines, other liability, automobile, workers’ compensation and surety. Our personal lines consist primarily of automobile and fire and allied lines coverage, including homeowners.

Pricing

Pricing levels for our property and casualty insurance products are influenced by many factors, including an estimation of expected losses, the expenses of producing, issuing and servicing business and managing claims, the time value of money associated with such loss and expense cash flows, and a reasonable allowance for profit. We have a disciplined approach to underwriting and risk management that emphasizes profitable growth rather than premium volume or market share. Our insurance company subsidiaries are subject to state laws and regulations regarding rate and policy form approvals. The applicable state laws and regulations establish standards in certain lines of business to ensure that rates are not excessive, inadequate, unfairly discriminatory, or used to engage in unfair price competition. Our ability to increase rates and the relative timing of the process are dependent upon each respective state’s requirements, as well as the competitive market environment.

Seasonality

Our property and casualty insurance segment experiences some seasonality with regard to premiums written, which are generally highest in January and July and lowest during the fourth quarter. Although we experience some seasonality in our premiums written, premiums are earned ratably over the period of coverage. Losses and loss settlement expenses incurred tend to remain consistent throughout the year, with the exception of catastrophe losses. Catastrophes inherently are unpredictable and can occur at any time during the year from man-made or natural disaster events that include, but which are not limited to, hail, tornadoes, hurricanes and windstorms.

Life Insurance Segment

Products

United Life Insurance Company underwrites all of our life insurance business and sells annuities. Our principal products are single premium annuities, universal life products and traditional life (primarily single premium whole life insurance) products. We also underwrite and market other traditional products, including term life insurance and whole life insurance. We do not write variable annuities or variable insurance products.

Life insurance in force, before ceded reinsurance, totaled $5,300,209 and $5,206,087 as of December 31, 2013 and 2012, respectively. Traditional life insurance products represented 66.7 percent and 65.4 percent of our insurance in-force at December 31, 2013 and 2012, respectively. Universal life insurance represented 28.4 percent and 29.8 percent of insurance in force at December 31, 2013 and 2012, respectively.

Pricing

Premiums for our life and health insurance products are based on assumptions with respect to mortality, morbidity, investment yields, expenses, and lapses and are also affected by state laws and regulations, as well as competition. Pricing assumptions are based on our experience, as well as the industry in general, depending upon the factor being considered. The actual profit or loss produced by a product will vary from the anticipated profit if the actual experience differs from the assumptions used in pricing the product.

Premiums Earned by Segment

The following table sets forth our net premiums earned by segment before intersegment eliminations:

Years Ended December 31,	2013		2012		2011
Property and Casualty Insurance Segment
Net premiums earned
Fire and allied lines	$	208,030	$	173,249	$	153,839
Other liability	199,548		197,842		159,977
Automobile	169,211		155,572		133,974
Workers’ compensation	81,616		68,643		54,404
Fidelity and surety	18,746		17,713		16,665
Reinsurance assumed	14,406		14,473		13,261
Other	2,635		1,919		1,651
Total net premiums earned	$	694,192	$	629,411	$	533,771
Life Insurance Segment
Net premiums earned
Ordinary life (excluding universal life)	$	38,875	$	44,468	$	30,374
Universal life policy fees	11,871		11,768		10,995
Accident and health	1,302		1,363		1,472
Immediate annuities with life contingencies	8,837		8,158		10,276
Other	261		274		262
Total net premiums earned	$	61,146	$	66,031	$	53,379

Total revenue by segment includes sales to external customers and intersegment sales that are eliminated to arrive at the total revenues as reported in the accompanying Consolidated Statements of Income and Comprehensive Income. We account for intersegment sales on the same basis as sales to external customers.

The following table sets forth certain data for each of our business segments and is reconciled to our Consolidated Financial Statements. Depreciation and amortization expense and property and equipment acquisitions for 2013, 2012 and 2011, are reported in the property and casualty insurance segment.

	2013			2012			2011
Property and Casualty Insurance:
Revenues:
Net premiums earned	$	694,192		$	629,411		$	533,771
Investment income, net of investment expenses	46,279			40,305			35,690
Net realized investment gains	6,260			3,896			3,066
Other income	88			316			1,592
Total revenues before eliminations	$	746,819		$	673,928		$	574,119
Intersegment eliminations	53			(646		)	(162		)
Total revenues	$	746,872		$	673,282		$	573,957
Net income (loss) before income taxes:
Revenues	$	746,819		$	673,928		$	574,119
Benefit, losses and expenses	658,645			637,648			598,684
Total net income (loss) before eliminations	$	88,174		$	36,280		$	(24,565	)
Intersegment eliminations	545			(199		)	335
Income (loss) before income taxes	$	88,719		$	36,081		$	(24,230	)
Income tax expense (benefit)	21,263			2,569			(16,591		)
Net income (loss)	$	67,456		$	33,512		$	(7,639	)
Assets
Total segment	$	2,218,464		$	2,149,356		$	2,117,352
Intersegment eliminations	(223,395		)	(244,041		)	(252,205		)
Total assets	$	1,995,069		$	1,905,315		$	1,865,147
Life Insurance:
Revenues:
Net premiums earned	$	61,146		$	66,031		$	53,379
Investment income, net of investment expenses	66,467			70,026			73,977
Net realized investment gains	2,434			3,777			3,647
Other income	614			575			699
Total revenues before eliminations	$	130,661		$	140,409		$	131,702
Intersegment eliminations	(491		)	(448		)	(651		)
Total revenues	$	130,170		$	139,961		$	131,051
Net income before income taxes:
Revenues	$	130,661		$	140,409		$	131,702
Benefit, losses and expenses	117,159			130,135			119,712
Total net income before eliminations	$	13,502		$	10,274		$	11,990
Intersegment eliminations	(319		)	(281		)	(475		)
Income before income taxes	$	13,183		$	9,993		$	11,515
Income tax expense	4,499			3,293			3,865
Net income	$	8,684		$	6,700		$	7,650
Assets	$	1,725,603		$	1,789,338		$	1,753,777
Consolidated Totals:
Total revenues	$	877,042		$	813,243		$	705,008
Total net income	$	76,140		$	40,212		$	11
Total assets	$	3,720,672		$	3,694,653		$	3,618,924

XML

EMPLOYEE BENEFITS (Expected Benefit Payments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
2014	$ 3,990
2015	4,270
2016	4,580
2017	4,920
2018	5,350
2019-2023	35,640
Postretirement Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
2014	1,130
2015	1,250
2016	1,380
2017	1,540
2018	1,750
2019-2023	$ 13,360

XML

QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended															12 Months Ended
	Dec. 31, 2013		Sep. 30, 2013	Jun. 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011
Quarterly Financial Data [Abstract]
Revenues	$ 228,994		$ 223,024	$ 219,719		$ 205,305		$ 213,317		$ 206,581		$ 199,646		$ 193,699		$ 877,042	$ 813,243		$ 705,008
Income (loss) before income taxes	37,339		14,395	20,318		29,850		(7,999)		10,020		19,177		24,876		101,902	46,074		(12,715)
Net income (loss)	$ 26,526		$ 11,725	$ 15,496		$ 22,393		$ (2,418)		$ 8,730		$ 14,716		$ 19,184		$ 76,140	$ 40,212		$ 11
Basic earnings (loss) per share (in usd per share)	$ 1.04	[1]	$ 0.46	$ 0.61	[1]	$ 0.89	[1]	$ (0.10)	[1]	$ 0.34	[1]	$ 0.58	[1]	$ 0.75	[1]	$ 3.01	$ 1.58	[1]	$ 0.00
Diluted earnings (loss) per share (in usd per share)	$ 1.04	[1]	$ 0.45	$ 0.61	[1]	$ 0.88	[1]	$ (0.10)	[1]	$ 0.34	[1]	$ 0.58	[1]	$ 0.75	[1]	$ 2.98	$ 1.58	[1]	$ 0.00

[1] The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

XML

Consolidated Statements of Income and Comprehensive Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011
Revenues
Net premiums earned	$ 754,846	$ 694,994		$ 586,783
Investment income, net of investment expenses	112,799	111,905		109,494
Net realized investment gains (losses)
Other-than-temporary impairment charges	(139)	(4)		(395)
All other net realized gains (includes reclassifications for net unrealized gains on available-for-sale securities of $6,812 in 2013; $4,102 in 2012; and $7,369 in 2011 previously included in accumulated other comprehensive income)	8,834	5,457		6,835
Total net realized investment gains	8,695	5,453		6,440
Other income	702	891		2,291
Total revenues	877,042	813,243		705,008
Benefits, Losses and Expenses
Losses and loss settlement expenses	458,814	459,706		430,389
Increase in liability for future policy benefits	37,625	43,095		32,567
Amortization of deferred policy acquisition costs	153,677	141,834		153,176
Other underwriting expenses (includes reclassifications for employee benefit costs of $5,868 in 2013; $4,971 in 2012; and $2,570 in 2011 previously included in accumulated other comprehensive income)	89,861	81,125		58,757
Interest on policyholders’ accounts	35,163	41,409		42,834
Total benefits, losses and expenses	775,140	767,169		717,723
Income (loss) before income taxes	101,902	46,074		(12,715)
Federal income tax expense (benefit) (includes reclassifications of ($331) in 2013; $304 in 2012; and ($1,680) in 2011 previously included in accumulated other comprehensive income)	25,762	5,862		(12,726)
Net income	76,140	40,212		11
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	(35,489)	34,436		40,795
Change in liability for underfunded employee benefit plans	24,066	(15,922)		(27,528)
Other comprehensive income (loss), before tax and reclassification adjustments	(11,423)	18,514		13,267
Income tax effect	3,998	(6,477)		(4,540)
Other comprehensive income (loss), after tax, before reclassification adjustments	(7,425)	12,037		8,727
Reclassifications for unrealized net gains on available-for-sale securities	(6,812)	(4,102)		(7,369)
Reclassification adjustment for employee benefit costs included in expense	5,868	4,971		2,570
Total reclassification adjustments, before tax	(944)	869		(4,799)
Income tax effect	331	(304)		1,680
Total reclassification adjustments, after tax	(613)	565		(3,119)
Comprehensive income	$ 68,102	$ 52,814		$ 5,619
Weighted average common shares outstanding (in shares)	25,325,695	25,447,918		25,878,535
Basic earnings per common share (in usd per share)	$ 3.01	$ 1.58	[1]	$ 0.00
Diluted earnings per common share (in usd per share)	$ 2.98	$ 1.58	[1]	$ 0.00

[1] The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

XML

REINSURANCE

12 Months Ended

Dec. 31, 2013

Reinsurance Disclosures [Abstract]

REINSURANCE

REINSURANCE

Property and Casualty Insurance Segment

Ceded and Assumed Reinsurance

Reinsurance is a contract by which one insurer, called the reinsurer, agrees to cover, under certain defined circumstances, a portion of the losses incurred by a primary insurer if a claim is made under a policy issued by the primary insurer. Our property and casualty insurance companies follow the industry practice of reinsuring a portion of their exposure by ceding to reinsurers a portion of the premium received and a portion of the risk under the policies written. We purchase reinsurance to reduce the net liability on individual risks to predetermined limits and to protect us against catastrophic losses from a single catastrophe, such as a hurricane or tornado. We do not engage in any reinsurance transactions classified as finite risk reinsurance.

We account for premiums, written and earned, and losses incurred net of reinsurance ceded. The ceding of insurance does not legally discharge us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its obligation. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition and there were no reinsurance balances at December 31, 2013, for which collection is at risk that would result in a material impact on our Consolidated Financial Statements. The amount of reinsurance recoverable on paid losses totaled $6,090 and $4,669 at December 31, 2013 and 2012, respectively.

We also assume both property and casualty insurance from other insurance or reinsurance companies. Most of the business we have assumed is property insurance, with an emphasis on catastrophe coverage.

Premiums and loss and loss settlement expenses related to our ceded and assumed business are as follows:

Years Ended December 31,	2013			2012		2011
Ceded Business
Ceded premiums written	$	50,711		$	44,240	$	43,921
Ceded premiums earned	50,514			47,467		45,604
Loss and loss settlement expenses ceded(1)	(8,552		)	5,525		39,335
Assumed Business
Assumed premiums written	$	18,938		$	17,181	$	14,954
Assumed premiums earned	18,485			16,889		14,869
Loss and loss settlement expenses assumed	8,268			16,873		24,151

(1) In 2013, a reduction in our direct IBNR reserves caused a corresponding reduction in ceded IBNR reserves.  This factor, coupled with a lack of significant large losses exceeding our reinsurance retentions resulted in negative loss and loss settlement expenses ceded for the year.  

In 2013, we renewed our participation in all but one of our assumed programs and added two new programs to our portfolio. Loss and loss settlement expenses assumed decreased in 2013 as compared to 2012 primarily due to a decrease in catastrophe losses. We added two new programs to replace the lost premium from the program not renewed and to take advantage of areas where we had exposure capacity.  One of the new programs has worldwide exposure and the other has exposure in the United Kingdom and Japan. 

In 2012, we renewed our participation in all of our assumed programs. We reduced our participation in programs with heavier Northeast U.S. exposure in response to the exposure added in this region from the Mercer Insurance Group acquisition. Loss and loss settlement expenses assumed were less than 2011, but were still elevated from historic levels due to several natural disasters, primarily the Thailand floods and Super Storm Sandy.

In 2011, we renewed our participation in all of our assumed programs, while increasing the participation level on one contract, that generated the growth of our assumed premiums written and earned. Loss and loss settlement expenses were higher than historical levels due to several natural disasters, primarily in New Zealand and Japan, that impacted our assumed program.

Refer to Note 5 “Reserves for Loss and Loss Settlement Expenses” for an analysis of changes in our overall property and casualty insurance reserves.

Reinsurance Programs and Retentions

We have several programs that provide reinsurance coverage. This reinsurance coverage limits the risk of loss that we retain by reinsuring direct risks in excess of our retention limits. The following table provides a summary of our primary reinsurance programs. Retention amounts reflect the accumulated retentions and co-participation of all layers within a program. In 2012, we added a $3,000 aggregate annual deductible to our core program multi-line (casualty excess and property excess).

	2013, 2012 & 2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss	$	2,000	$	40,000	100	%	of	$	38,000
Property excess of loss	2,000		15,000		100	%	of	$	13,000
Surety excess of loss	1,500		28,000		91	%	of	$	26,500
Property catastrophe, excess	20,000		200,000		95	%	of	$	180,000
Boiler and machinery	N/A		50,000		100	%	of	$	50,000

The following table provides a summary of Mercer Insurance Group’s primary reinsurance programs for 2011:

	2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss (1)	$	1,000	$	5,000	100	%	of	$	4,000
Property excess of loss (1)	1,000		10,000		100	%	of	$	9,000
Umbrella excess of loss(1)	1,000		11,000		75	%	of first	$	1,000
					100	%	of remaining	$	9,000
Surety excess of loss	500		4,500		90	%	of	$	4,000
							less	$500 deductible
Property catastrophe, excess(2)	5,000		55,000		100	%	of	$	50,000

(1) On August 1, 2011, Mercer Insurance Group’s reinsurance retention and limits were changed to match those of the Company.

(2) On January 1, 2012, Mercer Insurance Group’s catastrophe reinsurance programs were changed to match those of the Company.

If we incur catastrophe losses and loss settlement expenses that exceed the coverage limits of our reinsurance program, our property catastrophe program provides one guaranteed reinstatement. In such an instance, we are required to pay the reinsurers a reinstatement premium equal to the full amount of the original premium, which will reinstate the full amount of reinsurance available under the property catastrophe program.

