UNITED FIRE GROUP INC - Quarter Report: 2014 March (Form 10-Q)

(State of Incorporation)

(IRS Employer Identification No.)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

_______________________

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2014

Commission File Number 001-34257

_____________________________

UNITED FIRE GROUP, INC.

(Exact name of registrant as specified in its charter)

____________________________

118 Second Avenue, S.E., Cedar Rapids, Iowa 52401

(Address of principal executive offices) (Zip Code)

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

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 o

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 definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):



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

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

As of May 2, 2014, 25,399,846 shares of common stock were outstanding.

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United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

March 31, 2014



	Page
Forward-Looking Information	1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	2

Consolidated Statements of Income and Comprehensive Income (unaudited) for the three month periods ended March 31, 2014 and 2013	3

Consolidated Statement of Stockholders’ Equity (unaudited) for the three month period ended March 31, 2014	4

Consolidated Statements of Cash Flows (unaudited) for the three month periods ended March 31, 2014 and 2013	5

Notes to Unaudited Consolidated Financial Statements	6

Review Report of Independent Registered Public Accounting Firm	27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3. Quantitative and Qualitative Disclosures about Market Risk	41

Item 4. Controls and Procedures	41

Part II. Other Information

Item 1. Legal Proceedings	42

Item 1A. Risk Factors	42

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3. Defaults Upon Senior Securities	42

Item 4. Mine Safety Disclosures	42

Item 5. Other Information	42

Item 6. Exhibits	43

Signatures	44

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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 "Company", "we", "us", or "our"), 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" in our 2013 Annual Report on Form 10-K and Part II, 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 the Company 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


•	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.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

United Fire Group, Inc. Consolidated Balance Sheets

(In Thousands, Except Share Data)	March 31, 2014		December 31, 2013
	(unaudited)
ASSETS
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $656 in 2014 and $669 in 2013)	$	644	$	656
Available-for-sale, at fair value (amortized cost $2,759,461 in 2014 and $2,733,557 in 2013)	2,805,723		2,751,256
Trading securities, at fair value (amortized cost $13,904 in 2014 and $8,049 in 2013)	16,095		9,940
Equity securities
Available-for-sale, at fair value (cost $71,021 in 2014 and $70,957 in 2013)	232,377		229,368
Trading securities, at fair value (cost $2,704 in 2014 and $2,367 in 2013)	3,037		2,487
Mortgage loans	4,368		4,423
Policy loans	6,177		6,261
Other long-term investments	46,513		44,946
Short-term investments	800		800
	3,115,734		3,050,137
Cash and cash equivalents	68,663		92,193
Accrued investment income	28,686		27,923
Premiums receivable (net of allowance for doubtful accounts of $970 in 2014 and $896 in 2013)	236,424		218,635
Deferred policy acquisition costs	143,296		150,092
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $38,058 in 2014 and $36,972 in 2013)	47,974		47,218
Reinsurance receivables and recoverables	85,281		87,451
Prepaid reinsurance premiums	3,630		3,160
Income taxes receivable	—		1,786
Goodwill and intangible assets	26,855		27,047
Other assets	12,706		15,030
TOTAL ASSETS	$	3,769,249	$	3,720,672
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance	$	974,246	$	960,651
Life insurance	1,471,584		1,472,132
Unearned premiums	360,782		340,464
Accrued expenses and other liabilities	124,124		142,677
Income taxes payable	1,948		—
Deferred income taxes	28,458		21,915
TOTAL LIABILITIES	$	2,961,142	$	2,937,839
Stockholders’ Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,396,845 and 25,360,893 shares issued and outstanding in 2014 and 2013, respectively	$	25	$	25
Additional paid-in capital	212,904		211,574
Retained earnings	492,848		484,084
Accumulated other comprehensive income, net of tax	102,330		87,150
TOTAL STOCKHOLDERS’ EQUITY	$	808,107	$	782,833
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,769,249	$	3,720,672

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

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United Fire Group, Inc.

Consolidated Statements of Income and Comprehensive Income (Unaudited)



	Three Months Ended March 31,
(In Thousands, Except Share Data)	2014			2013

Revenues
Net premiums earned	$	193,341		$	176,817
Investment income, net of investment expenses	26,762			26,464
Net realized investment gains (includes reclassifications for net unrealized investment gains on available-for-sale securities of $1,482 in 2014; and $1,236 in 2013; previously included in accumulated other comprehensive income)	2,194			1,909
Other income	607			115
Total revenues	$	222,904		$	205,305
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	125,237		$	97,470
Increase in liability for future policy benefits	7,821			8,236
Amortization of deferred policy acquisition costs	39,534			38,081
Other underwriting expenses (includes reclassifications for employee benefit costs of $768 in 2014; and $1,242 in 2013; previously included in accumulated other comprehensive income)	26,428			22,348
Interest on policyholders’ accounts	7,987			9,320
Total benefits, losses and expenses	$	207,007		$	175,455
Income before income taxes	$	15,897		$	29,850
Federal income tax expense (includes reclassifications of ($250) in 2014; and $2 in 2013; previously included in accumulated other comprehensive income)	2,566			7,457
Net income	$	13,331		$	22,393
Other comprehensive income
Change in net unrealized appreciation on investments	$	24,069		$	14,488
Change in liability for underfunded employee benefit plans	—			—
Other comprehensive income, before tax and reclassification adjustments	$	24,069		$	14,488
Income tax effect	(8,425		)	(5,070		)
Other comprehensive income, after tax, before reclassification adjustments	$	15,644		$	9,418
Reclassification adjustment for net realized investment gains included in income	$	(1,482	)	$	(1,236	)
Reclassification adjustment for employee benefit costs included in expense	768			1,242
Total reclassification adjustments, before tax	$	(714	)	$	6
Income tax effect	250			(2		)
Total reclassification adjustments, after tax	$	(464	)	$	4
Comprehensive income	$	28,511		$	31,815

Weighted average common shares outstanding	25,372,280			25,245,497
Basic earnings per common share	$	0.53		$	0.89
Diluted earnings per common share	0.52			0.88

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

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United Fire Group, Inc.

