UNITED FIRE GROUP INC - Quarter Report: 2017 September (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

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 ☒NO ☐

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 ☒NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐

NO ☒

As of November 6, 2017, 24,877,643 shares of common stock were outstanding.

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United Fire Group, Inc.

Index to Quarterly Report on Form 10-Q

September 30, 2017



	Page
Forward-Looking Information	1

Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016	2

Consolidated Statements of Income and Comprehensive Income (unaudited) for the three and nine-month periods ended September 30, 2017 and 2016	3

Consolidated Statement of Stockholders’ Equity (unaudited) for the nine-month period ended September 30, 2017	4

Consolidated Statements of Cash Flows (unaudited) for the nine-month periods ended September 30, 2017 and 2016	5

Notes to Unaudited Consolidated Financial Statements	6

Review Report of Independent Registered Public Accounting Firm	42

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3. Quantitative and Qualitative Disclosures About Market Risk	58

Item 4. Controls and Procedures	58

Part II. Other Information

Item 1. Legal Proceedings	59

Item 1A. Risk Factors	59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3. Defaults Upon Senior Securities	59

Item 4. Mine Safety Disclosures	59

Item 5. Other Information	59

Item 6. Exhibits	60

Signatures	61

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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 (the "Securities Act") 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. ("UFG," the "Registrant," 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 Annual Report on Form 10-K for the year ended December 31, 2016 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; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;


•	The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses and our life insurance reserve for future policy benefits;


•	Geographic concentration risk in both property and casualty insurance and life insurance segments;


•	The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;


•	Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;


•	Our ability to effectively underwrite and adequately price insured risks;


•	Changes in industry trends, an increase in competition and significant industry developments;


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


•	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;


•	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; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;


•	Our relationship with and the financial strength of our reinsurers;


•	Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network; and


•	The satisfaction of the conditions precedent to the consummation of the sale of our life insurance subsidiary, including the receipt of regulatory approvals.

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)	September 30, 2017		December 31, 2016
	(unaudited)
ASSETS
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $150 in 2017 and $150 in 2016)	$	150	$	150
Available-for-sale, at fair value (amortized cost $1,480,730 in 2017 and $1,458,235 in 2016)	1,498,662		1,453,286
Trading securities, at fair value (amortized cost $11,833 in 2017 and $13,054 in 2016)	13,673		14,390
Equity securities
Available-for-sale, at fair value (cost $57,387 in 2017 and $59,994 in 2016)	269,341		246,370
Trading securities, at fair value (cost $5,888 in 2017 and $5,434 in 2016)	6,330		5,644
Other long-term investments	49,966		51,769
Short-term investments	175		175
	1,838,297		1,771,784
Cash and cash equivalents	98,610		89,194
Accrued investment income	14,911		13,617
Premiums receivable (net of allowance for doubtful accounts of $1,170 in 2017 and $1,255 in 2016)	351,410		306,202
Deferred policy acquisition costs	97,477		93,362
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $52,081 in 2017 and $50,925 in 2016)	64,520		55,524
Reinsurance receivables and recoverables	68,116		62,707
Prepaid reinsurance premiums	3,821		3,782
Income taxes receivable	21,360		14,285
Goodwill and intangible assets	24,163		24,740
Other assets	15,302		13,943
Assets held for sale	1,592,846		1,605,618
TOTAL ASSETS	$	4,190,833	$	4,054,758
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Losses and loss settlement expenses	$	1,237,280	$	1,123,896
Unearned premiums	490,443		443,802
Accrued expenses and other liabilities	130,618		147,104
Deferred income taxes	24,707		7,849
Liabilities held for sale	1,363,737		1,390,223
TOTAL LIABILITIES	$	3,246,785	$	3,112,874
Stockholders’ Equity
Common stock, $0.001 par value; authorized 75,000,000 shares; 24,849,889 and 25,429,769 shares issued and outstanding in 2017 and 2016, respectively	$	25	$	25
Additional paid-in capital	193,114		216,482
Retained earnings	600,988		616,322
Accumulated other comprehensive income, net of tax	149,921		109,055
TOTAL STOCKHOLDERS’ EQUITY	$	944,048	$	941,884
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,190,833	$	4,054,758

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 September 30,						Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017			2016			2017			2016
Revenues
Net premiums earned	$	255,758		$	239,469		$	737,424		$	691,976
Investment income, net of investment expenses	13,792			14,027			38,561			35,017
Net realized investment gains (includes reclassifications for net unrealized investment gains on available-for-sale securities of $419 and $5,799 in 2017 and $2,320 and $4,666 in 2016; previously included in accumulated other comprehensive income)	67			2,129			3,397			4,832
Total revenues	$	269,617		$	255,625		$	779,382		$	731,825
Benefits, Losses and Expenses
Losses and loss settlement expenses	$	223,208		$	169,303		$	568,356		$	475,568
Amortization of deferred policy acquisition costs	52,986			52,240			154,845			151,216
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,352 and $4,056 in 2017 and $1,371 and $4,113 in 2016; previously included in accumulated other comprehensive income)	25,817			20,047			69,900			61,469
Total benefits, losses and expenses	$	302,011		$	241,590		$	793,101		$	688,253
Income (loss) from continuing operations before income taxes	$	(32,394	)	$	14,035		$	(13,719	)	$	43,572
Federal income tax expense (benefit) (includes reclassifications of $327 and ($610) in 2017 and ($332) and ($194) in 2016; previously included in accumulated other comprehensive income)	(13,312		)	2,407			(13,330		)	6,489
Income (loss) from continuing operations	$	(19,082	)	$	11,628		$	(389	)	$	37,083
Income from discontinued operations, net of taxes	1,218			740			5,419			826
Net income (loss)	$	(17,864	)	$	12,368		$	5,030		$	37,909
Other comprehensive income (loss)
Change in net unrealized appreciation on investments	$	18,995		$	(9,440	)	$	64,614		$	83,768
Change in liability for underfunded employee benefit plans	—			—			—			—
Other comprehensive income , before tax and reclassification adjustments	$	18,995		$	(9,440	)	$	64,614		$	83,768
Income tax effect	(6,648		)	3,304			(22,615		)	(29,320		)
Other comprehensive income, after tax, before reclassification adjustments	$	12,347		$	(6,136	)	$	41,999		$	54,448
Reclassification adjustment for net realized investment gains included in income	$	(419	)	$	(2,320	)	$	(5,799	)	$	(4,666	)
Reclassification adjustment for employee benefit costs included in expense	1,352			1,371			4,056			4,113
Total reclassification adjustments, before tax	$	933		$	(949	)	$	(1,743	)	$	(553	)
Income tax effect	(327		)	332			610			194
Total reclassification adjustments, after tax	$	606		$	(617	)	$	(1,133	)	$	(359	)
Comprehensive income (loss)	$	(4,911	)	$	5,615		$	45,896		$	91,998

Diluted weighted average common shares outstanding	24,960,086			25,815,346			25,666,405			25,711,014
Earnings per common share from continuing operations:
Basic	$	(0.77	)	$	0.46		$	(0.01	)	$	1.47
Diluted	(0.77		)	0.45			(0.01		)	1.44
Earnings per common share:
Basic	$	(0.72	)	$	0.49		$	0.20		$	1.50
Diluted	(0.72		)	0.48			0.20			1.47

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)	Nine Months Ended September 30, 2017

Common stock
Balance, beginning of year	$	25
Shares repurchased (701,899 shares)	—
Shares issued for stock-based awards (131,777 shares)	—
Balance, end of period	$	25

Additional paid-in capital
Balance, beginning of year	$	216,482
Compensation expense and related tax benefit for stock-based award grants	3,456
Shares repurchased	(29,784		)
Shares issued for stock-based awards	2,960
Balance, end of period	$	193,114

Retained earnings
Balance, beginning of year	$	616,322
Net income	5,030
Dividends on common stock ($0.81 per share)	(20,364		)
Balance, end of period	$	600,988

Accumulated other comprehensive income, net of tax
Balance, beginning of year	$	109,055
Change in net unrealized investment appreciation⁽¹⁾	38,230
Change in liability for underfunded employee benefit plans⁽²⁾	2,636
Balance, end of period	$	149,921

Summary of changes
Balance, beginning of year	$	941,884
Net income	5,030
All other changes in stockholders’ equity accounts	(2,866		)
Balance, end of period	$	944,048


(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)



	Nine Months Ended September 30,
(In Thousands)	2017			2016
Cash Flows From Operating Activities
Net income	$	5,030		$	37,909
Less net income from discontinued operations, net of taxes	5,419			826
Adjustments to reconcile net income to net cash provided by operating activities
Net accretion of bond premium	6,663			5,181
Depreciation and amortization	3,501			4,879
Stock-based compensation expense	3,456			2,731
Net realized investment gains	(3,397		)	(4,832		)
Net cash flows from trading investments	816			(36		)
Deferred income tax benefit	(4,979		)	(3,847		)
Changes in:
Accrued investment income	(1,294		)	(831		)
Premiums receivable	(45,208		)	(54,725		)
Deferred policy acquisition costs	(4,115		)	(10,268		)
Reinsurance receivables	(5,409		)	(12,224		)
Prepaid reinsurance premiums	(39		)	(212		)
Income taxes receivable	(7,075		)	(11,370		)
Other assets	(1,358		)	659
Future policy benefits and losses, claims and loss settlement expenses	113,384			86,272
Unearned premiums	46,641			53,699
Accrued expenses and other liabilities	(12,430		)	(6,198		)
Income taxes payable	—			(4,917		)
Deferred income taxes	1,794			2,665
Other, net	1,920			(1,605		)
Cash from operating activities - continuing operations	92,871			45,021
Cash from operating activities - discontinued operations	23,814			45,965
Total adjustments	$	116,685		$	90,986
Net cash provided by operating activities	$	116,296		$	128,069
Cash Flows From Investing Activities
Proceeds from sale of available-for-sale investments	$	3,388		$	1,968
Proceeds from call and maturity of available-for-sale investments	134,503			260,520
Proceeds from short-term and other investments	4,846			1,725
Purchase of available-for-sale investments	(162,121		)	(313,060		)
Purchase of short-term and other investments	(4,864		)	(2,772		)
Net purchases and sales of property and equipment	(11,630		)	(6,090		)
Cash from investing activities - continuing operations	(35,878		)	(57,709		)
Cash from investing activities - discontinued operations	31,517			37,685
Net cash used in investing activities	$	(4,361	)	$	(20,024	)
Cash Flows From Financing Activities
Payment of cash dividends	$	(20,364	)	$	(18,246	)
Repurchase of common stock	(29,784		)	(2,867		)
Issuance of common stock	2,960			7,149
Tax impact from issuance of common stock	—			(482		)
Cash from financing activities - continuing operations	(47,188		)	(14,446		)
Cash from financing activities - discontinued operations	(46,239		)	(59,104		)
Net cash used in financing activities	$	(93,427	)	$	(73,550	)
Net Change in Cash and Cash Equivalents	$	18,508		$	34,495
Less: decrease (increase) in cash and cash equivalents - discontinued operations	(9,092		)	(24,546		)
Net increase in cash and cash equivalents - continuing operations	9,416			9,949
Cash and Cash Equivalents at Beginning of Period - Continuing Operations	89,194			89,496
Cash and Cash Equivalents at End of Period - Continuing Operations	$	98,610		$	99,445

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, except share amounts or as otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Nature of Business

United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance and life insurance and selling annuities through a network of independent agencies. Our insurance company subsidiaries are licensed as a property and casualty insurer in 46 states and the District of Columbia, and as a life insurer in 37 states.

Discontinued Operations

We have historically reported our operations in two business segments: property and casualty insurance and life insurance. On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings, Inc. ("Kuvare"). As a result, our life insurance business, previously a separate segment, has been considered held for sale and reported as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows (collectively, the "Consolidated Financial Statements"). Subsequent to the announcement of this sale, our continuing operations are now reported as one business segment. All current and prior periods reflected in this Form 10-Q have been presented as continuing and discontinued operations, unless otherwise noted. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval. For more information, refer to Note 11. Discontinued Operations.

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; future policy benefits and losses, claims and loss settlement expenses; and pension and postretirement benefit obligations.

