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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
________________________
 UNITED FIRE GROUP INC.
(Exact name of registrant as specified in its charter)
Iowa 45-2302834
(State of incorporation) (I.R.S. Employer Identification No.)
118 Second Avenue SE
Cedar RapidsIowa
52401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319399-5700
Securities Registered Pursuant to Section 12(b) of the Exchange Act of 1934:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.001 par valueUFCSThe NASDAQ Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

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

As of May 3, 2021, 25,119,855 shares of common stock were outstanding.


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


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FORWARD-LOOKING INFORMATION
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our"), the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "remain(s) optimistic," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. See Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our other filings with the Securities and Exchange Commission ("SEC") for more information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.
Risks and uncertainties that may affect the actual financial condition and results of the Company include, but are not limited to, the following:
The frequency and severity of claims, including those related to catastrophe losses and the impact those claims have on our loss reserve adequacy; the occurrence of catastrophic events, including international events, significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics, including the ongoing impact of the novel coronavirus (COVID-19) pandemic (including the recent emergence of variant strains);
The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses;
Geographic concentration risk in our property and casualty insurance business;
The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
Developments in general economic conditions, domestic and global financial markets, interest rates and other-than-temporary impairment losses that could affect the performance of our investment portfolio;
Litigation or regulatory actions that could require us to pay significant damages, fines or penalties or change the way we do business;
Our ability to effectively underwrite and adequately price insured risks;
Changes in industry trends, an increase in competition and significant industry developments;
Lowering of one or more of the financial strength ratings of our operating subsidiaries or our issuer credit ratings and the adverse impact such action may have on our premium writings, policy retention, profitability and liquidity;
Governmental actions, policies and regulations, including, but not limited to, domestic health care reform, financial services regulatory reform, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and other federal stimulus relief legislation, corporate governance, new laws or regulations or court decisions interpreting existing laws and regulations or policy provisions; changes in laws, regulations and stock exchange requirements relating to corporate governance and the cost of compliance;
Our relationship with and the financial strength of our reinsurers; and
Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network.
These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have
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any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
United Fire Group, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)March 31,
2021
 December 31,
2020
 (unaudited)  
ASSETS   
Investments   
Fixed maturities   
Available-for-sale, at fair value (amortized cost $1,741,481 in 2021 and $1,720,291 in 2020; allowance for credit losses $174 in 2021 and $5 in 2020)
$1,816,765  $1,825,438 
Equity securities at fair value (cost $48,996 in 2021 and $49,085 in 2020)
193,263 206,685 
Mortgage loans47,570  47,690 
Less: allowance for mortgage loan losses76  76 
Mortgage loans, net47,494 47,614 
Other long-term investments77,816  69,305 
Short-term investments available-for-sale, at fair value (amortized cost $801 in 2021 and $175 in 2020)
804  175 
2,136,142  2,149,217 
Cash and cash equivalents71,514  87,948 
Accrued investment income14,662  14,615 
Premiums receivable (net of allowance for doubtful accounts of $699 in 2021 and $687 in 2020)
328,389  317,292 
Deferred policy acquisition costs87,955  87,094 
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $56,595 in 2021 and $55,141 in 2020)
132,273  129,874 
Reinsurance receivables and recoverables (net of allowance for credit losses of $233 in 2021 and $190 in 2020)
163,541  160,540 
Prepaid reinsurance premiums13,413  12,965 
Intangible assets6,565 6,743 
Income taxes receivable66,208 66,194 
Other assets44,305  37,196 
TOTAL ASSETS$3,064,967  $3,069,678 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Liabilities   
Losses and loss settlement expenses$1,613,025  $1,578,131 
Unearned premiums461,530  464,845 
Accrued expenses and other liabilities92,401  126,624 
Long term debt50,000 50,000 
Deferred tax liability24,412  24,929 
TOTAL LIABILITIES$2,241,368  $2,244,529 
Stockholders’ Equity   
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,119,855 and 25,055,479 shares issued and outstanding in 2021 and 2020, respectively
$25  $25 
Additional paid-in capital202,874  202,359 
Retained earnings570,789  555,854 
Accumulated other comprehensive income, net of tax49,911  66,911 
TOTAL STOCKHOLDERS’ EQUITY$823,599  $825,149 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,064,967  $3,069,678 
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.
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United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended March 31,
(In Thousands, Except Share Data)2021 2020
Revenues   
Net premiums earned$259,225  $268,849 
Investment income, net of investment expenses17,081  2,363 
Net realized investment gains (losses) (includes reclassifications for net unrealized investment gains/(losses) on available-for-sale securities of $(807) in 2021 and $(121) in 2020; previously included in accumulated other comprehensive income)
24,508 (93,407)
Other income (loss)(79)  
Total revenues$300,735  $177,805 
Benefits, Losses and Expenses  
Losses and loss settlement expenses$206,398  $186,503 
Amortization of deferred policy acquisition costs53,265  54,452 
Other underwriting expenses (includes reclassifications for employee benefit costs of $1,667 in 2021 and $1,072 in 2020; previously included in accumulated other comprehensive income)
18,368  41,849 
Total benefits, losses and expenses$278,031  $282,804 
Income (loss) before income taxes$22,704  $(104,999)
Federal income tax expense (benefit) (includes reclassifications of $520 in 2021 and $250 in 2020; previously included in accumulated other comprehensive income)
4,002  (32,465)
Net Income (loss)$18,702 $(72,534)
Other comprehensive income (loss)
Change in net unrealized appreciation on investments$(30,497) $7,168 
Change in liability for underfunded employee benefit plans6,505 (1,593)
Other comprehensive income, before tax and reclassification adjustments$(23,992) $5,575 
Income tax effect5,038  (1,171)
Other comprehensive income, after tax, before reclassification adjustments$(18,954) $4,404 
Reclassification adjustment for net realized investment losses included in income$807  $121 
Reclassification adjustment for employee benefit costs included in expense1,667  1,072 
Total reclassification adjustments, before tax$2,474 $1,193 
Income tax effect(520)(250)
Total reclassification adjustments, after tax$1,954 $943 
Comprehensive income (loss)$1,702  $(67,187)
Diluted weighted average common shares outstanding25,379,812  25,014,027 
Earnings (loss) per common share:
Basic$0.75 $(2.90)
Diluted 0.74 (2.90)
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.
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United Fire Group, Inc.
Consolidated Statement of Stockholders’ Equity (Unaudited)