Consolidated Statement of Stockholders’ Equity (Unaudited)



(In Thousands, Except Share Data)	Three Months Ended March 31, 2014

Common stock
Balance, beginning of year	$	25
Shares issued for stock-based awards (35,952 shares)	—
Balance, end of period	$	25

Additional paid-in capital
Balance, beginning of year	$	211,574
Compensation expense and related tax benefit for stock-based award grants	507
Shares issued for stock-based awards	823
Balance, end of period	$	212,904

Retained earnings
Balance, beginning of year	$	484,084
Net income	13,331
Dividends on common stock ($0.18 per share)	(4,567		)
Balance, end of period	$	492,848

Accumulated other comprehensive income, net of tax
Balance, beginning of year	$	87,150
Change in net unrealized investment appreciation⁽¹⁾	14,681
Change in liability for underfunded employee benefit plans⁽²⁾	499
Balance, end of period	$	102,330

Summary of changes
Balance, beginning of year	$	782,833
Net income	13,331
All other changes in stockholders’ equity accounts	11,943
Balance, end of period	$	808,107


(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 reclassification adjustments and income taxes.

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

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United Fire Group, Inc.

Consolidated Statements of Cash Flows (Unaudited)



	Three Months Ended March 31,
(In Thousands)	2014			2013
Cash Flows From Operating Activities
Net income	$	13,331		$	22,393
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	3,701			3,981
Depreciation and amortization	2,295			1,785
Stock-based compensation expense	437			411
Net realized investment gains	(2,194		)	(1,909		)
Net cash flows from trading investments	(5,673		)	46
Deferred income tax expense (benefit)	(1,559		)	460
Changes in:
Accrued investment income	(763		)	296
Premiums receivable	(17,789		)	(19,631		)
Deferred policy acquisition costs	(2,124		)	(2,917		)
Reinsurance receivables	2,170			(5,741		)
Prepaid reinsurance premiums	(470		)	(255		)
Income taxes receivable	1,786			14,150
Other assets	2,324			1,013
Future policy benefits and losses, claims and loss settlement expenses	19,648			6,364
Unearned premiums	20,318			14,670
Accrued expenses and other liabilities	(17,785		)	(5,068		)
Income taxes payable	1,948			—
Deferred income taxes	(72		)	1,665
Other, net	(1,038		)	31
Total adjustments	$	5,160		$	9,351
Net cash provided by operating activities	$	18,491		$	31,744
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	$	—		$	2,810
Proceeds from call and maturity of held-to-maturity investments	11			19
Proceeds from call and maturity of available-for-sale investments	103,480			127,514
Proceeds from short-term and other investments	764			407
Purchase of available-for-sale investments	(131,989		)	(142,615		)
Purchase of short-term and other investments	(1,152		)	(900		)
Net purchases and sales of property and equipment	(2,860		)	(386		)
Net cash used in investing activities	$	(31,746	)	$	(13,151	)
Cash Flows From Financing Activities
Policyholders’ account balances
Deposits to investment and universal life contracts	$	49,281		$	25,369
Withdrawals from investment and universal life contracts	(55,882		)	(46,219		)
Payment of cash dividends	(4,567		)	(3,786		)
Issuance of common stock	823			603
Tax impact from issuance of common stock	70			(78		)
Net cash used in financing activities	$	(10,275	)	$	(24,111	)
Net Change in Cash and Cash Equivalents	$	(23,530	)	$	(5,518	)
Cash and Cash Equivalents at Beginning of Period	92,193			107,466
Cash and Cash Equivalents at End of Period	$	68,663		$	101,948

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

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UNITED FIRE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, unless otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

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 and the District of Columbia, and as a life insurer in 37 states.

Basis of Presentation

The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K, including certain financial statement footnote disclosures, are not required by the rules and regulations of the SEC for interim financial reporting and have been condensed or omitted.

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.

In the preparation of the accompanying unaudited 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.

Management of United Fire believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013. The review report of Ernst & Young LLP as of March 31, 2014 and for the three-month periods ended March 31, 2014 and 2013 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."

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.

For the three-month periods ended March 31, 2014 and 2013, we made payments for income taxes totaling $1,007 and $5, respectively. We received tax refunds of $615 and $8,744, respectively, during the three-month periods ended March 31, 2014 and 2013.

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For the three-month periods ended March 31, 2014 and 2013, we made no interest payments (excluding 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, including the related amortization recognized for the three-month period ended March 31, 2014.




	Property & Casualty			Life Insurance			Total
Recorded asset at beginning of period	$	67,663		$	82,429		$	150,092
Underwriting costs deferred	39,822			1,836			41,658
Amortization of deferred policy acquisition costs	(37,876		)	(1,658		)	(39,534		)
Ending unamortized deferred policy acquisition costs	$	69,609		$	82,607		$	152,216
Change in "shadow" deferred policy acquisition costs	—			(8,920		)	(8,920		)
Recorded asset at end of period	$	69,609		$	73,687		$	143,296

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 expected 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 decreased the DAC asset by $5,513 at March 31, 2014 and increased the DAC asset by $3,407 at December 31, 2013, 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 reported a federal income tax expense of $2,566 and $7,457 for the three-month periods ended March 31, 2014 and 2013, respectively. Our effective tax rate is different than the federal statutory rate of 35.0 percent due principally to the effect of tax-exempt municipal bond interest income and non-taxable dividend income.

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We did not recognize any liability for unrecognized tax benefits at March 31, 2014 or December 31, 2013. 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.

Recently Issued Accounting Standards

Adopted Accounting Standards in 2014

Unrecognized tax benefit

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. The Company adopted the new guidance effective January 1, 2014. The adoption of the new guidance had no impact on the Company's financial position or results of operations.

NOTE 2. SUMMARY OF INVESTMENTS

Fair Value of Investments

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 March 31, 2014 and December 31, 2013, is as follows:

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March 31, 2014
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	$	249	$	4	$	—	$	253
Corporate bonds - financial services	200		—		—		200
Mortgage-backed securities	195		8		—		203
Total Held-to-Maturity Fixed Maturities	$	644	$	12	$	—	$	656
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	32,539	$	346	$	130	$	32,755
U.S. government agency	319,146		1,175		11,641		308,680
States, municipalities and political subdivisions	699,631		33,156		5,191		727,596
Foreign bonds	157,747		6,096		104		163,739
Public utilities	209,721		6,719		764		215,676
Corporate bonds
Energy	156,177		4,667		682		160,162
Industrials	227,612		6,220		1,209		232,623
Consumer goods and services	171,884		4,454		597		175,741
Health care	82,693		3,400		552		85,541
Technology, media and telecommunications	119,579		3,198		1,516		121,261
Financial services	241,936		8,780		272		250,444
Mortgage-backed securities	20,919		401		215		21,105
Collateralized mortgage obligations	316,736		2,224		11,941		307,019
Asset-backed securities	3,141		240		—		3,381
Total Available-for-Sale Fixed Maturities	$	2,759,461	$	81,076	$	34,814	$	2,805,723
Equity securities
Common stocks
Public utilities	$	7,231	$	10,231	$	—	$	17,462
Energy	5,094		9,562		—		14,656
Industrials	13,286		32,197		34		45,449
Consumer goods and services	10,363		10,933		3		21,293
Health care	7,920		17,025		—		24,945
Technology, media and telecommunications	6,204		7,176		58		13,322
Financial services	15,939		74,451		113		90,277
Nonredeemable preferred stocks	4,984		11		22		4,973
Total Available-for-Sale Equity Securities	$	71,021	$	161,586	$	230	$	232,377
Total Available-for-Sale Securities	$	2,830,482	$	242,662	$	35,044	$	3,038,100

