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What changed in UNITED FIRE GROUP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of UNITED FIRE GROUP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+407 added−407 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in UNITED FIRE GROUP INC's 2023 10-K

407 paragraphs added · 407 removed · 280 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

48 edited+31 added−25 removed56 unchanged
Biggest changeOur competitive advantage includes our commitment to: • Strong agency relationships — ◦ A stable workforce allows our agents to consistently work with the same, highly-experienced personnel. ◦ Our organization is relatively flat, allowing our agents to be close to the highest levels of management and is designed to ensure that our agents will quickly receive answers to their questions. • 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.
Biggest changeOur competitive advantages include our commitments to: • Strong agency relationships — ◦ Highly-experienced personnel focused on strong service-oriented relationships. ◦ A team of regional managers is responsible for deepening the agency relationships needed to drive profitable growth and the field execution of underwriting strategies for the core commercial business. • Exceptional service — Our agents and policyholders always have the option to speak with a real person. • Fair and prompt claims handling — We view claims handling experiences as an opportunity to demonstrate our exemplary customer service to our policyholders. • Specialized underwriting expertise — 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 policyholder businesses and job sites each year to ensure safety and make loss prevention recommendations. • 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.
All of our property and casualty insurance subsidiaries and our affiliates belong to an intercompany reinsurance pooling arrangement. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant's own surplus level.
All of our property and casualty insurance subsidiaries and affiliates belong to an intercompany reinsurance pooling arrangement. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant's own surplus level.
The Risk Management Committee reviews and evaluates the company’s identification, assessment and management of risks associated with ESG matters, including but not limited to climate change and ESG-related emerging risks. It also coordinates with other committees of the Board of Directors on ESG risks specific to such committee’s area of oversight.
The Risk Management Committee reviews and evaluates the Company's identification, assessment and management of risks associated with ESG matters, including but not limited to climate change, cybersecurity, and ESG-related emerging risks. It also coordinates with other committees of the Board of Directors on ESG risks specific to such committee's area of oversight.
Sustainability As a property and casualty insurer, UFG is acutely aware of the growing risks to business, insureds and communities stemming from sustainability issues. Sustainability is top of mind for our Management Team and Board of Directors, and as a result we have made important updates to our ESG governance structure.
Sustainability As a property and casualty insurer, UFG is acutely aware of the growing risks to business, insureds and communities stemming from sustainability issues. Sustainability is top of mind for our Management Team and Board of Directors, and as a result we have made important updates to our environmental, social and governance ("ESG") structure.
At December 31, 2022, all of our insurance companies had capital 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 and legislation often have an impact on our business.
At December 31, 2023, all of our insurance companies had capital 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 and legislation often have an impact on our business.
Our insurance company subsidiaries are currently licensed as a property and casualty insurer in 50 states, plus the District of Columbia. United Fire & Casualty Company was incorporated in Iowa in January 1946. Our principal executive office is located at 118 Second Avenue SE, Cedar Rapids, Iowa 52401; telephone: 319-399-5700.
Our insurance company subsidiaries are currently licensed as property and casualty insurers in 50 states, plus the District of Columbia. United Fire & Casualty Company was incorporated in Iowa in January 1946. Our principal executive office is located at 118 Second Avenue SE, Cedar Rapids, Iowa 52401; telephone: 319-399-5700.
Madsen previously served as Assistant General Counsel from 2018 - 2022. Prior to joining UFG, she served as corporate counsel for a national insurance and financial strategies firm, counsel for a global non-profit and was a partner at a St. Paul, MN based law firm, where she practiced financial services, insurance, and commercial litigation. Ms.
Madsen previously served as Assistant General Counsel from 2018 - 2022. Prior to joining UFG, she served as corporate counsel for a national insurance and financial strategies firm, counsel for a global non-profit and was a partner at a St. Paul, MN-based law firm, where she practiced financial services, insurance, and commercial litigation. Ms. Madsen holds a CPCU designation.
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.
Participation is based upon the amount of a company's voluntary market share in a particular state for the 6 Table of Contents 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.
Our appointed actuaries must submit an opinion that our statutory reserves are adequate to meet policy claims-paying obligations and related expenses. 7 Table of Contents Financial Solvency Ratios The NAIC annually calculates 13 financial ratios to assist state insurance regulators in monitoring the financial condition of insurance companies.
Our appointed actuaries must submit an opinion that our statutory reserves are adequate to meet 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.
ITEM 1. BUSINESS GENERAL DESCRIPTION United Fire Group, Inc. ("UFG", "United Fire", the "Registrant", the "Company", "we", "us", or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies.
ITEM 1. BUSINESS OVERVIEW United Fire Group, Inc. ("UFG", "United Fire", the "Registrant", the "Company", "we", "us", or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies.
Giving back to the communities we serve to advance change and promote greater understanding and respect for diversity. 9 Table of Contents At UFG, inclusive conduct is centered on: a. Treating others with dignity and respect at all times, because how we act is as important as what we accomplish. b.
Giving back to the communities we serve to advance change and promote greater understanding and respect for diversity. At UFG, inclusive conduct is centered on: a. Treating others with dignity and respect at all times, because how we act is as important as what we accomplish. b.
For a more detailed discussion of our loss reserves, refer to the "Critical Accounting Policies" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 5 "Reserves for Losses and Loss Settlement Expenses" contained in Part II, Item 8, "Financial Statements and Supplementary Data." 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," "Market Risk" and "Critical Accounting Policies"; and Note 1 "Summary of Significant Accounting Policies" under the heading "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." COMPLIANCE WITH GOVERNMENT REGULATION The insurance industry is subject to comprehensive and detailed regulation and supervision.
REINSURANCE Incorporated by reference from Note 4 "Reinsurance" contained in Part II, Item 8, "Financial Statements and Supplementary Data." RESERVES Incorporated by reference from the "Critical Accounting Policies" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 5 "Reserves for Losses and Loss Settlement Expenses" contained in Part II, Item 8, "Financial Statements and Supplementary Data." 4 Table of Contents 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," "Market Risk" and "Critical Accounting Policies," Note 1 "Summary of Significant Accounting Policies" under the heading "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." COMPLIANCE WITH GOVERNMENT REGULATION The insurance industry is subject to comprehensive and detailed regulation and supervision.
Martin joined UFG as our Senior Vice President and Chief Financial Officer in April 2022. Prior to joining UFG, he served as Head of Enterprise Transformation at Transamerica Corporation (an insurance company), beginning in 2020. Mr.
Martin became Executive Vice President and Chief Financial Officer in February 2023, after joining UFG as our Senior Vice President and Chief Financial Officer in April 2022. Prior to joining UFG, he served as Head of Enterprise Transformation at Transamerica Corporation (an insurance company), beginning in 2020. Mr.
Bahl became Vice President and Chief Underwriting Officer in 2020. Mr. Bahl joined UFG as an accountant in 2000. He transferred to the underwriting department of the Great Lakes region in 2002 and served as an Underwriting Supervisor from 2010 to 2014. In 2014, he became Underwriting Supervisor of the Denver region.
Bahl became Vice President, Field Operations in December 2023. Mr. Bahl joined UFG as an accountant in 2000. He transferred to the underwriting department of the Great Lakes region in 2002 and served as an Underwriting Supervisor from 2010 to 2014. In 2014, he became Underwriting Supervisor of the Denver region.
In addition, we established a mental wellness employee resource group and held senior leadership training on mental wellness and suicide prevention. ◦ A wellness reward system – 84% of our employees are enrolled in our third-party wellness management program designed to cultivate good lifestyle habits.
In addition, we established a mental wellness employee resource group and held senior leadership training on mental wellness and suicide prevention. ◦ A wellness reward system – Our employees have the option to enroll in our third-party wellness management program designed to cultivate good lifestyle habits.
We partner with Wellbeats Virtual Fitness to offer tailored virtual fitness to all employees and their families. To mesh our passion for community with wellness, we have also held multiple physical activity fundraisers. ◦ Weekly wellness webinars – these webinars are intended to educate employees on everything from nutrition best practices to mental and emotional well-being and mindfulness.
To mesh our passion for community with wellness, we have also held multiple physical activity fundraisers. ◦ Weekly wellness webinars – These webinars are intended to educate employees on everything from nutrition best practices to mental and emotional well-being and mindfulness.
She also provides change management consulting to business units and/or individual employees. 10 Table of Contents • Empowering employees to make healthy decisions: ◦ Fitness classes – we offer a variety of both in-person group classes as well as virtual classes to cater to our hybrid workforce.
She also provides change management consulting to business units and/or individual employees. • Empowering employees to make healthy decisions: ◦ Fitness classes – We offer a variety of both in-person group classes as well as virtual classes to cater to our hybrid workforce. We partner with Wellbeats Virtual Fitness to offer tailored virtual fitness to all employees and their families.
Leidwinger served as President and Chief Operating Officer at CNA Commercial from 2015 - 2022. Prior to joining CNA Commercial in 2015, he was global casualty manager for Chubb Commercial Insurance, and was responsible for the company's worldwide portfolio of general liability, workers' compensation, excess umbrella, auto errors and omissions, and environmental business. Eric J.
Prior to joining CNA Commercial in 2015, he was global casualty manager for Chubb Commercial Insurance, and was responsible for the company's worldwide portfolio of general liability, workers' compensation, excess umbrella, auto errors and omissions, and environmental business. Eric J.
To view it, under the "Investors" tab, select "Overview," then "Governance Documents" and then "Code of Ethics and Business Conduct." 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., 118 Second Avenue SE, Cedar Rapids, Iowa 52401.
To view it, under the "Investors" tab, select "Overview," then "Governance Documents" and then "Code of Ethics and Business Conduct." 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., 118 Second Avenue SE, Cedar Rapids, Iowa 52401. 12 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth information concerning the following executive officers: Name Age Position Kevin J.
Our Chief Risk Officer supported by our Chief Legal Officer and Director of Facilities is responsible for developing and deepening 11 Table of Contents UFG’s understanding of climate change as an enterprise-level risk and informing the Board how the related risks are monitored and mitigated.
Our Chief Risk Officer, supported by our Chief Legal Officer and Assistant Vice President ("AVP") of Workplace Environment, is responsible for developing and deepening UFG's understanding of climate change as an enterprise-level risk and informing the Board how the related risks are monitored and mitigated.
Championing diversity, equity, and inclusion is not just something we do, it is the core of who we are. 2022 2021 2020 Employee data Workforce data Headcount 1,091 1,086 1,165 Average tenure in years 8.7 10.0 10.0 Percent of self-identified women in workforce 57.4% 54.8% 55.1% Percent of self-identified racial/ethnic minorities in workforce 13.8% 13.8% 12.4% Voluntary turnover rate 12.3% 11.7% 8.4% Human rights/Social Equal employment opportunity policy Y Y Y Diversity, equity and inclusion policy Y Y Y Human rights policy Y Y Y Ethics Anti-bribery & anti-corruption policy Y Y Y Code of business conduct & ethics Y Y Y Community Employee volunteer hours 1,690 720 2,393 Fulfilling careers; health, safety and wellness; compensation and benefits; talent development At UFG, health, wellness and education are core cultural values.
Championing diversity, equity, and inclusion is not just something we do, it is the core of who we are. 2023 2022 2021 Employee data Workforce data Headcount 852 1,095 1,075 Average tenure in years 9.0 8.7 10.0 Percent of self-identified women in workforce 55.0% 57.4% 54.8% Percent of self-identified racial/ethnic minorities in workforce 14.1% 13.8% 13.8% Voluntary turnover rate* 26.8% 12.3% 11.7% Human rights/Social Equal employment opportunity policy Y Y Y Diversity, equity and inclusion policy Y Y Y Human and labor rights policy Y Y Y Ethics Anti-bribery & anti-corruption policy and training Y Y Y Code of ethics and business conduct Y Y Y Community Employee volunteer hours 1,676 1,690 720 * The 2023 voluntary turnover rate includes employees who accepted the Company's early retirement plan offering. 9 Table of Contents Fulfilling careers; health, safety and wellness; compensation and benefits; talent development Employee success is part of UFG's mission, therefore, health, wellness and education are core cultural values.
In 2016, he was named Vice President and Branch Manager of our Denver region and assumed oversight of the Sacramento region in 2018. Mr. Bahl has the Chartered Property Casualty Underwriter (CPCU) professional designation. Robert F. Cataldo became our Vice President and Chief Investment and Strategy Officer of UFG in 2020, serving the Company since 2011. Mr.
In 2016, he was named Vice President and Branch Manager of our Denver region and assumed oversight of the Sacramento region in 2018. From 2020 through 2023, Mr. Bahl served as Vice President and Chief Underwriting Officer. Mr. Bahl has the Chartered Property Casualty Underwriter (CPCU) professional designation. Robert F.
Strategy for success Our “One UFG: Boldly Forward” strategic plan unites our people in purpose and drives our mission of superior operational and financial performance. It is centered on five strategic pillars of long-term profitability, diversified growth, people development, continuous innovation and expense management.
