UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

 FORM 10-K

R Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2011

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

Commission File Number 001-34257

UNITED FIRE GROUP, INC.

(Exact name of registrant as specified in its charter)

Iowa	45-2302834
(State of Incorporation)	(IRS Employer Identification No.)

118 Second Avenue SE

PO Box 73909

Cedar Rapids, Iowa 52407-3909

(Address of principal executive offices) (Zip Code)

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

Securities Registered Pursuant to Section 12(b) of the Act:

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES £ NO R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES R NO £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES R NO £

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 30, 2011, was approximately $372.7 million. For purposes of this calculation, all directors and executive officers of the registrant are considered affiliates. As of March 13, 2012, 25,506,809 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, for its annual stockholders meeting to be held on May 16, 2012.

FORM 10-K TABLE OF CONTENTS

	PAGE
PART I:
Item 1. Business	1
Item 1A. Risk Factors	14
Item 1B. Unresolved Staff Comments	27
Item 2. Properties	27
Item 3. Legal Proceedings	28
Item 4. Mine Safety Disclosures	28
PART II:
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6. Selected Financial Data	31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	91
Item 8. Financial Statements and Supplementary Data	92
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	151
Item 9A. Controls and Procedures	151
Item 9B. Other Information	153
PART III:
Item 10. Directors, Executive Officers and Corporate Governance	153
Item 11. Executive Compensation	155
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	155
Item 13. Certain Relationships and Related Transactions, and Director Independence	155
Item 14. Principal Accounting Fees and Services	155
PART IV:
Item 15. Exhibits, Financial Statement Schedules	156
Signatures	162
Exhibit 12
Exhibit 21
Exhibit 23.1
Exhibit 23.2
Exhibit 23.3
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

United Fire Group, Inc. Form 10-K | 2011

PART I.

ITEM 1. BUSINESS

FORWARD-LOOKING INFORMATION

It is important to note that our actual results could differ materially from those projected in forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part I, Item 1A, “Risk Factors,” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

GENERAL DESCRIPTION

The terms “Company,” “we,” “us,” or “our” refer, as the context requires, to United Fire Group, Inc., United Fire & Casualty Company, United Fire Group, Inc. and its consolidated subsidiaries and affiliates, or to United Fire & Casualty Company and its consolidated subsidiaries and affiliates. We are engaged in the business of writing property and casualty insurance and life insurance and selling annuities. United Fire & Casualty Company was incorporated in Iowa in January 1946. Our principal executive office is located at 118 Second Avenue SE, P.O. Box 73909, Cedar Rapids, Iowa 52407-3909. Telephone: 319-399-5700.

Holding Company

On February 1, 2012, we completed a holding company reorganization (the "Reoganization") of United Fire Group, Inc., United Fire & Casualty Company, and UFC MergeCo, Inc., an Iowa corporation formed for the purpose of facilitating the Reorganization. The Reorganization Agreement was approved and adopted by United Fire & Casualty Company stockholders at a special meeting of stockholders, held on January 24, 2012.

The Reorganization Agreement provided for the merger of United Fire & Casualty Company with UFC MergeCo, Inc., with United Fire & Casualty Company surviving the Merger as a wholly owned subsidiary of United Fire Group, Inc.. Each share of common stock, par value $3.33 1/3 per share, of United Fire & Casualty Company issued and outstanding immediately prior to the effective time of the Merger into one duly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of United Fire Group, Inc. At the time of completion of the Reorganization, the separate existence of UFC MergeCo, Inc. terminated. In addition, each outstanding option to purchase or other right to acquire shares of United Fire & Casualty Company Common Stock was automatically converted into an option to purchase or right to acquire, upon the same terms and conditions, an identical number of shares of United Fire Group, Inc. Common Stock.

Upon completion of the Reorganization, United Fire Group, Inc., an Iowa corporation, replaced United Fire & Casualty Company, an Iowa corporation, as the publicly held corporation, and the holders of United Fire & Casualty Company Common Stock now hold the same number of shares and same ownership percentage of United Fire Group, Inc. as they held of United Fire & Casualty Company immediately prior to the Reorganization. On February 2, 2012, shares of United Fire Group, Inc. Common Stock commenced trading on the NASDAQ Global Select Market under the symbol “UFCS.”

The directors and executive officers of United Fire Group, Inc. immediately following the Reorganization are the same individuals who were directors and executive officers, respectively, of United Fire & Casualty Company immediately prior to the Reorganization.

Employees

As of December 31, 2011, we employed 868 full-time employees and 26 part-time employees. We are not a party to any collective bargaining agreement.

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United Fire Group, Inc. Form 10-K | 2011

Reportable Segments

We report our operations in two business segments: property and casualty insurance and life insurance. Our property and casualty insurance segment is comprised of commercial lines insurance, including surety bonds, personal lines insurance and assumed insurance. Our life insurance segment is comprised of deferred and immediate annuities, universal life insurance products and traditional life insurance products. A table reflecting revenues, net income and assets attributable to our operating segments is included in Part II, Item 8, Note 10 “Segment Information.” All intercompany balances have been eliminated in consolidation.

All of our property and casualty insurance subsidiaries belong to one of two reinsurance pooling arrangement, with the exception of Texas General Indemnity Company, are members of an intercompany reinsurance pooling arrangement. The insurance entities of Mercer Insurance Group, Inc. ("Mercer Insurance Group") participated in their own pooling arrangement in 2011, which was in place when we acquired Mercer Insurance Group on March 28, 2011. Effective January 1, 2012, one pooling arrangement exists to cover all participating insurance subsidiaries of United Fire Group, Inc. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool’s capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant’s own surplus level. Under such arrangements, the members share substantially all of the insurance business that is written and allocate the combined premiums, losses and expenses based on percentages defined in the arrangement.

Our life insurance segment consists solely of the operations of United Life Insurance Company.

Available Information

United Fire Group provides free and timely access to all Company reports filed with the Securities and Exchange Commission (“SEC”) in the Investor Relations section of our website at www.unitedfiregroup.com. Select “SEC Filings” to view the list of filings, which includes:

• Annual reports (Form 10-K)

• Quarterly reports (Form 10-Q)

• Current reports (Form 8-K)

• Beneficial ownership reports (Forms 3, 4 and 5)

• Amendments to reports filed or furnished pursuant to Section 13(a), 15(d) or 16(a) of the Exchange Act.

Such reports are made available as soon as reasonably practicable after they are filed with or furnished to the SEC.

Our Code of Ethics is also available at www.unitedfiregroup.com in the Investor Relations section. To view it, select “Corporate Governance” and then “Code of Ethics.”

Free paper copies of any materials that we file with or furnish to the SEC can also be obtained by writing to Investor Relations, United Fire Group, Inc., P.O. Box 73909, Cedar Rapids, Iowa 52407-3909. In addition, you may read and copy any materials we file with or furnish to the SEC at the SEC Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. For more information on the operation of the SEC Public Reference Room, call the SEC at 1-800-SEC-0330.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Acquisition of Mercer Insurance Group, Inc.

On March 28, 2011, we acquired 100 percent of the outstanding common stock of Mercer Insurance Group for $191.5 million; the acquisition was funded through a combination of cash and $79.9 million of short-term debt. Accordingly, the results of operations for Mercer Insurance Group have been included in the accompanying

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United Fire Group, Inc. Form 10-K | 2011

Consolidated Financial Statements from that date forward. After the acquisition, we market our products through over 1,300 independent property and casualty agencies. In addition, the acquisition allows us to diversify our exposure to weather and other catastrophe risks across our geographic markets.

This transaction was accounted for under the acquisition method using Mercer Insurance Group historical financial information and applying fair value estimates to the acquired assets, liabilities and commitments as of the acquisition date. For additional information related to this acquisition, see Note 16 “Business Combinations” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

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United Fire Group, Inc. Form 10-K | 2011

Our organizational structure as of December 31, 2011 is as follows:

4

United Fire Group, Inc. Form 10-K | 2011

Our organizational structure as of February 1, 2012 is as follows:

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United Fire Group, Inc. Form 10-K | 2011

GEOGRAPHIC DISTRIBUTION

We market our products through our home office in Cedar Rapids, Iowa, and four regional locations: Westminster, Colorado, a suburb of Denver; Galveston, Texas; Pennington, New Jersey; and Rocklin, California.

We are licensed as a property and casualty insurer in 43 states, primarily in the Midwest, West and South, plus the District of Columbia. We have 1,302 independent agencies representing us and our property and casualty insurance subsidiaries. In 2011, 2010 and 2009 the direct premiums written by our property and casualty insurance operations were distributed as follows:

	Years Ended December 31,						% of Total
(In Thousands)	2011		2010		2009		2011		2010		2009
Texas	$	74,845	$	68,655	$	69,900	12.9	%	15.8	%	15.4	%
Iowa	73,762		68,373		69,515		12.7		15.7		15.3
California	61,500		13		6		10.6		—		—
Missouri	42,202		40,342		41,185		7.3		9.3		9.1
Louisiana	36,685		37,263		41,743		6.3		8.6		9.2
New Jersey	33,793		—		—		5.8		—		—
Illinois	32,241		31,330		33,465		5.6		7.2		7.4
Colorado	29,250		28,775		33,938		5.0		6.6		7.5
All Other States	196,610		160,955		164,294		33.8		36.8		36.1
Direct Premiums Written (1)	$	580,888	$	435,706	$	454,046	100.0	%	100.0	%	100.0	%

(1) The Measurement of Results section of Part II, Item 7, defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP.

Our life insurance subsidiary is licensed in 33 states, primarily in the Midwest and West, and is represented by 950 independent agencies. In 2011, 2010 and 2009 the direct statutory premiums written by our life insurance operations were distributed as follows:

	Years Ended December 31						% of Total
(In Thousands)	2011		2010		2009		2011		2010		2009
Iowa	$	51,132	$	45,336	$	94,658	29.7	%	32.6	%	36.8	%
Minnesota	20,409		11,875		23,128		11.9		8.5		9.0
Illinois	17,643		13,629		17,720		10.2		9.8		6.9
Nebraska	16,553		11,317		33,103		9.6		8.1		12.9
Wisconsin	16,507		13,942		21,548		9.6		10.0		8.4
All Other States	49,915		42,901		67,083		29.0		31.0		26.0
Direct Statutory Premiums Written (1)	$	172,159	$	139,000	$	257,240	100.0	%	100.0	%	100.0	%

(1) The Measurement of Results section of Part II, Item 7, defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP.

We staff our regional offices with underwriting, claims and marketing representatives and administrative technicians, all of whom provide support and assistance to the independent agencies. Also, home office staff technicians and specialists provide support to our subsidiaries, regional offices and independent agencies. We use management reports to monitor subsidiary and regional offices for overall results and conformity to our business policies.

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United Fire Group, Inc. Form 10-K | 2011

PRICING

Incorporated by reference from Note 10 “Segment Information” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

COMPETITION

Property and Casualty Insurance Segment

The property and casualty insurance industry is highly competitive. We compete with numerous property and casualty insurance companies in the regional and national market, many of which are substantially larger and have considerably greater financial and other resources. Except for regulatory considerations, there are limited barriers to entry into the insurance industry. Our competitors may be domestic or foreign, as well as licensed or unlicensed. The exact number of competitors within the industry is not known. Insurers compete on the basis of reliability, financial strength and stability, ratings, underwriting consistency, service, business ethics, price, performance, capacity, policy terms and coverage conditions.

In addition, because our products are marketed exclusively through independent insurance agencies, most of which represent more than one company, we face competition within each agency and, competition to retain qualified independent agents. Our competitors include companies that market their products through agents, as well as companies that sell insurance directly to their customers.

Because we rely solely on independent agencies, we offer a competitive commissions program and a rewarding profit-sharing plan as incentives for agents to place high-quality property and casualty insurance business with us. We estimate property and casualty insurance agencies will receive profit-sharing payments of $9.7 million in 2012, based on business produced by the agencies in 2011. In 2011 for 2010 business, agencies received $7.0 million in profit-sharing payments and in 2010 for 2009 business, agencies received $5.7 million in payments.