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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

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Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at March 31, 2014, 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
March 31, 2014	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	135	$	136	$	247,860	$	251,533	$	1,527	$	1,527
Due after one year through five years	314		317		928,808		976,157		6,926		8,174
Due after five years through 10 years	—		—		826,150		841,995		550		684
Due after 10 years	—		—		415,847		404,533		4,901		5,710
Asset-backed securities	—		—		3,141		3,381		—		—
Mortgage-backed securities	195		203		20,919		21,105		—		—
Collateralized mortgage obligations	—		—		316,736		307,019		—		—
	$	644	$	656	$	2,759,461	$	2,805,723	$	13,904	$	16,095

Net Realized Investment Gains and Losses

Net realized gains on disposition of investments are computed using the specific identification method and are included in the computation of net income. A summary of the components of net realized investment gains is as follows:



	Three Months Ended March 31,
	2014		2013
Net realized investment gains
Fixed maturities:
Available-for-sale	$	647	$	720
Trading securities
Change in fair value	300		560
Sales	235		—
Equity securities
Available-for-sale	835		516
Trading securities - change in fair value	177		113
Total net realized investment gains	$	2,194	$	1,909

The proceeds and gross realized gains on the sale of available-for-sale securities are as follows:



	Three Months Ended March 31,
	2014		2013
Proceeds from sales	$	—	$	2,810
Gross realized gains	—		142
Gross realized losses	—		—

There were no sales of held-to-maturity securities during the three-month periods ended March 31, 2014 and 2013.

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. Our portfolio of trading securities had a fair value of $19,132 and $12,427 at March 31, 2014 and December 31, 2013, respectively.

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Unrealized Appreciation

A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:



	Three Months Ended March 31,
	2014			2013
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	28,563		$	(9,598	)
Available-for-sale equity securities	2,945			17,978
Deferred policy acquisition costs	(8,920		)	4,871
Income tax effect	(7,907		)	(4,637		)
Total change in net unrealized investment appreciation, net of tax	$	14,681		$	8,614

We continually 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 ("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 March 31, 2014 and December 31, 2013. 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 March 31, 2014, 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, and unless otherwise noted, these losses do not warrant the recognition of an OTTI charge at March 31, 2014. 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 to 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, and unless otherwise noted, these losses do not warrant the recognition of an OTTI charge at March 31, 2014. Our largest unrealized loss greater than 12 months on an individual equity security at March 31, 2014 was $66. 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.

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March 31, 2014	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	12	$	11,663	$	130	—	$	—	$	—	$	11,663	$	130
U.S. government agency	75	194,814		11,330		2	4,689		311		199,503		11,641
States, municipalities and political subdivisions	108	89,654		3,227		37	32,844		1,964		122,498		5,191
Foreign bonds	3	6,231		104		—	—		—		6,231		104
Public utilities	23	46,900		764		—	—		—		46,900		764
Corporate bonds
Energy	7	17,647		395		1	4,053		287		21,700		682
Industrials	14	34,997		655		2	7,482		554		42,479		1,209
Consumer goods and services	10	28,316		363		7	5,115		234		33,431		597
Health care	5	15,026		362		2	4,480		190		19,506		552
Technology, media and telecommunications	7	25,434		675		2	7,782		841		33,216		1,516
Financial services	5	12,252		239		1	505		33		12,757		272
Mortgage-backed securities	11	3,707		120		7	3,086		95		6,793		215
Collateralized mortgage obligations	75	143,390		6,319		34	69,064		5,622		212,454		11,941
Total Available-for-Sale Fixed Maturities	355	$	630,031	$	24,683	95	$	139,100	$	10,131	$	769,131	$	34,814
Equity securities
Common stocks
Industrials	—	$	—	$	—	2	$	78	$	34	$	78	$	34
Consumer goods and services	1	15		3		—	—		—		15		3
Technology, media and telecommunications	—	—		—		6	231		58		231		58
Financial services	—	—		—		4	230		113		230		113
Nonredeemable preferred stocks	—	—		—		2	1,210		22		1,210		22
Total Available-for-Sale Equity Securities	1	$	15	$	3	14	$	1,749	$	227	$	1,764	$	230
Total Available-for-Sale Securities	356	$	630,046	$	24,686	109	$	140,849	$	10,358	$	770,895	$	35,044

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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

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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.

When possible, 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 value on market prices obtained from independent pricing services and brokers or on valuation techniques 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. Our valuation techniques are discussed in more detail later in this section.

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 fair value of the partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the partnerships. In management’s opinion, these values represent a reasonable estimate of fair value. We have not adjusted the net asset value provided by the fund managers.

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 pretax 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.

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A summary of the carrying value and estimated fair value of our financial instruments at March 31, 2014 and December 31, 2013 is as follows:



	March 31, 2014				December 31, 2013
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	656	$	644	$	669	$	656
Available-for-sale securities	2,805,723		2,805,723		2,751,256		2,751,256
Trading securities	16,095		16,095		9,940		9,940
Equity securities:
Available-for-sale securities	232,377		232,377		229,368		229,368
Trading securities	3,037		3,037		2,487		2,487
Mortgage loans	4,724		4,368		4,724		4,423
Policy loans	6,177		6,177		6,261		6,261
Other long-term investments	46,513		46,513		44,946		44,946
Short-term investments	800		800		800		800
Cash and cash equivalents	68,663		68,663		92,193		92,193
Liabilities
Policy reserves
Annuity (accumulations) ⁽¹⁾	$	954,214	$	920,038	$	941,636	$	925,832
Annuity (benefit payments)	142,900		94,163		140,276		94,805

(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 experience and who have demonstrated knowledge of the subject security. We request and utilize one broker quote per security.

