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<SEC-DOCUMENT>0000950131-01-500507.txt : 20010409
<SEC-HEADER>0000950131-01-500507.hdr.sgml : 20010409
ACCESSION NUMBER:		0000950131-01-500507
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010402

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			UNITED FIRE & CASUALTY CO
		CENTRAL INDEX KEY:			0000101199
		STANDARD INDUSTRIAL CLASSIFICATION:	FIRE, MARINE & CASUALTY INSURANCE [6331]
		IRS NUMBER:				420644327
		STATE OF INCORPORATION:			IA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K405
		SEC ACT:		
		SEC FILE NUMBER:	002-39621
		FILM NUMBER:		1592137

	BUSINESS ADDRESS:	
		STREET 1:		118 SECOND AVE SE
		CITY:			CEDAR RAPIDS
		STATE:			IA
		ZIP:			52407
		BUSINESS PHONE:		3193995700

	MAIL ADDRESS:	
		STREET 1:		P O BOX 73909
		CITY:			CEDAR RAPIDS
		STATE:			IA
		ZIP:			52407
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>FORM 10-K
<TEXT>

<PAGE>
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K

 X  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934 for the fiscal year ended December 31, 2000

    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the transition period from            to
                                               ----------
    Commission File Number 2-39621

                        UNITED FIRE & CASUALTY COMPANY
            (Exact name of registrant as specified in its charter)

               Iowa                                        42-0644327
- ----------------------------------------       ---------------------------------
      (State of Incorporation)                 (IRS Employer Identification No.)

       118 Second Avenue, S.E.
         Cedar Rapids, Iowa                                52407-3909
- ----------------------------------------        --------------------------------
(Address of principal executive offices)                   (Zip Code)



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

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

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

  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  X   NO
           ---    ---

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

  As of March 1, 2001, 10,035,819 shares of common stock were outstanding. The
aggregate market value of voting stock held by non-affiliates of the registrant
as of March 1, 2001, was approximately $91,181,583.

                    Documents Incorporated by Reference:

  Portions of the annual stockholders report for the year ended December 31,
2000, are incorporated by reference into Part II.
<PAGE>
                          FORM 10-K TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                            PAGE
                                                                                            ----
<S>                          <C>                                                            <C>
PART I:
        Item 1.              Business                                                         1

        Item 2.              Properties                                                       8

        Item 3.              Legal Proceedings                                                8

        Item 4.              Submission of Matters to a Vote of Security Holders              8

PART II:

        Item 5.              Market for Registrant's Common Equity and Related
                             Stockholder Matters                                              8

        Item 6.              Selected Financial Data                                          8

        Item 7.              Management's Discussion and Analysis of Financial
                             Condition and Results of Operations                              8

        Item 7a.             Quantitative and Qualitative Disclosures About Market Risk       8

        Item 8.              Financial Statements and Supplementary Data                      8

        Item 9.              Changes in and Disagreements with Accountants on
                             Accounting and Financial Disclosure                             15

PART III:

        Item 10.             Directors and Executive Officers of the Registrant              15

        Item 11.             Executive Compensation                                          17

        Item 12.             Security Ownership of Certain Beneficial Owners and
                             Management                                                      21

        Item 13.             Certain Relationships and Related Transactions                  21

PART IV:

        Item 14.             Exhibits, Financial Statement Schedules, and Reports on
                             Form 8-K                                                        22

        Signatures                                                                           23
</TABLE>
<PAGE>


PART I.
ITEM 1. BUSINESS
GENERAL DESCRIPTION

  "United Fire" or "the Company" refers to United Fire & Casualty Company or
United Fire & Casualty Company and its consolidated subsidiaries, as the context
requires. The Company is engaged in the business of writing property, casualty
and life insurance. The Company is an Iowa corporation incorporated in January
1946. Its principal executive office is located at 118 Second Avenue SE, P.O.
Box 73909, Cedar Rapids, Iowa 52407-3909. Telephone: 319-399-5700.

  The Company's property and casualty segment includes the following companies,
all of which are wholly owned by United Fire: Addison Insurance Company, an
Illinois property and casualty insurer, Lafayette Insurance Company, a Louisiana
property and casualty insurer, and American Indemnity Financial Corporation, a
Delaware holding company.

  Addison Insurance Company is the sole owner of Addison Insurance Agency, an
Illinois general agency.

  Lafayette Insurance Company is the sole owner of Insurance Brokers & Managers,
Inc., a Louisiana general agency.

  American Indemnity Financial Corporation owns in excess of 99.9 percent of
American Indemnity Company, a Texas property and casualty insurer. American
Indemnity Company has three wholly owned subsidiaries, Texas General Indemnity
Company, a Colorado property and casualty insurer, American Fire and Indemnity
Company, a Texas property and casualty insurer, and American Computing Company,
a non-insurer utilized for inter-company equipment financing. United Fire
Lloyds, a Texas property and casualty insurer, is an affiliate of and
operationally and financially controlled by the Company.

  The Company's life insurance segment subsidiary is United Life Insurance
Company ("United Life"), a wholly owned Iowa life insurance company.

  A table reflecting premiums, operating results and assets attributable to the
Company's segments is included in Note 11 of the Notes to Consolidated Financial
Statements. As of December 31, 2000, the Company and its subsidiaries employed
737 full-time employees.

MARKETING

  The Company markets its products principally through the following five
regional locations:

1) Cedar Rapids, Iowa - 118 Second Avenue SE, P.O. Box 73909, Cedar Rapids, IA
   52407-3909 (which also serves as the Company's home office)
2) Westminster, Colorado - 7301 N. Federal, Suite 302, P.O. Box 850,
   Westminster, CO 80030-4919
3) Lincoln, Nebraska - 1314 O Street, Suite 500, P.O. Box 82540, Lincoln, NE
   68501
4) New Orleans, Louisiana - 2626 Canal Street, P.O. Box 53265, New Orleans, LA
   70153-3265
5) Galveston, Texas - 2115 Winnie, P.O. Box 1259, Galveston, TX 77550

  The Company is licensed as a property and casualty insurer in 40 states,
primarily in the Midwest, West and South. Approximately 2,124 independent
agencies represent the Company and its property and casualty subsidiaries. The
life insurance subsidiary is licensed in 24 states, primarily Midwestern and
Western, and is represented by approximately 1,280 independent agencies.

  The regional offices of the Company are staffed with underwriting, claims and
marketing representatives and administrative technicians, all of whom provide
support and assistance to the independent agencies. Also, home office staff
technicians and specialists provide support to the subsidiaries, regional
offices and independent agencies. The Company uses management reports to monitor
subsidiary and regional offices for overall results and conformity to Company
policy.

  The Company competes in the United States property and casualty insurance
market with more than 3,500 other insurers. The industry is highly competitive,
with insurers competing on the basis of service, price and coverage. Because the
Company relies heavily on independent agencies, it utilizes a profit-sharing
plan as an incentive to place high-quality property and casualty business with
the Company. For 2000, property and casualty agencies will receive profit-
sharing commissions of an estimated $8,767,000. To compete in the service arena,
the Company has an agency interface system for utilization by its agency force
allowing on-line application and acceptance of risks - a system which has
greatly reduced processing time for both the Company and its agents. In
addition, the Company's web-site allows for on-line quotes and billing inquiry.

  The life segment also operates in a highly competitive industry. The Company
encounters significant competition in all lines of business from other life
insurance companies and from other providers of financial services. The life
segment utilizes competitive commission rates and other sales inducements to
attract and maintain its relationship with independent agencies.

                                       1
<PAGE>
In 2000, direct premium writings on a statutory basis by state were as follows.

<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------
                                         (Dollars in Thousands)
- --------------------------------------------------------------------------------------
                                                            Life, Accident and
                         Property and                    Health Insurance Segment,
                  Casualty Insurance Segment                Including Annuities
- --------------------------------------------------------------------------------------
                                    Percent                                Percent
                     Amount         of Total             Amount            of Total
<S>               <C>               <C>                 <C>                <C>
Alabama            $  3,780            1.2%             $      -                   - %
Arkansas              6,056            1.9                    12                   -
California            5,119            1.6                     -                   -
Colorado             21,610            6.7                 5,127                 2.7
Florida               6,046            1.9                     7                   -
Idaho                 2,621            0.8                     -                   -
Illinois             23,424            7.3                15,618                 8.1
Indiana               2,616            0.8                     -                   -
Iowa                 44,533           13.8                94,150                48.7
Kansas               14,308            4.4                 3,207                 1.7
Louisiana            41,934           13.0                    94                   -
Minnesota            18,338            5.7                15,584                 8.1
Mississippi          10,037            3.1                    44                   -
Missouri             27,564            8.6                 4,301                 2.2
Nebraska             16,863            5.2                13,131                 6.8
New Mexico            1,121            0.3                     -                   -
North Dakota          3,722            1.2                 9,466                 4.9
South Dakota          9,692            3.0                 4,116                 2.1
Texas                40,596           12.6                 3,608                 1.9
Utah                  2,662            0.8                     -                   -
Wisconsin            11,613            3.6                15,414                 8.0
Wyoming               3,575            1.1                   440                 0.2
Other                 4,448            1.4                 8,856                 4.6
- --------------------------------------------------------------------------------------
                   $322,278          100.0%             $193,175               100.0 %
======================================================================================
</TABLE>

                                       2
<PAGE>

PRODUCTS
PROPERTY AND CASUALTY INSURANCE SEGMENT

  The Company writes both personal and commercial lines of insurance. Personal
lines are composed mostly of automobile and homeowners, but also include
recreational vehicles, watercraft, dwelling fire and umbrella policies. The
majority of commercial insurance consists of business packages, which include
property, liability, inland marine, commercial automobile, workers' compensation
and umbrella. The Company also writes fidelity and surety bonds. Specialty
policies written include the Commercial Uni-Saver; TRADE-PRO for Contractors;
GARAGE-PRO; Blanket Mortgage; and some forms of Errors and Omissions insurance.

  The following table sets forth statutory property and casualty net premiums
earned, net losses incurred (excluding net loss adjustment expenses) and the
loss ratio (ratio of net losses incurred to net premiums earned), by lines of
insurance written, for the three years ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
                                                               (Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------
<S>                                        <C>                        <C>                       <C>
Years Ended December 31                        2000                       1999                      1998
- ----------------------------------------------------------------------------------------------------------
Fire and allied lines (1)
 Net premiums earned                       $ 96,894                   $ 76,557                  $ 69,977
 Net losses incurred                         60,076                     40,176                    51,418
 Loss ratio                                    62.0%                      52.5%                     73.5%
- ----------------------------------------------------------------------------------------------------------
Automobile
 Net premiums earned                       $ 85,323                   $ 64,558                  $ 54,042
 Net losses incurred                         53,412                     44,824                    37,828
 Loss ratio                                    62.6%                      69.4%                     70.0%
- ----------------------------------------------------------------------------------------------------------
Other liability
 Net premiums earned                       $ 57,720                   $ 38,922                  $ 31,804
 Net losses incurred                         18,667                     17,266                    12,400
 Loss ratio                                    32.3%                      44.4%                     39.0%
- ----------------------------------------------------------------------------------------------------------
Workers' compensation
 Net premiums earned                       $ 25,858                   $ 20,524                  $ 20,797
 Net losses incurred                         12,567                     15,119                    16,275
 Loss ratio                                    48.6%                      73.7%                     78.3%
- ----------------------------------------------------------------------------------------------------------
Fidelity and surety
 Net premiums earned                       $ 18,087                   $ 18,129                  $ 17,669
 Net losses incurred                          2,138                        387                     1,748
 Loss ratio                                    11.8%                       2.1%                      9.9%
- ----------------------------------------------------------------------------------------------------------
Reinsurance
 Net premiums earned                       $ 22,539                   $ 27,739                  $ 25,708
 Net losses incurred                         36,547                     34,003                    24,647
 Loss ratio                                   162.2%                     122.6%                     95.9%
- ----------------------------------------------------------------------------------------------------------
Other
 Net premiums earned                       $    850                   $    625                  $    533
 Net losses incurred                            712                         66                         8
 Loss ratio                                    83.8%                      10.6%                      1.5%
- ----------------------------------------------------------------------------------------------------------
Total property and casualty
 Net premiums earned                       $307,271                   $247,054                  $220,550
 Net losses incurred                        184,119                    151,841                   144,324
 Loss ratio                                    59.9%                      61.5%                     65.4%
==========================================================================================================
</TABLE>
(1) "Fire and allied lines" includes farmowners, homeowners, commercial multiple
    peril and inland marine.

                                       3
<PAGE>

  The combined ratios below, which relate to property and casualty insurance,
are the sum of the following: the loss ratio, calculated by dividing net losses
incurred by net premiums earned; the loss adjustment expense ratio, calculated
by dividing net loss adjustment expenses incurred by net premiums earned; and
the underwriting expense ratio, calculated by dividing underwriting expenses
incurred by net premiums written. The ratios in the table below have been
prepared on both a statutory basis and a generally accepted accounting
principles ("GAAP") basis. Generally, if the combined ratio is below 100
percent, there is an underwriting profit; if it is above 100 percent, there is
an underwriting loss.

                           STATUTORY COMBINED RATIOS

[A bar graph displaying statutory combined ratios for the company as compared
with the Insurance Industry from 1996 to 2000 appears here.]  Statutory Combined
Ratios

<TABLE>
<CAPTION>
                       Company       Industry
            <S>        <C>           <C>
            1996         104.4          105.8
            1997          98.0          101.6
            1998         114.8          105.6
            1999         109.0          107.8
            2000         105.9          110.3
</TABLE>

<TABLE>
<CAPTION>
================================================================================================================
                                                                  (Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------
                                                     Statutory                              GAAP
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31                     2000        1999        1998        2000        1999        1998
- ----------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>         <C>         <C>         <C>         <C>
Net premiums written                      $325,052    $254,214    $221,002    $325,052    $254,214    $221,002
Net premiums earned                        307,271     247,054     220,550     307,271     247,054     220,550
- ----------------------------------------------------------------------------------------------------------------
Loss and loss adjustment expense ratio        74.2%       75.6%       81.9%       73.6%       75.1%       81.2%
Underwriting expense ratio                    31.7        33.4        32.9        31.7        34.1        34.0
- ----------------------------------------------------------------------------------------------------------------
Combined ratio                               105.9%      109.0%      114.8%      105.3%      109.2%      115.2%
- ----------------------------------------------------------------------------------------------------------------
Underwriting loss                             (5.9)%      (9.0)%     (14.8)%      (5.3)%      (9.2)%     (15.2)%
================================================================================================================
</TABLE>

LIFE INSURANCE SEGMENT

  United Life underwrites and markets single-premium whole life insurance, term
life and universal life insurance, annuities, credit life insurance and
individual disability income products. While United Life's lead annuity product
is a single-premium deferred annuity, it also offers flexible premium annuities.
The credit life insurance business involves the sale of credit life and credit
accident and health products, working in conjunction to satisfy the need for
debt protection in the event of disability and/or death. United Life also offers
an individual disability income rider that is attached to the ordinary life
insurance products.

  Total life insurance in force, before reinsurance, is $3,930,948,000 as of
December 31, 2000. Universal life insurance represents 47 percent of insurance
in force at December 31, 2000, compared to 49 percent at December 31, 1999. The
following table presents information on United Life net premiums earned for the
last three years on a GAAP basis.

<TABLE>
<CAPTION>
======================================================================================================================
                                                                      (Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
                                                        Percent                    Percent                    Percent
Years Ended December 31                        2000    of total           1999    of total           1998    of total
- ----------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>             <C>        <C>             <C>        <C>
 Universal life                             $ 9,016        34.3%       $ 8,696        33.3%       $10,524        41.6%
 Ordinary life (other than universal)         4,753        18.1          5,199        19.9          4,917        19.4
 Accident and health                          5,341        20.3          5,271        20.2          4,398        17.4
 Annuities                                    2,422         9.2          2,264         8.7          1,613         6.4
 Credit life                                  4,537        17.2          4,493        17.2          3,694        14.6
 Group accident and health                      235         0.9            177         0.7            149         0.6
- ----------------------------------------------------------------------------------------------------------------------
 TOTAL NET PREMIUMS EARNED                  $26,304       100.0%       $26,100       100.0%       $25,295       100.0%
======================================================================================================================
</TABLE>

                                       4
<PAGE>

CONSOLIDATED NET PREMIUMS WRITTEN

The following table shows the statutory consolidated net premiums written and
annuity deposits during the last three years by major category.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
                                                         (Dollars in
                                                         Thousands)
- ----------------------------------------------------------------------------------------------
                                           Percent               Percent              Percent
Years Ended December 31          2000     of total     1999     of total     1998     of total
- ----------------------------------------------------------------------------------------------
<S>                             <C>        <C>        <C>        <C>        <C>        <C>
Fire and allied lines (1)      $103,385     20.0%    $ 77,270     18.1%    $ 69,606     18.5%
Automobile                       89,925     17.4       65,730     15.4       54,902     14.6
Other liability                  62,313     12.1       43,433     10.2       31,738      8.4
Workers' compensation            27,855      5.4       21,735      5.1       20,332      5.4
Fidelity and surety              19,365      3.7       18,395      4.3       17,839      4.7
Reinsurance                      21,244      4.1       26,944      6.3       26,052      6.9
Other Property and Casualty         965      0.2          707      0.2          533      0.1
Life and accident and health     26,427      5.1       27,293      6.3       34,961      9.5
Annuity deposits                165,181     32.0      145,810     34.1      119,717     31.9
- ----------------------------------------------------------------------------------------------
                               $516,660    100.0%    $427,317    100.0%    $375,680    100.0%
==============================================================================================
</TABLE>

(1)  "Fire and allied lines" includes farmowners, homeowners, commercial
     multiple peril and inland marine.

REINSURANCE

Property and casualty insurance segment

     The Company has acted as a reinsurer, assuming both property and casualty
reinsurance from other insurance or reinsurance companies. The bulk of the
business assumed is property reinsurance with the emphasis on catastrophe
covers. During the second quarter of 2000, the Company decided to significantly
reduce its writings in assumed reinsurance business. A small portion of the
business expired on July 1, 2000, and the bulk of the business expired on
December 31, 2000. Contracts will be renewed with a very limited number of
brokers to continue writing assumed reinsurance business. The Company will
continue to have exposure related to the assumed reinsurance contracts that were
previously written.

     The Company follows the industry practice of reinsuring a portion of its
direct and assumed reinsurance exposure and cedes to reinsurers a portion of the
premium received. Reinsurance is purchased to reduce the net liability on
individual risks to predetermined limits and to protect against catastrophic
losses such as hurricanes and tornadoes. Such catastrophe protection is
purchased on both direct and assumed business. The Company uses many reinsurers,
both domestic and foreign. There are no concentrations of credit risk associated
with reinsurance. Principal reinsurers include Employers Reinsurance
Corporation, AXA Reassurance, Continental Casualty Company and Partner
Reinsurance Company of the U.S.

     The limits on risks retained by the Company's property and casualty segment
vary by line of business, and risks in excess of the retention limits are
reinsured. For the property lines of business, the retention is $1,000,000.

     The following table presents the casualty business retention levels.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Accident Years                                Casualty Retention
- ----------------------------------------------------------------
<S>                                           <C>
1983 and prior                                    $  225,000
1984 through 1986                                    300,000
1987 through 1991                                    500,000
1992 through 1994                                    750,000
1995 and later                                     1,000,000
================================================================
</TABLE>

     The ceding of reinsurance does not legally discharge the Company from
primary liability under its policies, and the Company must pay the loss if the
reinsurer fails to meet its obligation. The Company monitors the financial
condition of its reinsurers. At December 31, 2000 and 1999, there are no
uncollectable reinsurance balances that would result in a material impact on the
Company's financial statements. In accordance with GAAP and industry practice,
the Company accounts for insurance written and losses incurred net of
reinsurance ceded.

     The table on the following page sets forth the statutory aggregate direct
and assumed premiums written, ceded reinsurance and net premiums written for the
three years ended December 31, 2000, 1999 and 1998.

                                       5
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
                                                  (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------
                                         Percent               Percent               Percent
Years ended December 31         2000     of total     1999     of total     1998     of total
- ---------------------------------------------------------------------------------------------
<S>                           <C>        <C>        <C>        <C>        <C>        <C>
Fire and allied lines (1)     $116,429     35.8%    $ 87,594     34.5%    $ 81,229     36.8%
Automobile                      90,747     27.9       69,557     27.4       56,452     25.5
Other liability                 65,801     20.2       48,157     18.9       35,010     15.8
Workers' compensation           28,385      8.7       22,192      8.7       20,736      9.4
Fidelity and surety             20,776      6.4       19,751      7.8       19,000      8.6
Reinsurance assumed             24,179      7.4       29,950     11.8       28,979     13.1
Other                            1,483      0.5        1,044      0.4          800      0.4
- ---------------------------------------------------------------------------------------------
Aggregate direct and assumed
  premiums written            $347,800    106.9%    $278,245    109.5%    $242,206    109.6%
Reinsurance ceded               22,748      6.9       24,031      9.5       21,204      9.6
- ---------------------------------------------------------------------------------------------
Net premiums written          $325,052    100.0%    $254,214    100.0%    $221,002    100.0%
=============================================================================================
</TABLE>

(1)  "Fire and allied lines" includes farmowners, homeowners, commercial
     multiple peril and inland marine.

Life insurance segment

     United Life reinsures a portion of its exposure and cedes to reinsurers a
portion of the premium received on the policies reinsured. United Life enters
into reinsurance agreements to reduce the net liability on individual risks to
predetermined limits. United Life retains $200,000 per insured and reinsures the
excess.