Its unified ideology guides every aspect of the way we conduct business at UFG. Strategy for success Our "One UFG: Boldly Forward" strategic plan unites our people in purpose and drives our mission of superior operational and financial performance. It is centered on five strategic pillars of long-term profitability, diversified growth, people development, continuous innovation and expense management.
This program also provides monetary incentives based on physical activity and premium credits on health insurance when employees reach certain thresholds. ◦ Access to a health advocate program where we are partnering with a service to help employees navigate the healthcare system and address personal and work-related issues at no cost to them.
This program also provides monetary incentives based on physical activity and premium credits on health insurance when employees reach certain thresholds. ◦ Access to a health advocate program where we are partnering with a service to help employees navigate the healthcare system and address personal and work-related issues at no cost to them. ◦ A well-being and weight management program - Digital platform taught by renowned experts that will assist with a personalized approach for weight loss results together with coaching.
Leidwinger 59 President and Chief Executive Officer, Principal Executive Officer Eric J. Martin 52 Senior Vice President, Chief Financial Officer and Principal Financial Officer Julie A. Stephenson 55 Executive Vice President and Chief Operating Officer Jeremy J. Bahl 45 Vice President and Chief Underwriting Officer Robert F. Cataldo 52 Vice President and Chief Investment and Strategy Officer Sarah E.
Leidwinger 60 President and Chief Executive Officer, Principal Executive Officer Eric J. Martin 53 Executive Vice President, Chief Financial Officer and Principal Financial Officer Julie A. Stephenson 56 Executive Vice President and Chief Operating Officer Jeremy J. Bahl 46 Vice President, Field Operations Robert F. Cataldo 53 Vice President and Chief Investment and Strategy Officer Sarah E.
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.
While insurance laws vary from state to state, their objectives are generally the same: an insurance rate cannot be excessive, inadequate or unfairly discriminatory.
In February 2022 the following committee charters were revised to incorporate Board committee oversight of relevant ESG initiatives: a. The Nominating and Governance Committee oversees our ESG policies and practices, generally, and reviews our voluntary ESG disclosures, goals and metrics provided. Additionally, the Nominating and Governance Committee is responsible for oversight of business ethics. b.
Various Board committees maintain oversight of relevant ESG initiatives: a. The Nominating and Governance Committee oversees our ESG policies and practices, generally, and reviews our voluntary ESG disclosures, goals and related sustainability metrics. Additionally, the Nominating and Governance Committee is responsible for oversight of business ethics. b.
Cataldo was Vice President and Strategy Officer for UFG from 2018 to 2020. From 2015 to 2018, he served as AVP & Senior Portfolio Manager. Mr. Cataldo joined UFG as a Senior Portfolio Manager in 2011. Sarah E. Madsen became our Vice President, Chief Legal Officer, and Corporate Secretary in April 2022. Ms.
Cataldo became our Vice President and Chief Investment and Strategy Officer of UFG in 2020, serving the Company since 2011. Mr. Cataldo was Vice President and Strategy Officer for UFG from 2018 to 2020. From 2015 to 2018, he served as AVP & Senior Portfolio Manager. Mr. Cataldo joined UFG as a Senior Portfolio Manager in 2011.
Employee success is part of our mission. That is why we support continuing education for employees. Our investment in employee health and well-being is built on our foundation of helping people enhance their lives. UFG is dedicated to proactively promoting work-life balance for all employees that respects a variety of values and lifestyles.
Our investment in employee health and well-being is built on our foundation of helping people enhance their lives. UFG is dedicated to proactively promoting work-life balance for all employees that respects a variety of values and lifestyles. Employees are encouraged to meet with their managers to develop a flexible work schedule that suits their needs outside of work.
Madsen holds a Chartered Property Casualty Underwriter ("CPCU") designation. 13 Table of Contents Corey L. Ruehle became our Vice President and Chief Claims Officer in 2019. He joined UFG as a Commercial Underwriter in 2001. Between 2001 and 2019 he served in various capacities, including as Underwriting Supervisor, Underwriting Manager and Branch Manager of the Midwest region. Mr.
Corey L. Ruehle became our Vice President and Chief Claims Officer in 2019. He joined UFG as a Commercial Underwriter in 2001. Between 2001 and 2019 he served in various capacities, including as Underwriting Supervisor, Underwriting Manager and Branch Manager of the Midwest region. Mr. Ruehle has the Associate in Commercial Underwriting (AU) and Certified Insurance Counselor (CIC) professional designations.
Ruehle has the Associate in Commercial Underwriting (AU) and Certified Insurance Counselor (CIC) professional designations. Micah G. Woolstenhulme serves as Vice President and Chief Risk Officer. Mr. Woolstenhulme joined UFG in 2020 to lead the enterprise risk management activities.
Micah G. Woolstenhulme serves as Vice President and Chief Risk Officer. Mr. Woolstenhulme joined UFG in 2020 to lead the enterprise risk management activities.
Refer to Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" under the heading "Dividends" 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 2022. 6 Table of Contents 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.
Refer to Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" under the heading "Dividends" 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 2023.
The amount of ordinary dividends that may be paid to us is subject to certain limitations, the amounts of which change each year. In all cases, we may pay dividends only from our earned surplus.
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. The amount of ordinary dividends that may be paid to us is subject to certain limitations, the amounts of which change each year. In all cases, we may pay dividends only from our earned surplus.
The Amended Model Act imposes more extensive informational requirements on us, including requiring us to prepare an annual enterprise risk report that identifies the material risks within our insurance company holding system that could pose enterprise risk to our licensed insurers.
The Amended Model Act imposes more extensive informational requirements on us, including requiring us to prepare an annual enterprise risk report that identifies the material risks within our insurance company holding system that could pose enterprise risk to our licensed insurers. 5 Table of Contents Restrictions on Shareholder Dividends As an insurance holding company with no independent operations or source of revenue, our capacity to pay dividends to our shareholders is based on the ability of our insurance company subsidiaries to pay dividends to us.
While we are not aware of any currently proposed or recently enacted state or federal regulation that would have a material impact on our operations, we cannot predict the effect that future regulatory changes might have on us. 5 Table of Contents State Regulation We are subject to extensive regulation, primarily at the state level.
Each jurisdiction in which we operate has established supervisory agencies with broad administrative powers. While we are not aware of any currently proposed or recently enacted state or federal regulation that would have a material impact on our operations, we cannot predict the effect that future regulatory changes might have on us.
We embrace and encourage our employees’ differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other ways that make our employees unique.
Succeeding as a national enterprise means embracing differences in an informed, sensitive, and welcoming manner so that we continue providing our people, clients, vendors and suppliers with the best of our company, because their success is our success. 8 Table of Contents We embrace and encourage our employees' differences in age, color, disability, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other ways that make our employees unique.
Madsen 44 Vice President, Chief Legal Officer and Corporate Secretary Corey L. Ruehle 49 Vice President and Chief Claims Officer Micah G. Woolstenhulme 47 Vice President and Chief Risk Officer A brief description of the business experience of these officers follows: Kevin J. Leidwinger became our President and Chief Executive Officer in August 2022. Prior to joining UFG, Mr.
Lovvorn 44 Vice President and Chief Administrative Officer A brief description of the business experience of these officers follows: Kevin J. Leidwinger became our President and Chief Executive Officer in August 2022. Prior to joining UFG, Mr. Leidwinger served as President and Chief Operating Officer at CNA Commercial from 2015 - 2022.
The Compensation and Human Capital Committee oversees our human capital management and diversity, equity, and inclusion initiatives, as well as corporate culture matters. d. The Investment Committee reviews risks related to our investment portfolio, including oversight of any responsible investment strategies and associated risks (in consultation with the Risk Management Committee). e.
The Investment Committee reviews risks related to our investment portfolio, including oversight of any responsible investment strategies and associated risks (in consultation with the Risk Management 10 Table of Contents Committee).
FINANCIAL STRENGTH AND ISSUER CREDIT 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.
We continue to monitor developments under Dodd-Frank and their impact on us, insurers of similar size and the insurance industry as a whole. 7 Table of Contents FINANCIAL STRENGTH AND ISSUER CREDIT RATING Our financial strength 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.
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 shareholders. 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.
The ability of our subsidiaries to pay dividends to us is regulated by the laws of their 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 shareholders.
Property and casualty insurance agencies will receive profit-sharing payments of $13.7 million in 2023, based on profitable business produced by the agencies in 2022. In 2022 for 2021 business, agencies received $15.1 million in profit-sharing payments and in 2021 for 2020 business, agencies received $15.4 million in payments.
Property and casualty insurance agencies are expected to receive profit-sharing payments of $23.9 million in 2024, based on profitable business produced by the agencies in 2023.
Best, receiving an issuer credit rating of "bbb." HUMAN CAPITAL RESOURCES Organization core values Working together as one, we are always striving to deliver on our promises of employee success, policyholder protection, agent opportunity, shareholder value and community support. That is our mission. Its unified ideology guides every aspect of the way we conduct business at UFG.
"Risk Factors" of this Annual Report on Form 10-K for more information. HUMAN CAPITAL RESOURCES Organization core values Working together as one, we are always striving to deliver on our promises of employee success, policyholder protection, agent opportunity, shareholder value and community support. That is our mission.
Employees are encouraged to meet with their managers to develop a flexible work schedule that suits their needs outside of work. Our commitment to advancing the mental and physical health of our people includes: • U Fit Wellness Center located on-site: in our Cedar Rapids home office and our Houston and Denver regional offices.
Our commitment to advancing the mental and physical health of our people includes: • U Fit Wellness Center located on-site: in our Cedar Rapids home office and our Houston and Denver regional offices. We are proud to have built our own state-of-the-art fitness center in Cedar Rapids, and we have a full-time Manager of Corporate Wellness on staff.
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. Available Information We provide free and timely access to all our reports filed with the SEC in the Investor Relations section of our website at www.ufginsurance.com.
COMPANY WEBSITE AND AVAILABILITY OF INFORMATION We provide free and timely access to all our reports filed with the SEC in the Investor Relations section of our website at www.ufginsurance.com.
We view climate change as a transversal risk impacting and elevating other critical enterprise risks, and we have begun developing strategies to address and build resiliency to these risks. While this disclosure is a first step, UFG will continue to enhance and act on our understanding of the risks and opportunities a changing climate presents to our business.
While this disclosure is a first step, UFG will continue to enhance and act on our understanding of the risks and opportunities a changing climate presents to our business. UFG was appointed the insurance provider for members of the Iowa Land Improvement Contractors Association ("LICA") insurance program.
In addition to establishing a UFG Green Team dedicated to sustainability practices, the facilities team is active in reducing our environmental footprint.
In addition to establishing a UFG Green Team dedicated to sustainability practices, the facilities team is active in reducing our environmental footprint. Here are a few of our practices intended to lesson our impact on the environment: • Responsible Scaling of Corporate Real Estate We continue to evaluate our space needs and in support of on-going flexible working arrangements.
We are proud to have built our own state-of-the-art fitness center in Cedar Rapids in 2017. We are also proud to have a full-time Corporate Manager of Holistic Wellness on staff. The manager provides one-on-one coaching, customized wellness plans and group fitness and wellness classes for all skill levels.
The manager provides one-on-one coaching, customized wellness plans and group fitness and wellness classes for all skill levels.
Reportable Segments Our property and casualty insurance business is reported as one business segment. Our property and casualty insurance business is comprised of commercial lines insurance, including surety bonds, and assumed reinsurance. The company announced its intent to withdraw from personal lines insurance in 2020, and by 2022 minimal exposure from personal lines remains.
In 2020, the Company announced its intent to withdraw as a direct writer of personal lines insurance with the last exposures related to this business expected to lapse by 2025. As of December 31, 2023, minimal exposure from the direct personal lines of business remains.
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REVENUE GENERATING ACTIVITIES Marketing and Distribution We market our products through our home office in Cedar Rapids, Iowa, and five regional offices: (1) Westminster, Colorado, a suburb of Denver; (2) Webster, Texas, a suburb of Houston; (3) Princeton, New Jersey; (4) Phoenix, Arizona; and (5) Rocklin, California.
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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. PROPERTY AND CASUALTY INSURANCE BUSINESS Products and Operations Our business is comprised primarily of commercial lines property and casualty insurance, including surety bonds.
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We are represented through approximately 1,000 independent property and casualty agencies. 3 Table of Contents Property and Casualty Insurance Business 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.
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Our core commercial products support a wide variety of customers including small business owners and middle market businesses operating in industries such as construction, services, retail trade, financial and manufacturing, along with contract surety and commercial surety bonds offered through approximately 1,000 independent property and casualty agencies.
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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. Products and Competition The property and casualty insurance industry is highly competitive.
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We also provide specialty and surplus lines coverage written exclusively through wholesale brokers on an admitted and non-admitted basis. Additionally, the Company offers reinsurance coverage for property and casualty insurance through traditional treaty reinsurance channels. The Company assumes premium in Lloyd's of London syndicates through a Funds at Lloyd's subsidiary.