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

Management of UFG 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, 2016. The review report of Ernst & Young LLP as of September 30, 2017 and for the three- and nine-month periods ended September 30, 2017 and 2016 accompanies the unaudited Consolidated Financial Statements included in Part I, Item 1 "Financial Statements."

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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 nine-month periods ended September 30, 2017 and 2016, we made payments for income taxes for continuing operations totaling $7,648 and $24,026, respectively. We received a tax refund of $10,000 during the nine-month period ended September 30, 2017. We did not receive a tax refund during the nine-month period ended September 30, 2016.

For the nine-month periods ended September 30, 2017 and 2016, 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 nine-month period ended September 30, 2017.




	Continuing Operations			Discontinued Operations
	Property & Casualty Insurance			Life Insurance			Total
Recorded asset at beginning of period	$	93,362		$	70,750		$	164,112
Underwriting costs deferred	158,960			4,192			163,152
Amortization of deferred policy acquisition costs	(154,845		)	(5,524		)	(160,369		)
Ending unamortized deferred policy acquisition costs	$	97,477		$	69,418		$	166,895
Impact of unrealized gains and losses on available-for-sale securities	—			(3,582		)	(3,582		)
Recorded asset at September 30, 2017	$	97,477		$	65,836		$	163,313

Property and casualty insurance 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 to net unrealized investment appreciation as of the balance sheet date. The impact of unrealized gains and losses on available-for-sale securities decreased the DAC asset by $9,995 and $6,413 at September 30, 2017 and December 31, 2016, respectively.

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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 benefit from continuing and discontinued operations on a consolidated basis of $10,400 and a federal income tax expenses $6,904 for the nine-month periods ended September 30, 2017 and 2016, 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.

The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If based on review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at September 30, 2017 or December 31, 2016. 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.

With regard to the sale of our life insurance subsidiary, federal income taxes will be allocated to continuing and discontinued operations in accordance with the Company’s tax allocation agreement and the terms of the definitive agreement related to the sale.

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 2014. The Internal Revenue Service is conducting routine examinations of our income tax return for the 2015 tax year.

Subsequent Events

In the preparation of the accompanying financial statements, the Company has 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 in the Company's financial statements. The Company concluded there are no material subsequent events or transactions that have occurred after the balance sheet date through the date on which the financial statements were issued.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2017

Share-Based Payments

In March 2016, the Financial Accounting Standards Board ("FASB") issued new guidance on the accounting for share-based payments. The new guidance was issued to simplify the accounting of share-based payments, specifically in the areas of income taxes, classification on the balance sheets as liabilities or equity and classification in the cash flow statement. The new guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those years. The Company adopted the new guidance prospectively as of January 1, 2017. The new guidance resulted in classification changes between the financing and operating section of the Statement of Cash Flow for stock based compensation expense. The adoption also resulted in a tax benefit of $62 and $546 during the three- and nine-months ended September 30, 2017.

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Income Taxes

In December 2015, the FASB issued guidance on the balance sheet classification of deferred taxes. The new guidance eliminates the requirement to split deferred tax liabilities and assets between current and non-current in a classified balance sheet. The new guidance allows deferred tax liabilities and assets to be included in non-current accounts. The Company adopted the new guidance as of January 1, 2017. The adoption had no impact on the Company's financial position and results of operations since we do not currently report deferred taxes in classified balance sheets.

Pending Adoption of Accounting Standards

Revenue Recognition

In May 2014, the FASB issued comprehensive new guidance on revenue recognition which supersedes nearly all existing revenue recognition guidance under GAAP. The new guidance requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of the contract(s) and all relevant facts and circumstances. Insurance contracts are not within the scope of this new guidance. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company will adopt the guidance as of January 1, 2018. The Company has completed its review of revenue streams under this new guidance and concluded that the adoption of the new guidance will have no impact on the Company's reporting and disclosure of net premiums earned from insurance contracts, net investment income or net realized gains and losses, as these items are not within the scope of this new guidance. The Company's primary revenue streams from insurance contracts, investment income and net realized gains and losses, are out of scope under this new guidance. The remaining revenue streams are immaterial and not impacted by the new standard.

Financial Instruments

In January 2016, the FASB issued guidance updating certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (for example, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance also simplifies the impairment process for equity investments without readily determinable fair values. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018. If the new guidance were adopted as of September 30, 2017, there would be a reclassification from accumulated other comprehensive income to retained earnings equal to the amount of net unrealized gains and losses on available-for-sale equity securities at December 31, 2016 disclosed in Note 2 "Summary of Investments," of this section. The impact to net realized gains (losses) would equal the change in net unrealized gains and losses on available-for-sale equity securities between September 30, 2017 and December 31, 2016, in the same tables.

Statement of Cash Flows - Classification of Certain Cash Receipts and Payments

In August 2016, the FASB issued an update that clarifies the classification of certain cash receipts and payments in the Statement of Cash Flows. The update addresses eight existing cash flow issues by clarifying the correct classification to establish uniformity in practice. The updated guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently reviewing the updates to the eight existing cash flow issues. Currently, management believes that one existing cash flow issue will be impacted by these updates. Management believes the update will have no impact on the Company's financial position and results of operations but may effect the current classification of the cash flow in the Statement of Cash Flows.

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Defined Benefit Retirement Plan Cost

In March 2017, the FASB issued guidance on the presentation of net periodic benefit costs of defined benefit retirement benefit plans in the Statements of Income. The new guidance requires the service cost component of net periodic benefit cost of defined benefit plans to be presented in the same line in the Statements of Income as other employee compensation expenses. Also, under the new guidance, the service cost component of the net periodic benefit costs will be the only portion of costs subject to be capitalized in assets. The new guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the presentation of net periodic benefit costs in its financial statements and the impact on the Company's financial position and results of operations.

Share-Based Payments

In May 2017, the FASB issued new guidance which clarifies and addresses the diversity in practice when there is a change in the terms of a share-based payment award. The updated guidance clarifies when to use modification accounting when there is a change in the terms of a share-based payment and provides three conditions where modification accounting should not be applied. The new guidance is effective for annual and interim periods beginning after December 15, 2017. The Company will adopt the new guidance as of January 1, 2018 and is currently evaluating the impact on the Company's financial position and results of operations.

Leases

In February 2016, the FASB issued guidance on the accounting for leases. The new guidance requires lessees to place most leases on their balance sheets with expenses recognized on the income statement in a similar manner as previous methods. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2019. The Company has created an inventory of its leases and has calculated the current minimum future lease payment, which is disclosed in Note 13 "Lease Commitments" of our Annual Report on Form 10-K for the year ended December 31, 2016.

Financial Instruments - Credit Losses

In June 2016, the FASB issued new guidance on the measurement of credit losses for most financial instruments. The new guidance replaces the current incurred loss model for recognizing credit losses with an expected loss model for instruments measured at amortized cost and requires allowances to be recorded for available-for-sale debt securities rather than reduce the carrying amount. These allowances will be remeasured each reporting period. The new guidance is effective for annual periods beginning after December 15, 2020 and interim periods within those years. The Company will adopt the new guidance as of January 1, 2021 and is currently evaluating the impact on the Company's financial position, results of operations and key processes.

Income Taxes - Intra-entity Transfers

In October 2016, the FASB issued new guidance on the income tax treatment of intra-entity transfers. The new guidance replaces the current guidance which prohibits the recognition of current and deferred income taxes of intra-entity transfers until the asset is sold externally. Under the new guidance, the exemption is eliminated and income taxes will be recognized on transfers of intra-entity assets. The new guidance is effective for annual periods beginning after December 15, 2018 and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2019 and is currently evaluating the impact on the Company's financial position and results of operations.

Goodwill

In January 2017, the FASB issued new guidance which simplifies the test for goodwill impairment. The new guidance eliminates the implied fair value calculation when measuring a goodwill impairment charge. Under the new guidance, impairment charges will be based on the excess of the carrying value over fair value of goodwill. The

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new guidance is effective for annual and interim periods beginning after December 15, 2019. The Company will adopt the new guidance as of January 1, 2020 and is currently evaluating the impact on the Company's financial position and 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, presented on a consolidated basis, including both continuing and discontinued operations as of September 30, 2017 and December 31, 2016, is as follows:



September 30, 2017
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Bonds
Corporate bonds - financial services	$	150	$	—	$	—	$	150
Mortgage-backed securities	38		1		—		39
Total Held-to-Maturity Fixed Maturities	$	188	$	1	$	—	$	189
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	22,032	$	40	$	91	$	21,981
U.S. government agency	98,523		1,518		516		99,525
States, municipalities and political subdivisions
General obligations:
Midwest	120,549		2,388		499		122,438
Northeast	50,174		1,478		73		51,579
South	142,172		2,463		1,210		143,425
West	113,135		2,474		963		114,646
Special revenue:
Midwest	151,634		3,646		494		154,786
Northeast	79,159		1,061		795		79,425
South	261,141		4,421		2,974		262,588
West	157,622		2,676		1,940		158,358
Foreign bonds	54,300		1,907		—		56,207
Public utilities	201,418		4,538		200		205,756
Corporate bonds
Energy	96,373		2,367		95		98,645
Industrials	209,076		5,323		109		214,290
Consumer goods and services	181,471		5,049		135		186,385
Health care	75,775		2,600		—		78,375
Technology, media and telecommunications	143,024		3,308		193		146,139
Financial services	252,373		6,939		303		259,009

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Mortgage-backed securities	14,496		169		179		14,486
Collateralized mortgage obligations
Government national mortgage association	153,896		2,292		1,458		154,730
Federal home loan mortgage corporation	191,246		2,410		3,132		190,524
Federal national mortgage association	106,326		2,240		832		107,734
Asset-backed securities	4,280		345		3		4,622
Total Available-for-Sale Fixed Maturities	$	2,880,195	$	61,652	$	16,194	$	2,925,653
Equity securities:
Common stocks
Public utilities	$	6,394	$	15,750	$	58	$	22,086
Energy	6,514		7,998		106		14,406
Industrials	13,117		49,890		164		62,843
Consumer goods and services	10,070		14,872		154		24,788
Health care	7,763		29,463		—		37,226
Technology, media and telecommunications	6,006		10,215		136		16,085
Financial services	11,630		101,813		73		113,370
Nonredeemable preferred stocks	992		161		—		1,153
Total Available-for-Sale Equity Securities	$	62,486	$	230,162	$	691	$	291,957
Total Available-for-Sale Securities	$	2,942,681	$	291,814	$	16,885	$	3,217,610

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December 31, 2016
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Bonds
Corporate bonds - financial services	$	150	$	—	$	—	$	150
Mortgage-backed securities	48		1		—		49
Total Held-to-Maturity Fixed Maturities	$	198	$	1	$	—	$	199
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	23,216	$	87	$	108	$	23,195
U.S. government agency	76,692		1,445		540		77,597
States, municipalities and political subdivisions
General obligations:
Midwest	143,747		1,808		1,412		144,143
Northeast	57,731		909		231		58,409
South	129,475		1,249		2,355		128,369
West	114,524		1,380		2,173		113,731
Special revenue:
Midwest	167,430		2,313		1,433		168,310
Northeast	70,202		487		2,624		68,065
South	244,225		1,753		6,791		239,187
West	134,287		1,509		4,052		131,744
Foreign bonds	62,995		2,239		—		65,234
Public utilities	212,360		3,761		447		215,674
Corporate bonds
Energy	107,084		2,195		419		108,860
Industrials	225,526		5,359		982		229,903
Consumer goods and services	178,135		3,847		295		181,687
Health care	81,211		2,063		151		83,123
Technology, media and telecommunications	143,402		2,029		819		144,612
Financial services	269,981		5,328		1,358		273,951
Mortgage-backed securities	17,288		201		241		17,248
Collateralized mortgage obligations
Government national mortgage association	145,947		1,279		2,766		144,460
Federal home loan mortgage corporation	176,226		1,638		3,406		174,458
Federal national mortgage association	101,414		1,816		1,334		101,896
Asset-backed securities	4,407		145		282		4,270
Total Available-for-Sale Fixed Maturities	$	2,887,505	$	44,840	$	34,219	$	2,898,126

