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 losses 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. 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, 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. 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 determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in 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 reasonableness 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 regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. 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 establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

Our IBNR methodologies and assumptions are reviewed periodically, but changes are infrequent. In response to an increase in miles driven by commercial vehicles and an increase in distracted driving claims, we revised our commercial automobile severity assumptions, resulting in an increase to our carried loss IBNR. We also reviewed our methodology and assumptions in our product liability line, associated with our construction defects business, and decreased our frequency and severity assumptions due to improvement in development patterns related to the

statute of limitations on accident years that have matured 13 to 15 years which haven't developed to the extent we initially expected. These assumption changes resulted in a release of IBNR in 2016 and 2017 for our product liability line. Besides the changes to our assumptions used for our commercial automobile line and product liability line, we continually review and revise items affecting our projections of required reserves for unpaid loss and loss adjustment expense ("LAE"). Items reviewed and revised include development factors for paid and reported loss, paid development factors for allocated LAE, and the ratios of paid unallocated LAE to paid loss.




Years Ended December 31,	2018			2017			2016
Gross liability for losses and loss settlement expenses at beginning of year	$	1,224,183		$	1,123,896		$	1,003,895
Ceded losses and loss settlement expenses	(59,871		)	(59,794		)	(54,653		)
Net liability for losses and loss settlement expenses at beginning of year	$	1,164,312		$	1,064,102		$	949,242
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	785,778		$	779,966		$	683,662
Prior years	(54,167		)	(54,253		)	(31,229		)
Total incurred	$	731,611		$	725,713		$	652,433
Losses and loss settlement expense payments for claims occurring during
Current year	$	306,032		$	311,972		$	277,053
Prior years	334,502			313,531			260,520
Total paid	$	640,534		$	625,503		$	537,573
Net liability for losses and loss settlement expenses at end of year	$	1,255,389		$	1,164,312		$	1,064,102
Ceded loss and loss settlement expenses	57,094			59,871			59,794
Gross liability for losses and loss settlement expenses at end of year	$	1,312,483		$	1,224,183		$	1,123,896

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 reserve 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 significant drivers of the favorable reserve development in 2018 were our workers' compensation, reinsurance assumed, commercial automobile and fidelity and surety. During 2018 the only individual line with unfavorable development was commercial liability. Workers' compensation favorable development was primarily from reserve reductions for both reported claims and loss IBNR which were more than sufficient to offset paid loss with additional favorable development coming from loss adjustment expenses ("LAE") where the LAE IBNR reduction was more than sufficient to offset paid LAE which continues to benefit from additional litigation management efforts when compared to prior years. Reinsurance assumed favorable development is attributable reductions in reserves for both reported claims and loss IBNR as we reviewed our book of business and released excess reserves during 2018. Commercial automobile favorable development was driven by loss adjustment expense where LAE

IBNR reductions were more than sufficient to offset paid LAE. Fidelity and surety favorable development is attributable reductions in reserves for both reported claims and loss IBNR which were more than sufficient to offset paid loss. Commercial liability adverse development is attributable to reserve strengthening for both reported claims and loss IBNR primarily in response to an increase in umbrella auto related claims while loss adjustment expense developed favorably with reductions of LAE IBNR more than sufficient to offset paid LAE.

The significant drivers of the favorable reserve development in 2017 were our commercial liability and workers' compensation lines of business. Much of the favorable commercial liability development came from loss adjustment expense and is attributed to our continued litigation management efforts combined with some favorable development coming from decreases in reserves, which were more than sufficient to pay claims as they closed. Workers' compensation favorable development was due to the combined effects of decreases in claim reserves along with favorable changes affecting loss adjustment expense. Our personal lines also contributed favorable development. The lines that experienced adverse development during the year, which partially offset the favorable development mentioned earlier, were assumed reinsurance and commercial automobile. The adverse development for assumed reinsurance is due to increases in prior year reserves for unpaid claims while the adverse development for commercial auto is due to paid losses which were greater than reductions in reported loss reserves and reserves for claims incurred but not reported. No other single line of business contributed a significant portion of the total development.