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REINSURANCE Incorporated by reference from Note 4 "Reinsurance" contained in Part II, Item 8, "Financial Statements and Supplementary Data." 4 Table of Contents RESERVES Property and Casualty Insurance Business 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.
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The reinsurance operation supports primarily commercial lines of business but also assumes risk in professional, financial and personal lines of insurance. We also partner with managing general agents ("MGAs") to offer delegated underwriting programs providing niche products including marine specialty, professional liability and earthquake coverages.
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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.
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For a more detailed discussion of our products, refer to the "Business Overview" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations". Our property and casualty insurance business is reported as one business segment.
Removed
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 known facts, circumstances, and historical trends.
Added
Underwriting, sales and distribution are supported across our key products by regional underwriters and marketing representatives executing on overall strategy and underwriting governance. These areas are supported by a business enablement function as well as claims, actuarial and business analytics and risk control enabling functions.
Removed
The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claims reporting and payment patterns.
Added
Our business enablement function provides efficient, centralized underwriting operations, premium processing, underwriting governance and product management. In addition to servicing policyholders with optimized claim processing and payment capabilities, the claims function's specialized approach supports underwriting, risk control and marketing in writing and retaining quality business.
Removed
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.
Added
Actuarial and business analytics provide transparency and insight to business decisions through actuarial pricing, actuarial reserving, predictive modeling, and other business analytics. Other 3 Table of Contents enabling functions that support our business include technology, finance, human capital, legal and governance functions. Competition The property and casualty insurance industry is highly competitive.
Removed
We engage an independent actuary, Regnier Consulting Group, Inc. ("Regnier"), to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed. On a quarterly basis, United Fire's actuarial staff and consultants perform a detailed actuarial review of IBNR reserves.
Added
State Regulation We are subject to extensive regulation, primarily at the state level.
Removed
This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets to review, on a quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves.
Added
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.
Removed
We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.
Added
On August 18, 2023, the Company received a credit rating downgrade from A.M. Best. The Financial Strength Rating (FSR) was downgraded to A- (Excellent) from A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) was downgraded to "a-" (Excellent) from "a" (Excellent) of the United Fire & Casualty Group. Concurrently, A.M.
Removed
We do not discount loss reserves based on the time value of money.
Added
Best has downgraded the Long-Term ICR to "bbb-" (Good) from "bbb" (Good) of UFG. The outlook of these Credit Ratings (ratings) has been revised to stable from negative. According to A.M.
Removed
Each jurisdiction in which we operate has established supervisory agencies with broad administrative powers.
Added
Best, companies rated "A-" have "an excellent ability to meet their ongoing obligations to policyholders." The Company has not experienced material impacts to its business or financial results as a result of the downgrade, but is subject to heightened risks associated with any further potential downgrades. Please see Part I, Item 1A.
Removed
Restrictions on Shareholder Dividends As an insurance holding company with no independent operations or source of revenue, our capacity to pay dividends to our shareholders is based on the ability of our insurance company subsidiaries to pay dividends to us. The ability of our subsidiaries to pay dividends to us is regulated by the laws of their state of domicile.
Added
The Compensation and Human Capital Committee oversees our human capital management and diversity, equity, and inclusion initiatives, as well as corporate culture matters. Additionally, the Compensation and Human Capital Committee reviews and approves our Human and Labor Rights Policy. d.
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We continue to monitor developments under Dodd-Frank and their impact on us, insurers of similar size and the insurance industry as a whole.
Added
Additionally, the Investment Committee reviews and approves our ESG Investment Policy (a component of the Company's Investment Policy Statement) and monitors investment activity to ensure investments are made consistent with the ESG Investment Policy. e.
Removed
United Fire & Casualty Group received a Financial Strength Rating (FSR) of "A" (Excellent). According to A.M. Best, companies rated "A" have "an excellent ability to meet their ongoing obligations to policyholders." A.M. Best revised the outlooks to negative from stable in December 2020, and there was no change in the outlook in December 2022. 8 Table of Contents A.M.
Added
In 2023, UFG undertook a comprehensive effort to improve sustainability and improve transparency in our sustainability reporting. We established targets for greenhouse gas ("GHG") emissions reduction, and reported our progress towards these targets, as well as our aggregated energy and wastewater discharge. Our full sustainability report can be found on our website at: www.ufginsurance.com .

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe continually enhance our operating procedures and internal controls to effectively support our business and comply with our regulatory and financial reporting requirements, but there can be no assurances that we will be able to implement security measures adequate to prevent every security breach.
Biggest changeWe continually enhance our operating procedures and internal controls to effectively support our business and comply with our regulatory and financial reporting requirements, but there can be no assurances that we will be able to implement security measures adequate to prevent every security breach. 20 Table of Contents Although, to date, we have not identified any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents that have, or are likely to, materially affect us, our business strategy, results of operation or financial condition, the scope and effect of any cyber-attack may remain undetected for a period of time.
The actual ability to pay dividends may further be constrained by business and regulatory considerations, such as the impact of dividends on surplus, by our competitive position and by the amount of premiums that we can write.
The actual ability to pay dividends may be further constrained by business and regulatory considerations, such as the impact of dividends on surplus, by our competitive position and by the amount of premiums that we can write.
Such catastrophic events consist of various natural disasters, some of which may increase in severity and frequency due to climate change, including, but not limited to, hurricanes, tornadoes, hailstorms, wildfires, earthquakes, severe winter weather, volcanic eruptions, and man-made disasters such as terrorist acts (including biological, chemical or radiological events), explosions, infrastructure failures and results from political instability.
Such catastrophic events consist of various natural disasters, which may increase in severity and frequency due to climate change, including, but not limited to, hurricanes, tornadoes, hailstorms, wildfires, earthquakes, severe winter weather, volcanic eruptions, and man-made disasters such as terrorist acts (including biological, chemical or radiological events), explosions, infrastructure failures and results from political instability.
As discussed in detail below, general economic conditions, changes in financial markets, global events, and many other factors beyond our control can adversely affect the value of our investments and the realization of investment income. 15 Table of Contents We primarily manage our investment portfolio internally under required statutory guidelines and investment guidelines approved by our Board of Directors and the boards of directors of our subsidiaries.
As discussed in detail below, general economic conditions, changes in financial markets, global events, and many other factors beyond our control can adversely affect the value of our investments and the realization of investment income. 15 Table of Contents We manage our investment portfolio internally under required statutory guidelines and investment guidelines approved by our Board of Directors and the boards of directors of our subsidiaries.
The failure of our insurance company subsidiaries to maintain their current ratings could dissuade a lender or reinsurance company from conducting business with us. A ratings downgrade could also cause some of our existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations.
The failure of our insurance company subsidiaries to maintain their current ratings could dissuade a lender or reinsurance company from conducting business with us. A further ratings downgrade could also cause some of our existing liabilities to be subject to acceleration, additional collateral support, changes in terms, or creation of additional financial obligations.
The New York Department of Financial Services recently adopted a cyber protection and reporting regulation for financial services companies with which we are complying. The NAIC has created the Data Security Model Law ("DSML") based upon the New York regulation.
The New York Department of Financial Services recently adopted a cyber protection and reporting regulation for financial services companies with which we are complying. The NAIC has created the Data Security Model Law based upon the New York regulation.
Third-party rating agencies assess and rate the claims-paying ability, capital strength and creditworthiness of insurers and reinsurers based on criteria established by the agencies. A.M. Best rates our property and casualty insurance companies on a group basis. Since 2012, A.M. Best has also given an issuer credit rating to our parent holding company.
Third-party rating agencies assess and rate the claims-paying ability, capital strength and creditworthiness of insurers and reinsurers based on criteria established by the agencies. A.M. Best rates our property and casualty insurance companies on a group basis. Since 2012, A.M. Best has also provided an issuer credit rating to our parent holding company.
Such changes in climate conditions could cause our underlying modeling data to be less accurate, limiting our ability to evaluate and manage our risk. Climate change also adds to the unpredictability of natural disasters and creates uncertainty as to future trends and exposures. Climate change presents risks in three categories to UFG: a.
Such changes in climate conditions could cause our underlying modeling data to be less accurate, limiting our ability to evaluate and manage our risk. Climate change also adds to the unpredictability of natural disasters and creates uncertainty as to future trends and exposures. Climate change presents risks in four categories to UFG: a.
Risks Relating to Our Common Stock Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management or members of our Board of Directors, prevent the sale of the Company or prevent or frustrate any attempt by shareholders to change the direction of the Company, each of which could diminish the value of our common stock.
Certain provisions of our organizational documents, as well as applicable insurance laws, could impede an attempt to replace or remove our management or members of our Board of Directors, prevent the sale of the Company or prevent or frustrate any attempt by shareholders to change the direction of the Company, each of which could diminish the value of our common stock.
For further information about TRIPRA and its effect on our operations, refer to the information in the "Results of Operations for the Years Ended December 31, 2022, 2021 and 2020" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Accounting standards.
For further information about TRIPRA and its effect on our operations, refer to the information in the "Results of Operations for the Years Ended December 31, 2023, 2022 and 2021" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Accounting standards.
Department of the Treasury by Dodd-Frank in 2010, has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers, monitor aspects of the insurance industry, identify issues with 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.
Department of the Treasury by Dodd-Frank in 2010, has limited regulatory authority and is empowered to gather data and information regarding the insurance industry and insurers, monitor aspects of the insurance industry, identify issues with 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 23 Table of Contents certain circumstances.
Our business continuity plan is tested annually, including failover of all systems to our DR data center. Additional capabilities and plans are being developed that support continuance of operations after a regional weather event. UFG offers a green replacement option for equipment breakdown coverage to encourage installation of more energy efficient heating and cooling systems.
Our business continuity plan is tested annually, including failover of all systems to our disaster recovery data center. Additional capabilities and plans are being developed that support continuance of operations after a regional weather event. UFG offers a green replacement option for equipment breakdown coverage to encourage installation of more energy efficient heating and cooling systems.
Compliance with these regulations and efforts to address continually developing 20 Table of Contents cybersecurity risks may result in a material adverse effect on our results of operations, liquidity, financial condition, and financial strength. Our reserves for property and casualty insurance losses and loss settlement expenses are based on estimates and may be inadequate, adversely impacting our financial results.
Compliance with these regulations and efforts to address continually developing cybersecurity risks may result in a material adverse effect on our results of operations, liquidity, financial condition, and financial strength. Our reserves for property and casualty insurance losses and loss settlement expenses are based on estimates and may be inadequate, adversely impacting our financial results.
The table below shows the current ratings assigned to our companies by A.M. Best. Financial Strength Rating Issuer Credit Rating Rating Held Since Pooled Property and Casualty Companies A a 1994 United Fire Group, Inc.
The table below shows the current ratings assigned to our companies by A.M. Best. Financial Strength Rating Issuer Credit Rating Rating Held Since Pooled Property and Casualty Companies A- a- 2023 United Fire Group, Inc.
Our property catastrophe reinsurance program is designed to meet the needs of a changing risk profile. A key area of current focus is our exposure to severe convective storms. We endeavor to reduce greenhouse gas emissions from operations via energy saving construction features/devices and leasing of fuel-efficient fleet vehicles.
Our property catastrophe reinsurance program is designed to meet the needs of a changing risk profile. A key area of current focus is our exposure to severe convective storms. We endeavor to reduce GHG emissions from operations via energy saving construction features/devices and leasing of fuel-efficient fleet vehicles.
N/A bbb 2012 Financial strength and issuer credit ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength, creditworthiness and quality of insurers and reinsurers.
N/A bbb- 2023 Financial strength and issuer credit ratings are used by policyholders, insurers, reinsurers and insurance and reinsurance intermediaries as an important means of assessing the financial strength, creditworthiness and quality of insurers and reinsurers.
In addition, our failure to comply with these laws 23 Table of Contents 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.
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.
A downgrade or a potential downgrade in our financial strength or issuer credit ratings could result in a loss of business and could have a material adverse effect on our financial condition and results of operations. Ratings are an important factor in establishing the competitive position of insurance companies.
A further downgrade in our financial strength or issuer credit ratings could result in a loss of business and could have a material adverse effect on our financial condition, results of operations and liquidity Ratings are an important factor in establishing the competitive position of insurance companies.
Our ability 21 Table of Contents 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 are discussed as follows. Required licensing .
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 are discussed as follows. Required licensing .
Emerging technology offers opportunities to underwrite and price business more efficiently and accurately, lowering costs. If we are not able to use technology and data analytics as effectively as our competitors, our competitiveness and ability to write and retain business within our risk appetite will be impacted.
Emerging technology, including artificial intelligence, offers opportunities to underwrite and price business more efficiently and accurately, thus lowering costs. If we are not able to use technology and data analytics as effectively as our competitors, our competitiveness and ability to write and retain business within our risk appetite will be impacted.
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.
Certain states have enacted laws that require a property and casualty insurer conducting business in that state to participate in assigned risk plans, reinsurance 22 Table of Contents facilities, and joint underwriting associations where participating insurers are required to provide coverage for assigned risks.