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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 March 31, 2014 and 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 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 March 31, 2014 and December 31, 2013:

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March 31, 2014			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities
Bonds
U.S. Treasury	$	32,755	$	—	$	32,755	$	—
U.S. government agency	308,680		—		308,680		—
States, municipalities and political subdivisions	727,596		—		726,898		698
Foreign bonds	163,739		—		163,739		—
Public utilities	215,676		—		215,676		—
Corporate bonds
Energy	160,162		—		160,162		—
Industrials	232,623		—		232,623		—
Consumer goods and services	175,741		—		174,322		1,419
Health care	85,541		—		85,541		—
Technology, media and telecommunications	121,261		—		121,261		—
Financial services	250,444		—		238,741		11,703
Mortgage-backed securities	21,105		—		21,105		—
Collateralized mortgage obligations	307,019		—		307,019		—
Asset-backed securities	3,381		—		1,468		1,913
Total Available-for-Sale Fixed Maturities	$	2,805,723	$	—	$	2,789,990	$	15,733
Equity securities
Common stocks
Public utilities	$	17,462	$	17,462	$	—	$	—
Energy	14,656		14,656		—		—
Industrials	45,449		45,430		19		—
Consumer goods and services	21,293		21,293		—		—
Health care	24,945		24,945		—		—
Technology, media and telecommunications	13,322		13,322		—		—
Financial services	90,277		86,322		64		3,891
Nonredeemable preferred stocks	4,973		1,763		3,210		—
Total Available-for-Sale Equity Securities	$	232,377	$	225,193	$	3,293	$	3,891
Total Available-for-Sale Securities	$	3,038,100	$	225,193	$	2,793,283	$	19,624
TRADING
Bonds
Foreign bonds	$	1,252	$	—	$	1,252	$	—
Corporate bonds
Industrials	1,559		—		1,559		—
Consumer goods and services	1,096		—		1,096		—
Health care	2,172		—		2,172		—

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Technology, media and telecommunications	2,925		—		2,925		—
Financial services	3,493		—		3,493		—
Redeemable preferred stocks	3,598		3,598		—		—
Equity securities
Energy	544		544		—		—
Consumer goods and services	30		30		—		—
Health care	383		383		—		—
Technology, media and telecommunications	379		379		—		—
Nonredeemable preferred stocks	1,701		1,701		—		—
Total Trading Securities	$	19,132	$	6,635	$	12,497	$	—
Short-Term Investments	$	800	$	800	$	—	$	—
Money Market Accounts	$	16,259	$	16,259	$	—	$	—
Total Assets Measured at Fair Value	$	3,074,291	$	248,887	$	2,805,780	$	19,624

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December 31, 2013			Fair Value Measurements
Description	Total		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		—

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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

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 three-month period ended March 31, 2014, 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 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 the three-month period ended March 31, 2014:



	States, municipalities and political subdivisions		Corporate bonds			Asset-backed securities			Equities			Total
Balance at January 1, 2014	$	698	$	13,480		$	2,029		$	3,781		$	19,988
Unrealized losses⁽¹⁾	—		(62		)	(5		)	—			(67		)
Purchases	—		—			—			144			144
Disposals	—		(296		)	(111		)	(34		)	(441		)
Balance at March 31, 2014	$	698	$	13,122		$	1,913		$	3,891		$	19,624

(1) 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.

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NOTE 4. EMPLOYEE BENEFITS

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
Three Months Ended March 31,	2014			2013			2014		2013
Net periodic benefit cost
Service cost	$	1,303		$	1,282		$	924	$	753
Interest cost	1,468			1,262			586		424
Expected return on plan assets	(1,739		)	(1,336		)	—		—
Amortization of net loss	544			1,106			224		136
Net periodic benefit cost	$	1,576		$	2,314		$	1,734	$	1,313

Employer Contributions

We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013 that we expected to contribute $6,260 to the pension plan in 2014. For the three-month period ended March 31, 2014, we contributed $1,750 to the pension plan. We anticipate that the total contribution in 2014 will not vary significantly from our expected contribution.

NOTE 5. STOCK-BASED COMPENSATION

Non-qualified Employee Stock Award Plan

The United Fire and Casualty Company 2008 Stock Plan (the "Stock Plan") authorizes 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 our employees, with 40,861 authorized shares remaining available for future issuance at March 31, 2014. The 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 Stock Plan. Pursuant to the 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 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 Stock Plan are granted at the market value of our common stock on the date of the grant. Restricted stock awards fully vest after five 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.

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The activity in the Stock Plan is displayed in the following table:



Authorized Shares Available for Future Award Grants	Three Months Ended March 31, 2014		From Inception to March 31, 2014
Beginning balance	353,649		1,900,000
Number of awards granted	(313,288	)	(1,995,784	)
Number of awards forfeited or expired	500		136,645
Ending balance	40,861		40,861
Number of option awards exercised	26,532		408,300
Number of unrestricted stock awards granted	—		4,555
Number of restricted stock awards vested	—		18,576

Non-qualified Non-employee Director Stock Option and Restricted Stock Plan

The United Fire and Casualty Company 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 March 31, 2014, 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	Three Months Ended March 31, 2014	From Inception to March 31, 2014
Beginning balance	103,912	300,000
Number of awards granted	—	(202,091	)
Number of awards forfeited or expired	—	6,003
Ending balance	103,912	103,912
Number of option awards exercised	—	3,156
Number of restricted stock awards vested	—	6,402

Stock-Based Compensation Expense

For the three-month periods ended March 31, 2014 and 2013, we recognized stock-based compensation expense of $437 and $411, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

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As of March 31, 2014, we had $6,439 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized over the remainder of 2014 and 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	$	1,421
2015	1,715
2016	1,290
2017	1,144
2018	779
2019	90
Total	$	6,439

NOTE 6. 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 seven domestic locations from which it conducts its business. The life insurance segment operates from our home office. Because all of our insurance is sold domestically, we have no revenues allocable to foreign operations.

We evaluate the two segments on the basis of both statutory accounting practices prescribed or permitted by our states of domicile and GAAP. We analyze results based on profitability (i.e., loss ratios), expenses, and return on equity. The basis we use to determine and analyze segments and to measure segment profit or loss have not changed from that reported in our Annual Report on Form 10-K for the year ended December 31, 2013.

We have reconciled the following table for the three-month periods ended March 31, 2014 and 2013 to the amounts reported in our unaudited Consolidated Financial Statements to adjust for intersegment eliminations.