Our competitive advantages include our commitment to:

• Strong agency relationships —

◦ The average tenure of our employees, approximately 12.0 years, allows our agents to work with the same, highly-experienced personnel each day.

◦ Our organization is relatively flat, allowing our agents to be close to the highest levels of management and ensuring that our agents will receive answers quickly to their questions.

◦ We have relatively fewer agents appointed to each state than our competitors, which is valued by our agents, as they do not have to compete with other agents in their area to represent the Company.

• Exceptional service — our agents and policyholders always have the option to speak with a real person.

• Fair and prompt claims handling — we view claims as an opportunity to prove to our customers that they have chosen the right insurance company.

• Disciplined underwriting — we empower our underwriters with the knowledge and tools needed to make good decisions for the Company.

• Superior loss control services — our loss control representatives make multiple visits to businesses and job sites each year to ensure safety.

• Effective and efficient use of technology — we use technology to provide enhanced service to our agents and policyholders, not to replace our personal relationships, but to reinforce them.

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United Fire Group, Inc. Form 10-K | 2011

Life Insurance Segment

We also encounter significant competition in all lines of our life and fixed annuity business from other life insurance companies and other providers of financial services. Since our products are marketed exclusively through independent life insurance agencies that typically represent more than one company, we face competition within our agencies. Competitors include companies that market their products through agents, as well as companies that sell directly to their customers. Given the nature of the insurance industry, the exact number of competitors within the industry is not known.

To attract and maintain relationships with our independent life insurance agencies, we offer competitive commission rates and other sales incentives. Our life insurance segment achieves a competitive advantage by offering products that are simple and straightforward, by providing outstanding customer service, by being accessible to our agents and customers, and by using technology in a variety of ways to assist our agents and improve the delivery of service to our policyholders.

OPERATING SEGMENTS

Incorporated by reference from Note 10 “Segment Information” contained in Part II, Item 8, “Financial Statements and Supplementary Data.” Additionally, for a detailed discussion of our operating results by segment, refer to the Results of Operations section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

REINSURANCE

Incorporated by reference from Note 4 “Reinsurance” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

RESERVES

Property and Casualty Insurance Segment

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 loss 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 facts, circumstances and historical trends then known.

The determination of reserves, particularly those relating to liability lines of insurance, reflects significant judgment factors. 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. As required by state law, we engage an independent actuary, Regnier Consulting Group, Inc. (“Regnier”), to render an opinion as to the adequacy of the statutory reserves we establish annually. The actuarial opinion is filed in those states where we are licensed. On a quarterly basis, Regnier reviews our direct loss reserves for adequacy.

We do not discount loss reserves based on the time value of money. There are no material differences between our reserves established under U.S. generally accepted accounting principles (“GAAP”) and our statutory reserves.

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United Fire Group, Inc. Form 10-K | 2011

The following table sets forth a reconciliation of our beginning and ending net reserves for unpaid losses and loss settlement expenses for 2011, 2010 and 2009:

(In Thousands)
Years Ended December 31	2011			2010			2009
Gross liability for losses and loss settlement expenses at beginning of year	$	603,090		$	606,045		$	586,109
Ceded loss and loss settlement expenses	(39,000		)	(33,754		)	(52,508		)
Net liability for losses and loss settlement expenses at beginning of year	$	564,090		$	572,291		$	533,601
Reserves acquired in Mercer Insurance Group acquisition, net	252,598			—			—
Beginning balance, as adjusted	$	816,688		$	572,291		$	533,601
Losses and loss settlement expenses incurred for claims occurring during
Current year	$	468,926		$	335,315		$	339,506
Prior years	(61,095		)	(45,878		)	26,215
Total incurred	$	407,831		$	289,437		$	365,721
Losses and loss settlement expense payments for claims occurring during
Current year	$	253,175		$	132,592		$	131,507
Prior years	146,653			165,046			195,524
Total paid	$	399,828		$	297,638		$	327,031
Net liability for losses and loss settlement expenses at end of year	$	824,692		$	564,090		$	572,291
Ceded loss and loss settlement expenses(1)	120,359			39,000			33,754
Gross liability for losses and loss settlement expenses at end of year	$	945,051		$	603,090		$	606,045

(1) Reflects our acquisition of Mercer Insurance Group in 2011.

The table on the following page illustrates the change in our estimate of loss reserves for our property and casualty insurance companies for the years 2001 through 2010. The first section shows the amount of the liability, as originally reported, at the end of each calendar year in our Consolidated Financial Statements. These reserves represent the estimated amount of losses and loss settlement expenses for losses arising in that year and all prior years that are unpaid at the end of each year, including an estimate for our IBNR losses, net of applicable ceded reinsurance. The second section displays the cumulative amount of net losses and loss settlement expenses paid for each year with respect to that liability. The third section shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the losses for individual years. The last section compares the latest re-estimated amount with the original estimate. Conditions and trends that have affected development of loss reserves in the past may not necessarily exist in the future. Accordingly, it would not be appropriate to project future redundancies or deficiencies based on this table.

Amounts shown in the 2011 column of the table include both 2011 and prior to 2011 accident year development for Mercer Insurance Group, which was acquired on March 28, 2011 and accounted for under the acquisition method.

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United Fire Group, Inc. Form 10-K | 2011

(In Thousands)
Years Ended December 31	2001		2002		2003		2004		2005			2006			2007			2008			2009		2010		2011
Gross liability for loss and loss settlement expenses	$	363,819	$	392,649	$	427,049	$	464,889	$	620,100		$	518,886		$	496,083		$	586,109		$	606,045	$	603,090	$	945,051
Ceded loss and loss settlement expenses	36,909		35,760		27,309		28,609		60,137			40,560			38,800			52,508			33,754		39,000		120,359
Net liability for loss and loss settlement expenses	$	326,910	$	356,889	$	399,740	$	436,280	$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090	$	824,692
Cumulative net paid as of:
One year later	$	112,546	$	107,271	$	100,895	$	110,016	$	230,455		$	148,593		$	140,149		$	195,524		$	165,046	$	146,653
Two years later	172,538		172,158		167,384		166,592		321,110			235,975			265,361			304,622			260,872
Three years later	215,002		214,307		203,861		213,144		380,294			332,768			345,092			373,765
Four years later	240,973		237,150		231,278		242,579		456,919			390,763			392,676
Five years later	252,969		253,026		250,787		264,015		502,455			422,669
Six years later	264,311		265,304		263,631		276,214		527,136
Seven years later	273,153		273,066		272,826		282,654
Eight years later	277,868		280,152		277,645
Nine years later	282,970		283,635
Ten years later	285,334
Net liability re-estimated as of:
End of year	$	326,910	$	356,889	$	399,740	$	436,280	$	559,963		$	478,326		$	457,283		$	533,601		$	572,291	$	564,090	$	824,692
One year later	315,854		344,590		361,153		358,796		534,998			433,125			457,831			559,816			526,413		502,995
Two years later	323,354		340,502		331,693		330,137		508,774			453,474			502,177			547,824			497,136
Three years later	321,168		324,582		317,187		319,335		538,451			497,629			503,992			537,912
Four years later	318,125		313,745		309,146		326,340		574,484			500,071			503,720
Five years later	309,033		308,304		316,227		327,626		582,343			507,507
Six years later	307,790		312,188		314,522		327,741		592,772
Seven years later	311,367		314,680		316,705		322,875
Eight years later	312,433		316,378		311,385
Nine years later	313,953		310,478
Ten years later	309,044
Net redundancy (deficiency)	$	17,866	$	46,411	$	88,355	$	113,405	$	(32,809	)	$	(29,181	)	$	(46,437	)	$	(4,311	)	$	75,155	$	61,095
Net re-estimated liability	309,044		310,478		311,385		322,875		592,772			507,507			503,720			537,912			497,136		502,995
Re-estimated ceded loss and loss settlement expenses	$	44,288	$	44,980	$	39,724	$	39,582	$	97,622		$	63,562		$	57,220		$	64,209		$	48,366	$	49,198
Gross re-estimated liability	$	353,333	$	355,459	$	351,109	$	362,457	$	690,394		$	571,069		$	560,940		$	602,121		$	545,502	$	552,193
Gross redundancy (deficiency)	$	10,486	$	37,190	$	75,940	$	102,432	$	(70,294	)	$	(52,183	)	$	(64,857	)	$	(16,012	)	$	60,543	$	50,897

For a more detailed discussion of our loss reserves, refer to the “Critical Accounting Estimates” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5, “Reserves for Loss and Loss Settlement Expenses” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

Life Insurance Segment

We calculate the policy reserves reported in our Consolidated Financial Statements in accordance with GAAP. For our fixed annuities and universal life policies, we establish a benefit reserve at the time of policy issuance in an amount equal to the deposits received. Subsequently, we adjust the benefit reserve for any additional deposits, interest credited and partial or complete withdrawals, as well as insurance and other expense charges. We base policy reserves for other life products on the projected contractual benefits and expenses and interest rates appropriate to those products. We base reserves for accident and health products, which are a minor portion of our reserves, on appropriate morbidity tables.

We determine reserves for statutory purposes based upon mortality rates and interest rates specified by Iowa state law. Our life insurance subsidiary’s reserves meet or exceed the minimum statutory requirements. Griffith, Ballard &

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United Fire Group, Inc. Form 10-K | 2011

Company (“Griffith”), an independent actuary, assists us in developing and analyzing our reserves on both a GAAP and statutory basis.

For further discussion of our life insurance segment’s reserves, refer to the “Critical Accounting Estimates” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

INVESTMENTS

Incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the headings “Investments” and “Critical Accounting Estimates”; Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”; and Note 1 “Significant Accounting Policies” under the headings “Investments,” Note 2 “Summary of Investments,” and Note 3 “Fair Value of Financial Instruments,” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

REGULATION

We are not aware of any currently proposed or recently enacted state or federal regulation that would have a material impact on our operations. Additionally, we cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of the insurance business or what effect any particular measures might have on us.

State Regulation

We are subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state, but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state regulatory agency. In general, such regulation is intended for the protection of those who purchase or use our insurance products, and not our stockholders. These rules have a substantial effect on our business and relate to a wide variety of matters including:

• insurance company licensing and examination and the licensing of agents and adjusters;

• price setting or premium rates;

• trade practices;

• approval of policy forms;

• accounting methods;

• the nature, quality and concentration of investments;

• claims practices;

• participation in shared markets and guaranty funds;

• reserve adequacy;

• insurer solvency;

• restrictions on transactions between our subsidiaries and their affiliates;

• restrictions on the payment of dividends;

• underwriting standards;

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United Fire Group, Inc. Form 10-K | 2011

• advertising and marketing practices; and

• the collection, remittance and reporting of certain taxes and fees.

The state laws and regulations that have the most significant effect on our insurance operations and financial reporting are discussed below.

Insurance Holding Company Regulation

We are regulated as an insurance holding company system in the states of domicile of our property and casualty insurance companies and life insurance subsidiary: Iowa (United Fire & Casualty Company, United Life Insurance Company, and Addison Insurance Company), California (Financial Pacific Insurance Company), Louisiana (Lafayette Insurance Company), New Jersey (Mercer Insurance Company of New Jersey, Inc.), Pennsylvania (Mercer Insurance Company and Franklin Insurance Company, Texas (United Fire & Indemnity Company and United Fire Lloyds), and Colorado (Texas General Indemnity Company). These regulations require that we annually furnish financial and other information about the operations of the individual companies within our holding company system. Generally, the insurance codes of these states provide that notice to the state insurance commissioner is required before finalizing any transaction affecting the ownership or control of an insurer and before finalizing certain material transactions between an insurer and any person or entity within its holding company system. In addition, some of those transactions cannot be finalized without the commissioner's prior approval.

