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 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 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 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,	2019			2018			2017
Gross liability for losses and loss settlement expenses at beginning of year	$	1,312,483		$	1,224,183		$	1,123,896
Ceded losses and loss settlement expenses	(57,094		)	(59,871		)	(59,794		)
Net liability for losses and loss settlement expenses at beginning of year	$	1,255,389		$	1,164,312		$	1,064,102
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	835,507		$	785,778		$	779,966
Prior years	(5,335		)	(54,167		)	(54,253		)
Total incurred	$	830,172		$	731,611		$	725,713
Losses and loss settlement expense payments for claims occurring during
Current year	$	333,975		$	306,032		$	311,972
Prior years	398,368			334,502			313,531
Total paid	$	732,343		$	640,534		$	625,503
Net liability for losses and loss settlement expenses at end of year	$	1,353,218		$	1,255,389		$	1,164,312
Ceded loss and loss settlement expenses	68,536			57,094			59,871
Gross liability for losses and loss settlement expenses at end of year	$	1,421,754		$	1,312,483		$	1,224,183

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 2019 were our workers' compensation partially offset by unfavorable development primarily for commercial liability and commercial automobile. 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 LAE, where the reduction in LAE reserves was more than sufficient to offset paid LAE. The other lines with relatively small contributions to development, either favorable or unfavorable, generally experienced favorable development for LAE. Commercial liability unfavorable development was primarily from paid loss which exceeded reserve reductions for both reported claims and loss IBNR; additional unfavorable development came from LAE where paid LAE exceeded reductions of LAE reserves. Commercial liability and commercial automobile continue to be

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 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 LAE 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 LAE 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 LAE 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 LAE. 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.

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.

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.

The following tables provide information about incurred and paid losses and loss settlement expense development as of December 31, 2019, net of reinsurance, as well as cumulative development, cumulative claim frequency and IBNR liabilities. Claim data for Mercer Insurance Group, Inc., which was acquired on March 28, 2011, is presented retrospectively.

The cumulative number of reported claims, for calendar year 2019, 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, 2019
	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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	88,987	$	69,533	$	65,299	$	82,865	$	78,564	$	77,948	$	78,291	$	78,498	$	76,956	$	79,263	$	10,987	(9,724	)	5,359
2011			81,522		64,738		88,371		88,200		79,591		80,801		81,463		80,338		81,694		12,092		172		5,551
2012					100,389		96,158		94,195		91,980		92,537		91,346		89,731		91,571		14,677		(8,818	)	5,742
2013							104,982		91,460		90,502		86,119		85,399		88,816		86,082		6,199		(18,900	)	6,280
2014									118,928		117,958		106,486		97,809		102,487		105,507		6,080		(13,421	)	6,458
2015											137,386		125,307		120,005		127,091		129,945		15,253		(7,441	)	7,594
2016													139,144		130,041		136,275		142,397		22,149		3,253		8,635
2017															139,602		139,032		152,547		33,205		12,945		8,541
2018																	163,059		172,894		46,781		9,835		7,921
2019																			149,173		71,236				5,813
																	Total		$	1,191,073



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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	7,103	$	15,230	$	24,577	$	35,043	$	51,336	$	56,761	$	60,116	$	62,070	$	63,300	$	64,476
2011			6,236		13,670		26,260		40,595		50,146		56,150		62,165		64,541		66,500
2012					6,875		24,620		39,948		55,316		64,574		69,800		71,773		73,819
2013							9,835		25,228		39,953		54,559		65,773		72,115		75,961
2014									10,207		29,679		50,211		70,363		83,109		93,060
2015											11,185		27,182		53,901		74,292		96,339
2016													13,782		38,184		63,526		88,885
2017															17,716		43,172		70,500
2018																	16,200		44,772
2019																			18,221
																	Total		$	692,533
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2010, net of reinsurance														33,613
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	532,153



Line of business: Commercial fire and allied
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2019
	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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	113,139	$	106,152	$	108,246	$	83,836	$	83,932	$	83,767	$	83,981	$	84,213	$	84,123	$	84,251	$	100	(28,888	)	16,696
2011			148,220		142,330		117,082		120,492		119,820		120,219		121,434		121,319		121,749		261		(26,471	)	16,066
2012					138,602		110,448		108,774		108,047		107,958		108,623		109,687		109,480		495		(29,122	)	6,457
2013							91,521		88,550		91,498		92,212		93,826		93,858		92,988		139		1,467		6,650
2014									126,216		131,198		128,762		128,185		128,503		126,811		141		595		7,919
2015											103,177		108,293		110,633		108,235		105,218		237		2,041		7,553
2016													147,473		144,208		143,721		143,724		927		(3,749	)	9,794
2017															155,139		160,240		160,946		2,374		5,807		13,338
2018																	143,280		146,951		4,581		3,671		10,489
2019																			164,030		22,125				9,967
																	Total		$	1,256,148