     The ceding of reinsurance does not legally discharge United Life from
primary liability under its policies. United Life must pay the loss if the
reinsurer fails to meet its obligation. The Company monitors the financial
condition of its reinsurers. At December 31, 2000 and 1999, there are no
uncollectable reinsurance balances that would result in a material impact on the
Company's financial statements. United Life follows the GAAP and industry
practice of accounting for insurance written and losses incurred net of
reinsurance ceded. United Life's primary reinsurance companies are ERC
Reinsurance Company, RGA Reinsurance Company and Business Men's Assurance
Company of America. These companies insure both life and disability risks.

RESERVES

Property and casualty insurance segment

     Applicable insurance laws require the Company's property and casualty
segment to maintain reserves for losses and loss adjustment expenses with
respect to both reported and unreported losses.

     The Company's property and casualty segment establishes reserves for
reported losses one of two ways. For some classes of claims under $5,000
reserves are set based upon a schedule, determined by averaging claims paid over
a 13-month period. All other reserves are established on an individual case
basis. These reserves are based upon policy provisions, accident facts, injury
or damage exposure, trends in the legal system, and other factors. The amount of
reserves for unreported losses is determined for each line of insurance by using
the probable number and nature of losses arising from occurrences on the basis
of historical and statistical information. Once reserves have been established,
they are closely monitored and adjusted as needed.

     Loss reserves are estimates at a given time of the ultimate amount expected
to be paid on incurred losses. Estimates are based on facts and circumstances
known when the estimates are made. Reserves are not discounted for the time
value of money. The loss settlement period on insurance losses may be many
years, and as additional facts regarding individual losses become known, it
often becomes necessary to refine and adjust the estimates of liability on a
loss. Inflation is implicitly provided for in the reserving function through
review of cost trends, historical reserving results and projections of future
economic conditions.

     Reserves for loss adjustment expenses are intended to cover the actual cost
of investigating losses and defending lawsuits arising from losses. These
reserves are continuously revised based on historical analysis and management's
expectations.

     The table on the following page presents a development of net loss and loss
adjustment expense reserve liabilities and payments for the years 1991 through
2000. The top line of the table shows the estimated liability for unpaid losses
and loss adjustment expenses recorded at December 31 for each of the indicated
years. This liability represents the estimated amount of losses and loss
adjustment expenses for losses arising in all prior years that are unpaid at
December 31, including losses that had been incurred but not yet reported, net
of applicable ceded reinsurance. The upper portion of the table shows the re-
estimated amount of the previously recorded liability based on experience as of
the end of each succeeding year. The estimate is increased or decreased as more
information becomes known. Conditions and trends that have affected development
of the liability in the past may not necessarily occur in the future.
Accordingly, it may not be appropriate to extrapolate future redundancies or
deficiencies based on this table. The second half of the table displays
cumulative losses paid and loss adjustment expenses paid for each of the years
indicated on a GAAP basis.

                                       6
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
                                                             Years Ended December 31
- --------------------------------------------------------------------------------------------------------------------------
                                                             (Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------------------------
                         1991       1992      1993      1994      1995      1996      1997      1998     1999      2000
<S>                    <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>      <C>       <C>
Liability for Unpaid
Losses and LAE         $123,219   $158,825  $170,798  $180,653  $188,700  $209,876  $218,912  $243,006  $310,637  $320,506
Liability re-
estimated as of:
 One year later         128,042    154,572   153,691   160,776   159,571   176,332   192,297   213,047   273,706
 Two years later        125,888    148,507   142,572   172,546   145,486   169,348   185,700   233,325
 Three years later      124,428    144,159   158,312   164,133   142,877   164,030   198,298
 Four years later       122,384    134,309   155,313   161,961   140,639   172,366
 Five years later       118,568    132,075   154,849   162,424   147,412
 Six years later        117,648    132,747   157,005   169,472
 Seven years later      119,123    135,559   161,898
 Eight years later      122,230    140,038
 Nine years later       126,953
- --------------------------------------------------------------------------------------------------------------------------
Redundancy
(Deficiency)           $ (3,734)  $ 18,787  $  8,900  $ 11,181  $ 41,288  $ 37,510  $ 20,614  $  9,681  $ 36,931
==========================================================================================================================
Cumulative amount of
liability paid through:
 One year later        $ 44,694   $ 54,291  $ 51,550  $ 80,246  $ 56,618  $ 61,694  $ 62,988  $ 71,251  $ 97,021
 Two years later         69,296     84,074   102,637   109,281    83,071    93,599    97,142   123,965
 Three years later       87,052     96,976   119,349   123,469    97,763   110,531   122,818
 Four years later        95,059    107,420   127,333   132,414   106,770   122,413
 Five years later        99,483    112,360   133,531   137,597   112,456
 Six years later        102,677    116,929   137,295   141,524
 Seven years later      105,907    119,657   140,127
 Eight years later      108,287    121,861
 Nine years later       110,248
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

LIFE INSURANCE SEGMENT

     United Life's reserves meet, or exceed, the minimum statutory Iowa
Insurance Law requirements. These reserves are developed and analyzed by
independent consulting actuaries. The reserves reflected in the Company's
Consolidated Financial Statements are calculated in accordance with GAAP. These
reserves are determined based upon the Company's best estimates of mortality and
morbidity, persistency, expenses and investment income. Statutory reserves are
determined based upon mortality rates and interest rates specified by state law.

INVESTMENTS

     The Company must comply with state insurance laws that prescribe the kind,
quality and concentration of investments that may be made by insurance
companies. The Company determines the mix of its investment portfolio based upon
these state laws, liquidity needs, tax position, and general market conditions.
The Company must also consider the timing of when liability obligations are due.
Modifications are made to the investment portfolio as the conditions listed
above change. Invested assets relating to the property and casualty segment are
invested to meet liquidity needs and maximize after-tax returns with appropriate
risk diversification. Assets relating to the life insurance segment are invested
to meet liquidity needs, maximize the investment return and achieve a matching
of assets and liabilities. Substantially, all bond purchases in 2000 were
taxable bonds rather than municipal bonds, due to the more attractive yields
offered by taxable bonds.

                                       7
<PAGE>

<TABLE>
<CAPTION>

Investment results for the years indicated are summarized in the following table.

- ---------------------------------------------------------------------------------------
                                             (Dollars in Thousands)
- ---------------------------------------------------------------------------------------

                                                                       Annualized Yield
Years Ended                         Average           Investment             on Average
December 31              Invested Assets (1)     Income, Net (2)        Invested Assets
- ---------------------------------------------------------------------------------------
<S>                      <C>                     <C>                    <C>
  2000                            $1,316,906             $86,867                   6.6%
  1999                             1,157,414              75,317                   6.5
  1998                             1,040,008              67,928                   6.5
=======================================================================================
</TABLE>

(1) Average of amounts at beginning and end of year.

(2) Investment income after deduction of investment expenses, but before
applicable income tax.

ITEM 2. PROPERTIES

     The Company owns two buildings in Cedar Rapids, Iowa, which it occupies as
its home office. One building is a five-story building occupied entirely by the
Company. The other is an eight-story office building in which the first floor is
leased to tenants. The Company occupies the second through eighth floors of this
building. The two buildings are connected with a skywalk.

     Lafayette Insurance Company owns one building in New Orleans, Louisiana,
which serves as its home office. The building consists of two floors of office
space and a floor of parking.

     American Indemnity Company, a subsidiary of American Indemnity Financial
Corporation, owns two adjacent and connected buildings in Galveston, Texas,
which serve as its home office. One building is seven stories and the other one
is three stories. The facility is substantially occupied by American Indemnity
Company, with a small percentage leased.

ITEM 3. LEGAL PROCEEDINGS

     The registrant has no pending legal proceedings other than ordinary routine
litigation incidental to the business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     There were no matters submitted to a vote of the shareholders during the
fourth quarter of 2000.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Incorporated herein by reference to the information included in the "MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS" section of the
2000 annual report to stockholders.

ITEM 6. SELECTED FINANCIAL DATA

     Incorporated herein by reference to the information included in the
"SELECTED FINANCIAL DATA" section of the 2000 annual report to stockholders.

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

     Incorporated herein by reference to the information included in the
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" section of the 2000 annual report to stockholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Incorporated herein by reference to the information included in the
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" section of the 2000 annual report to stockholders.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Incorporated herein by reference to the information included on pages 24
through 45 of the 2000 annual report to stockholders.

                                       8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of United Fire & Casualty Company:

We have audited the accompanying consolidated balance sheets of UNITED FIRE &
CASUALTY COMPANY (an Iowa corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These consolidated financial statements and the supplementary
schedules referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and supplementary schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Fire &
Casualty Company and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

As explained in Note 1 to the consolidated financial statements, effective
January 1, 1999, the Company and its subsidiaries changed their method of
accounting for derivative instruments and hedging activities.

Our audit was made for the purpose of forming an opinion on the basic financial
statements of the Company taken as a whole. The supplementary schedules
(Schedule II - Valuation and Qualifying Accounts, Schedule III - Supplementary
Insurance Information, Schedule IV - Reinsurance, and Schedule VI - Supplemental
Information Concerning Property and Casualty Insurance Operations) are presented
for purposes of additional analysis and are not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

Arthur Andersen LLP

Chicago, Illinois
February 15, 2001

                                       9
<PAGE>
INDEX TO SUPPLEMENTARY SCHEDULES

Consolidated Schedules
<TABLE>
<S>                                                                         <C>
 II - Valuation and Qualifying Accounts                                      11

III - Supplementary Insurance Information                                    12

 IV - Reinsurance                                                            13

 VI - Supplemental Information Concerning Property and Casualty Insurance
      Operations                                                             14
</TABLE>

All other schedules have been omitted as not required, not applicable, not
deemed material or because the information is included in the Consolidated
Financial Statements.

                                       10
<PAGE>

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
     A                      B                           C                        D                E
- -----------------------------------------------------------------------------------------------------------
                       Balance at       Charged to
  Descrip-            beginning of      costs and         Charged to                        Balance at end
   tion                  period          expenses       other accounts      Deductions        of period
- -----------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>             <C>                 <C>             <C>
 2000
 Allowance
 for bad
 debts                      $  899         $  274             $     -       $    -             $    1,173

 Deferred
 tax asset
 valuation
 allowance                  15,139              -                   -        3,769 (2)             11,370

 Restructuring
 liability                 972,000              -                   -      972,000                      -

 1999
 Allowance
 for bad
 debts                         731            168                   -            -                    899

 Deferred
 tax asset
 valuation
 allowance                       -              -              15,139 (1)        -                 15,139

 Restructuring
 liability                       -        972,000 (4)               -            -                972,000

 1998
 Allowance
 for bad
 debts                       1,030              -                   -          299 (3)                731
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Recorded in connection with purchase of American Indemnity Financial
    Corporation.
(2) Primarily attributable to the utilization of deferred tax assets
    related to the Company's investment in American Indemnity Financial
    Corporation.
(3) Reversal of allowance due to subsequent collections.
(4) A liability for employee termination benefits and future contractual lease
    payments related to abandoned facilities in connection with the purchase of
    American Indemnity Financial Corporation.

                                       11
<PAGE>

SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION

<TABLE>
<CAPTION>
========================================================================================================================
                                                               (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
                                              Future
                                              Policy
                                             Benefits,                                                       Benefits,
                                Deferred      Losses,                            Realized                     Claims,
                                  Policy      Claims                  Earned    Investment       Net        Losses and
                               Acquisition   and Loss     Unearned    Premium    Gains and    Investment    Settlement
                                  Costs      Expenses     Premiums    Revenue    (Losses)       Income       Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>          <C>         <C>       <C>           <C>           <C>
Year Ended
December 31, 2000


Property and casualty            $23,385    $  358,032    $150,453    $307,271    $ 2,927      $25,536       $226,168

Life, accident and health(1)      75,014       822,158      14,759      26,094     (4,752)      61,331         16,880
- ------------------------------------------------------------------------------------------------------------------------
Total                            $98,399    $1,180,190    $165,212    $333,365    $(1,825)     $86,867       $243,048
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
                                           (Dollars in Thousands)
- -------------------------------------------------------------------------------
                               Amortization
                               of Deferred    Other      Interest on
                                  Policy      Under-       Policy-
                               Acquisition   writing      holders'    Premiums
                                  Costs      Expenses     Accounts    Written
- -------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>          <C>
Year Ended
December 31, 2000


Property and casualty            $48,080    $   54,784    $      -    $325,052

Life, accident and health(1)      10,314         4,594      42,410      25,010

- -------------------------------------------------------------------------------
Total                            $58,394    $   59,378    $ 42,410    $350,062
===============================================================================
</TABLE>
(1) Annuity deposits are included in future policy benefits, losses, claims,
    and loss expenses.

<TABLE>
<CAPTION>
========================================================================================================================
                                                               (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
                                              Future
                                              Policy
                                             Benefits,                                                       Benefits,
                                Deferred      Losses,                            Realized                     Claims,
                                  Policy      Claims                  Earned    Investment       Net        Losses and
                               Acquisition   and Loss     Unearned    Premium    Gains and    Investment    Settlement
                                  Costs      Expenses     Premiums    Revenue    (Losses)       Income       Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>          <C>         <C>       <C>           <C>           <C>
Year Ended
December 31, 1999


Property and casualty            $20,533    $  338,243    $132,846    $247,054    $ 2,444      $23,477       $185,643

Life, accident and health(1)      69,541       701,350      15,626      25,997        492       51,840         16,805
- ------------------------------------------------------------------------------------------------------------------------
Total                            $90,074    $1,039,593    $148,472    $273,051    $ 2,936      $75,317       $202,448
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
                                           (Dollars in Thousands)
- -------------------------------------------------------------------------------
                               Amortization
                               of Deferred    Other      Interest on
                                  Policy      Under-       Policy-
                               Acquisition   writing      holders'    Premiums
                                  Costs      Expenses     Accounts    Written
- -------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>          <C>
Year Ended
December 31, 1999


Property and casualty segment    $39,998    $   46,559    $      -    $254,214

Life, accident and health(1)       9,865         4,842      32,286      25,359
- -------------------------------------------------------------------------------
Total                            $49,863    $   51,401    $ 32,286    $279,573
===============================================================================
</TABLE>
(1) Annuity deposits are included in future policy benefits, losses, claims,
    and loss expenses.

<TABLE>
<CAPTION>
========================================================================================================================
                                                               (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
                                              Future
                                              Policy
                                             Benefits,                                                       Benefits,
                                Deferred      Losses,                            Realized                     Claims,
                                  Policy      Claims                  Earned    Investment       Net        Losses and
                               Acquisition   and Loss     Unearned    Premium    Gains and    Investment    Settlement
                                  Costs      Expenses     Premiums    Revenue    (Losses)       Income       Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>          <C>         <C>       <C>           <C>           <C>
Year Ended
December 31, 1998


Property and casualty segment    $16,339    $  251,117    $100,080    $220,550    $20,981      $23,157       $179,089

Life, accident and health(1)      51,253       575,189      16,338      25,177      1,815       44,771         16,006
- ------------------------------------------------------------------------------------------------------------------------
Total                            $67,592    $  826,306    $116,418    $245,727    $22,796      $67,928       $195,095
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
                                           (Dollars in Thousands)
- -------------------------------------------------------------------------------
                               Amortization
                               of Deferred    Other      Interest on
                                  Policy      Under-       Policy-
                               Acquisition   writing      holders'    Premiums
                                  Costs      Expenses     Accounts    Written
- -------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>          <C>
Year Ended
December 31, 1998


Property and casualty segment    $39,001    $   36,084    $      -    $221,002

Life, accident and health(1)       8,891         4,231      26,568      31,927

- -------------------------------------------------------------------------------
Total                            $47,892    $   40,315    $ 26,568    $252,929
===============================================================================
</TABLE>
(1) Annuity deposits are included in future policy benefits, losses, claims, and
    loss expenses.

Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 2000 financial statement presentation.

                                       12
<PAGE>

SCHEDULE IV. REINSURANCE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
                                                    (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------
                                                                                   Percentage
                                              Ceded to     Assumed                 of Amount
                                   Gross        Other     From Other     Net       Assumed to
                                   Amount     Companies   Companies     Amount     Net Earned
- ---------------------------------------------------------------------------------------------
<S>                              <C>          <C>         <C>         <C>          <C>
Year ended December 31, 2000

Life insurance in force          $3,930,948   $422,577     $     -    $3,508,371

Premiums earned:
Property and casualty            $  303,378   $ 27,765     $31,658    $  307,271     10.30%
Life insurance                       21,899      1,071           -        20,828
Accident and health insurance         5,410        144           -         5,266
- ---------------------------------------------------------------------------------------------
Total                            $  330,687   $ 28,980     $31,658    $  333,365      9.50%
=============================================================================================

Year Ended December 31, 1999

Life insurance in force          $3,839,897   $396,382     $     -    $3,443,515

Premiums earned:
Property and casualty            $  239,971   $ 27,206     $34,289    $  247,054     13.88%
Life insurance                       22,080      1,316           -        20,764
Accident and health insurance         5,408        175           -         5,233
- ---------------------------------------------------------------------------------------------
Total                            $  267,459   $ 28,697     $34,289    $  273,051     12.56%
=============================================================================================

Year Ended December 31, 1998

Life insurance in force          $3,672,130   $358,022     $     -    $3,314,108

Premiums earned:
Property and casualty            $  209,328   $ 22,349     $33,571    $  220,550     15.22%
Life insurance                       21,856        959           -        20,897
Accident and health insurance         4,414        134           -         4,280
- ---------------------------------------------------------------------------------------------
Total                            $  235,598   $ 23,442     $33,571    $  245,727     13.66%
=============================================================================================
</TABLE>

Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 2000 financial statement presentation.

                                      13
<PAGE>
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE
OPERATIONS

<TABLE>
<CAPTION>

=================================================================================================================
                                                             (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------
                                                 Reserves
                                                for Unpaid
Affiliation with Registrant:    Deferred        claims and
Company and                      Policy           Claim                                  Realized         Net
consolidated property and      Acquisition      Adjustment     Unearned      Earned     Investment     Investment
casualty subsidiaries             Costs          Expenses      Premiums     Premiums      Gains          Income
- -----------------------------------------------------------------------------------------------------------------
<S>                            <C>              <C>            <C>          <C>         <C>            <C>
YEAR ENDED
DECEMBER 31, 2000                 $23,385        $358,032      $150,453     $307,271       $2,927       $25,536
=================================================================================================================
Year Ended
December 31, 1999                 $20,533        $338,243      $132,846     $247,054       $2,444       $23,477
=================================================================================================================
Year Ended
December 31, 1998                 $16,339        $251,117      $100,080     $220,550      $20,981       $23,157
=================================================================================================================

<CAPTION>

=================================================================================================================
                                                           (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------
                                              Claims and Claim
                                             Adjustment Expenses
                                             Incurred Related to      Amortization
Affiliation with Registrant:                 -------------------      of Deferred    Paid Claims
Company and                                    (1)           (2)         Policy      and Claim
consolidated property and                    Current        Prior     Acquisition    Adjustment     Premiums
casualty subsidiaries                          Year         Years        Costs       Expenses       Written
- ------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>            <C>           <C>
YEAR ENDED
DECEMBER 31, 2000                            $264,891    $(36,931)     $48,080         $218,091     $325,052
============================================================================================================
Year Ended
December 31, 1999                            $211,575    $(25,135)     $39,998         $170,470     $254,214
============================================================================================================
Year Ended
December 31, 1998                            $206,603    $(26,615)     $39,001         $155,894     $221,002
============================================================================================================
</TABLE>
Certain amounts included in this schedule for earlier years have been
reclassified to conform with the 2000 financial statement presentation.

                                      14
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE None

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of the Company (Age), Present Position,                 Served as
  Business Experience                                             Director Since

Scott McIntyre Jr. (67), Chairman of the Board,                      1956
United Fire & Casualty Company
Mr. McIntyre has been employed by the Company since 1954. Mr. McIntyre's term as
a director of the Company expires in May 2002.

Christopher R. Drahozal ( 39), Professor,                            1997
University of Kansas, Lawrence, Kansas
Professor of Law at the University of Kansas, where he has been teaching since
1994. Mr. Drahozal was in private practice in Washington, D.C., 10-91/4-94. Mr.
Drahozal is the son-in-law of Scott McIntyre Jr., Chairman, United Fire &
Casualty Company. Mr. Drahozal's term as director of the Company expires in May
2003.

Jack B. Evans (52), President,                                       1995
Hall-Perrine Foundation, Cedar Rapids, Iowa
Mr. Evans has been President of the Hall-Perrine Foundation, Cedar Rapids, Iowa,
since January 1, 1996. Prior to that, Mr. Evans was employed by SCI Financial
Group, Cedar Rapids, Iowa, serving as its President from 1993 to 1996. Mr.
Evans' term as director of the Company expires in May 2003.

Kyle D. Skogman (50), President, Skogman Construction Co. of Iowa    2000
Mr. Skogman is President of Skogman Construction Co. of Iowa and has served in
that capacity since 1990. Mr. Skogman was appointed to fill an unexpired board
term in December 2000. Mr. Skogman's term as director of the Company expires in
May 2001.

Casey D. Mahon (49), Adjunct Professor of Law, University of Iowa,   1993
Iowa City, Iowa
Adjunct Professor of Law at the University of Iowa. Employed as Senior Vice
President & General Counsel of McLeodUSA, Inc. from 6/93 until she retired
2/1/98. Ms. Mahon's term as a director of the Company expires in May 2002.

Leonard J. Marshall (71), Retired                                    1988
Mr. Marshall, who was employed by General Accident Insurance Company of
Philadelphia, Pennsylvania, from 1-83/10-91, retired in October 1991. Mr.
Marshall's term as a director of the Company expires in May 2002.

Thomas K. Marshall (67), Retired                                     1983
Mr. Marshall, who was Vice President-Development of Grinnell College, Grinnell,
Iowa, from 1982 to August 31, 1992, is retired. Mr. Marshall's term as director
of the Company expires in May 2003.