	Property and Casualty Insurance		Life Insurance			Total
Three Months Ended March 31, 2014
Net premiums earned	$	179,494	$	13,980		$	193,474
Investment income, net of investment expenses	11,113		15,599			26,712
Net realized investment gains	1,367		827			2,194
Other income	480		127			607
Total reportable segment	$	192,454	$	30,533		$	222,987
Intersegment eliminations	50		(133		)	(83		)
Total revenues	$	192,504	$	30,400		$	222,904
Net income	$	11,811	$	1,520		$	13,331
Assets	$	2,032,501	$	1,736,748		$	3,769,249
Invested assets	$	1,486,783	$	1,628,951		$	3,115,734
Three Months Ended March 31, 2013
Net premiums earned	$	162,701	$	14,239		$	176,940
Investment income, net of investment expenses	10,421		15,979			26,400
Net realized investment gains	1,029		880			1,909
Other income	12		103			115
Total reportable segment	$	174,163	$	31,201		$	205,364
Intersegment eliminations	64		(123		)	(59		)
Total revenues	$	174,227	$	31,078		$	205,305
Net income	$	20,730	$	1,663		$	22,393
Assets	$	1,941,227	$	1,783,463		$	3,724,690
Invested assets	$	1,378,188	$	1,685,171		$	3,063,359

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NOTE 7. 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 for the three-month periods ended March 31, 2014 and 2013:



	Three Months Ended March 31,
(In Thousands Except Share Data)	2014				2013
	Basic		Diluted		Basic		Diluted
Net income	$	13,331	$	13,331	$	22,393	$	22,393
Weighted-average common shares outstanding	25,372,280		25,372,280		25,245,497		25,245,497
Add dilutive effect of restricted stock awards	—		102,635		—		79,787
Add dilutive effect of stock options	—		115,292		—		15,385
Weighted-average common shares	25,372,280		25,590,207		25,245,497		25,340,669
Earnings per common share	$	0.53	$	0.52	$	0.89	$	0.88
Awards excluded from diluted earnings per share calculation⁽¹⁾	—		908,480		—		643,066


(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.

NOTE 8. 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 of up to $5,000.

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.

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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 shareholders' equity.

There was no outstanding balance on the credit facility at March 31, 2014 and 2013. For the three-month period ended March 31, 2014 and 2013, we did not incur any interest expense related to this credit facility. We were in compliance with all covenants for the credit agreement at March 31, 2014.

NOTE 9. 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 three-month period ended March 31, 2014:



				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs			Total
Balance as of January 1, 2014	$	116,601		$	(29,451	)	$	87,150
Change in accumulated other comprehensive income before reclassifications	15,644			—			15,644
Reclassification adjustments from accumulated other comprehensive income	(963		)	499			(464		)
Balance as of March 31, 2014	$	131,282		$	(28,952	)	$	102,330

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Review Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

United Fire Group, Inc.

We have reviewed the consolidated balance sheet of United Fire Group, Inc. as of March 31, 2014, and the related consolidated statements of income and comprehensive income for the three-month periods ended March 31, 2014 and 2013, the consolidated statements of cash flows for the three-month periods ended March 31, 2014 and 2013, and the consolidated statement of stockholders' equity for the three-month period ended March 31, 2014. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Fire Group, Inc. as of December 31, 2013, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 5, 2014. In our opinion, the accompanying consolidated balance sheet of United Fire Group, Inc. as of December 31, 2013 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.



	/s/ Ernst & Young LLP
	Ernst & Young LLP

Des Moines, Iowa

May 6, 2014

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Part I, Item 1 "Financial Statements."

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our 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 that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Results of Operations and Financial Condition presented in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no changes in our critical accounting policies from December 31, 2013.

INTRODUCTION

The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial position. Our Management's Discussion and Analysis should be read in conjunction with our consolidated financial statements and related notes, including those in our Annual Report on Form 10-K for the year ended December 31, 2013. When we provide information on a statutory basis, we label it as such, otherwise, all other data is presented in accordance with GAAP.

OUR BUSINESS

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("United Fire", the "Registrant", the "Company", "we", "us", or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional offices. Our property and casualty insurance company subsidiaries are licensed in 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, each with a wide range of products:


•	property and casualty insurance, which includes commercial lines insurance, personal lines 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 each has different products, pricing, and expense structures.

For the three-month period ended March 31, 2014, property and casualty insurance business accounted for approximately 93.0 percent of our net premiums earned, of which 90.6 percent was generated from commercial

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lines. Life insurance business accounted for approximately 7.0 percent of our net premiums earned, of which 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, which is in runoff, 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 the three-month period ended March 31, 2014, approximately 47.7 percent of our property and casualty premiums were written in Texas, Iowa, California, New Jersey, and Missouri; approximately 64.8 percent of our life insurance premiums were written in Iowa, Illinois, Nebraska, Wisconsin and Minnesota.

Segment 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 this Management's Discussion and Analysis is reported on a pre-tax basis. Additional segment information is presented in Part I, Item 1, Note 6 "Segment Information" to the unaudited 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, effective use of ceded reinsurance and effective and efficient use of technology.

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CONSOLIDATED FINANCIAL HIGHLIGHTS



	Three Months Ended March 31,
(In Thousands)	2014		2013		%
Revenues
Net premiums earned	$	193,341	$	176,817	9.3	%
Investment income, net of investment expenses	26,762		26,464		1.1
Net realized investment gains	2,194		1,909		14.9
Other income	607		115		NM
Total revenues	$	222,904	$	205,305	8.6	%

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	125,237	$	97,470	28.5	%
Increase in liability for future policy benefits	7,821		8,236		(5.0	)
Amortization of deferred policy acquisition costs	39,534		38,081		3.8
Other underwriting expenses	26,428		22,348		18.3
Interest on policyholders' accounts	7,987		9,320		(14.3	)
Total benefits, losses and expenses	$	207,007	$	175,455	18.0	%

Income before income taxes	$	15,897	$	29,850	(46.7	)%
Federal income tax expense	2,566		7,457		(65.6	)
Net income	$	13,331	$	22,393	(40.5	)%

NM=Not meaningful

The following is a summary of our financial performance for the three-month period ended March 31, 2014:

Consolidated Results of Operations

For the three-month period ended March 31, 2014, net income was $13.3 million compared to $22.4 million for the same period of 2013, driven primarily by an increase in losses and loss settlement expenses which was partially offset by growth in property and casualty premium revenue. Consolidated net premiums earned increased to $193.3 million, compared to $176.8 million for the same period of 2013. 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.

Losses and loss settlement expenses increased by $27.8 million during the first quarter of 2014 compared to the same period of 2013. The increase is primarily attributable to losses from a single large claim (a large explosion in a suburban townhome community), an increase in our annual aggregate reinsurance deductible, a decrease in favorable reserve development and an increase in the frequency of claims associated with the harsh winter weather experienced in the United States in 2014, partially offset by a decrease in catastrophe loss experience. Pre-tax catastrophe losses totaled $3.3 million compared to $4.5 million in the same period of 2013.

Consolidated Financial Condition

At March 31, 2014, the book value per share of our common stock was $31.82. We did not repurchase any shares of our common stock in the three-month period ended March 31, 2014. Under our share repurchase program, which is scheduled to expire in August 2014, we are authorized to repurchase an additional 1,070,117 shares of our common stock.