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Equity securities:
Common stocks
Public utilities	$	6,394	$	13,465	$	188	$	19,671
Energy	6,514		8,555		22		15,047
Industrials	13,252		38,715		173		51,794
Consumer goods and services	10,324		13,851		58		24,117
Health care	7,763		19,657		—		27,420
Technology, media and telecommunications	5,931		9,476		38		15,369
Financial services	17,289		98,728		67		115,950
Nonredeemable preferred stocks	1,037		11		—		1,048
Total Available-for-Sale Equity Securities	$	68,504	$	202,458	$	546	$	270,416
Total Available-for-Sale Securities	$	2,956,009	$	247,298	$	34,765	$	3,168,542

The following table is a reconciliation of the amortized cost (cost for equity securities) to fair value of investments in held-to-maturity and available-for-sale fixed maturity and equity securities for continuing and discontinued operations by investment type at September 30, 2017 and December 31, 2016:



September 30, 2017
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Continuing operations	$	150	$	—	$	—	$	150
Discontinued operations	38		1		—		39
Total Held-to-Maturity Fixed Maturities	$	188	$	1	$	—	189
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,480,730	$	28,606	$	10,674	$	1,498,662
Discontinued operations	1,399,465		33,046		5,520		1,426,991
Total Available-for-Sale Fixed Maturities	$	2,880,195	$	61,652	$	16,194	$	2,925,653
Equity securities:
Continuing operations	$	57,387	$	212,545	$	591	$	269,341
Discontinued operations	5,099		17,617		100		22,616
Total Available-for-Sale Equity Securities	$	62,486	$	230,162	$	691	$	291,957
Total Available-for-Sale Securities	$	2,942,681	$	291,814	$	16,885	$	3,217,610

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December 31, 2016
Type of Investment	Cost or Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
HELD-TO-MATURITY
Fixed maturities:
Continuing operations	$	150	$	—	$	—	$	150
Discontinued operations	48		1		—		49
Total Held-to-Maturity Fixed Maturities	$	198	$	1	$	—	$	199
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,458,235	$	18,725	$	23,674	$	1,453,286
Discontinued operations	1,429,270		26,115		10,545		1,444,840
Total Available-for-Sale Fixed Maturities	2,887,505		44,840		34,219		2,898,126
Equity securities:
Continuing operations	$	59,994	$	186,692	$	316	$	246,370
Discontinued operations	8,510		15,766		230		24,046
Total Available-for-Sale Equity Securities	68,504		202,458		546		270,416
Total Available-for-Sale Securities	$	2,956,009	$	247,298	$	34,765	$	3,168,542

Maturities

The amortized cost and fair value of held-to-maturity, available-for-sale and trading fixed maturity securities at September 30, 2017, by contractual maturity, are shown in the following tables. The first table includes consolidated investments from both continuing and discontinued operations. The second and third tables separate maturities into continuing and discontinued operations. 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.



Maturities - Consolidated:
	Held-To-Maturity				Available-For-Sale				Trading
September 30, 2017	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	150	$	150	$	128,884	$	129,945	$	1,401	$	1,821
Due after one year through five years	—		—		782,192		803,774		6,979		8,233
Due after five years through 10 years	—		—		751,756		771,205		1,302		1,185
Due after 10 years	—		—		747,119		748,633		2,151		2,434
Asset-backed securities	—		—		4,280		4,622		—		—
Mortgage-backed securities	38		39		14,496		14,486		—		—
Collateralized mortgage obligations	—		—		451,468		452,988		—		—
	$	188	$	189	$	2,880,195	$	2,925,653	$	11,833	$	13,673

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Maturities - Continuing Operations:
	Held-To-Maturity				Available-For-Sale				Trading
September 30, 2017	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	150	$	150	$	54,340	$	54,762	$	1,401	$	1,821
Due after one year through five years	—		—		224,804		230,986		6,979		8,233
Due after five years through 10 years	—		—		344,553		354,308		1,302		1,185
Due after 10 years	—		—		675,795		676,310		2,151		2,434
Asset-backed securities	—		—		3,174		3,517		—		—
Mortgage-backed securities	—		—		9,664		9,783		—		—
Collateralized mortgage obligations	—		—		168,400		168,996		—		—
	$	150	$	150	$	1,480,730	$	1,498,662	$	11,833	$	13,673



Maturities - Discontinued Operations:
	Held-To-Maturity				Available-For-Sale				Trading
September 30, 2017	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	—	$	—	$	74,544	$	75,183	$	—	$	—
Due after one year through five years	—		—		557,388		572,788		—		—
Due after five years through 10 years	—		—		407,203		416,897		—		—
Due after 10 years	—		—		71,324		72,323		—		—
Asset-backed securities	—		—		1,107		1,105		—		—
Mortgage-backed securities	38		39		4,832		4,703		—		—
Collateralized mortgage obligations	—		—		283,067		283,992		—		—
	$	38	$	39	$	1,399,465	$	1,426,991	$	—	$	—

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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 (losses) is as follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017		2016
Net realized investment gains (losses) from continuing operations:
Fixed maturities:
Available-for-sale	$	118		$	484		$	645	$	898
Trading securities
Change in fair value	(43		)	148			504		519
Sales	72			107			117		568
Equity securities:
Available-for-sale	3			1,375			1,553		2,359
Trading securities
Change in fair value	(124		)	(5		)	232		325
Sales	41			20			57		(6		)
Cash equivalents	—			—			—		169
Real estate	—			—			289		—
Total net realized investment gains from continuing operations	$	67		$	2,129		$	3,397	$	4,832
Total net realized investment gains from discontinued operations	296			461			3,600		1,409
Total net realized investment gains	$	363		$	2,590		$	6,997	$	6,241

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from continuing operations are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Proceeds from sales	$	2,293	$	—	$	3,388	$	1,968
Gross realized gains	—		—		1,046		921
Gross realized losses	—		—		—		—

The proceeds and gross realized gains on the sale of available-for-sale fixed maturity securities from discontinued operations are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017			2016
Proceeds from sales	$	1,844	$	2,007	$	5,807		$	3,081
Gross realized gains	—		11		1,254			65
Gross realized losses	—		—		(78		)	—

There were no sales of held-to-maturity securities during the three- and nine-month periods ended September 30, 2017 and 2016.

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 $20,003 and $20,034 at September 30, 2017 and December 31, 2016, respectively.

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Funding Commitment

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2023 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $3,738 at September 30, 2017.

Unrealized Appreciation

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



	Nine Months Ended September 30,
	2017			2016
Change in net unrealized investment appreciation
Available-for-sale fixed maturities	$	34,837		$	83,498
Available-for-sale equity securities	27,559			15,459
Deferred policy acquisition costs	(3,582		)	(19,857		)
Income tax effect	(20,584		)	(27,685		)
Total change in net unrealized investment appreciation, net of tax	$	38,230		$	51,415

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 or based on the value calculated using a discounted cash flow model. Credit-related impairments on fixed maturity securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net income. Any non-credit related impairment is recognized as a component of other comprehensive income. 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 on a consolidated basis, including both continuing and discontinued operations at September 30, 2017 and December 31, 2016. 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 September 30, 2017, 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 determined that these losses did not warrant the recognition of an OTTI charge at September 30, 2017 or at September 30, 2016. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

We have evaluated the near-term prospects of the issuers of our equity securities in relation to the severity and duration of the unrealized loss and determined that these losses did not warrant the recognition of an OTTI charge at September 30, 2017 or at September 30, 2016. Our largest unrealized loss greater than 12 months on an individual equity security at September 30, 2017 was $152. 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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September 30, 2017	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	3	$	8,920	$	44	3	$	2,829	$	47	$	11,749	$	91
U.S. government agency	8	33,607		306		3	12,789		210		46,396		516
States, municipalities and political subdivisions
General obligations
Midwest	3	4,343		46		3	19,742		453		24,085		499
Northeast	—	—		—		1	3,587		73		3,587		73
South	7	14,594		56		11	27,919		1,154		42,513		1,210
West	2	3,600		29		8	25,333		934		28,933		963
Special revenue
Midwest	2	3,990		10		7	19,034		484		23,024		494
Northeast	6	27,751		312		9	15,275		483		43,026		795
South	13	32,415		433		27	66,978		2,541		99,393		2,974
West	8	20,369		135		22	55,836		1,805		76,205		1,940
Public utilities	2	3,201		52		4	7,491		148		10,692		200
Corporate bonds
Energy	2	6,166		13		1	1,807		82		7,973		95
Industrials	—	—		—		2	4,271		109		4,271		109
Consumer goods and services	5	7,469		62		2	5,097		73		12,566		135
Technology, media and telecommunications	6	15,263		88		2	8,384		105		23,647		193
Financial services	11	21,623		163		1	7,243		140		28,866		303
Mortgage-backed securities	11	4,411		43		3	4,790		136		9,201		179
Collateralized mortgage obligations
Government national mortgage association	16	40,243		439		13	38,573		1,019		78,816		1,458
Federal home loan mortgage corporation	16	64,647		1,166		12	42,472		1,966		107,119		3,132
Federal national mortgage association	13	35,709		496		6	10,008		336		45,717		832
Asset-backed securities	1	997		3		—	—		—		997		3
Total Available-for-Sale Fixed Maturities	135	$	349,318	$	3,896	140	$	379,458	$	12,298	$	728,776	$	16,194
Equity securities:
Common stocks
Public utilities	—	$	—	$	—	1	$	250	$	58	$	250	$	58
Energy	2	546		102		1	182		4		728		106
Industrials	1	106		6		5	141		158		247		164
Consumer goods and services	—	—		—		4	178		154		178		154
Technology, media and telecommunications	2	445		115		1	4		21		449		136
Financial services	1	30		25		2	165		48		195		73
Total Available-for-Sale Equity Securities	6	$	1,127	$	248	14	$	920	$	443	$	2,047	$	691
Total Available-for-Sale Securities	141	$	350,445	$	4,144	154	$	380,378	$	12,741	$	730,823	$	16,885

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December 31, 2016	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	9	$	10,800	$	108	—	$	—	$	—	$	10,800	$	108
U.S. government agency	10	36,593		540		—	—		—		36,593		540
States, municipalities and political subdivisions
General obligations
Midwest	27	40,545		1,412		—	—		—		40,545		1,412
Northeast	9	9,874		231		—	—		—		9,874		231
South	37	53,699		2,355		—	—		—		53,699		2,355
West	30	55,265		2,173		—	—		—		55,265		2,173
Special revenue
Midwest	41	62,937		1,433		—	—		—		62,937		1,433
Northeast	22	54,993		2,624		—	—		—		54,993		2,624
South	79	152,979		6,791		—	—		—		152,979		6,791
West	44	81,676		4,052		—	—		—		81,676		4,052
Public utilities	20	38,511		423		2	2,122		24		40,633		447
Corporate bonds
Energy	8	15,938		313		3	8,232		106		24,170		419
Industrials	24	42,854		596		3	5,641		386		48,495		982
Consumer goods and services	11	21,059		295		—	—		—		21,059		295
Health care	9	20,918		151		—	—		—		20,918		151
Technology, media and telecommunications	16	41,230		516		3	10,241		303		51,471		819
Financial services	37	75,286		1,358		—	—		—		75,286		1,358
Mortgage-backed securities	16	9,611		187		5	1,198		54		10,809		241
Collateralized mortgage obligations
Government national mortgage association	36	82,430		2,261		9	13,603		505		96,033		2,766
Federal home loan mortgage corporation	41	105,775		3,165		3	5,141		241		110,916		3,406
Federal national mortgage association	27	46,633		1,091		4	4,341		243		50,974		1,334
Asset-backed securities	1	971		29		1	2,559		253		3,530		282
Total Available-for-Sale Fixed Maturities	554	$	1,060,577	$	32,104	33	$	53,078	$	2,115	$	1,113,655	$	34,219
Equity securities:
Common stocks
Public utilities	—	$	—	$	—	3	$	120	$	188	$	120	$	188
Energy	—	—		—		1	163		22		163		22
Industrials	—	—		—		6	239		173		239		173
Consumer goods and services	3	282		55		2	15		3		297		58
Technology, media and telecommunications	7	26		5		8	33		33		59		38
Financial services	3	53		3		2	150		64		203		67
Total Available-for-Sale Equity Securities	13	$	361	$	63	22	$	720	$	483	$	1,081	$	546
Total Available-for-Sale Securities	567	$	1,060,938	$	32,167	55	$	53,798	$	2,598	$	1,114,736	$	34,765