Life Insurance Segment

Ceded and Assumed Reinsurance

United Life purchases reinsurance to limit the dollar amount of any one risk of loss. Our retention on standard individual life cases is $300. Our accidental death benefit rider on an individual policy is reinsured at 100 percent, up to a maximum benefit of $250. Our group coverage, both life and accidental death and dismemberment, is reinsured at 50.0 percent. Catastrophe excess reinsurance coverage applies when three or more insureds die in a catastrophic accident. For catastrophe excess claims, we retain the first $1,000 of ultimate net loss and the reinsurer agrees to indemnify us for the excess up to a maximum of $5,000. We supplement this coverage when appropriate with “known concentration” coverage. Known concentration coverage is typically tied to a specific event and time period, with a threshold of a minimum number of lives involved in the event, minimum event deductible (stated retention limit) and a maximum payout.

Premiums and losses and loss settlement expenses related to our ceded business is as follows:

Years Ended December 31,	2013		2012		2011
Ceded Business
Ceded insurance in-force	$	1,112,688	$	1,083,410	$	974,556
Ceded premiums earned	2,792		2,621		2,318
Loss and loss settlement expenses ceded	1,971		2,435		3,786

The ceding of insurance does not legally discharge United Life from primary liability under its policies. United Life must pay the loss if the reinsurer fails to meet its obligations. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition. Approximately 99.0 percent of ceded life insurance in force as of December 31, 2013, has been ceded to five reinsurers.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

We estimate the fair value of our financial instruments based on relevant market information or by discounting estimated future cash flows at estimated current market discount rates appropriate to the specific asset or liability.

In most cases, we use quoted market prices to determine the fair value of fixed maturities, equity securities, trading securities and short-term investments. When quoted market prices do not exist, we base estimates of fair values on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management’s own assumptions about the assumptions a market participant would use in pricing the financial instrument.

The fair value of our mortgage loans is determined by modeling performed by us based on the stated principal and coupon payments provided for in the loan agreement. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security’s fair value, which is a Level 3 fair value measurement.

The fair value of our policy loans is equivalent to carrying value, which is a reasonable estimate of fair value. We do not make policy loans for amounts in excess of the cash surrender value of the related policy. In all instances, the policy loans are fully collateralized by the related liability for future policy benefits for traditional insurance policies or by the policyholders’ account balance for non-traditional policies.

Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The values of the partnerships are determined by the fund managers primarily based on the fair value of the underlying investments held. In management’s opinion, these values represent fair value.

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

Policy reserves are developed and recorded for deferred annuities, which is an interest-sensitive product, and income annuities. The fair value of the reserve liability for these annuity products is based upon an estimate of the discounted pre-tax cash flows that are forecast for the underlying business, which is a Level 3 fair value measurement. We base the discount rate on the current U.S. Treasury spot yield curve, which is then risk-adjusted for nonperformance risk and, for interest-sensitive business, market risk factors. The risk-adjusted discount rate is developed using interest rates that are available in the market and representative of the risks applicable to the underlying business.

A summary of the carrying value and estimated fair value of our financial instruments at December 31, 2013 and 2012 is as follows:

	December 31, 2013				December 31, 2012
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	669	$	656	$	1,681	$	1,655
Available-for-sale securities	2,751,256		2,751,256		2,808,078		2,808,078
Trading securities	9,940		9,940		13,353		13,353
Equity securities:
Available-for-sale securities	229,368		229,368		177,127		177,127
Trading securities	2,487		2,487		2,018		2,018
Mortgage loans	4,724		4,423		5,037		4,633
Policy loans	6,261		6,261		6,671		6,671
Other long-term investments	44,946		44,946		30,028		30,028
Short-term investments	800		800		800		800
Cash and cash equivalents	92,193		92,193		107,466		107,466
Accrued investment income	27,923		27,923		30,375		30,375
Liabilities
Policy reserves
Annuity (accumulations) (1)	$	941,636	$	925,832	$	1,043,866	$	983,579
Annuity (benefit payments)	140,276		94,805		139,213		93,701

(1) Annuity accumulations represent deferred annuity contracts that are currently earning interest.

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

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

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

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

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

Transfers between levels, if any, are recorded as of the beginning of the reporting period.

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

We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. In our opinion, the pricing obtained at December 31, 2013 and 2012 was reasonable.

In order to determine the proper classification in the fair value hierarchy for each security where the price is obtained from an independent pricing service, we obtain and evaluate the vendors’ pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.

We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed.

The following tables present the categorization for our financial instruments measured at fair value on a recurring basis in our Consolidated Balance Sheets at December 31, 2013 and 2012:

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,895	$	—	$	33,895	$	—
U.S. government agency	269,583		—		269,583		—
States, municipalities and political subdivisions	713,907		—		713,209		698
Foreign bonds	172,856		—		172,856		—
Public utilities	218,576		—		218,576		—
Corporate bonds
Energy	161,010		—		161,010		—
Industrials	237,028		—		237,028		—
Consumer goods and services	167,914		—		166,460		1,454
Health care	92,946		—		92,946		—
Technology, media and telecommunications	120,966		—		120,966		—
Financial services	241,751		—		229,725		12,026
Mortgage-backed securities	22,066		—		22,066		—
Collateralized mortgage obligations	294,763		—		294,763		—
Asset-backed securities	3,995		—		1,966		2,029
Total Available-For-Sale Fixed Maturities	$	2,751,256	$	—	$	2,735,049	$	16,207
Equity securities
Common stocks
Public utilities	$	16,272	$	16,272	$	—	$	—
Energy	14,363		14,363		—		—
Industrials	46,099		46,083		16		—
Consumer goods and services	21,258		21,258		—		—
Health care	24,998		24,998		—		—
Technology, media and telecommunications	13,304		13,304		—		—
Financial services	88,262		84,419		62		3,781
Nonredeemable preferred stocks	4,812		1,714		3,098		—
Total Available-for-Sale Equity Securities	$	229,368	$	222,411	$	3,176	$	3,781
Total Available-for-Sale Securities	$	2,980,624	$	222,411	$	2,738,225	$	19,988
TRADING
Bonds
Foreign bonds	$	1,253	$	—	$	1,253	$	—
Corporate bonds
Industrials	1,122		—		1,122		—
Consumer goods and services	106		—		106		—
Health care	1,154		—		1,154		—
Technology, media and telecommunications	2,054		—		2,054		—
Financial services	1,866		—		1,866		—
Redeemable preferred stocks	2,385		2,385		—		—

Equity securities
Energy	563		563		—		—
Consumer goods and services	39		39		—		—
Health care	332		332		—		—
Nonredeemable preferred stocks	1,553		1,553		—		—
Total Trading Securities	$	12,427	$	4,872	$	7,555	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	37,811	$	37,811	$	—	$	—
Total Assets Measured at Fair Value	$	3,031,662	$	265,894	$	2,745,780	$	19,988

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	38,821	$	—	$	38,821	$	—
U.S. government agency	45,928		—		45,928		—
States, municipalities and political subdivisions	794,505		—		793,755		750
Foreign bonds	219,160		—		218,602		558
Public utilities	247,726		—		247,726		—
Corporate bonds
Energy	179,731		—		179,731		—
Industrials	293,663		—		290,766		2,897
Consumer goods and services	202,975		—		201,633		1,342
Health care	122,685		—		122,685		—
Technology, media and telecommunications	130,371		—		130,371		—
Financial services	283,860		—		271,991		11,869
Mortgage-backed securities	28,807		—		28,807		—
Collateralized mortgage obligations	214,584		—		214,584		—
Asset-backed securities	4,886		—		2,398		2,488
Redeemable preferred stocks	376		376		—		—
Total Available-For-Sale Fixed Maturities	$	2,808,078	$	376	$	2,787,798	$	19,904
Equity securities
Common stocks
Public utilities	$	14,416	$	14,416	$	—	$	—
Energy	11,997		11,997		—		—
Industrials	32,684		32,658		26		—
Consumer goods and services	18,879		18,879		—		—
Health care	18,081		18,081		—		—
Technology, media and telecommunications	10,427		10,427		—		—
Financial services	68,492		64,800		56		3,636
Nonredeemable preferred stocks	2,151		1,906		245		—
Total Available-for-Sale Equity Securities	$	177,127	$	173,164	$	327	$	3,636
Total Available-for-Sale Securities	$	2,985,205	$	173,540	$	2,788,125	$	23,540
TRADING
Bonds
Foreign bonds	$	1,379	$	—	$	1,379	$	—
Corporate bonds
Industrials	1,299		—		1,299		—
Consumer goods and services	1,532		—		1,532		—
Health care	1,824		—		1,824		—
Technology, media and telecommunications	2,250		—		2,250		—

Financial services	1,486		—		1,486		—
Redeemable preferred stocks	3,583		3,583		—		—
Equity securities - health care	303		303		—		—
Nonredeemable preferred stocks	1,715		1,715		—		—
Total Trading Securities	$	15,371	$	5,601	$	9,770	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	45,613	$	45,613	$	—	$	—
Total Assets Measured at Fair Value	$	3,046,989	$	225,554	$	2,797,895	$	23,540

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of securities that are categorized as Level 2 is determined by management after reviewing market prices obtained from independent pricing services and brokers. Such estimated fair values do not necessarily represent the values for which these securities could have been sold at the reporting date. Our independent pricing services and brokers obtain prices from reputable pricing vendors in the marketplace. They continually monitor and review the external pricing sources, while actively participating to resolve any pricing issues that may arise.

For the year ended December 31, 2013, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities. There were no transfers of securities between Level 1 and Level 2 during the period.

Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities and certain other securities that were determined to be other-than-temporarily impaired in a prior period and for which an active market does not currently exist.

The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. If pricing cannot be obtained from these sources, which occurs on a limited basis, management will perform a cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2013:

	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2013	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540
Realized gains (1)	—			35			—			—			—			35
Unrealized gains (losses) (1)	83			14			1,277			(53		)	(28		)	1,293
Purchases	—			—			105			—			173			278
Disposals	(135		)	(607		)	(4,010		)	(406		)	—			(5,158		)
Balance at December 31, 2013	$	698		$	—		$	13,480		$	2,029		$	3,781		$	19,988

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on scheduled calls.

The following table provides a summary of the changes in fair value of our Level 3 securities for 2012:

(In Thousands)	States, municipalities and political subdivisions			Foreign bonds			Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2012	$	880		$	836		$	20,285		$	315		$	3,526		$	25,842
Realized gains (1)	—			—			646			—			—			646
Unrealized gains (losses) (1)	—			7			(352		)	(13		)	(23		)	(381		)
Purchases	—			—			5			—			179			184
Disposals	(130		)	(285		)	(4,476		)	(121		)	(50		)	(5,062		)
Transfers in	—			—			—			2,307			52			2,359
Transfers out	—			—			—			—			(48		)	(48		)
Balance at December 31, 2012	$	750		$	558		$	16,108		$	2,488		$	3,636		$	23,540

(1) Realized gains (losses) are recorded as a component of earnings whereas unrealized gains (losses) are recorded as a component of comprehensive income.

The fixed maturities reported as disposals relate to the receipt of principal on calls or sinking fund bonds, in accordance with the indentures. The reported transfers are the result of stale pricing due to a lack of current trading activity for the underlying securities.

XML

INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

INTANGIBLE ASSETS

The carrying value of our goodwill was $15,091 at both December 31, 2013 and 2012, respectively. The goodwill is fully allocated to our property and casualty insurance segment.

Our major classes of intangible assets are presented in the following table:

	Year Ended December 31,
	2013			2012
Agency relationships	$	10,338		$	10,338
Accumulated amortization - agency relationships	(3,017		)	(2,380		)
	$	7,321		$	7,958
Software	$	3,260		$	3,260
Accumulated amortization - software	(3,260		)	(2,853		)
	$	—		$	407
Trade names	$	1,978		$	1,978
Accumulated amortization - trade names	(363		)	(231		)
	$	1,615		$	1,747
Favorable contract	$	286		$	286
Accumulated amortization - favorable contract	(286		)	(250		)
	$	—		$	36
State insurance licenses (1)	$	3,020		$	3,020
Net intangible assets	$	11,956		$	13,168

(1) The intangible asset for licenses has an indefinite life and therefore is not amortized.

The estimated useful lives assigned to our major classes of amortizable intangible assets are as follows:

	Useful Life
Agency relationships	Fifteen years
Software	Two years
Trade names	Fifteen years
Favorable contract	Two years

Our estimated aggregate amortization expense for each of the next five years is as follows:

2014	$	769
2015	769
2016	769
2017	769
2018	719

XML

QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Data [Abstract]

QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

QUARTERLY SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

The following table sets forth our selected unaudited quarterly financial information:

(In Thousands Except Share Data)
Quarters	First		Second		Third		Fourth			Total
Year Ended December 31, 2013
Total revenues	$	205,305	$	219,719	$	223,024	$	228,994		$	877,042
Income before income taxes	29,850		20,318		14,395		37,339			101,902
Net income	$	22,393	$	15,496	$	11,725	$	26,526		$	76,140
Basic earnings per share (1)	$	0.89	$	0.61	$	0.46	$	1.04		$	3.01
Diluted earnings per share (1)	0.88		0.61		0.45		1.04			2.98
Year Ended December 31, 2012
Total revenues	$	193,699	$	199,646	$	206,581	$	213,317		$	813,243
Income (loss) before income taxes	24,876		19,177		10,020		(7,999		)	46,074
Net income (loss)	$	19,184	$	14,716	$	8,730	$	(2,418	)	$	40,212
Basic earnings (loss) per share (1)	$	0.75	$	0.58	$	0.34	$	(0.10	)	$	1.58
Diluted earnings (loss) per share (1)	0.75		0.58		0.34		(0.10		)	1.58

(1) The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

XML

STOCK-BASED COMPENSATION (Analysis of Restricted Stock Award Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Weighted-Average Grant Date Fair Value
Stock-based compensation expense	$ 1,777	$ 1,764	$ 1,829
Restricted Stock Awards [Member]
Shares
Non-vested at beginning of period (in shares)	54,338
Granted (in shares)	30,489
Vested (in shares)	(24,978)
Non-vested at end of period (in shares)	59,849	54,338
Weighted-Average Grant Date Fair Value
Non-vested at beginning of period (in usd per share)	$ 25.01
Granted (in usd per share)	$ 24.78
Vested (in usd per share)	$ 30.38
Non-vested at end of period (in usd per share)	$ 22.70	$ 25.01
Stock-based compensation expense	407	329	245
Total compensation expense that has yet to be recognized	790
Intrinsic value of the unvested restricted stock awards outstanding	$ 358	$ 1,187	$ 1,013

XML

FEDERAL INCOME TAX

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

FEDERAL INCOME TAX

FEDERAL INCOME TAX

Federal income tax expense (benefit) is composed of the following:

Years Ended December 31,	2013		2012			2011
Current	$	19,146	$	6,644		$	(3,517	)
Deferred	6,616		(782		)	(9,209		)
Total	$	25,762	$	5,862		$	(12,726	)

A reconciliation of income tax expense (benefit) computed at the applicable federal tax rate of 35.0 percent to the amount recorded in the accompanying Consolidated Statements of Income and Comprehensive Income is as follows:

Years Ended December 31,	2013			2012			2011
Computed expected income tax expense (benefit)	$	35,666		$	16,126		$	(4,451	)
Tax-exempt municipal bond interest income	(7,732		)	(8,027		)	(7,908		)
Nontaxable dividend income	(1,053		)	(1,004		)	(859		)
Valuation allowance reduction	(548		)	(547		)	—
Acquisition related expenses	—			42			860
Other, net	(571		)	(728		)	(368		)
Federal income tax expense (benefit)	$	25,762		$	5,862		$	(12,726	)

The significant components of our net deferred tax liability at December 31, 2013 and 2012, are as follows:

December 31,	2013			2012
Deferred tax liabilities
Net unrealized appreciation on investment securities:
Equity securities	$	55,402		$	38,582
All other securities	6,201			52,563
Deferred policy acquisition costs	47,809			32,086
Prepaid pension cost	2,556			2,271
Net bond discount accretion	2,069			3,896
Depreciation	2,355			579
Revaluation of investment basis (1)	3,595			4,345
Identifiable intangible assets (1)	4,056			6,615
Other	7,530			4,414
Gross deferred tax liability	$	131,573		$	145,351
Deferred tax assets
Financial statement reserves in excess of income tax reserves	$	39,041		$	40,992
Unearned premium adjustment	23,502			21,578
Net operating loss carryforwards	2,361			3,481
Underfunded benefit plan obligation	15,858			26,335
Postretirement benefits other than pensions	12,342			10,240
Other-than-temporary impairment of investments	5,222			5,715
Contingent ceding commission accrual	3,726			4,822
Compensation expense related to stock options	4,062			3,928
AMT credit carryforward	476			7,713
Other	5,429			3,828
Gross deferred tax asset	$	112,019		$	128,632
Valuation allowance	(2,361		)	(2,909		)
Deferred tax asset	$	109,658		$	125,723
Net deferred tax liability	$	21,915		$	19,628

(1) Related to our acquisition of Mercer Insurance Group.