We have exposure to hurricanes along the Gulf Coast, Eastern and Southeastern coasts of the United States. We have exposure to tornadoes, windstorms, and hailstorms throughout the United States. We have exposure to earthquakes along the West Coast and the New Madrid Fault area.
We have exposure to hurricanes along the Gulf Coast, Eastern and Southeastern coasts of the United States. We have exposure to tornadoes, severe convective storms, windstorms, and hailstorms throughout the United States. We have exposure to earthquakes along the West Coast and the New Madrid Fault area.
At any annual meeting of our shareholders, our shareholders have the right to appoint approximately one-third of the directors on our Board of Directors. Consequently, it will take at least two annual shareholder meetings to effect a change in control of our Board of Directors.
At any annual meeting of our shareholders, our shareholders have the right to appoint approximately one-third of the directors on our Board of Directors. Consequently, it will take at least two annual shareholder meetings to effect a change in control of our Board of Directors. Our articles of incorporation limit the rights of shareholders to call special shareholder meetings.
Further examples of these issues include: (1) judicial expansion of policy coverage and the impact of new theories of liability; (2) an increase in plaintiffs targeting property and casualty insurers, including us, in purported class action litigation regarding claims handling and other practices; (3) medical developments that link health issues to particular causes, resulting in liability or workers' compensation (for example, cumulative trauma); (4) claims relating to unanticipated consequences of current or new technologies; (5) an increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions; (6) claims relating to potentially changing climate conditions, including higher frequency and severity of weather-related events; and (7) adverse changes in loss cost trends, including inflationary pressure in medical cost and auto repair costs. 19 Table of Contents Many of the policies we issue include exclusions and other conditions that define and limit coverage, which exclusions and conditions are designed to manage our exposure to certain types of risks and expanding theories of legal liability.
Further examples of these issues 19 Table of Contents include: (1) judicial expansion of policy coverage and the impact of new theories of liability; (2) an increase in plaintiffs targeting property and casualty insurers, including us, in purported class action litigation regarding claims handling and other practices; (3) medical developments that link health issues to particular causes, resulting in liability or workers' compensation (for example, cumulative trauma); (4) claims relating to unanticipated consequences of current or new technologies; (5) an increase in the variety, number and size of claims relating to liability losses, which often present complex coverage and damage valuation questions; (6) claims relating to potentially changing climate conditions, including higher frequency and severity of weather-related events; and (7) adverse changes in loss cost trends, including inflationary pressure in medical cost and automobile repair costs.
Additional information regarding recently proposed and adopted accounting standards and their potential impact on us is set forth in Note 1 “Summary of Significant Accounting Policies” to Part II, Item 8, “Financial Statements and Supplementary Data.” Corporate Governance and Public Disclosure Regulation .
Additional information regarding recently proposed and adopted accounting standards and their potential impact on us is set forth in Note 1 "Summary of Significant Accounting Policies" to Part II, Item 8, "Financial Statements and Supplementary Data." Corporate Governance and Public Disclosure Regulation .
The effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict.
The effects of these and other unforeseen emerging claim and coverage issues are difficult to predict.
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 18 Table of Contents competitors. If A.M.
Failure to maintain our ratings, or any other further adverse changes with respect to our ratings, could motivate current and future independent agents and policyholders to choose to transact their business with more highly rated competitors. If A.M.
Our articles of incorporation limit the rights of shareholders to call special shareholder meetings. 24 Table of Contents 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.
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.
Additionally, certain states require insurers to participate in guaranty funds to bear a portion of the unfunded obligations of impaired or insolvent insurance companies. These state funds periodically assess losses against all insurance companies doing business in the state.
Additionally, certain states require insurers to participate in guaranty funds to bear a portion of the unfunded obligations of 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.
For a detailed discussion of our reserving process and the factors we consider in estimating reserves, refer to the "Critical Accounting Policies" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our core insurance business is dependent on strong and beneficial relationships with a large network of independent insurance agents.
For a detailed discussion of our reserving process and the factors we consider in estimating reserves, refer to the "Critical Accounting Policies" section in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations.
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 shareholders might consider to be desirable.
These provisions and state laws may also 25 Table of Contents delay, deter or prevent a change of control of the Company, in particular through unsolicited transactions that some or all of our shareholders might consider to be desirable.
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.
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. General Risk Factor Macroeconomic conditions could materially and adversely affect our business, results of operations, financial condition, and growth.
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 ratings requirements.
Best financial strength rating of "A-" or higher. A reduction of our A.M. Best ratings below "A-" could prevent us from issuing policies to a portion of our current policyholders or other potential policyholders with ratings requirements.
Interest Rate Risk – A significant portion of our investment portfolio (84.1 percent at December 31, 2022) consists of fixed income securities, primarily corporate and municipal bonds (68.6 percent at December 31, 2022). These securities are sensitive to changes in interest rates.
Interest Rate Risk – A significant portion of our investment portfolio (89.4 percent at December 31, 2023) consists of fixed income securities, primarily U.S. government agency, corporate and municipal bonds (70.0 percent at December 31, 2023). These securities are sensitive to changes in interest rates.
Our direct insurance products are marketed exclusively through independent insurance agencies, all 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 via independent agents, exclusive agents and companies that sell insurance directly to their customers.
We face competition within each agency and competition to retain qualified independent agents. Our competitors include companies that market their products via independent agents, exclusive agents and companies that sell insurance directly to their customers.
Such impairments could reduce our net investment income and result in realized investment losses. The vast majority of our investments (98.9 percent of core fixed income portfolio at December 31, 2022) are made in investment-grade securities.
Such impairments could reduce our net investment income and result in realized investment losses. The vast majority of our investments (98.4 percent of core fixed income portfolio at December 31, 2023) are investment-grade securities. Despite efforts to diversify our portfolio and emphasize credit quality, our investments are subject to losses as a result of a general downturn in the economy.
Downgrades in our financial strength ratings could adversely affect our ability to access the capital markets or could lead to increased borrowing costs in the future. Perceptions of the Company by investors, producers, other businesses and consumers could also be significantly impaired. The ratings assigned by A.M. Best are also an important factor in marketing our products.
Perceptions of the Company by investors, producers, other businesses and consumers could also be significantly impaired. The ratings assigned by A.M. Best are an important factor in marketing our products. Our ratings from A.M. Best affect our ability to retain our existing business, and to attract new business in our insurance operations.
Physical Risk: The cost of natural perils may change. This is a concern for our property insurance underwriting strategy and to a lesser extent our real estate costs. b. Transition Risk: Financial risks arising from a global transition to a lower-carbon economy could impact long-term return on certain invested assets. c.
Physical Risk: The cost of natural perils may change. This is a concern for our property insurance underwriting strategy and, to a lesser extent, our real estate costs. b.
Our distribution model is subject to the risks of possible loss of independent agencies for various reasons and the discretion agencies have to reduce their business with us. We are subject to comprehensive laws and regulations, changes to which may have an adverse effect on our financial condition and results of operations. Insurance is a highly regulated industry.
If the quality of the independent agencies with which we do business were to decline, policyholders might consider purchasing their insurance through different agencies or channels. We are subject to comprehensive laws and regulations, changes to which may have an adverse effect on our financial condition and results of operations. Insurance is a highly regulated industry.
Our operating results and financial condition could be adversely affected by any of these factors. 22 Table of Contents Restrictions on the amount, type, nature, quality and concentration of investments. The various states in which we are domiciled have certain restrictions on the amount, type, nature, quality and concentration of our investments.
Restrictions on the amount, type, nature, quality and concentration of investments. The various states in which we are domiciled have certain restrictions on the amount, type, nature, quality and concentration of our investments.
We have a clear view of the criticality of various components of our reinsurance program. Finally, we maintain active dialogue with intermediaries and underwriters throughout the year.
We have a clear view of the criticality of various components of our reinsurance program. Finally, we maintain active dialogue with intermediaries and underwriters throughout the year. 24 Table of Contents Risks Relating to Our Common Stock Our stock price could become more volatile and your investment could lose value.
Dodd-Frank and other federal regulation adopted in the future may impose burdens on us, including impacting the ways we conduct our business, increasing compliance costs and duplicating state regulation. Additional regulation under these laws in the area of compensation disclosure, particularly regarding internal pay equity, officer and director hedging activities and compensation clawback policies is still expected. Information Privacy Regulation.
Dodd-Frank and other federal regulation adopted in the future may impose burdens on us, including impacting the ways we conduct our business, increasing compliance costs and duplicating state regulation. Information Privacy Regulation.
With respect to regulatory conditions, the NAIC and state legislators continually reexamine existing laws and regulations, specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws and regulations. In a time of financial uncertainty or a prolonged economic downturn, regulators may choose to adopt more restrictive insurance laws and regulations.
With respect to regulatory conditions, 16 Table of Contents the NAIC and state legislators continually reexamine existing laws and regulations, specifically focusing on modifications to holding company regulations, interpretations of existing laws and the development of new laws and regulations.
We insure property that is exposed to various natural perils that can give rise to significant claims costs. Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders.
Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders.
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, leading to a decrease in our premium revenue and earnings.
Best further downgrades our ratings or publicly indicates that our ratings are under review, it is possible that we will not be able to compete as effectively, leading to a decrease in premium revenue and earnings. For example, many of our agencies and policyholders have guidelines that require us to have an A.M.
Changes in regulatory or any other of these conditions could make it less attractive for us to do business in such states. In addition, our exposure to severe losses from localized natural perils, such as tornadoes, wildfires or hailstorms, is increased in those areas where we have written a significant amount of property insurance policies.
In addition, our exposure to severe losses from localized natural perils, such as tornadoes, wildfires or hailstorms, is increased in those areas where we have written a significant amount of property insurance policies. We insure property that is exposed to various natural perils that can give rise to significant claims costs.
In January 2023, Julie Stephenson was appointed Executive Vice President and Chief Operating Officer. These changes and any future significant leadership changes or senior management transitions involve inherent risk and can be disruptive to our operations.
We have experienced several transitions in key roles in recent years, including the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Legal Officer positions. These changes and any future significant leadership changes or senior management transitions involve inherent risk and can be disruptive to our operations.
The following states provided 47.5 percent of the direct statutory premiums written for the property and casualty insurance businesses in 2022: Texas (16.6 percent), California (12.4 percent), Iowa (7.8 percent), Missouri (6.1 percent) and New Jersey (4.6 percent). 16 Table of Contents Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, competitive, weather, and other conditions in the principal states in which we do business.
The following states provided 47.0 percent of the direct statutory premiums written for the property and casualty insurance businesses in 2023: Texas (17.4 percent), California (12.4 percent), Iowa (7.1 percent), Missouri (5.8 percent) and Louisiana (4.3 percent).
Removed
Although we try to manage this risk by diversifying our portfolio and emphasizing credit quality, our investments are subject to losses as a result of a general downturn in the economy.
Added
Our revenues and profitability are subject to the prevailing regulatory, legal, economic, political, competitive, weather, and other conditions in the principal states in which we do business.
Removed
Our ability to retain our existing business, and to attract new business in our insurance operations depends on our ratings by this agency.
Added
In a time of financial uncertainty or a prolonged economic downturn, regulators may choose to adopt more restrictive insurance laws and regulations. Changes in regulatory or any other of these conditions could make it less attractive for us to do business in such states.
Removed
In 2022 there were four new appointments to key executive positions, three of which were filled externally. In April 2022, Eric Martin was appointed Senior Vice President and Chief Financial Officer, replacing Dawn Jaffray, who left the company in October 2021.
Added
Regulatory Risk: Certain regulatory bodies may impose laws that require UFG to report GHG emissions from our own operations and our strategies to mitigate emissions, resulting in compliance with such regulations requiring increased time and expense. c. Transition Risk: Financial risks arising from a global transition to a lower-carbon economy could impact long-term return on certain invested assets. d.
Removed
Sarah Madsen became our Vice President, Chief Legal Officer and Corporate Secretary in April 2022, replacing the retiring long-time General Counsel, Neal Scharmer. In August 2022, Kevin Leidwinger was appointed President and Chief Executive Officer, replacing the retiring long-time CEO, Randy Ramlo. In September 2022, long-time COO Michael Wilkins retired.
Added
On August 18, 2023, UFG and our property/casualty subsidiaries received a rating downgrade from A.M. Best. For our property/casualty subsidiaries, the Financial Strength Rating (FSR) was downgraded to A- (Excellent) from A 18 Table of Contents (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) was downgraded to "a-" (Excellent) from "a" (Excellent). Concurrently, for UFG, A.M.
Removed
Although we have not experienced any material cyber-attacks in the last three years based on our knowledge to date, the occurrence, scope and effect of any cyber-attack may remain undetected for a period of time.
Added
Best has downgraded the Long-Term ICR to "bbb-" (Good) from "bbb" (Good). The outlook of these ratings has been revised to stable from negative.
Added
The recent downgrades and any further downgrades in our financial strength ratings could adversely affect our ability to transact our current business, access the capital markets, or lead to increased borrowing costs (including through elevated interest rates). For more information, see Note [8] "Debt" in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.