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The tables on the following pages are a reconciliation for continuing and discontinued operations of our total fixed maturity and equity securities that were in an unrealized loss position at September 30, 2017 and December 31, 2016. The securities are presented by the length of time they have been continuously in an unrealized loss position:




September 30, 2017	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:
Continuing operations	85	$	206,874	$	2,059	101	$	259,297	$	8,615	$	466,171	$	10,674
Discontinued operations	50	142,444		1,837		39	120,161		3,683		262,605		5,520
Total Available-for-Sale Fixed Maturities	135	$	349,318	$	3,896	140	$	379,458	$	12,298	$	728,776	$	16,194
Equity securities:
Continuing operations	6	$	1,127	$	248	10	$	540	$	343	$	1,667	$	591
Discontinued operations	—	—		—		4	380		100		380		100
Total Available-for-Sale Equity Securities	6	$	1,127	$	248	14	$	920	$	443	$	2,047	$	691
Total Available-for-Sale Securities	141	$	350,445	$	4,144	154	$	380,378	$	12,741	$	730,823	$	16,885




December 31, 2016	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:
Continuing operations	404	$	654,235	$	23,359	12	$	6,288	$	315	$	660,523	$	23,674
Discontinued operations	150	406,342		8,745		21	46,790		1,800		453,132		10,545
Total Available-for-Sale Fixed Maturities	554	$	1,060,577	$	32,104	33	$	53,078	$	2,115	$	1,113,655	$	34,219
Equity securities:
Continuing operations	12	$	351	$	62	17	$	477	$	254	$	828	$	316
Discontinued operations	1	10		1		5	243		229		253		230
Total Available-for-Sale Equity Securities	13	$	361	$	63	22	$	720	$	483	$	1,081	$	546
Total Available-for-Sale Securities	567	$	1,060,938	$	32,167	55	$	53,798	$	2,598	$	1,114,736	$	34,765

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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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.

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. 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.

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.

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 information 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 throughout 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 agreements. 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.

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The fair value of our policy loans is equivalent to carrying value, which is a reasonable estimate of fair value and is classified as Level 2. 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.

The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Non-qualified Deferred Compensation Plan and United Fire Group Supplemental Executive Retirement and Deferral Plan (collectively, the "Executive Retirement Plans"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plans. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of September 30, 2017, the cash surrender value of the COLI policies was $3,759, which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policies, and is included in other assets in the Consolidated Balance Sheets.

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 and 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 from continuing operations at September 30, 2017 and December 31, 2016 is as follows:



	September 30, 2017				December 31, 2016
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	150	$	150	$	150	$	150
Available-for-sale securities	1,498,662		1,498,662		1,453,286		1,453,286
Trading securities	13,673		13,673		14,390		14,390
Equity securities:
Available-for-sale securities	269,341		269,341		246,370		246,370
Trading securities	6,330		6,330		5,644		5,644
Other long-term investments	49,966		49,966		51,769		51,769
Short-term investments	175		175		175		175
Cash and cash equivalents	98,610		98,610		89,194		89,194
Corporate-owned life insurance	3,759		3,759		2,592		2,592

A summary of the carrying value and estimated fair value of our financial instruments from discontinued operations at September 30, 2017 and December 31, 2016 is as follows:



	September 30, 2017				December 31, 2016
	Fair Value		Carrying Value		Fair Value		Carrying Value
Assets
Investments
Fixed maturities:
Held-to-maturity securities	$	39	$	38	$	49	$	48
Available-for-sale securities	1,426,991		1,426,991		1,444,840		1,444,840
Equity securities:
Available-for-sale securities	22,616		22,616		24,046		24,046
Mortgage loans	3,690		3,504		3,895		3,706
Policy loans	5,770		5,770		5,366		5,366
Other long-term investments	16,299		16,299		15,780		15,870
Cash and cash equivalents	30,751		30,751		21,659		21,659
Liabilities
Policy reserves
Annuity (accumulations) ⁽¹⁾	$	617,819	$	620,037	$	646,764	$	666,711
Annuity (benefit payments)	144,901		95,086		144,283		95,129

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The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments from both continuing and discontinued operations at September 30, 2017 and December 31, 2016:



September 30, 2017			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	21,981	$	—	$	21,981	$	—
U.S. government agency	99,525		—		99,525		—
States, municipalities and political subdivisions
General obligations
Midwest	122,438		—		122,438		—
Northeast	51,579		—		51,579		—
South	143,425		—		143,425		—
West	114,646		—		114,646		—
Special revenue
Midwest	154,786		—		154,709		77
Northeast	79,425		—		79,425		—
South	262,588		—		262,588		—
West	158,358		—		158,358		—
Foreign bonds	56,207		—		56,207		—
Public utilities	205,756		—		205,756		—
Corporate bonds
Energy	98,645		—		98,645		—
Industrials	214,290		—		214,290		—
Consumer goods and services	186,385		—		185,686		699
Health care	78,375		—		78,375		—
Technology, media and telecommunications	146,139		—		146,139		—
Financial services	259,009		—		250,992		8,017
Mortgage-backed securities	14,486		—		14,486		—
Collateralized mortgage obligations
Government national mortgage association	154,730		—		154,730		—
Federal home loan mortgage corporation	190,524		—		190,524		—
Federal national mortgage association	107,734		—		107,734		—
Asset-backed securities	4,622		—		3,991		631
Total Available-for-Sale Fixed Maturities	$	2,925,653	$	—	$	2,916,229	$	9,424
Equity securities:
Common stocks
Public utilities	$	22,086	$	22,086	$	—	$	—
Energy	14,406		14,406		—		—
Industrials	62,843		62,843		—		—
Consumer goods and services	24,788		24,788		—		—
Health care	37,226		37,226		—		—

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Technology, media and telecommunications	16,085		16,085		—		—
Financial services	113,370		113,370		—		—
Nonredeemable preferred stocks	1,153		419		—		734
Total Available-for-Sale Equity Securities	$	291,957	$	291,223	$	—	$	734
Total Available-for-Sale Securities	$	3,217,610	$	291,223	$	2,916,229	$	10,158
TRADING
Fixed maturities:
Corporate bonds
Industrials	$	2,117	$	—	$	2,117	$	—
Consumer goods and services	289		—		289		—
Health care	3,557		—		3,557		—
Technology, media and telecommunications	1,373		—		1,373		—
Financial services	4,780		—		4,780		—
Redeemable preferred stocks	1,557		1,557		—		—
Equity securities:
Public utilities	831		831		—		—
Energy	206		206		—		—
Industrials	900		900		—		—
Consumer goods and services	1,209		1,209		—		—
Health care	369		369		—		—
Financial services	218		218		—		—
Nonredeemable preferred stocks	2,597		2,597		—		—
Total Trading Securities	$	20,003	$	7,887	$	12,116	$	—
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	13,897	$	13,897	$	—	$	—
Corporate-Owned Life Insurance	$	3,759	$	—	$	3,759	$	—
Total Assets Measured at Fair Value	$	3,255,444	$	313,182	$	2,932,104	$	10,158

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December 31, 2016			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury	$	23,195	$	—	$	23,195	$	—
U.S. government agency	77,597		—		77,597		—
States, municipalities and political subdivisions
General obligations
Midwest	144,143		—		144,143		—
Northeast	58,409		—		58,409		—
South	128,369		—		128,369		—
West	113,731		—		113,731		—
Special revenue
Midwest	168,310		—		168,142		168
Northeast	68,065		—		68,065		—
South	239,187		—		239,187		—
West	131,744		—		131,744		—
Foreign bonds	65,234		—		65,234		—
Public utilities	215,674		—		215,674		—
Corporate bonds
Energy	108,860		—		108,860		—
Industrials	229,903		—		229,903		—
Consumer goods and services	181,687		—		180,590		1,097
Health care	83,123		—		83,123		—
Technology, media and telecommunications	144,612		—		144,612		—
Financial services	273,951		—		265,154		8,797
Mortgage-backed securities	17,248		—		17,248		—
Collateralized mortgage obligations
Government national mortgage association	144,460		—		144,460		—
Federal home loan mortgage corporation	174,458		—		174,458		—
Federal national mortgage association	101,896		—		101,896		—
Asset-backed securities	4,270		—		3,821		449
Total Available-for-Sale Fixed Maturities	$	2,898,126	$	—	$	2,887,615	$	10,511
Equity securities:
Common stocks
Public utilities	$	19,671	$	19,671	$	—	$	—
Energy	15,047		15,047		—		—
Industrials	51,794		51,794		—		—
Consumer goods and services	24,117		24,117		—		—
Health care	27,420		27,420		—		—
Technology, media and telecommunications	15,369		15,369		—		—
Financial services	115,950		111,958		—		3,992

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Nonredeemable preferred stocks	1,048		453		—		595
Total Available-for-Sale Equity Securities	$	270,416	$	265,829	$	—	$	4,587
Total Available-for-Sale Securities	$	3,168,542	$	265,829	$	2,887,615	$	15,098
TRADING
Fixed maturities:
Bonds
Corporate bonds
Industrials	$	3,919	$	—	$	3,919	$	—
Consumer goods and services	127		—		127		—
Health care	3,410		—		3,410		—
Technology, media and telecommunications	787		—		787		—
Financial services	4,842		—		4,842		—
Redeemable preferred stocks	1,305		1,305		—		—
Equity securities:
Public utilities	613		613		—		—
Energy	286		286		—		—
Industrials	877		877		—		—
Consumer goods and services	1,202		1,202		—		—
Health care	339		339		—		—
Financial services	206		206		—		—
Nonredeemable preferred stocks	2,121		2,121		—		—
Total Trading Securities	$	20,034	$	6,949	$	13,085	$	—
Short-Term Investments	$	175	$	175	$	—	$	—
Money Market Accounts	$	16,802	$	16,802	$	—	$	—
Corporate-Owned Life Insurance	$	2,592	$	—	$	2,592	$	—
Total Assets Measured at Fair Value	$	3,208,145	$	289,755	$	2,903,292	$	15,098

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The following tables are a reconciliation for both continuing and discontinued operations of the presentation of the categorization for our financial instruments measured at fair value on a recurring basis at September 30, 2017 and December 31, 2016:



September 30, 2017			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,498,662	$	—	$	1,497,931	$	731
Discontinued operations	1,426,991		—		1,418,298		8,693
Total Available-for-Sale Fixed Maturities	$	2,925,653	$	—	$	2,916,229	$	9,424
Equity securities:
Continuing operations	$	269,341	$	268,607	$	—	$	734
Discontinued operations	22,616		22,616		—		—
Total Available-for-Sale Equity Securities	$	291,957	$	291,223	$	—	$	734
Total Available-for-Sale Securities	$	3,217,610	$	291,223	$	2,916,229	$	10,158
TRADING
Fixed maturities:
Continuing operations	$	13,673	$	1,557	$	12,116	$	—
Discontinued operations	—		—		—		—
Equity securities:
Continuing operations	6,330		6,330		—		—
Discontinued operations	—		—		—		—
Total Trading Securities	$	20,003	$	7,887	$	12,116	$	—
SHORT-TERM INVESTMENTS
Continuing operations	$	175	$	175	$	—	$	—
Discontinued operations	—		—		—		$	—
Short-Term Investments	$	175	$	175	$	—	$	—
MONEY MARKET ACCOUNTS
Continuing operations	$	13,203	$	13,203	$	—	$	—
Discontinued operations	694		694		—		—
Money Market Accounts	$	13,897	$	13,897	$	—	$	—
CORPORATE-OWNED LIFE INSURANCE
Continuing operations	$	3,759	$	—	$	3,759	$	—
Discontinued operations	—		—		—		—
Corporate-Owned Life Insurance	$	3,759	$	—	$	3,759	$	—
Total Assets Measured at Fair Value	$	3,255,444	$	313,182	$	2,932,104	$	10,158

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December 31, 2016			Fair Value Measurements
Description	Total		Level 1		Level 2		Level 3
AVAILABLE-FOR-SALE
Fixed maturities:
Continuing operations	$	1,453,286	$	—	$	1,452,737	$	549
Discontinued operations	1,444,840		—		1,434,878		9,962
Total Available-for-Sale Fixed Maturities	$	2,898,126	$	—	$	2,887,615	$	10,511
Equity securities:
Continuing operations	$	246,370	$	243,627	$	—	$	2,743
Discontinued operations	24,046		22,202		—		1,844
Total Available-for-Sale Equity Securities	$	270,416	$	265,829	$	—	$	4,587
Total Available-for-Sale Securities	$	3,168,542	$	265,829	$	2,887,615	$	15,098
TRADING
Fixed maturities:
Continuing operations	$	14,390	$	1,305	$	13,085	$	—
Discontinued operations	—		—		—		—
Equity securities:
Continuing operations	5,644		5,644		—		—
Discontinued operations	—		—		—		—
Total Trading Securities	$	20,034	$	6,949	$	13,085	$	—
SHORT-TERM INVESTMENTS
Continuing operations	$	175	$	175	$	—	$	—
Discontinued operations	—		—		—		—
Short-Term Investments	$	175	$	175	$	—	$	—
MONEY MARKET ACCOUNTS
Continuing operations	$	4,810	$	4,810	$	—	$	—
Discontinued operations	11,992		11,992		—		—
Money Market Accounts	$	16,802	$	16,802	$	—	$	—
CORPORATE-OWNED LIFE INSURANCE
Continuing operations	$	2,592	$	—	$	2,592	$	—
Discontinued operations	—		—		—		—
Corporate-Owned Life Insurance	$	2,592	$	—	$	2,592	$	—
Total Assets Measured at Fair Value	$	3,208,145	$	289,755	$	2,903,292	$	15,098

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

We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities,

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collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.