George D. Milligan (44), President,                                  1999
The Graham Group, Inc., Des Moines, Iowa
Mr. Milligan has been the President of The Graham Group, Inc. since March 1985.
Prior to that Mr. Milligan was Merchandising Manager for Continental Grain Co.,
New York, New York from October 1979 to March 1985. Mr. Milligan's term as
director of the Company expires in May 2003.

Mary K. Quass (50), President & CEO, Quass Communications,           1998
Cedar Rapids, Iowa
Ms. Quass held the position of President and Chief Executive Officer of Quass
Broadcasting Company from 1988 to 1998. In January 1998, Quass Broadcasting
Company merged with Capstar Broadcasting Partners to form Central Star
Communications, Inc. In July 1999, Central Star Communications, Inc. merged with
AM-FM, Inc. Ms. Quass's term as a director of the Company expires in May 2001.

John A. Rife (58), President & CEO United Fire & Casualty Company,   1988
United Life Insurance Company
Mr. Rife started with the Company in September 1976. He became Prsesident of
United Life Insurance Company in December 1984, in May 1997 he was appointed
President of the Company, in May 2000 he was appointed as Chief Executive
Officer of the Company, and in August 1999 he was named President of the
American Indemnity Companies. Mr. Rife's term as director of the Company expires
in May 2001.

Byron G. Riley (70), Attorney, Bradley & Riley, P.C.,                1983
Cedar Rapids, Iowa
Mr. Riley is an attorney with the law firm of Bradley & Riley, P.C., Cedar
Rapids, Iowa, and has practiced law with that law firm since September 1981.
Mr. Riley's term as a director of the Company expires in May 2002.

                                      15
<PAGE>

Executive Officers of the Company:
<TABLE>
<CAPTION>
Name (Age)                      Office Held
<S>                             <C>
Scott McIntyre Jr. (67)         Chairman of the Board since 1980, Director since
                                1956

John A. Rife (58)               Chief Executive Officer, United Fire & Casualty
                                Company since May 2000; President of United Fire
                                & Casualty Company since May 1997; President of
                                United Life Insurance Company since 1984

Richard B. Swain (43)           Senior Vice President since February 1999; Vice
                                President Underwriting at Hastings Mutual Ins.
                                Company, Hastings, Michigan, from May 1998 to
                                February 1999; employed by the Company as Vice
                                President, Lincoln Regional Office, from
                                October 1993 to May 1998

Kent G. Baker (57)              Vice President and Chief Financial Officer since
                                1984

John R. Cruise (59)             Vice President, Reinsurance, since 1986

E. Dean Fick (56)               Vice President, Claims, since 1991

Shona Frese (56)                Corporate Secretary since December 1996;
                                employed by the Company since 1966

David L. Hellen (48)            Resident Vice President, Denver regional office,
                                since 1987

Wilburn J. Hollis (60)          Vice President, Human Resources, since June
                                1996; Director of Human Resources at Norwest
                                Financial in Des Moines, Iowa, from 1989 to 1996

E. Addison Hulit (61)           Vice President since May 1995; employed by the
                                Company since 1993

Robert B. Kenward (58)          Vice President, Information Services, since 1992

Kevin L. Kubik (46)             Vice President and Chief Investment Officer
                                since June 1997; employed by Van Kampen
                                American Capital Investment Advisory Inc. from
                                1989 to 1997

David A. Lange (43)             Corporate Secretary since February 1997;
                                Fidelity and Surety Claim Manager since 1987

Dianne M. Lyons (37)            Controller since November 1999; employed by the
                                Company as Accounting Manager and Financial
                                Accountant since 1983.

James A. Mason (53)             Resident Vice President since February 2000;
                                Branch Manager, Reliance Insurance Company, New
                                Orleans, from January 1999 to January 2000;
                                Regional President, Southern Region, from 1995
                                to 1998 and Vice President / General Manager
                                from 1992 to 1994, St. Paul Insurance Company,
                                Dallas Texas

Galen E. Underwood (60)         Treasurer since 1979

Stanley A. Wiebold (56)         Vice President, Underwriting, since 1986

Michael T. Wilkins (37)         Resident Vice President since 1998; employed by
                                the Company since 1985
</TABLE>

                                      16

<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     Executive Compensation includes the amount expensed for financial reporting
purposes under the Company's qualified profit sharing (401(k)) plan. All
employees of the Company are eligible to participate after they have completed
one hour of service with the Company and have attained twenty-one years of age.
The plan is not integrated with Social Security, and provides for employer
contributions in such amounts as the Board of Directors may annually determine.
The benefit payable under the plan is equal to the vested account balance.

     Executive Compensation includes the amounts expensed for financial
reporting purposes as contributions to the Company's pension plan for the named
individuals. The pension plan is a noncontributory plan, which is integrated
with social security. All employees of the Company are eligible to participate
after they have completed one year of service, attained twenty-one years of age
and have met hourly requirements with the Company. In 1995 through October,
1996, the normal retirement pension payable under the plan was based on the
employee's highest annual earnings for five (5) consecutive years of employment,
and provided a benefit of 1.25 percent of monthly compensation times years of
benefit service with a maximum of 32 years. Effective November 1, 1996, the
pension plan was amended. The normal retirement benefit was changed from 1.25
percent of average monthly compensation, times years of benefit service, to 1.25
percent of average monthly compensation, plus 0.5 percent of average monthly
compensation in excess of the covered compensation limit, all multiplied by
years of benefit service. Years of benefit service was changed from a cap of 32
years to 35 years. Early retirement eligibility was changed from age 59-1/2 to
age 55 with five years of service. Early retirement benefits were previously
reduced actuarially for all retirees. Now, early retirement benefits have a
subsidized reduction if the employee retires with 20 years or more of service.

The pension plan owned 101,029 shares of the Company common stock as of
December 31, 2000, and has made deposits with United Life Insurance Company to
be used by the plan to purchase retirement annuities from that company. The
annuity fund, maintained by United Life Insurance Company, is credited with
compound interest on the average fund balance for the year. The interest rate
will be equivalent to the ratio of net investment income to mean assets of
United Life Insurance Company.

     In 1983, the Company adopted the United Lafayette Employee Stock Ownership
Plan. Effective January 1, 1988, the Plan was amended to convert the Tax Credit
Employee Stock Ownership Plan to an Employee Stock Ownership Plan. The Plan is
for the benefit of eligible employees and their beneficiaries. All employees are
eligible to participate in the Plan upon completion of one year of service,
attaining age twenty-one and meeting hourly requirements with the Company.
Contributions to this plan are made at the discretion of the Board of Directors.
These contributions are based upon a percentage of total payroll and are
allocated to participants on the basis of compensation. Contributions are made
in cash, which is used by the Trustee to acquire shares of the Company stock to
allocate to participants' accounts. As of December 31, 2000, 1999 and 1998, the
Trustee owned 127,386, 123,733 and 120,333 shares of Company stock,
respectively. The Company made contributions to the plan of $50,000, $60,000,
and 1,050,000 in 2000, 1999 and 1998 respectively.

     On August 21, 1998, the Company adopted a nonqualified employee stock
option plan, which authorizes the issuance of up to 500,000 shares of the
Company's common stock to employees. The granting of the options will help to
attract and retain the best available persons for positions of substantial
responsibility and will provide certain employees with an additional incentive
to contribute to the success of the Company and its subsidiaries. As of December
31, 2000, 16,771 options had been granted under the plan.

                                      17
<PAGE>

The following table summarizes the compensation of the Company's Chief Executive
Officer and the four most highly compensated executive officers (other than the
Chief Executive Officer) for the last three years.

SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>



                                Annual Compensation                   Options
Name and Principal Position    Year    Salary           Bonus         Granted
- -----------------------------------------------------------------------------
<S>                            <C>     <C>              <C>            <C>
Scott McIntyre, Jr. (7)        2000    $290,000(1)      $      (2)       5,000
Chairman, United Fire &
  Casualty Co.                 1999    $290,000(1)      $     -(2)           -
                               1998    $290,000(1)      $     -(2)           -

- ------------------------------------------------------------------------------

John A. Rife (7)               2000    $233,333(1)(5)   $      (2)       5,000
President/CEO, United Fire &
  Casualty Co.                 1999    $210,000(1)      $    - (4)       1,181
President, United Life
  Insurance Company            1998    $190,000(3)      $ 3,032(4)           -
President,
  American Indemnity Companies

- ------------------------------------------------------------------------------

E. Dean Fick                   2000    $147,750         $      (4)(6)        -
Vice President-Claims,         1999    $141,750         $ 7,088(4)           -
  United Fire &
  Casualty Company             1998    $135,000         $     -(4)           -

- ------------------------------------------------------------------------------

Kevin L. Kubik                 2000    $133,500         $      (4)(6)        -
Vice President-Chief
  Investment Officer,          1999    $125,000         $ 9,375(4)         500
  United Fire &
  Casualty Company             1998    $113,500         $ 3,513(4)           -

- ------------------------------------------------------------------------------

E. Addison Hulit               2000    $121,500         $ 5,775(4)(6)        -
Vice President,
  United Fire &
  Casualty Co.                 1999    $115,500               -(4)         500
  President,
  Addison Insurance Company    1998    $110,000          18,700(4)           -

- ------------------------------------------------------------------------------
</TABLE>


Footnotes to summary compensation table:

(1)  Recommended by the Compensation Committee and approved by the Board of
     Directors in February of each year.

(2)  Bonus, if any, determined at the regular meeting of the Directors in
     February of each year based on recommendation of the Compensation Committee
     and prior year performance.

(3)  Determined by the Chairman based on annual review in December of each year.

(4)  Determined by the bonus plan in effect for all salaried employees based on
     the performance for the preceding year.

(5)  Compensation from 1/1/00-5/31/00 of $210,000 and from 6/1/00-12/31/00 of
     $250,000; reflecting mid-year promotion and raise.

(6)  Calculated and paid in April 2001.

(7)  Director and Officer of United Fire & Casualty Company.


                                      18
<PAGE>

Compensation committee

  The Company's compensation committee is responsible for recommending the
salary and bonus of the Chairman and President to the Board of Directors. The
members of the Compensation Committee are Casey D. Mahon, Leonard J. Marshall
and George D. Milligan. In establishing a salary and bonus, factors such as
earnings, underwriting ratios, return on equity and growth in shareholder value
are considered. Consideration is also given to the salaries and bonuses paid to
comparable executives in the insurance industry and in other similarly sized
companies in Iowa.

Aggregate Option Exercises in 2000 and Year-End Values

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
                                                       Number of Securities         (1) Value of Unexercised
                                                           Underlying                         In-the-
                    Number of shares     Value          Unexercised Options                Money Options
                      Acquired on      Realized         at December 31, 2000           at December 31, 2000
Name                    Exercise                   Exercisable   Unexercisable     Exercisable   Unexercisable
- --------------------------------------------------------------------------------------------------------------
<S>                 <C>                <C>         <C>            <C>              <C>            <C>
Scott McIntyre Jr.         0              0             0             5,000              0               NA
John A. Rife               0              0             0             6,181              0               NA
E. Dean Fick               0              0             0                 0              0               NA
Kevin L. Kubik             0              0             0               500              0               NA
E. Addison Hulit           0              0             0               500              0               NA
- --------------------------------------------------------------------------------------------------------------
(1) None of the employee unexercised options are in-the-money.
</TABLE>

Option Grants in 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
                     Number of   % of Total                                         Potential Realizable Value
                     Securities    Options     Exercise                              At Assumed Annual Rates
                      Options    Granted to     Price         Expiration            Of Stock Appreciation for
                      Granted     Employees    $/Shares          Date                      Option Term
Name                                                                                  5%                 10%
- -------------------------------------------------------------------------------------------------------------------
<S>                 <C>         <C>            <C>           <C>                    <C>                 <C>
Scott McIntyre Jr.    5,000         47%         $20.12        February, 2010        $63,267             $160,330
John A. Rife          5,000         47%         $20.12        February, 2010         63,267              160,330
E. Dean Fick              0          0%         $ 0.00                                   --                   --
Kevin L. Kubik            0          0%         $ 0.00                                   --                   --
E. Addison Hulit          0          0%         $ 0.00                                   --                   --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>


PENSION PLAN TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
                                                           Years of Service
- ------------------------------------------------------------------------------------------------------------------
Salary                       15                     20                 25                   30              35
- -------------------------------------------------------------------------------------------------------------------
<S>                      <C>                     <C>                 <C>                 <C>            <C>
100,000                   $23,618                $31,490             $39,363              $47,235        $55,108
110,000                    26,243                 34,990              43,738               52,485         61,233
135,000                    32,805                 43,740              54,675               65,610         76,545
150,000                    36,743                 48,990              61,238               73,485         85,733
170,000                    41,993                 55,990              69,988               83,985         97,983
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

  The credited years of service on December 31, 2000, for the persons named in
the Summary Compensation Table are as follows: Mr. McIntyre, 35 years (maximum
allowed); Mr. Rife, 24 years; Mr. Fick, 10 years; Mr. Kubik, 4 years; and Mr.
Hulit, 7 years.

The pension plan provides a benefit of 1.25 percent of average annual earnings,
plus 0.5 percent of average annual earnings in excess of Covered Compensation
multiplied by years of service or 35 years, whichever is lesser. Earnings are
limited to $170,000 for pension plan purposes by the IRS. This limit is adjusted
with inflation based upon the CPI and is scheduled to remain the same for
participants retiring before December 31, 2001. Bonuses paid to officers are not
included in pensionable earnings.

  The 2000 Covered Compensation table was used for the calculations in the table
above. Pension figures for Scott McIntyre Jr., Chairman, and John A. Rife,
President, are based upon $170,000 of pensionable earnings.

  Benefit amounts in the Pension Plan Table are computed assuming payments are
made on the normal life annuity basis. Benefits listed in the table are not
subject to deduction for Social Security or other offset amounts.

Director Compensation

  Nonemployee directors are paid a fee of $500 per meeting attended, plus direct
expenses, for attendance at director's meetings. When there is a committee
meeting, the director serving on that committee receives an additional $400. An
annual retainer of $2,500 is paid to each nonemployee director with the
exception of the Vice Chairman who receives an annual retainer of $10,000.

                                      19
<PAGE>

The following graph compares the cumulative total stockholder return on Common
Stock for the last five fiscal years with the cumulative total return of the
S&P 500 Index and S&P Property-Casualty Insurance Index, assuming an investment
of $100 in each of the above at their closing prices on December 31, 1995 and
reinvestment of dividends.

TOTAL SHAREHOLDER RETURNS

                       [PERFORMANCE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
                                             INDEXED RETURNS
                           ---------------------------------------------------
                            BASE
                           PERIOD                  YEARS ENDING
                           ------   ------------------------------------------
COMPANY / INDEX            DEC 95   DEC 96   DEC 97   Dec 98   DEC 99   DEC 00
- ------------------------   ------   ------   ------   ------   ------   ------
<S>                        <C>      <C>      <C>      <C>      <C>      <C>
UNITED FIRE & CAS CO        100     128.14   163.62   126.62    87.61    79.40
S&P 500 INDEX               100     122.96   163.98   210.85   255.21   231.98
INSURANCE (PPTY-CAS)-500    100     121.51   176.76   164.47   122.60   190.95
</TABLE>

                                      20
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)  Security ownership of certain beneficial owners.

The following table sets forth information as of March 1, 2001, with respect to
ownership of the Company's $3.33 1/3 par value common stock by principal
security holders. Except as otherwise indicated, each of the persons named below
has sole voting and investment powers with respect to the shares indicated.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
                                                                                    Amount and
                                                                                    Nature of      Percent
                                                                                    Beneficial       of
Name of Beneficial Owner                   Address of Beneficial Owner              Ownership     Class (1)
- -----------------------------------------------------------------------------------------------------------
<S>                                        <C>                                      <C>           <C>
Scott McIntyre Jr. (1)                     2222 1st Ave. NE, Apt. 1004              1,539,223       15.34%
                                           Cedar Rapids, Iowa 52402

Mildred R. McIntyre (1)                    Cottage Grove Place                      1,129,406       11.25
                                           2115 1st Ave. SE, Apt. 2217
                                           Cedar Rapids, Iowa 52402

General Accident Corporation of America    436 Walnut St.                           2,025,680       20.18
                                           Philadelphia, Pennsylvania 19105-1109

Susan M. Carlton (1)                       29 Pine Terrace                            355,241        3.54
                                           Orchard Park, New York 14127

Margaret Pless (1)                         3726 Bentley Dr.                           312,125        3.11
                                           Durham, North Carolina 27707
- -----------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Scott McIntyre Jr., Mildred R. McIntyre, Susan M. Carlton and Margaret
     Pless are all members of the same family. Included in the number of shares
     owned by Scott McIntyre, Jr. are 371,812 shares which he owns in his
     capacity as trustee of three trusts, one of which his children are the
     beneficiaries, one of which his wife is the beneficiary, and the other of
     which all of Mildred R. McIntyre's grandchildren are the beneficiaries.
     Included in the number of shares owned by Mildred R. McIntyre are 533,245
     shares which she owns in her capacity as trustee of a trust in which she
     also has a life interest, and in which Scott McIntyre Jr., Susan M. Carlton
     and Margaret Pless each have an equal interest in the remainder.

(b)  Security ownership of management.

The following table sets forth information as of March 1, 2001, with respect to
ownership of the Company's $3.33 1/3 par value common stock by management.
Except as otherwise indicated, each of the persons named below has sole voting
and investment powers with respect to the shares indicated.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
                                             Amount and Nature of    Percent Of
Name of Beneficial Owner                     Beneficial Ownership     Class (1)
- -------------------------------------------------------------------------------
<S>                                          <C>                     <C>
Scott McIntyre Jr. (1)                            1,539,223            15.34%
Kyle D. Skogman                                         500                -
Byron G. Riley, Jr.                                   3,306             0.03
George D. Milligan                                      200                -
Thomas K. Marshall                                    2,346             0.02
Leonard J. Marshall                                   1,000             0.01
Casey D. Mahon                                        2,000             0.02
Jack B. Evans                                         6,134             0.06
John A. Rife                                          2,184             0.02
Christopher R. Drahozal                             115,394             1.15
Mary K. Quass                                           600              .01
Kevin L. Kubik                                        3,000              .03
E. Dean Fick                                          1,000              .01
E. Addison Hulit                                        255                -
36 officers and directors as a group              1,689,342            16.83
- -------------------------------------------------------------------------------
</TABLE>

(1)  Included in the number of shares owned by Scott McIntyre Jr., are 121,500
     shares held in the name of J. Scott McIntyre, Trustee of the Mildred
     Reynolds McIntyre Trust, 225,000 shares held in the name of Scott McIntyre
     Jr., or successor, Dee Ann McIntyre Trust, 25,312 shares held in the name
     of Scott McIntyre Jr., Irrevocable Trust and 50,035 shares held by the
     McIntyre Foundation.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None

                                      21
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                            Page
                                                                            ----
(a) 1. and 2.  Financial Statements and Supplementary Data                    8

(a) 3.         Exhibits

                3.1  Articles of Incorporation of United Fire & Casualty
                     Company, incorporated by reference from Registrant's
                     form S-8 Registration Statement, filed with the
                     Commission on December 19, 1997.

                3.2  By Laws of United Fire & Casualty Company, as
                     amended, incorporated by reference from the
                     Registrant's form S-8 Registration Statement, filed
                     with the Commission on December 19, 1997.

               10.1  United Fire & Casualty Company Nonqualified Employee
                     Stock Option Plan, incorporated by reference from
                     Registrant's form S-8 Registration Statement, filed
                     with the Commission on September 9, 1998.

               10.2  United Fire & Casualty Company Employee Stock
                     Purchase Plan, incorporated by reference from
                     Registrant's form S-8 Registration Statement, filed
                     with the Commission on December 22, 1997.

               11    Statement re: computation of per share earnings.

               13    The following portions of the Registrant's Annual
                     Report to Stockholders for the year ended December
                     31, 2000, which are incorporated herein by
                     reference:

                     13.1  Market For Registrant's Common Equity and
                           Related Stockholder Matters, page 22.

                     13.2  Selected Financial Data, page 4.

                     13.3  Management's Discussion and Analysis of
                           Financial Condition and Results of Operations,
                           pages 8 to 14.

                     13.4  Quantitative and Qualitative Disclosures about
                           Market risk, pages 11 to 13.

                     13.5  Financial Statements and Supplementary Data,
                           pages 24 to 41.

               21    Subsidiaries of the registrant.                         24

               23    Consent of Arthur Andersen LLP, independent auditors    25

               28    Information from reports furnished to State
                     Insurance Regulatory Authorities. This information
                     will be filed by paper.                                 26


(b)            No reports on Form 8-K were filed during the last quarter
               of the period covered by this report.

