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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
________________________
UNITED FIRE GROUP INC.
(Exact name of registrant as specified in its charter)

Iowa |  | 45-2302834
(State of incorporation) |  | (I.R.S. Employer Identification No.)

118 Second Avenue SE
Cedar Rapids | Iowa | 52401
(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 Exchange Act of 1934:

Title of each class | Trading Symbol | Name of each exchange on which registered
Common Stock, $0.001 par value | UFCS | The NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐
Emerging growth company | ☐ |  |  |  |  |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of May 3, 2021, 25,119,855 shares of common stock were outstanding.

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United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
March 31, 2021

| Page
Forward-Looking Information | 1
Part I. Financial Information |
Item 1. Financial Statements |
Consolidated Balance Sheets as of March 3 1, 202 1 (unaudited) and December 31, 20 20 | 3
Consolidated Statements of Income and Comprehensive Income (unaudited) for the three-month periods ended March 3 1, 202 1 and 20 20 | 4
Consolidated Statement of Stockholders’ Equity (unaudited) for the three-month periods ended March 3 1, 202 1 and 20 20 | 5
Consolidated Statements of Cash Flows (unaudited) for the three-month periods ended March 3 1, 202 1 and 20 20 | 6
Notes to Unaudited Consolidated Financial Statements | 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 35
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 49
Item 4. Controls and Procedures | 49
Part II. Other Information |
Item 1. Legal Proceedings | 50
Item 1A. Risk Factors | 50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 50
Item 3. Defaults Upon Senior Securities | 50
Item 4. Mine Safety Disclosures | 50
Item 5. Other Information | 50
Item 6. Exhibits | 52
Signatures | 53

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FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "remain(s) optimistic," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our other filings with the Securities and Exchange Commission ("SEC") for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:
•The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics, including the ongoing impact of the novel coronavirus (COVID-19) pandemic (including the recent emergence of variant strains);
•The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses;
•Geographic concentration risk in our property and casualty insurance business;
•The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
•Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;
•Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;
•Our ability to effectively underwrite and adequately price insured risks;
•Changes in industry trends, an increase in competition and significant industry developments;
•Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;
•Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and other federal stimulus relief legislation, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;
•Our relationship with and the financial strength of our reinsurers; and
•Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network.
These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have
1

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any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
2

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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

United Fire Group, Inc. Consolidated Balance Sheets

(In Thousands, Except Share Data) | March 31, 2021 |  | December 31, 2020
| (unaudited) |  |
ASSETS |  |  |
Investments |  |  |
Fixed maturities |  |  |
Available-for-sale, at fair value (amortized cost $1,741,481 in 2021 and $1,720,291 in 2020; allowance for credit losses $174 in 2021 and $5 in 2020) | $ | 1,816,765 |  |  | $ | 1,825,438 |
Equity securities at fair value (cost $48,996 in 2021 and $49,085 in 2020) | 193,263 |  |  | 206,685 |
Mortgage loans | 47,570 |  |  | 47,690 |
Less: allowance for mortgage loan losses | 76 |  |  | 76 |
Mortgage loans, net | 47,494 |  |  | 47,614 |
Other long-term investments | 77,816 |  |  | 69,305 |
Short-term investments available-for-sale, at fair value (amortized cost $801 in 2021 and $175 in 2020) | 804 |  |  | 175 |
| 2,136,142 |  |  | 2,149,217 |
Cash and cash equivalents | 71,514 |  |  | 87,948 |
Accrued investment income | 14,662 |  |  | 14,615 |
Premiums receivable (net of allowance for doubtful accounts of $699 in 2021 and $687 in 2020) | 328,389 |  |  | 317,292 |
Deferred policy acquisition costs | 87,955 |  |  | 87,094 |
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $56,595 in 2021 and $55,141 in 2020) | 132,273 |  |  | 129,874 |
Reinsurance receivables and recoverables (net of allowance for credit losses of $233 in 2021 and $190 in 2020) | 163,541 |  |  | 160,540 |
Prepaid reinsurance premiums | 13,413 |  |  | 12,965 |
Intangible assets | 6,565 |  |  | 6,743 |
Income taxes receivable | 66,208 |  |  | 66,194 |
Other assets | 44,305 |  |  | 37,196 |
TOTAL ASSETS | $ | 3,064,967 |  |  | $ | 3,069,678 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Liabilities |  |  |
Losses and loss settlement expenses | $ | 1,613,025 |  |  | $ | 1,578,131 |
Unearned premiums | 461,530 |  |  | 464,845 |
Accrued expenses and other liabilities | 92,401 |  |  | 126,624 |
Long term debt | 50,000 |  |  | 50,000 |
Deferred tax liability | 24,412 |  |  | 24,929 |
TOTAL LIABILITIES | $ | 2,241,368 |  |  | $ | 2,244,529 |
Stockholders’ Equity |  |  |
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,119,855 and 25,055,479 shares issued and outstanding in 2021 and 2020, respectively | $ | 25 |  |  | $ | 25 |
Additional paid-in capital | 202,874 |  |  | 202,359 |
Retained earnings | 570,789 |  |  | 555,854 |
Accumulated other comprehensive income, net of tax | 49,911 |  |  | 66,911 |
TOTAL STOCKHOLDERS’ EQUITY | $ | 823,599 |  |  | $ | 825,149 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 3,064,967 |  |  | $ | 3,069,678 |

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

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United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)

| Three Months Ended March 31, |  |
(In Thousands, Except Share Data) | 2021 |  | 2020 |  |  |  |
Revenues |  |  |  |  |  |  |
Net premiums earned | $ | 259,225 |  |  | $ | 268,849 |  |  |  |  |
Investment income, net of investment expenses | 17,081 |  |  | 2,363 |  |  |  |  |
Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of $(807) in 2021 and $(121) in 2020; previously included in accumulated other comprehensive income) | 24,508 |  |  | (93,407) |  |  |  |  |
Other income (loss) | (79) |  |  | — |  |  |  |  |
Total revenues | $ | 300,735 |  |  | $ | 177,805 |  |  |  |  |
Benefits, Losses and Expenses |  |  |  |  |  |  |
Losses and loss settlement expenses | $ | 206,398 |  |  | $ | 186,503 |  |  |  |  |
Amortization of deferred policy acquisition costs | 53,265 |  |  | 54,452 |  |  |  |  |
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,667 in 2021 and $1,072 in 2020; previously included in accumulated other comprehensive income) | 18,368 |  |  | 41,849 |  |  |  |  |
Total benefits, losses and expenses | $ | 278,031 |  |  | $ | 282,804 |  |  |  |  |
Income (loss) before income taxes | $ | 22,704 |  |  | $ | (104,999) |  |  |  |  |
Federal income tax expense (benefit) (includes reclassifications of $520 in 2021 and $250 in 2020; previously included in accumulated other comprehensive income) | 4,002 |  |  | (32,465) |  |  |  |  |
Net Income (loss) | $ | 18,702 |  |  | $ | (72,534) |  |  |  |  |
Other comprehensive income (loss) |  |  |  |  |  |  |
Change in net unrealized appreciation on investments | $ | (30,497) |  |  | $ | 7,168 |  |  |  |  |
Change in liability for underfunded employee benefit plans | 6,505 |  |  | (1,593) |  |  |  |  |
Other comprehensive income, before tax and reclassification adjustments | $ | (23,992) |  |  | $ | 5,575 |  |  |  |  |
Income tax effect | 5,038 |  |  | (1,171) |  |  |  |  |
Other comprehensive income, after tax, before reclassification adjustments | $ | (18,954) |  |  | $ | 4,404 |  |  |  |  |
Reclassification adjustment for net realized investment losses included in income | $ | 807 |  |  | $ | 121 |  |  |  |  |
Reclassification adjustment for employee benefit costs included in expense | 1,667 |  |  | 1,072 |  |  |  |  |
Total reclassification adjustments, before tax | $ | 2,474 |  |  | $ | 1,193 |  |  |  |  |
Income tax effect | (520) |  |  | (250) |  |  |  |  |
Total reclassification adjustments, after tax | $ | 1,954 |  |  | $ | 943 |  |  |  |  |
Comprehensive income (loss) | $ | 1,702 |  |  | $ | (67,187) |  |  |  |  |
Diluted weighted average common shares outstanding | 25,379,812 |  |  | 25,014,027 |  |  |  |  |
Earnings (loss) per common share: |  |  |  |  |  |  |
Basic | $ | 0.75 |  |  | $ | (2.90) |  |  |  |  |
Diluted | 0.74 |  |  | (2.90) |  |  |  |  |

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

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United Fire Group, Inc.
Consolidated Statement of Stockholders’ Equity (Unaudited)

| Common Stock |  |  |
(In Thousands, Except Share Data) | Shares outstanding | Common stock | Additional paid-in capital | Retaining Earnings | Accumulated other comprehensive income | Total
Balance, January 1, 2021 | 25,055,479 |  | $ | 25 |  | $ | 202,359 |  | $ | 555,854 |  | $ | 66,911 |  | $ | 825,149 |
Net income (loss) | — |  | — |  | — |  | 18,702 |  | — |  | 18,702 |
Shares repurchased | (207) |  | — |  | (7) |  | — |  | — |  | (7) |
Stock based compensation | 64,583 |  | — |  | 522 |  | — |  | — |  | 522 |
Dividends on common stock ($0.15 per share) | — |  | — |  | — |  | (3,767) |  | — |  | (3,767) |
Change in net unrealized investment appreciation(1) | — |  | — |  | — |  | — |  | (23,456) |  | (23,456) |
Change in liability for underfunded employee benefit plans(2) | — |  | — |  | — |  | — |  | 6,456 |  | 6,456 |
Balance, March 31, 2021 | 25,119,855 |  | $ | 25 |  | $ | 202,874 |  | $ | 570,789 |  | $ | 49,911 |  | $ | 823,599 |

(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.

| Common Stock |  |  |
(In Thousands, Except Share Data) | Shares outstanding | Common stock | Additional paid-in capital | Retaining Earnings | Accumulated other comprehensive income | Total
Balance, January 1, 2020 | 25,015,963 |  | $ | 25 |  | $ | 200,179 |  | $ | 697,116 |  | $ | 13,152 |  | $ | 910,472 |
Net income (loss) | — |  | — |  | — |  | (72,534) |  | — |  | (72,534) |
Shares repurchased | (70,467) |  | — |  | (2,741) |  | — |  | — |  | (2,741) |
Stock based compensation | 70,597 |  | — |  | 879 |  | — |  | — |  | 879 |
Dividends on common stock $0.33 per share) | — |  | — |  | — |  | (8,249) |  | — |  | (8,249) |
Change in net unrealized investment appreciation(1) | — |  | — |  | — |  | — |  | 4,500 |  | 4,500 |
Change in liability for underfunded employee benefit plans(2) | — |  | — |  | — |  | — |  | 847 |  | 847 |
Cumulative effect of change in accounting principle | — |  | — |  | — |  | (30) |  | — |  | (30) |
Balance, March 31, 2020 | 25,016,093 |  | $ | 25 |  | $ | 198,317 |  | $ | 616,303 |  | $ | 18,499 |  | $ | 833,144 |

(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.

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United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)

| Three Months Ended March 31,
(In Thousands) | 2021 |  | 2020
Cash Flows From Operating Activities |  |  |
Net income (loss) | $ | 18,702 |  |  | $ | (72,534) |
Adjustments to reconcile net income to net cash provided by (used in) operating activities |  |  |
Net accretion of bond premium | 3,586 |  |  | 3,008 |
Depreciation and amortization | 1,628 |  |  | 1,636 |
Stock-based compensation expense | 1,009 |  |  | 1,634 |
Net realized investment (gains) losses | (24,508) |  |  | 93,407 |
Net cash flows from equity and trading investments | 38,737 |  |  | 2,156 |
Deferred income tax benefit | 4,002 |  |  | (21,803) |
Changes in: |  |  |
Accrued investment income | (47) |  |  | (11) |
Premiums receivable | (11,097) |  |  | (5,570) |
Deferred policy acquisition costs | (861) |  |  | (43) |
Reinsurance receivables | (3,001) |  |  | (26,026) |
Prepaid reinsurance premiums | (448) |  |  | (2,139) |
Income taxes receivable | (14) |  |  | (15,150) |
Other assets | (7,109) |  |  | (7,126) |
Losses and loss settlement expenses | 34,894 |  |  | 16,651 |
Unearned premiums | (3,315) |  |  | 15,798 |
Accrued expenses and other liabilities | (26,116) |  |  | (1,958) |
Deferred income taxes | — |  |  | 4,463 |
Other, net | (6,532) |  |  | 11,120 |
Cash from operating activities | 808 |  |  | 70,047 |
Net cash provided by (used in) operating activities | $ | 19,510 |  |  | $ | (2,487) |
Cash Flows From Investing Activities |  |  |
Proceeds from sale of available-for-sale investments | $ | 99,682 |  |  | $ | 11,910 |
Proceeds from call and maturity of available-for-sale investments | 72,617 |  |  | 68,976 |
Proceeds from sale of other investments | 621 |  |  | 1,889 |
Purchase of investments in mortgage loans | — |  |  | (2,746) |
Purchase of investments available-for-sale | (198,331) |  |  | (57,182) |
Purchase of other investments | (2,423) |  |  | (1,469) |
Net purchases and sales of property and equipment | (3,848) |  |  | (7,144) |
Net cash provided by (used in) investing activities | $ | (31,682) |  |  | $ | 14,234 |
Cash Flows From Financing Activities |  |  |
Issuance of common stock | $ | (488) |  |  | $ | (755) |
Repurchase of common stock | (7) |  |  | (2,741) |
Payment of cash dividends | (3,767) |  |  | (8,249) |
Net cash used in financing activities | $ | (4,262) |  |  | $ | (11,745) |
Net Change in Cash and Cash Equivalents | $ | (16,434) |  |  | $ | 2 |
Cash and Cash Equivalents at Beginning of Period | 87,948 |  |  | 120,722 |
Cash and Cash Equivalents at End of Period | $ | 71,514 |  |  | $ | 120,724 |

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

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UNITED FIRE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share amounts or as otherwise noted)
NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Business
United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as property and casualty insurers in 50 states and the District of Columbia.
Basis of Presentation
The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K for the year ended December 31, 2020, including certain financial statement footnote disclosures, is not required by the rules and regulations of the SEC for interim financial reporting and has been condensed or omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; loss settlement expenses; and pension and post-retirement benefit obligations.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020.
Segment Information
Subsequent to the announcement of the sale of our life insurance business on September 19, 2017, our continuing operations, the property and casualty insurance business, was reported as one reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of the sale of the life insurance business. We will continue to evaluate our operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.