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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	52,660	$	72,271	$	78,284	$	80,352	$	82,037	$	83,000	$	83,374	$	83,915	$	83,942	$	84,008
2011			85,585		104,800		109,429		112,497		116,614		118,183		120,178		120,731		121,063
2012					71,008		94,380		100,078		103,197		105,250		106,521		106,740		107,992
2013							59,331		78,226		82,853		86,115		89,200		91,493		92,012
2014									84,456		113,663		116,750		122,370		123,697		125,745
2015											67,217		90,454		95,515		101,367		104,115
2016													92,895		125,962		132,429		137,909
2017															99,484		137,058		145,900
2018																	92,770		123,559
2019																			100,980
																	Total		$	1,143,283
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2010, net of reinsurance														702
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	113,569



Line of business: Commercial automobile
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2019
	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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	75,781	$	68,068	$	65,860	$	67,015	$	67,563	$	67,296	$	68,086	$	67,910	$	67,893	$	67,878	$	2	(7,903	)	16,246
2011			84,887		87,299		90,750		92,519		92,379		91,336		90,766		90,838		90,643		16		5,756		15,253
2012					100,039		90,848		94,755		95,321		96,594		96,389		96,305		96,059		143		(3,980	)	14,364
2013							104,356		98,037		102,943		103,726		104,980		105,248		104,886		448		530		15,523
2014									107,723		106,076		113,720		118,869		120,385		121,077		1,013		13,354		17,318
2015											125,506		129,816		132,206		138,987		137,395		1,265		11,889		20,054
2016													174,018		175,357		174,337		175,657		4,583		1,639		27,181
2017															227,919		224,553		235,110		13,547		7,191		32,693
2018																	236,629		245,173		29,941		8,544		33,922
2019																			279,229		78,104				30,946
																	Total		$	1,553,107



Line of business: Commercial automobile
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	29,329	$	41,141	$	52,953	$	57,947	$	62,231	$	65,169	$	67,622	$	67,852	$	67,853	$	67,863
2011			34,332		50,931		65,021		79,383		85,348		87,475		88,609		89,459		90,515
2012					39,247		57,201		71,469		82,944		90,292		93,179		94,747		94,983
2013							43,592		67,630		79,663		90,780		96,375		100,058		101,580
2014									45,704		68,033		87,590		99,922		109,682		113,751
2015											50,782		78,225		99,201		118,395		129,317
2016													66,013		103,528		128,157		148,224
2017															81,311		126,644		166,170
2018																	81,572		138,092
2019																			91,919
																	Total		$	1,142,414
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2010, net of reinsurance														23
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	410,716



Line of business: Workers' compensation
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2019
	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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	38,210	$	42,531	$	41,180	$	41,167	$	40,647	$	41,422	$	41,468	$	42,617	$	42,666	$	42,877	$	287	4,667		3,989
2011			39,967		38,481		35,352		34,309		33,585		33,314		33,352		32,707		32,384		291		(7,583	)	3,960
2012					48,848		46,279		42,158		38,423		38,553		39,015		39,182		39,063		300		(9,785	)	3,987
2013							64,048		62,579		56,369		54,584		52,761		51,753		50,984		401		(13,064	)	4,249
2014									64,051		60,729		58,284		56,630		54,636		53,023		699		(11,028	)	4,741
2015											53,788		55,578		51,003		46,682		46,019		692		(7,769	)	5,600
2016													70,419		66,575		61,648		55,168		989		(15,251	)	7,791
2017															76,184		69,528		55,982		1,921		(20,202	)	7,963
2018																	71,972		67,883		3,364		(4,089	)	7,430
2019																			52,136		5,283				5,059
																	Total		$	495,519