Added
Many of the policies we issue include exclusions and other conditions that define and limit coverage, which exclusions and conditions are designed to manage our exposure to certain types of risks and expanding theories of legal liability.
Added
" Our core insurance business is dependent on strong and beneficial relationships with a large network of independent insurance agents and not maintaining these relationships could result in loss of sufficient business opportunities within our expertise and stated risk appetite. 21 Table of Contents Our direct insurance products are marketed exclusively through independent insurance agencies, all of which represent more than one company.
Added
Our distribution model is subject to the risks of possible loss of independent agencies for various reasons and the discretion agencies have to reduce their business with us. Other potential consequences of not maintaining strong and beneficial relationships include the loss of sufficient business opportunities within our specific risk appetite, impacting the quality of our underwriting and loss ratio.
Added
The market price of our common stock historically has been, and we expect will continue to be, subject to fluctuations.
Added
These fluctuations may be due to our operating results or factors specific to our operations (including those discussed in our risk factors), changes in securities analysts' estimates of our future financial performance, ratings or recommendations, our results falling below our expectations and analysts' and investors' expectations, the failure of our capital return programs to meet analysts' and investors' expectations, significant catastrophe events, departure of key personnel, cyber-attacks, or factors largely outside of our control, including those affecting the property and casualty insurance industry.
Added
The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the actual operating performance of listed companies. In addition, our stock is followed by a small number of analysts and the average daily trading volume tends to be low. These factors could adversely affect the price of our common stock.
Added
These provisions of our articles of incorporation and bylaws, and these state laws governing corporations and insurance companies, may discourage potential acquisition proposals.
Added
Macroeconomic conditions such as growth, inflation, market stability, and geopolitics can impact our operations, opportunities, and risk profile. Important sectors we follow include goods, services, and housing. Markets exhibit stability when credit is available, there is liquidity in the system, and banks are stable. Geopolitical concerns can also disrupt the business environment.
Added
All of these factors can contribute to adverse financial consequences for UFG. These risks are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity. ITEM 1B. UNRESOLVED STAFF COMMENTS None.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES Our headquarters are located in Cedar Rapids, Iowa, where we own approximately 263,000 square feet of office and building space. In addition, we own and lease office and building space, including underwriting and claims offices, throughout the U.S.
Biggest changeITEM 2. PROPERTIES Our headquarters are located in Cedar Rapids, Iowa, where we own approximately 235,000 square feet of office and building space. In addition, we lease office and building space, including underwriting and claims offices, throughout the U.S. We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business.
Removed
We believe our existing facilities, both owned and leased, are in good condition and suitable for the conduct of our business.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of December 31, 2022 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial position or results of operations. ITEM 4.
Biggest changeWhile the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of December 31, 2023 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial position or results of operations. ITEM 4.
MINE SAFETY DISCLOSURES Not applicable. 26 Table of Contents PART II.
MINE SAFETY DISCLOSURES Not applicable. 28 Table of Contents PART II.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 26 PART II: Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. [Reserved] 28 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 28 PART II: Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29 Item 6. [Reserved] 30 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 66 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Ended Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 United Fire Group, Inc. $ 100.00 $ 131.05 $ 106.31 $ 63.53 $ 60.00 $ 72.30 S&P 500 Index 100.00 95.62 125.73 148.87 191.60 156.87 S&P 600 P&C Index 100.00 107.04 117.73 118.78 139.08 126.34 The foregoing performance graph is being furnished as part of this Annual Report on Form 10-K solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our shareholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or Exchange Act.
Biggest changePeriod Ended Index 12/31/2018 12/31/2019 12/31/2020 12/31/21 12/31/22 12/31/23 United Fire Group, Inc. $ 100.00 $ 81.12 $ 48.48 $ 45.79 $ 55.17 $ 41.77 S&P 500 Index 100.00 131.49 155.68 200.38 164.05 207.13 S&P 600 P&C Index 100.00 109.99 110.97 129.93 118.03 124.69 The foregoing performance graph is being furnished as part of this Annual Report on Form 10-K solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our shareholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or Exchange Act.
Our share repurchase program was most recently renewed in November 2022 through August 2024. As of December 31, 2022, we remained authorized to repurchase 1,719,326 shares of common stock. United Fire Group, Inc.
Our share repurchase program was most recently renewed in November 2022 through August 2024. As of December 31, 2023, we remained authorized to repurchase 1,719,326 shares of common stock. United Fire Group, Inc.
The amount and timing of any purchases will be at our discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements. Our share repurchase program may be modified or discontinued at any time. There were no repurchases during the year ended December 31, 2022.
The amount and timing of any purchases will be at our discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements. Our share repurchase program may be modified or discontinued at any time. There were no repurchases during the year ended December 31, 2023.
The graph assumes $100 was invested on December 31, 2017 in our common stock and in each of the below listed indices and that all dividends were reinvested on the date of payment withou t payment of any commissions. Dollar amounts in the graph are rounded to 27 Table of Contents the nearest whole dollar.
The graph assumes $100 was invested on December 31, 2018 in our common stock and in each of the below listed indices and that all dividends were reinvested on the date of payment withou t payment of any commissions. Dollar amounts in the graph are rounded to 29 Table of Contents the nearest whole dollar.
Common Stock Performance Graph The following graph compares the performance of an investment in United Fire Group Inc.'s common stock from December 31 , 2017 th rough December 31, 2022, 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").
Common Stock Performance Graph The following graph compares the performance of an investment in United Fire Group Inc.'s common stock from December 31 , 2018 th rough December 31, 2023, 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").
Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2022, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $70.4 million in dividend payments without prior regulatory approval.
Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2023, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $58.6 million in dividend payments without prior regulatory approval.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Shareholders United Fire Group, Inc.'s common stock is traded on the Nasdaq stock market under the symbol "UFCS." On February 23, 2023 , there wer e 676 holders of record of United Fire Group, Inc. common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Common Shareholders United Fire Group, Inc.'s common stock is traded on the Nasdaq stock market under the symbol "UFCS." On February 23, 2024 , t here were 645 holders of record of United Fire Group, Inc. common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeYears Ended December 31, (In Thousands) 2022 2021 2020 ISO catastrophes $ 73,342 $ 83,386 $ 141,425 Non-ISO catastrophes (1) 124 15,230 579 Total catastrophes $ 73,466 $ 98,616 $ 142,004 (1) Includes international assumed losses. 31 Table of Contents RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 FINANCIAL HIGHLIGHTS Years Ended December 31, % Change 2022 2021 (In Thousands) 2022 2021 2020 vs. 2021 vs. 2020 Revenues Net premiums earned $ 951,541 $ 962,823 $ 1,055,082 (1.2) % (8.7) % Investment income, net of investment expenses 44,932 55,778 39,670 (19.4) 40.6 Net investment gains (losses) (15,892) 47,383 (32,395) (133.5) (246.3) Other income (295) 207 6,270 (242.5) (96.7) Total revenues $ 980,286 $ 1,066,191 $ 1,068,627 (8.1) % (0.2) % Benefits, losses and expenses Losses and loss settlement expenses $ 637,301 $ 652,155 $ 869,467 (2.3) % (25.0) % Amortization of deferred policy acquisition costs 213,075 203,432 210,252 4.7 (3.2) Other underwriting expenses 114,645 110,574 143,332 3.7 (22.9) Goodwill impairment — — 15,091 NM (100.0) Interest expense 3,188 3,187 — — — Total benefits, losses and expenses $ 968,209 $ 969,348 $ 1,238,142 (0.1) % (21.7) % Income (loss) before income taxes $ 12,077 $ 96,843 $ (169,515) (87.5) (157.1) % Federal income tax expense (benefit) (2,954) 16,249 (56,809) (118.2) (128.6) % Net income (loss) $ 15,031 $ 80,594 $ (112,706) (81.3) (171.5) % GAAP Ratios: Net underlying loss ratio (1) 59.2 % 64.4 % 71.2 % (8.1) % (9.6) % Catastrophes - effect on net loss ratio (1) 7.7 % 10.2 % 13.5 % (24.5) % (24.4) % Reserve development-effect on net loss ratio (1) 0.1 % (6.9) % (2.2) % (101.4) % 213.6 % Net loss ratio (2) 67.0 % 67.7 % 82.4 % (1.0) % (17.8) % Expense ratio (3) 34.4 % 32.6 % 33.5 % 5.5 % (2.7) % Combined ratio (4) 101.4 % 100.3 % 115.9 % 1.1 % (13.5) % NM = not meaningful (1) Net underlying loss ratio is defined as the net loss ratio less impacts of catastrophes and non-catastrophe prior year reserve development.
Biggest changeThe following provides more detail on the type of assumed reinsurance business we target. • Treaty reinsurance with regional property and casualty carriers, including casualty XOL, property per risk, and property catastrophe XOL. • Treaty reinsurance with professional reinsurers and Lloyd's syndicates. • Mortgage reinsurance with Freddie Mac and Fannie Mae, private mortgage insurers and surety carriers. • Treaty reinsurance on risks underwritten by managing general agents. • Treaty reinsurance underwritten on our behalf through reinsurance intermediary management agreements (RIMA) that define underwriting boundaries by product, class and type. 36 Table of Contents RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021 FINANCIAL HIGHLIGHTS Years Ended December 31, % Change 2023 2022 (In Thousands) 2023 2022 2021 vs. 2022 vs. 2021 Revenues Net premiums earned $ 1,034,587 $ 951,541 $ 962,823 8.7 % (1.2) % Investment income, net of investment expenses 59,606 44,932 55,778 32.7 (19.4) Net investment gains (losses) 1,274 (15,892) 47,383 (108.0) (133.5) Other income — (295) 207 (100.0) (242.5) Total revenues $ 1,095,467 $ 980,286 $ 1,066,191 11.7 % (8.1) % Benefits, losses and expenses Losses and loss settlement expenses $ 769,414 $ 637,301 $ 652,155 20.7 % (2.3) % Amortization of deferred policy acquisition costs 244,991 213,075 203,432 15.0 4.7 Other underwriting expenses 115,800 115,169 110,103 0.5 4.6 Interest expense 3,260 3,188 3,187 2.3 — Other non-underwriting expenses 1,723 (524) 471 (428.8) (211.3) Total benefits, losses and expenses $ 1,135,188 $ 968,209 $ 969,348 17.2 % (0.1) % Income (loss) before income taxes $ (39,721) $ 12,077 $ 96,843 (428.9) (87.5) % Federal income tax expense (benefit) (10,021) (2,954) 16,249 239.2 (118.2) % Net income (loss) $ (29,700) $ 15,031 $ 80,594 (297.6) (81.3) % GAAP Ratios: Net loss ratio (1) 74.4 % 67.0 % 67.7 % 11.0 % (1.0) % Expense ratio (2) 34.9 % 34.5 % 32.6 % 1.2 % 5.8 % Combined ratio (3) 109.3 % 101.5 % 100.3 % 7.7 % 1.2 % Additional Loss Ratios: Net loss ratio (1) 74.4 % 67.0 % 67.7 % 11.0 % (1.0) % Catastrophes - effect on net loss ratio (4) 6.2 % 7.7 % 10.2 % (19.5) % (24.5) % Reserve development-effect on net loss ratio (4) 6.0 % 0.1 % (6.9) % NM (101.4) % Underlying loss ratio (4) (Non-GAAP) 62.2 % 59.2 % 64.4 % 5.1 % (8.1) % NM = not meaningful (1) Net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned.
A change in the prevailing interest rates generally translates into a change in the fair value of our fixed income/maturity securities, and by extension, our overall book value. Market Risk and Duration We analyze potential changes in the value of our investment portfolio due to the market risk factors noted above within the overall context of asset and liability management.
A change in the prevailing interest rates generally translates into a change in the fair value of our fixed income/maturity securities, and by extension, our overall book value. Duration We analyze potential changes in the value of our investment portfolio due to the market risk factors noted above within the overall context of asset and liability management.
As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses.
As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses.
Duration is a measurement used to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal effect on these accounts.
Duration is a measurement used to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal and offsetting effect on these accounts.
Results of the projection methods are compared and a point estimate of ultimate loss (or LAE) is established for each individual year and line of business. The specific projection methods used to establish point estimates vary depending on what is deemed most appropriate for a particular line of business and year.
Results of the projection methods are compared, and a point estimate of ultimate loss (or LAE) is established for each individual accident year and line of business. The specific projection methods used to establish point estimates vary depending on what is deemed most appropriate for a particular line of business and accident year.
Profit Factors Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law.
Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law.
The unfavorable development in commercial other liability and commercial fire and allied was due to paid loss and loss adjustment expense (“LAE”) which was greater than reductions in reserves for unpaid loss and LAE.
The unfavorable development in commercial other liability and commercial fire and allied was due to paid loss and loss adjustment expense ("LAE") which was greater than reductions in reserves for unpaid loss and LAE.
Our actions were focused on other liability lines, including excess umbrella business and construction defect, where increased loss exposure in these longer tailed businesses are also subject to social and economic inflation. This was offset by continued favorable development in commercial auto which has seen consistent releases over the past two years.