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Lloyd's Syndicates
On January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At March 31, 2021, the Company's FAL investments were comprised of cash of $18,101 on deposit with Lloyd's in order to satisfy these FAL requirements. The results of the syndicates are normally reported on a quarter lag, except when information is available that is material to the current period. For the first quarter of 2021, the Company recorded estimates of premiums, losses and loss settlement reserves and expenses and underwriting expenses, including deferred acquisition costs, based on the information provided by the syndicates. These amounts will be revised based on reported information, if necessary, with changes reflected in second quarter operations.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, cash on deposit and held by Lloyd's and non-negotiable certificates of deposit with original maturities of three months or less.
For the three-month periods ended March 31, 2021 and 2020, we made payments for income taxes totaling $14 a nd $20, respectively. We did not receive a tax refund during the three-month periods ended March 31, 2021 and 2020.
Deferred Policy Acquisition Costs ("DAC")
Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the three-month period ended March 31, 2021.

| Total
Recorded asset at beginning of period | $ | 87,094 |
Underwriting costs deferred | 54,125 |
Amortization of deferred policy acquisition costs | (53,264) |
Recorded asset at March 31, 2021 | $ | 87,955 |

Property and casualty insurance policy acquisition costs deferred are amortized as premium revenue is recognized. The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value. This takes into account the premium to be earned, losses and loss settlement expenses expected to be incurred and certain other costs expected to be incurred as the premium is earned.
Other Intangible Assets
Our other intangible assets, which consist primarily of agency relationships, trade names, state insurance licenses, and software, are being amortized by the straight-line method over periods ranging from 2 years to 15 years, with the exception of state insurance licenses, which are indefinite-lived and not amortized.
Long Term Debt
The Company executed a private placement debt transaction on December 15, 2020 between United Fire & Casualty Company ("UF&C"), and Federated Mutual Insurance Company, a mutual insurance company domiciled in Minnesota ("Federated Mutual"), and Federated Life Insurance Company, an insurance company domiciled in Minnesota ("Federated Life” and, together with Federated Mutual, the "Note Purchasers").

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UF&C sold an aggregate principal amount of $50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $35,000 was issued to Federated Mutual and one note with a principal amount of $15,000 was issued to Federated Life subject to the terms of their respective notes. The notes are presented as a long term debt liability in the Consolidated Balance Sheets and as a financing activity in the Consolidated Statement of Cash Flows.
Interest payments under the surplus notes are paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. For the three-month period ended March 31, 2021, interest totaled $797 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as an expense in other underwriting expenses in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.
Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision. As of March 31, 2021, there was no income tax benefit as the result of the CARES Act. As of March 31,2020, there was an income tax benefit of $9,500 as the result of the CARES Act.
Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.
We reported consolidated federal income tax expense of $4,002 for the three-month period ended March 31, 2021 compared to income tax benefit of $32,465 during the same period of 2020. Our effective tax rate for 2021 is different than the federal statutory rate of 21 percent, due principally to the net effect of tax-exempt municipal bond interest income. Our effective tax rate for 2020 is different than the federal statutory rate of 21 percent, due principally to the impact of the provisions of the CARES Act.
The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If, based on this review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at March 31, 2021 or December 31, 2020. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.
We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2017.
Leases
The Company determines if a contract contains a lease at inception of the contract. The Company's inventory of leases consists of operating leases which are recorded as a lease obligation liability disclosed in the "Accrued expenses and other liabilities" line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in the "Other assets" line on the Consolidated Balance Sheets. The Company's operating leases consist of office space, vehicles, computer equipment and office equipment. The lease right-of-use asset represents the Company's right to

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use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. The Company's lease obligation is recorded at the present value of the lease payments based on the term of the applied lease. Short-term leases of 12 months or less are recorded on the Consolidated Balance Sheets and lease payments are recognized on the Consolidated Statements of Income and Comprehensive Income. For more information on leases refer to Note 10 "Leases."
Variable Interest Entities
The Company and certain related parties are equity investors in one investment which the Company determined is a variable interest entity ("VIE") as a result of participation in the risks and rewards of the VIE based on the objectives and strategies of the VIE. The VIE is a limited liability company that primarily invests in commercial real estate. The Company and certain related parties are not the primary beneficiary largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at March 31, 2021 wa s $3,371 a nd there are no future funding commitments.
Credit Losses
The Company recognizes credit losses for our available-for-sale fixed-maturity portfolio, reinsurance receivables, mortgage loans and premium receivables by setting up allowances which are remeasured each reporting period and recorded in the Consolidated Statements of Income and Comprehensive Income.
For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history. For more information on credit losses and the allowance for credit losses for available-for-sale fixed-maturity portfolio, see Note 2 "Summary of Investments."
An allowance for mortgage loan losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments which have similar risk characteristics. To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations. This allowance is presented as a separate line in the Consolidated Balance Sheets beneath the asset value as well as presented net and recorded through "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income. For more information on credit losses and the allowance for credit losses for our investment in mortgage loans see Note 3 "Fair Value of Financial Instruments."
For reinsurance receivables, the Company's model estimates expected credit loss by multiplying the exposure at default by both the probability of default and loss given default ("LGD"). The LGD is estimated by the rating of the reinsurer, historical relationship with UFG, existence of letters of credit and known regulation the Company may be held accountable for. The ultimate LGD percentage is estimated after considering Moody’s experience with unsecured year 1 bond recovery rates from 1983-2017. The allowance calculated as of March 31, 2021 is recorded through the line "Reinsurance receivables and recoverables" in the Consolidated Balance Sheets and through the line "Other underwriting expenses" in the Consolidated Statements of Income and Other Comprehensive Income. As of March 31, 2021, the Company had a credit loss allowance for reinsurance receivables of $233.

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Rollforward of credit loss allowance for reinsurance receivable:
|  | As of
|  | March 31, 2021
Beginning balance, January 1, 2021 |  | $ | 190 |
Current-period provision for expected credit losses |  | 43 |
Ending balance of the allowance for reinsurance receivable, March 31, 2021 |  | $ | 233 |

With respect to premiums receivable, the Company utilizes an aging method to estimate credit losses. An allowance for doubtful accounts is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders. "Premiums receivable" are presented in the Consolidated Balance Sheets net of an estimated allowance for doubtful accounts and recorded through "Other underwriting expenses" in the Consolidated Statements of Income and Comprehensive Income.
COVID-19 Pandemic
The COVID-19 pandemic caused significant financial market volatility, economic uncertainty and interruptions to normal business activities for the full year of 2020 and the economic uncertainty continued into the three-month period ended March 31, 2021. As of the date of this report, we expect the effect of the COVID-19 pandemic on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic, including the emergence of variant strains, continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition, liquidity, capital position, the value of investments we hold in our investment portfolio, premiums and the demand for our products and our ability to collect premiums or requirement to return premiums to our policyholders, will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which may impact our business, financial condition, results of operations or liquidity. See further discussion in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Subsequent Events
In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2021
Defined Benefit Plans - Disclosures
In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance modifies disclosures, but will not have an impact on the Company's financial position and results of operations.
Income Taxes
In December 2019, the FASB issued new guidance which simplifies the accounting for income taxes by removing certain exceptions to income tax accounting. The amendments also improve consistent application of and simplify

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GAAP for other areas of income tax accounting. The new guidance clarifies and amends existing guidance, including removing certain requirements that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance did not have an impact on the Company’s financial position and results of operations.

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NOTE 2. SUMMARY OF INVESTMENTS
Fair Value of Investments
A reconciliation of the amortized cost to fair value of investments in available-for-sale fixed maturity and short-term investments, presented on a consolidated basis, as of March 31, 2021 and December 31, 2020, is provided below:

March 31, 2021 |  |  |  |  |
Type of Investment | Cost or Amortized Cost |  | Gross Unrealized Appreciation |  | Gross Unrealized Depreciation |  | Fair Value |  | Allowance for Credit Losses |  | Carrying Value
AVAILABLE-FOR-SALE |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 70,254 |  |  | $ | 343 |  |  | $ | 505 |  |  | $ | 70,092 |  |  | $ | — |  |  | $ | 70,092 |
U.S. government agency | 87,150 |  |  | 3,265 |  |  | 2,258 |  |  | 88,157 |  |  | — |  |  | 88,157 |
States, municipalities and political subdivisions |  |  |  |  |  |  |  |  |  |  |
General obligations: |  |  |  |  |  |  |  |  |  |  |
Midwest | 68,578 |  |  | 2,951 |  |  | — |  |  | 71,529 |  |  | — |  |  | 71,529 |
Northeast | 29,018 |  |  | 1,081 |  |  | — |  |  | 30,099 |  |  | — |  |  | 30,099 |
South | 94,493 |  |  | 4,695 |  |  | — |  |  | 99,188 |  |  | — |  |  | 99,188 |
West | 97,459 |  |  | 6,042 |  |  | — |  |  | 103,501 |  |  | — |  |  | 103,501 |
Special revenue: |  |  |  |  |  |  |  |  |  |  |
Midwest | 123,401 |  |  | 8,257 |  |  | — |  |  | 131,658 |  |  | — |  |  | 131,658 |
Northeast | 56,193 |  |  | 3,972 |  |  | — |  |  | 60,165 |  |  | — |  |  | 60,165 |
South | 211,100 |  |  | 15,728 |  |  | 98 |  |  | 226,730 |  |  | — |  |  | 226,730 |
West | 131,711 |  |  | 8,375 |  |  | — |  |  | 140,086 |  |  | — |  |  | 140,086 |
Foreign bonds | 26,372 |  |  | 1,171 |  |  | 134 |  |  | 27,409 |  |  | — |  |  | 27,409 |
Public utilities | 95,501 |  |  | 5,155 |  |  | 523 |  |  | 100,133 |  |  | — |  |  | 100,133 |
Corporate bonds |  |  |  |  |  |  |  |  |  |  |
Energy | 24,101 |  |  | 2,306 |  |  | — |  |  | 26,407 |  |  | — |  |  | 26,407 |
Industrials | 53,535 |  |  | 2,618 |  |  | 572 |  |  | 55,581 |  |  | — |  |  | 55,581 |
Consumer goods and services | 66,557 |  |  | 3,233 |  |  | 1,285 |  |  | 68,505 |  |  | — |  |  | 68,505 |
Health care | 29,025 |  |  | 662 |  |  | 1,188 |  |  | 28,499 |  |  | — |  |  | 28,499 |
Technology, media and telecommunications | 66,211 |  |  | 3,679 |  |  | 1,956 |  |  | 67,934 |  |  | — |  |  | 67,934 |
Financial services | 101,002 |  |  | 5,504 |  |  | 487 |  |  | 106,019 |  |  | 174 |  |  | 105,845 |
Mortgage-backed securities | 26,092 |  |  | 351 |  |  | 143 |  |  | 26,300 |  |  | — |  |  | 26,300 |
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |
Government national mortgage association | 83,303 |  |  | 3,454 |  |  | 113 |  |  | 86,644 |  |  | — |  |  | 86,644 |
Federal home loan mortgage corporation | 139,364 |  |  | 1,570 |  |  | 1,402 |  |  | 139,532 |  |  | — |  |  | 139,532 |
Federal national mortgage association | 60,744 |  |  | 1,642 |  |  | 463 |  |  | 61,923 |  |  | — |  |  | 61,923 |
Asset-backed securities | 317 |  |  | 531 |  |  | — |  |  | 848 |  |  | — |  |  | 848 |
Total Available-for-Sale Fixed Maturities | $ | 1,741,481 |  |  | $ | 86,585 |  |  | $ | 11,127 |  |  | $ | 1,816,939 |  |  | $ | 174 |  |  | $ | 1,816,765 |
Short-Term Investments | $ | 801 |  |  | $ | 3 |  |  | $ | — |  |  | $ | 804 |  |  | $ | — |  |  | $ | 804 |
Total Available-for-Sale Investments | $ | 1,742,282 |  |  | $ | 86,588 |  |  | $ | 11,127 |  |  | $ | 1,817,743 |  |  | $ | 174 |  |  | $ | 1,817,569 |