Stockholder Dividends

Our capacity to pay dividends, and that of our subsidiaries, is regulated by the laws of the applicable state of domicile. Under these laws, insurance companies must provide advance informational notice to the domicile state insurance regulatory authority prior to payment of any dividend or distribution to its stockholders. Prior approval from the state insurance regulatory authority must be obtained before payment of an extraordinary dividend as defined under the state’s insurance code. In all cases, we may pay ordinary dividends only from our earned surplus. Refer to the Market Information section of Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities,” and Note 6 “Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions,” contained in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information about the dividends we paid during 2011.

Price Regulation

Nearly all states have insurance laws requiring us to file rate schedules, policy or coverage forms, and other information with the state's regulatory authority. In certain states, rate schedules, policy forms, or both, must be approved prior to use. While insurance laws vary from state to state, their objectives are generally the same: an insurance rate cannot be excessive, inadequate or unfairly discriminatory. The speed with which we can change our rates in response to competition or in response to increasing costs depends, in part, on the willingness of state regulators to allow adequate rates for the business we write.

Investment Regulation

We are subject to various state regulations requiring investment portfolio diversification and limiting the concentration of investments we may maintain in certain asset categories. Failure to comply with these regulations leads to the treatment of nonconforming investments as nonadmitted assets for purposes of measuring statutory surplus. Further, in some instances, state regulations require us to sell certain nonconforming investments.

Exiting Geographic Markets; Canceling and Nonrenewing Policies

Most states regulate our ability to exit a market. For example, states limit, to varying degrees, our ability to cancel and nonrenew insurance policies. Some states prohibit us from withdrawing one or more types of insurance business from the state, except upon prior regulatory approval. Regulations that limit policy cancellation and nonrenewal may restrict our ability to exit unprofitable markets.

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Insurance Guaranty Associations

Each state has insurance guaranty association laws. Membership in a state's insurance guaranty association is generally mandatory for insurers wishing to do business in that state. Under these laws, associations may assess their members for certain obligations that insolvent insurance companies have to their policyholders and claimants. Typically, states assess each solvent member in an amount related to that member's proportionate share of business written by all members within the state. Most state guaranty associations allow solvent insurers to recoup the assessments they are charged through future rate increases, surcharges or premium tax credits. However, there is no assurance that we will ultimately recover these assessments. We cannot predict the amount and timing of any future assessments or refunds under these laws.

Shared Market and Joint Underwriting Plans

State insurance regulations often require insurers to participate in assigned risk plans, reinsurance facilities and joint underwriting associations. These are mechanisms that generally provide applicants with various types of basic insurance coverage that may not otherwise be available to them through voluntary markets. Such mechanisms are most commonly instituted for automobile and workers' compensation insurance, but many states also mandate participation in Fair Access to Insurance Requirements (“FAIR”) Plans or Windstorm Plans, which provide basic property coverage. Participation is based upon the amount of a company's voluntary market share in a particular state for the classes of insurance involved. Policies written through these mechanisms may require different underwriting standards and may pose greater risk than those written through our voluntary application process.

Statutory Accounting

For public reporting, insurance companies prepare financial statements in accordance with GAAP. However, state laws require us to calculate and report certain data according to statutory accounting rules as defined in the National Association of Insurance Commissioner's (“NAIC”) Accounting Practices and Procedures Manual. While not a substitute for any GAAP measure of performance, statutory data frequently is used by industry analysts and other recognized reporting sources to facilitate comparisons of the performance of insurance companies.

Insurance Reserves

State insurance laws require that insurance companies analyze the adequacy of their reserves annually. Our appointed actuaries must submit an opinion that our reserves are adequate for policy claims-paying obligations and related expenses.

Financial Solvency Ratios

The NAIC annually calculates 13 financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies. A “usual range” of results for each of these ratios is used by insurance regulators as a benchmark. Departure from the usual range on four or more of the ratios could lead to inquiries from individual state insurance departments as to certain aspects of a company's business. In addition to the financial ratios, states also require us to calculate a minimum capital requirement for each of our insurance companies based on individual company insurance risk factors. These “risk-based capital” results are used by state insurance regulators to identify companies that require regulatory attention or the initiation of regulatory action. At December 31, 2011, all of our insurance companies had capital well in excess of the required levels.

Federal Regulation

Although the federal government and its regulatory agencies generally do not directly regulate the business of insurance, federal initiatives often have an impact on our business. Some of the current and proposed federal measures that may significantly affect our business are discussed below.

Dodd-Frank Act

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed

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into law. The Dodd-Frank Act marks a profound increase in the regulation of the financial services industry. Among other things, the Dodd-Frank Act forms within the Treasury Department a Federal Insurance Office that is charged with monitoring all aspects of the insurance industry, gathering data, and conducting a study on methods to modernize and improve the insurance regulatory system in the United States. A report on this study is required to be delivered to Congress and could be influential in reshaping the current state-based insurance regulatory system and/or introducing a direct federal role in insurance regulation. The Dodd-Frank Act also requires, among other things: (i) a nonbinding stockholder vote on executive compensation at least once every three years; (ii) a vote, at least once every six years, on the frequency of the nonbinding stockholder vote on executive compensation; and (iii) that all members of our compensation committee be independent.

In response to the Dodd-Frank Act, the SEC has issued, or is expected to propose, rules regarding a variety of disclosure and governance matters, including director independence, director and officer hedging activities, executive compensation clawback policies, compensation advisor independence, pay versus performance disclosures, internal pay equity disclosures, and shareholder proxy access.

FINANCIAL STRENGTH RATING

Our financial strength, as measured by statutory accounting principles, is regularly reviewed by an independent rating agency that assigns a rating based upon criteria such as results of operations, capital resources and minimum policyholders’ surplus requirements.

United Fire & Casualty Company and Mercer Insurance Group pooled groups have each received a group rating of “A” (Excellent) with a “negative” outlook from A.M. Best Company (“A.M. Best”). All of our property and casualty insurers have an “A” (Excellent) rating, except one non-pooled insurance subsidiary that is in a runoff status, which A.M. Best has designated as NR (Rating Procedure Inapplicable). Our life insurance subsidiary has received an “A-” (Excellent) rating with a “stable” outlook from A.M. Best. According to A.M. Best, companies rated “A” and “A-” have “an excellent ability to meet their ongoing obligations to policyholders.”

An insurer’s financial strength rating is one of the primary factors evaluated by those in the market to purchase insurance. A poor rating indicates that there is an increased likelihood that the insurer could become insolvent and therefore not able to fulfill its obligations under the insurance policies it issues. This rating can also affect an insurer’s level of premium writings, the lines of business it can write and, for insurers like us that are also public registrants, the market value of its securities.

ITEM 1A. RISK FACTORS

We provide the following discussion of risks and uncertainties relevant to our business. These are factors that we believe could cause our actual results to differ materially from expected and historical results. We could also be adversely affected by other factors, in addition to those listed here. We have set forth additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Risks Relating to Our Business

• The incidence, frequency and severity of catastrophe losses are unpredictable and may adversely affect the results of our operations, liquidity and financial condition.

Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders, which can be caused by various natural and man-made disasters, including, but not limited to, hurricanes, tornadoes, windstorms, hailstorms, fires, explosions, earthquakes, tropical storms and terrorist acts. Property damage resulting from catastrophes is the greatest risk of loss we face in the ordinary course of our

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business. We have exposure for catastrophe losses under both our commercial insurance policies and our personal insurance policies. In addition, our automobile and inland marine business exposes us to losses arising from floods and other perils.

Longer-term weather trends may be changing and new types of catastrophe losses may be developing due to climate change; a phenomenon that has been associated with extreme weather events linked to rising temperatures, including effects on global weather patterns, greenhouse gases, sea, land and air temperature, sea levels, rain and snow. The emerging science regarding climate change and its connection to extreme weather events is far from conclusive. If a connection to increased extreme weather events related to climate change is ultimately proven true, this could increase the frequency and severity of catastrophe losses we experience in both coastal and non-coastal areas.

Because the occurrence and severity of catastrophes are inherently unpredictable and may vary significantly from year to year, historical results of operations may not be indicative of future results of operations. In addition, as with catastrophe losses generally, it can take a long time for us to determine our ultimate losses associated with a particular catastrophic event. As our claims experience for a particular catastrophe develops, we may be required to adjust our reserves to reflect our revised estimates of the total cost of claims. Catastrophes may also negatively affect our ability to write new business. Increases in the value and geographic concentration of insured property could impact claims severity for future catastrophic events. In addition, severity may increase after catastrophic events, as the demand for resources such as building materials and labor to repair damaged structures may inflate costs, and the amount of salvage value received for damaged property may decline.

• Our reserves for property and casualty insurance losses and costs related to settlement of property and casualty insurance losses and our life insurance reserves for future policy benefits may be inadequate, which would have an unfavorable impact on our financial results.

Our reserves for claims and future policy benefits may prove to be inadequate, which may result in future charges to earnings and/or a downgrade of our financial strength rating or the financial strength ratings of our insurance company subsidiaries.

We establish property and casualty insurance loss reserves based on assumptions and estimates of damages and liabilities incurred. On a quarterly basis, Regnier, the independent actuary for our property and casualty insurance segment, estimates property and casualty insurance product reserves based on many assumptions to validate the reasonableness of our claims reserves.

Our property and casualty insurance loss reserves are only estimates; we determine the amount of these loss reserves based on our best estimate and judgment of the losses and costs we will incur on existing insurance policies. Because of the uncertainties that surround estimating loss reserves, we cannot precisely determine the ultimate amounts of benefits and claims that we will pay or the timing of payment of benefits and claims. For a detailed discussion of our reserving process and the factors we consider in estimating reserves, refer to the Critical Accounting Estimates section in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Actual losses and loss settlement expenses paid might exceed our reserves. If our loss reserves are insufficient, or if we believe our loss reserves are insufficient to cover our actual loss and loss settlement expenses, we will have to increase our loss reserves and incur charges to our earnings, which could indicate that premium levels were insufficient. These charges may be material.

Griffith, the independent actuary for our life insurance segment, calculates life insurance product reserves based on our assumptions, including estimated premiums we will receive over the assumed life of the policy, the timing of the event covered by the insurance policy and the amount of benefits or claims to be paid. As such, deviations from one or more of these assumptions could result in a material adverse impact on our Consolidated Financial Statements.

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United Fire Group, Inc. Form 10-K | 2011

• The cyclical nature of the property and casualty insurance business may affect our financial performance.

The financial results of companies in the property and casualty insurance industry historically have been cyclical in nature, characterized by periods of severe price competition and excess underwriting capacity (commonly referred to as “soft” markets), followed by periods of high premium rates and shortages of underwriting capacity (commonly referred to as “hard” markets). We expect these cycles to continue. Premium rates for property and casualty insurance are influenced by factors that are outside of our control, including market and competitive conditions and regulatory issues. Soft market conditions could require us to reduce premiums, limit premium increases, or discontinue offering one or more of our insurance products in one or more states, resulting in a reduction in our premiums written and in our profit margins and revenues. The demand for property and casualty insurance can also vary significantly, rising as the overall level of economic activity increases and falling as that activity decreases. Fluctuations in demand and competition could produce underwriting results that would have a negative impact on the results of our operations and financial condition.

• We are subject to interest rate fluctuations and declines in the value of investments held in our investment portfolio due to various market factors that could negatively affect our profitability.

We are subject to the negative effects of interest rate fluctuations and to declines in the value of our investment portfolio, due to changes in market valuations and changes in credit quality related to individual investments. Some of our interest-sensitive products, principally our fixed annuities, expose us to the risk that changes in interest rates will reduce our “spread,” which is the difference between the rates we are required to pay under these contracts and the rate of return we are able to earn on our investments, intended to support our obligations under these contracts.

During periods when the interest rates paid on interest-sensitive insurance products are rising, we may not be able to reinvest our invested assets to achieve the higher rate of return necessary to compensate for the higher interest rates we must pay to keep these products competitive in the marketplace. Consequently, we may have to accept a lower spread and therefore lower profitability, or face a decline in sales of these products and a loss of related assets.