                                      22
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     UNITED FIRE & CASUALTY COMPANY

                               By   /s/ John A. Rife
                                 ----------------------------------
                                 John A. Rife, President, Director

                               Date  2/16/01
                                   --------------------------------

                               By  /s/ Kent G. Baker
                                 ----------------------------------
                                 Kent G. Baker, Vice-President, Principal
                                 Accounting Officer and Chief Financial Officer

                               Date  2/16/01
                                   --------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

By /s/ Scott McIntyre Jr.                   By   /s/ Kyle D. Skogman
  --------------------------------            ---------------------------------
Scott McIntyre Jr., Chairman and Director   Kyle D. Skogman, Director

Date   2/16/01                              Date   2/16/01
    -----------------------------               ------------------------------

By /s/ George D. Milligan                   By   /s/ Casey D. Mahon
  --------------------------------            ---------------------------------
George D. Milligan, Director                Casey D. Mahon, Director

Date   2/16/01                              Date   2/16/01
    -----------------------------               ------------------------------

By /s/ Leonard J. Marshall                  By   /s/ Byron G. Riley
  -------------------------------             ---------------------------------
Leonard J. Marshall, Director               Byron G. Riley, Director

Date   2/16/01                              Date   2/16/01
    -----------------------------               ------------------------------

By /s/ Thomas K. Marshall                   By  /s/ Jack B. Evans
  -------------------------------             ---------------------------------
Thomas K. Marshall, Director                Jack B. Evans, Vice Chairman
                                                and Director
Date   2/16/01
    -----------------------------          Date   2/16/01
                                               ------------------------------
By /s/ Mary K. Quass
- --------------------------------
Mary K. Quass, Director

Date   2/16/01
    -------------------------------
<PAGE>

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT

(a),(b),(c)   Four copies of the annual stockholders report for the year ended
              December 31, 2000, and four copies of the proxy statement will be
              furnished to the Securities and Exchange Commission when they are
              mailed to security holders. The annual report and proxy statement
              (foregoing material) shall not be deemed to be "filed" with the
              Commission or otherwise subject to the liabilities of Section 18
              of the Act, except for that which is incorporated from the annual
              stockholders report on this Form 10-K by reference.






                                      24
<PAGE>

2000 10-K REFERENCED

FINANCIAL INFORMATION
<PAGE>

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
                                                          (Dollars in Thousands Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>          <C>          <C>
Years Ended December 31                                2000         1999         1998         1997         1996
- ---------------------------------------------------------------------------------------------------------------
Total assets                                     $1,662,494   $1,467,716   $1,250,594   $1,157,922   $1,024,835

Operating revenues
  Net premiums earned                               333,365      273,051      245,727      244,939      234,797
  Investment income, net                             86,867       75,317       67,928       61,686       56,936
  Realized investment gains (losses) and other       (1,825)       2,936       22,796        2,676        6,726
  income
  Commission and policy fee income                    2,172        1,912        1,815        1,829        1,815

Net income                                           15,527       15,384       23,677       28,732       21,960

Basic and diluted earnings per common share            1.55         1.53         2.28         2.68         2.04

Cash dividends declared
per common share                                       0.71         0.68         0.67         0.63         0.60
===============================================================================================================
</TABLE>

The selected financial data herein has been derived from the financial
statements of the Company and its subsidiaries. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the "Consolidated Financial Statements and
related notes."

[A bar graph displaying earnings per common share and dividends declared for
the five years ended December 31, 2000 appears here.]

Earnings Per Common Share


<TABLE>
<CAPTION>
            Earnings Per Common Share        Dividends Declared
<S>         <C>                              <C>
1996                  2.04                          0.60
1997                  2.68                          0.63
1998                  2.28                          0.67
1999                  1.53                          0.68
2000                  1.55                          0.71
</TABLE>



<PAGE>

                                                                          ITEM 6

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  The Company's common stock is traded on NASDAQ under the symbol UFCS. On March
1, 2001, there were 923 holders of record of the Company's common stock. The
following table sets forth, for the calendar periods indicated, the high and low
bid quotations for the common stock and cash dividends declared. These
quotations reflect inter-dealer prices without retail markups, markdowns or
commissions and may not necessarily represent actual transactions.

  The Company's policy has been to pay quarterly cash dividends, and the Company
intends to continue that policy. The table set forth below shows the quarterly
dividends paid in 1999 and 2000. 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. The
Company has paid dividends every quarter since March 1968.

  State law permits the payment of dividends only from statutory accumulated
earned profits arising from business. The Company's subsidiaries are also
subject to state law restrictions on dividends. See Note 8 in the Notes to
Consolidated Financial Statements.

<TABLE>
<CAPTION>
========================================================================
                                                                Cash
                                            Share Price       Dividends
                                           High      Low      Declared
- ------------------------------------------------------------------------
<S>                                       <C>       <C>       <C>
2000
Quarter Ended
   March 31                               $23.31    $17.38      $0.17
   June 30                                 19.69     15.50       0.18
   September 30                            20.50     15.50       0.18
   December 31                             20.63     16.19       0.18

1999
Quarter Ended
   March 31                               $35.50    $25.50      $0.17
   June 30                                 26.88     22.25       0.17
   September 30                            26.50     22.19       0.17
   December 31                             23.38     19.25       0.17
========================================================================
</TABLE>
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. Such risks and uncertainties include the
following: 1) the uncertainties of the loss reserving process; 2) the occurrence
of catastrophic events or other insured or reinsured events with a frequency or
severity exceeding the Company's estimates; 3) the actual amount of new and
renewal business; 4) the competitive environment in which the Company operates;
5) developments in global financial markets that could affect the Company's
investment portfolio and financing plans; 6) estimates of the financial
statement impact due to regulatory actions; 7) uncertainties relating to
government and regulatory policies; 8) legal developments; 9) changing rates of
inflation and other economic conditions; and 10) the impact of mergers and
acquisitions, including the ability to successfully integrate acquired
businesses and achieve cost savings. The words "believe," "anticipate,"
"estimate," "expect," "intend," or "will continue" and variations thereof and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000, COMPARED TO THE YEAR
ENDED DECEMBER 31, 1999

  For the twelve months ended December 31, 2000, net income was $15,527,000 or
$1.55 per share, compared to $15,384,000 or $1.53 per share for 1999. A
hailstorm in New Orleans occurring January 23 contributed $3,829,000 of after-
tax net losses to the 2000 results. Operating earnings (after-tax net income,
excluding realized investment gains (losses) and other income) improved in 2000
to $16,713,000 or $1.67 per share (from $13,476,000 or $1.34 per share in the
prior year), primarily as a result of increased premium revenue and a reduction
of operating expenses due to the consolidation of certain company functions.
However, realized investment gains (losses) and other income of $(1,186,000) on
an after-tax basis, compared to realized investment gains and other income of
$1,908,000 in 1999 on an after-tax basis, weakened net income for the year ended
December 31, 2000.

  In August 1999, the Company acquired American Indemnity Financial Corporation
("American Indemnity"), a holding company that owns four property and casualty
insurance companies. The year 2000 results presented in the Consolidated
Statements of Operations and certain tables and charts within this report
include twelve months of results of operations of American Indemnity.  The 1999
results include five months of results of operations of American Indemnity.
Results presented for years prior to 1999 have not been restated for the effect
of the purchase.

Property and casualty insurance segment

  For the year 2000, the property and casualty segment recorded net income of
$9,810,000, compared to net income of $6,062,000 for 1999.  Despite the New
Orleans hailstorm catastrophe, the Company's property and casualty results
improved in 2000 in several lines of business.  The loss ratio (net losses
incurred divided by net premiums earned) decreased (showed improvement) in the
following areas: automobile, other liability, and workers' compensation. In each
of these lines of business, the 2000 loss ratio was lower than in 1999.
Improvements in the Company's underwriting function and a decrease in the
severity of claims has led to enhanced profitability in these lines.

  Three lines of business deteriorated in 2000, when compared to 1999:

  Fire and allied lines business was negatively impacted by the New Orleans
hailstorm, with a loss ratio of 62 percent in 2000, compared to 52.5 percent in
1999.

  The fidelity and surety line of business had a loss ratio of 11.8 percent in
2000, compared to 2.1 percent percent in 1999.  Despite this increase, the
Company's results in the fidelity and surety line were considerably better than
those to be reported for the fidelity and surety industry.  The estimated loss
ratio for fidelity and surety for the industry is 27.5 percent. The continued
growth of construction projects, coupled with shortages in the construction
labor market, have contributed to increased losses in these lines, both for the
Company and for the industry as a whole.

  The reinsurance line of business has also deteriorated, with a loss ratio of
162.2 percent in 2000, compared to 122.6 percent in 1999. The bulk of the
business assumed was property reinsurance with the emphasis on catastrophe
covers. In response to the tighter margins in this particular line, the Company
has decided to significantly reduce its writings in assumed reinsurance
business. A small portion of the business expired on July 1, 2000, and the bulk
of the business expired on December 31, 2000. Contracts will be renewed with a
very limited number of brokers to continue writing assumed reinsurance business.
The Company will continue to have exposure, primarily the catastrophe covers,
related to the assumed reinsurance contracts that were previously written.
Management believes that as of December 31, 2000, the loss reserves established
for the assumed reinsurance business are adequate. The assumed reserves will be
adjusted as additional facts become known.

<PAGE>

  Net premiums (direct plus assumed reinsurance less ceded reinsurance) written
by the property and casualty segment increased by $70,838,000 to $325,052,000
between 2000 and 1999, due to price increases, new and renewal business and
twelve months of business from American Indemnity Company. Net premiums written
increase in every line of business, with the exception of reinsurance. The
largest dollar growth in net premiums written was reported in fire and allied
lines, which increased from $77,270,000 in 1999 to $103,385,000 in 2000. The
largest percentage growth was in other liability, with a 43 percent increase in
net premiums written due in part to price firming in the commercial lines of
business.

  Direct premiums written by the property and casualty segment increased
$77,405,000 or 32 percent over 1999. The state of Iowa remains the segment's
largest volume state, with direct premiums of $44,533,000. In 2000, Texas became
our third state in terms of direct premium volume for the property and casualty
segment, with direct premiums of $40,596,000, compared to $13,730,000 in 1999.
Management expects continued growth in property and casualty premiums for 2001,
due to price increases in the industry and less fierce competition. Should
industry conditions change, with falling prices and increased competition (as
has been the market situation for the past few years), the growth that
management anticipates may not develop.

  To measure underwriting profitability, the property and casualty industry uses
the combined ratio, which is calculated by dividing net losses and net loss
adjustment expenses incurred by net premiums earned, plus other underwriting
expenses incurred divided by net premiums written. Generally, if the combined
ratio is below 100 percent, the Company experiences an underwriting profit; if
it is above 100 percent an underwriting loss exists. In 2000, the segment's GAAP
combined ratio was 105.3 percent, compared to 109.2 percent in 1999. The
improvement resulted from the growth in premiums, a lower underwriting expense
ratio, due in part to the consolidation of functions, and the closing of
southern branch offices of the American Indemnity group of companies.

  Catastrophes, including the New Orleans hailstorm, negatively affected the
combined ratio, adding eight percent to the ratio in 2000 and six percent in
1999, and resulted in after-tax net incurred losses and expenses of $15,778,000
or $1.57 per share in 2000, compared to $9,561,000 or $.95 per share in 1999.

Life insurance segment

  The life insurance segment reported net income of $5,717,000 for the year
ended 2000, compared to $9,322,000 for the year ended 1999. During the third
quarter of 2000, write-downs on two fixed maturity securities contributed
significantly to the segments' realized investment gain (losses) and other
income of $(3,089,000), net of tax. Net premiums earned by the life segment
(after intercompany eliminations) in 2000 totaled $26,094,000, compared to
$25,997,000 in 1999. On a statutory basis, annuity deposits increased to
$165,181,000, compared to $145,810,000 in 1999. GAAP reported premium revenue
does not reflect annuity deposits.  GAAP revenues for annuities consist of
policy surrender charges and investment income earned.

  The life segment's largest expenditure is interest credited to annuities and
universal life policies. In 2000, two primary factors; growth in new and
existing account balances and higher interest rates, contributed to the increase
in interest credited of $42,410,000, which was a 31 percent increase from
$32,286,000 in 1999.

Investment results

  The Company reported net investment income of $86,867,000 in 2000, compared to
$75,317,000 in 1999 primarily as a result of growth in the Company's investment
portfolio. Over 90 percent of the Company's investment income originated in 2000
from interest on fixed income securities (the portfolio balance grew by
$124,761,000). The remaining investment revenue was derived from dividends on
equity securities, interest on other long-term investments, interest on policy
loans and rent earned from tenants in the Company's home office. The investment
yield (investment income divided by average invested assets) was 6.6 percent in
2000 and 6.5 percent in 1999.

  The Company's realized investment gains (losses) and other income was
$(1,825,000) in 2000, compared to $2,936,000 in 1999. Losses recognized on the
sale of securities held by the American Indemnity group of companies, and two
security write-downs were the major factors in the 2000 results. Included as
other income is interest of $257,000 and $632,000, respectively, related to a
refund in connection with a federal income tax Revenue Agent Review for previous
tax years.

Federal income taxes

  The provision for Federal income taxes for the year ended 2000 and 1999 was
$1,822,000 and $1,834,000, respectively. Pre-tax income was very similar between
the two years, as were the components of Federal income tax expense. At December
31, 2000, the Company has $29,709,000 of net operating loss ("NOLs")
carryforwards, the utilization of which is limited (pursuant to Section 382 of
the Internal Revenue Code) and was generated by the purchase of American
Indemnity Company in August, 1999. The NOL's will expire in various future
years, beginning in 2001 through 2019. The Company has recorded a net deferred
tax liability of $12,245,000 at December 31, 2000 and $7,430,000 at December 31,
1999. The deferred tax liability increased primarily due to net unrealized
appreciation on investment securities. The Company has a valuation allowance of
$11,370,000 as of December 31, 2000 related to American Indemnity NOLs. The
valuation allowance recorded on the Company's deferred tax asset decreased
$3,769,000 between years, due primarily to the utilization of NOL carryforwards.
If the Company determines that the benefit of the American Indemnity NOLs can be
realized in the future, the related reduction in the deferred tax asset
valuation allowance will be recorded as a reduction to goodwill.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE YEAR
ENDED DECEMBER 31, 1998

  On August 10, 1999, the Company acquired American Indemnity Financial
Corporation ("American Indemnity") as a wholly owned subsidiary for
approximately $30,212,000 in cash in exchange for 1,962,410 shares of common
stock. Common stockholders of American Indemnity received approximately $14.35
per share of common stock at the closing of the transaction and deferred
consideration of up to $1.00 to be paid per share in August 2001, subject to
adjustments relating to indemnities. An escrow account with a balance of
$1,990,000 is included in the Company's consolidated balance sheets in other
assets for payment of the deferred consideration.

  The transaction was accounted for using the purchase method of accounting.
Loss reserve increases and the write-off of uncollectible balances were also
made, which were not considered purchase accounting.  These
<PAGE>

costs were recorded in operations in 1999. Management believes that all material
one-time adjustments (other than purchase accounting) were identified and
properly reflected in 1999 operations. A schedule summarizing the assets
acquired and the liabilities assumed as of August 10, 1999, as well as proforma
results of operations, can be found in Note 15 of the Notes to Consolidated
Financial Statements.

  Results presented in the Consolidated Statements of Operations and certain
tables and charts within this report include approximately five months of
results of operations of American Indemnity in 1999 and 12 months of operation
of American Indemnity in 2000. Amounts in years prior to 1999 have not been
restated for the effect of the purchase.

Property and casualty insurance segment

  The property and casualty segment reported an increase in net premiums earned
of $26,504,000 or 12 percent in 1999, when compared to 1998.  The purchase of
American Indemnity contributed $19,413,000 of the growth. Net premiums earned in
each line of business increased, with the exception of workers' compensation,
which decreased slightly between years. With the purchase of American Indemnity,
and the resulting expansion into southern and southeastern states in 1999,
management anticipated that property and casualty net premiums earned would
increase into 2000.

  The property and casualty segment's largest expenditures are for losses and
loss adjustment expenses. These costs increased by $6,554,000 in 1999, or 4.0
percent.  Without the American Indemnity purchase, losses and expenses would
have decreased by $8,032,000.  Subsequent to the purchase of American Indemnity,
the Company's management reviewed and increased that subsidiary's direct case
loss reserves by approximately $10,000,000.  This measure was necessary to raise
American Indemnity's loss reserves to a level that was in accordance with the
reserving philosophy of the Company.

  The Company had exposure to 23 catastrophes, in both 1999 and 1998. The
catastrophes negatively impacted net income (net of tax) by $9,561,000 or $.95
per share in 1999, and $19,188,000 or $1.85 per share in 1998.

  All but three lines of business showed improvement in the loss ratio (lower
loss ratios) in 1999, compared to 1998. The three lines that deteriorated were
other liability, reinsurance and all other. Catastrophe activity negatively
impacted the Company's reinsurance line of business. The loss ratio for net
assumed reinsurance, which constitutes business assumed from other insurance
companies, deteriorated to 122.6 percent in 1999, from 95.9 percent in 1998.

  In 1999, the segment's GAAP combined ratio was 109 percent, compared to
115 percent in 1998. The catastrophes discussed above added 6.0 percent to the
combined ratio in 1999 and 11 percent in 1998.

Life insurance segment

  The life insurance segment reported net income after consolidating
eliminations of $9,322,000 in 1999, compared to $10,614,000 in 1998. Investment
income increased by $7,069,000 or 16 percent over 1998.

  The life segment's largest expenditure is interest credited to annuities and
universal life policies. As new premiums and existing account balances increase,
the interest credited to policies will grow proportionately. The interest
credited to these two products during 1999 totaled $32,286,000, which was a 21
percent increase over 1998.  Losses incurred, resulting primarily from death
claims, is the second largest cost incurred by the life insurance segment.
Losses incurred decreased slightly to $11,647,000 in 1999 compared to
$12,299,000 in 1998.

Investment results

  The Company reported net investment income of $75,317,000 in 1999, compared to
$67,928,000 in 1998. More than 90 percent of the Company's investment income
originates from interest on fixed income securities. The remaining investment
revenue is derived from dividends on equity securities, interest on other long-
term investments, interest on policy loans and rent earned from tenants in the
Company's home office. The investment yield (investment income divided by
average invested assets) was 6.5 percent in 1999 and 1998.

  Realized gains were $2,936,000 in 1999, compared to $22,796,000 in 1998.
During the second quarter of 1998, the Company took advantage of market
conditions and sold some of its equity securities. The proceeds were used to
purchase 625,000 shares of its common stock. The sales generated realized gains
of $16,858,000, which contributed to the 1998 results.



FINANCIAL CONDITION
Investments

  The Company invests primarily in fixed-income and equity securities with the
objective of maximizing after-tax investment income, matching assets to
liabilities and maintaining liquidity. The Company maintains its portfolio in
compliance with Company and state insurance department investment guidelines. At
December 31, 2000, the
<PAGE>

Company held investment grade securities (as defined by the National Association
of Insurance Commissioners "NAIC" - Securities Valuation Office and having NAIC
ratings of Class 1 or Class 2) with a carrying value of $1,117,080,000,
representing 90 percent of total fixed maturity investments. Purchases of fixed
maturity investments with credit ratings below investment grade are securities
that the Company views as having the potential for upgrade in the future. The
Company minimizes its risk associated with below-investment-grade securities by
monitoring credit risk of the issuers and by spreading the exposure among
various issuers.

  Fixed income securities that the Company has the ability and intent to hold to
maturity are classified as held-to-maturity. The remaining fixed income
securities and all of the Company's equity securities are classified as
available-for-sale. The Company did not have trading securities at December 31,
2000, or at December 31, 1999. At December 31, 2000, $283,431,000 or 23 percent
of the fixed maturity portfolio was classified as held-to-maturity, compared to
$311,152,000 or 29 percent at December 31, 1999. The held-to-maturity securities
are reported at amortized cost, while available-for-sale securities are reported
at market value. Unrealized appreciation, net of tax of $37,051,000 from the
Company's available-for-sale investments and other invested assets is reflected
in a separate component of stockholders' equity. The increase in unrealized
appreciation over 1999 resulted from a general improvement in market prices.

  Effective January 1, 1999, the Company reclassified a portion of its held-to-
maturity investment portfolio to available-for-sale in conjunction with the
adoption of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Generally,
reclassifications are allowed only in rare circumstances. However, given the new
restrictions that SFAS No. 133 has on hedging interest rate risk for held-to-
maturity securities, all companies adopting SFAS No. 133 were allowed to
reassess their held-to-maturity portfolios without "tainting" the remaining
securities classified as held-to-maturity. The reclassification from held-to-
maturity to available-for-sale increased the carrying value of available-for-
sale fixed-income securities by approximately $9,250,000, and increased other
comprehensive income by approximately $6,013,000, net of deferred income taxes.

  At December 31, 2000, the Company's fixed maturity portfolio included
collateralized mortgage obligations (CMO) of $101,596,000, or 8.0 percent of the
fixed-income portfolio, compared to $126,232,000, or 12 percent, as of December
31, 1999. The decreases have been the result of sales and prepayments of CMOs in
2000 and 1999, which were subsequently replaced with corporate bonds.

Market risk

  The main objectives in managing the investment portfolios of the Company and
its subsidiaries are to maximize after-tax investment income and total
investment returns. Investment strategies are developed based on a number of
factors, including estimated duration of reserve liabilities, short and long-
term liquidity needs, projected tax status, general economic conditions,
expected rates of inflation and regulatory requirements. Investment decisions
are managed based on investment guidelines approved by Company management.

  The Company's investment portfolio is subject to market risk arising from the
potential change in the value of the various securities held within the
portfolio. Market risk comprises many factors, such as interest rate risk,
liquidity risk, foreign exchange risk, credit risk and equity price risk.  The
Company's primary market risk exposure is interest rate risk.  Interest rate
risk is the price sensitivity of a fixed income security or portfolio to changes
in interest rates.  The Company also has limited exposure to equity price risk
and foreign exchange risk.

  The active management of market risk is integral to the Company's operations.
The potential changes in the value of the Company's investment portfolio due to
the market risk factors noted above are analyzed within the overall context of
asset and liability management.  A technique used by the Company to aid in the
management of its investment and reserve portfolios is the calculation of
duration.  Our actuaries estimate the payout pattern of our reserve liabilities
to determine their duration, which is the present value of the weighted average
payments expressed in years.  A target duration is then established for the
Company's investment portfolio so that the estimated cash inflows of the
investment portfolio will match the estimated cash outflows of the reserve
portfolio at any given point in time. The investment manager of the Company then
structures the investment portfolio to meet the target duration to achieve the
required cash inflow based on liquidity and market risk factors.