Due to our determination that we may not be able to fully realize the benefits of the net operating losses (“NOLs”) acquired in the purchase of American Indemnity Financial Corporation in 1999, which are only available to offset the future taxable income of our property and casualty insurance operations and are further limited as to the amount that can be utilized in any given year, we have recorded a valuation allowance against these NOLs that totaled $2,361 and $2,909, respectively, at December 31, 2013 and 2012. Based on a yearly review, we determine whether the benefit of the NOLs can be realized, and, if so, the decrease in the valuation allowance is recorded as a reduction to current federal income tax expense. If NOLs expire during the year, the decrease in the valuation allowance is offset with a corresponding decrease to the deferred income tax asset. The valuation allowance was reduced by $548 during 2013 due to the realization of $1,565 in NOLs. No portion of the NOLs expired in 2013 or will expire in 2014.

The alternative minimum tax (“AMT”) credit carryforward of $476 has an indefinite life. We expect to realize the benefits from the AMT credit carryforward and the NOL other than as noted above.

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Financial Instruments Measured at Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 2,980,624	$ 2,985,205
Trading Securities	12,427	15,371
Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,980,624	2,985,205
Trading Securities	12,427	15,371
Short- Term Investments	800	800
Money Market Accounts	37,811	45,613
Total Assets Measured at Fair Value	3,031,662	3,046,989
Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	222,411	173,540
Trading Securities	4,872	5,601
Short- Term Investments	800	800
Money Market Accounts	37,811	45,613
Total Assets Measured at Fair Value	265,894	225,554
Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,738,225	2,788,125
Trading Securities	7,555	9,770
Short- Term Investments	0	0
Money Market Accounts	0	0
Total Assets Measured at Fair Value	2,745,780	2,797,895
Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	19,988	23,540
Trading Securities	0	0
Short- Term Investments	0	0
Money Market Accounts	0	0
Total Assets Measured at Fair Value	19,988	23,540
Fixed Maturities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,751,256	2,808,078
Fixed Maturities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,751,256	2,808,078
Fixed Maturities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	376
Fixed Maturities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,735,049	2,787,798
Fixed Maturities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	16,207	19,904
U.S. Treasury [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	33,895	38,821
U.S. Treasury [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	33,895	38,821
U.S. Treasury [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Treasury [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	33,895	38,821
U.S. Treasury [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agency [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	269,583	45,928
U.S. Government Agency [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	269,583	45,928
U.S. Government Agency [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
U.S. Government Agency [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	269,583	45,928
U.S. Government Agency [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States, Municipalities and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	713,907	794,505
States, Municipalities and Political Subdivisions [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	713,907	794,505
States, Municipalities and Political Subdivisions [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
States, Municipalities and Political Subdivisions [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	713,209	793,755
States, Municipalities and Political Subdivisions [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	698	750
Foreign Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	172,856	219,160
Foreign Bonds [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	172,856	219,160
Trading Securities	1,253	1,379
Foreign Bonds [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Foreign Bonds [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	172,856	218,602
Trading Securities	1,253	1,379
Foreign Bonds [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	558
Trading Securities	0	0
Public Utilities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	218,576	247,726
Public Utilities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	218,576	247,726
Public Utilities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Public Utilities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	218,576	247,726
Public Utilities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate Bonds [Member] | Energy [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	161,010	179,731
Corporate Bonds [Member] | Energy [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	161,010	179,731
Corporate Bonds [Member] | Energy [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate Bonds [Member] | Energy [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	161,010	179,731
Corporate Bonds [Member] | Energy [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Corporate Bonds [Member] | Industrials [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	237,028	293,663
Corporate Bonds [Member] | Industrials [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	237,028	293,663
Trading Securities	1,122	1,299
Corporate Bonds [Member] | Industrials [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Industrials [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	237,028	290,766
Trading Securities	1,122	1,299
Corporate Bonds [Member] | Industrials [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	2,897
Trading Securities	0	0
Corporate Bonds [Member] | Consumer Goods and Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	167,914	202,975
Corporate Bonds [Member] | Consumer Goods and Services [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	167,914	202,975
Trading Securities	106	1,532
Corporate Bonds [Member] | Consumer Goods and Services [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Consumer Goods and Services [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	166,460	201,633
Trading Securities	106	1,532
Corporate Bonds [Member] | Consumer Goods and Services [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	1,454	1,342
Trading Securities	0	0
Corporate Bonds [Member] | Health Care [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	92,946	122,685
Corporate Bonds [Member] | Health Care [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	92,946	122,685
Trading Securities	1,154	1,824
Corporate Bonds [Member] | Health Care [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Health Care [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	92,946	122,685
Trading Securities	1,154	1,824
Corporate Bonds [Member] | Health Care [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	120,966	130,371
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	120,966	130,371
Trading Securities	2,054	2,250
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	120,966	130,371
Trading Securities	2,054	2,250
Corporate Bonds [Member] | Technology, Media and Telecommunications [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Financial Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	241,751	283,860
Corporate Bonds [Member] | Financial Services [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	241,751	283,860
Trading Securities	1,866	1,486
Corporate Bonds [Member] | Financial Services [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	0	0
Corporate Bonds [Member] | Financial Services [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	229,725	271,991
Trading Securities	1,866	1,486
Corporate Bonds [Member] | Financial Services [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	12,026	11,869
Trading Securities	0	0
Mortgage Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	22,066	28,807
Mortgage Backed Securities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	22,066	28,807
Mortgage Backed Securities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Mortgage Backed Securities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	22,066	28,807
Mortgage Backed Securities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Collateralized Mortgage Obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	294,763	214,584
Collateralized Mortgage Obligations [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	294,763	214,584
Collateralized Mortgage Obligations [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Collateralized Mortgage Obligations [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	294,763	214,584
Collateralized Mortgage Obligations [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,995	4,886
Asset-Backed Securities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,995	4,886
Asset-Backed Securities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Asset-Backed Securities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	1,966	2,398
Asset-Backed Securities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	2,029	2,488
Redeemable Preferred Stocks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		376
Redeemable Preferred Stocks [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		376
Trading Securities	2,385	3,583
Redeemable Preferred Stocks [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		376
Trading Securities	2,385	3,583
Redeemable Preferred Stocks [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		0
Trading Securities	0	0
Redeemable Preferred Stocks [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities		0
Trading Securities	0	0
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	229,368	177,127
Equity Securities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	229,368	177,127
Equity Securities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	222,411	173,164
Equity Securities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,176	327
Equity Securities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,781	3,636
Equity Securities [Member] | Energy [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	563
Equity Securities [Member] | Energy [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	563
Equity Securities [Member] | Energy [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Equity Securities [Member] | Energy [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Equity Securities [Member] | Consumer Goods and Services [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	39
Equity Securities [Member] | Consumer Goods and Services [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	39
Equity Securities [Member] | Consumer Goods and Services [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Equity Securities [Member] | Consumer Goods and Services [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Equity Securities [Member] | Health Care [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	332	303
Equity Securities [Member] | Health Care [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	332	303
Equity Securities [Member] | Health Care [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Equity Securities [Member] | Health Care [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading Securities	0
Common Stock [Member] | Public Utilities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	16,272	14,416
Common Stock [Member] | Public Utilities [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	16,272	14,416
Common Stock [Member] | Public Utilities [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	16,272	14,416
Common Stock [Member] | Public Utilities [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Public Utilities [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Energy [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	14,363	11,997
Common Stock [Member] | Energy [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	14,363	11,997
Common Stock [Member] | Energy [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	14,363	11,997
Common Stock [Member] | Energy [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Energy [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Industrials [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	46,099	32,684
Common Stock [Member] | Industrials [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	46,099	32,684
Common Stock [Member] | Industrials [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	46,083	32,658
Common Stock [Member] | Industrials [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	16	26
Common Stock [Member] | Industrials [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Consumer Goods and Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	21,258	18,879
Common Stock [Member] | Consumer Goods and Services [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	21,258	18,879
Common Stock [Member] | Consumer Goods and Services [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	21,258	18,879
Common Stock [Member] | Consumer Goods and Services [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Consumer Goods and Services [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Health Care [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	24,998	18,081
Common Stock [Member] | Health Care [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	24,998	18,081
Common Stock [Member] | Health Care [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	24,998	18,081
Common Stock [Member] | Health Care [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Health Care [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Technology, Media and Telecommunications [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	13,304	10,427
Common Stock [Member] | Technology, Media and Telecommunications [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	13,304	10,427
Common Stock [Member] | Technology, Media and Telecommunications [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	13,304	10,427
Common Stock [Member] | Technology, Media and Telecommunications [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Technology, Media and Telecommunications [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Common Stock [Member] | Financial Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	88,262	68,492
Common Stock [Member] | Financial Services [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	88,262	68,492
Common Stock [Member] | Financial Services [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	84,419	64,800
Common Stock [Member] | Financial Services [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	62	56
Common Stock [Member] | Financial Services [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,781	3,636
Nonredeemable Preferred Stocks [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	4,812	2,151
Nonredeemable Preferred Stocks [Member] | Fair Value [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	4,812	2,151
Trading Securities	1,553	1,715
Nonredeemable Preferred Stocks [Member] | Level 1 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	1,714	1,906
Trading Securities	1,553	1,715
Nonredeemable Preferred Stocks [Member] | Level 2 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	3,098	245
Trading Securities	0
Nonredeemable Preferred Stocks [Member] | Level 3 [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	0	0
Trading Securities	$ 0

XML

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES

12 Months Ended

Dec. 31, 2013

Insurance Loss Reserves [Abstract]

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES

Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported (“IBNR”), the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts, which are based on management’s best estimates. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.

The following table provides an analysis of changes in our property and casualty loss and loss settlement expense reserves for 2013, 2012 and 2011 (net of reinsurance amounts):

Years Ended December 31,	2013			2012			2011
Gross liability for losses and loss settlement expenses at beginning of year	$	971,911		$	945,051		$	603,090
Ceded loss and loss settlement expenses	(103,870		)	(120,359		)	(39,000		)
Net liability for losses and loss settlement expenses at beginning of year	$	868,041		$	824,692		$	564,090
Reserves acquired in Mercer Insurance Group acquisition, net	—			—			252,598
Beginning balance, as adjusted	$	868,041		$	824,692		$	816,688
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	494,841		$	512,564		$	468,926
Prior years	(57,487		)	(73,427		)	(61,095		)
Total incurred	$	437,354		$	439,137		$	407,831
Losses and loss settlement expense payments for claims occurring during
Current year	$	203,868		$	201,632		$	253,175
Prior years	216,026			194,156			146,653
Total paid	$	419,894		$	395,788		$	399,828
Net liability for losses and loss settlement expenses at end of year	$	885,501		$	868,041		$	824,692
Ceded loss and loss settlement expenses	75,150			103,870			120,359
Gross liability for losses and loss settlement expenses at end of year	$	960,651		$	971,911		$	945,051

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss 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.

The favorable reserve development in 2013 on prior year reserves was primarily related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability. The significant driver of the favorable reserve development in 2013 was the other liability line, primarily due to additional recognition of relatively recent changes in reserve development patterns which have shown increased redundancies in reserves for reported claims along with relatively less need for IBNR claim reserves. Also, contributing to the favorable development in 2013, only to a lesser extent than the other liability line of business, were workers’ compensation, commercial auto liability and surety lines of business

In 2012 we experienced favorable reserve development for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2012 was the other liability line. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we observed a continuation of a trend, started in 2011, reducing the overall number of reported new construction defect claims and lower than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2012, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes from accident year 2011 (Japan earthquake and tsunami, Thailand flood, and Christchurch, New Zealand earthquake) and from accident year 2010 (Canterbury, New Zealand earthquake).

In 2011, we experienced favorable reserve development for reserves established for claims that occurred in prior years. The majority of this favorable development is related to our long-tail lines of commercial business including other liability, workers’ compensation and auto liability.

The significant driver of the favorable reserve development in 2011 was the other liability line. The favorable development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed an overall reduction in reported new construction defect claims and less than expected loss emergence on known claims. In addition, in 2009 management began an initiative to control legal defense costs. As these costs are a significant component of the carried reserves for the other liability line, management believes this initiative is also contributing to the favorable reserve development trends.

Our commercial automobile liability line developed favorably in 2011. The favorable reserve development is generally caused by changes in loss development patterns due to many of the factors cited above. Specifically, we have observed a lower level of latent claim development.

Reserves for all other lines of business, with the exception of assumed reinsurance, experienced favorable reserve development in 2011, only to a lesser extent than the other liability line. We attribute this remaining development to the factors noted above. Our assumed reinsurance line was impacted by adverse reserve development on prior year catastrophes from accident year 2010 (Canterbury, New Zealand earthquake).

Generally, we base reserves for each claim on the estimated ultimate exposure for that claim, determined from a prudently conservative point of view. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. While we realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves, our approach is better than experiencing year-to-year uncertainty as to the adequacy of our reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.

We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.

XML

STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS

12 Months Ended

Dec. 31, 2013

Statutory Insurance Financial Information [Abstract]

STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS

STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS

Statutory capital and surplus in regards to policyholders at December 31, 2013, 2012 and 2011 and statutory net income for the years then ended are as follows:

	Statutory Capital and Surplus		Statutory Net Income
2013
Property and casualty (1)	$	665,772	$	84,255
Life, accident and health	157,974		5,942
2012
Property and casualty (1)	$	585,986	$	34,468
Life, accident and health	158,720		7,420
2011
Property and casualty (1)	$	565,843	$	10,529
Life, accident and health	167,164		6,180

(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.

State insurance holding company laws and regulations generally require approval from the insurer’s domicile state insurance Commissioner for any material transaction or extraordinary dividend. For property and casualty insurers, a material transaction is defined as any sale, loan, exchange, transfer or guarantee with an affiliate where the aggregate value of the transaction exceeds 25 percent of the insurer’s policyholders’ surplus or three percent of its admitted assets (measured at December 31 of the preceding year), whichever is less. For life insurers, a material transaction with an affiliate is defined as a transaction with an aggregate value exceeding three percent of the life insurer’s admitted assets (measured at December 31 of the preceding year).

State laws and regulations generally limit the amount of funds that an insurance company may distribute to a parent as a dividend without Commissioner approval. As a holding company with no independent operations of its own, United Fire Group, Inc. relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2013, our insurance company subsidiary, United Fire & Casualty is able to make a maximum of $53,702 in dividend payments without prior approval. At December 31, 2013, we were in compliance with applicable state laws and regulations. These restrictions will not have a material impact in meeting our cash obligations. In addition, United Fire Group, Inc. maintains a credit agreement, as discussed in Part II, Note 8 “Debt”, which permits us to borrow up to an aggregate principal amount of $125,000.