During periods of declining interest rates, we may be unable to achieve similar rates of return on our maturing assets. Moreover, this risk may be exacerbated by borrowers prepaying fixed income securities, commercial mortgages, and mortgage-backed securities held in our investment portfolio in order to refinance at lower rates. Because we are only entitled to reset the interest rates on our annuities at limited, pre-established intervals, and because many of our annuity contracts have guaranteed interest rates, the profitability of these products could decrease or become negative.

Due to the reinvestment risk described above, a decline in market interest rates available on investments could also reduce our return from investments of capital that do not support particular policy obligations, which could also have a material adverse effect on our results of operations. The adverse effect on us from fluctuations in interest rates may be exacerbated because we currently maintain, and intend to continue to maintain, a large portion (93.4 percent at December 31, 2011) of our investment portfolio in fixed income securities, particularly corporate bonds, including our portfolio of trading securities. The fair value of these investments generally increases or decreases in an inverse relationship with changes in interest rates. We classify the majority (99.4 percent, at December 31, 2011) of our fixed income securities, including our entire portfolio of trading securities, as available-for-sale. We report the value of those investments at their current fair value. Accordingly, fluctuations in interest rates may result in fluctuations in the valuation of our fixed income investments, which would affect our stockholders' equity.

Fluctuations in interest rates may cause increased surrenders and withdrawals from our life insurance and annuity products. In periods of rising interest rates, surrenders and withdrawals of life insurance policies and annuity contracts, along with policy loans, may increase as policyholders seek to buy products with perceived higher returns. These surrenders, withdrawals and policy loans may also require us to accelerate the amortization of deferred policy acquisition costs, which would increase our expenses in the current period.

Terrorism and the threat of terrorism within the U.S. and abroad, ongoing military and other actions, and heightened

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security measures, may cause significant volatility in the equity markets and in interest rates. Such activities may result in loss of life, property damage, disruptions to commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets or changes in interest rates caused by these activities.

The fair value of securities in our investment portfolio may also fluctuate, depending on general economic and market conditions or events relating to a particular issuer of securities. Changes in the fair value of securities in our investment portfolio could result in realized or unrealized investment losses, thereby affecting our stockholders' equity.

We are exposed to the chance that issuers of bonds that we hold will not be able to pay principal or interest when due. Defaults and other impairments may cause write-downs in the value of the bonds we hold. Pervasive deterioration in the credit quality of issuers, changes in interest rate levels and changes in interest rate spreads between types of investments could significantly affect the value of our invested assets and our earnings.

• Continued difficult conditions in the global capital markets and the economy generally may materially and adversely affect our business and results of operations.

Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Recently, concerns over the slow economic recovery, level of U.S. national debt, the U.S. mortgage market, inflation levels, energy costs and geopolitical issues have contributed to increased volatility and diminished expectations for the economy and global capital markets going forward. These factors, combined with volatile oil prices, reduced business and consumer confidence and continued high unemployment, have negatively impacted the U.S. economy. These concerns expanded to include a broad range of mortgage- and asset-backed and other fixed income securities, including those rated investment grade. Although liquidity has improved, the market for fixed income instruments continues to experience some price volatility, credit downgrade events and elevated probabilities of default.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings, lower business investment, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Our policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. In addition, we may experience an elevated incidence of claims and lapses or surrenders of policies. Adverse changes in the economy could negatively affect our net income and could have a material adverse effect on our business, results of operations and financial condition.

• Our investment portfolio contains various types of municipal bonds that expose us to the risk of default.

At December 31, 2011, 25.3 percent of our total investment portfolio at fair value, and 27.5 percent of our total fixed maturity investments at fair value, were invested in municipal bonds that are primarily tax-exempt. During or following an economic downturn, our municipal bond portfolio could be subject to a higher risk of default or impairment due to declining municipal tax bases and revenue. The prolonged economic downturn that began in 2008 has resulted in many states and local governments operating under deficits or projected deficits. The severity and duration of these deficits could adversely impact the collectability and valuation of our municipal bond portfolio.

• Unauthorized data access and other security breaches could have an adverse impact on our business and reputation.

Our business and operations rely on secure and efficient processing, storage and transmission of customer and Company data, including personally identifiable information. Our ability to effectively operate our business depends upon our ability and the ability of certain third parties, including vendors and business partners, to access our computer systems to perform necessary business functions, such as providing quotes and product pricing, billing and

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processing premiums, administering claims, and reporting our financial results. Our business and operations also depend upon our ability to safeguard personally identifiable information and other confidential and proprietary information belonging to us and our policyholders. Our systems may be vulnerable to unauthorized access and hackers, computer viruses, and other scenarios in which our data may be compromised.

Security breaches and other improper accessing of data in our facilities, networks or databases, or those of our vendors may occur, exposing us to liability and having an adverse impact on our business. Moreover, any compromise of the security of our data could harm our reputation, which could affect our business and results of operations. There can be no assurances that we will be able to implement security measures adequate to prevent every security breach.

• The effects of emerging claim and coverage issues and class action litigation on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent or by increasing the number and/or size of claims. Examples of these issues include:

• Judicial expansion of policy coverage and the impact of new theories of liability.

• An increase of plaintiffs targeting property and casualty insurers, including us, in purported class action litigation regarding claims handling and other practices.

• An increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions.

• Adverse changes in loss cost trends, including inflationary pressure in medical cost and auto and home repair costs.

• We are exposed to credit risk in certain areas of our operations.

In addition to exposure to credit risk related to our investment portfolio, we are exposed to credit risk in several other areas of our business operations, including credit risk relating to policyholders, independent agents, brokers and reinsurers.

In accordance with industry practice, when policyholders purchase insurance policies from us through independent agents and brokers, the premiums relating to those policies are often paid to the agents and brokers for payment to us. In most jurisdictions, the premiums will be deemed to have been paid to us whether or not actually received by us. Consequently, we assume a degree of credit risk associated with the amounts due from independent agents and brokers.

We are exposed to credit risk through our surety insurance operations, where we guarantee to a third party that our bonded principal will satisfy certain performance obligations (e.g., a construction contract) or certain financial obligations. If our policyholder defaults, we may suffer losses and be unable to be reimbursed by our policyholder.

We are exposed to credit risk with respect to our purchase of reinsurance. See the discussion in the risk factor titled “Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely manner, or at all,” for a discussion of the credit risk associated with our reinsurance program.

To a large degree, the credit risk we face is a function of the economy; accordingly, we face a greater risk during a period of economic downturn. While we attempt to manage these risks through underwriting and investment guidelines, collateral requirements and other oversight mechanisms, our efforts may not be successful. For example, collateral obtained may subsequently have little or no value. As a result, our exposure to credit risk could materially and adversely affect our results of operation and financial condition.

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• We are subject to comprehensive state laws and regulations that pose particular risks to our ability to earn profits.

We are subject to extensive supervision and regulation by the states in which we operate. Our ability to comply with these laws and regulations and obtain necessary and timely regulatory action is, and will continue to be, critical to our success and ability to earn profits.

Examples of regulations that pose particular risks to our ability to earn profits include the following:

• Required licensing. Our insurance company subsidiaries, operate under licenses issued by various state insurance agencies. If a regulatory authority were to revoke an existing license or deny or delay granting a new license, our ability to continue to sell insurance or to enter or offer new insurance products in that market would be substantially impaired.

• Regulation of insurance rates and approval of policy forms. The insurance laws of most states in which we operate require insurance companies to file insurance premium rate schedules and policy forms for review and approval. When our loss ratio compares favorably to that of the industry, state regulatory authorities may resist or delay our efforts to raise premium rates in the future, even if the property and casualty industry generally is not experiencing regulatory resistance to premium rate increases. If premium rate increases we deem necessary are not approved, we may not be able to respond to market developments and increased costs in that state. State regulatory authorities may even impose premium rate rollbacks or require us to pay premium refunds to policyholders, affecting our profitability. If insurance policy forms we seek to use are not approved by a state insurance agency, our ability to offer new products and grow our business in that state could be substantially impaired.

• Restrictions on cancellation, nonrenewal or withdrawal. Many states have laws and regulations restricting an insurance company's ability to cease or significantly reduce its sales of certain types of insurance in that state, except pursuant to a plan that is approved by the state insurance agencies. These laws and regulations could limit our ability to exit or reduce our business in unprofitable markets or discontinue unprofitable products. For example, the State of Louisiana has a law prohibiting the nonrenewal of homeowners policies written for longer than three years except under certain circumstances, such as for nonpayment of premium or fraud committed by the insured.

• Risk-based capital and capital adequacy requirements. Our insurance company subsidiaries and affiliate, are subject to risk-based capital requirements that require us to report our results of risk-based capital calculations to state insurance departments and the NAIC. Any failure to meet applicable risk based capital requirements or minimum statutory capital requirements could subject us or our subsidiaries and affiliate to further examination or corrective action by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

• Transactions between insurance companies and their affiliates. Transactions between us, our subsidiary insurance companies and our affiliates generally must be disclosed to, and in some cases approved by, state insurance agencies. State insurance agencies may refuse to approve or delay their approval of a transaction, which may impact our ability to innovate or operate efficiently.

• Required participation in guaranty funds and assigned risk pools. Certain states have enacted laws that require a property and casualty insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities, and joint underwriting associations where participating insurers are required to provide coverage for assigned risks. The number of risks assigned to us by these plans is based on our share of total premiums written in the voluntary insurance market for that state. Pricing is controlled by the plan, often restricting our ability to charge the premium rate we might otherwise charge. Wherever possible, we utilize a designated servicing carrier to fulfill our obligations under these plans. Designated servicing carriers charge us fees to issue policies, adjust and settle claims and handle administrative reporting on our behalf. In these markets, we may be compelled to underwrite significant amounts of business at lower than desired premium rates, possibly leading to an unacceptable return on equity. While these facilities are

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generally designed so that the ultimate cost is borne by policyholders, the exposure to assessments and our ability to recoup these assessments through adequate premium rate increases may not offset each other in our financial statements. Moreover, even if they do offset each other, they may not offset each other in our financial statements for the same fiscal period, due to the ultimate timing of the assessments and recoupments or premium rate increases. Additionally, certain states require insurers to participate in guaranty funds for impaired or insolvent insurance companies. These state funds periodically assess losses against all insurance companies doing business in the state. Our operating results and financial condition could be adversely affected by any of these factors.

• Restrictions on the amount, type, nature, quality and concentration of investments. The various states in which we operate have certain restrictions on the amount, type, nature, quality and concentration of our investments. Generally speaking, these regulations require us to be conservative in the nature and quality of our investments and restrict our ability to invest in riskier, but often higher yield investments. These restrictions may make it more difficult for us to obtain our desired investment results.

• State and federal tax laws. Under current federal and state income tax law, our life insurance and annuity products receive favorable tax treatment. This favorable treatment may give these products a competitive advantage over other noninsurance products. Congress, from time to time, considers legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities. Congress also considers proposals to reduce the taxation of certain products or investments that may compete with life insurance and annuities. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products, making them less competitive. Such proposals, if adopted, could have a material adverse effect on our financial position or ability to sell such products and could result in the surrender of some existing contracts and policies.

• Terrorism Risk Insurance. The Terrorism Risk Insurance Program Reauthorization Act of 2007 ("TRIPRA")requires the federal government and the insurance industry to share in insured losses up to $100 billion per year resulting from future terrorist attacks within the United States. For further information about TRIPRA and its effect on our operations, refer to the information in the Results of Operations section in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Compliance with these state laws and regulations requires us to incur administrative costs that decrease our profits. These laws and regulations may also prevent or limit our ability to underwrite and price risks accurately, obtain timely premium rate increases necessary to cover increased costs, discontinue unprofitable relationships or exit unprofitable markets and otherwise continue to operate our business profitably. In addition, our failure to comply with these laws and regulations could result in actions by state or federal regulators, including the imposition of fines and penalties or, in an extreme case, revocation of our ability to do business in one or more states. Finally, we could face individual, group and class action lawsuits by our policyholders and others for alleged violations of certain state laws and regulations. Each of these regulatory risks could have a negative effect on our profitability.

• A reduction in our financial strength ratings could adversely affect our business and financial condition.