At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. 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. Unusual fluctuations outside of our expectations are independently corroborated with additional third-party sources that use similar valuation techniques as discussed above. In addition, we also randomly select securities and independently corroborate the valuations obtained from our third-party valuation service providers. In our opinion, the pricing obtained at September 30, 2017 and December 31, 2016 was reasonable.

For the three- and nine-month periods ended September 30, 2017, 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. During the three- and nine-month periods ended September 30, 2017, there were no securities transferred between Level 1 and Level 2.

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. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’ valuation processes. If pricing cannot be obtained from these sources, which occurs on a limited basis, management will perform a discounted cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value. During the three- and nine-month periods ended September 30, 2017, there were no securities transferred in or out of Level 3.

The following table provides a summary of the changes in fair value of our Level 3 securities, from both continuing and discontinued operations for the three-month period ended September 30, 2017:



	States, municipalities and political subdivisions		Corporate bonds			Asset-backed securities		Equities		Total
Balance at June 30, 2017	$	77	$	9,056		$	622	$	595	$	10,350
Net unrealized gains (losses)⁽¹⁾	—		(7		)	9		139		141
Purchases	—		100			—		—		100
Disposals	—		(433		)	—		—		(433		)
Balance at September 30, 2017	$	77	$	8,716		$	631	$	734	$	10,158

(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.

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The following table provides a summary of the changes in fair value of our Level 3 securities, from both continuing and discontinued operations for the nine-month period ended September 30, 2017:



	States, municipalities and political subdivisions			Corporate bonds			Asset-backed securities		Equities			Total
Balance at January 1, 2017	$	168		$	9,894		$	449	$	4,587		$	15,098
Net unrealized gains (losses)⁽¹⁾	(6		)	(6		)	182		139			309
Purchases	—			100			—		145			245
Disposals	(85		)	(1,272		)	—		(4,137		)	(5,494		)
Balance at September 30, 2017	$	77		$	8,716		$	631	$	734		$	10,158

(1) Net 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.

NOTE 4. RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES

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

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

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

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

We do not discount loss reserves based on the time value of money.

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The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at September 30, 2017 and December 31, 2016 (net of reinsurance amounts):




	September 30, 2017			December 31, 2016
Gross liability for losses and loss settlement expenses at beginning of year	$	1,123,896		$	1,003,895
Ceded losses and loss settlement expenses	(59,794		)	(54,653		)
Net liability for losses and loss settlement expenses at beginning of year	$	1,064,102		$	949,242
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	606,344		$	683,662
Prior years	(37,988		)	(31,229		)
Total incurred	$	568,356		$	652,433
Losses and loss settlement expense payments for claims occurring during
Current year	$	212,591		$	277,053
Prior years	247,608			260,520
Total paid	$	460,199		$	537,573
Net liability for losses and loss settlement expenses at end of year	$	1,172,259		$	1,064,102
Ceded loss and loss settlement expenses	65,021			59,794
Gross liability for losses and loss settlement expenses at end of period	$	1,237,280		$	1,123,896

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific dollar impact of any individual factor on the development of reserves.

The significant drivers of the favorable reserve development in 2017 came from two lines, commercial liability and workers compensation, partially offset by unfavorable development from commercial fire and allied lines, assumed reinsurance and commercial automobile. Much of the favorable long-tail liability development continues to come from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction in reserves for incurred but not reported claims because our long tail liability has experienced fewer late reported claims than what was initially anticipated. The majority of the favorable workers compensation development is due to reductions in reserves for reported claims which were greater than what was necessary to offset claim payments. Assumed reinsurance was adversely affected by increases in reserves for reported claims while commercial fire adverse development is attributable to loss payments which were greater than reductions in reported loss reserves and reserves for claims incurred but not reported. The majority of adverse commercial fire development resulted from claim payments that exceeded reductions in reserves for reported claims.

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

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

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

NOTE 5. 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 September 30,	2017			2016			2017			2016

Net periodic benefit cost
Service cost	$	1,714		$	1,623		$	505		$	932
Interest cost	1,765			1,663			482			754
Expected return on plan assets	(2,413		)	(1,988		)	—			—
Amortization of prior service credit	—			—			(1,352		)	—
Amortization of net loss	891			992			462			379
Net periodic benefit cost	$	1,957		$	2,290		$	97		$	2,065



	Pension Plan						Postretirement Benefit Plan
Nine Months Ended September 30,	2017			2016			2017			2016

Net periodic benefit cost
Service cost	$	5,141		$	4,869		$	1,515		$	2,796
Interest cost	5,295			4,989			1,446			2,262
Expected return on plan assets	(7,237		)	(5,964		)	—			—
Amortization of prior service credit	—			—			(4,056		)	—
Amortization of net loss	2,673			2,976			1,384			1,137
Net periodic benefit cost	$	5,872		$	6,870		$	289		$	6,195

Employer Contributions

We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016 that we expected to contribute $6,400 to the pension plan in 2017. For the nine-month period ended September 30, 2017, we contributed $11,396 to the pension plan. In September 2017, the Company contributed an additional $5,000 to the pension plan for tax advantages and to reduce future obligations.

NOTE 6. STOCK-BASED COMPENSATION

Non-qualified Employee Stock Award Plan

The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified

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stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At September 30, 2017, there were 996,839 authorized shares remaining available for future issuance. 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 UFG.

Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. All outstanding option awards have graded vesting over 3 years or 5 years from the grant date, unless the Board of Directors authorizes acceleration of vesting. Performance stock units cliff-vest after 3 years and the certification of performance results by UFG’s Compensation Committee. 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 UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of issuance, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.

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



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2017		From Inception to September 30, 2017
Beginning balance	1,248,651		1,900,000
Additional shares authorized	—		1,500,000
Number of awards granted	(255,040	)	(2,867,606	)
Number of awards forfeited or expired	3,228		464,445
Ending balance	996,839		996,839
Number of option awards exercised	101,189		1,050,257
Number of unrestricted stock awards granted	1,145		8,470
Number of restricted stock awards vested	—		36,970

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

The United Fire Group, Inc. 2005 Non-qualified Non-employee Director Stock Option and Restricted Stock Plan (the "Director Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. At September 30, 2017, we had 61,813 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 (subject to limits set forth in the plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Plan.

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



Authorized Shares Available for Future Award Grants	Nine Months Ended September 30, 2017		From Inception to June 30, 2017
Beginning balance	74,771		300,000
Number of awards granted	(12,958	)	(262,190	)
Number of awards forfeited or expired	—		24,003
Ending balance	61,813		61,813
Number of option awards exercised	6,727		59,200
Number of restricted stock awards vested	22,716		54,272

Stock-Based Compensation Expense

For the three-month periods ended September 30, 2017 and 2016, we recognized stock-based compensation expense of $1,202 and $865, respectively. For the nine-month periods ended September 30, 2017 and 2016, we recognized stock-based compensation expense of $3,456 and $2,731, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.

As of September 30, 2017, we had $9,586 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 2017 and subsequent years according to the table below, 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.



2017	$	1,202
2018	4,047
2019	2,784
2020	1,120
2021	393
2022	40
Total	$	9,586

NOTE 7. SEGMENT INFORMATION

On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life Insurance Company, to Kuvare. As a result, our life insurance segment has been considered held for sale and reported as discontinued operations in the Consolidated Financial Statements and all comparable prior periods have been presented to conform to the current year presentation. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval. For more information, refer to Note 11. Discontinued Operations.

Prior to the announcement to sell our subsidiary, United Life Insurance Company, we had two reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance segment has six domestic locations from which it conducts its business. The life insurance segment operates from our home office in Cedar Rapids, Iowa. Because all of our insurance is sold domestically, we have no revenues from foreign operations.

After the announcement of the sale of our life insurance segment, the Company has one reportable segment, the property and casualty insurance segment, which includes all continuing operations. The property and casualty insurance segment profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance segment results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance segment was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution

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networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance segment products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance segment geographic concentration did not change after the announcement of the sale of the life insurance segment. We will continue to evaluate our segment on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.

NOTE 8. 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, restricted stock awards and restricted stock unit 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 September 30, 2017 and 2016:



	Three Months Ended September 30,
(In Thousands, Except Share Data)	2017						2016
	Basic			Diluted			Basic		Diluted
Net income (loss) from continuing operations	$	(19,082	)	$	(19,082	)	$	11,628	$	11,628
Weighted-average common shares outstanding	24,960,086			24,960,086			25,389,633		25,389,633
Add dilutive effect of restricted stock unit awards	—			—			—		155,270
Add dilutive effect of stock options	—			—			—		270,443
Weighted-average common shares outstanding	24,960,086			24,960,086			25,389,633		25,815,346
Earnings (loss) per common share from continuing operations	$	(0.77	)	$	(0.77	)	$	0.46	$	0.45
Earnings per common share from discontinued operations	0.05			0.05			0.03		0.03
Earnings (loss) per common share	$	(0.72	)	$	(0.72	)	$	0.49	$	0.48
Awards excluded from diluted earnings per share calculation⁽¹⁾	—			—			—		—


(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.

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The components of basic and diluted earnings per share were as follows for the nine-month periods ended September 30, 2017 and 2016:



	Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017						2016
	Basic			Diluted			Basic		Diluted
Net income (loss) from continuing operations	$	(389	)	$	(389	)	$	37,083	$	37,083
Weighted-average common shares outstanding	25,177,133			25,177,133			25,322,427		25,322,427
Add dilutive effect of restricted stock unit awards	—			253,082			—		155,270
Add dilutive effect of stock options	—			236,190			—		233,317
Weighted-average common shares outstanding	25,177,133			25,666,405			25,322,427		25,711,014
Earnings (loss) per common share from continuing operations	$	(0.01	)	$	(0.01	)	$	1.47	$	1.44
Earnings per common share from discontinued operations	0.21			0.21			0.03		0.03
Earnings (loss) per common share	$	0.20		$	0.20		$	1.50	$	1.47
Awards excluded from diluted earnings per share calculation⁽¹⁾	—			—			—		—


(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 9. CREDIT FACILITY

On February 2, 2016, the Company, as borrower, entered into a Credit Agreement (the "Credit Agreement") by and among the Company, with the lenders from time to time party thereto and KeyBank National Association ("Key Bank"), as administrative agent, swingline lender and letter of credit issuer. The Credit Agreement provides for a $50,000 four-year unsecured revolving credit facility that includes a $20,000 letter of credit subfacility and a swingline subfacility in the amount up to $5,000. The Credit Agreement allows the Company to increase the aggregate amount of the commitments thereunder by up to $100,000, provided that no event of default has occurred and is continuing and certain other conditions are satisfied.