Our actions were focused on other liability lines, including excess umbrella business and construction defect, where increased loss exposure in these longer tailed businesses are also subject to social and economic inflation. This was offset by continued favorable development in commercial automobile which has seen consistent releases over the past two years.
We believe that any unrealized losses on our available-for-sale fixed maturity securities at December 31, 2022 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. We invest in high quality assets to provide protection from future credit quality issues.
We believe that any unrealized losses on our available-for-sale fixed maturity securities at December 31, 2023 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. We invest in high quality assets to provide protection from future credit quality issues.
We structure the investment portfolio to meet the target duration to achieve the required cash flow, based on liquidity and market risk factors. Impact of Interest Rate Changes The amounts set forth in the following table detail the impact of hypothetical interest rate changes on the fair value of fixed maturity securities held at December 31, 2022.
We structure the investment portfolio to meet the target duration to achieve the required cash flow, based on liquidity and market risk factors. Impact of Interest Rate Changes The amounts set forth in the following table detail the impact of hypothetical interest rate changes on the fair value of fixed maturity securities held at December 31, 2023.
The following table illustrates the hypothetical impact on the premium deficiency charge recorded for the quarter ended December 31, 2022, of reasonably likely changes in the assumed loss and loss settlement expense ratios utilized for purposes of this calculation. The entire impact of these changes would be recognized through income as other underwriting expenses.
The following table illustrates the hypothetical impact on the premium deficiency charge recorded for the quarter ended December 31, 2023, of reasonably likely changes in the assumed loss and loss settlement expense ratios utilized for purposes of this calculation. The entire impact of these changes would be recognized through income as other underwriting expenses.
As of December 31, 2022 and 2021, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles. Credit Quality The following table shows the composition of fixed maturity securities held in our available-for-sale security portfolios by credit rating at December 31, 2022 and 2021.
As of December 31, 2023 and 2022, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles. Credit Quality The following table shows the composition of fixed maturity securities held in our available-for-sale security portfolios by credit rating at December 31, 2023 and 2022.
Reserve development is discussed in more detail under the heading "Reserve Development" in the "Results of Operations for the Years Ended December 31, 2022, 2021 and 2020" section in this Item 7. The following table details the pre-tax impact on our property and casualty insurance business' financial results and financial condition of reasonably likely reserve development.
Reserve development is discussed in more detail under the heading "Reserve Development" in the "Results of Operations for the Years Ended December 31, 2023, 2022 and 2021" section in this Item 7. The following table details the pre-tax impact on our property and casualty insurance business' financial results and financial condition of reasonably likely reserve development.
Our cash flows from operating activities were sufficient to meet our liquidity needs for 2022, 2021 and 2020. Investing Activities Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturity securities provide regular interest payments and allow us to match the duration of our liabilities.
Our cash flows from operating activities were sufficient to meet our liquidity needs for 2023, 2022 and 2021. Investing Activities Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturity securities provide regular interest payments and allow us to match the duration of our liabilities.
Reserves for unpaid ULAE are estimated quarterly by line of business for each individual accident year using a single method. This method consists of applying a percentage factor to unpaid loss reserves. The percentage factor used differs by line of business and is evaluated and established on an annual basis using year-end data.
Reserves for unpaid A&O are estimated quarterly by line of business for each individual accident year using a single method. This method consists of applying a percentage factor to unpaid loss reserves. The percentage factor used differs by line of business and is evaluated and established on an annual basis using year-end data.
Recently Issued Accounting Standards Information specific to accounting standards that we adopted in 2022 or pending accounting standards that we expect to adopt in the future is incorporated by reference from Note 1 "Summary of Significant Accounting Policies" contained in Part II, Item 8, "Financial Statements and Supplementary Data."
Recently Issued Accounting Standards Information specific to accounting standards that we adopted in 2023 or pending accounting standards that we expect to adopt in the future is incorporated by reference from Note 1 "Summary of Significant Accounting Policies" contained in Part II, Item 8, "Financial Statements and Supplementary Data."
Exposures are identified and reserves established within 30 to 60 days depending on the complexity of the case. Workers' Compensation Reserves Like the other liability line of business, workers' compensation losses and loss settlement expense reserves are based upon variables that create imprecision in estimating the ultimate reserve.
Exposures are identified and reserves established within 30 to 60 days depending on the complexity of the case. Workers' Compensation Reserves Like the other liability line of business, workers' compensation losses and loss settlement expense reserves are based upon variables that create uncertainty in estimating the ultimate reserve.
At December 31, 2022, we were authorized to purchase an additional 1,719,326 shares of our common stock. Credit Facilities Information specific to our credit facilities is incorporated by reference from Note 13 "Debt" contained in Part II, Item 8.
At December 31, 2023, we were authorized to purchase an additional 1,719,326 shares of our common stock. Credit Facilities Information specific to our credit facilities is incorporated by reference from Note 13 "Debt" contained in Part II, Item 8.
To demonstrate the sensitivity of reserves to changes in significant assumptions, the following example is presented. The amounts reflect the pre-tax impact on earnings from a hypothetical percentage change in the calculation of IBNR and loss settlement expense reserves at December 31, 2022.
To demonstrate the sensitivity of reserves to changes in significant assumptions, the following example is presented. The amounts reflect the pre-tax impact on earnings from a hypothetical percentage change in the calculation of IBNR and loss settlement expense reserves at December 31, 2023.
Interest payments will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an “Interest Payment Date”). The interest rate will equal the rate that corresponds to the A.M. Best Co.
Interest payments will be paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co.
As our claim investigation progresses, and as our claims personnel identify trends in claims activity, we may refine and adjust our estimates of case reserves. To evaluate and refine our overall reserving process, we track and monitor all claims until they are settled and paid in full, with all salvage and subrogation claims being resolved.
As our claim investigation progresses, and as our claims personnel identify trends in claims activity, we may refine and adjust our estimates of case reserves. To evaluate and refine our overall reserving process, we track and monitor all claims until they are settled and paid in full, with all salvage, subrogation claims, and liability deductible recoveries being resolved.
The primary driver for the decline is a reduction of loss and loss settlement expenses of $27.0 million in personal lines related to our exit of that business. This was offset by an increase in reinsurance assumed related to our growth in that business from the prior year.
The primary driver for the decline is a reduction of loss and loss settlement expenses of $27.0 million in personal lines related to our exit of that business. This was offset by an increase in reinsurance assumed related to our growth in that business from the prior year, and a slight decrease in our commercial lines.
Our five largest indirect exposures to financial guarantors accounted for $28.7 million and $35.6 million of our municipal securities at December 31, 2022 and 2021, respectively. LIQUIDITY AND CAPITAL RESOURCES Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations.
Our five largest indirect exposures to financial guarantors accounted for $28.6 million and $28.7 million of our municipal securities at December 31, 2023 and 2022, respectively. LIQUIDITY AND CAPITAL RESOURCES Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations.
The selection of a 100-basis-point and 200-basis-point increase or decrease in interest rates should not be construed as a prediction by our management of future market events, but rather as an illustration of the potential impact of an event. 48 Table of Contents December 31, 2022 -200 Basis -100 Basis +100 Basis + 200 Basis (In Thousands) Points Points Base Points Points AVAILABLE-FOR-SALE Fixed maturities Bonds U.S.
The selection of a 100-basis-point and 200-basis-point increase or decrease in interest rates should not be construed as a prediction by our management of future market events, but rather as an illustration of the potential impact of an event. 51 Table of Contents December 31, 2023 -200 Basis -100 Basis +100 Basis + 200 Basis (In Thousands) Points Points Base Points Points AVAILABLE-FOR-SALE Fixed maturities Bonds U.S.
In our long-tail lines of business, IBNR reserves constitute a relatively higher proportion of total reserves, because, for many liability claims, significant periods of time may elapse between the initial occurrence of the loss, the reporting of the loss to us, and the ultimate settlement of the claim.
In our long-tail lines of business, IBNR reserves constitute a relatively higher proportion of total reserves, because, for many liability claims, significant periods of time may elapse between the initial occurrence of the losses, the reporting of the losses to us, and the ultimate settlement of the losses.
In estimating our 2022 loss and loss settlement expense reserves, we did not anticipate future events or conditions that were inconsistent with past development patterns.
In estimating our 2023 loss and loss settlement expense reserves, we did not anticipate future events or conditions that were inconsistent with past development patterns.
Two lines contributed the majority of favorable development with the largest contribution coming from commercial automobile which had $43.3 million favorable development, followed by workers' compensation which had $10.9 million favorable development. All other individual lines, with the exception of commercial other liability, experienced favorable development. Commercial other liability experienced $20.7 million of unfavorable development.
Two lines contributed the majority of favorable development with the largest contribution coming from commercial automobile which had $43.3 million favorable development, followed by workers ' compensation which had $10.9 million favorable development. All other individual lines, with the exception of commercial other liability, experienced favorable development. Commercial other liability experienced $20.7 million of unfavorable development.
A 100 basis point decrease in our estimated long-term rate of return on pension plan assets would increase the benefit expense for the year ended December 31, 2022 by $2.2 million, while a 100 basis point increase in the rate would decrease benefit expense by $2.2 million, for the same period.
A 100 basis point decrease in our estimated long-term rate of return on pension plan assets would increase the benefit expense for the year ended December 31, 2023 by $2.6 million, while a 100 basis point increase in the rate would decrease benefit expense by $2.6 million, for the same period.
We use catastrophe modeling and a risk concentration management tool to monitor and control our accumulations of potential losses in natural catastrophe exposed areas of the United States, such as the Gulf Coast and East Coast, as well as in areas of exposure in other countries where we are exposed to a portion of an insurer's underwriting risk under our assumed reinsurance contracts.
We use catastrophe modeling and a risk concentration management tool to monitor and control our accumulations of potential losses in natural catastrophe exposed areas of the United States, such as the Gulf Coast and East Coast, as well as in areas of exposure in other countries where we are exposed to a portion of an insurer ’ s underwriting risk under our assumed reinsurance contracts.
Estimates for workers' compensation are particularly sensitive to assumptions about medical cost inflation, which has been steadily increasing over the past few years. Other variables that we consider and that contribute to the uncertainty in establishing reserves for workers' compensation claims include: state legislative and regulatory environments; trends in jury awards; and mortality rates.
Estimates for workers' compensation are particularly sensitive to assumptions about medical cost inflation, which has been relatively stable over the past few years. Other variables that we consider and that contribute to the uncertainty in establishing reserves for workers' compensation claims include: state legislative and regulatory environments; trends in jury awards; and mortality rates.
Also, it is reasonably possible that changes in the value of our 54 Table of Contents investments in trading securities and limited liability partnerships could occur in the future and such changes could materially affect our results of operations as reported in our Consolidated Financial Statements.
Also, it is reasonably possible that changes in the value of our investments in trading securities and limited liability partnerships could occur in the future and such changes could materially affect our results of operations as reported in our Consolidated Financial Statements.
Reserves for assumed reinsurance are established using methods and techniques identical to those used for direct lines of business. The additional delay inherent in assumed reinsurance reporting is considered in our reserving 58 Table of Contents process and payment is not problematic.
Reserves for assumed reinsurance are established using methods and techniques identical to those used for direct lines of business. The additional delay inherent in assumed reinsurance reporting is considered in our reserving process and payment is not problematic.
The process of estimating and establishing reserves for losses incurred from catastrophic events is inherently uncertain and the actual ultimate cost of a claim, net of reinsurance recoveries, may vary materially from the 34 Table of Contents estimated amount reserved.
The process of estimating and establishing reserves for losses incurred from catastrophic events is inherently uncertain and the actual ultimate cost of a claim, net of reinsurance recoveries, may vary materially from the estimated amount reserved.
Changes in our assumed loss and loss settlement expense ratios in the future would impact the amount of deferred costs in the period such changes in assumptions are made. The premium deficiency charge calculated for the quarter ended December 31, 2022 was $0.9 million compared to the premium deficiency charge of $2.9 million calculated for the same period of 2021.
Changes in our assumed loss and loss settlement expense ratios in the future would impact the amount of deferred costs in the period such changes in assumptions are made. The premium deficiency charge calculated for the quarter ended December 31, 2023 was $0.1 million compared to the premium deficiency charge of $0.9 million calculated for the same period of 2022.
The weighted average effective duration of our portfolio of fixed maturity securities was 4.3 years at December 31, 2022 compared to 3.9 years at December 31, 2021. The amortized cost and fair value of available-for-sale and trading fixed maturity securities at December 31, 2022, by contractual maturity, are shown in the following table.
The weighted average effective duration of our portfolio of fixed maturity securities was 4.0 years at December 31, 2023 compared to 4.3 years at December 31, 2022. The amortized cost and fair value of available-for-sale and trading fixed maturity securities at December 31, 2023, by contractual maturity, are shown in the following table.
(or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. Interest expense totaled $3,188 for the year ended December 31, 2022. Payment of interest is subject to approval by the Iowa Insurance Division.