Third-party rating agencies assess and rate the claims-paying ability of insurers and reinsurers based on criteria established by the agencies. Our property and casualty insurers have been assigned a financial strength rating of "A" (Excellent) from A.M. Best since 1994; except for one insurance subsidiary that is in a run-off status, which A.M. Best has designated as NR-3 (Rating Procedure Inapplicable). Prior to Mercer Insurance Group's acquisition by us, it was rated "A" (Excellent) by A.M. Best since 2001. Our life insurance subsidiary has been assigned a financial strength rating of “A-” (Excellent) from A.M. Best since 1998. Our property and casualty insurance companies are rated on a group basis. Financial strength ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength of insurers and reinsurers. These ratings are not evaluations directed to potential purchasers of our common stock and are not recommendations to buy, sell or hold our common stock. These ratings are subject to change at any time and could be revised downward or revoked at the sole discretion of the rating agency. Downgrades in our financial strength ratings could adversely affect our ability to access the capital markets or could lead to increased borrowing costs in

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the future. Perceptions of the Company by investors, producers, other businesses and consumers could also be significantly impaired.

We believe that the ratings assigned by A.M. Best are an important factor in marketing our products. Our ability to retain our existing business and to attract new business in our insurance operations depends on our ratings by this agency. Our failure to maintain our ratings, or any other adverse development with respect to our ratings, could cause our current and future independent agents and policyholders to choose to transact their business with more highly rated competitors. If A.M. Best downgrades our ratings or publicly indicates that our ratings are under review, it is likely that we will not be able to compete as effectively with our competitors and our ability to sell insurance policies could decline. If that happens, our premium revenue and earnings would decrease. For example, many of our agencies and policyholders have guidelines that require us to have an A.M. Best financial strength rating of “A-” or higher. A reduction of our A.M. Best ratings below “A-” would prevent us from issuing policies to a portion of our current policyholders or other potential policyholders with similar ratings requirements.

• Market conditions may affect our access to and the cost of reinsurance and our reinsurers may not pay losses in a timely manner, or at all.

As part of our overall risk and capacity management strategy, we purchase reinsurance for significant amounts of the risk that we and our insurance company subsidiaries and affiliate underwrite. The availability and cost of reinsurance is subject to market conditions that are beyond our control. The availability and cost of the reinsurance we purchase may affect the level of our business and profitability. Although we purposely work with several reinsurance intermediaries and reinsurers, we may be unable to maintain our current reinsurance facilities or obtain other reinsurance facilities in adequate amounts and at favorable premium rates. Moreover, there may be a situation in which we have more than two catastrophic events within one policy year. Because our current catastrophe reinsurance program only allows for one automatic reinstatement at an additional reinstatement premium, we would be required to obtain a new catastrophe reinsurance policy to maintain our current level of catastrophe reinsurance coverage. Such coverage may be difficult to obtain, particularly if it is necessary to do so during hurricane season following the second catastrophe. If we are unable to renew our expiring facilities or to obtain new reinsurance facilities, either our net exposure to risk will increase or, if we are unwilling to bear an increase in net risk exposures, we will have to reduce the amount of risk we underwrite.

Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred, it does not relieve us of our liability to our policyholders. Our ability to collect reinsurance recoverables may be subject to uncertainty. Our losses must meet the qualifying conditions of the reinsurance agreement. Reinsurers must also have the financial capacity and willingness to make payments under the terms of a reinsurance agreement or program. Particularly, following a major catastrophic event, our inability to collect a material recovery from a reinsurer on a timely basis, or at all, could have a material adverse effect on our liquidity, operating results and financial condition.

• Our geographic concentration in both our property and casualty insurance and life insurance segments ties our performance to the business, economic and regulatory conditions of certain states.

The following states provided 49.8 percent of the direct statutory premium written for the property and casualty insurance segment in 2011: Texas (12.9 percent), Iowa (12.7 percent), California (10.6 percent), Missouri (7.3 percent) and Louisiana (6.3 percent). The following states provided 71.0 percent of the direct statutory premium written for the life insurance segment in 2011: Iowa (29.7 percent), Minnesota (11.9 percent), Illinois (10.2 percent), Nebraska (9.6 percent), and Wisconsin (9.6 percent). Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, demographic, competitive, weather and other conditions in the principal states in which we do business. Changes in any of these conditions could make it less attractive for us to do business in such states and would have a more pronounced effect on us compared to companies that are more geographically diversified. In addition, our exposure to severe losses from localized natural perils, such as hurricanes or hailstorms, is increased in those areas where we have written a significant amount of property insurance policies.

21

United Fire Group, Inc. Form 10-K | 2011

• We face significant competitive pressures in our business that could cause demand for our products to fall and reduce our revenue and profitability.

The insurance industry is highly competitive. In our property and casualty insurance business and in our life insurance business, we compete, and will continue to compete, with many major U.S. and non-U.S. insurers and smaller regional companies, as well as mutual companies, specialty insurance companies, underwriting agencies, and diversified financial services companies. Some of our competitors have far greater financial and marketing resources than we do. Our premium revenue and our profitability could decline if we lose business to competitors offering similar or better products at or below our prices. Our profitability could also be affected by the entry of new competitors into the market and the development of new products by new and existing competitors.

We price our insurance products based on estimated profit margins, and we would not be able to significantly reduce our current estimated profit margins in the near future. Some of our competitors may be larger and have more capital than we do, and may be able to withstand significant reductions in their profit margins. If our competitors decide to target our policyholder base by offering lower-priced insurance, we may not be able to respond competitively, which could reduce our revenue and our profitability.

• Our business depends on the uninterrupted operations of our facilities, systems and business functions.

Our business depends on our employees' ability to perform necessary business functions, such as processing new and renewal policies and claims. We increasingly rely on technology and systems to accomplish these business functions in an efficient and uninterrupted fashion. Our inability to access our facilities or a failure of technology, telecommunications or other systems could significantly impair our ability to perform such functions on a timely basis or affect the accuracy of transactions. If sustained or repeated, such a business interruption or system failure could result in a deterioration of our ability to write and process new and renewal business, serve our agents and policyholders, pay claims in a timely manner, collect receivables or perform other necessary business functions.

In the event that a natural disaster or a terrorist act occurs, our company and employees could be directly adversely affected, depending on the nature of the event. We have an emergency preparedness plan that consists of the information and procedures required to enable rapid recovery from an occurrence, such as natural disaster or business disruption, which could potentially disable us for an extended period of time. This plan was successfully tested during 2008, both by the Midwest flooding that affected our corporate headquarters in Cedar Rapids, Iowa, and by Hurricane Ike that affected our Gulf Coast regional office in Galveston, Texas.

• Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, as well as our access to capital and cost of capital.

Although capital market conditions have improved, our results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the capital and credit markets.

We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed adequate to meet anticipated short-term and long-term benefit and expense payment obligations. However, in the event our current internal sources of liquidity do not satisfy our needs, we have entered into a $100.0 million revolving unsecured credit facility that we can access.

Disruptions, uncertainty or volatility in the capital and credit markets may limit our access to capital required to operate our business. Such market conditions may limit our ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue shorter term securities than we prefer, utilize available internal resources or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility and liquidity.

22

United Fire Group, Inc. Form 10-K | 2011

• If we are unable to successfully introduce new products or services or fail to keep pace with advances in technology, our business, financial condition and results of operations will be adversely affected.

The successful implementation of our business model depends on our ability to adapt to evolving technologies and industry standards and introduce new products and services. We cannot assure you that we will be able to introduce new products, or that any new products will achieve market acceptance. Moreover, competitors may develop competitive products that could adversely affect our results of operations. A failure by us to introduce planned products or other new products could have an adverse effect on our business, financial condition and results of operations.

If we cannot adapt to changing technologies, our products and services may become obsolete, and our business could suffer. Our success will depend, in part, on our ability to continue to enhance our existing products and services, develop new technology that addresses the increasingly sophisticated and varied needs of our prospective customers and respond to technological advances on a timely and cost-effective basis. We may not be successful in using new technologies effectively or adapting our proprietary technology to evolving customer requirements, and, as a result, our business could suffer.

• We are unable to predict the impact on us of the new federal financial regulatory reform.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) enacted in July, 2010, expands the federal presence in insurance oversight. The Dodd-Frank Act's requirements include streamlining the state-based regulation of reinsurance and nonadmitted insurance (property or casualty insurance placed from insurers that are eligible to accept insurance, but are not licensed to write insurance in a particular state). The Dodd-Frank Act also establishes a new Federal Insurance Office within the U.S. Department of the Treasury with regulatory authority over all lines of insurance except health insurance, certain long-term care insurance and crop insurance. The Federal Insurance Office has the power to, among other things, monitor aspects of the insurance industry, identify issues in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the overall financial system, coordinate federal policy on international insurance matters and preempt state insurance measures under certain circumstances.

The Dodd-Frank Act provides a framework for further regulation and governance initiatives. These regulations and initiatives cover many aspects of public company governance including, but not limited to, new and enhanced executive compensation disclosures, nonbinding stockholder votes on executive compensation, new independence standards for compensation committee membership, and incentive compensation clawback policies. Because the SEC has not yet completed its required rulemaking under the Dodd-Frank Act, we are unable to predict with certainty the overall impact these new regulations and initiatives will have on us. However, the cost of compliance with new regulations and initiatives could be significant, and adversely impact our results of operations, equity, business, and insurer financial strength and debt ratings.

Risks Relating to Our Acquisition of Mercer Insurance Group

On March 28, 2011, we completed the acquisition of 100 percent of the outstanding capital stock of Mercer Insurance Group for $28.25 per share in cash consideration (representing $191.5 million in total consideration).

• We incurred significant costs and expenses in connection with the acquisition; the integration of Mercer Insurance Group into our business operations may result in significant expenses and accounting charges, all of which will adversely affect our operating results and financial condition.

During 2011, we incurred one-time transaction costs totaling $8.3 million in connection with the acquisition transaction. We expect to incur additional costs associated with the integration of Mercer Insurance Group into our business operations. In addition to one-time transaction costs, we also incurred accounting charges related to the amortization of the value of business acquired ("VOBA") asset. VOBA is being amortized in the first 12 months of

23

United Fire Group, Inc. Form 10-K | 2011

operations subsequent to the acquisition. As of December 31, 2011, the VOBA asset was $1.7 million, which will be fully amortized in the first quarter of 2012.

We continue to integrate a large number of systems and functions, including management information, purchasing, accounting and finance, claims, underwriting, billing, payroll and benefits, fixed assets and lease administration, and regulatory compliance. Many of the expenses that will be incurred, by their nature, are impracticable to estimate. These expenses could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of duplicative expenses, the realization of economies of scale, and cost savings and revenue synergies related to the integration of the two companies.

To the extent that our financial results are materially affected by additional integration-related expenses and costs, the price of our common stock could decline.

• Integrating Mercer Insurance Group into our existing operations involves considerable risks and may not be successful, and we may fail to realize the potential benefits of the acquisition of Mercer Insurance Group.

The integration of Mercer Insurance Group into our existing operations has been a complex, time-consuming and expensive process and may disrupt our existing operations if not completed in a timely and efficient manner. If our management is unable to minimize the potential disruption to our business during the integration process, we may not realize the anticipated benefits of the acquisition. Realizing the benefits of the acquisition will depend, in part, on the successful integration of technology, operations, and personnel, while maintaining adequate focus on our core businesses. We may encounter substantial difficulties, costs and delays in integrating Mercer Insurance Group, including the following, any one or a combination of which could seriously harm our results of operations, business, financial condition and/or the price of our common stock:

• difficulties and delays in the integration of Mercer Insurance Group's operations, personnel, technologies, products, services, business relationships and information and other systems;

• the diversion of management's attention from normal daily operations of our business;

• difficulties associated with managing a larger, more complex, combined business;

• the occurrence of adverse development of loss reserves;

• contractual and/or intellectual property disputes;

• lost agents, agencies or policyholders as a result of agents, agencies or policyholders of either of the two companies deciding not to do business with the combined companies;

• conflicts in agency, marketing or other important relationships;

• difficulties caused by entering geographic and business markets in which we have limited or no prior experience;

• acquired products and services that may not attract policyholders;

• loss of key employees and disruptions among employees that may erode employee morale;

• inability to implement uniform standards, controls, policies and procedures; and

• failure to achieve anticipated levels of revenue, profitability or productivity.