The Credit Agreement is available for the Company's general corporate purposes, including liquidity, acquisitions and working capital. All unpaid principal and accrued interest under the Credit Agreement is due and payable in full at maturity on February 2, 2020. Based on the type of loan, advances under the Credit Agreement would bear interest on either the London interbank offered rate ("LIBOR") or a base rate plus, in each case, a calculated margin amount.

The unused commitments under the Credit Agreement will be subject to a commitment fee that will be calculated at a per annum rate. The applicable margins for borrowings under the Credit Agreement and the commitment fee thereunder will be determined by reference to a pricing grid based on the Company’s issuer credit rating by A.M. Best Company, Inc.

The Credit Agreement contains customary representations, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to sell or transfer assets, enter into a merger or consolidate with another company, create liens, impose restrictions on subsidiary dividends, enter into sale-leaseback transactions, make investments or acquisitions, enter into certain reinsurance agreements, pay dividends during any period of default, enter into transactions with affiliates, change the nature of its business, or incur indebtedness. The Credit Agreement also includes financial covenants that require the Company to (i) maintain a minimum consolidated net worth, (ii) maintain a minimum consolidated statutory surplus and (iii) not exceed a 0.35 to 1.0 debt to total capitalization ratio.

There was no outstanding balance on the Credit Agreement at September 30, 2017 and 2016, respectively. For the nine-month periods ended September 30, 2017 and 2016, we did not incur any interest expense related to either credit facility. We were in compliance with all covenants of the Credit Agreement at September 30, 2017.

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NOTE 10. 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 September 30, 2017:



				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs⁽¹⁾			Total
Balance as of June 30, 2017	$	160,048		$	(23,080	)	$	136,968
Change in accumulated other comprehensive income before reclassifications	12,347			—			12,347
Reclassification adjustments from accumulated other comprehensive income (loss)	(273		)	879			606
Balance as of September 30, 2017	$	172,122		$	(22,201	)	$	149,921

(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.

The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the nine-month period ended September 30, 2017:



				Liability for
	Net unrealized			underfunded
	appreciation			employee
	on investments			benefit costs⁽¹⁾			Total
Balance as of January 1, 2017	$	133,892		$	(24,837	)	$	109,055
Change in accumulated other comprehensive income before reclassifications	41,999			—			41,999
Reclassification adjustments from accumulated other comprehensive income (loss)	(3,769		)	2,636			(1,133		)
Balance as of September 30, 2017	$	172,122		$	(22,201	)	$	149,921

NOTE 11. DISCONTINUED OPERATIONS

On September 18, 2017, we signed a definitive agreement to sell our subsidiary, United Life Insurance Company, to Kuvare for $280,000 in cash, subject to specified adjustments as set forth in the definitive agreement. As a result, our life insurance business (previously reported as a separate segment) has been considered held for sale and reported as discontinued operations and its financial position, results of operations and cash flows are separately reported separately for all periods presented, unless otherwise noted. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval.

Subsequent to the close of the sale in the first half of 2018, UFG will provide services to Kuvare through a transition services agreement ("TSA"). The TSA will be put in place to ensure a seamless transfer of the business between UFG and Kuvare. The TSA includes, among other considerations, accounting management, human resources, legal

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and information technology services, from the closing date for up to 24 months.

The assets and liabilities associated with discontinued operations prior to the closing of the sale have been presented separately in our Consolidated Balance Sheets. The major assets and liability categories were as follows as of the dates indicated:



Discontinued Operations
Balance Sheets
(In Thousands, Except Share Data)	September 30, 2017		December 31, 2016
	(unaudited)
Assets
Investments
Fixed maturities
Held-to-maturity, at amortized cost (fair value $39 in 2017 and $49 in 2016)	$	38	$	48
Available-for-sale, at fair value (amortized cost $1,399,465 in 2017 and $1,429,270 in 2016)	1,426,991		1,444,840
Equity Securities available-for-sale, at fair value (cost $5,099 in 2017 and $8,510 in 2016)	22,616		24,046
Mortgage loans	3,504		3,706
Policy loans	5,770		5,366
Other long-term investments	16,299		15,870
	1,475,218		1,493,876
Cash and cash equivalents	30,751		21,659
Deferred policy acquisition costs	65,836		70,750
Other assets	21,041		19,333
Total assets held for sale	$	1,592,846	$	1,605,618
Liabilities
Future policy benefits and losses	$	1,324,029	$	1,350,503
Accrued expenses and other liabilities	39,708		39,720
Total liabilities held for sale	$	1,363,737	$	1,390,223

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Summary operating results of discontinued operations were as follows for the periods indicated:



Discontinued Operations
Statements of Income
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Share Data)	2017		2016		2017		2016

Revenues
Net premiums earned	$	14,230	$	20,600	$	45,999	$	62,878
Investment income, net of investment expenses	12,354		12,663		37,230		38,404
Net realized investment gains	296		461		3,600		1,409
Other income	174		145		498		436
Total revenues	$	27,054	$	33,869	$	87,327	$	103,127

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	10,506	$	7,252	$	30,679	$	23,527
Increase in liability for future policy benefits	5,481		14,091		19,341		42,645
Amortization of deferred policy acquisition costs	2,156		1,876		5,524		5,716
Other underwriting expenses	2,444		4,527		9,452		14,630
Interest on policyholders’ accounts	4,587		4,983		13,982		15,368
Total benefits, losses and expenses	$	25,174	$	32,729	$	78,978	$	101,886

Income from discontinued operations before income taxes	$	1,880	$	1,140	$	8,349	$	1,241
Federal income tax expense	662		400		2,930		415
Net income from discontinued operations	$	1,218	$	740	$	5,419	$	826
Earnings per common share from discontinued operations:
Basic	$	0.05	$	0.03	$	0.21	$	0.03
Diluted	0.05		0.03		0.21		0.03

The Company's Consolidated Statement of Cash Flows presents operating, investing and financing cash flows of the discontinued operations separately. The Company's cash management and financial management of both continued and discontinued operations is consolidated as a centralized corporate function in our Finance Department. Cash and cash equivalents of the discontinued operations at September 30, 2017 and December 31, 2016 were $30,751 and $21,659, respectively.

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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. (the "Company") as of September 30, 2017, and the related consolidated statements of income and comprehensive income for the three- and nine-month periods ended September 30, 2017 and 2016, the consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016, and the consolidated statement of stockholders' equity for the nine-month period ended September 30, 2017. 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, 2016, 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 February 28, 2017. In our opinion, the accompanying consolidated balance sheet of United Fire Group, Inc. as of December 31, 2016 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

November 8, 2017

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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 Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no changes in our critical accounting policies from December 31, 2016.

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, 2016. 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.

When we provide information on a statutory or other basis, we label it as such, otherwise all other data is presented in accordance with GAAP.

BUSINESS OVERVIEW

Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," 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 46 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 1,550 independent agencies.

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.

Discontinued Operations

On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings, Inc. ("Kuvare"). As a result, our life insurance business has been considered held for sale and accounted for as discontinued operations in the Consolidated Balance Sheets, Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows. All periods presented have been revised to show results from continuing and discontinued operations, unless otherwise noted. The sale is expected to close in the first half of 2018, subject to customary conditions, including regulatory approval. For more information, refer to Part I, Item 1, Note 11. "Discontinued Operations".

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Reportable Segments

Prior to the announcement of the sale of our life insurance business, we have historically reported our operations in 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.

Subsequent to the announcement of the sale of our life insurance segment on September 19, 2017, we operate and report one business segment, which contains our continuing operations. Our life insurance business is considered held for sale and reported as discontinued operations throughout this Form 10-Q, unless otherwise noted. For more information, refer to Part I, Item 1, Note 7. "Segment Information".

Pooling Arrangement

All of our property and casualty insurance subsidiaries are members of an intercompany reinsurance pooling arrangement. The Company's pooling arrangement permits 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 nine-month period ended September 30, 2017, approximately 48.2 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri and Colorado.

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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FINANCIAL HIGHLIGHTS



	Three Months Ended September 30,								Nine Months Ended September 30,
(In Thousands)	2017			2016			%		2017			2016			%
Revenues
Net premiums earned	$	255,758		$	239,469		6.8	%	$	737,424		$	691,976		6.6	%
Investment income, net of investment expenses	13,792			14,027			(1.7	)	38,561			35,017			10.1
Net realized investment gains	67			2,129			(96.9	)	3,397			4,832			(29.7	)
Total revenues	$	269,617		$	255,625		5.5	%	$	779,382		$	731,825		6.5	%

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	223,208		$	169,303		31.8	%	$	568,356		$	475,568		19.5	%
Amortization of deferred policy acquisition costs	52,986			52,240			1.4		154,845			151,216			2.4
Other underwriting expenses	25,817			20,047			28.8		69,900			61,469			13.7
Total benefits, losses and expenses	$	302,011		$	241,590		25.0	%	$	793,101		$	688,253		15.2	%

Income (loss) from continuing operations before income taxes	$	(32,394	)	$	14,035		NM		$	(13,719	)	$	43,572		(131.5	)%
Federal income tax expense (benefit)	(13,312		)	2,407			NM		(13,330		)	6,489			NM
Net income (loss) from continuing operations	$	(19,082	)	$	11,628		(264.1	)%	$	(389	)	$	37,083		(101.0	)%
Income from discontinued operations, net of tax	1,218			740			64.6	%	5,419			826			NM
Net income (loss)	$	(17,864	)	$	12,368		(244.4	)%	$	5,030		$	37,909		(86.7	)%

GAAP Ratios:
Net loss ratio (without catastrophes)	75.3		%	65.5		%	15.0	%	67.8		%	61.1		%	11.0	%
Catastrophes - effect on net loss ratio	12.0			5.2			130.8	%	9.3			7.6			22.4	%
Net loss ratio⁽¹⁾	87.3		%	70.7		%	23.5	%	77.1		%	68.7		%	12.2	%
Expense ratio⁽²⁾	30.8			30.2			2.0	%	30.5			30.8			(1.0	)%
Combined ratio⁽³⁾	118.1		%	100.9		%	17.0	%	107.6		%	99.5		%	8.1	%

(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 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 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.

NM = Not meaningful

The following is a summary of our financial performance from continuing operations for the three- and nine-month periods ended September 30, 2017:

Results of Operations

For the three-month period ended September 30, 2017, the net loss from continuing operations was $19.1 million compared to net income from continuing operations of $11.6 million for the same period of 2016. This decrease was driven by an increase in losses and loss settlement expenses from an increase in catastrophe losses and deterioration in our core loss ratio; partially offset by an increase in net premiums earned from organic growth. Net premiums earned increased to $255.8 million compared to $239.5 million for the same period of 2016.

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For the nine-month period ended September 30, 2017, the net loss from continuing operations was $0.4 million compared to net income from continuing operations of $37.1 million for the same period of 2016. The decrease in net income was driven by an increase in losses and loss settlement expenses, from an increase in catastrophe losses and deterioration in our core loss ratio; partially offset by an increase in net premiums earned from organic growth. Net premiums earned increased to $737.4 million compared to $692.0 million for the same period of 2016.

Losses and loss settlement expenses increased by $53.9 million during the three-month period ended September 30, 2017 compared to the same period of 2016, and the net loss ratio increased by 16.6 percentage points during the three-month period ended September 30, 2017 compared to the same period of 2016. The increase was primarily due to an increase in catastrophe losses and deterioration in our core loss ratio. This deterioration was primarily due to an increase in the number of severe losses in our commercial automobile line of business from the current accident year and prior period reserve development. Pre-tax catastrophe losses for the three-month period ended September 30, 2017 were $30.7 million compared to $12.5 million in the same period of 2016.

Losses and loss settlement expenses increased by $92.8 million during the nine-month period ended September 30, 2017 compared to the same period of 2016, and the net loss ratio increased by 8.4 percentage points during the nine-month period ended September 30, 2017 compared to the same period of 2016. The increase was primarily due to an increase in catastrophe losses and deterioration in our core loss ratio. This deterioration was primarily due to an increase in the number of severe losses in our commercial automobile line of business from current accident year and prior period reserve development. Pre-tax catastrophe losses for the nine-month period ended September 30, 2017 were $68.8 million compared to $52.4 million in the same period of 2016.