Net unrealized investment gains totaled $131.3 million as of March 31, 2014, an increase of $14.7 million, net of tax, or 12.6 percent, since December 31, 2013. The increase in net unrealized investment gains resulted from an increase in the fair value of the fixed maturity investment portfolio and also, to a lesser extent, an increase in the fair value of our equity investment portfolio.

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Our stockholders' equity increased to $808.1 million at March 31, 2014, from $782.8 million at December 31, 2013. The increase was primarily attributable to net income of $13.3 million and an increase in net unrealized investment gains of $14.7 million, net of tax, partially offset by shareholder dividends of $4.6 million.

RESULTS OF OPERATIONS

Property and Casualty Insurance Segment Results



	Three Months Ended March 31,
(In Thousands Except Ratios)	2014			2013
Net premiums written	$	199,329		$	177,119
Net premiums earned	$	179,494		$	162,701
Losses and loss settlement expenses	(118,656		)	(92,093		)
Amortization of deferred policy acquisition costs	(37,876		)	(36,355		)
Other underwriting expenses	(22,260		)	(18,415		)
Underwriting gain	$	702		$	15,838

Investment income, net of investment expenses	11,163			10,485
Net realized investment gains	1,367			1,029
Other income	480			12
Income before income taxes	$	13,712		$	27,364

GAAP Ratios:
Net loss ratio (without catastrophes)	64.3		%	53.8		%
Catastrophes - effect on net loss ratio	1.8			2.8
Net loss ratio ⁽¹⁾	66.1		%	56.6		%
Expense ratio ⁽²⁾	33.5			33.7
Combined ratio ⁽³⁾	99.6		%	90.3		%

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

(2) The 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.

(3) The GAAP 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 three-month period ended March 31, 2014, our property and casualty segment reported income before taxes of $13.7 million, or a decrease of $13.7 million, compared to the same period of 2013. The decrease in the three months ended March 31, 2014 is primarily due to an increase in losses and loss settlement expenses partially offset by an increase in net premiums earned.

Net premiums earned increased 10.3 percent to $179.5 million in the three months ended March 31, 2014, compared to $162.7 million in the same period of 2013. 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 GAAP combined ratio increased 9.3 percentage points to 99.6 percent for the three-month period ended March 31, 2014, compared to 90.3 percent for the same period of 2013, primarily due to an increase in non-catastrophe losses.

The net loss ratio, a component of the combined ratio, increased by 9.5 percentage points to 66.1 percentage points in the three-month period ended March 31, 2014, as compared to the same period in 2013. The increase is primarily attributable to losses from a single large claim (a large explosion in a suburban townhome community), an increase in our annual aggregate reinsurance deductible, a decrease in favorable reserve development and an increase in the

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frequency of claims associated with the harsh winter weather experienced in the United States in 2014, partially offset by a decrease in catastrophe loss experience. Pre-tax catastrophe losses totaled $3.3 million for the three-month period ended March 31, 2014, which is $1.2 million or 27.4% lower than the same period of 2013.

The expense ratio, a component of the combined ratio, of 33.5 percentage points for the quarter ended March 31, 2014 improved slightly by 0.2 percentage points as compared with the same period of 2013. Underwriting expenses are elevated due to an increase in non-deferred acquisition costs and continued elevated expenses in pension and post retirement benefits. In 2014, the expense ratio will be impacted by a dual rent obligation associated with the relocation of our Galveston, Texas branch facility and an increase in premium taxes and assessments due to premium growth in specific lines of business.

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

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.

2014 Development

The property and casualty insurance segment experienced $14.5 million of favorable development in our net reserves for prior accident years for the three-month period ended March 31, 2014. The significant driver of the favorable reserve development in 2014 was our commercial auto liability line which contributed $8.8 million of the total, primarily due to favorable results from loss control and re-underwriting initiatives over the past several months. Also contributing to the favorable development during the three-month period ended March 31, 2014, only to a lesser extent than commercial auto liability were, personal auto liability and auto physical damage which combined for $2.9 million of favorable development. Long-tail liability lines contributed an additional $3.1 million of favorable development. No other line of business contributed a significant portion of the total development.

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2013 Development

The property and casualty insurance segment experienced $23.7 million of favorable development in our net reserves for prior accident years for the three-month period ended March 31, 2013. The favorable reserve development on prior year reserves was primarily related to our long-tail commercial other liability line of business, though auto liability (both commercial and personal), reinsurance assumed, and surety also developed favorably. The significant driver of the favorable reserve development in 2013 was the other liability line which contributed $18.4 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 during the three-month period ended March 31, 2013, only to a lesser extent than the other liability line of business, were auto liability, reinsurance assumed, and surety lines of business, which contributed $2.9 million, $2.3 million and $1.0 million, respectively, to the favorable reserve development.

Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. At March 31, 2014, our total reserves remained relatively flat compared to December 31, 2013.

The following tables display our net premiums earned, net losses and loss settlement expenses and net loss ratio by line of business:




Three Months Ended March 31,	2014							2013
			Net Losses							Net Losses
			and Loss							and Loss
	Net		Settlement			Net		Net		Settlement			Net
(In Thousands)	Premiums		Expenses			Loss		Premiums		Expenses			Loss
Unaudited	Earned		Incurred			Ratio		Earned		Incurred			Ratio
Commercial lines
Other liability	$	53,153	$	30,670		57.7	%	$	45,329	$	20,697		45.7	%
Fire and allied lines	42,887		34,658			80.8		40,974		18,601			45.4
Automobile	38,450		22,248			57.9		34,958		26,173			74.9
Workers' compensation	21,030		18,209			86.6		19,108		16,363			85.6
Fidelity and surety	4,460		(313		)	(7.0	)	4,759		294			6.2
Miscellaneous	664		11			1.7		45		614			NM
Total commercial lines	$	160,644	$	105,483		65.7	%	$	145,173	$	82,742		57.0	%

Personal lines
Fire and allied lines	$	11,032	$	6,855		62.1	%	$	10,436	$	6,201		59.4	%
Automobile	5,681		4,294			75.6		5,346		3,195			59.8
Miscellaneous	244		105			43.0		53		234			NM
Total personal lines	$	16,957	$	11,254		66.4	%	$	15,835	$	9,630		60.8	%
Reinsurance assumed	$	1,893	$	1,919		101.4	%	$	1,693	$	(279	)	(16.5	)%
Total	$	179,494	$	118,656		66.1	%	$	162,701	$	92,093		56.6	%

NM=Not meaningful


•	Commercial other liability - The net loss ratio deteriorated 12.0 percentage points in the three-month period ended March 31, 2014, compared to the same period of 2013. The deterioration of this line was due to an increase in loss severity in the three-month period ended March 31, 2014.