Common Stock
(In Thousands, Except Share Data)Shares outstandingCommon stockAdditional paid-in capitalRetaining EarningsAccumulated other comprehensive incomeTotal
 
Balance, January 1, 202125,055,479 $25 $202,359 $555,854 $66,911 $825,149 
Net income (loss)   18,702  18,702 
Shares repurchased(207) (7)  (7)
Stock based compensation64,583  522   522 
Dividends on common stock ($0.15 per share)
   (3,767) (3,767)
Change in net unrealized investment appreciation(1)
    (23,456)(23,456)
Change in liability for underfunded employee benefit plans(2)
    6,456 6,456 
Balance, March 31, 202125,119,855 $25 $202,874 $570,789 $49,911 $823,599 
(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.
Common Stock
(In Thousands, Except Share Data)Shares outstandingCommon stockAdditional paid-in capitalRetaining EarningsAccumulated other comprehensive incomeTotal
 
Balance, January 1, 202025,015,963 $25 $200,179 $697,116 $13,152 $910,472 
Net income (loss)— — — (72,534)— (72,534)
Shares repurchased(70,467)— (2,741)— — (2,741)
Stock based compensation70,597 — 879 — — 879 
Dividends on common stock $0.33 per share)
— — — (8,249)— (8,249)
Change in net unrealized investment appreciation(1)
— — — — 4,500 4,500 
Change in liability for underfunded employee benefit plans(2)
— — — — 847 847 
Cumulative effect of change in accounting principle— — — (30)— (30)
Balance, March 31, 202025,016,093 $25 $198,317 $616,303 $18,499 $833,144 
(1)The change in net unrealized appreciation is net of reclassification adjustments and income taxes.
(2)The change in liability for underfunded employee benefit plans is net of reclassification adjustments and income taxes.
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.


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United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
(In Thousands)2021 2020
Cash Flows From Operating Activities   
Net income (loss)$18,702  $(72,534)
Adjustments to reconcile net income to net cash provided by (used in) operating activities 
Net accretion of bond premium3,586  3,008 
Depreciation and amortization1,628  1,636 
Stock-based compensation expense1,009  1,634 
Net realized investment (gains) losses(24,508) 93,407 
Net cash flows from equity and trading investments38,737  2,156 
Deferred income tax benefit4,002  (21,803)
Changes in: 
Accrued investment income(47) (11)
Premiums receivable(11,097) (5,570)
Deferred policy acquisition costs(861) (43)
Reinsurance receivables(3,001) (26,026)
Prepaid reinsurance premiums(448) (2,139)
Income taxes receivable(14) (15,150)
Other assets(7,109) (7,126)
Losses and loss settlement expenses34,894  16,651 
Unearned premiums(3,315) 15,798 
Accrued expenses and other liabilities(26,116) (1,958)
Deferred income taxes  4,463 
Other, net(6,532) 11,120 
Cash from operating activities808 70,047 
Net cash provided by (used in) operating activities$19,510  $(2,487)
Cash Flows From Investing Activities   
Proceeds from sale of available-for-sale investments$99,682  $11,910 
Proceeds from call and maturity of available-for-sale investments72,617  68,976 
Proceeds from sale of other investments621  1,889 
Purchase of investments in mortgage loans  (2,746)
Purchase of investments available-for-sale(198,331)(57,182)
Purchase of other investments(2,423) (1,469)
Net purchases and sales of property and equipment(3,848) (7,144)
Net cash provided by (used in) investing activities$(31,682)$14,234 
Cash Flows From Financing Activities   
Issuance of common stock$(488)$(755)
Repurchase of common stock(7)(2,741)
Payment of cash dividends(3,767)(8,249)
Net cash used in financing activities$(4,262)$(11,745)
Net Change in Cash and Cash Equivalents$(16,434) $2 
Cash and Cash Equivalents at Beginning of Period87,948 120,722 
Cash and Cash Equivalents at End of Period$71,514 $120,724 
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.
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UNITED FIRE GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share amounts or as otherwise noted)