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December 31, 2020 |  |  |  |
Type of Investment | Cost or Amortized Cost |  | Gross Unrealized Appreciation |  | Gross Unrealized Depreciation |  | Fair Value | Allowance for Credit Losses |  | Carrying Value
AVAILABLE-FOR-SALE |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 149,481 |  |  | $ | 482 |  |  | $ | 25 |  |  | $ | 149,938 |  | $ | — |  |  | $ | 149,938 |
U.S. government agency | 60,502 |  |  | 4,016 |  |  | — |  |  | 64,518 |  | — |  |  | 64,518 |
States, municipalities and political subdivisions |  |  |  |  |  |  |  |  |  |
General obligations: |  |  |  |  |  |  |  |  |  |
Midwest | 77,933 |  |  | 4,047 |  |  | — |  |  | 81,980 |  | — |  |  | 81,980 |
Northeast | 29,071 |  |  | 1,379 |  |  | — |  |  | 30,450 |  | — |  |  | 30,450 |
South | 104,522 |  |  | 5,448 |  |  | — |  |  | 109,970 |  | — |  |  | 109,970 |
West | 102,590 |  |  | 7,431 |  |  | — |  |  | 110,021 |  | — |  |  | 110,021 |
Special revenue: |  |  |  |  |  |  |  |  |  |
Midwest | 115,956 |  |  | 9,142 |  |  | — |  |  | 125,098 |  | — |  |  | 125,098 |
Northeast | 56,317 |  |  | 4,759 |  |  | — |  |  | 61,076 |  | — |  |  | 61,076 |
South | 208,739 |  |  | 17,967 |  |  | — |  |  | 226,706 |  | — |  |  | 226,706 |
West | 129,417 |  |  | 9,982 |  |  | — |  |  | 139,399 |  | — |  |  | 139,399 |
Foreign bonds | 27,799 |  |  | 1,805 |  |  | 2 |  |  | 29,602 |  | — |  |  | 29,602 |
Public utilities | 76,114 |  |  | 7,388 |  |  | — |  |  | 83,502 |  | — |  |  | 83,502 |
Corporate bonds |  |  |  |  |  |  |  |  |  |
Energy | 22,441 |  |  | 2,895 |  |  | — |  |  | 25,336 |  | — |  |  | 25,336 |
Industrials | 39,513 |  |  | 3,744 |  |  | — |  |  | 43,257 |  | — |  |  | 43,257 |
Consumer goods and services | 46,521 |  |  | 4,046 |  |  | — |  |  | 50,567 |  | — |  |  | 50,567 |
Health care | 6,678 |  |  | 898 |  |  | — |  |  | 7,576 |  | — |  |  | 7,576 |
Technology, media and telecommunications | 37,270 |  |  | 4,381 |  |  | 15 |  |  | 41,636 |  | — |  |  | 41,636 |
Financial services | 93,736 |  |  | 7,564 |  |  | 269 |  |  | 101,031 |  | 5 |  |  | 101,026 |
Mortgage-backed securities | 20,305 |  |  | 326 |  |  | 54 |  |  | 20,577 |  | — |  |  | 20,577 |
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |
Government national mortgage association | 81,758 |  |  | 4,439 |  |  | 45 |  |  | 86,152 |  | — |  |  | 86,152 |
Federal home loan mortgage corporation | 151,362 |  |  | 2,239 |  |  | 758 |  |  | 152,843 |  | — |  |  | 152,843 |
Federal national mortgage association | 81,952 |  |  | 2,013 |  |  | 683 |  |  | 83,282 |  | — |  |  | 83,282 |
Asset-backed securities | 314 |  |  | 612 |  |  | — |  |  | 926 |  | — |  |  | 926 |
Total Available-for-Sale Fixed Maturities | $ | 1,720,291 |  |  | $ | 107,003 |  |  | $ | 1,851 |  |  | $ | 1,825,443 |  | $ | 5 |  |  | $ | 1,825,438 |

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Maturities
The amortized cost and fair value of available-for-sale fixed maturity securities at March 31, 2021, by contractual maturity, are shown in the following tables. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset-backed securities, mortgage-backed securities and collateralized mortgage obligations may be subject to prepayment risk and are therefore not categorized by contractual maturity.

Maturities |  |  |  |  |  |  |
| Available-For-Sale |  |
March 31, 2021 | Amortized Cost |  | Fair Value |  |  |  |
Due in one year or less | $ | 29,859 |  |  | $ | 30,220 |  |  |  |  |
Due after one year through five years | 482,121 |  |  | 506,835 |  |  |  |  |
Due after five years through 10 years | 374,037 |  |  | 393,314 |  |  |  |  |
Due after 10 years | 545,644 |  |  | 571,323 |  |  |  |  |
Asset-backed securities | 317 |  |  | 848 |  |  |  |  |
Mortgage-backed securities | 26,092 |  |  | 26,300 |  |  |  |  |
Collateralized mortgage obligations | 283,411 |  |  | 288,099 |  |  |  |  |
| $ | 1,741,481 |  |  | $ | 1,816,939 |  |  |  |  |

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

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Net realized investment gains (losses): |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Available-for-sale | $ | (637) |  |  | $ | (30) |  |  |  |  |
Allowance for credit losses | (170) |  |  | (59) |  |  |  |  |
Trading Securities | — |  |  | (2,457) |  |  |  |  |
Equity securities | 25,315 |  |  | (90,828) |  |  |  |  |
Mortgage loans allowance for credit losses | — |  |  | (5) |  |  |  |  |
Real estate | — |  |  | (28) |  |  |  |  |
Total net realized investment gains (losses) | $ | 24,508 |  |  | $ | (93,407) |  |  |  |  |

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

| Three Months Ended March 31, |  |
| 2021 |  | 2020 |  |  |  |
Proceeds from sales | $ | 31,091 |  |  | $ | 11,910 |  |  |  |  |
Gross realized gains | 1 |  |  | 172 |  |  |  |  |
Gross realized losses | 638 |  |  | 382 |  |  |  |  |

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Funding Commitment
Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 10, 2030 to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $6,061 at March 31, 2021.
In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a 3-year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year, after the 3-year lockup period is met. The fair value of the investment at March 31, 2021 was $24,889 and there are no remaining capital contributions with this investment.
Unrealized Appreciation
A summary of the changes in net unrealized investment appreciation during the reporting period is as follows:

| Three Months Ended March 31,
| 2021 |  | 2020
Change in net unrealized investment appreciation |  |  |
Available-for-sale fixed maturities | $ | (29,691) |  |  | $ | 5,696 |
Income tax effect | 6,235 |  |  | (1,196) |
Total change in net unrealized investment appreciation, net of tax | $ | (23,456) |  |  | $ | 4,500 |

Credit Risk
An allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history. The following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at March 31, 2021:

Rollforward of allowance for credit losses for available-for-sale fixed maturity securities:
|  | As of
|  | March 31, 2021
Beginning balance, January 1, 2021 |  | $ | 5 |
Additions to the allowance for credit losses for which credit losses were not previously recorded |  | 169 |
Ending balance, March 31, 2021 |  | $ | 174 |

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The following tables summarize our fixed maturity securities that were in an unrealized loss position reported on a consolidated basis at March 31, 2021 and December 31, 2020. The securities are presented by the length of time they have been continuously in an unrealized loss position. Non-credit related unrealized losses are recognized as a component of other comprehensive income and represent other market movements that are not credit related, for example interest rate changes. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

March 31, 2021 | Less than 12 months |  | 12 months or longer |  | Total
Type of Investment | Number of Issues |  | Fair Value |  | Gross Unrealized Depreciation |  | Number of Issues |  | Fair Value |  | Gross Unrealized Depreciation |  | Fair Value |  | Gross Unrealized Depreciation
AVAILABLE-FOR-SALE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | 8 |  |  | $ | 62,122 |  |  | $ | 505 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | 62,122 |  |  | $ | 505 |
U.S. government agency | 4 |  |  | 27,391 |  |  | 2,258 |  |  | — |  |  | — |  |  | — |  |  | 27,391 |  |  | 2,258 |
States, municipalities and political subdivisions |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
General obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
South | 1 |  |  | 1,176 |  |  | 98 |  |  | — |  |  | — |  |  | — |  |  | 1,176 |  |  | 98 |
Foreign bonds | 3 |  |  | $ | 5,770 |  |  | $ | 134 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,770 |  |  | $ | 134 |
Public utilities | 7 |  |  | 20,607 |  |  | 523 |  |  | — |  |  | — |  |  | — |  |  | 20,607 |  |  | 523 |
Corporate bonds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Industrials | 6 |  |  | 16,436 |  |  | 572 |  |  | — |  |  | — |  |  | — |  |  | 16,436 |  |  | 572 |
Consumer goods and services | 5 |  |  | 19,897 |  |  | 1,285 |  |  | — |  |  | — |  |  | — |  |  | 19,897 |  |  | 1,285 |
Health care | 5 |  |  | 21,508 |  |  | 1,188 |  |  | — |  |  | — |  |  | — |  |  | 21,508 |  |  | 1,188 |
Technology, media and telecommunications | 9 |  |  | 24,792 |  |  | 1,956 |  |  | — |  |  | — |  |  | — |  |  | 24,792 |  |  | 1,956 |
Financial services | 6 |  |  | 13,262 |  |  | 231 |  |  | — |  |  | — |  |  | — |  |  | 13,262 |  |  | 231 |
Mortgage-backed securities | 7 |  |  | 17,126 |  |  | 143 |  |  | 2 |  |  | 14 |  |  | — |  |  | 17,140 |  |  | 143 |
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal home loan mortgage corporation | 24 |  |  | 90,493 |  |  | 1,402 |  |  | — |  |  | — |  |  | — |  |  | 90,493 |  |  | 1,402 |
Federal national mortgage association | 9 |  |  | 26,987 |  |  | 463 |  |  | — |  |  | — |  |  | — |  |  | 26,987 |  |  | 463 |
Government national mortgage association | 4 |  |  | 15,547 |  |  | 113 |  |  | — |  |  | — |  |  | — |  |  | 15,547 |  |  | 113 |
Total Available-for-Sale Fixed Maturities | 98 |  |  | $ | 363,114 |  |  | $ | 10,871 |  |  | 2 |  |  | $ | 14 |  |  | $ | — |  |  | $ | 363,128 |  |  | $ | 10,871 |

The unrealized losses on our investments in available-for-sale fixed maturities were the result of interest rate movements. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

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December 31, 2020 | Less than 12 months |  | 12 months or longer |  | Total
Type of Investment | Number of Issues |  | Fair Value |  | Gross Unrealized Depreciation |  | Number of Issues |  | Fair Value |  | Gross Unrealized Depreciation |  | Fair Value |  | Gross Unrealized Depreciation
AVAILABLE-FOR-SALE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | 5 |  |  | $ | 86,371 |  |  | $ | 25 |  |  | — |  |  | $ | — |  |  | $ | — |  |  | $ | 86,371 |  |  | $ | 25 |
Foreign bonds | 1 |  |  | 2,000 |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 2,000 |  |  | 2 |
Technology, media and telecommunications | 1 |  |  | 2,020 |  |  | 15 |  |  | — |  |  | — |  |  | — |  |  | 2,020 |  |  | 15 |
Financial services | 1 |  |  | 2,995 |  |  | 5 |  |  | 1 |  |  | 3,000 |  |  | 7 |  |  | 5,995 |  |  | 12 |
Mortgage-backed securities | 2 |  |  | 8,099 |  |  | 53 |  |  | 5 |  |  | 118 |  |  | 1 |  |  | 8,217 |  |  | 54 |
Collateralized mortgage obligations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Federal home loan mortgage corporation | 24 |  |  | 97,691 |  |  | 758 |  |  | 1 |  |  | 26 |  |  | — |  |  | 97,717 |  |  | 758 |
Federal national mortgage association | 10 |  |  | 44,677 |  |  | 683 |  |  | — |  |  | — |  |  | — |  |  | 44,677 |  |  | 683 |
Government national mortgage association | 2 |  |  | 12,394 |  |  | 45 |  |  | 1 |  |  | 24 |  |  | — |  |  | 12,418 |  |  | 45 |
Total Available-for-Sale Fixed Maturities | 46 |  |  | $ | 256,247 |  |  | $ | 1,586 |  |  | 8 |  |  | $ | 3,168 |  |  | $ | 8 |  |  | $ | 259,415 |  |  | $ | 1,594 |