The significant drivers of the favorable reserve development in 2016 were our commercial liability and workers' compensation lines of business. Much of the favorable commercial liability development came from loss adjustment expense and is attributed to our continued litigation management efforts. Workers' compensation favorable development was due to the combined effects of decreases in claim reserves along with favorable changes affecting loss adjustment expense. Loss adjustment expense, closely tied to loss, generally decreases when loss decreases. Commercial property, commercial automobile and assumed reinsurance lines of business exhibited adverse development which provided a partial offset to the favorable development previously noted. The adverse development for all three lines is due to paid loss which was greater than reductions in reported loss reserves and reserves for claims incurred but not reported. No other single line of business contributed a significant portion of the total development.

Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. 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 reserve development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. 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. 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.

The cumulative number of reported claims, for calendar year 2018 and 2017, are counted for all lines of business on a per claimant per coverage basis and a single event may result in multiple claims due to the involvement of multiple individual claimants and / or multiple independent coverages. Claim counts for calendar years 2016 and prior are counted on a per claim and per coverage basis. Claim counts include open claims, claims that have been paid and closed, and reported claims that have been closed without the need for any payment.



Line of business: Commercial other liability
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2018
	For the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported claims		Cumulative development		Cumulative number of reported claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	88,298	$	85,991	$	73,545	$	65,831	$	84,286	$	83,660	$	85,761	$	86,757	$	86,543	$	85,576	$	9,249	(2,722	)	6,333
2010			88,987		69,533		65,299		82,865		78,564		77,948		78,291		78,498		76,956		11,859		(12,031	)	5,264
2011					81,522		64,738		88,371		88,200		79,591		80,801		81,463		80,338		12,231		(1,184	)	5,436
2012							100,389		96,158		94,195		91,980		92,537		91,346		89,731		15,179		(10,658	)	5,631
2013									104,982		91,460		90,502		86,119		85,399		88,816		7,922		(16,166	)	6,147
2014											118,928		117,958		106,486		97,809		102,487		10,092		(16,441	)	6,289
2015													137,386		125,307		120,005		127,091		19,976		(10,295	)	7,385
2016															139,144		130,041		136,275		26,097		(2,869	)	8,217
2017																	139,602		139,032		38,919		(570	)	7,837
2018																			163,059		78,705				6,088
																	Total		$	1,089,361



Line of business: Commercial other liability
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	8,375	$	21,151	$	32,073	$	41,696	$	50,098	$	56,789	$	63,149	$	67,733	$	70,814	$	72,673
2010			7,103		15,230		24,577		35,043		51,336		56,761		60,116		62,070		63,300
2011					6,236		13,670		26,260		40,595		50,146		56,150		62,165		64,541
2012							6,875		24,620		39,948		55,316		64,574		69,800		71,773
2013									9,835		25,228		39,953		54,559		65,773		72,115
2014											10,207		29,679		50,211		70,363		83,109
2015													11,185		27,182		53,901		74,292
2016															13,782		38,184		63,526
2017																	17,716		43,172
2018																			16,200
																	Total		$	624,701
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2009, net of reinsurance														31,672
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	496,332



Line of business: Commercial fire and allied
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2018
	For the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported claims		Cumulative development		Cumulative number of reported claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	113,754	$	106,085	$	105,031	$	105,614	$	87,751	$	87,845	$	87,932	$	88,891	$	89,027	$	88,648	$	80	(25,106	)	18,053
2010			113,139		106,152		108,246		83,836		83,932		83,767		83,981		84,213		84,123		65		(29,016	)	16,690
2011					148,220		142,330		117,082		120,492		119,820		120,219		121,434		121,319		281		(26,901	)	16,037
2012							138,602		110,448		108,774		108,047		107,958		108,623		109,687		813		(28,915	)	6,438
2013									91,521		88,550		91,498		92,212		93,826		93,858		515		2,337		6,626
2014											126,216		131,198		128,762		128,185		128,503		1,012		2,287		7,883
2015													103,177		108,293		110,633		108,235		1,633		5,058		7,523
2016															147,473		144,208		143,721		2,320		(3,752	)	9,703
2017																	155,139		160,240		4,553		5,101		13,021
2018																			143,280		13,286				9,235
																	Total		$	1,181,614