Our operating expenses may increase significantly over the near term due to the increased number of employees, expanded operations and changes related to the acquisition. Our business, operating results and financial condition may be adversely affected to the extent that our expenses increase but our revenues do not, there are unanticipated

24

United Fire Group, Inc. Form 10-K | 2011

expenses related to the integration process, or there are significant costs associated with presently unknown liabilities. Failure to minimize the numerous risks associated with the post-acquisition integration strategy also may adversely affect the price of our common stock.

• We incurred debt as part of the acquisition transaction.

As of December 31, 2011, we had a $45.0 million loan outstanding. Our ability to meet our ongoing debt service obligations under this loan will depend on our future performance, which will be subject to financial, business, and other factors affecting our operations, many of which are beyond our control. These debt arrangements, and any restrictions included therein, may have an adverse impact on our business operations and financial results and could adversely affect the value of our common stock.

• Integration of Mercer Insurance Group's information technology systems with ours may result in a loss of technical support from some information technology vendors.

Since the acquisition we are working to combine our data and Mercer Insurance Group's data to a single, integrated information technology platform. This process has involved, and will likely continue to involve, terminating the existing relationship with one or more of our or Mercer Insurance Group's current information technology vendors. If the integration process does not progress smoothly or within the time frame anticipated by management, we could have difficulty receiving adequate technical support from cancelled vendors who might have little incentive to continue cooperating with us. Lack of adequate vendor technical support could also delay the technology integration process and lead to increased costs which, in turn, could have a material adverse effect on our business and operations.

Risks Relating to Our Common Stock

• The ability of our subsidiaries to pay dividends may affect our liquidity and ability to meet our obligations.

United Fire Group, Inc. is a holding company with no significant independent operations. Its principal asset is the stock of United Fire & Casualty Company and its subsidiaries. State insurance regulatory authorities limit the payment of dividends by insurance companies. In addition, competitive pressures generally require insurance companies to maintain insurance financial strength ratings. These restrictions and other regulatory requirements affect the ability of our insurance subsidiaries to make dividend payments to us. At times we may not be able to pay dividends on our common stock, or we may be required to seek prior approval from the applicable regulatory authority before we can pay any such dividends. Limits on the ability of our insurance subsidiaries to pay dividends could adversely affect our liquidity, including our ability to pay dividends to shareholders, service our debt, and make share repurchases. In addition, the payment of dividends by us is within the discretion of our Board of Directors and will depend on numerous factors, including our financial condition, our capital requirements and other factors that our Board of Directors considers relevant.

• The price of our common stock may be volatile.

The trading price of our common stock may fluctuate substantially due to a variety of factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could be significant and could cause a loss in the amount invested in our shares of common stock. Factors that could cause fluctuations include, but are not limited to, the following:

• Variations in our actual or anticipated operating results or changes in the expectations of financial market analysts with respect to our results.

• Investor perceptions of the insurance industry in general and the Company in particular.

• Market conditions in the insurance industry and any significant volatility in the market.

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United Fire Group, Inc. Form 10-K | 2011

• Major catastrophic events.

• Departure of key personnel.

• Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management, prevent the sale of the Company or prevent or frustrate any attempt by stockholders to change the direction of the Company, each of which could diminish the value of our common stock.

Our articles of incorporation and bylaws, as well as applicable laws governing corporations and insurance companies, contain provisions that could impede an attempt to replace or remove our management or prevent the sale of the Company that, in either case, stockholders might consider being in their best interests. For example:

• Our Board of Directors is divided into three classes. At any annual meeting of our stockholders, our stockholders have the right to appoint approximately one-third of the directors on our Board of Directors. Consequently, it will take at least two annual stockholder meetings to effect a change in control of our Board of Directors.

• Our articles of incorporation limit the rights of stockholders to call special stockholder meetings.

• Our articles of incorporation set the minimum number of directors constituting the entire Board of Directors at nine and the maximum at 15, and they require approval of holders of 60.0 percent of all outstanding shares to amend these provisions. Within the range, the Board of Directors may increase by one each year the number of directors serving on the Board of Directors.

• Our articles of incorporation require the affirmative vote of 60.0 percent of all outstanding shares to approve any plan of merger, consolidation, or sale or exchange of all, or substantially all, of our assets.

• Our Board of Directors may fill vacancies on the Board of Directors.

• Our Board of Directors has the authority, without further approval of our stockholders, to issue shares of preferred stock having such rights, preferences and privileges as the Board of Directors may determine.

• Section 490.1110 of the Iowa Business Corporation Act imposes restrictions on mergers and other business combinations between us and any holder of 10.0 percent or more of our common stock.

• Section 490.624A of the Iowa Business Corporation Act authorizes the terms and conditions of stock rights or options issued by us to include restrictions or conditions that preclude or limit the exercise, transfer, or receipt of such rights or options by a person, or group of persons, owning or offering to acquire a specified number or percentage of the outstanding common shares or other securities of the corporation.

Further, the insurance laws of Iowa and the states in which our subsidiary insurance companies are domiciled prohibit any person from acquiring direct or indirect control of us or our insurance company subsidiaries, generally defined as owning or having the power to vote 10.0 percent or more of our outstanding voting stock, without the prior written approval of state regulators.

These provisions of our articles of incorporation and bylaws, and these state laws governing corporations and insurance companies, may discourage potential acquisition proposals. These provisions and state laws may also delay, deter or prevent a change of control of the Company, in particular through unsolicited transactions that some or all of our stockholders might consider to be desirable. As a result, efforts by our stockholders to change the direction or the Company's management may be unsuccessful, and the existence of such provisions may adversely affect market prices for our common stock if they are viewed as discouraging takeover attempts.

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United Fire Group, Inc. Form 10-K | 2011

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own three buildings in Cedar Rapids, Iowa, that we use as our corporate headquarters including: a five-story office building, a two-story office building and an eight-story office building in which a portion of the first floor (approximately 6.0 percent of the building’s square footage) is leased to tenants, and related parking facilities. All three buildings are connected by a skywalk system. We also own a 250-space parking ramp for use by our employees. The parking ramp is located adjacent to our corporate headquarters upon one parcel of real estate that we own and another parcel that we lease with an option to purchase.

In addition, three of our regional locations in Lock Haven, Pennsylvania, Pennington, New Jersey, and Rocklin, California, conduct operations in office space that we own. A portion of the Lock Haven (approximately 20.0 percent) and Pennington (approximately 4.0 percent) office space is leased to tenants. We also own a tract of land adjacent to the Pennington office and a townhouse located near the Rocklin office that is used for corporate purposes.

Our other two regional locations in Westminster, Colorado, and Galveston, Texas, and our claims office in Metairie, Louisiana, conduct operations in leased office space.

The following table shows a brief description of our owned and leased office space. We believe our current facilities are adequate to meet our needs with additional space available for future expansion, if necessary, at each of our leased and owned facilities.

Location	Utilized by	Owned or Leased	Lease Expiration Date
Corporate Headquarters –
Cedar Rapids, Iowa (118 Second Avenue SE)	Corporate Administration, Property and Casualty Insurance Segment	Owned	N/A
Cedar Rapids, Iowa (119 Second Avenue SE)	Corporate Administration, Life Insurance Segment	Owned	N/A
Cedar Rapids, Iowa (109 Second Street SE)	Property and Casualty Insurance Segment	Owned	N/A
Denver Regional Office – Westminster, Colorado	Property and Casualty Insurance Segment	Leased	June 30, 2015
Gulf Coast Regional Office – Galveston, Texas	Property and Casualty Insurance Segment	Leased	November 30, 2014
Lock Haven Regional Office - Lock Haven, Pennsylvania	Property and Casualty Insurance Segment	Owned	N/A
New Orleans Claims Office – Metairie, Louisiana	Property and Casualty Insurance Segment	Leased	September 30, 2012
Pennington Regional Office - Pennington, New Jersey	Property and Casualty Insurance Segment	Owned	N/A
Rocklin Townhouse - Rocklin, California	Property and Casualty Insurance Segment	Owned	N/A
Rocklin Regional Office - Rocklin, California	Property and Casualty Insurance Segment	Owned	N/A

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United Fire Group, Inc. Form 10-K | 2011

ITEM 3. LEGAL PROCEEDINGS

Incorporated by reference from Note 15 “Contingent Liabilities” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stockholders

United Fire Group, Inc.’s common stock is traded on The NASDAQ Global Select Market (“NASDAQ”) under the symbol “UFCS.” On February 1, 2012, there were 877 holders of record of United Fire Group, Inc.common stock. The number of record holders does not reflect stockholders who beneficially own common stock in nominee or street name, but does include participants in our employee stock ownership plan.

See “Security Ownership of Certain Beneficial Owners,” “Security Ownership of Management” and “Securities Authorized for Issuance under Equity Compensation Plans,” in Part III, Item 12 of this Form 10-K, which incorporates by reference our definitive Proxy Statement for our annual meeting of stockholders to be held on May 16, 2012. The Proxy Statement will be filed with the SEC within 120 days after the end of our fiscal year (the “2012 Proxy Statement”) and is incorporated herein by reference.

Dividends

Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.

The table in the following section shows the quarterly cash dividends declared in 2011 and 2010. Payments of any future dividends and the amounts of such dividends, however, will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors, out of funds legally available, and subject to any other restrictions that may be applicable to us.

State law permits the payment of dividends only from earned surplus arising from business operations. Furthermore, under Iowa law we may pay dividends only if after giving effect to the payment we are either able to pay our debts as they become due in the normal course of business or our total assets would be equal to or more than the sum of our total liabilities. Our subsidiaries are also subject to similar state law restrictions on dividends. Additional information about these restrictions is incorporated by reference from Note 6 “Statutory Reporting, Capital Requirements and Dividends and Retained Earnings Restrictions” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

Market Information

The following table sets forth the high and low trading price for our common stock for the calendar periods indicated. These quotations reflect interdealer prices without retail markups, markdowns, or commissions and may not necessarily represent actual transactions.

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United Fire Group, Inc. Form 10-K | 2011

	Share Price				Cash Dividends Declared
	High		Low
2011
Quarter Ended:
March 31	$	23.29	$	18.50	$	0.15
June 30	21.95		17.10		0.15
September 30	18.52		14.79		0.15
December 31	21.16		16.20		0.15
2010
Quarter Ended:
March 31	$	18.92	$	15.99	$	0.15
June 30	24.57		17.55		0.15
September 30	22.67		18.86		0.15
December 31	23.41		19.82		0.15

Issuer Purchases of Equity Securities

Under our share repurchase program, we may purchase our 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, economic and general market conditions, and corporate and regulatory requirements. We will generally consider repurchasing our common stock on the open market if (i) the trading price on NASDAQ drops below 130 percent of its book value, (ii) sufficient excess capital is available to purchase the stock, and (iii) we are optimistic about future market trends and the performance of the Company. Our Share Repurchase Program may be modified or discontinued at any time.

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 Securities Exchange Act of 1934, during the three-month period ended December 31, 2011.

Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as a Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may be Purchased Under the Plans or Programs
10/1/11 - 10/31/11	—	$	—	—	471,686
11/1/11 - 11/30/11	—	—		—	471,686
12/1/11 - 12/31/11	1,807	20.14		1,807	469,879

(1) Our share repurchase program was originally announced in August 2007. Our Board of Directors authorized us, in May 2011, to purchase up to an additional 1,000,000 shares of common stock through August 2013.

United Fire & Casualty Company Common Stock Performance Graph

The following graph compares the performance of an investment in United Fire & Casualty Company's common stock from December 31, 2006, through December 31, 2011, with the Standard & Poor’s 500 Index (“S&P 500 Index”), and the Standard & Poor’s 600 Property and Casualty Index (“S&P 600 P&C Index”). The graph assumes $100 was invested on December 31, 2006, in each of our common stock and the above listed indices and that all dividends were reinvested on the date of payment without payment of any commissions. Dollar amounts in the graph are rounded to the nearest whole dollar. The performance shown in the graph represents past performance and should not be considered an indication of future performance.