(or its successor's) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. Interest expense totaled $3.3 million for the year ended December 31, 2023. Payment of interest is subject to approval by the Iowa Insurance Division.
The favorable 37 Table of Contents development for commercial automobile was from both loss and LAE where reductions of reserves for unpaid liabilities were more than sufficient to offset actual paid loss and paid LAE.
The favorable development for commercial automobile was from both loss and LAE where reductions of reserves for unpaid liabilities were more than sufficient to offset actual paid loss and paid LAE.
Fair Value Measurement Information specific to the fair value measurement of our financial instruments and disclosures is incorporated by reference from Note 3 "Fair Value of Financial Instruments" contained in Part II, Item 8.
Fair Value Measurement 57 Table of Contents Information specific to the fair value measurement of our financial instruments and disclosures is incorporated by reference from Note 3 "Fair Value of Financial Instruments" contained in Part II, Item 8.
Other factors contributing to our development include: establishing reserves at their ultimate expected loss amount as soon as practicable after information becomes available, which produces, on average, conservative case reserves; using claims negotiation to control the size of settlements; assuming that we have liability for all claims, even though the issue of liability may, in some cases, be resolved in our favor; promoting claims management services to encourage return-to-work programs; case management by nurses for serious injuries and management of medical provider services and billings; and using programs and services to help prevent fraud and to assist in favorably resolving cases.
Other factors contributing to our development include: establishing reserves at their ultimate expected loss amount as soon as practicable after information becomes available; using claims negotiation to control the size of 64 Table of Contents settlements; assuming that we have liability for all claims, even though the issue of liability may, in some cases, be resolved in our favor; promoting claims management services to encourage return-to-work programs; case management by nurses for serious injuries and management of medical provider services and billings; and using programs and services to help prevent fraud and to assist in favorably resolving cases.
Each of the three methods produces an estimate of the ultimate ALAE cost for an individual accident year and the final estimate is generally a weighted average of the various methods. Inception to date paid ALAE is subtracted from the final ultimate ALAE estimate to provide the estimated ALAE IBNR reserve for each individual accident year.
Each of the three methods produces an estimate of the ultimate DCC cost for an individual accident year and the final estimate is generally a weighted average of the various methods. Inception to date paid DCC is subtracted from the final ultimate DCC estimate to provide the estimated DCC unpaid reserve for each individual accident year.
During 2022, 2021 and 2020, pursuant to authorization by our Board of Directors, we repurchased 0, 67,651, and 70,467 shares of our common stock, respectively, which used cash totaling $0.0 million in 2022, $2.0 million in 2021 and $2.7 million in 2020. The Board of Directors reauthorized the share repurchase program in November 2022 through August 2024.
During 2023, 2022 and 2021, pursuant to authorization by our Board of Directors, we repurchased 0, 0, and 67,651 shares of our common stock, respectively, which used cash totaling $0.0 million in 2023 and 2022 and $2.0 million in 2021. The Board of Directors reauthorized the share repurchase program in November 2022 through August 2024.
The main assumptions used in the valuation of our benefit obligations are: estimated mortality of the employees and retirees eligible for benefits; estimated expected long-term rates of return on investments; estimated compensation increases; estimated employee turnover; estimated medical expense trend rate; and estimated rate used to discount the ultimate estimated liability to a present value.
The main assumptions used in the valuation of our benefit obligation are: estimated mortality of the employees and retirees eligible for benefits; estimated expected long-term rates of return on investments; estimated compensation increases; estimated employee turnover; and estimated rate used to discount the ultimate estimated liability to a present value.
Key Assumptions Our internal and external actuaries and management use a number of key assumptions in establishing an estimate of loss and loss settlement expense reserves, including the following assumptions: future loss settlement expenses can be estimated based on the Company's historical ratios of loss settlement expenses paid to losses; the Company's case-basis reserves reflect the most up-to-date information available about the unique circumstances of each individual claim; no new judicial decisions or regulatory actions will increase our case-basis obligations; historical aggregate claim reporting and payment patterns will continue into the future consistent with the observable past; significant unique and unusual claim events have been identified and appropriate adjustments have been made; and, to the best of our knowledge, there are no new latent trends that would impact our case-basis reserves.
Key Assumptions Our actuarial reserving department uses a number of key assumptions in establishing an estimate of loss and loss settlement expense reserves, including the following assumptions: future loss settlement expenses can be estimated based on the Company's historical ratios of loss settlement expenses paid to losses; the Company's case-basis reserves reflect the most up-to-date information available about the unique circumstances of each individual claim; 61 Table of Contents no new judicial decisions or regulatory actions will increase our case-basis obligations; historical aggregate claim reporting and payment patterns will continue into the future consistent with the observable past; significant unique and unusual claim events have been identified and appropriate adjustments have been made; and, to the best of our knowledge, there are no new latent trends that would impact our case-basis reserves.
Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2022, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $70.4 million in dividend payments without prior regulatory approval.
Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at December 31, 2023, our insurance company subsidiary, United Fire & Casualty, is able to make a maximum of $58.6 million in dividend payments without prior regulatory approval.
For example, some liability claims for construction defect coverage are reported 10 years or more after the policy period, and the workers' compensation coverage provided by our policies pays unlimited medical benefits for the duration of the claimant's injury up to the lifetime of the claimant.
For example, some liability claims may be reported 10 years or more after the policy period, and the workers' compensation coverage provided by our policies pays unlimited medical benefits for the duration of the claimant's injury up to the lifetime of the claimant.
A technique we use in the management of our investment portfolio is the calculation of duration. Our actuaries estimate the payout pattern of our reserve liabilities to determine their duration, which is the present value of the weighted average payments expressed in years.
A technique we use in the management of our investment portfolio specifically related to interest rate risk is the calculation of duration. Our actuaries estimate the payout pattern of our reserve liabilities to determine their duration, which is the present value of the weighted average payments expressed in years.
Of the insured municipal securities in our investment portfolio, 98.7 percent and 99.6 percent were rated "A" or above, and 95.2 percent and 96.0 percent were rated "AA" or above at December 31, 2022 and 2021, respectively, without the benefit of insurance.
Of the insured municipal securities in our investment portfolio, 98.2 percent and 98.7 percent were rated "A" or above, and 95.0 percent and 95.2 percent were rated "AA" or above at December 31, 2023 and 2022, respectively, without the benefit of insurance.
At December 31, 2022 and 2021, our DAC asset was $104.2 million and $91.4 million, respectively. The DAC asset is amortized over the life of the policies written, generally one year. We assess the recoverability of DAC on a quarterly basis by line of business.
At December 31, 2023 and 2022, our DAC asset was $126.5 million and $104.2 million, respectively. The DAC asset is amortized over the life of the policies written, generally one year. We assess the recoverability of DAC on a quarterly basis by line of business.
Incurred But Not Reported Reserves On a quarterly basis, the Company's actuarial staff and consultants perform a detailed analysis of IBNR reserves. This analysis uses various loss projection methods to provide several estimates of ultimate loss (or LAE) for each individual year and line of business.
Incurred But Not Reported Reserves On a quarterly basis, the Company's actuarial reserving department performs a detailed analysis of IBNR reserves. This analysis uses various projection methods to provide several estimates of ultimate loss (or LAE) for each individual accident year and line of business.
Assumed reinsurance, like every independent line of business, has unique reporting and payment patterns that are reviewed as part of the reserve estimation process. There are three distinct types of reserves ceded to reinsurers: (1) reported claim reserves, (2) loss IBNR, and (3) LAE IBNR.
Assumed reinsurance, like every independent line of business, has unique reporting and payment patterns that are reviewed as part of the reserve estimation process. There are three distinct types of reserves for expected recoveries: (1) reported claim reserves, (2) loss IBNR, and (3) allocated LAE IBNR.
Losses and Loss Settlement Expenses Reserves for losses and loss settlement expenses are reported using our best estimate of ultimate liability for claims that occurred prior to the end of any given reporting period but have not yet been paid. Before credit for reinsurance recoverables, these reserves were $1,497.3 million and $1,514.3 million at December 31, 2022 and 2021, respectively.
Losses and Loss Settlement Expenses Reserves for losses and loss settlement expenses are reported using our best estimate of ultimate liability for claims that occurred prior to the end of any given reporting period but have not yet been paid. Before credit for reinsurance recoverables, these reserves were $1.6 billion and $1.5 billion at December 31, 2023 and 2022, respectively.
During the next five years, $0.5 billion, or 32.16% of our fixed maturity portfolio will mature. We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents.
During the next five years, $0.6 billion, or 35.64 percent of our fixed maturity portfolio will mature. We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents.
The four methods utilized by Regnier to project losses are: paid loss development; reported loss development; expected loss emergence based on paid losses; and expected loss emergence based on reported losses. The two methods utilized by Regnier to project loss expenses are: paid expenses-to-paid loss and paid expense-to-ultimate loss.
The four methods utilized by Regnier to project losses are: paid loss development; reported loss development; expected loss emergence based on paid losses; and expected loss emergence based on reported losses.
The fluctuations may result from perceived changes in the underlying economic characteristics of the security issuer, the relative price of alternative investments, general market conditions, and supply/demand factors related to a particular security. 49 Table of Contents Impact of Price Change The following table details the effect on the fair value of our investments in equity securities for a positive and negative 10 percent price change at December 31, 2022: (In Thousands) -10% Base +10% Estimated fair value of equity securities $ 186,017 $ 169,106 $ 152,195 Foreign Currency Exchange Rate Risk Foreign currency exchange rate risk arises from the possibility that changes in foreign exchange rates will impact our financial results.
The fluctuations may result from perceived changes in the underlying economic characteristics of the security issuer, the relative price of alternative investments, general market conditions, and supply/demand factors related to a particular security. 52 Table of Contents Impact of Price Change The following table details the effect on the fair value of our investments in equity securities for a positive and negative 10 percent price change at December 31, 2023: (In Thousands) -10% Base +10% Estimated fair value of equity securities $ 49,517 $ 55,019 $ 60,521 Foreign Currency Exchange Rate Risk Foreign currency exchange rate risk arises from the possibility that changes in foreign exchange rates will impact our financial results.
As an example, if our loss and loss settlement expense reserves of $1,497.3 million as of December 31, 2022, is 10.0 percent inadequate, we would experience a reduction in future pre-tax earnings of up to $149.7 million. This reduction could be recorded in one year or multiple years, depending on when we identify the deficiency.
As an example, if our loss and loss settlement expense reserves of $1.6 billion as of December 31, 2023, is 10.0 percent inadequate, we would experience a reduction in future pre-tax earnings of up to $163.9 million. This reduction could be recorded in one year or multiple years, depending on when we identify the deficiency.
Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft, flood or other causes. Automobile liability insurance covers bodily injury, damage to property resulting from automobile accidents caused by the insured, uninsured or under-insured motorists and the legal costs of defending the insured against lawsuits.
Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft, flood or other causes. Automobile liability insurance covers bodily injury, damage to property resulting from automobile accidents caused by the insured, uninsured or under-insured motorists and the legal costs of defending the insured against lawsuits. Proportional reinsurance on these lines is also included.
In 2022, 89.4 percent of our gross investment income originated from interest on fixed maturities, compared to 66.7 percent and 96.6 percent in 2021 and 2020, respectively.
In 2023, 81.4 percent of our gross investment income originated from interest on fixed maturities, compared to 89.4 percent and 66.7 percent in 2022 and 2021, respectively.
Our largest indirect exposure with a single guarantor totaled $7.7 million or 29.1 percent of our insured municipal securities at December 31, 2022, as compared to $9.4 million or 29.8 percent at December 31, 2021.
Our largest indirect exposure with a single guarantor totaled $7.6 million or 28.9 percent of our insured municipal securities at December 31, 2023, as compared to $7.7 million or 29.1 percent at December 31, 2022.
For example, a 100 basis point decrease in our estimated discount rate would increase the benefit obligation at December 31, 2022 by $28.2 million while a 100 basis point increase in the rate would decrease the benefit obligation $22.9 million.
For example, a 100 basis point decrease in our estimated discount rate would increase the benefit obligation at December 31, 2023 by $28.0 million while a 100 basis point increase in the rate would decrease the benefit obligation by $22.9 million, for the same period.
The commercial liability line of business experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss; LAE developed favorably and partially offset the unfavorable loss development. The unfavorable development for the reinsurance assumed line of business was due to paid loss which was greater than reductions in reserves for unpaid loss.
Commercial other liability experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss; LAE developed favorably and partially offset the unfavorable loss development.
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.
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. Catastrophes are not predictable and are unique in terms of timing and financial impact.
The base amount indicated below is the actual premium deficiency charge recorded as an offset against the DAC asset established as of the quarter ended December 31, 2022: Sensitivity Analysis — Impact of Changes in Projected Loss and Loss Settlement Expense Ratios (In Thousands) -10% -5% Base +5% +10% Premium deficiency charge estimated $ — $ — $ 889 $ 5,699 $ 13,801 Actual future results could differ materially from our assumptions used to calculate the recorded DAC asset.