Line of business: Workers' compensation
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	11,821	$	22,606	$	28,765	$	31,887	$	33,119	$	34,143	$	35,052	$	38,973	$	39,208	$	39,639
2011			10,322		21,678		26,033		27,497		28,247		29,022		29,453		29,700		29,890
2012					11,802		23,023		28,397		30,933		33,063		34,330		35,388		36,060
2013							14,136		30,209		38,023		42,941		45,078		47,071		47,572
2014									13,965		30,289		38,441		42,964		45,193		45,825
2015											12,063		27,304		35,229		38,424		39,305
2016													14,413		32,345		40,680		45,743
2017															14,647		31,309		38,083
2018																	16,949		35,369
2019																			13,582
																	Total		$	371,068
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2010, net of reinsurance														18,136
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	142,587



Line of business: Personal
	Incurred losses and allocated loss settlement expenses, net of reinsurance																				As of December 31, 2019
	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	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	36,686	$	34,347	$	33,928	$	33,865	$	33,403	$	33,413	$	33,432	$	33,213	$	33,204	$	33,189	$	2	(3,497	)	13,330
2011			50,014		48,534		47,090		47,035		46,968		47,013		46,733		46,761		46,752		—		(3,262	)	14,848
2012					47,924		46,199		46,403		46,150		44,715		44,352		44,165		44,158		1		(3,766	)	10,784
2013							39,232		38,525		37,262		37,086		36,729		36,661		36,486		7		(2,746	)	9,247
2014									53,910		52,661		52,944		52,782		52,615		52,702		24		(1,208	)	10,951
2015											42,848		41,088		40,336		40,368		40,220		79		(2,628	)	9,545
2016													48,072		45,840		45,379		45,961		212		(2,111	)	11,877
2017															60,330		59,342		58,695		410		(1,635	)	14,639
2018																	51,639		51,721		621		82		13,502
2019																			59,547		6,034				12,007
																	Total		$	469,431



Line of business: Personal
	Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
	For the years ended December 31,
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
	(Unaudited)
2010	$	24,499	$	29,867	$	31,340	$	32,076	$	32,771	$	32,997	$	33,165	$	33,158	$	33,154	$	33,162
2011			36,489		43,801		45,306		45,949		46,487		46,573		46,575		46,650		46,752
2012					30,415		41,979		43,375		44,448		43,569		44,139		44,158		44,158
2013							25,505		32,788		34,297		35,306		36,155		36,323		36,397
2014									37,055		47,912		49,710		51,837		52,018		52,543
2015											29,551		37,431		39,027		39,428		39,865
2016													32,999		40,910		42,660		44,046
2017															42,135		53,111		55,982
2018																	37,410		47,433
2019																			40,544
																	Total		$	440,882
					All outstanding liabilities for unpaid losses and loss settlement expenses before 2010, net of reinsurance														841
					Liabilities for unpaid losses and loss settlement expenses, net of reinsurance														$	29,390



	December 31, 2019
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses:
Commercial other liability	$	532,153
Commercial fire and allied	113,569
Commercial automobile	410,716
Commercial workers' compensation	142,587
Personal	29,390
All other lines	28,768
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses	1,257,183
Net outstanding liabilities for unpaid unallocated loss settlement expenses	94,359
Fair value adjustment (purchase accounting adjustment for Mercer acquisition)	1,676
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance	1,353,218

Reinsurance recoverable on unpaid losses and allocated loss settlement expenses:
Commercial other liability	29,070
Commercial fire and allied	8,652
Commercial automobile	993
Commercial workers' compensation	28,681
Personal	12
All other lines	2,731
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses	70,139
Reinsurance fair value amortization (purchase accounting adjustment for Mercer acquisition)	(1,603		)
Total reinsurance recoverable on unpaid losses and loss settlement expenses	68,536
Total gross liability for unpaid losses and loss settlement expenses	$	1,421,754



	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	%	15.3	%	17.1	%	16.7	%	14.1	%	7.3	%	4.6	%	2.5	%	2.0	%	1.5	%
Commercial fire and allied	64.3	%	21.5	%	4.8	%	3.6	%	2.4	%	1.5	%	0.7	%	0.7	%	0.2	%	0.1	%
Commercial automobile	37.7	%	19.9	%	15.2	%	11.6	%	7.0	%	3.3	%	2.0	%	0.5	%	0.6	%	—	%
Commercial workers' compensation	27.3	%	30.4	%	14.6	%	7.5	%	3.5	%	2.6	%	1.8	%	3.9	%	0.6	%	1.0	%
Personal	71.8	%	19.3	%	3.9	%	2.4	%	0.8	%	0.7	%	0.2	%	—	%	0.1	%	—	%