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NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Current accounting guidance on fair value measurements includes the application of a fair value hierarchy that requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Our financial instruments that are recorded at fair value are categorized into a three-level hierarchy, which is based upon the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (i.e., Level 1) and the lowest priority to unobservable inputs (i.e., Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the financial instrument.
Financial instruments recorded at fair value are categorized in the fair value hierarchy as follows:
•Level 1: Valuations are based on unadjusted quoted prices in active markets for identical financial instruments that we have the ability to access.
•Level 2: Valuations are based on quoted prices for similar financial instruments, other than quoted prices included in Level 1, in markets that are not active or on inputs that are observable either directly or indirectly for the full term of the financial instrument.
•Level 3: Valuations are based on pricing or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument.
We review our fair value hierarchy categorizations on a quarterly basis at which time the classification of certain financial instruments may change if the input observations have changed. Transfers between levels, if any, are recorded as of the beginning of the reporting period.
To determine the fair value of the majority of our investments, we utilize prices obtained from independent, nationally recognized pricing services. When the pricing services cannot provide a determination of fair value for a specific security, we obtain non-binding price quotes from broker-dealers with whom we have had several years' experience and who have demonstrated knowledge of the subject security.
In order to determine the proper classification in the fair value hierarchy, we obtain and evaluate the vendors' pricing procedures and inputs used to price the security, which include unadjusted quoted market prices for identical securities, such as a New York Stock Exchange closing price, and quoted prices for identical securities in markets that are not active. For fixed maturity securities, an evaluation of interest rates and yield curves observable at commonly quoted intervals, volatility, prepayment speeds, credit risks and default rates may also be performed. We have determined that these processes and inputs result in fair values and classifications consistent with the applicable accounting guidance on fair value measurements.
When possible, we use quoted market prices to determine the fair value of fixed maturities, equity securities, trading securities and short-term investments. When quoted market prices do not exist, we base estimates of fair value on market information obtained from independent pricing services and brokers or on valuation techniques that are both unobservable and significant to the overall fair value measurement of the financial instrument. Such inputs may reflect management's own assumptions about the assumptions a market participant would use in pricing the financial instrument. Our valuation techniques are discussed in more detail throughout this section.
The mortgage loan portfolio consists entirely of commercial mortgage loans. The fair value of our mortgage loans is determined by modeling performed by our third party fund manager based on the stated principal and coupon payments provided for in the loan agreements. These cash flows are then discounted using an appropriate risk-adjusted discount rate to determine the security's fair value.

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Our other long-term investments consist primarily of our interests in limited liability partnerships that are recorded on the equity method of accounting. The fair value of the partnerships is obtained from the fund managers, which is based on the fair value of the underlying investments held in the partnerships. In management's opinion, these values represent a reasonable estimate of fair value. We have not adjusted the net asset value provided by the fund managers.
For cash and cash equivalents and accrued investment income, carrying value is a reasonable estimate of fair value due to the short-term nature of these financial instruments.
The Company formed a rabbi trust in 2014 to fund obligations under the United Fire & Casualty Company Supplemental Executive Retirement and Deferral Plan (the "Executive Retirement Plan"). Within the rabbi trust, corporate-owned life insurance ("COLI") policies are utilized as an investment vehicle and source of funding for the Company's Executive Retirement Plan. The COLI policies invest in mutual funds, which are priced daily by independent sources. As of March 31, 2021, the cash surrender value of the COLI policies was $9,188, which is equal to the fair value measured using Level 2 inputs, based on the underlying assets of the COLI policie s, and is included in other assets in the Consolidated Balance Sheets.
Our long-term debt is not carried in the Consolidated Balance Sheet at fair value. The fair value of our long-term debt is estimated using Level 2 inputs based on quoted prices for similar financial instruments. The fair value is estimated using a discounted cash flows analysis.
A summary of the carrying value and estimated fair value of our financial instruments at March 31, 2021 and December 31, 2020 is as follows:

| March 31, 2021 |  | December 31, 2020
| Fair Value |  | Carrying Value |  | Fair Value |  | Carrying Value
Assets |  |  |  |  |  |  |
Investments |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Available-for-sale securities | $ | 1,816,939 |  |  | $ | 1,816,765 |  |  | $ | 1,825,443 |  |  | $ | 1,825,438 |
Equity securities | 193,263 |  |  | 193,263 |  |  | 206,685 |  |  | 206,685 |
Mortgage loans | 48,129 |  |  | 47,494 |  |  | 48,932 |  |  | 47,614 |
Other long-term investments | 77,816 |  |  | 77,816 |  |  | 69,305 |  |  | 69,305 |
Short-term investments | 804 |  |  | 804 |  |  | 175 |  |  | 175 |
Cash and cash equivalents | 71,514 |  |  | 71,514 |  |  | 87,948 |  |  | 87,948 |
Corporate-owned life insurance | 9,188 |  |  | 9,188 |  |  | 8,557 |  |  | 8,557 |
Liabilities |  |  |  |  |  |  |
Long Term Debt | 46,683 |  |  | 50,000 |  |  | 50,000 |  |  | 50,000 |

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The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at March 31, 2021 and December 31, 2020:

March 31, 2021 |  |  | Fair Value Measurements
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
AVAILABLE-FOR-SALE |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |
U.S. Treasury | $ | 70,092 |  |  | $ | — |  |  | $ | 70,092 |  |  | $ | — |
U.S. government agency | 88,157 |  |  | — |  |  | 88,157 |  |  | — |
States, municipalities and political subdivisions |  |  |  |  |  |  |
General obligations |  |  |  |  |  |  |
Midwest | 71,529 |  |  | — |  |  | 71,529 |  |  | — |
Northeast | 30,099 |  |  | — |  |  | 30,099 |  |  | — |
South | 99,188 |  |  | — |  |  | 99,188 |  |  | — |
West | 103,501 |  |  | — |  |  | 103,501 |  |  | — |
Special revenue |  |  |  |  |  |  |
Midwest | 131,658 |  |  | — |  |  | 131,658 |  |  | — |
Northeast | 60,165 |  |  | — |  |  | 60,165 |  |  | — |
South | 226,730 |  |  | — |  |  | 226,730 |  |  | — |
West | 140,086 |  |  | — |  |  | 140,086 |  |  | — |
Foreign bonds | 27,409 |  |  | — |  |  | 27,409 |  |  | — |
Public utilities | 100,133 |  |  | — |  |  | 100,133 |  |  | — |
Corporate bonds |  |  |  |  |  |  |
Energy | 26,407 |  |  | — |  |  | 26,407 |  |  | — |
Industrials | 55,581 |  |  | — |  |  | 55,581 |  |  | — |
Consumer goods and services | 68,505 |  |  | — |  |  | 68,505 |  |  | — |
Health care | 28,499 |  |  | — |  |  | 28,499 |  |  | — |
Technology, media and telecommunications | 67,934 |  |  | — |  |  | 67,934 |  |  | — |
Financial services | 106,019 |  |  | — |  |  | 105,869 |  |  | 150 |
Mortgage-backed securities | 26,300 |  |  | — |  |  | 26,300 |  |  | — |
Collateralized mortgage obligations |  |  |  |  |  |  |
Government national mortgage association | 86,644 |  |  | — |  |  | 86,644 |  |  | — |
Federal home loan mortgage corporation | 139,532 |  |  | — |  |  | 139,532 |  |  | — |
Federal national mortgage association | 61,923 |  |  | — |  |  | 61,923 |  |  | — |
Asset-backed securities | 848 |  |  | — |  |  | — |  |  | 848 |
Total Available-for-Sale Fixed Maturities | $ | 1,816,939 |  |  | $ | — |  |  | $ | 1,815,941 |  |  | $ | 998 |
EQUITY SECURITIES |  |  |  |  |  |  |
Common stocks |  |  |  |  |  |  |
Public utilities | $ | 16,695 |  |  | $ | 16,695 |  |  | $ | — |  |  | $ | — |
Energy | 8,194 |  |  | 8,194 |  |  | — |  |  | — |
Industrials | 38,430 |  |  | 38,430 |  |  | — |  |  | — |
Consumer goods and services | 40,056 |  |  | 40,056 |  |  | — |  |  | — |
Health care | 18,316 |  |  | 18,316 |  |  | — |  |  | — |
Technology, media and telecommunications | 17,749 |  |  | 17,749 |  |  | — |  |  | — |

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Financial services | 53,228 |  |  | 53,228 |  |  | — |  |  | — |
Nonredeemable preferred stocks | 595 |  |  | — |  |  | — |  |  | 595 |
Total Equity Securities | $ | 193,263 |  |  | $ | 192,668 |  |  | $ | — |  |  | $ | 595 |
Short-Term Investments | $ | 804 |  |  | $ | 804 |  |  | $ | — |  |  | $ | — |
Money Market Accounts | $ | 41,378 |  |  | $ | 41,378 |  |  | $ | — |  |  | $ | — |
Corporate-Owned Life Insurance | $ | 9,188 |  |  | $ | — |  |  | $ | 9,188 |  |  | $ | — |
Total Assets Measured at Fair Value | $ | 2,061,572 |  |  | $ | 234,850 |  |  | $ | 1,825,129 |  |  | $ | 1,593 |

December 31, 2020 |  |  | Fair Value Measurements
Description | Total |  | Level 1 |  | Level 2 |  | Level 3
AVAILABLE-FOR-SALE |  |  |  |  |  |  |
Fixed maturities: |  |  |  |  |  |  |
Bonds |  |  |  |  |  |  |
U.S. Treasury | $ | 149,938 |  |  | $ | — |  |  | $ | 149,938 |  |  | $ | — |
U.S. government agency | 64,518 |  |  | — |  |  | 64,518 |  |  | — |
States, municipalities and political subdivisions |  |  |  |  |  |  |
General obligations |  |  |  |  |  |  |
Midwest | 81,980 |  |  | — |  |  | 81,980 |  |  | — |
Northeast | 30,450 |  |  | — |  |  | 30,450 |  |  | — |
South | 109,970 |  |  | — |  |  | 109,970 |  |  | — |
West | 110,021 |  |  | — |  |  | 110,021 |  |  | — |
Special revenue |  |  |  |  |  |  |
Midwest | 125,098 |  |  | — |  |  | 125,098 |  |  | — |
Northeast | 61,076 |  |  | — |  |  | 61,076 |  |  | — |
South | 226,706 |  |  | — |  |  | 226,706 |  |  | — |
West | 139,399 |  |  | — |  |  | 139,399 |  |  | — |
Foreign bonds | 29,602 |  |  | — |  |  | 29,602 |  |  | — |
Public utilities | 83,502 |  |  | — |  |  | 83,502 |  |  | — |
Corporate bonds |  |  |  |  |  |  |
Energy | 25,336 |  |  | — |  |  | 25,336 |  |  | — |
Industrials | 43,257 |  |  | — |  |  | 43,257 |  |  | — |
Consumer goods and services | 50,567 |  |  | — |  |  | 50,567 |  |  | — |
Health care | 7,576 |  |  | — |  |  | 7,576 |  |  | — |
Technology, media and telecommunications | 41,636 |  |  | — |  |  | 41,636 |  |  | — |
Financial services | 101,031 |  |  | — |  |  | 100,781 |  |  | 250 |
Mortgage-backed securities | 20,577 |  |  | — |  |  | 20,577 |  |  | — |
Collateralized mortgage obligations |  |  |  |  |  |  |
Government national mortgage association | 86,152 |  |  | — |  |  | 86,152 |  |  | — |
Federal home loan mortgage corporation | 152,843 |  |  | — |  |  | 152,843 |  |  | — |
Federal national mortgage association | 83,282 |  |  | — |  |  | 83,282 |  |  | — |
Asset-backed securities | 926 |  |  | — |  |  | — |  |  | 926 |
Total Available-for-Sale Fixed Maturities | $ | 1,825,443 |  |  | $ | — |  |  | $ | 1,824,267 |  |  | $ | 1,176 |
EQUITY SECURITIES |  |  |  |  |  |  |

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Common stocks |  |  |  |  |  |  |
Public utilities | $ | 16,320 |  |  | $ | 16,320 |  |  | $ | — |  |  | $ | — |
Energy | 9,918 |  |  | 9,918 |  |  | — |  |  | — |
Industrials | 36,556 |  |  | 36,556 |  |  | — |  |  | — |
Consumer goods and services | 32,061 |  |  | 32,061 |  |  | — |  |  | — |
Health care | 24,549 |  |  | 24,549 |  |  | — |  |  | — |
Technology, media and telecommunications | 17,109 |  |  | 17,109 |  |  | — |  |  | — |
Financial services | 69,577 |  |  | 69,577 |  |  | — |  |  | — |
Nonredeemable preferred stocks | 595 |  |  | — |  |  | — |  |  | 595 |
Total Equity Securities | $ | 206,685 |  |  | $ | 206,090 |  |  | $ | — |  |  | $ | 595 |
Short-Term Investments | $ | 175 |  |  | $ | 175 |  |  | $ | — |  |  | $ | — |
Money Market Accounts | $ | 24,790 |  |  | $ | 24,790 |  |  | $ | — |  |  | $ | — |
Corporate-Owned Life Insurance | $ | 8,557 |  |  | $ | — |  |  | $ | 8,557 |  |  | $ | — |
Total Assets Measured at Fair Value | $ | 2,065,650 |  |  | $ | 231,055 |  |  | $ | 1,832,824 |  |  | $ | 1,771 |