We paid dividends to our common shareholders of $17,484, $15,269 and $15,507 in 2013, 2012 and 2011, respectively. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

In 2013, 2012 and 2011 United Fire & Casualty Company received dividends from its wholly-owned subsidiaries of $26,335, $19,750 and $11,450, respectively. In 2013 and 2012, United Fire & Casualty Company paid dividends to United Fire Group, Inc. totaling $13,175 and $26,950, respectively. These intercompany dividend payments are eliminated for reporting in our Consolidated Financial Statements.

A majority of our custodial assets are subject to a tri-party agreement between one of our subsidiary companies, United Life Insurance Company (“United Life”), the custodian, and the Iowa Insurance Commissioner. Under this agreement, as long as United Life maintains the minimum aggregate value of securities in the account (based on its legal reserve requirements), it is free to invest, withdraw or loan these funds or pay dividends using these funds without approval from the Commissioner. Investment of these funds is subject to the same limitations on asset class and credit quality imposed by the Commissioner on all insurance company invested assets. Investment income derived from these custodied funds is available for general corporate purposes and to satisfy corporate obligations without approval from the Commissioner.

At December 31, 2013, United Life had net admitted assets, on a statutory basis, of $1,648,019, $210,938 in excess of its legal reserve requirement. Therefore, any restriction on funds deposited by United Life with the Iowa Insurance Commissioner would not materially affect its financial position or results of operations and its cash flows are sufficient to meet its operational requirements. Under the material transaction and dividend standards described above, United Life would be able to enter into an affiliate transaction and/or pay a dividend of $5,797 without approval from the Commissioner.

Our property and casualty and life insurance subsidiaries are required to prepare and file statutory-basis financial statements in conformity with the National Association of Insurance Commissioners (“NAIC”) Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable insurance commissioner and/or director. 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 material permitted accounting practices were used to prepare our statutory-basis financial statements during 2013, 2012 and 2011. Statutory accounting principles primarily differ from GAAP in that policy acquisition and certain sales inducement costs are charged to expense as incurred, goodwill is amortized, certain fair value adjustments related to the acquisition of Mercer Insurance Group are recorded for GAAP and not recorded for statutory accounting, 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.

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, 2013.

XML

EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

EMPLOYEE BENEFITS

EMPLOYEE BENEFITS

We offer various benefits to our employees including a noncontributory defined benefit pension plan, an employee/retiree health and dental benefit plan, a profit-sharing plan and an employee stock ownership plan.

Pension and Postretirement Benefit Plans

We offer a noncontributory defined benefit pension plan in which all of our employees are eligible to participate after they have completed one year of service, attained 21 years of age and have met the hourly service requirements. Retirement benefits under our pension plan are based on the number of years of service and level of compensation. Our policy to fund the pension plan on a current basis to not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, is to assure that plan assets will be adequate to provide retirement benefits. We estimate that we will contribute approximately $6,260 to the pension plan in 2014.

We also offer a health and dental benefit plan to all of our eligible employees and retirees that consists of two programs: (1) the self-funded employee health and dental benefit plan and (2) the self-funded retiree health and dental benefit plan (the “postretirement benefit plan”). The postretirement benefit plan provides health and dental benefits to our retirees (and covered dependents) who have met the service and participation requirements stipulated by the postretirement benefit plan. The third party administrators for the postretirement benefit plan are responsible for making medical and dental care benefit payments. Participants are required to submit claims for reimbursement or payment to the claims administrator within twelve months after the end of the calendar year in which the charges were incurred. An unfunded benefit obligation is reported for the postretirement benefit plan in the accompanying Consolidated Balance Sheets.

Investment Policies and Strategies

Our investment policy and objective for the pension plan is to generate long-term capital growth and income, by way of a diversified investment portfolio along with appropriate employer contributions, which will allow us to provide for the pension plan’s benefit obligation.

The investments held by the pension plan at December 31, 2013, include the following asset categories:

• Fixed income securities, which may include bonds, and convertible securities;

• Equity securities, which may include various types of stock, such as large-cap, mid-cap, small-cap, and international stocks;

• Pooled separate accounts includes two separate funds, a bond and mortgage separate account and a real estate separate account;

• An arbitrage fund, which is a fund that takes advantage of price discrepancies, primarily equity securities, for the same asset in different markets;

• A group annuity contract that is administered by United Life, a subsidiary of United Fire; and

• Cash and cash equivalents, which include money market funds.

We have an internal investment/retirement committee, which includes our Chief Executive Officer, Chief Investment Officer, and Executive Vice President, all of whom receive monthly information on the value of the pension plan assets and their performance. Quarterly, the committee meets to review and discuss the performance of the pension plan assets as well as the allocation of investments within the pension plan.

As of December 31, 2013, we had seven external investment managers that are allowed to exercise investment discretion, subject to limitations, if any, established by the investment/retirement committee. We utilize multiple investment managers in order to maximize the pension plan’s investment return while mitigating risk. None of our investment managers uses leverage in managing the pension plan. Annually, the investment/retirement committee meets with each investment manager to review the investment manager’s goals, objectives and the performance of the assets they manage. The decision to establish or terminate a relationship with an investment manager is at the discretion of our investment/retirement committee.

We consider historical experience for comparable investments and the target allocations we have established for the various asset categories of the pension plan to determine the expected long-term rate of return, which is an assumption as to the average rate of earnings expected on the pension plan funds invested, or to be invested, by the pension plan, to provide for the settlement of benefits included in the projected pension benefit obligation. Investment securities, in general, are exposed to various risks, such as fluctuating interest rates, credit standing of the issuer of the security and overall market volatility. Annually, we perform an analysis of expected long-term rates of return based on the composition and allocation of our pension plan assets and recent economic conditions.

The following is a summary of the pension plan’s actual and target asset allocations at December 31, 2013 and 2012, by asset category:

Pension Plan Assets									Target
	2013		% of Total		2012		% of Total		Allocation
Fixed maturity securities - corporate bonds	$	4,489	4.9	%	$	4,830	6.4	%	0	%	-	25	%
Redeemable preferred stock	1,381		1.5		1,113		1.5		0	%	-	20	%
Equity securities	39,481		42.8		41,091		54.6		50	%	-	70	%
Pooled separate accounts
Bond and mortgage separate account fund	5,657		6.1		—		—		0	%		40	%
U.S. property separate account fund	8,763		9.5		—		—		0	%		25	%
Arbitrage fund	5,516		6.0		5,363		7.1		0	%	-	15	%
United Life annuity	8,101		8.8		7,900		10.5		5	%	-	15	%
Cash and cash equivalents(1)	18,831		20.4		14,979		19.9		0	%	-	10	%
Total plan assets	$	92,219	100.0	%	$	75,276	100.0	%

(1) Cash and cash equivalents balance as a percent of total plan assets exceeded the target allocation in 2013 as we were in the process of reducing the number of external investment managers and moving funds between managers in early 2014.

The investment return expectations for the pension plan are used to develop the asset allocation based on the specific needs of the pension plan. Accordingly, equity securities comprise the largest portion of our pension plan assets, as they yield the highest rate of return. The United Life annuity, which is the fourth largest asset category and was originally written by our life insurance subsidiary in 1976, provides a guaranteed rate of return. The interest rate on the group annuity contract is determined annually.

The availability of assets held in cash and cash equivalents enables the pension plan to mitigate market risk that is associated with other types of investments and allows the pension plan to maintain liquidity both for the purpose of making future benefit payments to participants and their beneficiaries and for future investment opportunities.

Valuation of Investments

Fixed Maturity and Equity Securities

Investments in fixed maturity and equity securities are stated at fair value based upon quoted market prices reported on recognized securities exchanges on the last business day of the year. Purchases and sales of securities are recorded as of the trade date.

Pooled Separate Accounts

The pension plan invested in two pooled separate account funds in 2013, a bond and mortgage separate account fund and a U.S. property separate account fund. Investments in the bond and mortgage separate account fund are stated at fair value as provided by the administrator of the fund based on the fair value of the underlying assets owned by the fund. The fair value measurement is classified within Level 2 of the fair value hierarchy. The fair value of the investments in the U.S property separate account fund is provided by the administrator of the fund based on the net asset value of the fund. The net asset value is based on the fair value of the underlying properties included in the fund. The fair value measurement is classified within Level 3 of the fair value hierarchy. We have not adjusted the net asset value provided by the custodian.

Arbitrage Fund

The fair value of the arbitrage fund is determined based on its net asset value, which is obtained from the custodian and determined monthly with issuances and redemptions of units of the fund made, based on the net asset value per unit as determined on the valuation date. We have not adjusted the net asset value provided by the custodian.

United Life Annuity

The United Life group annuity contract, which is a deposit administration contract, is stated at contract value as determined by United Life. Under the group annuity contract, the plan’s investment account is credited with compound interest on the average account balance for the year. The interest rate is equivalent to the ratio of net investment income to mean assets of United Life, net of investment expenses.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of insured cash and money market funds held with various financial institutions. Interest is earned on a daily basis. The fair value of these funds approximates their cost basis due to their short-term nature.

Fair Value Measurement

The following tables present the categorization of the pension plan’s assets measured at fair value on a recurring basis at December 31, 2013 and 2012:

			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,489	$	—	$	4,489	$	—
Redeemable preferred stock	1,381		1,381		—		—
Equity securities	39,481		39,481		—		—
Pooled separate accounts
Bond and mortgage separate account fund	5,657		—		5,657		—
U.S. property separate account fund	8,763		—		—		8,763
Arbitrage fund	5,516		—		5,516		—
Money market funds	17,323		17,323		—		—
Total assets measured at fair value	$	82,610	$	58,185	$	15,662	$	8,763

			Fair Value Measurements
Description	December 31, 2012		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,830	$	—	$	4,830	$	—
Redeemable preferred stock	1,113		1,113		—		—
Equity securities	41,091		41,091		—		—
Arbitrage fund	5,363		—		5,363		—
Money market funds	12,856		12,856		—		—
Total assets measured at fair value	$	65,253	$	55,060	$	10,193	$	—

There were no transfers of assets in or out of Level 1 or Level 2 during the period.

The fair value of investments categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of fixed maturity securities categorized as Level 2 is determined by management based on fair value information reported in the custodial statements, which is derived from recent trading activity of the underlying security in the financial markets. These securities represent various taxable bonds held by the pension plan.

The fair value of the arbitrage fund is categorized as Level 2 since there are no restrictions as to the pension plan’s ability to redeem its investment at the net asset value of the fund as of the reporting date.  

The following table provides a summary of the changes in fair value of the pension plan’s Level 3 securities for 2013:

	U.S. property separate account fund
Balance at January 1, 2013	$	—
Unrealized gains	763
Purchases	8,000
Balance at December 31, 2013	$	8,763

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan’s benefit obligations as of December 31. In estimating the discount rate, we look to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the respective plan’s benefit obligations.

Assumptions Used to Determine Benefit Obligations

The following actuarial assumptions were used to determine the reported plan benefit obligations at December 31:

Weighted-average assumptions as of	Pension Benefits				Postretirement Benefits
December 31,	2013		2012		2013		2012
Discount rate	4.84	%	4.00	%	4.84	%	4.00	%
Rate of compensation increase	3.50		3.50		N/A		N/A

Increasing interest rates resulted in a significant increase in the discount rates we use to value our respective plan’s benefit obligations at December 31, 2013 compared to December 31, 2012. As a result, the valuation of the benefit obligations has decreased, which has increased the funded status of those plans as disclosed later in this section.

Assumptions Used to Determine Net Periodic Benefit Cost

The following actuarial assumptions were used at January 1 to determine our reported net periodic benefit costs for the year ended December 31:

Weighted-average assumptions as of	Pension Benefits						Postretirement Benefits
January 1,	2013		2012		2011		2013		2012		2011
Discount rate	4.00	%	4.50	%	5.50	%	4.00	%	4.50	%	5.50	%
Expected long-term rate of return on plan assets	7.50		8.00		8.25		N/A		N/A		N/A
Rate of compensation increase	3.50		3.75		4.00		N/A		N/A		N/A

Assumed Health Care Cost Trend Rates

	Health Care Benefits				Dental Claims
Years Ended December 31,	2013		2012		2013		2012
Health care cost trend rates assumed for next year	7.00	%	10.00	%	4.00	%	5.25	%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)	4.50	%	5.25	%	N/A		N/A
Year that the rate reaches the ultimate trend rate	2019		2018		N/A		N/A

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A 1.0 percent change in assumed health care cost trend rates would have the following effects:

	1% Increase		1% Decrease
Effect on the net periodic postretirement health care benefit cost	$	1,287	$	(1,023	)
Effect on the accumulated postretirement benefit obligation	8,328		(6,782		)

Benefit Obligation and Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and funded status of our plans:

	Pension Benefits						Postretirement Benefits
Years Ended December 31,	2013			2012			2013			2012
Reconciliation of benefit obligation
Benefit obligation at beginning of year	$	131,382		$	111,340		$	44,395		$	36,334
Service cost	6,300			5,129			3,875			3,010
Interest cost	5,175			5,049			1,759			1,695
Actuarial (gain) loss	(15,161		)	12,841			(1,449		)	3,380
Benefit payments and adjustments	(4,344		)	(2,977		)	374			(24		)
Benefit obligation at end of year (1)	$	123,352		$	131,382		$	48,954		$	44,395
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year	$	75,276		$	65,267		$	—		$	—
Actual return on plan assets	14,287			6,236			—			—
Employer contributions	7,000			6,750			374			24
Benefit payments and adjustments	(4,344		)	(2,977		)	(374		)	(24		)
Fair value of plan assets at end of year	$	92,219		$	75,276		$	—		$	—
Funded status at end of year	$	(31,133	)	$	(56,106	)	$	(48,954	)	$	(44,395	)

(1) For the pension plan, the benefit obligation is the projected benefit obligation. For the postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation.

Our accumulated pension benefit obligation was $106,207 and $109,229 at December 31, 2013 and 2012, respectively.

The following table displays the effect that the unrecognized prior service cost and unrecognized actuarial loss of our plans had on AOCI, as reported in the accompanying Consolidated Balance Sheets:

	Pension Benefits				Postretirement Benefits
Years Ended December 31	2013		2012		2013		2012
Amounts recognized in AOCI
Unrecognized prior service cost	$	—	$	—	$	—	$	—
Unrecognized actuarial loss	32,162		60,647		13,147		14,596
Total amounts recognized in AOCI	$	32,162	$	60,647	$	13,147	$	14,596

We anticipate amortization of the net actuarial losses for our pension plan in 2014 to be $2,174. We anticipate amortization of the net actuarial losses for our postretirement benefit plan in 2014 to be $898.

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:

	Pension Plan									Postretirement Benefit Plan
Years Ended December 31,	2013			2012			2011			2013		2012			2011
Net periodic benefit cost
Service cost	$	6,300		$	5,129		$	3,166		$	3,875	$	3,010		$	1,985
Interest cost	5,175			5,049			4,761			1,759		1,695			1,590
Expected return on plan assets	(5,772		)	(5,345		)	(5,288		)	—		—			—
Amortization of prior service cost	—			8			10			—		(6		)	(32		)
Amortization of net loss	4,989			4,415			2,368			879		554			224
Net periodic benefit cost	$	10,692		$	9,256		$	5,017		$	6,513	$	5,253		$	3,767

Effective July 1, 2012, the former employees of Mercer Insurance Group, Inc. became eligible to participate in our pension plan. The inclusion of these employees resulted in an additional $854 of net periodic benefit cost recognized for 2012.

Projected Benefit Payments

The following table summarizes the expected benefits to be paid from our plans over the next 10 years:

	2014		2015		2016		2017		2018		2019 - 2023
Pension benefits	$	3,990	$	4,270	$	4,580	$	4,920	$	5,350	$	35,640
Postretirement benefits	$	1,130	$	1,250	$	1,380	$	1,540	$	1,750	$	13,360

Profit-Sharing Plan and Employee Stock Ownership Plan

We have a profit-sharing plan in which employees who meet service requirements are eligible to participate. The amount of our contribution is discretionary and is determined annually, but cannot exceed the amount deductible for federal income tax purposes. Our contribution to the profit-sharing plan for 2013, 2012 and 2011, was $6,029, $1,812 and $1,092, respectively.