The base amount indicated below is the actual premium deficiency charge recorded as an offset against the DAC asset established as of the quarter ended December 31, 2023: Sensitivity Analysis — Impact of Changes in Projected Loss and Loss Settlement Expense Ratios (In Thousands) -10% -5% Base +5% +10% Premium deficiency charge estimated $ 66 $ 76 $ 86 $ 10,630 $ 22,276 Actual future results could differ materially from our assumptions used to calculate the recorded DAC asset.
The following table displays a summary of cash sources and uses in 2022, 2021 and 2020: Cash Flow Summary Years Ended December 31, (In Thousands) 2022 2021 2020 Cash provided by (used in) Operating activities $ (1,251) $ 29,917 $ 41,435 Investing activities (19,171) 31,731 (92,871) Financing activities (15,032) (17,492) 18,662 Net increase (decrease) in cash and cash equivalents $ (35,454) $ 44,156 $ (32,774) Our cash flows were sufficient to meet our current liquidity needs for the full-year periods ended December 31, 2022, 2021 and 2020 and we anticipate they will be sufficient to meet our future liquidity needs.
The following table displays a summary of cash sources and uses in 2023, 2022 and 2021: Cash Flow Summary Years Ended December 31, (In Thousands) 2023 2022 2021 Cash provided by (used in) Operating activities $ 171,736 $ (1,251) $ 29,917 Investing activities (149,886) (19,171) 31,731 Financing activities (16,454) (15,032) (17,492) Net increase (decrease) in cash and cash equivalents $ 5,396 $ (35,454) $ 44,156 Our cash flows were sufficient to meet our current liquidity needs for the full-year periods ended December 31, 2023, 2022 and 2021 and we anticipate they will be sufficient to meet our future liquidity needs.
Our primary retention was $2.0 million for 2012 through 2015, increased to $2.5 million from 2016 through 2021, and increased again to $3.0 million beginning in 2022.
Our primary retention for the core multi-line reinsurance treaty was $2.0 million for 2012 through 2015, increased to $2.5 million from 2016 through 2021, and increased again to $3.0 million beginning in 2022.
LAE is composed of two distinct kinds of expenses which are allocated LAE ("ALAE") and unallocated LAE ("ULAE"). These two expense types have different purposes and characteristics which necessitates different estimation methods in order to provide a valid quarterly estimate of the required reserve for unpaid expense which is generally referred to as an LAE IBNR reserve.
These two expense types have different purposes and characteristics which necessitates different estimation methods in order to provide a valid quarterly estimate of the required reserve for unpaid expense which is generally referred to as an LAE IBNR reserve.
In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and the legal environment. Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability. Reserves for these long-tail coverages represent a significant portion of our overall carried reserves.
In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations, the legal environment, and inflation (economic and social). Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability.
The following table summarizes the change in our net unrealized investment gains (losses): (In Thousands) Years Ended December 31, 2022 2021 2020 Changes in net unrealized investment gains (losses): Available-for-sale fixed maturity securities $ (174,858) $ (42,159) $ 45,305 Income tax effect 36,720 8,858 (9,514) Total change in net unrealized investment gains (losses), net of tax $ (138,138) $ (33,301) $ 35,791 47 Table of Contents MARKET RISK Our Consolidated Balance Sheets include financial instruments whose fair values are subject to market risk.
The following table summarizes the change in our net unrealized investment gains (losses): (In Thousands) Years Ended December 31, 2023 2022 2021 Changes in net unrealized investment gains (losses): Available-for-sale fixed maturity securities $ 27,091 $ (174,858) $ (42,159) Income tax effect (5,689) 36,720 8,858 Total change in net unrealized investment gains (losses), net of tax $ 21,402 $ (138,138) $ (33,301) 50 Table of Contents MARKET RISK Our Consolidated Balance Sheets include financial instruments whose fair values are subject to market risk.
Assumed premiums written increased $96.0 million in 2021 as compared to 2020 due to growth of our assumed book by the addition of new programs and cedant premium growth. 33 Table of Contents Ceded Premiums Written Direct premiums written are reduced by the ceded premiums that we pay to reinsurers.
Assumed premiums written increased $59.8 million in 2022 as compared to 2021 due to growth of our assumed book by the addition of new programs and cedant premium growth. Ceded Premiums Written Direct premiums written are reduced by the ceded premiums that we pay to reinsurers.
Commercial Auto Reserves Commercial auto claim reserves are established at exposure based on information either known and provided or obtained through the investigation, with some pessimism built in. Incorporated are the perspective and experience the claims staff has acquired, which may include assumptions as to how the claim will develop over time, and with a slightly pessimistic view.
Commercial Automobile Reserves Commercial automobile claim reserves are established at exposure based on information either known and provided or obtained through the investigation. Incorporated are the perspective and experience the claims staff has acquired, which may include assumptions as to how the claim will develop over time.
The following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at December 31, 2022: Rollforward of allowance for credit losses for available-for-sale fixed maturity securities: As of December 31, 2022 Beginning balance, January 1, 2022 $ — Additions to the allowance for credit losses for which credit losses were not previously recorded 3 Ending balance, December 31, 2022 $ 3 Changes in unrealized gains and losses on available-for-sale fixed maturity securities do not affect net income and earnings per share but do impact comprehensive income, stockholders' equity and book value per share.
The following table contains a rollforward of the allowance for credit losses for available-for-sale fixed maturity securities at December 31, 2023: Rollforward of allowance for credit losses for available-for-sale fixed maturity securities: As of December 31, 2023 Beginning balance, January 1, 2023 $ 3 Additions to the allowance for credit losses for which credit losses were not previously recorded 0 Reductions for securities sold during the period (realized) — Writeoffs charged against the allowance — Recoveries of amounts previously written off (2) Ending balance, December 31, 2023 $ 1 Changes in unrealized gains and losses on available-for-sale fixed maturity securities do not affect net income and earnings per share but do impact comprehensive income, stockholders' equity and book value per share.
The objective is to maintain the appropriate balance of risk in our portfolio, consistent with our Investment Policy Statement and conservative investment style, and ensure the portfolio is compensated appropriately for the credit risk it holds.
We believe that we maintain the appropriate balance of risk in our portfolio, consistent with our Investment Policy Statement and ensure the portfolio is compensated appropriately for the credit risk it holds.
In addition, our surety bonds protect material suppliers and subcontractors from nonpayment by our contractors. When surety losses occur, our loss is determined by estimating the cost to complete the remaining work and to pay the contractor's unpaid bills, offset by contract funds due to the contractor, reinsurance, and the value of any collateral to which we may have access.
Fidelity and Surety When surety losses occur, our loss is determined by estimating the cost to complete the remaining work and to pay the contractor's unpaid bills, offset by contract funds due to the contractor, reinsurance, and the value of any collateral to which we may have access.
For further discussion of our operating leases, refer to Part II, Item 8, Note 12 "Lease Commitments." 52 Table of Contents Profit-Sharing Commissions We offer our agents a profit-sharing plan as an incentive for them to place high-quality property and casualty insurance business with us.
Operating Leases Our operating lease obligations are for the rental of office space, vehicles, computer equipment and office equipment. For further discussion of our operating leases, refer to Part II, Item 8, Note 12 "Lease Commitments." Profit-Sharing Commissions We offer our agents a profit-sharing plan as an incentive for them to place high-quality property and casualty insurance business with us.
Boiler and machinery business is included in our commercial fire and allied line of business. We will cede some LAE expenses when we cede loss. Our ceded LAE IBNR is estimated based on our ceded unpaid loss reserves and the general relation, by line of business, between LAE and loss.
We will cede some allocated LAE expenses when we cede loss. Our ceded allocated LAE IBNR is estimated based on our ceded unpaid loss reserves and the general relation, by line of business, between LAE and loss.
Reserve Development For many liability claims, significant periods of time, ranging up to several years, and for certain construction defect claims, more than a decade, may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement or other disposition of the claim.
Reserve Development For many liability lines of business, several years (more than a decade for construction defect) may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement or other disposition of the claim.
We purchase reinsurance to mitigate the impact of large losses and catastrophic events. Loss and loss 55 Table of Contents settlement expense reserves ceded to reinsurers were $146.9 million for 2022 and $112.9 million for 2021.
We purchase reinsurance to mitigate the impact of large losses and catastrophic events. Loss and loss settlement expense reserves ceded to reinsurers were $191.6 million for 2023 and $146.9 million for 2022.
Reserves for unpaid ALAE are estimated quarterly by line of business for each individual accident year using three methods: (1) Paid development, (2) Expected emergence of ALAE, and (3) Development of the ratio of paid ALAE to paid loss.
Reserves for unpaid DCC are estimated quarterly by line of business for each individual accident year using three methods: (1) Paid development, (2) Expected emergence of DCC, and (3) Bornhuetter Ferguson.
The following table details our annualized yield on average invested assets for 2022 , 2021, and 2020, which is based on our invested assets (including money market accounts) at the beginning and end of the year divided by net investment income: (In Thousands) Years ended December 31, Average Invested Assets Investment Income, Net Annualized Yield on Average Invested Assets 2022 $ 1,992,108 $ 44,932 2.3 % 2021 2,141,022 55,778 2.6 % 2020 2,169,220 39,670 1.8 % 46 Table of Contents Net Investment Gains and Losses The following table summarizes the components of our net investment gains or losses: (In Thousands) Years Ended December 31, 2022 2021 2020 Net investment gains (losses): Net gains (losses): Fixed maturities: Available-for-sale $ (1,397) $ (277) $ 1,787 Allowance for credit losses (3) 5 (5) Trading securities Change in fair value — — (3,314) Sales — — 2,950 Equity securities Available-for-sale Trading securities Change in fair value (12,802) 30,682 (6,875) Sales (1,767) 14,444 (26,906) Mortgage loans 109 5 (4) Other long-term investments (267) 2,780 — Short-term investments — — — Other-than-temporary-impairment charges: Fixed maturities — — — Equity securities — — — Cash equivalents — — — Real Estate 235 (256) $ (28) Total net investment gains (losses) $ (15,892) $ 47,383 $ (32,395) Net Unrealized Investment Gains and Losses As of December 31, 2022, net unrealized investment losses, after tax, totaled $88.4 million compared to unrealized gains of $49.8 million and unrealized gains of $83.1 million as of December 31, 2021 and 2020, respectively.
The following table details our annualized yield on average invested assets for 2023, 2022, and 2021, which is based on our invested assets (including money market accounts) at the beginning and end of the year divided by net investment income: (In Thousands) Years ended December 31, Average Invested Assets Investment Income, Net Annualized Yield on Average Invested Assets 2023 $ 1,891,504 $ 59,606 3.2 % 2022 1,992,108 44,932 2.3 % 2021 2,141,022 55,778 2.6 % 49 Table of Contents Net Investment Gains and Losses The following table summarizes the components of our net investment gains or losses: (In Thousands) Years Ended December 31, 2023 2022 2021 Net investment gains (losses): Net gains (losses): Fixed maturities: Available-for-sale $ (442) $ (1,397) $ (277) Allowance for credit losses 1 (3) 5 Trading securities Change in fair value — — — Sales — — — Equity securities: Net gains (losses) recognized on equity securities sold during the period 150 (1,767) 14,444 Unrealized gains (losses) recognized during the period on equity securities still held at reporting date 1,842 (12,802) 30,682 Net gains (losses) recognized during the reporting period on equity securities 1,992 (14,569) 45,126 Mortgage loans (5) 109 5 Other long-term investments (319) (267) 2,780 Short-term investments — — — Other-than-temporary-impairment charges: Fixed maturities — — — Equity securities — — — Cash equivalents — — — Real Estate 47 235 $ (256) Total net investment gains (losses) $ 1,274 $ (15,892) $ 47,383 Net Unrealized Investment Gains and Losses As of December 31, 2023, net unrealized investment losses, after tax, totaled $67.0 million compared to unrealized losses of $88.4 million and unrealized gains of $49.8 million as of December 31, 2022 and 2021, respectively.
Net cash flows used in investing activities totaled $92.9 million in 2020. In 2022, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments that totaled $280.4 million compared to $451.1 million and $376.2 million for the same period in 2021 and 2020, respectively.
Net cash flows provided by investing activities totaled $31.7 million in 2021. In 2023, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments that totaled $162.1 million compared to $280.4 million and $451.1 million for the same period in 2022 and 2021, respectively.
Senior management meets with our actuarial team and controller quarterly to review the adequacy of carried IBNR reserves based on results from this actuarial analysis and makes adjustments for changes in business and other factors not completely captured by the data within the actuarial analysis. There are two fundamental types or sources of IBNR reserves.
IBNR estimates are derived by subtracting reported loss from the final point estimates. Senior management meets with our actuarial team and controller quarterly to review the adequacy of carried IBNR reserves based on results from this actuarial analysis and makes adjustments for changes in business and other factors not completely captured by the data within the actuarial analysis.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item 7A is 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 "Market Risk." 63 Table of Contents
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this Item 7A is 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 "Market Risk." 66 Table of Contents

Other UFCS 10-K year-over-year comparisons