  Duration relates primarily to our life insurance segment because the long-term
nature of its reserve liabilities increases the importance of projecting
estimated cash inflows over an extended time frame. The Company's life segment
had $634,551,000 in deferred annuity liabilities that are specifically allocated
to fixed income securities. The management of the life segment investments
concentrates primarily on matching the duration of the investments to that of
the deferred annuity obligations. The duration for the investment portfolio must
take into consideration interest rate risk.  This is done through the use of
sensitivity analysis, which measures the price sensitivity of the fixed income
securities to changes in interest rates.  The alternative valuations of the
investment portfolio given the various hypothetical interest rate changes
utilized by the sensitivity analysis allow management to revalue the potential
cash flow from the investment portfolio under varying market interest-rate
scenarios.  Duration can then be recalculated at the differing levels of
projected cash inflows.
<PAGE>

  Amounts set forth in Table 1 detail the material impact of hypothetical
interest rate changes on the fair value of certain core fixed income investments
held at December 31, 2000. The sensitivity analysis measures the change in fair
values arising from immediate changes in selected interest rate scenarios.
Hypothetical parallel shifts in the yield curve of plus or minus 100 and 200
basis points (BP) were employed in the simulations. Additionally, based upon the
yield curve shifts, estimates of prepayment speeds for the mortgage related
products and likelihood of call or put options being exercised were employed in
the simulations. According to this analysis, at current levels of interest
rates, the duration of the investments supporting the deferred annuity
liabilities is 0.39 years shorter than the projected duration of the
liabilities. If interest rates increase by 100 basis points, this difference
would be expected to narrow to .38 years. The selection of a 100-basis-point
increase in interest rates should not be construed as a prediction by the
Company's management of future market events, but rather to illustrate the
potential impact of an event.

                 TABLE 1--SENSITIVITY ANALYSIS (IN THOUSANDS)
<TABLE>
<CAPTION>

Interest Rate Risk
      ASSET              -200 BP      -100 BP           BASE          +100 BP        +200 BP
- ----------------------------------------------------------------------------------------------
<S>                     <C>          <C>             <C>             <C>            <C>

Estimated Fair Value
  of Fixed Maturities   $1,343,112   $1,285,665      $1,231,209      1,172,805      $1,114,365
</TABLE>

Table 2 details the effect on fair value for a positive or negative 10 percent
price change on the Company's common equity portfolio.

TABLE 2 (IN THOUSANDS)

<TABLE>
<CAPTION>

Equity Price Risk
      Asset          -10%            Base            +10%
- ---------------------------------------------------------------
<S>                 <C>            <C>              <C>
Common Stock        $100.19        $111,132         $122,245
</TABLE>

  To the extent that actual results differ from the assumptions utilized, the
Company's duration and rate increase measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.

  Foreign currency exchange rate risk arises from the possibility that changes
in foreign currency exchange rates will affect the fair value of financial
instruments. The Company has limited foreign currency exchange rate risk in its
transactions with foreign reinsurers. This activity relates to the settlement of
amounts due to or from foreign reinsurers in the normal course of business.
Management considers this risk to be immaterial to the Company's operations.

  Equity price risk is the potential loss arising from changes in the fair value
of equity securities. The Company's exposure to this risk relates to its equity
securities portfolio and covered call options that have been written at various
times. Covered call options have been written at various times to generate
additional portfolio income. The market risk associated with the Company's
covered call options is minimized, as the covered call options are written on
common stocks that are held in the portfolio and that are "out of the money"
(written above the stock's market value at time of contract).  If the market
price of this underlying common stock were to decline, it would be unusual for
the option to be exercised since this exercise price would be higher than the
market price.  At December 31, 2000, there were no open covered call options.

OTHER ASSETS

  Commissions and other costs of underwriting insurance, which vary with and are
primarily related to the production of business, have been deferred and
capitalized to the extent recoverable. The resulting asset is referred to as
deferred acquisition costs (DAC), and constitutes the Company's second largest
asset, after investments. The DAC asset is amortized over the life of the
insurance policies written, to attain a matching of revenue to expenses. The
Company's life segment had an increase in deferred acquisition costs of
$5,473,000, or 8.0 percent, to $75,014,000, due principally to its growth in
statutory premium volume. Deferred acquisition costs of the property and
casualty segment increased in 2000 by $2,852,000, or 14 percent, to $23,385,000,
also attributable to an increase in premium volume.

  Accounts receivable are amounts due from property and casualty insurance
agents and brokers for premiums written, less commissions paid. These
receivables increased by 25 percent or $12,651,000, from $51,304,000 to
$63,955,000 between 2000 and 1999. The increase in property and casualty
writings accounted
<PAGE>

for the growth in this asset. An allowance for doubtful accounts of $1,173,000
has been established at December 31, 2000, compared to $899,000 at December 31,
1999. The Company did not experience difficulties in collecting balances from
its agents in 2000 or 1999.

  The Company's other assets are composed primarily of accrued investment
income, property and equipment (primarily land and buildings), and reinsurance
receivables (amounts due from the Company's reinsurers for losses and expenses).


Liabilities

  The Company's largest liability is that of future policy benefits, which
relates exclusively to the life segment, and is established to provide for the
payment of policy benefits that are to be paid in the future. With respect to
annuity and most universal life products, the Company records a liability equal
to the amount of the premiums paid by policyholders, less insurance charges and
expense loads, plus interest credited to the policy. As deposits from annuities
and universal life products have grown, future policy benefits have grown. The
liability increased by $120,808,000, or 17 percent, to $822,158,000 between
December 31, 1999 and 2000.

  Claims and settlement expenses, which relate to the property and casualty
segment, also increased in 2000. Direct and assumed reserves established for
losses and expenses have increased by $19,789,000, or 6.0 percent, to
$358,032,000 from 1999 to 2000.

  Accrued expenses and other liabilities have increased from $22,043,000 at
December 31, 1999, to $34,303,000 at December 31, 2000, due primarily to the
inclusion of a net negative cash balance of $9,307,000. Positive cash balances
have been netted against checks issued for claims that have not yet cleared the
banking system. Short-term investments are available for the Company's cash
needs - see following section "Cash flow and liquidity".

  Deferred income taxes have increased by $4,815,000 to $12,245,000, due in
large part to growth in unrealized appreciation of $17,944,000. Federal income
taxes on the net unrealized appreciation are deferred until such time that the
securities are sold.

  The Company has had limited involvement with derivative financial instruments
and does not engage in the derivative market for hedging purposes. The Company
has, at times, written covered call options to generate additional portfolio
income.  There were no open covered call options at December 31, 2000, and
December 31, 1999.

Stockholders' equity

  The Company's stockholders' equity increased from $237,793,000 at December 31,
1999, to $257,429,000 at December 31, 2000, an increase of 8.0 percent in 2000.
Decreases to equity included $7,134,000 of declared dividends and $421,000 due
to the retirement of 24,265 shares of common stock. Increases to equity included
net income of $15,527,000 and net unrealized appreciation of $11,664,000 (net of
tax).

  In February 2000, the Company's Board of Directors authorized the repurchase
of an additional 100,000 shares of its common stock through open market or
privately negotiated transactions, which brought the total number of shares
authorized for repurchase to 114,075.  During 2000, the Company purchased 24,865
shares of its common stock at a cost of $430,000. This brings the remaining
repurchase authorization to 89,210 shares as of December 31, 2000.

Cash flow and liquidity

  Cash flow and liquidity is primarily derived from the operating cash flows of
the Company's property and casualty and life insurance operations. Premiums are
invested in assets maturing at regular intervals in order to meet the Company's
obligations to pay policy benefits, claims and claim adjusting expenses. Net
cash provided by the Company's operating activities was $42,543,000 in 2000,
compared to $34,452,000 in 1999.

  Funds which the Company has available for short-term cash needs are invested
primarily in money market accounts and fixed-income securities. At December 31,
2000, the Company's consolidated invested assets included $58,290,000 of short-
term investments. In addition, the Company maintains a $20 million bank line of
credit. During 2000, the Company did not utilize the line of credit. During
1999, the Company borrowed funds against the line of credit, with a maximum
outstanding balance of $4,000,000. Under the terms of the agreement, interest on
outstanding notes is payable at the lender's prevailing prime rate, minus 1.0
percent. Interest expense in connection with the line of credit borrowing was
$22,000 in 1999. Management believes that the Company's liquid assets and net
cash provided by operations will enable it to meet any foreseeable cash
requirements.

Regulation

  The insurance industry is governed by the NAIC and individual state insurance
departments. All of the insurance departments of the states in which the Company
is domiciled have adopted codification of insurance Statutory Accounting
Principles effective January 1, 2001. Previously, these principles were
prescribed in a variety of publications, as well as state laws, regulations and
general administrative rules. Subject to final interpretation by the NAIC and
the individual state insurance departments, the effect on the
<PAGE>

statutory financial statements as of January 1, 2001, is estimated to be an
increase to stockholders' equity of approximately $10,900,000. This change does
not affect the accompanying financial statements, which are based on generally
accepted accounting principles ("GAAP"). Pursuant to codification rules,
permitted statutory accounting practices may be utilized, with approval from an
insurer's state of domicile insurance department. The Company does not use
permitted practices that individually or in the aggregate materially affect
statutory surplus or risk-based capital.

  The NAIC annually calculates a number of financial ratios to assist state
insurance regulators in monitoring the financial condition of insurance
companies. A "usual range" of results for each ratio is used as a benchmark.
Departure from the usual range on four or more of the ratios could lead to
inquiries from individual state insurance commissioners as to certain aspects of
a company's business. American Indemnity had four ratios which were out of the
"usual range". Two of the ratios, "change in net writings" and "change in
surplus," resulted from a 100 percent reinsurance quota share contract between
American Indemnity and the Company which was effective January 1, 2000, for all
new and renewal policies. This arrangement had the effect of decreasing premium
writings, thus resulting in a decrease in net writings ("change in writings") of
100%. The quota share arrangement also contributed to a substantial increase in
the statutory surplus ("change in surplus") of American Indemnity Company. The
quota share agreement contributed to the improved statutory financial condition
of American Indemnity Company.

  To comply with NAIC and state insurance departments' solvency regulations, the
Company is required to calculate a minimum capital requirement based on
insurance risk factors. The risk-based capital results are used to identify
companies that merit regulatory attention or the initiation of regulatory
action. At December 31, 2000, both the life segment and the property and
casualty segment had capital well in excess of the required levels. The Company
is not aware of any other current recommendations by the NAIC or other
regulatory authorities in the states in which the Company conducts business
that, if or when implemented, would have a material effect on the Company's
liquidity, capital resources or operations.

<PAGE>

                                                                          Item 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Balance Sheets
December 31, 2000 and 1999

<TABLE>
<CAPTION>
======================================================================================================
                                                                               (Dollars in Thousands
                                                                              Except Number of Shares)
- ------------------------------------------------------------------------------------------------------
ASSETS                                                                              2000          1999
- ------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>
Investments (Notes 2, 3 and 4)
    Fixed maturities
        Held-to-maturity, at amortized cost (market value $292,857 in 2000
          and $314,168 in 1999)                                               $  283,431    $  311,152
        Available-for-sale, at market (amortized cost $952,949 in 2000 and
          $800,467 in 1999)                                                      928,947       768,307
    Equity securities, at market (cost $30,667 in 2000 and $38,755 in 1999)      111,132       109,148
    Policy loans                                                                   8,437         8,645
    Other long-term investments, at market (cost $12,326 in 2000 and
      $12,841 in 1999)                                                            12,864        13,328
    Short-term investments                                                        58,290        20,131
- ------------------------------------------------------------------------------------------------------
                                                                              $1,403,101    $1,230,711
Cash and Cash Equivalents                                                              -         9,749
Accrued Investment Income (Note 4)                                                22,578        19,857
Accounts Receivable, (net of allowance for doubtful accounts of $1,173 in
  2000 and $899 in 1999)                                                          63,955        51,304
Deferred Policy Acquisition Costs                                                 98,399        90,074
Property and Equipment, primarily land and buildings, at cost,
less accumulated depreciation of $27,172 in 2000 and $23,912 in 1999              16,732        16,863
Reinsurance Receivables (Note 6)                                                  41,487        29,715
Prepaid Reinsurance Premiums                                                       2,846         3,019
Intangibles                                                                        6,459         8,044
Income Taxes Receivable (Note 9)                                                     658         1,169
Other Assets                                                                       6,279         7,211
- ------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                  $1,662,494    $1,467,716
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Future policy benefits and losses, claims and settlement expenses
      (Notes 6 and 7)
        Property and casualty insurance                                       $  358,032    $  338,243
        Life insurance (Note 4)                                                  822,158       701,350
    Unearned premiums                                                            165,212       148,472
    Accrued expenses and other liabilities                                        34,303        22,043
    Employee benefit obligations (Note 10)                                        13,115        12,385
    Deferred income taxes (Note 9)                                                12,245         7,430
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                             $1,405,065    $1,229,923
- ------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
    Common stock, $3.33 1/3 par value; authorized 20,000,000 shares
      (Note 13)
        10,035,819 shares issued and outstanding in 2000
        10,060,084 shares issued and outstanding in 1999                      $   33,453    $   33,534
    Additional paid-in capital                                                     6,912         7,252
    Retained earnings (Note 8)                                                   172,346       163,953
    Accumulated other comprehensive income, net of tax                            44,718        33,054
- ------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                                    $  257,429    $  237,793
- ------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $1,662,494    $1,467,716
======================================================================================================
</TABLE>

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

<PAGE>

Consolidated Statements of Operations
Years Ended December 31, 2000, 1999 and 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
                                                                           (Dollars in Thousands Except Per Share Data
                                                                                       and Number of Shares)
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                 2000              1999                1998
- ---------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                      <C>                 <C>
Revenues
 Net premiums earned (Note 6)                                               $   333,365        $   273,051       $   245,727
 Investment income, net (Note 2)                                                 86,867             75,317            67,928
 Realized investment gains (losses) and other income (Note 2)                    (1,825)             2,936            22,796
 Commission and policy fee income                                                 2,172              1,912             1,815
- ----------------------------------------------------------------------------------------------------------------------------
                                                                            $   420,579        $   353,216       $   338,266
- ----------------------------------------------------------------------------------------------------------------------------
Benefits, Losses and Expenses
 Losses and settlement expenses                                             $   236,807        $   197,291       $   191,388
 Increase in liability for future policy benefits                                 6,241              5,157             3,707
 Amortization of deferred policy acquisition costs                               58,394             49,863            47,892
 Other underwriting expenses                                                     59,378             51,401            40,315
 Interest on policyholders' accounts                                             42,410             32,286            26,568
- ----------------------------------------------------------------------------------------------------------------------------
                                                                            $   403,230        $   335,998       $   309,870
- ----------------------------------------------------------------------------------------------------------------------------
 Income before income taxes                                                 $    17,349        $    17,218       $    28,396
 Federal income taxes (Note 9)                                                    1,822              1,834             4,719
- ----------------------------------------------------------------------------------------------------------------------------
 Net Income                                                                 $    15,527        $    15,384       $    23,677
============================================================================================================================
 Earnings available to common shareholders (Note 13)                        $    15,527        $    15,384       $    23,677
============================================================================================================================
 Weighted average common shares outstanding (Note 13)                        10,047,248         10,079,563        10,393,930
============================================================================================================================
 Basic and diluted earnings per common share (Note 13)                      $      1.55        $      1.53       $      2.28
============================================================================================================================
</TABLE>

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

Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
                                                       (Dollars in Thousands Except Per Share Data and Number of Shares)
- ----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Accumulated
                                                                                                            Other
                                                                   Additional                           Comprehensive
                                                       Common       Paid-In         Retained               Income,
                                                       Stock        Capital         Earnings             Net of Tax         Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>              <C>                 <C>              <C>
Balances, December 31, 1997                           $35,758         $ 9,331         $161,906             $ 70,213       $277,208
Net income                                                  -               -           23,677                    -         23,677
Change in net
unrealized depreciation (1)                                 -               -                -              (10,918)       (10,918)
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (Note 14)                                                                                        12,759
Cash dividend declared on
common stock, $.67 per share                                -               -           (6,964)                   -         (6,964)
Purchase and retirement of
635,601 shares of common stock                         (2,119)         (1,404)         (23,198)                   -        (26,721)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998                           $33,639         $ 7,927         $155,421             $ 59,295       $256,282
- ----------------------------------------------------------------------------------------------------------------------------------
Transition adjustment for the
effect of a change in accounting
principle, net of tax (Note 1)                              -               -                -                6,013          6,013
Net income                                                  -               -           15,384                    -         15,384
Change in net
unrealized depreciation (1)                                 -               -                -              (32,254)       (32,254)
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss (Note 14)                                                                                         (10,857)
Cash dividend declared on
common stock, $.68 per share                                -               -           (6,852)                   -         (6,852)
Purchase and retirement of
31,637 shares of common stock                            (105)           (675)               -                    -           (780)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999                           $33,534         $ 7,252         $163,953              $33,054       $237,793
- ----------------------------------------------------------------------------------------------------------------------------------
Net income                                                  -               -           15,527                    -         15,527
Change in net
unrealized appreciation (1)                                 -               -                -               11,664         11,664
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (Note 14)                                                                                        27,191
Cash dividend declared on
common stock, $.71 per share                                -               -           (7,134)                   -         (7,134)
Purchase and retirement of
24,265 shares of common stock                             (81)           (340)               -                    -           (421)
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 2000                           $33,453         $ 6,912         $172,346              $44,718       $257,429
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The change in net unrealized appreciation (depreciation) is net of
reclassification adjustments and income taxes (see Note 14).

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

Consolidated Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
                                                                                     (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
                                                                                2000             1999              1998
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>              <C>
Cash Flows From Operating Activities
Net Income                                                               $    15,527       $   15,384       $    23,677
- -----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities
 Net bond discount accretion                                                    (370)              88            (1,428)
 Depreciation and amortization                                                 4,452            3,078               468
 Realized net investment (gains) losses                                        2,082           (2,303)          (22,793)
 Changes in:
    Accrued investment income                                                 (2,721)          (2,795)           (1,971)
    Accounts receivable                                                      (12,651)           6,338              (808)
    Deferred policy acquisition costs                                         (8,325)         (18,092)           (7,377)
    Reinsurance receivables                                                  (11,772)           5,493             1,520
    Prepaid reinsurance premiums                                                 173            3,174             1,141
    Income taxes receivable/payable                                              511            2,588            (7,064)
    Other assets                                                                 932           (1,372)            3,044
    Future policy benefits and losses, claims and settlement expenses         25,969           19,300            20,258
    Unearned premiums                                                         16,740            3,275             8,122
    Accrued expenses and other liabilities                                    12,260          (14,214)              549
    Employee benefit obligations                                                 730            2,572             1,148
    Deferred income taxes                                                     (1,465)          (1,293)              609
    Other, net                                                                   471           13,231            (1,034)
- -----------------------------------------------------------------------------------------------------------------------
 Total adjustments                                                       $    27,016       $   19,068       $    (5,616)
- -----------------------------------------------------------------------------------------------------------------------
 Net cash provided by operating activities                               $    42,543       $   34,452       $    18,061
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
 Proceeds from sale of available-for-sale investments                    $    68,963       $   35,653       $    78,471
 Proceeds from call and maturity of held-to-maturity investments              31,614           35,398           101,180
 Proceeds from call and maturity of available-for-sale investments            68,038           95,762            31,084
 Proceeds from sale of other investments                                     126,035          102,256            38,956
 Purchase of held-to-maturity investments                                     (3,482)          (1,682)          (14,461)
 Purchase of available-for-sale investments                                 (284,116)        (295,670)         (258,744)
 Purchase of other investments                                              (163,036)         (86,856)          (55,972)
 Proceeds from sale of property and equipment                                    104            1,469             3,009
 Purchase of property and equipment                                           (3,485)          (1,429)           (2,120)
 Acquisition of property and casualty company, net of cash acquired                -          (22,249)                -
- -----------------------------------------------------------------------------------------------------------------------
 Net cash used in investing activities                                   $  (159,365)      $ (137,348)      $   (78,597)
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
 Policyholders' account balances
    Deposits to investment and universal-life-type contracts             $   218,951       $  189,715       $   158,491
    Withdrawals from investment and universal-life-type contracts           (104,323)         (69,432)          (66,648)
 Purchase and retirement of common stock                                        (421)            (780)          (26,721)
 Payment of cash dividends                                                    (7,134)          (6,858)           (6,964)
- -----------------------------------------------------------------------------------------------------------------------
 Net cash provided by financing activities                               $   107,073       $  112,645       $    58,158
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                     $    (9,749)      $    9,749       $    (2,378)
Cash and Cash Equivalents at Beginning of Year                                 9,749                -             2,378
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                 $         -       $    9,749       $         -
=======================================================================================================================
</TABLE>

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

Note 1.
Significant Accounting Policies Nature of operations, principles of
consolidation and basis of reporting

  The Consolidated Financial Statements have been prepared on the basis of
generally accepted accounting principles ("GAAP"), which differ in some respects
from those followed in reports to insurance regulatory authorities.

  United Fire & Casualty Company (the "Company") and its insurance subsidiaries
are engaged in the business of property and casualty insurance and life
insurance.

  The accompanying Consolidated Financial Statements include United Fire &
Casualty Company and its wholly owned subsidiaries, United Life Insurance
Company, Lafayette Insurance Company, Insurance Brokers & Managers, Inc.,
Addison Insurance Company, Addison Insurance Agency, UFC Premium Finance
Company, American Indemnity Financial Corporation, American Indemnity Company,
American Fire and Indemnity Company, Texas General Indemnity Company, American
Computing Company, and the affiliate United Fire Lloyds, which is financially
and operationally controlled by the Company. All material intercompany items
have been eliminated in consolidation.