We have an employee stock ownership plan (the “ESOP”) for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the ESOP upon completion of one year of service, meeting the hourly employment requirements and attaining 21 years of age. Contributions to the ESOP are made at our discretion. When made, these contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. We can make contributions in stock or cash, which the trustee uses to acquire shares of our stock to allocate to participants’ accounts. As of December 31, 2013 and 2012, the ESOP owned 220,468 and 224,041 shares of United Fire common stock, respectively. Shares owned by the ESOP are included in shares issued and outstanding for purposes of calculating earnings per share, and dividends paid on the shares are charged to retained earnings. We did not make any contributions to the ESOP in 2013. We made contributions to the ESOP of $100 in 2012, and $175 in 2011.

XML

REINSURANCE (Life Insurance Segment) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Reinsurance [Line Items]
Ceded insurance in-force	$ 1,112,688	$ 1,083,410	$ 974,556
Life Insurance [Member]
Reinsurance [Line Items]
Ceded insurance in-force	1,112,688	1,083,410	974,556
Ceded premiums earned	2,792	2,621	2,318
Loss and loss settlement expenses ceded	$ 1,971	$ 2,435	$ 3,786

XML

STOCK-BASED COMPENSATION (Assumptions) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk-free interest rate	1.37%	1.37%	2.99%
Expected volatility	34.32%	37.06%	55.47%
Expected option life (in years)	7 years	7 years	7 years
Expected dividends (in dollars)	$ 0.69	$ 0.60	$ 0.60
Weighted-average grant-date fair value of options granted during the year (in dollars)	$ 6.64	$ 5.90	$ 8.99

XML

RESERVES FOR LOSS AND LOSS SETTLEMENT EXPENSES (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward]
Gross liability for losses and loss settlement expenses at beginning of year	$ 971,911	$ 945,051	$ 603,090
Ceded loss and loss settlement expenses	75,150	103,870	120,359	39,000
Net liability for losses and loss settlement expenses at beginning of year	868,041	824,692	564,090
Reserves acquired in Mercer Insurance Group acquisition, net	0	0	252,598
Beginning balance, as adjusted	868,041	824,692	816,688
Losses and loss settlement expenses incurred for claims occurring during
Current year	494,841	512,564	468,926
Prior years	(57,487)	(73,427)	(61,095)
Total incurred	437,354	439,137	407,831
Losses and loss settlement expenses incurred for claims occurring during
Current year	203,868	201,632	253,175
Prior years	216,026	194,156	146,653
Total paid	419,894	395,788	399,828
Net liability for losses and loss settlement expenses at end of year	885,501	868,041	824,692
Ceded loss and loss settlement expenses	(75,150)	(103,870)	(120,359)	(39,000)
Gross liability for losses and loss settlement expenses at end of year	$ 960,651	$ 971,911	$ 945,051

XML

Schedule II. Condensed Financial Statements of Parent Company (Condensed Balance Sheet) (Phantom) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Condensed Balance Sheet Statements, Captions [Line Items]
Held-to-maturity fixed maturities	$ 669	$ 1,681
Common stock, par value per share (in usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	25,360,893	25,227,463
Common stock, shares outstanding	25,360,893	25,227,463
United Fire Group, Inc. [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Held-to-maturity fixed maturities	$ 200	$ 200
Common stock, par value per share (in usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	25,360,893	25,277,463
Common stock, shares outstanding	25,360,893	25,277,463

XML

REINSURANCE (Reinsurance Programs) (Details) (Property and Casualty Insurance [Member], USD $)	12 Months Ended															7 Months Ended						12 Months Ended
	Dec. 31, 2013 Casualty Excess of Loss [Member]	Dec. 31, 2012 Casualty Excess of Loss [Member]	Dec. 31, 2011 Casualty Excess of Loss [Member]	Dec. 31, 2013 Property Excess of Loss [Member]	Dec. 31, 2012 Property Excess of Loss [Member]	Dec. 31, 2011 Property Excess of Loss [Member]	Dec. 31, 2013 Surety Excess of Loss [Member]	Dec. 31, 2012 Surety Excess of Loss [Member]	Dec. 31, 2011 Surety Excess of Loss [Member]	Dec. 31, 2013 Property Catastrophe [Member]	Dec. 31, 2012 Property Catastrophe [Member]	Dec. 31, 2011 Property Catastrophe [Member]	Dec. 31, 2013 Boiler and Machinery [Member]	Dec. 31, 2012 Boiler and Machinery [Member]	Dec. 31, 2011 Boiler and Machinery [Member]	Jul. 31, 2011 Mercer Insurance Group [Member] Casualty Excess of Loss [Member]		Jul. 31, 2011 Mercer Insurance Group [Member] Property Excess of Loss [Member]		Jul. 31, 2011 Mercer Insurance Group [Member] Umbrella Excess of Loss [Member]		Dec. 31, 2012 Mercer Insurance Group [Member] Surety Excess of Loss [Member]	Dec. 31, 2011 Mercer Insurance Group [Member] Surety Excess of Loss [Member]	Dec. 31, 2011 Mercer Insurance Group [Member] Property Catastrophe [Member]
Reinsurance [Line Items]
Stated Retention	$ 2,000,000	$ 2,000,000	$ 2,000,000	$ 2,000,000	$ 2,000,000	$ 2,000,000	$ 1,500,000	$ 1,500,000	$ 1,500,000	$ 20,000,000	$ 20,000,000	$ 20,000,000				$ 1,000,000	[1]	$ 1,000,000	[1]	$ 1,000,000	[1]		$ 500,000	$ 5,000,000	[2]
Limits	40,000,000	40,000,000	40,000,000	15,000,000	15,000,000	15,000,000	28,000,000	28,000,000	28,000,000	200,000,000	200,000,000	200,000,000	50,000,000	50,000,000	50,000,000	5,000,000	[1]	10,000,000	[1]	11,000,000	[1]		4,500,000	55,000,000	[2]
Percentage of Coverage	100.00%	100.00%	100.00%	100.00%	100.00%	100.00%	91.00%	91.00%	91.00%	95.00%	95.00%	95.00%	100.00%	100.00%	100.00%	100.00%	[1]	100.00%	[1]				90.00%	100.00%	[2]
Reinsurance Coverage Amount	38,000,000	38,000,000	38,000,000	13,000,000	13,000,000	13,000,000	26,500,000	26,500,000	26,500,000	180,000,000	180,000,000	180,000,000	50,000,000	50,000,000	50,000,000	4,000,000	[1]	9,000,000	[1]				4,000,000	50,000,000	[2]
Percentage of Coverage, Part I																				75.00%	[1]
Coverage Amount, Part I																				1,000,000	[1]
Percentage of Coverage, Part II																				100.00%	[1]
Coverage Amount, Part II																				9,000,000	[1]
Deductible																						$ 500,000

[1] On August 1, 2011, Mercer Insurance Group’s reinsurance retention and limits were changed to match those of the Company.

[2] On January 1, 2012, Mercer Insurance Group’s catastrophe reinsurance programs were changed to match those of the Company.

XML

LEASE COMMITMENTS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating Leased Assets [Line Items]
Rental expense, operating leases	$ 6,521	$ 6,017	$ 5,232
Future minimum rental payments:
2014	7,340
2015	4,829
2016	4,099
2017	3,186
2018	1,504
Thereafter	3,219
Total	24,177
Galveston office space
Operating Leased Assets [Line Items]
Annual lease payments	$ 2,105

XML

SUMMARY OF INVESTMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Investments [Abstract]

Fair Value of Investments

The table that follows is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities as of December 31, 2013 and 2012.

December 31, 2013
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	250	$	4	$	—	$	254
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	206		9		—		215
Total Held-to-Maturity Fixed Maturities	$	656	$	13	$	—	$	669
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,612	$	423	$	140	$	33,895
U.S. government agency	287,988		258		18,663		269,583
States, municipalities and political subdivisions	690,461		34,151		10,705		713,907
Foreign bonds	167,390		5,863		397		172,856
Public utilities	213,479		6,873		1,776		218,576
Corporate bonds
Energy	157,620		4,398		1,008		161,010
Industrials	234,221		5,626		2,819		237,028
Consumer goods and services	165,565		3,770		1,421		167,914
Health care	91,008		3,138		1,200		92,946
Technology, media and telecommunications	121,746		2,541		3,321		120,966
Financial services	234,739		7,735		723		241,751
Mortgage-backed securities	22,034		323		291		22,066
Collateralized mortgage obligations	309,975		1,707		16,919		294,763
Asset-backed securities	3,719		276		—		3,995
Total Available-For-Sale Fixed Maturities	$	2,733,557	$	77,082	$	59,383	$	2,751,256
Equity securities
Common stocks
Public utilities	$	7,231	$	9,068	$	27	$	16,272
Energy	5,094		9,269		—		14,363
Industrials	13,308		32,823		32		46,099
Consumer goods and services	10,363		10,895		—		21,258
Health care	7,920		17,078		—		24,998
Technology, media and telecommunications	6,204		7,183		83		13,304
Financial services	15,853		72,537		128		88,262
Nonredeemable preferred stocks	4,984		5		177		4,812
Total Available-for-Sale Equity Securities	$	70,957	$	158,858	$	447	$	229,368
Total Available-for-Sale Securities	$	2,804,514	$	235,940	$	59,830	$	2,980,624

December 31, 2012
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	1,185	$	11	$	—	$	1,196
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	256		15		—		271
Collateralized mortgage obligations	14		—		—		14
Total Held-to-Maturity Fixed Maturities	$	1,655	$	26	$	—	$	1,681
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	37,887	$	939	$	5	$	38,821
U.S. government agency	45,566		429		67		45,928
States, municipalities and political subdivisions	739,752		55,572		819		794,505
Foreign bonds	207,359		11,863		62		219,160
Public utilities	232,550		15,208		32		247,726
Corporate bonds
Energy	169,973		9,758		—		179,731
Industrials	280,185		13,690		212		293,663
Consumer goods and services	193,313		9,813		151		202,975
Health care	115,654		7,111		80		122,685
Technology, media and telecommunications	123,660		6,909		198		130,371
Financial services	271,061		13,858		1,059		283,860
Mortgage-backed securities	27,940		888		21		28,807
Collateralized mortgage obligations	208,042		7,702		1,160		214,584
Asset-backed securities	4,480		406		—		4,886
Redeemable preferred stocks	378		—		2		376
Total Available-For-Sale Fixed Maturities	$	2,657,800	$	154,146	$	3,868	$	2,808,078
Equity securities
Common stocks
Public utilities	$	7,231	$	7,268	$	83	$	14,416
Energy	5,094		6,903		—		11,997
Industrials	13,031		19,827		174		32,684
Consumer goods and services	10,394		8,535		50		18,879
Health care	7,920		10,286		125		18,081
Technology, media and telecommunications	5,367		5,155		95		10,427
Financial services	15,701		52,936		145		68,492
Nonredeemable preferred stocks	2,154		25		28		2,151
Total Available-for-Sale Equity Securities	$	66,892	$	110,935	$	700	$	177,127
Total Available-for-Sale Securities	$	2,724,692	$	265,081	$	4,568	$	2,985,205

Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at December 31, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

	Held-To-Maturity				Available-For-Sale				Trading
December 31, 2013	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	135	$	136	$	231,060	$	234,922	$	1,350	$	1,359
Due after one year through five years	315		318		950,084		996,862		3,762		5,147
Due after five years through 10 years	—		—		848,931		855,156		—		—
Due after 10 years	—		—		367,754		343,492		2,937		3,434
Asset-backed securities	—		—		3,719		3,995		—		—
Mortgage-backed securities	206		215		22,034		22,066		—		—
Collateralized mortgage obligations	—		—		309,975		294,763		—		—
	$	656	$	669	$	2,733,557	$	2,751,256	$	8,049	$	9,940

Net Realized Investment Gains and Losses

A summary of net realized investment gains (losses) for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Net realized investment gains (losses)
Fixed maturities:
Held-to-maturity	$	1		$	12		$	8
Available-for-sale	3,211			3,408			4,776
Trading securities
Change in fair value	1,183			683			(539		)
Sales	788			406			(326		)
Equity securities:
Available-for-sale	3,739			698			2,988
Trading securities
Change in fair value	(126		)	250			(4		)
Sales	38			—			—
Other long-term investments	—			—			(68		)
Other-than-temporary-impairment charges:
Fixed maturities	(139		)	—			(395		)
Equity securities	—			(4		)	—
Total net realized investment gains	$	8,695		$	5,453		$	6,440

Proceeds and Gross Realized Gains and Losses

The proceeds and gross realized gains (losses) on the sale of available-for-sale securities for 2013, 2012 and 2011, were as follows:

	2013		2012			2011
Proceeds from sales	$	23,007	$	20,324		$	39,496
Gross realized gains	451		513			1,144
Gross realized losses	—		(37		)	(1,562		)

Net Investment Income

Net investment income for the years ended December 31, 2013, 2012 and 2011, is comprised of the following:

Years Ended December 31,	2013		2012		2011
Investment income
Interest on fixed maturities	$	101,950	$	108,517	$	109,467
Dividends on equity securities	5,806		5,354		4,628
Income (loss) on other long-term investments
Investment income	1,194		232		224
Change in value (1)	7,030		2,562		(137		)
Interest on mortgage loans	266		279		285
Interest on short-term investments	6		10		4
Interest on cash and cash equivalents	239		290		913
Other	1,632		825		969
Total investment income	$	118,123	$	118,069	$	116,353
Less investment expenses	5,324		6,164		6,859
Net investment income	$	112,799	$	111,905	$	109,494

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

Unrealized Appreciation and Depreciation

A summary of changes in net unrealized investment appreciation for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	(132,579	)	$	15,816		$	34,699
Equity securities	48,176			19,339			(4,675		)
Deferred policy acquisition costs	42,102			(4,821		)	3,402
Income tax effect	14,806			(10,614		)	(11,699		)
Total change in net unrealized investment appreciation, net of tax	$	(27,495	)	$	19,720		$	21,727

Investments in Unrealized Loss Position

December 31, 2013	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	10	$	9,196	$	140	—	$	—	$	—	$	9,196	$	140
U.S. government agency	101	256,203		18,019		2	4,356		644		260,559		18,663
States, municipalities and political subdivisions	136	97,950		7,423		29	29,670		3,282		127,620		10,705
Foreign bonds	10	20,832		397		—	—		—		20,832		397
Public utilities	31	61,582		1,776		—	—		—		61,582		1,776
Corporate bonds
Energy	9	23,735		1,008		—	—		—		23,735		1,008
Industrials	34	77,788		2,819		—	—		—		77,788		2,819
Consumer goods and services	31	58,833		1,276		6	3,218		145		62,051		1,421
Health care	10	25,888		942		2	4,427		258		30,315		1,200
Technology, media and telecommunications	18	58,105		2,147		2	7,468		1,174		65,573		3,321
Financial services	7	15,191		720		1	1,525		3		16,716		723
Mortgage-backed securities	16	4,476		177		6	3,113		114		7,589		291
Collateralized mortgage obligations	111	208,855		11,062		23	55,184		5,857		264,039		16,919
Total Available-for-Sale Fixed Maturities	524	$	918,634	$	47,906	71	$	108,961	$	11,477	$	1,027,595	$	59,383
Equity securities
Common stocks
Public utilities	—	$	—	$	—	3	$	281	$	27	$	281	$	27
Industrials	1	1		1		2	81		31		82		32
Technology, media and telecommunications	—	—		—		6	206		83		206		83
Financial services	—	—		—		4	215		128		215		128
Nonredeemable preferred stocks	3	3,493		116		2	1,170		61		4,663		177
Total Available-for-Sale Equity Securities	4	$	3,494	$	117	17	$	1,953	$	330	$	5,447	$	447
Total Available-for-Sale Securities	528	$	922,128	$	48,023	88	$	110,914	$	11,807	$	1,033,042	$	59,830