The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.
We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.
At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at March 31, 2021 and December 31, 2020 was reasonable.
For the three-month period ended March 31, 2021, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities.
Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’

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valuation processes. The following table provides a quantitative information about our Level 3 securities at March 31, 2021:

Quantitative Information about Level 3 Fair Value Measurements
|  | Fair Value at |  | Valuation Technique(s) |  | Unobservable inputs |  | Range of weighted average significant unobservable inputs
|  | March 31, 2021 |  |  |
Corporate bonds - financial services |  | $ | 150 |  |  | Fair value equals cost |  | NA |  | NA
Fixed Maturities asset-backed securities |  | 848 |  |  | Discounted cash flow |  | Probability of default |  | 4% - 6%
Nonredeemable preferred stocks |  | 595 |  |  | Discounted cash flow |  | Multiplier |  | 3x - 4x

During the three-month period ended March 31, 2021, there were no securities transferred in or out of Level 3.
The following table provides a summary of the changes in fair value of our Level 3 securities for the three-month period ended March 31, 2021:

|  |  |  |  |  |  | Corporate bonds |  | Asset-backed securities |  | Equities |  | Total
Balance at January 1, 2021 |  |  |  |  |  |  | $ | 250 |  |  | $ | 926 |  |  | $ | 595 |  |  | $ | 1,771 |
Net unrealized gains (losses)(1) |  |  |  |  |  |  | — |  |  | (78) |  |  | — |  |  | (78) |
Transfers out |  |  |  |  |  |  | (100) |  |  | — |  |  | — |  |  | (100) |
Balance at March 31, 2021 |  |  |  |  |  |  | $ | 150 |  |  | $ | 848 |  |  | $ | 595 |  |  | $ | 1,593 |

(1) Net unrealized gains (losses) are recorded as a component of comprehensive income.
Commercial Mortgage Loans
The following tables present the carrying value of our commercial mortgage loans and additional information at March 31, 2021 and December 31, 2020:

Commercial Mortgage Loans
| March 31, 2021 |  | December 31, 2020
Loan-to-value | Carrying Value |  | Carrying Value
Less than 65% | $ | 30,253 |  |  | $ | 30,361 |
65%-75% | 17,317 |  |  | 17,329 |
Total amortized cost | $ | 47,570 |  |  | $ | 47,690 |
Allowance for mortgage loan losses | (76) |  |  | (76) |
Mortgage loans, net | $ | 47,494 |  |  | $ | 47,614 |

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Mortgage Loans by Region
| March 31, 2021 |  | December 31, 2020
| Carrying Value |  | Percent of Total |  | Carrying Value |  | Percent of Total
East North Central | $ | 3,245 |  |  | 6.8 | % |  | $ | 3,245 |  |  | 6.8 | %
Southern Atlantic | 9,709 |  |  | 20.4 |  |  | 9,752 |  |  | 20.5 |
East South Central | 8,155 |  |  | 17.1 |  |  | 8,197 |  |  | 17.2 |
New England | 6,588 |  |  | 13.8 |  |  | 6,588 |  |  | 13.8 |
Middle Atlantic | 14,900 |  |  | 31.4 |  |  | 14,936 |  |  | 31.2 |
Mountain | 2,227 |  |  | 4.7 |  |  | 2,227 |  |  | 4.7 |
West North Central | 2,746 |  |  | 5.8 |  |  | 2,745 |  |  | 5.8 |
Total mortgage loans at amortized cost | $ | 47,570 |  |  | 100.0 | % |  | $ | 47,690 |  |  | 100.0 | %

Mortgage Loans by Property Type
| March 31, 2021 |  | December 31, 2020
| Carrying Value |  | Percent of Total |  | Carrying Value |  | Percent of Total
Commercial |  |  |  |  |  |  |
Multifamily | $ | 17,025 |  |  | 35.7 | % |  | $ | 17,038 |  |  | 35.7 | %
Office | 11,790 |  |  | 24.8 |  |  | 11,861 |  |  | 24.9 |
Industrial | 10,124 |  |  | 21.3 |  |  | 10,124 |  |  | 21.2 |
Retail | 2,227 |  |  | 4.7 |  |  | 2,227 |  |  | 4.7 |
Mixed use/Other | 6,404 |  |  | 13.5 |  |  | 6,440 |  |  | 13.5 |
Total mortgage loans at amortized cost | $ | 47,570 |  |  | 100.0 | % |  | $ | 47,690 |  |  | 100.0 | %

Amortized Cost Basis by Year of Origination and Credit Quality Indicator
|  | 2021 |  | 2020 |  | 2019 |  | 2018 |  | Total
Commercial mortgage loans: |  |  |  |  |  |  |  |  |  |
Risk Rating: |  |  |  |  |  |  |  |  |  |
1-2 internal grade |  | $ | — |  |  | $ | 5,524 |  |  | $ | 8,380 |  |  | $ | 18,582 |  |  | $ | 32,486 |
3-4 internal grade |  | — |  |  | — |  |  | 8,496 |  |  | 6,588 |  |  | 15,084 |
5 internal grade |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
6 internal grade |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
7 internal grade |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total commercial mortgage loans |  | $ | — |  |  | $ | 5,524 |  |  | $ | 16,876 |  |  | $ | 25,170 |  |  | $ | 47,570 |
Current-period write-offs |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Current-period recoveries |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Current-period net write-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

Commercial mortgage loans carrying value excludes accrued interest of $168. As of March 31, 2021, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. An internal grade is assigned to each mortgage loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most

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likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of March 31, 2021, the Company had an allowance for mortgage loan losses of $76, summarized in the following rollforward:

Rollforward of allowance for mortgage loan losses:
|  | As of
|  | March 31, 2021
Beginning balance, January 1, 2021 |  | $ | 76 |
Current-period provision for expected credit losses |  | — |
Ending balance of the allowance for mortgage loan losses, March 31, 2021 |  | $ | 76 |

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NOTE 4. RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES
Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.
Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.
The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will take action that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc., to render an opinion as to the reasonableness of our statutory reserves annually.
On a quarterly basis, UFG's internal actuary performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.
We do not discount loss reserves based on the time value of money.

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The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at March 31, 2021 and December 31, 2020 (net of reinsurance amounts):

| March 31, 2021 |  | December 31, 2020
Gross liability for losses and loss settlement expenses at beginning of year | $ | 1,578,131 |  |  | $ | 1,421,754 |
Ceded losses and loss settlement expenses | (131,843) |  |  | (68,536) |
Net liability for losses and loss settlement expenses at beginning of year | $ | 1,446,288 |  |  | $ | 1,353,218 |
Losses and loss settlement expenses incurred for claims occurring during |  |  |
Current year | $ | 217,621 |  |  | $ | 887,119 |
Prior years | (13,259) |  |  | (17,652) |
Total incurred | $ | 206,398 |  |  | $ | 869,467 |
Losses and loss settlement expense payments for claims occurring during |  |  |
Current year | $ | 54,053 |  |  | $ | 354,635 |
Prior years | 123,533 |  |  | 421,762 |
Total paid | $ | 177,586 |  |  | $ | 776,397 |
Net liability for losses and loss settlement expenses at end of year | $ | 1,475,100 |  |  | $ | 1,446,288 |
Ceded loss and loss settlement expenses | 137,925 |  |  | 131,843 |
Gross liability for losses and loss settlement expenses at end of period | $ | 1,613,025 |  |  | $ | 1,578,131 |

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific monetary impact of any individual factor on the development of reserves.
Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable reserve development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. We realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.
We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.

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Reserve Development
The significant drivers of the favorable reserve development in the three-month period ended March 31, 2021. Three lines contributing the majority of the favorable development were commercial fire and allied lines, personal fire and allied lines and fidelity and surety. Both loss and loss adjustment expense contributed to the favorable development. A partial offset to the favorable development came from two lines which had unfavorable development with the largest portion coming from commercial liability and the remainder coming from reinsurance assumed. Commercial liability experienced unfavorable development primarily due to paid loss which was greater than reductions in reserves for unpaid loss; favorable loss adjustment expense ("LAE") development partially offset the unfavorable loss experience.
The significant drivers of the favorable reserve development for the full year of 2020 were workers' compensation, commercial fire and allied lines, fidelity and surety and personal automobile. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid loss. Reductions in reserves for IBNR claims also contributed favorable development in addition to LAE where reductions in reserves more than sufficient to offset payments. Commercial fire and allied lines developed favorably because reductions in reserves for reported claims combined with reductions in reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Fidelity and surety loss developed favorably because a reduction in reserves for IBNR claims was more than sufficient to offset both paid loss and increases in reserves for reported claims. The personal automobile line of business developed favorably because reductions of reserves for reported claims combined with reductions of reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Much of the favorable development was offset by unfavorable development from three lines with the largest contribution coming from commercial liability, reinsurance assumed and commercial automobile. The commercial liability line of business experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss. LAE developed favorably and partially offset the unfavorable loss development. The unfavorable development for reinsurance assumed was due to paid loss which was greater than reductions in reserves for unpaid loss. The commercial automobile line of business experienced unfavorable development because paid loss was greater than reductions in reserves for unpaid loss, but a portion of the unfavorable loss development was offset by favorable development from LAE where payments were more than offset by reductions of reserves for unpaid loss adjustment expense. On an all lines combined basis, favorable development is attributable to LAE which continues to benefit from additional litigation management efforts.

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NOTE 5. EMPLOYEE BENEFITS
Net Periodic Benefit Cost
The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:

| Pension Plan |  | Postretirement Benefit Plan
Three Months Ended March 31, | 2021 |  | 2020 |  | 2021 |  | 2020
Net periodic benefit cost |  |  |  |  |  |  |
Service cost | $ | 3,020 |  |  | $ | 2,707 |  |  | $ | 148 |  |  | $ | 432 |
Interest cost | 1,728 |  |  | 2,066 |  |  | 69 |  |  | 253 |
Expected return on plan assets | (4,202) |  |  | (3,385) |  |  | — |  |  | — |
Amortization of prior service credit | (809) |  |  | — |  |  | (3,196) |  |  | (2,021) |
Amortization of net loss | 999 |  |  | 979 |  |  | 492 |  |  | 94 |
Special event plan closure | — |  |  | — |  |  | (20,177) |  |  | — |
Net periodic benefit cost | $ | 736 |  |  | $ | 2,367 |  |  | $ | (22,664) |  |  | $ | (1,242) |

A portion of the service cost component of net periodic pension and postretirement benefit costs is capitalized and amortized as part of deferred acquisition costs and is included in the line "Amortization of deferred policy acquisition costs" in the Consolidated Statements of Income and Comprehensive Income. The portion not related to the compensation and the other components of net periodic pension and postretirement benefit costs is included in the income statement line titled "other underwriting expenses."
In January 2021, the Company decided to change the post-retirement benefit plan to a voluntary plan funded exclusively by participants, commencing at the start of 2023. The impact of this decision is reflected in the table above, with a one-time adjustment presented in the line "Special event plan closure" and an additional adjustment in the line "Amortization of prior service credit" recorded in first quarter of 2021. There will be continuing amortization of prior service credits through the end of 2022 related to these plan changes.
Employer Contributions
We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 that we expected to contribute $10,000 to the pension plan in 2021. For the three-month period ended March 31, 2021, we contributed $2,500 to the pension plan.
NOTE 6. STOCK-BASED COMPENSATION
Non-Qualified Employee Stock Award Plan
The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At March 31, 2021, there were 579,589 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees, who are in positions of substantial responsibility with United Fire.

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Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Options granted after March 2017 vest and are exercisable in installments of 33.3 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of grant, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.
The activity in the Stock Plan is displayed in the following table:

Authorized Shares Available for Future Award Grants | Three Months Ended March 31, 2021 |  | From Inception to March 31, 2021
Beginning balance | 700,680 |  |  | 1,900,000 |
Additional shares authorized | — |  |  | 1,500,000 |
Number of awards granted | (153,260) |  |  | (3,442,159) |
Number of awards forfeited or expired | 32,169 |  |  | 621,748 |
Ending balance | 579,589 |  |  | 579,589 |
Number of option awards exercised | 4,500 |  |  | 1,478,589 |
Number of unrestricted stock awards granted | — |  |  | 10,090 |
Number of restricted stock awards vested | 51,902 |  |  | 216,280 |

Non-Qualified Non-Employee Director Stock Plan
The United Fire Group, Inc. Non-Employee Director Stock Plan (formerly known as the 2005 Non-Qualified Non- Employee Director Stock Option and Restricted Stock Plan) (the "Director Stock Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. On May 20, 2020, the Company’s shareholders approved amendments to the Director Stock Plan, previously approved by the Company’s Board of Directors, to (i) increase the number of shares available for future awards under the Director Stock Plan from 300,000 to 450,000, (ii) extend the expiration date of the Director Stock Plan from December 31, 2020 to December 31, 2029, (iii) allow for the grant of awards of restricted stock units, and (iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At March 31, 2021, the Company had 162,862 authorized shares available for future issuance.
The Board of Directors has the authority to determine which non-employee directors receive awards, when restricted stock, restricted stock units and options shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options, restricted stock and restricted stock units (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option, restricted stock or restricted stock unit agreements (subject to limits set forth in the Director Stock Plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Stock Plan.