Line of business: Commercial fire and allied
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	53,219	$	72,181	$	77,732	$	82,809	$	86,930	$	87,544	$	87,721	$	88,037	$	88,159	$	88,334
2010			52,660		72,271		78,284		80,352		82,037		83,000		83,374		83,915		83,942
2011					85,585		104,800		109,429		112,497		116,614		118,183		120,178		120,731
2012							71,008		94,380		100,078		103,197		105,250		106,521		106,740
2013									59,331		78,226		82,853		86,115		89,200		91,493
2014											84,456		113,663		116,750		122,370		123,697
2015													67,217		90,454		95,515		101,367
2016															92,895		125,962		132,429
2017																	99,484		137,058
2018																			92,770
																	Total		$	1,078,561
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2009, net of reinsurance														522
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	103,575



Line of business: Commercial automobile
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2018
	For the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported claims		Cumulative development		Cumulative number of reported claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	80,021	$	69,328	$	68,569	$	64,121	$	64,516	$	63,605	$	63,560	$	63,567	$	63,509	$	63,506	$	—	(16,515	)	15,019
2010			75,781		68,068		65,860		67,015		67,563		67,296		68,086		67,910		67,893		5		(7,888	)	16,246
2011					84,887		87,299		90,750		92,519		92,379		91,336		90,766		90,838		199		5,951		15,248
2012							100,039		90,848		94,755		95,321		96,594		96,389		96,305		243		(3,734	)	14,364
2013									104,356		98,037		102,943		103,726		104,980		105,248		811		892		15,520
2014											107,723		106,076		113,720		118,869		120,385		1,706		12,662		17,277
2015													125,506		129,816		132,206		138,987		3,837		13,481		19,961
2016															174,018		175,357		174,337		10,723		319		27,040
2017																	227,919		224,553		28,591		(3,366	)	32,281
2018																			236,629		65,079				30,521
																	Total		$	1,318,681



Line of business: Commercial automobile
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	27,674	$	44,867	$	53,451	$	58,087	$	61,398	$	62,732	$	63,495	$	63,503	$	63,508	$	63,506
2010			29,329		41,141		52,953		57,947		62,231		65,169		67,622		67,852		67,853
2011					34,332		50,931		65,021		79,383		85,348		87,475		88,609		89,459
2012							39,247		57,201		71,469		82,944		90,292		93,179		94,747
2013									43,592		67,630		79,663		90,780		96,375		100,058
2014											45,704		68,033		87,590		99,922		109,682
2015													50,782		78,225		99,201		118,395
2016															66,013		103,528		128,157
2017																	81,311		126,644
2018																			81,572
																	Total		$	980,073
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2009, net of reinsurance														56
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	338,664



Line of business: Workers' compensation
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2018
	For the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported claims		Cumulative development		Cumulative number of reported claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	43,560	$	39,009	$	36,294	$	36,837	$	36,823	$	36,158	$	36,014	$	35,026	$	35,012	$	34,783	$	193	(8,777	)	4,265
2010			38,210		42,531		41,180		41,167		40,647		41,422		41,468		42,617		42,666		346		4,456		3,986
2011					39,967		38,481		35,352		34,309		33,585		33,314		33,352		32,707		425		(7,260	)	3,955
2012							48,848		46,279		42,158		38,423		38,553		39,015		39,182		503		(9,666	)	3,982
2013									64,048		62,579		56,369		54,584		52,761		51,753		781		(12,295	)	4,236
2014											64,051		60,729		58,284		56,630		54,636		1,106		(9,415	)	4,668
2015													53,788		55,578		51,003		46,682		935		(7,106	)	5,515
2016															70,419		66,575		61,648		2,042		(8,771	)	7,376
2017																	76,184		69,528		3,744		(6,656	)	7,283
2018																			71,972		5,885				5,478
																	Total		$	505,557



Line of business: Workers' compensation
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	10,478	$	20,292	$	24,189	$	27,747	$	29,898	$	31,003	$	31,886	$	32,911	$	33,117	$	33,313
2010			11,821		22,606		28,765		31,887		33,119		34,143		35,052		38,973		39,208
2011					10,322		21,678		26,033		27,497		28,247		29,022		29,453		29,700
2012							11,802		23,023		28,397		30,933		33,063		34,330		35,388
2013									14,136		30,209		38,023		42,941		45,078		47,071
2014											13,965		30,289		38,441		42,964		45,193
2015													12,063		27,304		35,229		38,424
2016															14,413		32,345		40,680
2017																	14,647		31,309
2018																			16,949
																	Total		$	357,235
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2009, net of reinsurance														20,232
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	168,554