December 31, 2012	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	2	$	1,724	$	5	—	$	—	$	—	$	1,724	$	5
U.S. government agency	5	17,654		67		—	—		—		17,654		67
States, municipalities and political subdivisions	31	41,775		819		—	—		—		41,775		819
Foreign bonds	1	3,323		48		1	558		14		3,881		62
Public utilities	2	3,155		32		—	—		—		3,155		32
Corporate bonds
Industrials	4	12,194		109		1	2,897		103		15,091		212
Consumer goods and services	—	—		—		7	4,606		151		4,606		151
Health care	3	7,416		80		—	—		—		7,416		80
Technology, media and telecommunications	5	13,402		198		—	—		—		13,402		198
Financial services	2	1,005		1		24	24,693		1,058		25,698		1,059
Mortgage-backed securities	7	4,472		21		—	—		—		4,472		21
Collateralized mortgage obligations	27	74,702		1,004		1	29		156		74,731		1,160
Redeemable preferred stocks	2	376		2		—	—		—		376		2
Total Available-for-Sale Fixed Maturities	91	$	181,198	$	2,386	34	$	32,783	$	1,482	$	213,981	$	3,868
Equity securities
Common stocks
Public utilities	3	$	225	$	83	—	$	—	$	—	$	225	$	83
Industrials	4	482		52		9	621		122		1,103		174
Consumer goods and services	2	280		19		4	372		31		652		50
Health care	1	31		2		3	896		123		927		125
Technology, media and telecommunications	5	241		7		7	581		88		822		95
Financial services	1	47		19		7	1,109		126		1,156		145
Nonredeemable preferred stocks	—	—		—		2	1,203		28		1,203		28
Total Available-for-Sale Equity Securities	16	$	1,306	$	182	32	$	4,782	$	518	$	6,088	$	700
Total Available-for-Sale Securities	107	$	182,504	$	2,568	66	$	37,565	$	2,000	$	220,069	$	4,568

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Useful Life) (Details)	12 Months Ended
	Dec. 31, 2013
Computer Equipment [Member]
Property, Plant and Equipment [Line Items]
Useful Life	3 years
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Useful Life	7 years
Real Estate [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Useful Life	7 years
Real Estate [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Useful Life	39 years
Software [Member]
Property, Plant and Equipment [Line Items]
Useful Life	3 years

XML

LEASE COMMITMENTS

12 Months Ended

Dec. 31, 2013

Leases [Abstract]

LEASE COMMITMENTS

LEASE COMMITMENTS

At December 31, 2013, we were obligated under noncancelable operating lease agreements for office space, vehicles, computer equipment and office equipment. Most of our leases include renewal options, purchase options or both. These provisions may be exercised by us upon the expiration of the related lease agreements. Rental expense under our operating lease agreements was $6,521, $6,017 and $5,232 for 2013, 2012 and 2011, respectively. Our most significant lease arrangement is for office space for our regional office in Galveston, Texas. This lease expires in November 2014. The annual lease payments for this office space total approximately $2,105.

At December 31, 2013, our future minimum rental payments are as follows:

2014	$	7,340
2015	4,829
2016	4,099
2017	3,186
2018	1,504
Thereafter	3,219
Total	$	24,177

XML

Schedule I. Summary of Investments - Other than Investments in Related Parties

12 Months Ended

Dec. 31, 2013

Summary of Investments, Other than Investments in Related Parties [Abstract]

Summary of Investments - Other than Investments in Related Parties

Schedule I. Summary of Investments — Other than Investments in Related Parties

December 31, 2013	(In thousands)
	Cost or Amortized Cost				Amounts at Which Shown in Balance Sheet
Type of Investment			Fair Value
Fixed maturities
Bonds
United States Government and government agencies and authorities	$	321,600	$	303,478	$	303,478
States, municipalities and political subdivisions	690,711		714,161		714,157
Foreign governments	168,640		174,109		174,109
Public utilities	213,479		218,576		218,576
All other bonds	1,345,926		1,349,156		1,349,147
Redeemable preferred stock	1,906		2,385		2,385
Total fixed maturities	$	2,742,262	$	2,761,865	$	2,761,852
Equity securities
Common stocks
Public utilities	$	7,231	$	16,272	$	16,272
Banks, trusts and insurance companies	15,853		88,262		88,262
Industrial, miscellaneous and all other	43,753		120,956		120,956
Nonredeemable preferred stocks	6,487		6,365		6,365
Total equity securities	$	73,324	$	231,855	$	231,855
Mortgage loans on real estate	$	4,423	$	4,724	$	4,423
Policy loans	6,261		6,261		6,261
Other long-term investments	41,343		44,946		44,946
Short-term investments	800		800		800
Total investments	$	2,868,413	$	3,050,451	$	3,050,137

XML

INTANGIBLE ASSETS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Goodwill	$ 15,091		$ 15,091
Net intangible assets	11,956		13,168
Estimated aggregate amortization expense for each of the next five years:
2014	769
2015	769
2016	769
2017	769
2018	719
Insurance licenses
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Indefinite-lived intangible assets	3,020	[1]	3,020	[1]
Agency relationships
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross	10,338		10,338
Accumulated amortization	(3,017)		(2,380)
Finite-lived intangible assets, net	7,321		7,958
Useful life of intangible assets	15 years
Software
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross	3,260		3,260
Accumulated amortization	(3,260)		(2,853)
Finite-lived intangible assets, net	0		407
Useful life of intangible assets	2 years
Trade names
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross	1,978		1,978
Accumulated amortization	(363)		(231)
Finite-lived intangible assets, net	1,615		1,747
Useful life of intangible assets	15 years
Favorable contracts
Schedule Of Finite And Indefinite Lived Intangible Assets [Line Items]
Finite-lived intangible assets, gross	286		286
Accumulated amortization	(286)		(250)
Finite-lived intangible assets, net	$ 0		$ 36
Useful life of intangible assets	2 years

[1] The intangible asset for licenses has an indefinite life and therefore is not amortized.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narratives) (Details) (USD $)	3 Months Ended															12 Months Ended								12 Months Ended				0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended
	Dec. 31, 2013		Sep. 30, 2013	Jun. 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011	Dec. 31, 2013 Minimum [Member]	Dec. 31, 2013 Maximum [Member]	Dec. 31, 2012 Accounting Standards Update 2010-26 [Member]	Feb. 01, 2012 United Fire & Casualty Company [Member] Febuary 2012 Reorganization [Member]	Dec. 31, 2013 United Fire Group, Inc. [Member]	Dec. 31, 2012 United Fire Group, Inc. [Member]		Feb. 01, 2012 United Fire Group, Inc. [Member] Febuary 2012 Reorganization [Member]	Mar. 28, 2011 Mercer Insurance Group [Member]	Dec. 31, 2011 Mercer Insurance Group [Member]	Mar. 28, 2011 Mercer Insurance Group [Member] Payments to the Former Executive Officers [Member]	Dec. 31, 2013 Property and Casualty Insurance [Member] states	Dec. 31, 2012 Property and Casualty Insurance [Member]	Dec. 31, 2011 Property and Casualty Insurance [Member]	Dec. 31, 2013 Life Insurance [Member] states	Dec. 31, 2012 Life Insurance [Member]	Dec. 31, 2011 Life Insurance [Member]	Dec. 31, 2013 Building [Member]	Dec. 31, 2012 Building [Member]	Dec. 31, 2013 Land [Member]	Dec. 31, 2012 Land [Member]	Dec. 31, 2013 Furniture and Fixtures [Member]	Dec. 31, 2012 Furniture and Fixtures [Member]	Dec. 31, 2013 Computer Equipment and Software [Member]	Dec. 31, 2012 Computer Equipment and Software [Member]	Dec. 31, 2013 Airplane [Member]	Dec. 31, 2012 Airplane [Member]
Item Effected [Line Items]
Number of states in which we are licensed as insurer																															43			37
Business Combinations [Abstract]
Percentage of outstanding common stock acquired																												100.00%
Total consideration of business combination																												$ 191,475,000
Short-term debt used for acquisition funding																												79,900,000
Transaction costs																												8,318,000	11,900,000	5,540,000
Common stock, par value per share (in usd per share)	$ 0.001							$ 0.001								$ 0.001	$ 0.001						$ 3.3333333	$ 0.001	$ 0.001		$ 0.001
Percentage of the gains and profits from the Lloyds plan available to United Fire & Indemnity Company																100.00%
Traditional life insurance, interest rate assumptions, lower range																																		4.50%
Traditional life insurance, interest rate assumptions, upper range																																		6.00%
Securities on deposit as required by law	1,620,505,000							1,736,466,000								1,620,505,000	1,736,466,000
Other-than-temporary impairment charges																139,000	4,000		395,000
Payment for income taxes																13,628,000	11,920,000		570,000
Federal tax refund received																8,744,000	15,798,000
Interest payment																0	961,000		1,926,000
Increase (decrease) in DAC asset	3,407,000							(38,695,000)								3,407,000	(38,695,000)
Income Statement Impact of Updated Accounting Guidance on a Prospective Basis [Abstract]
Additional expense on pretax basis																775,140,000	767,169,000		717,723,000			10,291,000
Increase to other underwriting expenses																89,861,000	81,125,000		58,757,000			25,528,000
Decrease to amortization of deferred policy acquisition recoverability																(153,677,000)	(140,161,000)		(127,413,000)			15,237,000									(147,175,000)	(132,771,000)	(118,189,000)	(6,502,000)	(7,390,000)	(9,224,000)
Decrease to net income	(26,526,000)		(11,725,000)	(15,496,000)		(22,393,000)		2,418,000		(8,730,000)		(14,716,000)		(19,184,000)		(76,140,000)	(40,212,000)		(11,000)			6,689,000		(76,140,000)	(40,212,000)	[1],[2]			14,650,000		(67,456,000)	(33,512,000)	7,639,000	(8,684,000)	(6,700,000)	(7,650,000)
Decrease to net income per share (in usd per share)	$ (1.04)	[3]	$ (0.46)	$ (0.61)	[3]	$ (0.89)	[3]	$ 0.10	[3]	$ (0.34)	[3]	$ (0.58)	[3]	$ (0.75)	[3]	$ (3.01)	$ (1.58)	[3]	$ 0.00			$ 0.26
Property and equipment	47,218,000							43,090,000								47,218,000	43,090,000																				29,072,000	25,186,000	7,163,000	6,879,000	2,707,000	1,024,000	3,197,000	3,076,000	5,079,000	6,925,000
Depreciation expense																4,391,000	5,440,000		3,661,000
Useful life of intangible assets																				2 years	15 years
Amortization expense																															$ 1,212,000	$ 2,539,000	$ 1,922,000

[1] The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

[2] The Condensed Statement of Income and Comprehensive Income includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

[3] The sum of the quarterly reported amounts may not equal the full year, as each is computed independently.

XML

Schedule III. Supplementary Insurance Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Supplementary Insurance Information, by Segment [Line Items]
Deferred Policy Acquisition Costs	$ 150,092		$ 105,300		$ 106,654
Future Policy Benefits, Losses, Claims and Loss Expenses	2,432,783		2,470,087		2,421,332
Unearned Premiums	340,464		311,650		288,991
Earned Premium Revenue	754,846		694,994		586,783
Investment Income, Net	112,799		111,905		109,494
Benefits, Claims, Losses and Settlement Expenses	496,439		502,801		462,956
Amortization of Deferred Policy Acquisition Costs	153,677	[1]	141,834	[1]	153,176	[1]
Other Underwriting Expense	89,861		81,125		58,757
Interest on Policyholders' Accounts	35,163		41,409		42,834
Premiums Written	722,821	[2]	655,331	[2]	551,923	[2]
Amortization of the value of business acquired asset	0		1,673		25,763
Mercer Insurance Group [Member]
Supplementary Insurance Information, by Segment [Line Items]
Amortization of the value of business acquired asset			1,673		25,763
Property and Casualty Insurance [Member]
Supplementary Insurance Information, by Segment [Line Items]
Deferred Policy Acquisition Costs	67,663		64,947		60,668
Future Policy Benefits, Losses, Claims and Loss Expenses	960,651		971,911		945,051
Unearned Premiums	340,387		311,561		288,868
Earned Premium Revenue	694,192		629,411		533,771
Investment Income, Net	46,332		41,879		35,513
Benefits, Claims, Losses and Settlement Expenses	437,354		439,137		407,831
Amortization of Deferred Policy Acquisition Costs	147,175		134,444	[1]	143,952	[1]
Other Underwriting Expense	73,626		63,620		46,404
Interest on Policyholders' Accounts	0		0		0
Premiums Written	722,821		655,331	[2]	551,923	[2]
Amortization of the value of business acquired asset	0		1,673		25,763
Life Insurance [Member]
Supplementary Insurance Information, by Segment [Line Items]
Deferred Policy Acquisition Costs	82,429		40,353	[3]	45,986	[3]
Future Policy Benefits, Losses, Claims and Loss Expenses	1,472,132		1,498,176	[3]	1,476,281	[3]
Unearned Premiums	77	[3]	89	[3]	123	[3]
Earned Premium Revenue	60,654		65,583	[3]	53,012	[3]
Investment Income, Net	66,467		70,026	[3]	73,981	[3]
Benefits, Claims, Losses and Settlement Expenses	59,085	[3]	63,664	[3]	55,125	[3]
Amortization of Deferred Policy Acquisition Costs	6,502		7,390	[1],[3]	9,224	[1],[3]
Other Underwriting Expense	16,235		17,505	[3]	12,353	[3]
Interest on Policyholders' Accounts	35,163		41,409	[3]	42,834	[3]
Premiums Written	$ 0	[2],[3]	$ 0	[2],[3]	$ 0	[2],[3]

[1] 2012 and 2011 include amortization of the value of business acquired asset that was recorded as a result of our acquisition of Mercer Insurance Group, Inc. totaling $1,673 and $25,763, respectively.

[2] Pursuant to Regulation S-X, premiums written does not apply to life insurance companies.

[3] Annuity deposits are included in future policy benefits, losses, claims and loss expenses.

XML

STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2013

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Remaining Stock-Based Compensation Expense

We expect this compensation to be recognized in subsequent years according to the following table, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.