•	Commercial fire and allied lines - The net loss ratio deteriorated 35.4 percentage points in the three-month period ended March 31, 2014, compared to the same period of 2013. The change is primarily attributable to losses from a single large claim (a large explosion in a suburban townhome community), an increase in our

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annual aggregate reinsurance deductible, and an increase in the frequency of claims associated with the harsh winter weather experienced in the United States in 2014.


•	Commercial automobile - The net loss ratio improved 17.0 percentage points in the three-month period ended March 31, 2014, compared to the same period of 2013. The change was primarily due to favorable results from loss control and re-underwriting initiatives over the past several months that focused on under-performing accounts and agents.


•	Workers' compensation- The net loss ratio was up slightly for the three-month period ended March 31, 2014, compared to the same period of 2013. The net loss ratio is above our expectations, but we are actively working on a plan to re-underwrite hazardous risks and higher premium accounts, focus on cost control programs, and more appropriately align our underwriting staff.


•	Personal automobile - The net loss ratio deteriorated 15.8 percentage points in the three-month period ended March 31, 2014, compared to the same period of 2013. The change in the three-month period ended March 31, 2014 was primarily due to increased claim frequency and severity due to the harsh winter weather experienced in the United States in 2014.

Life Insurance Segment Results



	Three Months Ended March 31,
(In Thousands)	2014		2013
Revenues
Net premiums earned	$	13,847	$	14,116
Investment income, net	15,599		15,979
Net realized investment gains	827		880
Other income	127		103
Total revenues	$	30,400	$	31,078

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	6,581	$	5,377
Increase in liability for future policy benefits	7,821		8,236
Amortization of deferred policy acquisition costs	1,658		1,726
Other underwriting expenses	4,168		3,933
Interest on policyholders' accounts	7,987		9,320
Total benefits, losses and expenses	$	28,215	$	28,592

Income before income taxes	$	2,185	$	2,486

Income before income taxes decreased $0.3 million in the three-month period ended March 31, 2014, as compared to the same period of 2013 due to a decrease in net investment income and net premiums earned along with an increase in losses and loss settlement expense partially offset by a decrease in interest on policyholders' accounts which is due to continued negative cash flows on annuity products, and also by a decrease in the increase in the liability for future policy benefits.

Net premiums earned decreased 1.9 percent to $13.8 million for the three-month period ended March 31, 2014, compared to $14.1 million in the same period of 2013. The decrease in net premiums earned in the three-month period ended March 31, 2014 was primarily due to a decrease in sales of single premium whole life policies as we have chosen to maintain price diligence to achieve adequate rate spreads.

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Net investment income decreased 2.4 percent to $15.6 million for the three-month period ended March 31, 2014, compared to $16.0 million for the same period of 2013, due to the decrease in the reinvestment interest rates from the continued low interest rate environment.

Losses and loss settlement expenses increased $1.2 million for the three-month period ended March 31, 2014 compared to the same period of 2013 due to an increase in policy claims.

The increase in the liability for future policy benefits improved in the three-month period ended March 31, 2014 compared to the same period of 2013, due to net withdrawals of annuity products and the decline in sales of our single premium whole life product.

Deferred annuity deposits increased 204.1 percent for the three-month period ended March 31, 2014, compared with the same period of 2013. The increase in guaranteed interest rates had a favorable effect in the three-month period ended March 31, 2014.

Net cash outflow related to our annuity business was $11.1 million in the three-month period ended March 31, 2014, compared to a net cash outflow of $25.9 million in the same period of 2013. We attribute this to the activity described above.

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

Investment Portfolio

Our invested assets totaled $3,115.7 million at March 31, 2014, compared to $3,050.1 million at December 31, 2013, an increase of $65.6 million. At March 31, 2014, fixed maturity securities and equity securities made up 90.6 percent and 7.6 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep our cash on hand low in the current interest rate environment. If additional cash is needed, we can 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, regulatory requirements, interest rates and credit quality of assets. We administer our investment portfolio based on investment guidelines approved by management and the investment committee of our Board of Directors that comply with applicable statutory regulations.

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The composition of our investment portfolio at March 31, 2014 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	$	315	—	%	$	329	—	%	$	644	—	%
Available-for-sale	1,227,797		82.6		1,577,926		96.8		2,805,723		90.1
Trading securities	16,095		1.1		—		—		16,095		0.5
Equity securities
Available-for-sale	205,086		13.7		27,291		1.7		232,377		7.5
Trading securities	3,037		0.2		—		—		3,037		0.1
Mortgage loans	—		—		4,368		0.3		4,368		0.1
Policy loans	—		—		6,177		0.4		6,177		0.2
Other long-term investments	33,653		2.3		12,860		0.8		46,513		1.5
Short-term investments	800		0.1		—		—		800		—
Total	$	1,486,783	100.0	%	$	1,628,951	100.0	%	$	3,115,734	100.0	%

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

At March 31, 2014, we classified $2,805.7 million, or 99.4 percent, of our fixed maturities portfolio as available-for-sale, compared to $2,751.3 million, or 99.6 percent, at December 31, 2013. We classify our remaining fixed maturities as held-to-maturity or trading. We record held-to-maturity securities at amortized cost. We record available-for-sale securities at fair value, with any changes in fair value recognized in accumulated other comprehensive income. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.

As of March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013. 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)	March 31, 2014				December 31, 2013
Rating	Carrying Value		% of Total		Carrying Value		% of Total
AAA	$	826,839	29.3	%	$	761,017	27.6	%
AA	564,250		20.0		537,527		19.5
A	574,667		20.3		564,396		20.4
Baa/BBB	789,611		28.0		830,735		30.1
Other/Not Rated	67,095		2.4		68,177		2.5
	$	2,822,462	100.0	%	$	2,761,852	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

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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 March 31, 2014, is 4.8 years compared to 5.0 years at December 31, 2013.

Property and Casualty Insurance Segment

The weighted average effective duration of our portfolio of fixed maturity securities, at March 31, 2014, is 4.8 years compared to 4.9 years at December 31, 2013.

Life Insurance Segment

The weighted average effective duration of our portfolio of fixed maturity securities, at March 31, 2014, is 4.9 years compared to 5.0 years at December 31, 2013.

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, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income increased by 1.1 percent in the three-month period ended March 31, 2014, compared with the same period of 2013. We are maintaining our investment philosophy of purchasing investments rated investment grade or better.

Our net realized investment gains were $2.2 million during the three-month period ended March 31, 2014, as compared with $1.9 million in the same period of 2013.