Line of business: Personal
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2018
	For the years ended December 31,																				Total of incurred but not reported liabilities plus expected development on reported claims		Cumulative development		Cumulative number of reported claims
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	34,597	$	33,519	$	31,945	$	32,026	$	32,134	$	32,029	$	32,085	$	32,070	$	31,867	$	31,879	$	2	(2,718	)	13,502
2010			36,686		34,347		33,928		33,865		33,403		33,413		33,432		33,213		33,204		14		(3,482	)	13,330
2011					50,014		48,534		47,090		47,035		46,968		47,013		46,733		46,761		32		(3,253	)	14,846
2012							47,924		46,199		46,403		46,150		44,715		44,352		44,165		7		(3,759	)	10,776
2013									39,232		38,525		37,262		37,086		36,729		36,661		36		(2,571	)	9,240
2014											53,910		52,661		52,944		52,782		52,615		76		(1,295	)	10,929
2015													42,848		41,088		40,336		40,368		132		(2,480	)	9,522
2016															48,072		45,840		45,379		351		(2,693	)	11,840
2017																	60,330		59,342		733		(988	)	14,454
2018																			51,639		3,027				12,246
																	Total		$	442,013



Line of business: Personal
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	(Unaudited)
2009	$	22,086	$	27,926	$	29,801	$	30,829	$	31,564	$	31,644	$	31,718	$	31,804	$	31,837	$	31,849
2010			24,499		29,867		31,340		32,076		32,771		32,997		33,165		33,158		33,154
2011					36,489		43,801		45,306		45,949		46,487		46,573		46,575		46,650
2012							30,415		41,979		43,375		44,448		43,569		44,139		44,158
2013									25,505		32,788		34,297		35,306		36,155		36,323
2014											37,055		47,912		49,710		51,837		52,018
2015													29,551		37,431		39,027		39,428
2016															32,999		40,910		42,660
2017																	42,135		53,111
2018																			37,410
																	Total		$	416,761
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2009, net of reinsurance														1,418
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	26,668



	December 31, 2018
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses:
Commercial other liability	$	496,332
Commercial fire and allied	103,575
Commercial automobile	338,664
Commercial workers' compensation	168,554
Personal	26,668
All other lines	32,595
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses	1,166,388
Net outstanding liabilities for unpaid unallocated loss settlement expenses	86,753
Fair value adjustment (purchase accounting adjustment for Mercer acquisition)	2,248
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance	1,255,389

Reinsurance recoverable on unpaid losses and allocated loss settlement expenses:
Commercial other liability	22,556
Commercial fire and allied	2,723
Commercial automobile	3,166
Commercial workers' compensation	27,465
Personal	4
All other lines	3,329
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses	59,243
Reinsurance fair value amortization (purchase accounting adjustment for Mercer acquisition)	(2,149		)
Total reinsurance recoverable on unpaid losses and loss settlement expenses	57,094
Total gross liability for unpaid losses and loss settlement expenses	$	1,312,483



	Average annual percentage payout of incurred claims by age, net of reinsurance
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
	(Unaudited)
Commercial other liability	9.7	%	15.5	%	16.7	%	16.0	%	13.0	%	7.1	%	5.4	%	3.6	%	2.6	%	2.2	%
Commercial fire and allied	64.0	%	21.4	%	4.9	%	3.8	%	2.7	%	1.3	%	0.6	%	0.5	%	0.1	%	0.2	%
Commercial automobile	39.0	%	20.5	%	14.8	%	11.0	%	6.5	%	3.1	%	1.9	%	0.4	%	—	%	—	%
Commercial workers' compensation	26.6	%	29.3	%	14.1	%	7.6	%	4.2	%	3.0	%	2.2	%	4.3	%	0.6	%	0.6	%
Personal	71.9	%	19.1	%	4.0	%	2.4	%	1.0	%	0.6	%	0.2	%	0.1	%	—	%	—	%