2014	$	1,228
2015	994
2016	569
2017	423
2018	58
Total	$	3,272

Analysis of Award Activity

The analysis below details the award activity for 2013 and the awards outstanding at December 31, 2013, for both of our plans and ad hoc options, which were granted prior to the adoption of the other plans:

Options	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2013	1,242,442		$	27.78
Granted	233,348		24.41
Exercised	(168,482	)	19.98
Forfeited or expired	(19,998	)	31.58
Outstanding at December 31, 2013	1,287,310		$	28.13	5.31	$	4,524
Exercisable at December 31, 2013	803,568		$	31.66	3.91	$	1,425

Schedule of Restricted Stock Units Award Activity

The analysis below details the award activity for the restricted stock awards outstanding at December 31, 2013:

Restricted stock awards	Shares		Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2013	54,338		$	25.01
Granted	30,489		24.78
Vested	(24,978	)	30.38
Non-vested at December 31, 2013	59,849		$	22.70

Weighted-average Grant-Date Fair Value Assumptions

The weighted-average grant-date fair value of the options granted under our plans has been estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

December 31,	2013			2012			2011
Risk-free interest rate	1.37		%	1.37		%	2.99		%
Expected volatility	34.32		%	37.06		%	55.47		%
Expected option life (in years)	7			7			7
Expected dividends (in dollars)	$	0.69		$	0.60		$	0.60
Weighted-average grant-date fair value of options granted during the year (in dollars)	$	6.64		$	5.90		$	8.99

Stock Options Outstanding and Exercisable

The following table summarizes information regarding the stock options outstanding and exercisable at December 31, 2013:

				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number Outstanding (in shares)	Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Exercise Price		Number Exercisable (in shares)	Weighted-Average Exercise Price
$	15.01	-	21.00	331,017	7.04	$	19.88	115,218	$	19.47
21.01		-	28.00	317,815	7.88	23.57		70,932	23.50
28.01		-	35.00	338,478	3.52	32.74		317,418	32.99
35.01		-	41.00	300,000	2.71	36.85		300,000	36.85
$	15.01	-	41.00	1,287,310	5.31	$	28.13	803,568	$	31.66

Employee Stock Award Plan-2008 [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Activity in Stock Award Plans

The activity in the 2008 Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	568,746		1,900,000
Number of awards granted	(238,672	)	(1,682,496	)
Number of awards forfeited or expired	23,575		136,145
Ending balance	353,649		353,649
Number of option awards exercised	154,926		381,768
Number of unrestricted stock awards granted	935		4,555
Number of restricted stock awards vested	18,576		18,576

Director Plan - 2005 [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Activity in Stock Award Plans

The activity in the Director Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants	Year Ended December 31, 2013		From Inception to December 31, 2013
Beginning balance	130,012		300,000
Number of awards granted	(26,100	)	(202,091	)
Number of awards forfeited or expired	—		6,003
Ending balance	103,912		103,912
Number of option awards exercised	3,156		3,156
Number of restricted stock awards vested	6,402		6,402

XML

Schedule V. Valuation and Qualifying Accounts (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Allowance for Bad Debts [Member]
Movement in Valuation Allowances and Reserves [Roll Forward]
Balance at beginning of period	$ 866		$ 825		$ 1,001
Charged to costs and expenses	30		41		0
Deductions	0		0		176
Balance at end of period	896		866		825
Deferred Tax Asset Valuation Allowance [Member]
Movement in Valuation Allowances and Reserves [Roll Forward]
Balance at beginning of period	2,909	[1]	3,456	[1]	4,004	[1]
Charged to costs and expenses	0	[1]	0	[1]	0	[1]
Deductions	548	[1]	547	[1]	548	[1]
Balance at end of period	$ 2,361	[1]	$ 2,909	[1]	$ 3,456	[1]

[1] Recorded in connection with the purchase of American Indemnity Financial Corporation in 1999.

XML

Consolidated Statements of Income and Comprehensive Income (Parentheticals) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Statement [Abstract]
Reclassifications for unrealized net gains on available-for-sale securities	$ (6,812)	$ (4,102)	$ (7,369)
Reclassification adjustment for employee benefit costs	$ 5,868	$ 4,971	$ 2,570

XML

SEGMENT INFORMATION (Net Premiums) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	$ 754,846	$ 694,994	$ 586,783
Property and Casualty Insurance Segment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Reinsurance assumed	18,485	16,889	14,869
Other	2,635	1,919	1,651
Property and Casualty Insurance Segment [Member] | Fire and Allied Lines [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Net premiums earned	208,030	173,249	153,839
Property and Casualty Insurance Segment [Member] | Other Liability [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Net premiums earned	199,548	197,842	159,977
Property and Casualty Insurance Segment [Member] | Automobile [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Net premiums earned	169,211	155,572	133,974
Property and Casualty Insurance Segment [Member] | Workers' Compensation [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Net premiums earned	81,616	68,643	54,404
Property and Casualty Insurance Segment [Member] | Fidelity and Surety [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Net premiums earned	18,746	17,713	16,665
Property and Casualty Insurance Segment [Member] | Operating Segments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	694,192	629,411	533,771
Property and Casualty Insurance Segment [Member] | Reinsurance Assumed Line of Business [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Reinsurance assumed	14,406	14,473	13,261
Life Insurance Segment [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Other	261	274	262
Life Insurance Segment [Member] | Ordinary Life (Excluding Universal Life) [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	38,875	44,468	30,374
Life Insurance Segment [Member] | Universal Life Policy Fees [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	11,871	11,768	10,995
Life Insurance Segment [Member] | Accident and Health [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	1,302	1,363	1,472
Life Insurance Segment [Member] | Immediate Annuities with Life Contingencies [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	8,837	8,158	10,276
Life Insurance Segment [Member] | Operating Segments [Member]
Segment Reporting, Revenue Reconciling Item [Line Items]
Total net premium earned	$ 61,146	$ 66,031	$ 53,379

XML

SUMMARY OF INVESTMENTS

12 Months Ended

Dec. 31, 2013

Investments [Abstract]

SUMMARY OF INVESTMENTS

SUMMARY OF INVESTMENTS

Fair Value of Investments

The table that follows is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities as of December 31, 2013 and 2012.

December 31, 2013
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	250	$	4	$	—	$	254
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	206		9		—		215
Total Held-to-Maturity Fixed Maturities	$	656	$	13	$	—	$	669
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	33,612	$	423	$	140	$	33,895
U.S. government agency	287,988		258		18,663		269,583
States, municipalities and political subdivisions	690,461		34,151		10,705		713,907
Foreign bonds	167,390		5,863		397		172,856
Public utilities	213,479		6,873		1,776		218,576
Corporate bonds
Energy	157,620		4,398		1,008		161,010
Industrials	234,221		5,626		2,819		237,028
Consumer goods and services	165,565		3,770		1,421		167,914
Health care	91,008		3,138		1,200		92,946
Technology, media and telecommunications	121,746		2,541		3,321		120,966
Financial services	234,739		7,735		723		241,751
Mortgage-backed securities	22,034		323		291		22,066
Collateralized mortgage obligations	309,975		1,707		16,919		294,763
Asset-backed securities	3,719		276		—		3,995
Total Available-For-Sale Fixed Maturities	$	2,733,557	$	77,082	$	59,383	$	2,751,256
Equity securities
Common stocks
Public utilities	$	7,231	$	9,068	$	27	$	16,272
Energy	5,094		9,269		—		14,363
Industrials	13,308		32,823		32		46,099
Consumer goods and services	10,363		10,895		—		21,258
Health care	7,920		17,078		—		24,998
Technology, media and telecommunications	6,204		7,183		83		13,304
Financial services	15,853		72,537		128		88,262
Nonredeemable preferred stocks	4,984		5		177		4,812
Total Available-for-Sale Equity Securities	$	70,957	$	158,858	$	447	$	229,368
Total Available-for-Sale Securities	$	2,804,514	$	235,940	$	59,830	$	2,980,624

December 31, 2012
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities
Bonds
States, municipalities and political subdivisions	$	1,185	$	11	$	—	$	1,196
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	256		15		—		271
Collateralized mortgage obligations	14		—		—		14
Total Held-to-Maturity Fixed Maturities	$	1,655	$	26	$	—	$	1,681
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	37,887	$	939	$	5	$	38,821
U.S. government agency	45,566		429		67		45,928
States, municipalities and political subdivisions	739,752		55,572		819		794,505
Foreign bonds	207,359		11,863		62		219,160
Public utilities	232,550		15,208		32		247,726
Corporate bonds
Energy	169,973		9,758		—		179,731
Industrials	280,185		13,690		212		293,663
Consumer goods and services	193,313		9,813		151		202,975
Health care	115,654		7,111		80		122,685
Technology, media and telecommunications	123,660		6,909		198		130,371
Financial services	271,061		13,858		1,059		283,860
Mortgage-backed securities	27,940		888		21		28,807
Collateralized mortgage obligations	208,042		7,702		1,160		214,584
Asset-backed securities	4,480		406		—		4,886
Redeemable preferred stocks	378		—		2		376
Total Available-For-Sale Fixed Maturities	$	2,657,800	$	154,146	$	3,868	$	2,808,078
Equity securities
Common stocks
Public utilities	$	7,231	$	7,268	$	83	$	14,416
Energy	5,094		6,903		—		11,997
Industrials	13,031		19,827		174		32,684
Consumer goods and services	10,394		8,535		50		18,879
Health care	7,920		10,286		125		18,081
Technology, media and telecommunications	5,367		5,155		95		10,427
Financial services	15,701		52,936		145		68,492
Nonredeemable preferred stocks	2,154		25		28		2,151
Total Available-for-Sale Equity Securities	$	66,892	$	110,935	$	700	$	177,127
Total Available-for-Sale Securities	$	2,724,692	$	265,081	$	4,568	$	2,985,205

Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at December 31, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

	Held-To-Maturity				Available-For-Sale				Trading
December 31, 2013	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	135	$	136	$	231,060	$	234,922	$	1,350	$	1,359
Due after one year through five years	315		318		950,084		996,862		3,762		5,147
Due after five years through 10 years	—		—		848,931		855,156		—		—
Due after 10 years	—		—		367,754		343,492		2,937		3,434
Asset-backed securities	—		—		3,719		3,995		—		—
Mortgage-backed securities	206		215		22,034		22,066		—		—
Collateralized mortgage obligations	—		—		309,975		294,763		—		—
	$	656	$	669	$	2,733,557	$	2,751,256	$	8,049	$	9,940

Net Realized Investment Gains and Losses

Net realized gains (losses) on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of net realized investment gains (losses) for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Net realized investment gains (losses)
Fixed maturities:
Held-to-maturity	$	1		$	12		$	8
Available-for-sale	3,211			3,408			4,776
Trading securities
Change in fair value	1,183			683			(539		)
Sales	788			406			(326		)
Equity securities:
Available-for-sale	3,739			698			2,988
Trading securities
Change in fair value	(126		)	250			(4		)
Sales	38			—			—
Other long-term investments	—			—			(68		)
Other-than-temporary-impairment charges:
Fixed maturities	(139		)	—			(395		)
Equity securities	—			(4		)	—
Total net realized investment gains	$	8,695		$	5,453		$	6,440

The proceeds and gross realized gains (losses) on the sale of available-for-sale securities for 2013, 2012 and 2011, were as follows:

	2013		2012			2011
Proceeds from sales	$	23,007	$	20,324		$	39,496
Gross realized gains	451		513			1,144
Gross realized losses	—		(37		)	(1,562		)

There were no sales of held-to-maturity securities in 2013, 2012 and 2011.

Our investment portfolio includes trading securities with embedded derivatives. These securities are primarily convertible securities which are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of net realized investment gains and losses. Our portfolio of trading securities had a fair value of $12,427 and $15,371 at December 31, 2013 and 2012, respectively.

Net Investment Income

Net investment income for the years ended December 31, 2013, 2012 and 2011, is comprised of the following:

Years Ended December 31,	2013		2012		2011
Investment income
Interest on fixed maturities	$	101,950	$	108,517	$	109,467
Dividends on equity securities	5,806		5,354		4,628
Income (loss) on other long-term investments
Investment income	1,194		232		224
Change in value (1)	7,030		2,562		(137		)
Interest on mortgage loans	266		279		285
Interest on short-term investments	6		10		4
Interest on cash and cash equivalents	239		290		913
Other	1,632		825		969
Total investment income	$	118,123	$	118,069	$	116,353
Less investment expenses	5,324		6,164		6,859
Net investment income	$	112,799	$	111,905	$	109,494

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

Off-Balance Sheet Arrangements

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2017 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $1,050 at December 31, 2013.

Unrealized Appreciation and Depreciation

A summary of changes in net unrealized investment appreciation for 2013, 2012 and 2011, is as follows:

	2013			2012			2011
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	(132,579	)	$	15,816		$	34,699
Equity securities	48,176			19,339			(4,675		)
Deferred policy acquisition costs	42,102			(4,821		)	3,402
Income tax effect	14,806			(10,614		)	(11,699		)
Total change in net unrealized investment appreciation, net of tax	$	(27,495	)	$	19,720		$	21,727

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires OTTI charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in fair value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.

The tables on the following pages summarize our fixed maturity and equity securities that were in an unrealized loss position at December 31, 2013 and 2012. The securities are presented by the length of time they have been continuously in an unrealized loss position. It is possible that we could recognize OTTI charges in future periods on securities held at December 31, 2013, if future events or information cause us to determine that a decline in fair value is other-than-temporary.

We have evaluated the near-term prospects of the issuers of our fixed maturity securities in relation to the severity and duration of the unrealized loss which resulted in the recognition of a $139 and $395 credit loss OTTI in our Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2013 and 2011, respectively. There were no OTTI losses on fixed maturity securities recognized in 2012. We believe the unrealized depreciation in value of other securities in our fixed maturity portfolio is primarily attributable to changes in market interest rates and not the credit quality of the issuer. 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.

We have evaluated the near-term prospects of the issuers of our equity securities in relation to the severity and duration of the unrealized loss which resulted in the recognition of a $4 OTTI in our Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2012. There were no OTTI losses on equity securities recognized in 2013 or 2011. Our largest unrealized loss greater than 12 months on an individual equity security at December 31, 2013 was $58. We have no intention to sell any of these securities prior to a recovery in value, but will continue to monitor the fair value reported for these securities as part of our overall process to evaluate investments for OTTI recognition.

December 31, 2013	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	10	$	9,196	$	140	—	$	—	$	—	$	9,196	$	140
U.S. government agency	101	256,203		18,019		2	4,356		644		260,559		18,663
States, municipalities and political subdivisions	136	97,950		7,423		29	29,670		3,282		127,620		10,705
Foreign bonds	10	20,832		397		—	—		—		20,832		397
Public utilities	31	61,582		1,776		—	—		—		61,582		1,776
Corporate bonds
Energy	9	23,735		1,008		—	—		—		23,735		1,008
Industrials	34	77,788		2,819		—	—		—		77,788		2,819
Consumer goods and services	31	58,833		1,276		6	3,218		145		62,051		1,421
Health care	10	25,888		942		2	4,427		258		30,315		1,200
Technology, media and telecommunications	18	58,105		2,147		2	7,468		1,174		65,573		3,321
Financial services	7	15,191		720		1	1,525		3		16,716		723
Mortgage-backed securities	16	4,476		177		6	3,113		114		7,589		291
Collateralized mortgage obligations	111	208,855		11,062		23	55,184		5,857		264,039		16,919
Total Available-for-Sale Fixed Maturities	524	$	918,634	$	47,906	71	$	108,961	$	11,477	$	1,027,595	$	59,383
Equity securities
Common stocks
Public utilities	—	$	—	$	—	3	$	281	$	27	$	281	$	27
Industrials	1	1		1		2	81		31		82		32
Technology, media and telecommunications	—	—		—		6	206		83		206		83
Financial services	—	—		—		4	215		128		215		128
Nonredeemable preferred stocks	3	3,493		116		2	1,170		61		4,663		177
Total Available-for-Sale Equity Securities	4	$	3,494	$	117	17	$	1,953	$	330	$	5,447	$	447
Total Available-for-Sale Securities	528	$	922,128	$	48,023	88	$	110,914	$	11,807	$	1,033,042	$	59,830

December 31, 2012	Less than 12 months					12 months or longer					Total
Type of Investment	Number of Issues	Fair Value		Gross Unrealized Depreciation		Number of Issues	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	2	$	1,724	$	5	—	$	—	$	—	$	1,724	$	5
U.S. government agency	5	17,654		67		—	—		—		17,654		67
States, municipalities and political subdivisions	31	41,775		819		—	—		—		41,775		819
Foreign bonds	1	3,323		48		1	558		14		3,881		62
Public utilities	2	3,155		32		—	—		—		3,155		32
Corporate bonds
Industrials	4	12,194		109		1	2,897		103		15,091		212
Consumer goods and services	—	—		—		7	4,606		151		4,606		151
Health care	3	7,416		80		—	—		—		7,416		80
Technology, media and telecommunications	5	13,402		198		—	—		—		13,402		198
Financial services	2	1,005		1		24	24,693		1,058		25,698		1,059
Mortgage-backed securities	7	4,472		21		—	—		—		4,472		21
Collateralized mortgage obligations	27	74,702		1,004		1	29		156		74,731		1,160
Redeemable preferred stocks	2	376		2		—	—		—		376		2
Total Available-for-Sale Fixed Maturities	91	$	181,198	$	2,386	34	$	32,783	$	1,482	$	213,981	$	3,868
Equity securities
Common stocks
Public utilities	3	$	225	$	83	—	$	—	$	—	$	225	$	83
Industrials	4	482		52		9	621		122		1,103		174
Consumer goods and services	2	280		19		4	372		31		652		50
Health care	1	31		2		3	896		123		927		125
Technology, media and telecommunications	5	241		7		7	581		88		822		95
Financial services	1	47		19		7	1,109		126		1,156		145
Nonredeemable preferred stocks	—	—		—		2	1,203		28		1,203		28
Total Available-for-Sale Equity Securities	16	$	1,306	$	182	32	$	4,782	$	518	$	6,088	$	700
Total Available-for-Sale Securities	107	$	182,504	$	2,568	66	$	37,565	$	2,000	$	220,069	$	4,568