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

Authorized Shares Available for Future Award Grants | Three Months Ended March 31, 2021 |  | From Inception to March 31, 2021
Beginning balance | 160,135 |  |  | 300,000 |
Additional authorization | — |  |  | 150,000 |
Number of awards granted | — |  |  | (313,868) |
Number of awards forfeited or expired | 2,727 |  |  | 26,730 |
Ending balance | 162,862 |  |  | 162,862 |
Number of option awards exercised | 8,181 |  |  | 142,001 |
Number of restricted stock awards vested | — |  |  | 98,491 |

Stock-Based Compensation Expense
For the three-month periods ended March 31, 2021 and 2020, we recognized stock-based compensation expense of $1,008 and $1,634, respectively.
As of March 31, 2021, we had $6,396 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized over the remainder of 2021 and subsequent years according to the table below, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.

2021 |  | $ | 2,565 |
2022 |  | 2,216 |
2023 |  | 1,372 |
2024 |  | 231 |
2025 |  | 12 |
Total |  | $ | 6,396 |

NOTE 7. EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options, restricted stock awards and restricted stock unit awards.
We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.

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The components of basic and diluted earnings per share were as follows for the three-month periods ended March 31, 2021 and 2020:

| Three Months Ended March 31,
(In Thousands, Except Share Data) | 2021 |  | 2020
| Basic |  | Diluted |  | Basic |  | Diluted
Net income (loss) | $ | 18,702 |  |  | $ | 18,702 |  |  | $ | (72,534) |  |  | $ | (72,534) |
Weighted-average common shares outstanding | 25,085,914 |  |  | 25,085,914 |  |  | 25,014,027 |  |  | 25,014,027 |
Add dilutive effect of restricted stock unit awards | — |  |  | 229,930 |  |  | — |  |  | — |
Add dilutive effect of stock options | — |  |  | 63,968 |  |  | — |  |  | — |
Weighted-average common shares outstanding | 25,085,914 |  |  | 25,379,812 |  |  | 25,014,027 |  |  | 25,014,027 |
Earnings (loss) per common share | $ | 0.75 |  |  | $ | 0.74 |  |  | $ | (2.90) |  |  | $ | (2.90) |
Awards excluded from diluted earnings per share calculation(1) | — |  |  | 515,984 |  |  | — |  |  | 379,282 |

(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.
NOTE 8. DEBT
Long Term Debt
The Company executed a private placement debt transaction on December 15, 2020 between UF&C, and Federated Mutual and Federated Life.
UF&C sold an aggregate principal amount of $50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $35,000 was issued to Federated Mutual and one note with a principal amount of $15,000 was issued to Federated Life subject to the terms of their respective notes.
Interest payments under the surplus notes will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date, as set forth in the table below. For the three-month period ended March 31, 2021, interest expense totaled $797. Payment of interest is subject to approval by the Iowa Insurance Division.

A.M. Best Co. Financial Strength Rating | Applicable Interest Rate
A+ | 5.875%
A | 6.375%
A- | 6.875%
B++ (or lower) | 7.375%

Credit Facilities
On March 31, 2020, UF&C, a wholly owned subsidiary of the Company, entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Administrative Agent"), issuing lender, swing-line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing-line loan for working capital and other general corporate purposes. The Credit Agreement is provided by the Lenders on an unsecured basis, and UF&C has the option to increase the Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility.

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The Credit Agreement includes customary events of default, including default in payments of principals, default in payment of other indebtedness, change of control and voluntary and involuntary insolvency proceedings, the occurrence of which would allow the Lenders to accelerate payment of all amounts outstanding thereunder and terminate any further commitments to lend.
The entry into the Credit Agreement was completed as part of the Company’s regular course of financial planning and was not initiated as a result of market conditions resulting from the COVID-19 pandemic.
There was no outstanding balance on the Credit Agreement at March 31, 2021 and 2020, respectively. For the three-month periods ended March 31, 2021 and 2020, we did not incur any interest expense related to the credit facility. We were in compliance with all covenants under the Credit Agreement at March 31, 2021.
NOTE 9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the three-month period ended March 31, 2021:

|  |  | Liability for |  |
| Net unrealized |  | underfunded |  |
| appreciation |  | employee |  |
| on investments |  | benefit costs(1) |  | Total
Balance as of January 1, 2021 | 83,070 |  |  | (16,159) |  |  | $ | 66,911 |
Change in accumulated other comprehensive income before reclassifications | (24,093) |  |  | 5,139 |  |  | (18,954) |
Reclassification adjustments from accumulated other comprehensive income (loss) | 637 |  |  | 1,317 |  |  | 1,954 |
Balance as of March 31, 2021 | $ | 59,614 |  |  | $ | (9,703) |  |  | $ | 49,911 |

(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.
NOTE 10. LEASES
The Company has operating leases consisting of office space, vehicle leases, computer equipment, and office equipment. Lease terms and options vary in the Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As of March 31, 2021, we have leases with remaining terms of 1 year to 7 years, some of which may include no options for renewal and others with options to extend the lease terms from 6 months to 5 years.

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The components of our operating leases were as follows for the three-month periods ended March 31, 2021 and 2020:

|  | Three Months Ended March 31, |  |
|  | 2021 |  | 2020 |  |  |  |
Components of lease expense: |  |  |  |  |  |  |  |
Operating lease expense |  | $ | 1,782 |  |  | $ | 2,029 |  |  |  |  |
Less sublease income |  | 53 |  |  | 122 |  |  |  |  |
Net lease expense |  | 1,729 |  |  | 1,907 |  |  |  |  |
Cash flows information related to leases: |  |  |  |  |  |  |  |
Operating cash outflow from operating leases |  | 1,747 |  |  | 1,639 |  |  |  |  |

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Part I, Item 1 "Financial Statements."
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no changes in our critical accounting policies from December 31, 2020.
INTRODUCTION
The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial condition. Our Management's Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Our Consolidated Financial Statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business.
When we provide information on a statutory or other basis, we label it as such, otherwise all other data is presented in accordance with GAAP.

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BUSINESS OVERVIEW
Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional offices. Our property and casualty insurance company subsidiaries are licensed in 50 s tates plus the District of Columbia and are represented by approximatel y 1,000 independent agencies.
Our primary sources of revenue are premiums and investment income. Major categories of expenses from our operations include losses and loss settlement expenses, underwriting and other operating expenses.
Reportable Segments
Subsequent to the announcement of the sale of the life insurance business on September 19, 2017, we have operated and report as one business segment. For more information, refer to Part I, Item 1, Note 1. "Nature of Operations and Basis of Presentation."
Lloyd's Syndicates
As of January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyds ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At March 31, 2021, the Company's FAL investments were comprised of cash of $18.1 million on deposit with Lloyd's in order to satisfy these FAL requirements. The results of the syndicates are normally reported on a quarter lag, except when information is available that is material to the current period. For the first quarter of 2021, the Company recorded estimates of premiums, losses and loss settlement reserves and expenses and underwriting expenses, including deferred acquisition costs, based on the forecast provided by the syndicates. These amounts will be revised, if necessary, with changes reflected in second quarter operations.
Personal Lines Business
In May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual Insurance Company beginning in the third quarter of 2020, subject to the receipt of applicable regulatory approvals. As part of this agreement, Nationwide has offered contracts to many of our personal lines agents across the country, with the exception of agents in Louisiana. In Louisiana, we began non-renewing all personal lines policies in January 2021. Nationwide has been offering replacement policies to most of our personal lines policyholders at the time of renewal. There are three categories of policies where they are refusing to offer replacement coverage directly.
UFG’s entry into a renewal rights agreement with Nationwide was completed as part of our long-term strategic planning, allowing us to focus on the success of our core commercial lines business, which represented 94 percent of our business mix at the time of the agreement. It was not initiated as a result of market conditions from the COVID-19 pandemic.
Pooling Arrangement
All of our property and casualty insurance subsidiaries are members of an intercompany reinsurance pooling arrangement. The Company's pooling arrangement permits the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant’s own surplus level.

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Geographic Concentration
For the three-month period ended March 31, 2021, approximatel y 49.0 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and Louisiana.
Profit Factors
Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. To manage these risks and uncertainties, we seek to achieve consistent profitability through strong agency relationships, exceptional customer service, fair and prompt claims handling, disciplined underwriting, superior loss control services, prudent management of our investments, appropriate matching of assets and liabilities, effective use of ceded reinsurance and effective and efficient use of technology.
COVID-19
The spread of the COVID-19 virus, beginning in mid-March 2020, caused significant financial market volatility, economic uncertainty and interruptions to normal business activities. The COVID-19 pandemic has had a profound impact on day-to-day life, financial markets and the economy in the United States. The Company, in response to the challenges presented by the COVID-19 pandemic, activated its pre-existing business continuity plans to respond to a pandemic in mid-March 2020. With the exception of our essential services employees, UFG has dispatched its staff to work remotely for the safety, health and well-being of our employees. We are fully operational, but have limited some non-essential travel. Our essential services employees are following recommended health and safety policies. We are and will continue to monitor the state and federal responses to the pandemic and, when appropriate, will adjust our operations in response. We are developing a return to workplace plan for our employees, but have not finalized plans as of the date of this report. Our return to workplace plan will be implemented at the appropriate time and in a way that is designed to ensure the health and safety of our employees.
The implementation of our business continuity plans did not have a material effect on our internal control environment. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment. Our business teams are working remotely and continue to support our customers, agents and claimants as they did when we were in the office.
Nearly all of the policies we have issued contain contract language that specifically excludes business interruption coverage for losses due to viruses such as the COVID-19 pandemic, but we continue to carefully scrutinize each claim and will afford coverage when appropriate. At this time, we expect the effect of the COVID-19 pandemic on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic, including the emergence of variant strains, continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which could impact our business, financial condition, results of operations and liquidity.
We anticipate that the larger impact on our financial condition and results of operations will likely result from developments in the economy as a whole and the effect on financial markets and the investments we hold in our investment portfolio, premiums and demand for our products, and our ability to collect premiums or any requirement to return premiums to policyholders. We believe our current liquidity position is sufficient to maintain our current operations and we have the ability to draw on our credit facility if needed. See Part 1, Item 1, Note 8 "Debt" for more information. Our share repurchase program was suspended in mid-March 2020 and restarted in the first quarter of 2021. Also, the Company maintained the payment of quarterly cash dividends during 2020 and 2021, with first quarter of 2021 marking the 212th consecutive quarter of paying dividends since March 1968.

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Stockholders' equity decreased slightly to $823.6 million at March 31, 2021, from $825.1 million at December 31, 2020. This decrease is primarily attributed to a decrease in net unrealized investment gains on fixed maturity securities of $23.5 million, net of tax, and shareholder dividends of $3.8 million, partially offset by net income of $18.7 million during the first three months of 2021.
As of March 31, 2021, we intend to keep all assets currently leased and honor the terms of the contracts. Also, we have four lease contracts where we are the lessor which we evaluated for impairment. As of March 31, 2021, all payments on these contracts had been received and we fully expect to receive all future payments on time. In the event that we receive any lease-related relief provided to mitigate the economic effects of the COVID-19 pandemic, we elect not to evaluate whether or not the relief represents a lease modification.
The decline in certain sectors of the equity markets in 2020 due to the COVID-19 pandemic did have a material impact on the fair value of our investments in equity securities and limited liability partnerships, however those sectors have now recovered as of March 31, 2021. The Company's investment philosophy, objectives, approach and program have not changed as a result of the COVID-19 pandemic. During the three-month period ended March 31, 2021 we had a recovery in the fair value of equity securities of $20.6 million and an increase in value of our investments in limited liability partnerships of $6.6 million from the values reported at December 31, 2020.
The Company has a highly rated fixed maturity portfolio, with low credit risk. The Company recognized a decrease in unrealized gains of $23.5 million, net of tax, at March 31, 2021 on its available-for-sale fixed maturity portfolio. In addition, we also adopted new accounting guidance on January 1, 2020, which changes the measurement of credit losses for our investment in available-for-sale fixed maturities and our mortgage loans and also impacts our reinsurance receivables. The adoption of this new guidance resulted in an immaterial allowance for credit losses to be recorded for each of these assets on our balance sheet as of March 31, 2021. For more information on credit losses recognized in the three-month period ended March 31, 2021, please refer to the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