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United Fire Group, Inc. Form 10-K | 2011

The following table shows the data used in the Total Return Performance graph above.

	Period Ending
Index	12/31/06		12/31/07		12/31/08		12/31/09		12/31/10		12/31/11
United Fire & Casualty Company	$	100.00	$	83.82	$	91.36	$	55.40	$	69.86	$	65.18
S&P 500 Index	100.00		105.49		66.46		84.05		96.71		98.76
S&P 600 P&C Index	100.00		87.92		81.36		70.15		85.53		93.56

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United Fire Group, Inc. Form 10-K | 2011

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data derived from the Consolidated Financial Statements of United Fire & Casualty Company and its subsidiaries and affiliates. The data should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data.”

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United Fire Group, Inc. Form 10-K | 2011

(In Thousands, Except Per Share Data)
Years Ended December 31	2011			2010			2009			2008			2007
Consolidated Balance Sheet Data:
Total cash and investments	$	3,052,535		$	2,662,955		$	2,542,693		$	2,205,355		$	2,399,141
Total assets	3,618,924			3,007,439			2,902,544			2,687,130			2,760,554
Future policy benefits and losses, claims and loss settlement expenses
Property and casualty insurance (1)	945,051			603,090			606,045			586,109			496,083
Life insurance	1,476,281			1,389,331			1,321,600			1,167,665			1,184,977
Unearned premiums	288,991			200,341			206,010			216,966			224,530
Total liabilities	2,922,783			2,291,015			2,229,809			2,045,389			2,009,057
Net unrealized gains, after tax (2)	124,376			102,649			82,491			25,543			85,579
Repurchase of United Fire & Casualty Company common stock	(12,433		)	(6,280		)	(1,545		)	(14,817		)	(16,078		)
Total stockholders’ equity (3)	696,141			716,424			672,735			641,741			751,497
Book value per share	27.29			27.35			25.35			24.10			27.63
Consolidated Income Statement Data:
Revenues
Net premiums written (4)	$	604,867		$	463,892		$	467,427		$	496,897		$	501,849
Net premiums earned	586,783			469,473			478,498			503,375			505,763
Investment income, net of investment expenses (5)	109,494			111,685			106,075			107,577			122,439
Realized investment gains (losses) (6)	6,440			8,489			(13,179		)	(10,383		)	9,670
Other income	2,291			1,425			799			880			654
Consolidated revenues	$	705,008		$	591,072		$	572,193		$	601,449		$	638,526
Losses and loss settlement expenses
Property and casualty insurance (7)	407,831			289,437			365,721			393,349			245,845
Life insurance	22,558			20,359			16,773			13,291			14,869
Amortization of deferred policy acquisition costs (8)	153,176			113,371			114,893			129,158			136,805
Other underwriting expenses (9)	58,757			39,321			39,298			28,252			22,918
Net income (loss) (10)	11			47,513			(10,441		)	(13,064		)	111,392
Property and Casualty Insurance Segment Data:
Net premiums written (4)	551,923			414,908			424,827			459,571			470,402
Net premiums earned	533,771			420,373			435,677			465,581			473,134
Net income (loss)	(7,639		)	34,726			(17,677		)	(15,156		)	98,225
Combined ratio (4)	112.1		%	99.9		%	115.2		%	113.9		%	81.3		%
Life Insurance Segment Data:
Net premiums earned	53,012			49,100			42,821			37,794			32,629
Net income	7,650			12,787			7,236			2,092			13,167
Earnings Per Share Data:
Basic earnings (loss) per common share (11)	—			1.81			(0.39		)	(0.48		)	4.04
Diluted earnings (loss) per common share	—			1.80			(0.39		)	(0.48		)	4.03
Other Supplemental Data:
Cash dividends declared per common share	0.60			0.60			0.60			0.60			0.555

(1) Property and casualty reserves may be affected by both internal and external events, such as changes in claims handling procedures, judicial or legislative actions, inflation, and catastrophes. In 2011, our acquisition of Mercer Insurance Group and a significant level of catastrophes were factors in the change in our reserves. In prior years, the fluctuations in our reserves primarily related to losses incurred from Hurricanes Ike and Gustav, which occurred in 2008, and the adverse claims litigation that has resulted from Hurricane Katrina, which occurred in 2005. For further discussion of our acquisition of Mercer Insurance Group, refer to Note 16, “Business Combinations” contained in Part II, Item 8, “Financial Statements and Supplementary Data.”

(2) Net unrealized gains, after tax, were impacted in 2008 by the volatility in the financial markets. The severe downturn in the financial

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United Fire Group, Inc. Form 10-K | 2011

markets resulted in a significant decrease to our net unrealized gains in 2008, while in subsequent years our net unrealized gains returned to levels similar to years prior to 2008. In addition, our 2011 net unrealized gains were impacted by our acquisition of the investment portfolio of Mercer Insurance Group.

(3) In 2011, our stockholders' equity decreased as a result of stockholder dividends, stock repurchases and an increase in the underfunded status of our employee benefit plans. The decrease was somewhat offset by an increase in net unrealized gains. In 2010, our stockholders' equity improved due to an increase in net unrealized gains and a significant improvement in our earnings. In 2008 and 2009, our stockholders’ equity was impacted by the overall state of the economy and the volatility in the financial markets, which impaired our ability to generate an underwriting profit and reduced our net investment income and net unrealized investment gains.

(4) For further information on this line, please refer to the Results of Operations and Measurement of Results sections in Part II, Item 7.

(5) The decline in investment income since 2007 was due to lower market interest rates earned on our investment portfolio, which affected the amount we earned on our short-term investments and cash and cash equivalents, and the changes in the value of certain investments in limited liability partnerships. Additionally in 2009 and 2008, investment income was affected by agency bonds that were called during 2009, the proceeds were reinvested at a lower interest rate than was previously available in prior years, and the reduction or discontinuation of dividend payments by some of our equity securities that previously had paid regular dividends.

(6) Realized investment gains and losses could be material to our results of operations over the long term, and the occurrence and timing of realized gains and losses may cause our earnings to fluctuate substantially. GAAP requires us to recognize gains and losses from certain changes in the fair value of securities without the actual sale of those securities. The realized investment losses in 2009 and 2008 were primarily due to pre-tax realized losses from other-than-temporary investment charges incurred on our fixed maturity securities and equity securities. We recorded other-than-temporary investment charges of $0.4 million, $0.5 million, $18.3 million, $9.9 million and $0.1 million in 2011, 2010, 2009, 2008 and 2007, respectively.

(7) For further information on this line, please refer to the Results of Operations section in Part II, Item 7.

(8) Amortization of deferred policy acquisitions costs increased in 2011 as a result of our acquisition of Mercer Insurance Group and the impact of amortization of the value of business acquired ("VOBA") asset. The VOBA asset is being amortized in the first 12 months of operations subsequent to the acquisition, in correlation to the remaining term of Mercer Insurance Group policies that we acquired.

(9) In 2011, our acquisition of Mercer Insurance Group primarily accounts for the fluctuation in other underwriting expenses when compared to prior years. The two factors that historically cause most of the fluctuation in other underwriting expenses are the level of deferrable underwriting expenses, which generally correlates to our level of written premiums, and changes in the expense for our employee benefit plans.

(10) Our net income in 2011 reflects an increase in loss and loss settlement expenses from catastrophes and an increased level of other underwriting expenses, primarily as a result of our acquisition of Mercer Insurance Group. Our net losses in 2009 and 2008 were due to lower revenues from premiums earned, a decrease in net investment income, realized losses, higher expenses from losses, and other underwriting expenses. For further discussion of net income (loss) refer to our “Results of Operations” contained in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

(11) Our basic earnings (loss) per common share is calculated by dividing our net income (loss) by the weighted average common shares outstanding during the reporting period.

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United Fire Group, Inc. Form 10-K | 2011

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

FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company, the industry in which we operate, and beliefs and assumptions made by management. Words such as “expect(s),” “anticipate(s),” “intend(s),” “plan(s),” “believe(s),” “continue(s),”

“seek(s),” “estimate(s),” “goal(s),” “target(s),” “forecast(s),” “project(s),” “predict(s),” “should,” “could,” “may,” “will continue,” “might,” “hope,” “can” and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part II Item 1A, “Risk Factors” of this document. Among the factors that could cause our actual outcomes and results to differ are:

• The frequency and severity of claims, including those related to catastrophe losses, and the impact those claims have on our loss reserve adequacy.

• Developments in the domestic and global financial markets that could affect our investment portfolio.

• The calculation and recovery of deferred policy acquisition costs (“DAC”).

• The valuation of pension and other postretirement benefit obligations.

• Our relationship with our agencies and agents.

• Our relationship with our reinsurers.

• The financial strength rating of our reinsurers.

• Changes in industry trends and significant industry developments.

• Our exposure to international catastrophes through our assumed reinsurance program.

• Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions.

• NASDAQ policies or regulations relating to corporate governance and the cost to comply.

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

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United Fire Group, Inc. Form 10-K | 2011

INTRODUCTION

The purpose of the Management’s Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial position. Our Management’s Discussion and Analysis should be read in conjunction with Part II, Item 6, “Selected Financial Data” and Part II, Item 8, “Financial Statements and Supplementary Data.” When we provide information on a statutory basis, we label it as such; otherwise, all other data is presented in accordance with U.S. generally accepted accounting principles (“GAAP”).

This discussion and analysis is presented in these sections:

• Our Business

• Measurement of Results

• Consolidated Financial Highlights

• Results of Operations for the Years Ended December 31, 2011, 2010, and 2009

• Investments

• Liquidity and Capital Resources

• Critical Accounting Estimates

• Pending Accounting Standards

OUR BUSINESS

Founded in 1946, United Fire & Casualty Company and its subsidiaries provide insurance protection for individuals and businesses through several regional companies. We are represented nationally by 1,302 independent property and casualty insurance agencies and predominantly in the Midwest by 950 independent life insurance agencies.

Segments

We operate two business segments that are comprised of a wide range of products:

• property and casualty insurance, which includes commercial insurance, personal insurance, and assumed insurance; and

• life insurance, which includes deferred and immediate annuities, universal life products and traditional life (primarily single premium whole life insurance) products.

These business segments are managed separately, as they generally do not share the same customer base, and they each have different products, pricing, and expense structures.

For 2011, property and casualty business accounted for approximately 90.0 percent of our net premiums earned, of which 89.6 percent was generated from commercial insurance. Life insurance business made up approximately 10.0 percent of our net premiums earned, of which over 61.0 percent was generated from traditional life insurance products.

Pooling Arrangement

All of our property and casualty insurance subsidiaries, with the exception of Texas General Indemnity Company, are members of an intercompany reinsurance pooling arrangement. The insurance entities of Mercer Insurance

35

United Fire Group, Inc. Form 10-K | 2011

Group participated in their own pooling arrangement in 2011, which was in place when we acquired Mercer Insurance Group on March 28, 2011. Effective January 1, 2012, one pooling arrangement exists to cover all participating insurance subsidiaries of United Fire Group, Inc. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool’s capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant’s own surplus level.

Geographic Concentration

For 2011, approximately 50.0 percent of our property and casualty premiums were written in Texas, Iowa, California, Missouri, and Louisiana; over 70.0 percent of our life insurance premiums were written in Iowa, Minnesota, Illinois, Nebraska, and Wisconsin.

Sources of Revenue and Expense

We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of Management’s Discussion and Analysis is reported on a pre-tax basis. Additional segment information is presented in Part II, Item 8, Note 10 “Segment Information” to the Consolidated Financial Statements.

Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, changes in reserves for future policy benefits, operating (i.e., underwriting) expenses and interest on policyholders’ accounts.