Investment income decreased slightly by $0.2 million and increased $3.5 million during the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. The increase in the nine-month period ended September 30, 2017 was primarily driven by an increase in invested assets and partially due to the change in the valuation of our investments in limited liability partnerships and not due to a change in our investment philosophy. The valuation of these investments in limited liability partnerships varies from period to period due to current equity market conditions, specifically related to financial institutions.

The combined ratio increased 17.2 percentage points to 118.1 percent, for the three-month period ended September 30, 2017, compared to 100.9 percent for the same period of 2016. The combined ratio increased 8.1 percentage points to 107.6 percent, for the nine-month period ended September 30, 2017, compared to 99.5 percent for the same period of 2016. The increase in the combined ratio in the three- and nine-month periods ended September 30, 2017, as compared to the same periods of 2016, was primarily attributable to an increase in the net loss ratio. The increase in net loss ratio was primarily driven by an increase in catastrophe losses and a deterioration in our core loss ratio, primarily in our commercial automobile line of business, which experienced an increase in the number of severe losses on current accident year and prior year reserve development.

The net loss ratio, a component of the combined ratio, increased by 16.6 percentage points to 87.3 percent and 8.4 percentage points to 77.1 in the three- and nine-month periods ended September 30, 2017, respectively, as compared to the same periods of 2016. The increase was primarily due to an increase in catastrophe losses and deterioration in our core loss ratio. This deterioration was primarily due to an increase in the number of severe losses in our commercial automobile line of business from prior period reserve development. Pre-tax catastrophe losses totaled $30.7 million and $68.8 million and for the three- and nine-month periods ended September 30, 2017, as compared to $12.5 million and $52.4 million in the same periods of 2016. The increase in the three- and nine-month periods ended September 30, 2017 was primarily driven by losses from hurricanes in the third quarter of 2017.

The expense ratio, a component of the combined ratio, was 30.8 percent and 30.5 percent for the three- and nine-month periods ended September 30, 2017, respectively, an increase of 0.6 percentage points and a decrease of 0.3 percentage points as compared with the same periods of 2016. The increase in the three-month period ended September 30, 2017 was due to two items: first, deterioration in the profitability of the commercial and personal auto lines of business, which accelerates the amortization of our deferred acquisition costs; and second, we have invested in a new multi-year project to upgrade our technology platform to enhance core underwriting decisions and

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productivity. These were both partially offset by a decrease in post-retirement benefit expenses and a decrease in contingent commission expenses.

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

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.

2017 Development

The property and casualty insurance business experienced $3.2 million of unfavorable and $38.0 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2017, respectively. For the three-month period ended September 30, 2017 the majority of unfavorable development came from two lines, commercial automobile with $5.4 million unfavorable development and commercial liability with $3.6 million unfavorable development, which was partially offset by favorable development from two other lines, workers compensation with $4.6 million favorable development and personal fire and allied lines with $1.6 million favorable development. During the three-month period ended September 30, 2017 all other lines combined contributed $0.4 million unfavorable development. Commercial automobile and other liability were the primary sources of unfavorable development which is attributable to latent development of more severe claims than what we have historically seen which manifested itself as increased payments and less favorable changes in reserves for unpaid claims. For the nine-month period ended September 30, 2017 the majority of favorable development came from two lines, commercial liability with $37.9 million favorable development and workers compensation with $14.6 million favorable development, which was partially offset by unfavorable development from three other lines, commercial fire and allied lines with $7.1 million unfavorable development, assumed reinsurance with $6.8 million unfavorable development, and commercial automobile with $5.6 million unfavorable development. During the nine-month period ended September 30, 2017 all other lines combined contributed $5.0 million favorable development. Much of the favorable year-to-date long-tail liability development continues to come from loss adjustment expense and is attributed to our continued litigation management efforts. There was also a reduction in reserves for incurred but not reported claims because our long tail liability has experienced fewer late reported claims than what was initially anticipated. The majority of the favorable workers compensation development is due to reductions in reserves for reported claims which were greater than what was necessary to offset claim payments.

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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 September 30, 2017, our total reserves were within our actuarial estimates.

2016 Development

The property and casualty insurance business experienced $0.7 million and $27.1 million of favorable development in our net reserves for prior accident years for the three- and nine-month periods ended September 30, 2016, respectively. For the three-month period ended September 30, 2016 the majority of favorable development came from two lines, workers compensation with $4.3 million of favorable development and commercial liability with $2.7 million of favorable development. This was offset by unfavorable development from two other lines, commercial auto with $4.9 million of unfavorable development and commercial fire and allied lines with $2.4 million of unfavorable development. The unfavorable development in commercial auto was driven by an increase frequency and severity from an overall increase in miles driven. The unfavorable development in commercial fire and allied lines was due to latent development on weather-related claims. During the three-month period ended September 30, 2016 all other lines combined contributed favorable development of $1.0 million. The lines of business with favorable development in the three-month period ended September 30, 2016 are primarily attributable to successful management of litigation expenses.

For the nine-month period ended September 30, 2016 the majority of favorable development came from four lines, commercial liability with $16.4 million of favorable development, workers compensation with $11.5 million of favorable development, fidelity and surety with $2.2 million of favorable development and personal auto with $2.1 million of favorable development. This was partially offset by unfavorable development from commercial fire and allied lines with $6.9 million. The unfavorable development in commercial fire and allied lines was due to latent development on weather-related claims. During the nine-month period ended September 30, 2016 all other lines combined contributed favorable development of $1.8 million. The favorable development in the nine-month period ended September 30, 2016 is primarily attributable to reductions in reserves for loss adjustment expense which continues to benefit from successful management of litigation expenses.

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The following table displays our net premiums earned, net losses and loss settlement expenses and net loss ratio from continuing operations by line of business:




Three Months Ended September 30,	2017							2016
			Net Losses							Net Losses
			and Loss							and Loss
	Net		Settlement			Net		Net		Settlement			Net
(In Thousands, Except Ratios)	Premiums		Expenses			Loss		Premiums		Expenses			Loss
Unaudited	Earned		Incurred			Ratio		Earned		Incurred			Ratio
Commercial lines
Other liability	$	77,955	$	50,836		65.2	%	$	74,784	$	32,714		43.7	%
Fire and allied lines	58,568		45,809			78.2		56,451		47,086			83.4
Automobile	64,470		74,161			115.0		55,111		53,330			96.8
Workers' compensation	26,387		23,357			88.5		26,766		21,772			81.3
Fidelity and surety	6,430		(485		)	(7.5	)	5,711		908			15.9
Miscellaneous	459		111			24.2		453		39			8.6
Total commercial lines	$	234,269	$	193,789		82.7	%	$	219,276	$	155,849		71.1	%

Personal lines
Fire and allied lines	$	10,730	$	9,077		84.6	%	$	10,986	$	6,606		60.1	%
Automobile	6,878		8,250			119.9		6,386		6,328			99.1
Miscellaneous	294		150			51.0		277		(276		)	(99.6	)
Total personal lines	$	17,902	$	17,477		97.6	%	$	17,649	$	12,658		71.7	%
Reinsurance assumed	$	3,587	$	11,942		NM		$	2,544	$	796		31.3	%
Total	$	255,758	$	223,208		87.3	%	$	239,469	$	169,303		70.7	%

NM = Not meaningful




Nine Months Ended September 30,	2017						2016
			Net Losses						Net Losses
			and Loss						and Loss
	Net		Settlement		Net		Net		Settlement		Net
(In Thousands, Except Ratios)	Premiums		Expenses		Loss		Premiums		Expenses		Loss
Unaudited	Earned		Incurred		Ratio		Earned		Incurred		Ratio
Commercial lines
Other liability	$	228,250	$	73,597	32.2	%	$	215,572	$	101,378	47.0	%
Fire and allied lines	168,506		156,702		93.0		164,503		133,823		81.3
Automobile	183,688		208,346		113.4		157,106		140,397		89.4
Workers' compensation	78,092		55,569		71.2		77,009		53,106		69.0
Fidelity and surety	18,041		207		1.1		16,221		432		2.7
Miscellaneous	1,374		278		20.2		1,292		357		27.6
Total commercial lines	$	677,951	$	494,699	73.0	%	$	631,703	$	429,493	68.0	%

Personal lines
Fire and allied lines	$	32,300	$	31,361	97.1	%	$	32,794	$	25,442	77.6	%
Automobile	20,031		22,909		114.4		18,686		16,872		90.3
Miscellaneous	860		80		9.3		808		319		39.5
Total personal lines	$	53,191	$	54,350	102.2	%	$	52,288	$	42,633	81.5	%
Reinsurance assumed	$	6,282	$	19,307	NM		$	7,985	$	3,442	43.1	%
Total	$	737,424	$	568,356	77.1	%	$	691,976	$	475,568	68.7	%

NM = Not meaningful

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Below are explanations regarding significant changes in the net loss ratios by line of business:

•

Other liability - The net loss ratio deteriorated 21.5 percentage points and improved 14.8 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. Loss ratio deterioration for the three-month period ended September 30, 2017 is primarily due to an increase in losses on commercial automobile policies with umbrella coverage resulting in an increase in claim payments for prior years, increase in reserves for current year reported claims and an increase in reserves for prior year incurred but not reported claims. Loss ratio improvement for the-nine month period ended September 30, 2017 is due to a decrease in reserves for incurred but not reported claims and a decrease in reserves for unpaid loss adjustment expense which is attributed to our continued litigation management efforts.

•

Commercial fire and allied lines - The net loss ratio improved 5.2 percentage points and deteriorated 11.7 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. Loss ratio improvement for the three-month period ended September 30, 2017 comes from a decrease in reserves for incurred but not reported claims for the current year which is attributable to lower than expected claim emergence from various storms that had occurred earlier in the year. Loss ratio deterioration for the-nine month period ended September 30, 2017 is due to an increase in claim payments for the current year and first previous year. In addition, the change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016, along with an increase in paid loss adjustment expenses.

•

Commercial automobile - The net loss ratio deteriorated 18.2 percentage points and 24.0 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. The change was due to an increase in the number of severe losses, which we define as losses over $500 thousand, in 2017 as compared to the same periods of 2016 along with strengthening of reserves on prior accident years and only partially due to an increase in direct paid losses in the current accident year. We are implementing many initiatives to improve the profitability of this line of business, which include pricing increases, stricter underwriting guidelines, new analytical tools and more rigorous loss control requirements.


•	Personal fire and allied lines - The net loss ratio deteriorated 24.5 percentage points and 19.5 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016. The change results from an increase in frequency, with the number of claims increasing in 2017 as compared to the same periods of 2016.

•

Personal automobile - The net loss ratio deteriorated 20.8 percentage points and 24.1 percentage points in the three- and nine-month periods ended September 30, 2017, respectively, compared to the same periods of 2016.The change is primarily attributable to an increase in claim frequency in 2017 as compared to the same periods 2016 which resulted in increased paid loss and increased reserves for reported claims.

•

Reinsurance assumed - The net loss ratio deteriorated in both the three- and nine-month periods ended September 30, 2017 compared to the same periods of 2016.The increase in losses is primarily due to an increase of reserves for incurred but not reported claims for hurricanes that occurred late in the third quarter. An increase in paid losses also contributed to the increased loss ratios for both the three- and nine-month periods. In addition, the nine-month period is also affected by the emergence of prior year losses from the programs in which we participate, which are reported on a lag basis.

Financial Condition

Our stockholders' equity increased to $944.0 million at September 30, 2017, from $941.9 million at December 31, 2016. The increase was attributable to net income of $5.0 million and an increase in net unrealized investment gains of $38.2 million, net of tax, partially offset by stockholder dividends of $20.4 million and share repurchases of $29.8 million.

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Net unrealized investment gains totaled $172.1 million as of September 30, 2017, an increase of $38.2 million, net of tax, or 28.6 percent, since December 31, 2016. The increase in net unrealized investment gains is primarily the result of a decrease in interest rates, which positively impacted the valuation of our fixed maturity security portfolio during 2017 and an increase in the fair value of our equity security portfolio.