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FINANCIAL HIGHLIGHTS

| Three Months Ended March 31, |  |
(In Thousands, Except Ratios) | 2021 |  | 2020 |  | % |  |  |  |  |  |
Revenues |  |  |  |  |  |  |  |  |  |  |
Net premiums earned | $ | 259,225 |  |  | $ | 268,849 |  |  | (3.6) | % |  |  |  |  |  |
Investment income, net of investment expenses | 17,081 |  |  | 2,363 |  |  | NM |  |  |  |  |  |
Net realized investment gains (losses) | 24,508 |  |  | (93,407) |  |  | (126.2) |  |  |  |  |  |  |
Other income | (79) |  |  | — |  |  | NM |  |  |  |  |  |
Total revenues | $ | 300,735 |  |  | $ | 177,805 |  |  | 69.1 | % |  |  |  |  |  |
Benefits, Losses and Expenses |  |  |  |  |  |  |  |  |  |  |
Losses and loss settlement expenses | $ | 206,398 |  |  | $ | 186,503 |  |  | 10.7 | % |  |  |  |  |  |
Amortization of deferred policy acquisition costs | 53,265 |  |  | 54,452 |  |  | (2.2) |  |  |  |  |  |  |
Other underwriting expenses | 18,368 |  |  | 41,849 |  |  | (56.1) |  |  |  |  |  |  |
Total benefits, losses and expenses | $ | 278,031 |  |  | $ | 282,804 |  |  | (1.7) | % |  |  |  |  |  |
Income (loss) before income taxes | $ | 22,704 |  |  | $ | (104,999) |  |  | (121.6) | % |  |  |  |  |  |
Federal income tax expense (benefit) | 4,002 |  |  | (32,465) |  |  | (112.3) |  |  |  |  |  |  |
Net income (loss) | $ | 18,702 |  |  | $ | (72,534) |  |  | (125.8) |  |  |  |  |  |  |
GAAP Ratios: |  |  |  |  |  |  |  |  |  |  |
Net loss ratio (without catastrophes) | 68.3 | % |  | 63.7 | % |  | 7.2 | % |  |  |  |  |  |
Catastrophes - effect on net loss ratio | 11.3 |  |  | 5.7 |  |  | 98.2 |  |  |  |  |  |  |
Net loss ratio(1) | 79.6 | % |  | 69.4 | % |  | 14.7 | % |  |  |  |  |  |
Expense ratio(2) | 27.6 |  |  | 35.8 |  |  | (22.9) |  |  |  |  |  |  |
Combined ratio(3) | 107.2 | % |  | 105.2 | % |  | 1.9 | % |  |  |  |  |  |

(1) The net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. We use the net loss ratio as a measure of the overall underwriting profitability of the insurance business we write and to assess the adequacy of our pricing. Our net loss ratio is meaningful in evaluating our financial results as reported in our unaudited Consolidated Financial Statements.
(2) The expense ratio is calculated by dividing other underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company's operational efficiency in producing, underwriting and administering its insurance business.
(3) The combined ratio is a commonly used financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of the net loss ratio and the underwriting expense ratio.
NM = Not meaningful
The following is a summary of our financial performance for the three-month period ended March 31, 2021:
RESULTS OF OPERATIONS
For the three-month period ended March 31, 2021, net income was $18.7 million compared to a net loss of $72.5 million for the same period of 2020. The change was primarily d ue to an increase in net realized investment gains from an increase in the fair value of equity securities as compared to net realized investment losses in the same period of 2020, and a decrease in other underwriting expenses, partially offset by an increase in losses and loss settlement expenses, namely from catastrophe losses, and a decrease in net premiums earned.
Net premiums earned decreased 3.6 percent during the three-month period ended March 31, 2021 compared to the same period of 2020. The decrease in the three-month period ended March 31, 2021 was primarily due to our focus on improving profitability through non-renewal of under-performing accounts in our commercial auto line of business and exit of the personal lines business which began in September 2020. These were partially offset by growth in our reinsurance assumed business and the addition of our participation in Lloyd's syndicates.

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Net investment income was $17.1 million for the first quarter of 2021 as compared to net investment income of $2.4 million for the same period in 2020. The increase in net investment income in the first quarter of 2021 as compared to the same period in 2020 was primarily due to an increase in the fair value of our investments in limited liability partnerships. The valuation of these investments in limited liability partnerships varies from period to period due to the current equity market conditions, specificall y related to financial institutions.
The Company recognized net realized investment gains of $24.5 million during the first quarter of 2021, compared to net realized investment losses of $93.4 million for the same period in 2020. The change in the three-month period ended March 31, 2021, as compared to the same period in 2020, was primarily due to the change in the fair value of equity securities.
Losses and loss settlement expenses increased by 10.7 percentage points during the three-month period ended March 31, 2021 compared to the same period in 2020. The increase in losses and loss settlement expenses primarily was due to an increase in catastrophe losses as compared to the same period in 2020.
The GAAP combined ratio increased by 2.0 percentage points to 107.2 percent for the first quarter of 2021, compared to 105.2 percent in the same period in 2020. For the three-month period ended March 31, 2021, the increase in the combined ratio was primarily driven by an increase in the net loss ratio partially offset by a decrease in the expense ratio.
The GAAP net loss ratio deteriorated 10.2 percentage points during three-month period ended March 31, 2021 as compared to the same period in 2020. The increase in the net loss ratio was primarily due to an increase in catastrophe losses and severity of commercial auto losses.
Pre-tax catastrophe losses in the first quarter of 2021 were higher when compared to first quarter of 2020, with catastrophe losses adding 11.3 percentage points to the combined ratio in 2021 as compared to 5.7 percentage points in 2020. The most significant catastrophe loss in the first quarter of 2021 was winter storm Uri, which was a full retention loss, with losses in excess of our stated reinsurance retention of $20.0 million. Our 10-year historical average for first quarter catastrophe losses is 4.0 percentage points added to the combined ratio.
The expense ratio for the first quarter of 2021 was 27.6 percent compared to 35.8 percent for the first quarter in 2020. The decrease in the expense ratio during the three-month period ended March 31, 2021 as compared to the same period in 2020 was primarily d ue to a change in the design of our employee post-retirement benefit plans.
For a detailed discussion of our investment results, refer to the "Investment Portfolio" section below.
Reserve Development
For many liability claims, significant periods of time, ranging up to several years, and for certain construction defect claims, more than a decade, may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement or other disposition of the claim. As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses. In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and the legal environment. Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability. Reserves for these long-tail coverages represent a significant portion of our overall carried reserves.
When establishing reserves and monitoring reserve adequacy, we analyze historical data and consider the potential impact of various loss development factors and trends, including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors

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influence our estimates of required reserves and, for long-tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific dollar impact of any individual factor on the development of reserves.
Our reserving philosophy is to reserve claims to their ultimate expected loss amount as soon as practicable after information about a claim becomes available. This approach tends to produce, on average, prudently conservative case reserves, which we expect to result in some level of favorable development over the course of settlement.
2021 Development
The property and casualty insurance business experienced $13.3 million of favorable development in our net reserves for prior accident years for the three-month period ended March 31, 2021. Three lines contributing the majority of the favorable development were commercial fire and allied lines which had $13.7 million favorable development, personal fire and allied lines with $3.6 million favorable development, and fidelity and surety with $1.8 million favorable development. Both loss and LAE contributed to the favorable development. A partial offset to the favorable development came from two lines which had unfavorable development with the largest portion coming from commercial other liability which experienced $5.4 million unfavorable development and the remainder coming from reinsurance assumed which was $3.1 million unfavorable. All other lines combined contributed favorable reserve development of $2.7 million. Commercial other liability experienced unfavorable development primarily due to paid loss which was greater than reductions in reserves for unpaid loss. Favorable LAE development partially offset the unfavorable loss experience.
2020 Development
The property and casualty insurance business experienced $13.7 million of favorable development in our net reserves for prior accident years for the three-month period ended March 31, 2020. The favorable development was primarily driven by two lines of business: workers' compensation, which had $8.2 million favorable development and commercial fire and allied lines with $8.0 million favorable development. The lines of business which experienced favorable development benefited from favorable prior accident year decreases in both loss and LAE. A partial offset to the favorable development came primarily from commercial other liability which experienced $6.8 million unfavorable development. Commercial liability experienced unfavorable development primarily due to paid loss which was greater than reductions in reserves for unpaid loss. Favorable loss adjustment expense development partially offset the unfavorable loss experience.
Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. At March 31, 2021, our total reserves were within our actuarial estimates.

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

Three Months Ended March 31, | 2021 |  | 2020
|  |  | Net Losses |  |  |  |  |  | Net Losses |  |
|  |  | and Loss |  |  |  |  |  | and Loss |  |
| Net |  | Settlement |  | Net |  | Net |  | Settlement |  | Net
(In Thousands, Except Ratios) | Premiums |  | Expenses |  | Loss |  | Premiums |  | Expenses |  | Loss
Unaudited | Earned |  | Incurred |  | Ratio |  | Earned |  | Incurred |  | Ratio
Commercial lines |  |  |  |  |  |  |  |  |  |  |
Other liability | $ | 75,359 |  |  | $ | 42,147 |  |  | 55.9 | % |  | $ | 79,309 |  |  | $ | 43,723 |  |  | 55.1 | %
Fire and allied lines | 58,332 |  |  | 62,974 |  |  | 108.0 |  |  | 61,669 |  |  | 51,925 |  |  | 84.2 |
Automobile | 65,977 |  |  | 67,202 |  |  | 101.9 |  |  | 78,018 |  |  | 65,305 |  |  | 83.7 |
Workers' compensation | 16,502 |  |  | 7,780 |  |  | 47.1 |  |  | 19,428 |  |  | 7,708 |  |  | 39.7 |
Fidelity and surety | 7,360 |  |  | 1,079 |  |  | 14.7 |  |  | 6,418 |  |  | 32 |  |  | 0.5 |
Miscellaneous | 349 |  |  | (18) |  |  | (5.2) |  |  | 395 |  |  | 92 |  |  | 23.3 |
Total commercial lines | $ | 223,879 |  |  | $ | 181,164 |  |  | 80.9 | % |  | $ | 245,237 |  |  | $ | 168,785 |  |  | 68.8 | %
Personal lines |  |  |  |  |  |  |  |  |  |  |
Fire and allied lines | $ | 6,221 |  |  | $ | 4,609 |  |  | 74.1 | % |  | $ | 9,970 |  |  | $ | 6,734 |  |  | 67.5 | %
Automobile | 4,040 |  |  | 3,300 |  |  | 81.7 |  |  | 7,630 |  |  | 5,149 |  |  | 67.5 |
Miscellaneous | 177 |  |  | 90 |  |  | 50.8 |  |  | 306 |  |  | 2,606 |  |  | NM
Total personal lines | $ | 10,438 |  |  | $ | 7,999 |  |  | 76.6 | % |  | $ | 17,906 |  |  | $ | 14,489 |  |  | 80.9 | %
Reinsurance assumed | $ | 24,908 |  |  | $ | 17,235 |  |  | 69.2 | % |  | $ | 5,706 |  |  | $ | 3,229 |  |  | 56.6 | %
Total | $ | 259,225 |  |  | $ | 206,398 |  |  | 79.6 | % |  | $ | 268,849 |  |  | $ | 186,503 |  |  | 69.4 | %

NM = Not meaningful
Below are explanations regarding significant changes in the net loss ratios by line of business:
•Commercial fire and allied lines - The net loss ratio deteriorated 23.8 percentage points in the three-month period ended March 31, 2021, compared to the same period in 2020. The deterioration is attributable to an increase in catastrophe losses primarily from winter storm Uri, mostly occurring in the state of Texas.
•Commercial automobile - The net loss ratio deteriorated 18.2 percentage points in the three-month period ended March 31, 2021, compared to the same period in 2020. The deterioration is attributable to an increase in claims severity.
•Fidelity and surety - The net loss ratio deteriorated 14.2 percentage points in the three-month period ended March 31, 2021, compared to the same period in 2020. This deterioration is primarily attributable to a large claim that was reported during the first quarter of 2021.
•Reinsurance assumed - The net loss ratio deteriorated 12.6 percentage points in the three-month period ended March 31, 2021, compared to the same period in 2020. The deterioration is attributable to increased loss IBNR reserves along with an increase in reserves for reported claims in 2021.
Financial Condition
Stockholders' equity decreased to $823.6 million at March 31, 2021, from $825.1 million at December 31, 2020. The Company's book value per share was $32.79, which is a decrease of $0.14 per share, or 0.4 percent from

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December 31, 2020. The decrease is primarily attributed to a decrease in net unrealized investment gains on fixed maturity securities of $23.5 million, net of tax, and shareholder dividends of $3.8 million, partially offset by net income of $18.7 million and change in our pension and post-retirement plans liability in accumulated other comprehensive income of $6.4 million, net of tax, during the first three months of 2021.
Investment Portfolio
Our invested assets totaled $2.1 billion at March 31, 2021, compared to $2.1 billion at December 31, 2020, a decrease of $13.1 million. At March 31, 2021, fixed maturity securities and equity securities made up 85.0 p ercent and 9.0 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds.
Composition
We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short- and long-term liquidity needs, projected tax status, general economic conditions, expected rates of inflation, regulatory requirements, interest rates and credit quality of assets. We administer our investment portfolio based on investment guidelines approved by management and the investment committee of our Board of Directors that comply with applicable statutory regulations.
The composition of our investment portfolio at March 31, 2021 is presented at carrying value in the following table:

| Property & Casualty Insurance
|  |  | Percent
(In Thousands, Except Ratios) |  |  | of Total
Fixed maturities (1) |  |  |
Available-for-sale | $ | 1,816,765 |  |  | 85.0 | %
Equity securities | 193,263 |  |  | 9.0 |
Mortgage loans | 47,494 |  |  | 2.3 |
Other long-term investments | 77,816 |  |  | 3.7 |
Short-term investments | 804 |  |  | — |
Total | $ | 2,136,142 |  |  | 100.0 | %

(1) Available-for-sale securities and trading fixed maturities are carried at fair value.
As of March 31, 2021 and December 31, 2020, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.
Credit Quality
The table below shows the composition of fixed maturity securities held in our available-for-sale and trading security portfolios, by credit rating at March 31, 2021 and December 31, 2020. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.