  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.

  Certain amounts included in the Consolidated Financial Statements for prior
years have been reclassified to conform with the 2000 financial statement
presentation.

Property and casualty segment

  Premiums are reflected in income on a daily pro rata basis over the terms of
the respective policies. Unearned premium reserves are established for the
portion of premiums written applicable to the unexpired term of policies in
force.

  Certain costs of underwriting new business, principally commissions, premium
taxes and variable underwriting and policy issue expenses, have been deferred.
Such costs are being amortized as premium revenue is recognized. The method
followed in computing deferred policy acquisition costs limits the amount of
such deferred costs to their estimated realizable value, which gives effect to
the premium to be earned, losses and expenses, and certain other costs expected
to be incurred as the premium is earned.

  Unpaid losses and settlement expenses are based on estimates of reported and
unreported claims and related settlement expenses. While management believes the
reserve for claims and settlement expenses is adequate, the reserve is
continually reviewed and, as adjustments become necessary, they are reflected in
current operations. Changes in assumptions used in estimating reserves could
cause the reserves to change in the near term.

Life segment

  On whole life and term insurance (traditional business), premiums are reported
as earned when due, and benefits and expenses are associated with premium income
so as to result in the recognition of profits over the lives of the related
contracts. On universal life and annuity (nontraditional) business, income and
expenses are reported as charged and credited to policyholder account balances
through the use of the retrospective deposit method. This method results in the
recognition of profits over the lives of the related contracts, which is
accomplished by means of the provision for future policy benefits and the
deferral and subsequent amortization of life policy acquisition costs.

  The costs of acquiring new life business, principally commissions and certain
variable underwriting, agency and policy issue expenses, have been deferred.
These costs are being amortized to income over the premium paying period of the
related traditional policies in proportion to the ratio of the expected annual
premium revenue to the expected total premium revenue, and over the anticipated
lives of nontraditional policies in proportion to the ratio of the expected
annual gross margins to the expected total gross margins. The expected premium
revenue and gross margins are based upon the same mortality and withdrawal
assumptions used in determining future policy benefits. For nontraditional
policies, changes in the amount or timing of expected gross margins will result
in adjustment to the cumulative amortization of these costs.

  The effect on the amortization of deferred policy acquisition costs for
revisions to estimated gross profits is reflected in earnings in the period such
estimated gross profits are revised. The effect on the deferred policy
acquisition costs that would result from realization of unrealized gains
(losses) is recognized with an offset to accumulated other

<PAGE>

comprehensive income in the Consolidated Statements of Stockholders' Equity as
of the balance sheet date. As of December 31, 2000, an adjustment to decrease
deferred policy acquisition costs by $336,000 was made with a corresponding
decrease to accumulated other comprehensive income. In 1999, the adjustment was
to increase deferred policy acquisition costs by $12,808,000.

  Liabilities for future policy benefits are computed by the net level premium
method using interest assumptions ranging from 4.5% to 8.0% and withdrawal,
mortality and morbidity assumptions appropriate at the time the policies were
issued. Health reserves are stated at amounts determined by estimates on
individual cases and estimates of unreported claims based on past experience.
Liabilities for universal-life-type and investment contracts are stated at
policyholder account values before surrender charges. Liabilities for
traditional immediate annuities are based primarily upon statutory reserves.

  Policy claim liabilities are determined using actuarial estimates. These
estimates are based on historical information, along with certain assumptions
about future events. Changes in assumptions for such things as medical costs,
environmental hazards and legal actions, as well as changes in actual
experience, could cause these estimates to change in the near term.

Investments

  Investments in held-to-maturity fixed-income securities are recorded at
amortized cost. The Company has the ability and intent to hold these investments
until maturity. Available-for-sale fixed-income securities, equity securities
and other long-term investments are recorded at fair value. If an other-than-
temporary impairment occurs in a security, the Company writes the security down
to the new value and recognizes a loss in current earnings. Policy loans and
short-term investments are recorded at cost. Included in investments at
December 31, 2000 and 1999, are securities on deposit with various regulatory
authorities, as required by law, with carrying values of $896,059,000 and
$755,436,000, respectively.

  Realized gains or losses on disposition of investments are included in the
computation of net income. Cost of investments sold is determined by the
specific identification method. Changes in unrealized appreciation and
depreciation, resulting from available-for-sale fixed-income securities, equity
securities, other long-term investments and certain life deferred policy
acquisition costs, are reported as direct increases or decreases in
stockholders' equity, less applicable income taxes.

Reinsurance

  Premiums earned and losses and settlement expenses are reported net of
reinsurance ceded and are accounted for on a basis consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts.

Cash and cash equivalents

  For purposes of reporting cash flows, cash and cash equivalents include cash
and non-negotiable certificates of deposit with original maturities of three
months or less. Negative cash balances are included in accrued expenses and
other liabilities. Net income taxes paid during 2000, 1999 and 1998 were
$2,088,000, $505,000 and $11,201,000, respectively. Through December 31, 2000,
tax and interest payments received in connection with the settlement of a
federal income tax Revenue Agent Review were $1,160,000 and $889,000,
respectively. There were no significant payments of interest other than interest
credited to policyholders' accounts in 2000, 1999 or 1998.

Property, equipment and depreciation

  Property and equipment is carried at cost less accumulated depreciation.
Depreciation is computed primarily by the straight-line method over the
estimated useful lives of the underlying assets.

  Depreciation expense totaled $3,512,000, $2,458,000, and $203,000 for the
years ending December 31, 2000, 1999 and 1998, respectively.

Amortization of intangibles

  Intangibles, including goodwill and agency relationships, are being amortized
by the straight-line method over periods of up to 10 years. The carrying value
of goodwill and other intangibles is reviewed regularly for impairment in the
recoverability of the underlying asset. Any impairment of goodwill would be
charged to operations in the period that the impairment was recognized. The
Company did not take an impairment write-down of goodwill or other intangibles
in 2000, 1999 or 1998.

  Amortization expense totaled $940,000, $620,000, and $265,000 for the years
ending December 31, 2000, 1999 and 1998, respectively. During 2000, the Company
reduced goodwill by $645,000 as a result of an adjustment to the deferred tax
asset valuation allowance related to the acquisition of American Indemnity
Financial Corporation. Refer to Note 9 for further discussion.

Income taxes

  The Company files a consolidated federal income tax return. Deferred tax
assets and liabilities are determined at the end of each period, 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 change in
the net deferred income tax asset or liability during the year.

Contingent liabilities

  The Company is a defendant in legal actions arising from normal business
activities. Management, after consultation with legal counsel, is of the opinion
that any liability resulting from these actions will not have a material impact
on the financial condition and operating results of the Company.

<PAGE>

Accounting changes

  In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, SFAS No.133 was
amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133 - an amendment of
FASB Statement No. 133". SFAS No. 133 is now effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. A company may also implement SFAS
No. 133 as of the beginning of any fiscal quarter after issuance. SFAS No. 133
cannot be applied retroactively. The new statement requires all derivatives
(including certain derivative instruments embedded in other contracts) to be
recorded on the balance sheet as either an asset or a liability at fair value
and establishes special accounting for certain types of hedges. The Company has
had limited involvement with derivative financial instruments, and does not
engage in the derivative market for hedging purposes. Effective January 1, 1999,
the Company early adopted SFAS No. 133. As part of the implementation of SFAS
No. 133, the Company was allowed to reassess its held-to-maturity portfolio
without "tainting" the remaining securities classified as held-to-maturity. The
impact on the Company's Consolidated Financial Statements due to the
reclassification from held-to-maturity to available-for-sale, effective
January 1, 1999, increased the carrying value of available-for-sale fixed-income
securities by approximately $9,250,000 and other comprehensive income by
approximately $6,013,000, net of deferred income taxes. This is shown as a
change in accounting principle in the Consolidated Statements of Stockholders'
Equity. There was no other material effect on the Company's Consolidated
Financial Statements. Refer to Note 3 for further discussion.

  In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133", which was effective for all fiscal quarters beginning after June 15, 2000,
due to the Company's early adoption of SFAS No. 133. This statement amends the
accounting and reporting standards of SFAS No. 133 for certain derivative
instruments and certain hedging activities. Because the Company has limited
involvement with derivative financial instruments, and does not engage in the
derivative market for hedging purposes, the impact of adopting SFAS No. 138 did
not have a material effect on the Company's Consolidated Financial Statements.

  Effective January 1, 2000, the Company adopted Statement of Position ("SOP")
98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts
That Do Not Transfer Insurance Risk." The SOP provides guidance on accounting
for insurance and reinsurance contracts that do not transfer insurance risk. All
of the Company's reinsurance agreements are risk-transferring arrangements,
accounted for according to SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." The impact of
adopting SOP 98-7 had no effect on the Company's Consolidated Financial
Statements.

  Effective December 31, 2000, the Company adopted Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition." The impact of adopting SAB No. 101 had
no effect on the Company's Consolidated Financial Statements.

  Effective July 1, 2000, the Company adopted FASB Interpretation ("FIN") No.
44, "Accounting for Certain Transactions Including Stock Compensation (an
Interpretation of Accounting Principles Board ("APB") Opinion No. 25)". FIN No.
44 clarifies the application of APB Opinion No. 25 for only certain issues, such
as (a) the definition of employee for purposes of applying APB Opinion No. 25,
(b) the criteria for determining whether a plan qualifies as a noncompensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The adoption of FIN No.
44 had no impact on the Company's Consolidated Financial Statements.

<PAGE>

Note 2.
SUMMARY OF INVESTMENTS

A reconciliation of the amortized cost (cost for equity securities) to fair
values of investments in held-to-maturity and available-for-sale fixed
maturities, equity securities and other long-term investments as of December 31,
2000 and 1999 is as follows.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000                                                      (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                                        Gross             Gross
                                                                Amortized          Unrealized        Unrealized              Fair
Type of Investment                                                   Cost        Appreciation      Depreciation             Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>                 <C>
Held-to-maturity
Fixed maturities
   Bonds
      United States
      Government, government agencies and authorities
        Collateralized mortgage obligations                      $ 15,099             $   127           $    46        $   15,180
        Mortgage-backed securities                                  7,832                 507                 1             8,338
        All others                                                  1,838                 288                 -             2,126
      States, municipalities and political subdivisions           167,554               7,479               542           174,491
      Foreign                                                       3,024                 102                 -             3,126
      Public utilities                                             17,966                 330                23            18,273
      Corporate bonds
        Collateralized mortgage obligations                        12,785                 209                66            12,928
        All other corporate bonds                                  57,333               1,180               118            58,395
- ---------------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity                                           $283,431             $10,222           $   796        $  292,857
=================================================================================================================================
Available-for-sale
Fixed maturities
   Bonds
      United States
      Government, government agencies and authorities
        Collateralized mortgage obligations                      $ 27,992             $   459           $    45        $   28,406
        Mortgage-backed securities                                     12                   1                 -                13
        All others                                                 34,228                 966               165            35,029
      States, municipalities and political subdivisions            81,496               1,545               247            82,794
      All foreign bonds                                            35,572                 399             2,216            33,755
      Public utilities                                            161,865               3,578             2,610           162,833
      Corporate bonds
        Collateralized mortgage obligations                        45,344                 665               703            45,306
        All other corporate bonds                                 566,440               8,064            33,693           540,811
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities                        $952,949             $15,677           $39,679        $  928,947
- ---------------------------------------------------------------------------------------------------------------------------------
Equity securities
   Common stocks
     Public utilities                                            $  2,644             $ 6,626           $     -        $    9,270
     Banks, trust and insurance companies                           8,999              44,409               114            53,294
     All other common stocks                                       18,652              30,475               916            48,211
   Nonredeemable preferred stocks                                     372                   1                16               357
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale equity securities                       $ 30,667             $81,511           $ 1,046        $  111,132
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale                                         $983,616             $97,188           $40,725        $1,040,079
=================================================================================================================================
Other long-term investments                                      $ 12,326             $ 1,061           $   523        $   12,864
=================================================================================================================================
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999                                                          (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                                        Gross             Gross
                                                                Amortized          Unrealized        Unrealized              Fair
Type of Investment                                                   Cost        Appreciation      Depreciation             Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>                 <C>
Held-to-maturity
Fixed maturities
   Bonds
      United States Government, government agencies and
        authorities
        Collateralized mortgage obligations                      $ 12,385             $     -           $   581        $   11,804
        Mortgage-backed securities                                  9,475                 599                 3            10,071
        All others                                                  1,804                 205                 -             2,009
      States, municipalities and political subdivisions           177,580               4,521             1,279           180,822
      Foreign                                                       3,035                   4                47             2,992
      Public utilities                                             19,473                  70               258            19,285
      Corporate bonds
        Collateralized mortgage obligations                        17,747                 208               364            17,591
        All other corporate bonds                                  69,653                 894               953            69,594
- ---------------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity                                           $311,152             $ 6,501           $ 3,485        $  314,168
=================================================================================================================================
Available-for-sale
Fixed maturities
   Bonds
      United States Government, government agencies and
        authorities
        Collateralized mortgage obligations                      $ 30,326             $     6           $   730        $   29,602
        Mortgage-backed securities                                 14,899                   2               282            14,619
        All others                                                 33,290                   -               799            32,491
      States, municipalities and political subdivisions            89,335                 735             5,078            84,992
      All foreign bonds                                            28,898                  22             2,032            26,888
      Public utilities                                            113,142                 377             3,927           109,592
      Corporate bonds
        Collateralized mortgage obligations                        66,157               1,800             1,459            66,498
        All other corporate bonds                                 424,420                 984            21,779           403,625
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale fixed maturities                        $800,467             $ 3,926           $36,086        $  768,307
- ---------------------------------------------------------------------------------------------------------------------------------
Equity securities
   Common stocks
     Public utilities                                            $  8,639             $ 7,758           $ 1,860        $   14,537
     Banks, trust and insurance companies                          12,486              35,281               464            47,303
     All other common stocks                                       16,696              30,412               609            46,499
   Nonredeemable preferred stocks                                     934                   -               125               809
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale equity securities                       $ 38,755             $73,451           $ 3,058        $  109,148
- ---------------------------------------------------------------------------------------------------------------------------------
Total available-for-sale                                         $839,222             $77,377           $39,144        $  877,455
=================================================================================================================================
Other long-term investments                                      $ 12,841             $   913           $   426        $   13,328
=================================================================================================================================
</TABLE>
<PAGE>

     The amortized cost and fair value of held-to-maturity and available-for-
sale fixed maturities at December 31, 2000, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------------
                                                                      (Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000                             Held-to-maturity                           Available-for-sale
- ----------------------------------------------------------------------------------------------------------------------------
                                               Amortized Cost         Fair Value           Amortized Cost         Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                     <C>                 <C>                     <C>
Due in one year or less                              $ 16,631           $ 16,752                 $ 16,452           $ 16,565
Due after one year through five years                  54,202             55,617                  364,673            357,036
Due after five years through ten years                 67,267             69,990                  320,496            308,388
Due after ten years                                   109,615            114,052                  177,980            173,233
Mortgage-backed securities                              7,832              8,338                       12                 13
Collateralized mortgage obligations                    27,884             28,108                   73,336             73,712
- ----------------------------------------------------------------------------------------------------------------------------
                                                     $283,431           $292,857                 $952,949           $928,947
============================================================================================================================
</TABLE>

     Proceeds from sales of available-for-sale investments during 2000, 1999 and
1998 were $68,963,000, $35,653,000, and $78,471,000, respectively. Gross gains
of $8,172,000, $2,920,000, and $23,208,000, respectively, were realized on those
sales. Gross losses of $10,987,000, $895,000 and $385,000, respectively, were
realized on those sales in 2000, 1999 and 1998.
     There were no sales of held-to-maturity securities during 2000, 1999 or
1998.

A summary of realized investment gains (losses) resulting from sales, calls and
maturities and net changes in unrealized investment appreciation (depreciation),
less applicable income taxes, is as follows.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                          (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                                               2000               1999              1998
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>               <C>               <C>
Realized investment gains (losses)
   Fixed maturities                                                                $(4,366)          $    577          $   (145)
   Equity securities                                                                 1,847              1,678            22,448
   Other investments                                                                   437                 48               490
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                   $(2,082)          $  2,303          $ 22,793
- -------------------------------------------------------------------------------------------------------------------------------
Net changes in unrealized investment appreciation (depreciation)
   Available-for-sale fixed maturities,
   equity securities and other long-term investments                               $18,281           $(53,552)         $(15,491)
   Deferred policy acquisition costs                                                  (336)          $ 13,181              (726)
   Income taxes                                                                     (6,281)            14,130             5,299
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                   $11,664           $(26,241)         $(10,918)
===============================================================================================================================
Net changes in unrealized investment appreciation
(depreciation), fixed maturities                                                   $14,568           $(65,882)         $  2,318
===============================================================================================================================
</TABLE>

The net investment income for the years ended December 31, 2000, 1999 and 1998
is composed of the following.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
                                                                                        (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                                             2000               1999               1998
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>                <C>
Investment income
   Interest on fixed maturities                                                  $82,493            $70,134            $63,748
   Dividends on equity securities                                                  3,305              2,899              2,571
   Interest on other long-term investments                                         2,318              3,332              2,867
   Interest on mortgage loans                                                          -                105                218
   Interest on policy loans                                                          654                676                666
   Other                                                                           2,102              1,688              1,232
- ------------------------------------------------------------------------------------------------------------------------------
   Total investment income                                                       $90,872            $78,834            $71,302
   Less investment expenses                                                        4,005              3,517              3,374
- ------------------------------------------------------------------------------------------------------------------------------
   Investment income, net                                                        $86,867            $75,317            $67,928
==============================================================================================================================
</TABLE>
<PAGE>

Note 3.
Derivative Instruments
  The Company writes covered call options on its equity portfolio to generate
additional portfolio income and does not use these instruments for hedging
purposes. Covered call options are recorded at fair value and included in
accrued expenses and other liabilities. Any income or gains or losses, including
the change in the fair value of the covered call options, is recognized
currently in earnings and included in realized investment gains and other
income. At December 31, 2000 and 1999, there were no open covered call options.
In assessing the impact of any embedded derivative instruments, the Company has
elected to apply SFAS No. 133 only to those instruments or contracts with
embedded derivative instruments issued, acquired, or substantively modified by
the Company after December 31, 1997. The Company has analyzed its financial
instruments and contracts in accordance with SFAS No. 133 and determined there
is no material effect on the Company's Consolidated Financial Statements. As
part of the implementation of SFAS No. 133, the Company was allowed to reassess
its held-to-maturity portfolio without "tainting" the remaining securities
classified as held-to-maturity. The cumulative effect of the impact on the
Company's Consolidated Financial Statements, due to the reclassification of
$246,623,000 of fixed-income securities from held-to-maturity to available-for-
sale, effective January 1, 1999, increased the carrying value of available-for-
sale fixed-income securities by approximately $9,250,000 and other comprehensive
income by approximately $6,013,000, net of deferred income taxes.
<PAGE>

Note 4.
Fair Value of Financial Instruments
  The Company estimated the fair value of its financial instruments based on
relevant market information or by discounting estimated future cash flows at
estimated current market discount rates appropriate to the particular asset or
liability shown.
  In most cases, quoted market prices were used in determining the fair value of
fixed maturities, equity securities and short-term investments. Where quoted
market prices were unavailable, the estimate was based on recent trading. Other
long-term investments, consisting primarily of holdings in limited partnership
funds, are valued by the various fund managers. In management's opinion, these
values reflect fair value at December 31, 2000 and 1999.
  Policy loans are carried at the actual amount loaned to the policyholder. No
policy loans are made for amounts in excess of the cash surrender value of the
related policy. Accordingly, in all instances, the policy loans are fully
collateralized by the related liability for future policy benefits for
traditional insurance policies and by the policyholders' account balance for
interest-sensitive policies.
  For accrued investment income, carrying value is a reasonable estimate of fair
value, due to its short-term nature.
  The fair value of the liabilities for annuity products, which are in a benefit
payment phase, guaranteed investment contracts and structured settlements, is
based on a discount rate of 7.0 percent at December 31, 2000 and 1999. The fair
value of annuities currently in an accumulation phase is based on the net cash
surrender value.
  A summary of the carrying value and estimated fair value of assets and
liabilities meeting the definition of financial instruments at December 31, 2000
and 1999 is as follows.