At September 30, 2017, the book value per share of our common stock was $37.99. During the nine-month period ended September 30, 2017, 701,899 shares of common stock were repurchased under our share repurchase program at a total cost of $29.8 million and an average share price of $42.43. Under our share repurchase program, which is scheduled to expire on August 31, 2018, we were authorized to repurchase an additional 2,236,572 shares of our common stock as of September 30, 2017.

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Discontinued Operations Results



	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016
Revenues
Net premiums earned	$	14,230	$	20,600	$	45,999	$	62,878
Investment income, net of investment expenses	12,354		12,663		37,230		38,404
Net realized investment gains	296		461		3,600		1,409
Other income	174		145		498		436
Total revenues	$	27,054	$	33,869	$	87,327	$	103,127

Benefits, Losses and Expenses
Losses and loss settlement expenses	$	10,506	$	7,252	$	30,679	$	23,527
Increase in liability for future policy benefits	5,481		14,091		19,341		42,645
Amortization of deferred policy acquisition costs	2,156		1,876		5,524		5,716
Other underwriting expenses	2,444		4,527		9,452		14,630
Interest on policyholders' accounts	4,587		4,983		13,982		15,368
Total benefits, losses and expenses	$	25,174	$	32,729	$	78,978	$	101,886

Income from discontinued operations, before income taxes	$	1,880	$	1,140	$	8,349	$	1,241

Income before income taxes from our discontinued operations was $1.9 million for the three-month period ended September 30, 2017, compared to income before income taxes of $1.1 million for the same period of 2016. Year-to-date, income before income taxes from discontinued operations totaled $8.3 million compared to $1.2 million for the same nine-month period of 2016. The change in net income in both the third quarter and year-to-date was primarily due to a decrease in underwriting expenses and a smaller increase in liability for future benefits offset by a decrease in net premiums earned and an increase in losses and loss settlement expenses. The decrease in underwriting expenses was due to strategic changes made at the beginning of 2017 to increase profitability of our life products through pricing changes and restructuring of our commissions. This strategic change resulted in a decrease in net premiums earned, primarily in sales of single premium whole life policies which in turn reduced the increase in liability for future benefits. Also impacting the results was an increase in death benefits paid compared to the same periods in the prior year.

Investment Portfolio

Our invested assets from continuing operations totaled $1.8 billion at September 30, 2017, compared to $1.8 billion at December 31, 2016, an increase of $66.5 million. At September 30, 2017, fixed maturity securities and equity securities made up 82.3 percent and 15.0 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

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based on investment guidelines approved by management and the investment committee of our Board of Directors that comply with applicable statutory regulations.

The composition of our investment portfolio at September 30, 2017 is presented at carrying value in the following table:



	Continuing Operations				Discontinued Operations
	Property & Casualty Insurance				Life Insurance				Total
			Percent				Percent				Percent
(In Thousands, Except Ratios)			of Total				of Total				of Total
Fixed maturities ⁽¹⁾
Held-to-maturity	$	150	—	%	$	38	—	%	$	188	—	%
Available-for-sale	1,498,662		81.5		1,426,991		96.8		2,925,653		88.3
Trading securities	13,673		0.7		—		—		13,673		0.4
Equity securities
Available-for-sale	269,341		14.7		22,616		1.5		291,957		8.8
Trading securities	6,330		0.4		—		—		6,330		0.2
Mortgage loans	—		—		3,504		0.2		3,504		0.1
Policy loans	—		—		5,770		0.4		5,770		0.2
Other long-term investments	49,966		2.7		16,299		1.1		66,265		2.0
Short-term investments	175		—		—		—		175		—
Total	$	1,838,297	100.0	%	$	1,475,218	100.0	%	$	3,313,515	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 both September 30, 2017 and December 31, 2016, we classified $1.5 billion, or 99.1 percent, of our fixed maturities portfolio as available-for-sale. 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 September 30, 2017 and December 31, 2016, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

Credit Quality

The table below shows the composition of fixed maturity securities held in our available-for-sale, held-to-maturity and trading security portfolios, by credit rating for both continuing and discontinued operations at September 30, 2017 and December 31, 2016. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.



(In Thousands, Except Ratios)	September 30, 2017				December 31, 2016
Rating	Carrying Value		% of Total		Carrying Value		% of Total
AAA	$	867,490	29.5	%	$	782,329	26.9	%
AA	848,295		28.8		857,946		29.4
A	616,366		21.0		651,696		22.4
Baa/BBB	551,478		18.8		554,475		19.0
Other/Not Rated	55,885		1.9		66,268		2.3
	$	2,939,514	100.0	%	$	2,912,714	100.0	%

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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 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.

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 from continuing operations decreased by 1.7 percent and increased 10.1 percent, respectively, in the three- and nine-month periods ended September 30, 2017, compared with the same periods of 2016. The increase in the nine-month period ended September 30, 2017 was primarily due to an increase in invested assets and changes in value of our investments in limited liability partnerships as compared to the same period in 2016. We are maintaining our investment philosophy of purchasing fixed income investments rated investment grade or better.

We hold certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in value of these investments recorded in investment income. In the three- and nine-month periods ended September 30, 2017, the change in value of our investments in limited liability partnerships from continuing operations resulted in investment income of $2.0 million and $3.3 million, respectively, as compared to an increase of $3.6 million and $2.5 million in investment income, respectively, in the same periods of 2016. This resulted in an decrease of $1.6 million and an increase of $0.8 million in investment income in the three- and nine-month periods ended September 30, 2017, respectively.

Our net realized investment gains from continuing operations were $0.1 million and $3.4 million, respectively, during the three- and nine-month periods ended September 30, 2017, as compared with $2.1 million and $4.8 million, respectively, in the same periods of 2016.

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 September 30, 2017 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. It is possible that we could recognize impairment charges in future periods on securities that we own at September 30, 2017 if future events and information cause us to determine that a decline in value is other-than-temporary. However, we endeavor to invest in high quality assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs. In the three- and nine-month periods ended September 30, 2017 and 2016, there were no other-than-temporary impairment write-downs.

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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 consolidated summary of cash sources and uses in 2017 and 2016 from continuing and discontinued operations:



Cash Flow Summary	Nine Months Ended September 30,
(In Thousands)	2017			2016
Cash provided by (used in)
Operating activities	$	116,296		$	128,069
Investing activities	(4,361		)	(20,024		)
Financing activities	(93,427		)	(73,550		)
Net increase in cash and cash equivalents	$	18,508		$	34,495

In the Consolidated Statement of Cash Flows, cash flows from discontinued operations are shown in separate lines in each of the operating, investing and financing sections of the Cash Flow Statement. Our cash flows from continuing operations were sufficient to meet our current liquidity needs for the nine-month periods ended September 30, 2017 and 2016 and we anticipate they will be sufficient to meet our future liquidity needs.

Operating Activities

Net cash flows provided by operating activities totaled $116.3 million and $128.1 million for the nine-month periods ended September 30, 2017 and 2016, respectively. Cash flows from discontinued operations provided by operating activities totaled $23.8 million and $46.0 million for the nine-month periods ended September 30, 2017 and 2016, respectively.

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

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discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this item.

In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, $0.9 billion, or 59.1 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 September 30, 2017, our cash and cash equivalents included $13.9 million related to these money market accounts, compared to $16.8 million at December 31, 2016.

Net cash flows used in investing activities was $4.4 million and $20.0 million for the nine-month periods ended September 30, 2017 and 2016, respectively. For the nine-month periods ended September 30, 2017 and 2016, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments, from continuing operations of $142.7 million and $264.2 million, respectively. For the nine-month periods ended September 30, 2017 and 2016, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments, from discontinued operations of $96.5 million and $171.1 million, respectively.

Our cash outflows for investment purchases from continuing operations were $167.0 million for the nine-month period ended September 30, 2017, compared to $315.8 million for the same period of 2016. Our cash outflows for investment purchases from discontinued operations were $65.0 million for the nine-month period ended September 30, 2017, compared to $133.4 million for the same period of 2016.

Financing Activities

Net cash flows used in financing activities were $93.4 million and $73.6 million for the nine-month periods ended September 30, 2017 and 2016, respectively. The increase is due to repurchases of common stock, an increase in the payment of cash dividends and a decrease in the issuance of common stock in the nine-month period ended September 30, 2017, compared to the same period of 2016.

Credit Facilities

On February 2, 2016, the Company, as borrower, entered into a Credit Agreement by and among the Company, with the lenders from time to time party thereto and KeyBank National Association, as administrative agent, swingline lender and letter of credit issuer. As of September 30, 2017, there were no balances outstanding under this credit agreement. For further discussion of our credit agreement, refer to Part I, Item 1, Note 9 "Credit Facility" to the unaudited Consolidated Financial Statements.

Dividends

Dividends paid to shareholders totaled $20.4 million and $18.2 million in the nine-month periods ended September 30, 2017 and 2016, 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, UFG 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, and if applicable, commercially 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

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calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at September 30, 2017, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, was able to make a maximum of $27.1 million in dividend payments without prior regulatory approval. These restrictions will not have a material impact in meeting the cash obligations of UFG.

Stockholders' Equity

Stockholders' equity increased 0.2 percent to $944.0 million at September 30, 2017, from $941.9 million at December 31, 2016. The increase was primarily attributable to net income of $5.0 million and an increase in net unrealized investment gains of $38.2 million, net of tax, during the first nine months of 2017, partially offset by shareholder dividends of $20.4 million and share repurchases of $29.8 million. At September 30, 2017, the book value per share of our common stock was $37.99 compared to $37.04 at December 31, 2016.

Funding Commitments

Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through December 31, 2023, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $3.7 million at September 30, 2017.

MEASUREMENT OF RESULTS

Management evaluates our operations by monitoring key measures of growth and profitability. The following section provides further explanation of the key measures management uses to evaluate our results.

Catastrophe losses is a commonly used financial measure that uses the designations of the Insurance Services Office (ISO) and are reported with losses 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 September 30,				Nine Months Ended September 30,
(In Thousands)	2017		2016		2017		2016
ISO catastrophes	$	25,628	$	10,517	$	62,170	$	49,686
Non-ISO catastrophes ⁽¹⁾	5,077		2,014		6,596		2,711
Total catastrophes	$	30,705	$	12,531	$	68,766	$	52,397

(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 September 30, 2017, 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, 2016.

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 SEC’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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

In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of September 30, 2017 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial position or results of operations.

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 2016 Annual Report on Form 10-K filed with the SEC on February 28, 2017, 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 UFG 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.

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 September 30, 2017:



				Total Number of Shares	Maximum Number of
	Total			Purchased as a Part of	Shares that may yet be
	Number of	Average Price		Publicly Announced	Purchased Under the
Period	Shares Purchased	Paid per Share		Plans or Programs	Plans or Programs⁽¹⁾
7/1/2017 - 7/31/2017	4,904	$	43.00	4,904	2,436,959
8/1/2017 - 8/31/2017	127,387	42.41		127,387	2,309,572
9/1/2017 - 9/30/2017	73,000	40.92		73,000	2,236,572
Total	205,291	$	41.89	205,291

(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. As of September 30, 2017 we remained authorized to repurchase 2,236,572 shares of common stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBIT INDEX



Exhibit number	Exhibit description	Furnished herewith	Filed herewith
2.1†	Stock Purchase Agreement, dated as of September 18, 2017, between United Fire & Casualty Company and Kuvare US Holdings, Inc., including the exhibits attached thereto (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, Filed on September 19, 2017).
31.1	Certification of Randy A. Ramlo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		X
31.2	Certification of Dawn M. Jaffray 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 Dawn M. Jaffray 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 September 30, 2017 formatted in XBRL: (i) Consolidated Balance Sheets at September 30, 2017 (unaudited) and December 31, 2016; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three and nine months ended September 30, 2017 and 2016; (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the nine months ended September 30, 2017; (iv) Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2017 and 2016; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text.		X

† The schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2). The registrant agrees to furnish a copy of all omitted schedules to the Securities and Exchange Commission upon its request.

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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/ Dawn M. Jaffray
Randy A. Ramlo		Dawn M. Jaffray
President, Chief Executive Officer,		Senior Vice President, Chief Financial Officer and
Director and Principal Executive Officer		Principal Accounting Officer

November 8, 2017		November 8, 2017
(Date)		(Date)