Profit Factors

The profitability of the Company is influenced by many factors, including price, competition, economic conditions, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. Unless a connection to increased extreme weather events related to climate change is ultimately proven true, management believes that climate change considerations will not have a material impact on our profitability.

How We Achieve Profitability

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, and effective and efficient use of technology.

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United Fire Group, Inc. Form 10-K | 2011

MEASUREMENT OF RESULTS

Our consolidated financial statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance subsidiaries based on statutory accounting principles; these statements are filed with insurance regulatory authorities in the states where they do business.

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

Premiums written is a statutory measure of our overall business volume. Premiums written is an important measure of business production for the period under review. Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written is the amount of premiums charged for policies issued during the period. For the property and casualty insurance segment there are no differences between direct statutory premiums written and direct premiums written under GAAP. However, for the life insurance segment, deferred annuity deposits (i.e., sales) are included in direct statutory premiums written, whereas they are excluded for GAAP.

Assumed premiums written is consideration or payment we receive in exchange for insurance we provide to other insurance companies. We report these premiums as revenue as they are earned over the underlying policy period. Ceded premiums written is the portion of direct premiums written that we cede to our reinsurers under our reinsurance contracts.

	Years Ended December 31
(In Thousands)	2011			2010			2009
Net premiums written	$	604,867		$	463,892		$	467,427
Net change in unearned premium	(16,401		)	5,669			10,956
Net change in prepaid reinsurance premium	(1,683		)	(88		)	115
Net premiums earned	$	586,783		$	469,473		$	478,498

Combined ratio is a commonly used statutory 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 two separately calculated ratios, the loss and loss settlement expense ratio (the “net loss ratio”) and the underwriting expense ratio (the “expense ratio”). If the combined ratio is at or above 100.0 percent, an insurance company is not underwriting profitably and may not be profitable unless investment income is sufficient to offset underwriting losses.

When prepared in accordance with GAAP, the net loss ratio is calculated as the ratio of losses and loss settlement expenses incurred to net premiums earned and measures the underwriting profitability of a company’s insurance business. 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 Consolidated Financial Statements.

When prepared in accordance with GAAP, the underwriting expense ratio is calculated as the ratio of amortization of deferred policy acquisition costs and nondeferred underwriting expenses to net premiums earned. The underwriting expense ratio measures a company’s operational efficiency in producing, underwriting and administering its insurance business.

When prepared in accordance with statutory accounting principles, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned; the expense ratio is calculated by dividing underwriting expenses by net premiums written.

Catastrophe losses is a commonly used non-GAAP financial measure, which utilize the designations of the Insurance Services Office (ISO) and are reported with loss and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single

37

United Fire Group, Inc. Form 10-K | 2011

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, such as Hurricane Katrina. The frequency and severity of catastrophic losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance segment, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in periodic earnings.

	Years Ended December 31
(In Thousands)	2011		2010		2009
ISO catastrophes (1)	$	57,238	$	16,230	$	20,781
Non-ISO catastrophes (2)	23,555		3,540		1,616
Total catastrophes	$	80,793	$	19,770	$	22,397

(1) This number does not include loss and loss settlement expenses incurred for Hurricane Katrina claims and related litigation.

(2) This number includes international assumed losses.

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United Fire Group, Inc. Form 10-K | 2011

CONSOLIDATED FINANCIAL HIGHLIGHTS

Consolidated Results of Operations

										% Change
(In Thousands)										2011		2010
Years ended December 31	2011			2010			2009			vs. 2010		vs. 2009
Revenues
Net premiums earned	$	586,783		$	469,473		$	478,498		25.0	%	(1.9	)%
Investment income, net	109,494			111,685			106,075			(2.0	)	5.3
Realized investment gains (losses)
Other-than-temporary impairment charges	(395		)	(459		)	(18,307		)	13.9		97.5
Other realized gains, net	6,835			8,948			5,128			(23.6	)	74.5
Total realized investment gains (losses)	6,440			8,489			(13,179		)	(24.1	)	164.4
Other income	2,291			1,425			799			60.8		78.3
Total Revenues	$	705,008		$	591,072		$	572,193		19.3	%	3.3	%
Benefits, Losses and Expenses
Loss and loss settlement expenses	$	430,389		$	309,796		$	382,494		38.9	%	(19.0	)%
Liability for future policy benefits	32,567			27,229			23,897			19.6		13.9
Amortization of deferred policy acquisition costs	153,176			113,371			114,893			35.1		(1.3	)
Other underwriting expenses	58,757			39,321			39,298			49.4		0.1
Disaster charges and other related expenses, net of recoveries	—			(16		)	(1,335		)	NM		98.8
Interest on policyholders’ accounts	42,834			42,988			41,652			(0.4	)	3.2
Total Benefits, Losses and Expenses	$	717,723		$	532,689		$	600,899		34.7	%	(11.4	)%
Income (loss) before income taxes	(12,715		)	58,383			(28,706		)	(121.8	)	NM
Federal income tax expense (benefit)	(12,726		)	10,870			(18,265		)	NM		159.5
Net Income (Loss)	$	11		$	47,513		$	(10,441	)	(100.0	)%	NM
Basic earnings (loss) per share	$	—		$	1.81		$	(0.39	)	(100.0	)%	NM
Diluted earnings (loss) per share	$	—		$	1.80		$	(0.39	)	(100.0	)	NM

NM = not meaningful

Consolidated Results of Operations

The year 2011 will be remembered for its devastating catastrophes, both domestic and abroad. According to various reports, 2011 was the costliest catastrophe year on record for the property and casualty insurance industry globally. We experienced losses in our direct and assumed books of business that negatively impacted our full-year results. However, premium rates increased across all lines of business, and there were some positive signs in the overall economy. Additionally, we have taken steps to improve and strengthen our underwriting guidelines based on our catastrophe experiences of the past year. Internal analyses of our catastrophe exposures, utilizing various approaches including the results of the updated RMS Model Version 11, supported the underwriting changes.

We also focused on our capital management strategy through our stock repurchase program and by entering into a new banking relationship with KeyBank National Association that established a $100.0 million syndicated line of credit, allowing us to reduce our cash position.

During 2011 we began the process of integrating Mercer Insurance Group into our operations. Mercer Insurance Group agents have represented our new combined companies and as a group have increased their production over the past year. We began integrating Mercer Insurance Group's policy renewals into our processing systems, and we

39

United Fire Group, Inc. Form 10-K | 2011

remain on schedule to convert the West Coast business to our systems in 2012. We also began the initial planning for integration of the East Coast business. In addition, we consolidated Mercer Insurance Group's core and catastrophe reinsurance programs into our programs, resulting in increased coverage and reduction in Mercer Insurance Group's historical costs. We expect to realize cost savings of approximately $1.5 million in 2012 from the consolidation of these programs.

In 2011, our life insurance subsidiary received approval to operate in New Jersey, North Carolina, Pennsylvania,Virginia and West Virginia, continuing to leverage the Mercer Insurance Group acquisition by expanding the life insurance segment's geographical footprint. Our life management team continues to improve service to our agents by increasing marketing support and automating life product processes.

At a special meeting held on January 24, 2012, our stockholders approved our reorganization into a new holding company structure. United Fire Group, Inc. has replaced United Fire & Casualty Company as the publicly held corporation, and United Fire & Casualty Company is now a wholly owned subsidiary of United Fire Group, Inc. In addition to creating a more streamlined corporate structure, the new holding company's organizational documents enhanced our stockholder rights by reducing the percentage of stockholders required to amend our Articles of Incorporation, approve the merger or sale of substantially all company assets, and call a special meeting. This new structure will potentially provide us with more flexibility to operate and finance our businesses, particularly if we should need to raise capital in the future.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

Property and Casualty Insurance Segment

Property & Casualty Insurance Segment Results of Operations										% Change
(In Thousands)										2011		2010
Years ended December 31	2011			2010			2009			vs. 2010		vs. 2009
Net premiums written (1)	$	551,923		$	414,908		$	424,827		33.0	%	(2.3	)%
Net premiums earned	$	533,771		$	420,373		$	435,677		27.0		(3.5	)
Loss and loss settlement expenses	407,831			289,437			365,721			40.9		(20.9	)
Amortization of deferred policy acquisition costs	143,952			100,310			105,606			43.5		(5.0	)
Other underwriting expenses	46,404			30,329			30,553			53.0		(0.7	)
Underwriting income (loss)	$	(64,416	)	$	297		$	(66,203	)	NM		100.4	%
Investment income, net	35,513			34,787			31,542			2.1	%	10.3	%
Realized investment gains (losses)
Other-than-temporary impairment charges	—			(153		)	(9,824		)	100.0		98.4
Other realized gains, net	3,081			3,746			3,009			(17.8	)	24.5
Total realized investment gains (losses)	3,081			3,593			(6,815		)	(14.2	)	152.7
Other income	1,592			147			194			NM		(24.2	)
Disaster charges and other related expenses, net of recoveries	—			(16		)	(1,335		)	100.0		98.8
Income (loss) before income taxes	$	(24,230	)	$	38,824		$	(39,947	)	(162.4	)%	197.2	%

NM = not meaningful

(1) The Measurement of Results section of this report defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP.

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United Fire Group, Inc. Form 10-K | 2011

							Increase (Decrease) in Ratios
							2011		2010
Years ended December 31	2011		2010		2009		vs. 2010		vs. 2009
GAAP combined ratio:
Net loss ratio (without catastrophes)	61.3	%	64.2	%	78.8	%	(4.5	)%	(18.5	)%
Catastrophe losses - effect on net loss ratio	15.1		4.7		5.1		221.3		(7.8	)
Net loss ratio	76.4	%	68.9	%	83.9	%	10.9	%	(17.9	)%
Expense ratio (1)	35.7		31.0		31.3		15.2		(1.0	)
Combined ratio	112.1	%	99.9	%	115.2	%	12.2	%	(13.3	)%
Statutory combined ratio:(2)
Net loss ratio (without catastrophes)	61.3	%	64.2	%	78.8	%	(4.5	)%	(18.5	)%
Catastrophe losses - effect on net loss ratio	15.1		4.7		5.1		221.3		(7.8	)
Net loss ratio	76.4	%	68.9	%	83.9	%	10.9	%	(17.9	)%
Expense ratio (1)	32.2		31.0		30.3		3.9		2.3
Combined ratio	108.6	%	99.9	%	114.2	%	8.7	%	(12.5	)%
Industry statutory combined ratio: (2)(3)
Net loss ratio	79.1	%	72.0	%	70.8	%	9.9	%	1.7	%
Expense ratio (1)	28.4		29.0		28.7		(2.1	)	1.0
Combined ratio	107.5	%	101.0	%	99.5	%	6.4	%	1.5	%
Combined ratio (without catastrophes)	97.4	%	96.4	%	96.1	%	1.0	%	0.3	%

NM = not meaningful

(1) Includes policyholder dividends.

(2) The Measurement of Results section of this report defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP.

(3) A.M. Best Company estimate.

Our property and casualty insurance segment reported pre-tax losses of $24.2 million and $39.9 million in 2011 and 2009, respectively, compared to pre-tax income of $38.8 million in 2010. The deterioration in our 2011 results is due to an increase in loss and loss settlement expenses primarily from catastrophe losses and one-time acquisition-related costs and other expenses associated with our acquisition of Mercer Insurance Group, as explained in more detail throughout this section.

In 2010, our loss and loss settlement expenses decreased by 20.9 percent or $76.3 million from 2009 due in large part to the adverse reserve development experienced in 2009. A decrease in non-catastrophe claims severity, accompanied by a slight decrease in frequency in 2010, also contributed to the reduction in losses and loss settlement expenses. Other underwriting expenses decreased 0.7 percent in 2010, primarily as the result of a higher level of deferrable underwriting expenses in 2010 as compared to 2009. However, included in this line were transaction costs totaling $1.2 million that were incurred in 2010 related to our acquisition of Mercer Insurance Group.

Our 2009 results were negatively impacted by the weak economy. Additionally, in 2009, we incurred OTTI charges of $9.8 million and $38.0 million in adverse development from Hurricane Katrina, which impacted our pre-tax earnings.

41