<TABLE>
<CAPTION>
=========================================================================================================================
                                                                                  (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------
At December 31                                                           2000                             1999
- -------------------------------------------------------------------------------------------------------------------------
                                                                Fair           Carrying         Fair           Carrying
Assets                                                         Value             Value          Value            Value
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>              <C>             <C>             <C>
Investments
   Held-to-maturity fixed maturities                          $292,857         $283,431        $314,168        $311,152
   Available-for-sale fixed maturities                         928,947          928,947         768,307         768,307
   Equity securities                                           111,132          111,132         109,148         109,148
   Policy loans                                                  8,437            8,437           8,645           8,645
   Other long-term investments                                  12,864           12,864          13,328          13,328
   Short-term investments                                       58,290           58,290          20,131          20,131
Other Assets
   Accrued investment income                                    22,578           22,578          19,857          19,857
- -------------------------------------------------------------------------------------------------------------------------
Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Policy Reserves
   Annuity (Accumulations)                                    $599,610         $634,551        $493,962        $520,274
   Annuity (On-Benefits)                                         4,658            3,225           2,883           3,098
   Structured settlements                                          893            1,041             795             940
   Guaranteed investment contracts                               3,251            3,245           2,741           2,761
=========================================================================================================================
</TABLE>
<PAGE>

Note 5.
Short-Term Borrowings
  The Company maintains a $20 million bank line of credit. During 2000, the
Company did not borrow against this available line of credit. Under the terms of
the agreement, interest on outstanding notes is payable at the lender's
prevailing prime rate minus 1.0 percent. There is no loan balance outstanding as
of December 31, 2000. During 1999, the Company borrowed funds against the line
of credit, with a maximum outstanding balance of $4,000,000, and recorded
interest expense of $22,000. There was no loan balance outstanding as of
December 31, 1999.
<PAGE>

Note 6.
Reinsurance
Property and casualty segment
  The property and casualty insurance companies cede portions of their insurance
business to other insurance companies on both a pro rata and excess of loss
basis. Insurance ceded by the property and casualty insurance companies does not
relieve their primary liability as the originating insurers. Written premiums
ceded were $22,748,000, $24,031,000 and $21,204,000 for the years ended December
31, 2000, 1999 and 1998, respectively. Earned premiums ceded were $27,765,000,
$27,206,000 and $22,349,000 for the years ended December 31, 2000, 1999 and
1998, respectively. The Company believes all amounts are collectible and
realizable with regard to reinsurance receivables and prepaid reinsurance
premiums, respectively. There are no concentrations of credit risk associated
with reinsurance.
  The property and casualty insurance companies also assume portions of their
insurance business from other insurance companies. Written premiums assumed for
the years ended December 31, 2000, 1999 and 1998 were $25,522,000, $33,372,000
and $33,751,000, respectively. Assumed premiums earned for the years ended
December 31, 2000, 1999 and 1998 were $31,658,000, $34,289,000 and $33,571,000,
respectively.
  The Company's reinsurance assumed from foreign insurance companies is
accounted for using the periodic method, whereby premiums are recognized as
revenue over the policy term, and claims, including an estimate of claims
incurred but not reported, are recognized as they occur. The amount of
reinsurance business assumed from foreign insurance companies is not material to
the Company's Consolidated Financial Statements.

Life Segment
  United Life follows the policy of reinsuring that portion of the risk in
excess of $200,000 on the life of any individual. Policy benefit reserves and
claims are stated after deduction of reserves and claims applicable to
reinsurance ceded to other companies; however, United Life is contingently
liable for these amounts in the event such companies are unable to pay their
portion of the claims and is contingently liable for ceded insurance in force of
$422,577,000 and $396,382,000 at December 31, 2000 and 1999, respectively.
Approximately 56 percent of ceded life insurance in force has been ceded to two
reinsurers. The Company believes all amounts are collectible with regard to
reinsurance receivables.
<PAGE>

Note 7.
Liability for Property and Casualty Losses and Settlement Expenses
  The table below provides an analysis of changes in losses and loss adjustment
expenses ("LAE") reserves for 2000 and 1999 (net of reinsurance amounts). The
decrease in estimated losses and LAE for claims occurring in prior years
indicates that the Company's property and casualty loss and LAE reserves were
slightly redundant at December 31, 1999 and 1998. Changes in the reserves are
reflected in the income statement for the year when the changes are made. In
2000, underwriting profit (before tax) benefited by $36,931,000. In 1999, the
benefit (before tax) was $25,135,000. These gains resulted primarily from
settling reported and unreported reserves (established in prior years) for less
than expected.
  During 1999, subsequent to the purchase of American Indemnity, the Company
reviewed that company's loss and LAE case reserves and increased the liabilities
to a level that was consistent with the reserving philosophies of the Company. A
portion of the reserve increases was for losses that occurred in prior accident
years. This would have negatively impacted the 1999 change in estimated losses
and LAE for claims occurring in prior years. As a condition of the purchase of
American Indemnity, an adverse development reinsurance agreement was negotiated
that protects the Company against adverse development of the losses and LAE
acquired.
  Conditions and trends that have affected the reserve development reflected in
the table may change, and care should be exercised in extrapolating future
reserve redundancies or deficiencies from such development.
  The Company is not aware of any significant contingent liabilities as far as
environmental issues are concerned. Because of the type of property coverage the
Company writes, there exists the potential for exposure to environmental
pollution and asbestos claims. The Company's underwriters are aware of these
exposures and use limited riders or endorsements to limit exposure.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------
At December 31,                                                                  2000               1999
- --------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                <C>
Gross liability for losses and LAE at beginning of year                      $338,243           $251,117
   Less reinsurance receivables                                                27,606              8,111
- --------------------------------------------------------------------------------------------------------
Net liability for losses and LAE at beginning of year                        $310,637           $243,006
Net liability for losses and LAE at acquisition date                                -             51,661
Provision for losses and LAE for claims occurring in the current year         263,099            210,778
Decrease in estimated losses and LAE for claims occurring in prior years      (36,931)           (25,135)
- --------------------------------------------------------------------------------------------------------
                                                                             $536,805           $480,310
- --------------------------------------------------------------------------------------------------------
Losses and LAE payments for claims occurring during
   Current year                                                              $119,278           $ 93,646
   Prior years                                                                 97,021             76,027
- --------------------------------------------------------------------------------------------------------
                                                                             $216,299           $169,673
- --------------------------------------------------------------------------------------------------------
Net liability for losses and LAE at end of year                              $320,506           $310,637
  Plus reinsurance receivables                                                 37,526             27,606
- --------------------------------------------------------------------------------------------------------
Gross liability for losses and LAE at end of year                            $358,032           $338,243
========================================================================================================
</TABLE>
<PAGE>

Note 8.
Statutory Reporting, Capital Requirements and Dividend and Retained Earnings
Restrictions

Statutory stockholders' surplus and net income at December 31, 2000, 1999 and
1998 and for the years then ended are as follows.

- --------------------------------------------------------------------------------
                                               (Dollars in Thousands)
- --------------------------------------------------------------------------------
                                           Statutory              Statutory
                                     Stockholders, Surplus     Net Income (Loss)
- --------------------------------------------------------------------------------
2000
  Property and casualty                    $183,604                 $7,829
  Life, accident and health                  66,217                   (819)
- --------------------------------------------------------------------------------
1999
  Property and casualty                    $179,689                 $  191
  Life, accident and health                  53,912                  2,605
- --------------------------------------------------------------------------------
1998
  Property and casualty                    $202,342                 $9,990
  Life, accident and health                  53,038                  2,052
================================================================================

  The insurance industry is governed by the NAIC and individual state insurance
departments. All of the insurance departments of the states in which the Company
is domiciled have adopted codification of insurance Statutory Accounting
Principles effective January 1, 2001. Previously, these principles were
prescribed in a variety of publications, as well as state laws, regulations, and
general administrative rules. Subject to final interpretation by the NAIC and
the individual state insurance departments, the effect on the statutory
financial statements as of January 1, 2001, is estimated to be an increase to
stockholders' equity of approximately $10,900,000. This change does not affect
the accompanying financial statements, which are based on GAAP. Pursuant to
codification rules, permitted statutory accounting practices may be utilized,
with approval from an insurer's state of domicile insurance department. The
Company does not use permitted practices that individually or in the aggregate
materially affect statutory surplus or risk-based capital.
  As part of the NAIC and state insurance department's solvency regulations, the
Company is required to calculate a minimum capital requirement based on
insurance risk factors. The risk-based capital results are used by the NAIC and
state insurance departments to identify companies that merit regulatory
attention or the initiation of regulatory action. At December 31, 2000, both the
life segment and the property and casualty companies had capital well in excess
of their required levels.
  The State of Iowa Insurance Department governs the amount of dividends that
may be paid to stockholders without prior approval by the Insurance Department.
Based on these restrictions, the Company could make a maximum of $138,873,000 in
dividend distributions to stockholders in 2000. Dividend payments by the
insurance subsidiaries to the Company are subject to similar restrictions in the
states in which they are domiciled. The Company received no dividends from its
subsidiaries in 2000 or 1999.
  In the fourth quarter of 2000, the Company contributed $15,000,000 in cash to
United Life Insurance Company to support the growth of life insurance premiums
and annuity deposits.
<PAGE>

Note 9.
Federal Income Tax

Federal income tax expense is composed of the following.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
                                                                  (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                         <C>                        <C>
Years Ended December 31                                      2000                       1999                   1998
- -------------------------------------------------------------------------------------------------------------------
Current                                                    $  357                     $  541                 $4,110
Deferred                                                    1,465                      1,293                    609
- -------------------------------------------------------------------------------------------------------------------
Total                                                      $1,822                     $1,834                 $4,719
===================================================================================================================
</TABLE>

A reconciliation of income tax expense computed at the applicable Federal tax
rate of 35 percent in 2000, 35 percent in 1999, and 34 percent in 1998 to the
amount recorded in the Consolidated Financial Statements is as follows.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
                                                                            (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                     <C>                   <C>
Years Ended December 31                                                2000                  1999                  1998
- -----------------------------------------------------------------------------------------------------------------------
Computed expected rate                                              $ 6,072               $ 6,026               $ 9,655
Reduction for tax-exempt municipal bond interest                     (4,572)               (4,994)               (5,023)
 income
Reduction for nontaxable dividend income                               (724)                 (631)                 (557)
Other, net                                                            1,046                 1,433                   644
- -----------------------------------------------------------------------------------------------------------------------
Federal income taxes, as provided                                   $ 1,822               $ 1,834               $ 4,719
=======================================================================================================================
</TABLE>

The significant components of the net deferred tax liability at December 31,
2000 and 1999 are as follows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
                                                                                    (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                   <C>
At December 31                                                                           2000                  1999
- -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
   Deferred acquisition costs                                                        $ 26,802              $ 24,039
   Net unrealized appreciation on investment securities                                24,024                17,743
   Depreciation on assets                                                               1,503                 1,216
   Net bond discount accretion and premium amortization                                 1,735                 1,177
   Other                                                                                2,170                 3,151
- -------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability                                                         $ 56,234              $ 47,326
- -------------------------------------------------------------------------------------------------------------------
Deferred tax assets
   Financial statement reserves in excess of income tax reserves                     $ 22,696              $ 22,765
   Unearned premium adjustment                                                         10,352                 9,107
   Postretirement benefits other than pensions                                          3,160                 2,761
   Salvage and subrogation                                                                956                   662
   Pension                                                                              1,421                 1,685
   Alternative minimum tax (AMT) credit carryforwards                                   2,106                     -
   Net operating loss carryforwards (NOL)                                              10,020                14,641
   Other                                                                                4,648                 3,414
- -------------------------------------------------------------------------------------------------------------------
   Gross deferred tax assets                                                         $ 55,359              $ 55,035
   Valuation Allowance                                                                (11,370)              (15,139)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax liability                                                           $ 12,245              $  7,430
===================================================================================================================
</TABLE>
<PAGE>

  The Company has tax net operating loss ("NOL") carryforwards totaling
$29,709,218 as of December 31, 2000. These NOL carryforwards were purchased by
the Company when it acquired American Indemnity. The NOL carryforwards expire as
follows: 2001, $1,564,975; 2002, $621,205; 2003, $2,508,745; 2004, $1,246,728;
2005, $118,137; 2006, $43,352; 2007, $13,450; 2008, $13,410; 2009, $4,604,277;
2010, $989,347; 2011, $5,516,449; 2017, $6,882,190; 2018, $4,180,254; 2019,
$1,406,699. The Company is required to establish a valuation allowance for any
portion of the deferred tax asset that management believes will not be realized.
The Company has a valuation allowance of $11,370,000 for deferred tax assets
primarily relating to American Indemnity's NOLs, which can only be used to
offset future income of the property and casualty segment. If the Company
determines that the benefit of the American Indemnity NOLs can be realized in
the future, the related reduction in the deferred tax asset valuation allowance
will be recorded as a reduction to goodwill. The Company has AMT credit
carryforwards of $2,106,000, which do not expire.

  Under prior federal income tax law, one-half of the excess of a life insurance
company's income from operations over its taxable investment income was not
taxed, but was set aside in a special tax account designated as "Policyholders'
Surplus". At December 31, 2000, the Company had approximately $2,121,000 of
untaxed "Policyholders' Surplus" on which no payment of federal income taxes
will be required unless it is distributed as a dividend, or under other
specified conditions. Barring the enactment of new tax legislation, the Company
does not believe that any significant portion of the account will be taxed in
the near future; therefore, no deferred tax liability has been recognized
relating to the Policyholders' Surplus balance. If the entire Policyholders'
Surplus balance became taxable at the current federal rate, the tax would be
approximately $742,000.
<PAGE>

Note 10.
Employee Benefit Obligations

  Effective December 31, 1999, the pension plans of the Company and American
Indemnity were merged. The merged defined benefit pension plan covers
substantially all employees. Under this plan, retirement benefits are primarily
a function of the number of years of service and the level of compensation. It
is the Company's policy to fund this plan on a current basis to the extent
deductible under existing tax regulations. The Company used December 31 as the
date for measuring plan assets and liabilities.

  Effective January 1, 2000, the postretirement health care plans of the Company
and American Indemnity were merged. This merger brought all non-retired American
Indemnity employees into the Company's plan; retired American Indemnity
employees were not affected by this merger and will retain their full benefits
accrued under the American Indemnity plan. The merged defined benefit
postretirement health care plan covers substantially all benefit-eligible
employees. The plan pays stated percentages of most necessary medical and
dental expenses incurred by retirees, after subtracting payments by Medicare or
other providers and after the stated deductible has been met. Participants
become eligible for the benefits if they retire from the Company after reaching
age 55 with 10 or more years of participation in the plan and 10 years of
employment with the plan sponsor. The plan is contributory, with retiree
contributions adjusted annually.

  Under the merged plan, the employment date of the non-retired American
Indemnity employees is considered to be January 1, 2000 for purposes of
determining eligibility for plan benefits. The effect of the merger was the
termination of the future accrual of medical and dental benefits and the
forfeiture of said benefits previously accrued for these employees under the
American Indemnity postretirement health care plan. The change and elimination
of medical and dental benefits resulted in a negative plan amendment of
$253,000, which is considered negative prior service cost that will be amortized
over a period of 11 years as a reduction to the net periodic postretirement
benefit cost recognized in earnings. In addition, these employees will not be
eligible for postretirement life insurance as previously accrued for under the
American Indemnity postretirement health care plan. The elimination of the
accrued life insurance benefit resulted in a curtailment gain of $103,000, which
is reflected  as a current gain in 2000 earnings, and a negative plan amendment
of $391,000, which is considered negative prior service cost that will be
amortized to earnings over a period of 12 years. The retirees of American
Indemnity retained their health care and life insurance benefits provided under
the American Indemnity postretirement health care plan, having reached age 55
with 25 years of service, or age 60 with 20 years of service, or age 65 with 15
years of service as of December 31, 1999.

  The following table provides a reconciliation of the changes in the plan's
benefit obligations and fair value of plan assets and a statement of the funded
status for 2000 and 1999. The table includes the obligations and fair values
acquired in connection with the purchase of American Indemnity. The amounts
related to the acquisition are based on valuations as of December 31, 1999,
which approximates the valuation had it been measured as of the acquisition
date.

<TABLE>
<CAPTION>
                                                                     (Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------
                                                            Pension benefits          Other benefits
- ---------------------------------------------------------------------------------------------------------
At December 31                                               2000        1999          2000         1999
- ---------------------------------------------------------------------------------------------------------
<S>                                                      <C>        <C>          <C>          <C>
Reconciliation of benefit obligation
Obligation at beginning of year                          $  23,618   $  23,277    $   9,118   $    7,993
Service Cost                                                 1,127         921          384          365
Interest Cost                                                1,837       1,523          596          479
Plan amendments                                                  -           -         (723)           -
Actuarial (gain) loss                                        1,316      (3,214)        (758)      (1,907)
Benefit payments and adjustments                            (1,472)       (690)        (285)         101
Acquisition                                                      -       1,801            -        2,087
- ---------------------------------------------------------------------------------------------------------
Obligation at December 31                                $  26,426   $  23,618    $   8,332   $    9,118
- ---------------------------------------------------------------------------------------------------------
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year           $  19,857   $  17,296    $       -   $        -
Actual return on plan assets                                  (590)       (147)           -            -
Employer contributions                                       1,303         500          203         (101)
Participant contribution                                         -           -           82            -
Benefits payments and adjustments                           (1,472)       (690)        (285)         101
Acquisition                                                      -       2,898            -            -
- ---------------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31                 $  19,098   $  19,857    $       -   $        -
- ---------------------------------------------------------------------------------------------------------
Funded status
Funded status at December 31                             $  (7,328)  $  (3,761)   $  (8,332)  $   (9,118)
Unrecognized prior service cost                                840         937          102          832
Unrecognized (gain) loss                                     2,791        (784)      (1,188)        (491)
- ---------------------------------------------------------------------------------------------------------
Accrued benefit cost                                     $  (3,697)  $  (3,608)   $  (9,418)  $   (8,777)
=========================================================================================================
</TABLE>
<PAGE>

The following table provides the components of net periodic benefit cost for the
plans for 2000, 1999 and 1998.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
                                                                                   (Dollars in Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
                                                                       Pension benefits                   Other benefits
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31                                            2000          1999        1998      2000     1999      1998
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>        <C>         <C>      <C>      <C>
Plan costs
Service cost                                                  $   1,127      $    921   $     935   $   384   $  365  $    424
Interest cost                                                     1,837         1,523       1,425       596      480       523
Expected return on plan assets                                      590        (1,407)     (1,324)        -        -         -
Amortization of transition (asset) obligation                         -           (42)        (48)        -        -         -
Amortization of prior service cost                                   97            97          97        87      142       173
Amortization of net (gain) loss                                  (2,246)            -           -       (39)       4        68
Effect of curtailment                                                 -             -           -      (103)       -         -
- -------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                                     $   1,405      $  1,092   $   1,085   $   925   $  991  $  1,188
===============================================================================================================================
</TABLE>

The unrecognized prior service cost and the actuarial loss are being amortized
on a straight-line basis over an average period of eight years. This period
represents the average remaining employee service period until the date of full
eligibility. The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Weighted-average assumptions as of                     Pension benefits    Other benefits
December 31                                             2000   1999        2000       1999
- -------------------------------------------------------------------------------------------
<S>                                                    <C>     <C>        <C>       <C>
Discount rate                                           7.50%  7.50%      7.50%      7.50%
Expected return on plan assets                          8.25%  8.25%       N/A         N/A
Rate of compensation increase                           4.00%  4.00%       N/A         N/A
- -------------------------------------------------------------------------------------------
</TABLE>

  For measurement purposes, an 8.25 percent pre-65 annual rate of increase in
the per capita cost of covered health care benefits was assumed for 2000. The
rate was assumed to decrease gradually each year to a rate of 5.25 percent for
2005 and remain at that level thereafter. A 6.75 percent post-65 annual rate of
increase in the per capita cost of covered health care benefits was assumed for
2000. The rate was assumed to decrease gradually each year to a rate of 5.25
percent in 2004 and remain at that level thereafter. For dental claims, a 6.0
percent annual rate of increase was assumed for 2000, decreasing gradually to
4.8 percent for 2004 and thereafter.

  Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1.0 percent change in assumed health care
cost trend rates would have the following effects.


<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
                                                                                    (Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------
                                                                             1% Increase              1% Decrease
- ------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                 <C>
Effect on total of service and interest cost components of
 net periodic postretirement health care benefit cost                          $  177                    $(140)
Effect on the health care component of the accumulated
 postretirement benefit obligation                                              1,167                     (949)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
  The annual per capita contributions for the benefits provided to retired
American Indemnity employees are capped. As a result, increases in the assumed
health care cost trend rate will have no significant effect on the accumulated
postretirement benefit obligation or on the net periodic postretirement benefit
cost as of December 31, 2000.


<PAGE>

  The Company has a profit-sharing plan in which employees who meet service
requirements are eligible to participate. The amount of the Company's
contribution is discretionary and is determined annually, but cannot exceed the
amount deductible for federal income tax purposes. The Company's contribution to
the plan for the years ended December 31, 2000, 1999 and 1998, was $793,000,
$503,000 and $883,000, respectively.

  The Company also has an Employee Stock Ownership Plan ("ESOP") for the benefit
of eligible employees and their beneficiaries. All employees are eligible to
participate in the plan upon completion of one year of service, meeting the
hourly requirements with the Company and attaining age 21. Contributions to this
plan are made at the discretion of the Board of Directors. These contributions
are based upon a percentage of total payroll and are allocated to participants
on the basis of compensation. Contributions are made in stock or cash, which is
used by the Trustee to acquire shares of the Company stock to allocate to
participants' accounts. As of December 31, 2000, 1999 and 1998, the ESOP owned
127,386, 123,733 and 120,333 shares of Company stock, respectively. Shares owned
by the ESOP are included in shares issued and outstanding for purposes of
calculating earnings per share and dividends paid on the shares are charged to
retained earnings. The Company made contributions to the plan of $50,000,
$60,000 and $1,050,000 in 2000, 1999 and 1998 respectively.

  On August 21, 1998, the Company adopted a nonqualified employee stock option
plan which authorizes the issuance of up to 500,000 shares of the Company's
common stock to employees. The plan is administered by the Board of Directors.
The Board has the authority to determine which employees will receive options,
when options will be granted and the terms and conditions of the options. The
Board may also take any action it deems necessary and appropriate for the
administration of the plan.

  Pursuant to the plan, the Board may, at its sole discretion, grant options to
any employees of the Company or any of its affiliated companies, including any
director. These options are granted to buy shares of the Company's stock at the
market value of the stock on the date of grant. The options vest and are
exercisable in installments of 20 percent of the number of shares covered by the
option award each year from the grant date the option is granted. To the extent
not exercised, installments shall accumulate and be exercisable by the optionee,
in whole or in part, in any subsequent year included in the option period, but
not later than 10 years from the grant date. The Company has elected to account
for its stock options under APB No. 25 and, as such, no compensation cost is
recognized since the exercise price of the Company's stock options is equal to,
or greater than, the market price of the underlying stock on the date of grant.