XML

SUMMARY OF INVESTMENTS (Narratives) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Trading securities	$ 12,427,000	$ 15,371,000
Remaining potential off-balance sheet contractual obligation	1,050,000
Other-than-temporary impairment charges	139,000	4,000	395,000
Net realized investment gains (losses)	8,695,000	5,453,000	6,440,000
Equity Securities [Member]
Other-than-temporary impairment charges	0		0
Equity Securities [Member] | Maximum [Member]
Largest unrealized loss greater than 12 months on an individual security	58,000
Fixed Maturities [Member]
Other-than-temporary impairment charges	139,000	0	395,000
Fixed Maturities [Member] | Other-than-temporary-impairment Charges [Member]
Net realized investment gains (losses)	(139,000)	0	(395,000)
Equity Securities [Member] | Other-than-temporary-impairment Charges [Member]
Net realized investment gains (losses)	$ 0	$ (4,000)	$ 0

XML

STOCK-BASED COMPENSATION (Stock Award Plans) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended							67 Months Ended	12 Months Ended	67 Months Ended	12 Months Ended	67 Months Ended	12 Months Ended	67 Months Ended	12 Months Ended	108 Months Ended	12 Months Ended	108 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Restricted Stock Awards [Member]	Dec. 31, 2012 Restricted Stock Awards [Member]	Dec. 31, 2011 Restricted Stock Awards [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Stock Options [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Stock Options [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Unrestricted Stock Awards [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Unrestricted Stock Awards [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Restricted Stock Awards [Member]	Dec. 31, 2013 Employee Stock Award Plan-2008 [Member] Restricted Stock Awards [Member]	Dec. 31, 2013 Director Plan - 2005 [Member]	Dec. 31, 2013 Director Plan - 2005 [Member]	Dec. 31, 2013 Director Plan - 2005 [Member] Stock Options [Member]	Dec. 31, 2013 Director Plan - 2005 [Member] Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of opton awards vest and exercisable in installments							20.00%
Award expiration term							10 years
Vesting period of restricted stock awards													5 years
Share-based Compensation Arrangement by Share-based Payment Award Available for Grant [Roll Forward]
Beginning balance (in shares)							568,746								130,012
Inception to Date, Beginning balance (in shares)								1,900,000								300,000
Number of awards granted (in shares)							(238,672)	(1,682,496)			(935)	(4,555)			(26,100)	(202,091)
Number of awards forfeited or expired (in shares)							23,575	136,145							0	6,003
Ending balance (in shares)							353,649	353,649							103,912	103,912
Inception to Date, Ending balance (in shares)							353,649	353,649
Number of option awards exercised (in shares)	168,482								154,926	381,768							3,156	3,156
Number of restricted stock awards vested (in shares)				24,978									18,576	18,576			6,402	6,402
Stock-based compensation expense	$ 1,777	$ 1,764	$ 1,829	$ 407	$ 329	$ 245
Stock-Basec Compensation Expense [Abstract]
2014	1,228
2015	994
2016	569
2017	423
2018	58
Total	$ 3,272

XML

Schedule IV. Reinsurance (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Gross Amount	$ 5,300,305	$ 5,206,065	$ 4,916,833
Ceded to Other Companies	1,112,688	1,083,410	974,556
Assumed from Other Companies	4	22	42
Net Amount	4,187,621	4,122,677	3,942,319
Property and Casualty Insurance [Member]
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Gross Amount	726,221	659,989	564,506
Ceded to Other Companies	50,514	47,467	45,604
Assumed from Other Companies	18,485	16,889	14,869
Net Amount	694,192	629,411	533,771
Percentage of Amount Assumed to Net Earned	2.66%	2.68%	2.79%
Life Insurance [Member]
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Gross Amount	63,446	68,204	55,330
Ceded to Other Companies	2,792	2,621	2,318
Assumed from Other Companies	0	0	0
Net Amount	60,654	65,583	53,012
Percentage of Amount Assumed to Net Earned	0.00%	0.00%	0.00%
Total [Member]
Reinsurance Premiums for Insurance Companies, by Product Segment [Line Items]
Gross Amount	789,667	728,193	619,836
Ceded to Other Companies	53,306	50,088	47,922
Assumed from Other Companies	18,485	16,889	14,869
Net Amount	$ 754,846	$ 694,994	$ 586,783
Percentage of Amount Assumed to Net Earned	2.45%	2.43%	2.53%

XML

FEDERAL INCOME TAX (Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income Tax Disclosure [Abstract]
Computed expected income tax expense (benefit)	$ 35,666	$ 16,126	$ (4,451)
Tax-exempt municipal bond interest income	(7,732)	(8,027)	(7,908)
Nontaxable dividend income	(1,053)	(1,004)	(859)
Valuation allowance reduction	(548)	(547)	0
Acquisition related expenses	0	42	860
Other, net	(571)	(728)	(368)
Federal income tax expense (benefit)	$ 25,762	$ 5,862	$ (12,726)

XML

Schedule II. Condensed Financial Statements of Parent Company

12 Months Ended

Dec. 31, 2013

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Schedule II. Condensed Financial Statements of Parent Company

Schedule II. Condensed Financial Statements of Parent Company

United Fire Group, Inc. (parent company only)

Condensed Balance Sheet

	December 31,
(In thousands, except share data)	2013		2012
ASSETS
Fixed maturities, held-to-maturity, at amortized cost (fair value $200 in 2013 and $200 in 2012)	$	200	$	200
Investment in subsidiary	778,843		723,705
Cash and cash equivalents	3,253		5,140
Federal income tax receivable	537		131
Investment income receivable	1		1
Total assets	$	782,834	$	729,177
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities	$	1	$	—
Stockholders’ equity
Common stock, $0.001 par value, authorized 75,000,000 shares; 25,360,893 and 25,277,463 issued and outstanding in 2013 and 2012, respectively	$	25	$	25
Additional paid-in capital	211,574		208,536
Retained earnings	484,084		425,428
Accumulated other comprehensive income, net of tax	87,150		95,188
Total stockholders’ equity	$	782,833	$	729,177
Total liabilities and stockholders’ equity	$	782,834	$	729,177

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statement of Income and Comprehensive Income

	For the Years Ended December 31,
(In thousands)	2013			2012(1)
Revenues
Investment income	$	23		$	13
Total revenues	23			13
Expenses
Other operating expenses	172			158
Total expenses	172			158
Loss before income taxes and equity in net income of subsidiary	(149		)	(145		)
Federal income tax benefit	(49		)	(51		)
Net loss before equity in net income of subsidiary	$	(100	)	$	(94	)
Equity in net income of subsidiary	76,240			40,306
Net income	$	76,140		$	40,212
Other comprehensive income (loss)
Change in unrealized appreciation on investments held by subsidiary	$	(35,489	)	$	34,436
Change in liability for underfunded employee benefit plans of subsidiary	24,066			(15,922		)
Other comprehensive income (loss), before tax and reclassification adjustments	$	(11,423	)	$	18,514
Income tax effect	3,998			(6,477		)
Other comprehensive income (loss), after tax, before reclassification adjustments	$	(7,425	)	$	12,037
Reclassification adjustment for net realized gains of the subsidiary included in income	(6,812		)	(4,102		)
Reclassification adjustment for employee benefit costs of the subsidiary included in expense	5,868			4,971
Total reclassification adjustments, before tax	$	(944	)	$	869
Income tax effect	331			(304		)
Total reclassification adjustments, after tax	$	(613	)	$	565
Comprehensive income	$	68,102		$	52,814

(1) The Condensed Statement of Income and Comprehensive Income includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

On February 1, 2012, we completed a holding company reorganization (the “Reorganization”) of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization agreement was approved and adopted by United Fire & Casualty Company's shareholders at a special meeting held on January 24, 2012.

United Fire Group, Inc. and its subsidiaries file a consolidated federal income tax return. The federal income tax provision represents an allocation under it’s tax allocation agreements.

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

Schedule II. Condensed Financial Statements of Parent Company (continued)

United Fire Group, Inc. (parent company only)

Condensed Statement of Cash Flows

	For the Years Ended December 31,
(In thousands)	2013			2012(1)
Cash Flows From Operating Activities
Net income	$	76,140		$	40,212
Adjustments to reconcile net income to net cash provided by operating activities
Equity in net income of subsidiary	(76,240		)	(40,306		)
Dividends received from subsidiary	13,175			26,950
Other, net	1,261			26
Total adjustments	(61,804		)	(13,330		)
Net cash provided by operating activities	$	14,336		$	26,882
Cash Flows From Investing Activities
Purchase of held-to-maturity investments	$	—		$	(200	)
Net cash used in investing activities	$	—		$	(200	)
Cash Flows From Financing Activities
Repurchase of common stock	$	(1,644	)	$	(7,301	)
Issuance of common stock	3,393			1,106
Tax impact from issuance of common stock	(488		)	(78		)
Payment of cash dividends	(17,484		)	(15,269		)
Net cash used in financing activities	$	(16,223	)	$	(21,542	)
Net Change in Cash and Cash Equivalents	$	(1,887	)	$	5,140
Cash and Cash Equivalents at Beginning of Period	5,140			—
Cash and Cash Equivalents at End of Year	$	3,253		$	5,140

(1) The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.

On February 1, 2012, we completed a holding company reorganization (the “Reorganization”) of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization agreement was approved and adopted by United Fire & Casualty Company's shareholders at a special meeting held on January 24, 2012.

This condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes included in Part II, Item 8 of this Form 10-K.

XML

EMPLOYEE BENEFITS (Fair Value of Plan Assets) (Details) (Pension Plan [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	$ 92,219	$ 75,276	$ 65,267
Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	82,610	65,253
Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	58,185	55,060
Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	15,662	10,193
Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	8,763	0
Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	4,489	4,830
Corporate Bonds [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	4,489	4,830
Corporate Bonds [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Corporate Bonds [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	4,489	4,830
Corporate Bonds [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Redeemable Preferred Stocks [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	1,381	1,113
Redeemable Preferred Stocks [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	1,381	1,113
Redeemable Preferred Stocks [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	1,381	1,113
Redeemable Preferred Stocks [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Redeemable Preferred Stocks [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Unaffiliated Common Stock [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	39,481	41,091
Unaffiliated Common Stock [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	39,481	41,091
Unaffiliated Common Stock [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Unaffiliated Common Stock [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Bond and Mortgage Separate Account Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,657	0
Bond and Mortgage Separate Account Fund [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,657
Bond and Mortgage Separate Account Fund [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0
Bond and Mortgage Separate Account Fund [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,657
Bond and Mortgage Separate Account Fund [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0
U.S. Property Separate Account Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	8,763	0
U.S. Property Separate Account Fund [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	8,763
U.S. Property Separate Account Fund [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0
U.S. Property Separate Account Fund [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0
U.S. Property Separate Account Fund [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	8,763
Arbitrage Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,516	5,363
Arbitrage Fund [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,516	5,363
Arbitrage Fund [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Arbitrage Fund [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	5,516	5,363
Arbitrage Fund [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Money Market Funds [Member] | Fair Value [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	17,323	12,856
Money Market Funds [Member] | Level 1 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	17,323	12,856
Money Market Funds [Member] | Level 2 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	0	0
Money Market Funds [Member] | Level 3 [Member]
Defined Benefit Plan Disclosure [Line Items]
Assets measured at fair value	$ 0	$ 0

XML

STATUTORY REPORTING, CAPITAL REQUIREMENTS AND DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS (Tables)

12 Months Ended

Dec. 31, 2013

Statutory Insurance Financial Information [Abstract]

Statutory Capital, Surplus, and Net Income

Statutory capital and surplus in regards to policyholders at December 31, 2013, 2012 and 2011 and statutory net income for the years then ended are as follows:

	Statutory Capital and Surplus		Statutory Net Income
2013
Property and casualty (1)	$	665,772	$	84,255
Life, accident and health	157,974		5,942
2012
Property and casualty (1)	$	585,986	$	34,468
Life, accident and health	158,720		7,420
2011
Property and casualty (1)	$	565,843	$	10,529
Life, accident and health	167,164		6,180

(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.

XML

EARNINGS PER COMMON SHARE

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options and restricted stock awards.

We determine the dilutive effect of our outstanding stock options using the “treasury stock” method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

The components of basic and diluted earnings per share were as follows:

	Years Ended December 31,
	2013				2012				2011
(In Thousands Except Per Share Data)	Basic		Diluted		Basic		Diluted		Basic		Diluted
Net income	$	76,140	$	76,140	$	40,212	$	40,212	$	11	$	11
Weighted-average common shares outstanding	25,325,695		25,325,695		25,447,918		25,447,918		25,878,535		25,878,535
Add dilutive effect of restricted stock awards	—		59,849		—		54,338		—		50,206
Add dilutive effect of stock options	—		145,831		—		2,270		—		30,108
Weighted-average common shares	25,325,695		25,531,375		25,447,918		25,504,526		25,878,535		25,958,849
Earnings per common share	$	3.01	$	2.98	$	1.58	$	1.58	$	—	$	—
Awards excluded from diluted calculation(1)	—		638,478		—		901,008		—		989,047

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

XML

Schedule II. Condensed Financial Statements of Parent Company (Condensed Balance Sheet) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Condensed Balance Sheet Statements, Captions [Line Items]
Fixed maturities, held-to-maturity, at amortized cost (fair value $200 in 2013 and $200 in 2012)	$ 656	$ 1,655
Cash and cash equivalents	92,193	107,466		144,527		180,057
Federal income tax receivable	1,786	16,536
Investment income receivable	27,923	30,375
TOTAL ASSETS	3,720,672	3,694,653		3,618,924
Liabilities	2,937,839	2,965,476
Common stock, $0.001 par value, authorized 75,000,000 shares; 25,360,893 and 25,277,463 issued and outstanding in 2013 and 2012, respectively	25	25
Additional paid-in capital	211,574	208,536
Retained earnings	484,084	425,428
Accumulated other comprehensive income, net of tax	87,150	95,188		82,586		76,978
TOTAL STOCKHOLDERS' EQUITY	782,833	729,177		696,141		716,424
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	3,720,672	3,694,653
United Fire Group, Inc. [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Fixed maturities, held-to-maturity, at amortized cost (fair value $200 in 2013 and $200 in 2012)	200	200
Investment in subsidiary	778,843	723,705
Cash and cash equivalents	3,253	5,140	[1]	0	[1]
Federal income tax receivable	537	131
Investment income receivable	1	1
TOTAL ASSETS	782,834	729,177
Liabilities	1	0
Common stock, $0.001 par value, authorized 75,000,000 shares; 25,360,893 and 25,277,463 issued and outstanding in 2013 and 2012, respectively	25	25
Additional paid-in capital	211,574	208,536
Retained earnings	484,084	425,428
Accumulated other comprehensive income, net of tax	87,150	95,188
TOTAL STOCKHOLDERS' EQUITY	782,833	729,177
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 782,834	$ 729,177

[1] The Condensed Statement of Cash Flows includes the full year 2012 results. The results of January 2012 are immaterial to the full year 2012 results.