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(In Thousands, Except Ratios) | March 31, 2021 |  | December 31, 2020
Rating | Carrying Value |  | % of Total |  | Carrying Value |  | % of Total
AAA | $ | 743,610 |  |  | 40.9 | % |  | $ | 817,142 |  |  | 44.8 | %
AA | 637,625 |  |  | 35.1 |  |  | 639,011 |  |  | 35.0 |
A | 215,383 |  |  | 11.9 |  |  | 182,011 |  |  | 10.0 |
Baa/BBB | 204,072 |  |  | 11.2 |  |  | 172,078 |  |  | 9.4 |
Other/Not Rated | 16,075 |  |  | 0.9 |  |  | 15,196 |  |  | 0.8 |
| $ | 1,816,765 |  |  | 100.0 | % |  | $ | 1,825,438 |  |  | 100.0 | %

Duration
Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement we use to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal effect on these accounts. The primary purpose for matching invested assets and reserve liabilities is liquidity. With appropriate matching, our investments will mature when cash is needed, preventing the need to liquidate other assets prematurely. Mismatches in the duration of assets and liabilities can cause significant fluctuations in our results of operations.
Investment Results
We invest the premiums received from our policyholders in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income increased in the three-month period ended March 31, 2021, compared with the same period of 2020 primarily due to the change in value of our investments in limited liability partnerships.
We hold certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in value of these investments recorded in investment income. In the three-month period ended March 31, 2021, the change in value of our investments in limited liability partnerships resulted in investment income of $6.6 million as compared to an investment loss $10.1 million in the same period of 2020.
We had net realized investment gains of $24.5 million during the three-month period ended March 31, 2021, as compared to net realized investment loss of $93.4 million in the same period of 2020. The change was primarily driven by an increase in the fair value of our investments in equity securities in the three-month period ended March 31, 2021, compared to a significant decline in the fair value in the same period of 2020.
We regularly monitor the difference between our cost basis and the estimated fair value of our investments. For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history.
Non-credit related changes in unrealized gains and losses on available-for-sale fixed maturity securities are recognized as a component of other comprehensive income, impact stockholders' equity and book value per share, but do not affect net income. We believe that any unrealized losses on our available-for-sale securities at March 31, 2021 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. We have no intent to sell, and it is more likely than not that we will not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.

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For mortgage loans, an allowance for losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments that have similar risk characteristics. This allowance is presented as a separate line in the Consolidated Balance Sheets with an offset to "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income.
To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. An example of a market linked adjustment is the change in commercial market price appreciation or change in gross domestic product, with every point of fall leading to an increase in loss reserve. Local market economics are also considered. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, the purchase of investments, operating expenses, dividends, pension plan contributions, and in recent years, common stock repurchases.
We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various rating agencies, at a level considered necessary by management to enable our insurance company subsidiaries to compete and (2) sufficient capital to enable our insurance company subsidiaries to meet the capital adequacy tests performed by regulatory agencies in the United States.
Cash outflows may be variable because of the uncertainty regarding settlement dates for losses. In addition, the timing and amount of individual catastrophe losses are inherently unpredictable and could increase our liquidity requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes.
Historically, we have generated substantial cash inflows from operations. It is our policy to invest the cash generated from operations in securities with maturities that, in the aggregate, correlate to the anticipated timing of payments for losses and loss settlement expenses. The majority of our assets are invested in available-for-sale fixed maturity securities.
The following table displays a consolidated summary of cash sources and uses for the three-month periods ended March 31, 2021 and 2020:

Cash Flow Summary | Three Months Ended March 31,
(In Thousands) | 2021 |  | 2020
Cash provided by (used in) |  |  |
Operating activities | $ | 19,510 |  |  | $ | (2,487) |
Investing activities | (31,682) |  |  | 14,234 |
Financing activities | (4,262) |  |  | (11,745) |
Net increase (decrease) in cash and cash equivalents | $ | (16,434) |  |  | $ | 2 |

Our cash flows were sufficient to meet our liquidity needs for the three-month periods ended March 31, 2021 and 2020 and we anticipate they will be sufficient to meet our future liquidity needs.

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Operating Activities
Net cash flows from operating activities had inflows of $19.5 million and outflows of $2.5 million for the three-month periods ended March 31, 2021 and 2020, respectively.
Investing Activities
Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturities provide regular interest payments and allow us to match the duration of our liabilities. Equity securities provide dividend income, potential dividend income growth and potential appreciation. For further discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this Item 2.
In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, $513.4 million, or 28.3 percent, of our fixed maturity portfolio will mature.
We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At March 31, 2021, our cash and cash equivalents included $41.4 million related to these money market accounts, compared to $24.8 million at December 31, 2020.
Net cash flows used by investing activities were $31.7 million for the three-month period ended March 31, 2021, compared to net cash flows provided by investing activities of $14.2 million for the three-month period ending March 31, 2020. For the three-month periods ended March 31, 2021 and 2020, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of $172.9 million and $82.8 million, respectively.
Our cash outflows for investment purchases were $200.8 million for the three-month period ended March 31, 2021, compared to $61.4 million for the same period of 2020.
Financing Activities
Net cash flows used in financing activities was $4.3 million for the three-month period ended March 31, 2021 which decreased $7.5 million compared to $11.7 million used in the three-month period ended March 31, 2020.
Credit Facilities
On March 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"), wholly owned subsidiary of United Fire Group, Inc. entered into a credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, issuing lender, swing line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing line loan for working capital and other general corporate purposes. The Credit Agreement is provided on an unsecured basis, and the Borrower has the option to increase the Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility. As of March 31, 2021 and 2020, there were no balances outstanding under the Credit Agreement. For the three-month period ended March 31, 2021 and 2020, we did not incur any interest expense related to the credit facility. For further discussion of the Credit Agreement, refer to Part I, Item 1, Note 8 "Credit Facility."
Dividends
Dividends paid to shareholders totaled $3.8 million and $8.2 million in the three-month periods ended March 31, 2021 and 2020, respectively. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

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Payments of any future dividends and the amounts of such dividends will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.
As a holding company with no independent operations of its own, we rely on dividends received from our insurance company subsidiaries in order to pay dividends to our common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at March 31, 2021, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, is able to make a maximum o f $58.2 million in dividend payments without prior regulatory approval. We do not believe that these restrictions have a material impact in meeting the cash obligations of UFG.
Stockholders' Equity
Stockholders' equity decreased slightly by 0.2 percent to $823.6 million at March 31, 2021, from $825.1 million at December 31, 2020. At March 31, 2021, the book value per share of our common stock was $32.79 compared to $32.93 at December 31, 2020. This decrease is primarily attributed to a decrease in net unrealized investment gains on fixed maturity securities of $23.5 million, net of tax, and shareholder dividends of $3.8 million, partially offset by net income of $18.7 million and change in our pension and post-retirement plans liability in accumulated other comprehensive income of $6.4 million, net of tax, during the first three months of 2021.

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OFF BALANCE SHEET ARRANGEMENTS
Funding Commitments
Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 10, 2030, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $6.1 million a t March 31, 2021.
In addition, the Company inves ted $25.0 million in December 2019 in a limited liability partnership investment fund which is subject to a 3 year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year after the 3 year lockup period is met. The fair value of the investment at March 31, 2021 was $24.9 million and there are no remaining capital contribution obligations with this investment.
MEASUREMENT OF RESULTS
Management evaluates our operations by monitoring key measures of growth and profitability. The following section provides further explanation of the key measures management uses to evaluate our results.
Catastrophe losses is a commonly used financial measure that uses the designations of the Insurance Services Office ("ISO") and are reported with losses and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25.0 million or more in U.S. industry-wide direct insured losses to property and that affect a significant number of insureds and insurers ("ISO catastrophe"). In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may include U.S. or international losses that we believe are, or will be, material to our operations, either in amount or in number of claims made. Management, at times, may determine for comparison purposes that it is more meaningful to exclude extraordinary catastrophe losses and resulting litigation. The frequency and severity of catastrophe losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance business, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in our periodic earnings.

| Three Months Ended March 31, |  |
(In Thousands) | 2021 |  | 2020 |  |  |  |
ISO catastrophes | $ | 27,090 |  |  | $ | 15,122 |  |  |  |  |
Non-ISO catastrophes (1) | 2,157 |  |  | 145 |  |  |  |  |
Total catastrophes | $ | 29,247 |  |  | $ | 15,267 |  |  |  |  |

(1) This number includes international assumed losses.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to market risk arising from potential losses in our investment portfolio due to adverse changes in interest rates and market prices. However, we have the ability to hold fixed maturity investments to maturity. Our investment guidelines define the overall framework for managing our market and other investment risks, including accountability and controls. In addition, each of our subsidiaries has specific investment policies that delineate the investment limits and strategies that are appropriate given each entity's liquidity, surplus, product, and regulatory requirements. We respond to market risk by managing the character of investment purchases.
It is our philosophy that we do not utilize financial hedges or derivative financial instruments to manage risks, nor do we enter into any swap, forward or option contracts, but attempt to mitigate our exposure through active portfolio management. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. At March 31, 2021, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.
Our primary market risks are exposure to changes in interest rates and equity prices, and we have limited exposure to foreign currency exchange rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, no such change in our internal control over financial reporting occurred during the fiscal quarter to which this report relates. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment.

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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of March 31, 2021 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial condition or results of operations.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Under our share repurchase program, first announced in August 2007, we may purchase UFG common stock from time to time on the open market or through privately negotiated transactions. The amount and timing of any purchases will be at our discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements.
The following table provides information with respect to purchases of shares of common stock made by or on our behalf or by any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three-month period ended March 31, 2021:

|  |  |  |  | Total Number of Shares |  | Maximum Number of
| Total |  |  |  | Purchased as a Part of |  | Shares that may yet be
| Number of |  | Average Price |  | Publicly Announced |  | Purchased Under the
Period | Shares Purchased |  | Paid per Share |  | Plans or Programs |  | Plans or Programs(1)
1/1/2021 - 1/31/2021 | — |  |  | $ | — |  |  | — |  |  | 1,786,977 |
2/1/2021 - 2/28/2021 | — |  |  | — |  |  | — |  |  | 1,786,977 |
3/1/2021 - 3/31/2021 | 207 |  |  | 31.99 |  |  | 207 |  |  | 1,786,770 |
Total | 207 |  |  | $ | 31.99 |  |  | 207 |  |  | 1,786,770 |

(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. In August 2018, our Board of Directors extended our share repurchase program through the end of August 2020. In August 2020, our Board of Directors extended our share repurchase program through the end of August 2022. As of March 31, 2021, we remained authorized to repurchase 1,786,770 shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION

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None.

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ITEM 6. EXHIBIT INDEX

Exhibit number |  | Exhibit description |  | Furnished herewith | Filed herewith
31.1 |  | Certification of Randy A. Ramlo pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  | X
31.2 |  | Certification of Dawn M. Jaffray pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |  |  | X
32.1 |  | Certification of Randy A. Ramlo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | X |
32.2 |  | Certification of Dawn M. Jaffray pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | X |
101.1 |  | The following financial information from United Fire Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 formatted in Inline eXtensible Business Reporting Language (Inline XBRL): (i) Consolidated Balance Sheets as of March 3 1, 202 1 (unaudited) and December 31, 2 02 0; (ii) Consolidated Statements of Income and Comprehensive Income (unaudited) for the three-months ended March 3 1, 202 1 and 20 20 (iii) Consolidated Statement of Stockholders’ Equity (unaudited) for the three-months ended Ma rch 3 1, 202 1 and 20 20; (iv) Consolidated Statements of Cash Flows (unaudited) for the three-months ended March 3 1, 202 1 and 20 20; and (v) Notes to Unaudited Consolidated Financial Statements, tagged as a block of text. |  |  | X
104.1 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |  |  | X

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

UNITED FIRE GROUP, INC. |  |
(Registrant) |  |
/s/ Randy A. Ramlo |  | /s/ Dawn M. Jaffray
Randy A. Ramlo |  | Dawn M. Jaffray
President, Chief Executive Officer, Director and Principal Executive Officer |  | Executive Vice President, Chief Financial Officer and Principal Accounting Officer
May 5, 2021 |  | May 5, 2021
(Date) |  | (Date)

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