  Stock options are generally granted free of charge to the eligible employees
of the Company as designated by the Board of Directors. However, during 1999,
eligible employees had the opportunity to purchase the options at $10 per option
in lieu of receiving a cash bonus for services rendered, up to the total amount
of bonus awarded for the year.

   Options granted pursuant to the plan may not be sold, pledged, assigned or
transferred by the optionee. In cases of termination, any unexercised accrued
installments of the option granted under the plan to such terminated optionee
shall expire and become unexercisable as of the earlier of: (i) the expiration
of the applicable option period, or (ii) 30 days after the termination of
employment occurs, provided however, that the Company may, in its discretion,
extend said date up to and including a date one year following such termination
of employment. In cases of death or disability, any unexercised accrued
installments of the option granted under the plan to such optionee shall expire
and become unexercisable as of the earlier of: (i) the applicable option
expiration date, or (ii) the first anniversary of the date of death of such
optionee (if applicable), or (iii) the first anniversary of the date of the
termination of employment by reason of disability (if applicable).

  The following table sets forth the activity of the Company's stock option plan
for the years ended December 31, 2000 and 1999.

<TABLE>
<CAPTION>

<S>                                                   <C>        <C>     <C>        <C>    <C>        <C>     <C>
- -------------------------------------------------------------------------------------------------------------------------
                                                                   2000                                 1999
- -------------------------------------------------------------------------------------------------------------------------
                                                                        Weighted-                             Weighted-
                                                      Shares of          Average           Shares of           Average
                                                       Common             Price             Common              Price
                                                        Stock           per Share            Stock            per Share
- -------------------------------------------------------------------------------------------------------------------------

Outstanding at beginning of year                           6,021         $  26.38                  -         $      -
Granted                                                   10,750            20.09              6,021            26.38
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year(1)                             16,771         $  22.35              6,021         $  26.38
- -------------------------------------------------------------------------------------------------------------------------

Options exercisable at year-end                            1,204         $  26.38                  -         $      -
Weighted-average grant date fair value of
options granted during the year                                          $   9.03                            $  10.88
=========================================================================================================================
</TABLE>

(1) There were no options exercised, forfeited or expired during 2000 and 1999

  The weighted-average grant date fair value of the options granted under the
plan has been estimated using the Black-Scholes option pricing model. Under this
model, the following significant assumptions are used to estimate the fair value
of options as of the grant date: (1) the expected life of the options granted;
(2) the current risk-free interest rate over the expected life of the options;
(3) the expected volatility in the underlying stock price; and (4) the expected
annual dividend rate. The weighted average assumptions used for 2000 and 1999
were: (1) 10 years; (2) 6.5 percent; (3) 49 percent; (4) $.68 and (1) 10 years;
(2) 5.3 percent; (3) 38.9 percent; (4) $.68 respectively.
<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 2000.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
                                      Options Outstanding                                    Options Exercisable
- -------------------------------------------------------------------------------------------------------------------------
                         Number        Weighted-Average                                  Number
   Range of            Outstanding         Remaining           Weighted-Average        Exercisable      Weighted-Average
Exercise Prices        at 12/31/00  Contractual Life (Yrs.)     Exercise Price         at 12/31/00      Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
<S>                   <C>          <C>                      <C>                <C>                      <C>
$  18 - 24                  10,750                   9.14             $  20.09              -                   $      -
   25 - 30                   6,021                   8.24                26.38            1,204                    26.38
- -------------------------------------------------------------------------------------------------------------------------
$  18 - 30                  16,771                   8.82             $  22.35            1,204                 $  26.38
=========================================================================================================================
</TABLE>

The Company has elected to account for its stock options under APB No. 25 and,
as such, no compensation cost is recognized since the exercise price of the
Company's stock options is equal to, or greater than, the market price of the
underlying stock on the date of grant. Should the stock options have been
accounted for under SFAS No. 123, compensation cost would have been recorded
based on the grant-date fair value attributable to the number of options that
eventually vest. This cost is recognized over the period in which the options
vest, with the amount recognized at any date being at least equal to the value
of the vested portion of the award at that date. The amount of compensation cost
that would have been recognized as of December 31, 2000 and 1999 under SFAS No.
123 has been determined to have an immaterial impact on the net income and
earnings per share reported in the Company's Consolidated Financial Statements.

<PAGE>

NOTE 11.
Segment Information

  The Company has two reportable business segments in its operations; property
and casualty insurance and life insurance. The property and casualty segment has
five locations from which it conducts its business. All offices target a similar
customer base and market the same products, using the same marketing strategies,
and are therefore aggregated. The life insurance segment operates from the
Company's home office. The accounting policies of the segments are the same as
those described in Significant Accounting Policies in Note 1. The two segments
are evaluated by management, based on both a statutory and a GAAP basis. Results
are analyzed, based on profitability, expenses and return on equity. The
Company's selling location is used in allocating revenues between foreign and
domestic and, as such, the Company has no revenues allocated to foreign
countries. The analysis that follows is reported on a GAAP basis and is
reconciled to the Company's Consolidated Financial Statements.

  The property and casualty segment markets most forms of commercial and
personal property and casualty insurance products, including fidelity and surety
bonds and reinsurance. Net premiums earned by the property and casualty segment
for the years ended December 31, 2000, 1999 and 1998 were comprised mostly of
fire and allied lines, automobile and other liability (78.1 percent, 72.9
percent and 70.7 percent, respectively.) The business is generated through
approximately 2,124 independent agencies and brokers in 40 states, with 49% of
the Company's direct premiums originating in eight Midwestern states in 2000.

  United Life underwrites and markets ordinary life (primarily universal life),
annuities (primarily single premium) and credit life products to individuals and
groups through approximately 1,280 independent agencies in 24 states. Net
premiums earned by the life segment for the years ended December 31, 2000, 1999
and 1998 were comprised mostly of ordinary life (including universal life),
accident and health and credit life (89.9 percent, 90.6 percent and 93.0
percent, respectively.) Total revenue by segment includes sales to both outside
customers and intersegment sales that are eliminated to arrive at the total
revenues as reported in the Company's Consolidated Statements of Operations.
Intersegment sales are accounted for on the same basis as sales to outside
customers. The following tables set forth certain data for each of the Company's
business segments.


<TABLE>
<CAPTION>
===================================================================================================================================
                                                                                   (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                  Property and
                                                                   Casualty                     Life
                                                                   Insurance                  Insurance               Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                         <C>                      <C>
Year Ended December 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
 Net premiums earned                                               $ 307,271                   $ 26,304                $  333,575
 Net investment income                                                25,536                     61,468                    87,004
 Realized investment gains (losses) and other income                   2,927                     (4,752)                   (1,825)
 Commission and policy fee income                                      2,172                          -                     2,172
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $ 337,906                   $ 83,020                $  420,926
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                             (137)                      (210)                     (347)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total revenues                                                   $ 337,769                   $ 82,810                $  420,579
===================================================================================================================================
Net income before income taxes
 Revenues                                                          $ 337,906                   $ 83,020                $  420,926
 Benefits, losses and expenses                                       329,253                     74,324                   403,577
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $   8,653                   $  8,696                $   17,349
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                               85                        (85)                        -
- -----------------------------------------------------------------------------------------------------------------------------------
  Total net income before income taxes                             $   8,738                   $  8,611                $   17,349
===================================================================================================================================
Income tax (benefit) expense                                          (1,072)                     2,894                     1,822
- -----------------------------------------------------------------------------------------------------------------------------------
Net income                                                         $   9,810                   $  5,717                $   15,527
===================================================================================================================================
Assets
  Total reportable segments                                        $ 818,583                   $971,594                $1,790,177
  Intersegment eliminations                                         (127,683)                         -                  (127,683)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total assets                                                     $ 690,900                   $971,594                $1,662,494
===================================================================================================================================
</TABLE>

Depreciation expense and property and equipment acquisitions for the years ended
December 31, 2000, 1999 and 1998, are reflected in the property and casualty
insurance segment.
<PAGE>

<TABLE>
<CAPTION>
===================================================================================================================================
                                                                                   (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                  Property and
                                                                   Casualty                     Life
                                                                   Insurance                  Insurance               Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                         <C>                     <C>
Year Ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
 Net premiums earned                                               $ 247,054                   $ 26,100                $  273,154
 Net investment income                                                23,614                     51,840                    75,454
 Realized investment gains and other income                            2,444                        492                     2,936
 Commission and policy fee income                                      1,912                          -                     1,912
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $ 275,024                   $ 78,432                $  353,456
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                             (137)                      (103)                     (240)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total revenues                                                   $ 274,887                   $ 78,329                $  353,216
===================================================================================================================================
Net income before income taxes
 Revenues                                                          $ 275,024                   $ 78,432                $  353,456
 Benefits, losses and expenses                                       272,315                     63,923                   336,238
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $   2,709                   $ 14,509                $   17,218
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                              (22)                        22                         -
- -----------------------------------------------------------------------------------------------------------------------------------
  Total net income before income taxes                             $   2,687                   $ 14,531                $   17,218
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense                                          (3,375)                     5,209                     1,834
- -----------------------------------------------------------------------------------------------------------------------------------
Net income                                                         $   6,062                   $  9,322                $   15,384
===================================================================================================================================
Assets
  Total reportable segments                                        $ 807,558                   $825,293                $1,632,851
  Intersegment eliminations                                         (165,135)                         -                  (165,135)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total assets                                                     $ 642,423                   $825,293                $1,467,716
===================================================================================================================================
</TABLE>

Depreciation expense and property and equipment acquisitions for the years ended
December 31, 2000, 1999 and 1998, are reflected in the property and casualty
insurance segment.

<TABLE>
<CAPTION>
===================================================================================================================================
                                                                                   (Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                  Property and
                                                                   Casualty                     Life
                                                                   Insurance                  Insurance               Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                         <C>                     <C>
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Revenues
 Net premiums earned                                               $ 220,550                   $ 25,295                $  245,845
 Net investment income                                                23,297                     44,771                    68,068
 Realized investment gains and other income                           20,981                      1,815                    22,796
 Commission and policy fee income                                      1,815                          -                     1,815
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $ 266,643                   $ 71,881                $  338,524
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                             (140)                      (118)                     (258)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total revenues                                                   $ 266,503                   $ 71,763                $  338,266
===================================================================================================================================
Net income before income taxes
 Revenues                                                          $ 266,643                   $ 71,881                $  338,524
 Benefits, losses and expenses                                       254,306                     55,822                   310,128
- -----------------------------------------------------------------------------------------------------------------------------------
  Total reportable segments                                        $  12,337                   $ 16,059                $   28,396
- -----------------------------------------------------------------------------------------------------------------------------------
  Intersegment eliminations                                              (10)                        10                         -
- -----------------------------------------------------------------------------------------------------------------------------------
  Total net income before income taxes                             $  12,327                   $ 16,069                $   28,396
- -----------------------------------------------------------------------------------------------------------------------------------
Income tax (benefit) expense                                            (736)                     5,455                     4,719
- -----------------------------------------------------------------------------------------------------------------------------------
Net income                                                         $  13,063                   $ 10,614                $   23,677
===================================================================================================================================
Assets
  Total reportable segments                                        $ 675,361                   $709,460                $1,384,821
  Intersegment eliminations                                         (134,227)                         -                  (134,227)
- -----------------------------------------------------------------------------------------------------------------------------------
  Total assets                                                     $ 541,134                   $709,460                $1,250,594
===================================================================================================================================
</TABLE>

Depreciation expense and property and equipment acquisitions for the years ended
December 31, 2000, 1999 and 1998, are reflected in the property and casualty
insurance segment.
<PAGE>

NOTE 12.
Quarterly Financial Information (Unaudited)

The following table sets forth selected quarterly financial information of the
Company.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
                                                    (Dollars in Thousands Except Per Share Data)
- --------------------------------------------------------------------------------------------------
Quarters                                           First     Second    Third     Fourth    Total
- --------------------------------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>       <C>       <C>
Fiscal year ended December 31, 2000
  Total revenues                                  $100,232  $101,611  $107,671  $111,065  $420,579
==================================================================================================
  Net income                                      $  3,382  $    949  $  7,094  $  4,102  $ 15,527
==================================================================================================
  Basic and diluted earnings per common share     $   0.34  $   0.09  $   0.71  $   0.41  $   1.55
==================================================================================================
Fiscal year ended December 31, 1999
  Total revenues                                  $ 79,057  $ 79,828  $ 90,868  $103,463  $353,216
==================================================================================================
  Net income                                      $  2,964  $    541  $  6,398  $  5,481  $ 15,384
==================================================================================================
  Basic and diluted earnings per common share     $   0.29  $   0.05  $   0.63  $   0.54  $   1.53
==================================================================================================
Fiscal year ended December 31, 1998
  Total revenues                                  $ 80,229  $ 94,448  $ 79,312  $ 84,277  $338,266
==================================================================================================
  Net income                                      $  8,882  $ 12,610  $ (1,963) $  4,148  $ 23,677
==================================================================================================
  Basic and diluted earnings per common share     $   0.83  $   1.18  $  (0.19) $   0.41  $   2.28
==================================================================================================
</TABLE>
<PAGE>


Note 13.
Earnings and Dividends Per Common Share
  Cash dividends per common share of $.71 and $.68 were declared in 2000 and
1999, respectively. In the calculation of earnings per share, stock options
granted to employees were not included in the computation of diluted earnings
per share because the option exercise prices were greater than the weighted
average market price of the common shares over the period the options were
outstanding during 2000. The options were still outstanding as of December 31,
2000.
<PAGE>

Note 14.
Comprehensive Income
  The following table sets forth the components of other comprehensive income
(loss), and the related tax effects, for the years 2000, 1999 and 1998.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
                                                                                     (Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------
                                                                                Amount    Income Tax     Amount
                                                                                Before     (Expense)     Net of
                                                                                 Tax        Benefit       Tax
- ----------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>        <C>          <C>
2000
Net unrealized appreciation arising during the period                          $ 15,863      $(5,552)   $ 10,311
Less: reclassification for realized losses included in income                    (2,082)         729      (1,353)
- ----------------------------------------------------------------------------------------------------------------
Other comprehensive income                                                     $ 17,945      $(6,281)   $ 11,664
================================================================================================================
1999
Transition adjustment for the effect of a change in accounting principle       $  9,250      $(3,237)   $  6,013
Net unrealized depreciation arising during the period                           (47,318)      16,561     (30,757)
Less: reclassification for realized gains included in income                      2,303         (806)      1,497
- ----------------------------------------------------------------------------------------------------------------
Other comprehensive loss                                                       $(40,371)    $ 14,130    $(26,241)
================================================================================================================
1998
Net unrealized appreciation arising during the period                          $  6,251     $ (2,125)   $  4,126
Less: reclassification for realized gains included in income                     22,793       (7,749)     15,044
- ----------------------------------------------------------------------------------------------------------------
Other comprehensive loss                                                       $(16,542)    $  5,624    $(10,918)
================================================================================================================
</TABLE>
<PAGE>

Note 15. Acquisition

   On August 10, 1999, the Company acquired American Indemnity Financial
Corporation as a wholly owned subsidiary for approximately $30,212,000 in cash
in exchange for 1,962,410 shares of common stock. The transaction was accounted
for using the purchase method of accounting. Common stockholders of American
Indemnity Financial Corporation received approximately $14.35 per share of
common stock at the closing of the transaction and deferred consideration of up
to $1.00 per share to be paid in two years, subject to adjustments relating to
Indemnities. The purchase price paid for American Indemnity Financial
Corporation has been allocated to the assets acquired and liabilities assumed,
based on their fair values, and the excess purchase price has been recorded as
goodwill. Goodwill of $7,846,000 is being amortized on a straight-line basis for
a period of 10 years. An escrow account with a balance of $1,990,000 is included
in the Company's consolidated balance sheets in other assets for payment of the
deferred consideration. Any payments out of this account to American Indemnity
Financial Corporation shareholders will be deemed additional consideration, and
as such, would be recorded as additional goodwill relating to the purchase of
American Indemnity Financial Corporation.

  In connection with the purchase, the Company developed a plan (the "exit
plan") to close certain branches and involuntarily terminate certain employees
of American Indemnity. A liability of $972,000, to reflect employee termination
benefits of $626,000 and future contractual lease payments related to abandoned
facilities of $346,000, was included in the allocation of the purchase price.
The exit plan was completed by December 31, 1999. All of this liability was paid
as of December 31, 2000.

  American Indemnity Financial Corporation, based in Galveston, Texas, is
a holding company that is made up of the following regional property and
casualty insurance companies: American Indemnity Company; American Fire and
Indemnity Company; Texas General Indemnity Company; and United Fire Lloyds. The
American Indemnity insurers offer personal and commercial lines of insurance
through independent agents.

  The 1999 amounts in the consolidated statements of operations include American
Indemnity Financial Corporation's result for the period of August 10, 1999,
through December 31, 1999. The following schedule summarizes the assets acquired
and the liabilities assumed as of August 10, 1999.


<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Assets acquired                                              (Dollars in Thousands)
- -----------------------------------------------------------------------------------
<S>                                                          <C>
 Fixed maturity securities                                                 $ 68,499
 Equity securities                                                           14,344
 Other assets                                                                57,355
- -----------------------------------------------------------------------------------
  Total assets acquired                                                    $140,198
- -----------------------------------------------------------------------------------
Liabilities assumed
 Policy reserves and unearned premiums                                     $102,483
 Other liabilities                                                           17,340
- -----------------------------------------------------------------------------------
  Total liabilities assumed                                                $119,823
- -----------------------------------------------------------------------------------
Net assets acquired                                                        $ 20,375
- -----------------------------------------------------------------------------------
Excess of acquisition cost over net assets acquired                           7,846
- -----------------------------------------------------------------------------------
Total purchase price                                                       $ 28,221
===================================================================================
</TABLE>

The following table presents the unaudited proforma results of operations for
1999 and 1998 had the acquisition occurred on January 1, 1998.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
                                                          (Dollars in Thousands Except Per Share Data)
- ----------------------------------------------------------------------------------------------------------
                                                       December 31, 1999                 December 31, 1998
                                                             (Unaudited)                       (Unaudited)
- ----------------------------------------------------------------------------------------------------------
<S>                                                    <C>                               <C>
Revenues                                                        $390,574                          $407,555
Net income                                                        11,748                            17,831
Basic and diluted earnings per share                                1.17                              1.72
- ----------------------------------------------------------------------------------------------------------
</TABLE>

  The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated as of the above dates, nor are
such operating results necessarily indicative of future operating results.





<PAGE>

Note 16.
Lease

  At December 31, 2000, the future minimum payments under a noncancellable
operating lease arrangement are as follows (in thousands) :

<TABLE>
     <S>                             <C>
     2001                            $1,197
     2002                             1,197
     2003                               698
     --------------------------------------
     Total                           $3,092
</TABLE>

  This lease is for the use of mainframe equipment and software located at the
Cedar Rapids location, the initial term of which runs three years, with a
purchase option granting the right to purchase the leased equipment at fair
market value given a notice of ninety days.  Total rental expense relating to
this lease for 2000 amounted to $502,000.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>2
<FILENAME>dex11.txt
<DESCRIPTION>STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TEXT>

<PAGE>


EXHIBIT 11.  STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
                                                   (Dollars in Thousands Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------
                                          Weighted Average                                       Earnings
                                          Number of Shares                  Net                       Per
Years Ended  December 31                       Outstanding               Income              Common Share
- ---------------------------------------------------------------------------------------------------------
<S>                                       <C>                            <C>                   <C>
       2000                                     10,047,248              $15,527                     $1.55
       1999                                     10,079,563               15,384                      1.53
       1998                                     10,393,930               23,677                      2.28
- ---------------------------------------------------------------------------------------------------------
</TABLE>

Computation of weighted average number of common and common equivalent shares:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31
- ---------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>            <C>
                                                                    2000              1999           1998
- ---------------------------------------------------------------------------------------------------------
Common shares outstanding beginning of the period             10,060,084        10,091,721     10,727,322
Weighted average of the common
shares purchased and retired or reissued                         (12,836)          (12,158)      (333,392)
- ---------------------------------------------------------------------------------------------------------
Weighted average number of common shares                      10,047,248        10,079,563     10,393,930
=========================================================================================================
</TABLE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>3
<FILENAME>dex21.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>

<PAGE>


EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
                                                     Jurisdiction of
Subsidiary                                           Organization     % of ownership by the Company, or one of its subsidiaries
- ----------                                           ---------------  ---------------------------------------------------------
<S>                                                  <C>              <C>
United Life Insurance Company                        Iowa             100% owned by the Company
Lafayette Insurance Company                          Louisiana        100% owned by the Company
Insurance Brokers & Managers, Inc.                   Louisiana        100% owned by Lafayette Insurance Company
Addison Insurance Company                            Illinois         100% owned by the Company
UFC Premium Finance Company                          Illinois         100% owned by Addison Insurance Company
Addison Insurance Agency                             Illinois         100% owned by Addison Insurance Company
United Credit Corporation                            Iowa             100% owned by the Company
American Indemnity Financial Corporation             Delaware         100% owned by the Company
American Indemnity Company                           Texas            99.9%owned by American Indemnity Financial Corporation
American Fire and Indemnity Company                  Texas            100% owned by American Indemnity Company
Texas General Indemnity Company                      Colorado         100% owned by American Indemnity Company
United Fire Lloyds                                   Texas            Financially and operationally controlled by the Company
American Computing Company                           Texas            100% owned by American Indemnity Company
</TABLE>


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>4
<FILENAME>dex23.txt
<DESCRIPTION>CONSENT OF ARTHUR ANDERSEN LLP
<TEXT>

<PAGE>

                                                                      Exhibit 23

                                                          [ARTHUR ANDERSEN LOGO]

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statements File Nos. 333-63103 and 333-42895.


/s/ Arthur Andersen LLP
- -------------------------
Arthur Andersen LLP

Chicago, Illinois
March 29, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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