We hold 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. The increase in the value of these investments contributed to the increase of 1.1 percent in net investment income during the three-month period ended March 31, 2014, compared with the same period of 2013. The increases were somewhat offset by the impact of low investment yields.

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 March 31, 2014 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 March 31, 2014 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

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assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs.

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 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 2014 and 2013.



Cash Flow Summary	Three Months Ended March 31,
(In Thousands)	2014			2013
Cash provided by (used in)
Operating activities	$	18,491		$	31,744
Investing activities	(31,746		)	(13,151		)
Financing activities	(10,275		)	(24,111		)
Net decrease in cash and cash equivalents	$	(23,530	)	$	(5,518	)

Operating Activities

Net cash flows provided by operating activities totaled $18.5 million and $31.7 million for the three-month periods ended March 31, 2014 and 2013, respectively. Operating cash flows in the three-month period ended March 31, 2014 reflect a higher level of property and casualty loss payments, slightly offset by a lower level of net withdrawals of annuity products. Our cash flows from operations were sufficient to meet our liquidity needs for the three-month periods ended March 31, 2014 and 2013.

Investing Activities

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

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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 39.6 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 March 31, 2014, our cash and cash equivalents included $16.3 million related to these money market accounts, compared to $37.8 million at December 31, 2013.

Net cash flows used in investing activities totaled $31.7 million and $13.2 million for the three-month periods ended March 31, 2014 and 2013, respectively. For the three-month period ended March 31, 2014, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of $104.3 million, compared to $130.8 million for the same period of 2013.

Our cash outflows for investment purchases were $133.1 million for the three-month period ended March 31, 2014, compared to $143.5 million for the same period of 2013. In 2014, we continued to purchase a higher level of fixed maturity securities, which are more profitable than other categories of investments when market interest rates are low.

Financing Activities

Net cash flows used in financing activities were $10.3 million for the three-month period ended March 31, 2014 compared to net cash flows used in financing activities of $24.1 million for the three-month period ended March 31, 2013. The decrease reflects a lower level of net annuity withdrawals in the three-month period ended March 31, 2014, compared to the same period of 2013.

Credit Facilities

In December 2011, United Fire entered into a credit agreement with a syndicate of financial institutions as lenders, KeyBank National Association as administrative agent, lead arranger, sole book runner, swingline lender, and letter of credit issuer, and Bankers Trust Company as syndication agent.

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. As of March 31, 2014, there were no balances outstanding under this credit agreement. For further discussion of our credit agreement, refer to Part I, Item 1, Note 8 "Debt" to the unaudited Consolidated Financial Statements.

Dividends

Dividends paid to shareholders totaled $4.6 million and $3.8 million in the three-month periods ended March 31, 2014 and 2013, 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,

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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 March 31, 2014, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $46.9 million in dividend payments without prior regulatory approval. These restrictions will not have a material impact in meeting our cash obligations.

Stockholders' Equity

Stockholders' equity increased 3.2 percent to $808.1 million at March 31, 2014, from $782.8 million at December 31, 2013. The increase was primarily attributable to net income of $13.3 million and an increase in net unrealized investment gains of $14.7 million, net of tax, during the first three months of 2014, partially offset by shareholder dividends of $4.6 million. At March 31, 2014, the book value per share of our common stock was $31.82 compared to $30.87 at December 31, 2013.

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 section provides further explanation of the key measures management uses to evaluate our results.

Catastrophe losses is a commonly used non-GAAP financial measure that uses 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.



	Three Months Ended March 31,
(In Thousands)	2014		2013
ISO catastrophes	$	3,275	$	4,511
Non-ISO catastrophes ⁽¹⁾	—		—
Total catastrophes	$	3,275	$	4,511

(1) This number includes international assumed losses.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have exposure to market risk arising from potential losses in our investment portfolio due to adverse changes in interest rates and market prices. However, we have the ability to hold fixed maturity investments to maturity. Our investment guidelines define the overall framework for managing our market and other investment risks including accountability and controls. In addition, each of our subsidiaries has specific investment policies that delineate the investment limits and strategies that are appropriate given each entity's liquidity, surplus, product, and regulatory requirements. We respond to market risk by managing the character of investment purchases.

It is our philosophy that we do not utilize financial hedges or derivative financial instruments to manage risks, nor do we enter into any swap, forward or option contracts, but attempt to mitigate our exposure through active portfolio management. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. At March 31, 2014, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.

While our primary market risk exposure is to changes in interest rates, we do have limited exposure to changes in equity prices and limited exposure to foreign currency exchange rates.

There have been no material changes in our market risk or market risk factors from what we reported in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 4. 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 Securities and Exchange Commission’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.

Changes in Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, no such change in our internal control over financial reporting occurred during the fiscal quarter to which this report relates.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We consider all our litigation pending as of March 31, 2014 to be ordinary, routine, and incidental to our business.

ITEM 1A. RISK FACTORS

Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our 2013 Annual Report on Form 10-K filed with the SEC on March 5, 2014, that could have a material effect on our business, results of operations, financial condition, and/or liquidity and that could cause our operating results to vary significantly from period to period. The risks described in the above mentioned report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Under our share repurchase program, first announced in August 2007, we may purchase United Fire 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.

We are authorized to purchase 1,070,117 shares of common stock at March 31, 2014. Our share repurchase program is scheduled to end in August 2014.

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 three-month period ended March 31, 2014.



				Total Number of Shares	Maximum Number of
	Total			Purchased as a Part of	Shares that may be
	Number of	Average Price		Publicly Announced	Purchased Under the
Period	Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs
1/1/2014 - 1/31/2014	—	$	—	—	1,070,117
2/1/2014 - 2/28/2014	—	—		—	1,070,117
3/1/2014 - 3/31/2014	—	—		—	1,070,117

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS



Exhibit number	Exhibit description	Filed herewith
11	Statement Re Computation of Per Share Earnings. All information required by Exhibit 11 is presented within Note 7 of the Notes to Unaudited Consolidated Financial Statements, in accordance with the FASB guidance on Earnings per Share.	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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2014 (unaudited) and December 31, 2013; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three months ended March 31, 2014 and 2013; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the three months ended March 31, 2014; (iv) Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2014 and 2013; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.	X

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



UNITED FIRE GROUP, INC.
(Registrant)

/s/ Randy A. Ramlo		/s/ Dianne M. Lyons
Randy A. Ramlo		Dianne M. Lyons
President, Chief Executive Officer,		Vice President, Chief Financial Officer and
Director and Principal Executive Officer		Principal Accounting Officer

May 6, 2014		May 6, 2014
(Date)		(Date)