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Business
United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated subsidiaries and affiliates are engaged in the business of writing property and casualty insurance through a network of independent agencies. Our insurance company subsidiaries are licensed as property and casualty insurers in 50 states and the District of Columbia.
Basis of Presentation
The unaudited consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X promulgated by the SEC. Certain financial information that is included in our Annual Report on Form 10-K for the year ended December 31, 2020, including certain financial statement footnote disclosures, is not required by the rules and regulations of the SEC for interim financial reporting and has been condensed or omitted.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statement categories that are most dependent on management estimates and assumptions include: investments; deferred policy acquisition costs; reinsurance receivables and recoverables; loss settlement expenses; and pension and post-retirement benefit obligations.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Management of UFG believes the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany transactions have been eliminated in consolidation. The results reported for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The unaudited Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020.
Segment Information

Subsequent to the announcement of the sale of our life insurance business on September 19, 2017, our continuing operations, the property and casualty insurance business, was reported as one reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of the sale of the life insurance business. We will continue to evaluate our operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP.
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Lloyd's Syndicates
On January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's"). As a member of Lloyd's, the Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support underwriting of property and casualty and reinsurance business by Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971 and Syndicate 4747. At March 31, 2021, the Company's FAL investments were comprised of cash of $18,101 on deposit with Lloyd's in order to satisfy these FAL requirements. The results of the syndicates are normally reported on a quarter lag, except when information is available that is material to the current period. For the first quarter of 2021, the Company recorded estimates of premiums, losses and loss settlement reserves and expenses and underwriting expenses, including deferred acquisition costs, based on the information provided by the syndicates. These amounts will be revised based on reported information, if necessary, with changes reflected in second quarter operations.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, cash on deposit and held by Lloyd's and non-negotiable certificates of deposit with original maturities of three months or less.
For the three-month periods ended March 31, 2021 and 2020, we made payments for income taxes totaling $14 and $20, respectively. We did not receive a tax refund during the three-month periods ended March 31, 2021 and 2020.
Deferred Policy Acquisition Costs ("DAC")

Certain costs associated with underwriting new business (primarily commissions, premium taxes and variable underwriting and policy issue expenses associated with successful acquisition efforts) are deferred. The following table is a summary of the components of DAC, including the related amortization recognized for the three-month period ended March 31, 2021.
Total
Recorded asset at beginning of period$87,094 
Underwriting costs deferred54,125 
Amortization of deferred policy acquisition costs(53,264)
Recorded asset at March 31, 2021$87,955 

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

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UF&C sold an aggregate principal amount of $50,000 of notes due 2040 to the Note Purchasers. One note with a principal amount of $35,000 was issued to Federated Mutual and one note with a principal amount of $15,000 was issued to Federated Life subject to the terms of their respective notes. The notes are presented as a long term debt liability in the Consolidated Balance Sheets and as a financing activity in the Consolidated Statement of Cash Flows.

Interest payments under the surplus notes are paid quarterly on March 15, June 15, September 15 and December 15 of each year (each such date, an "Interest Payment Date"). The interest rate will equal the rate that corresponds to the A.M. Best Co. (or its successor’s) financial strength rating for members of the United Fire & Casualty Pooled Group as of the applicable Interest Payment Date. For the three-month period ended March 31, 2021, interest totaled $797 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as an expense in other underwriting expenses in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company has considered the implications of the CARES Act on its tax provision. As of March 31, 2021, there was no income tax benefit as the result of the CARES Act. As of March 31,2020, there was an income tax benefit of $9,500 as the result of the CARES Act.
Deferred tax assets and liabilities are established based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Deferred income tax expense is measured by the year-to-year change in the net deferred tax asset or liability, except for certain changes in deferred tax amounts that affect stockholders' equity and do not impact federal income tax expense.
We reported consolidated federal income tax expense of $4,002 for the three-month period ended March 31, 2021 compared to income tax benefit of $32,465 during the same period of 2020. Our effective tax rate for 2021 is different than the federal statutory rate of 21 percent, due principally to the net effect of tax-exempt municipal bond interest income. Our effective tax rate for 2020 is different than the federal statutory rate of 21 percent, due principally to the impact of the provisions of the CARES Act.
The Company performs a quarterly review of its tax positions and makes a determination of whether it is more likely than not that the tax position will be sustained upon examination. If, based on this review, it appears not more likely than not that the positions will be sustained, the Company will calculate any unrecognized tax benefits and, if necessary, calculate and accrue any related interest and penalties. We did not recognize any liability for unrecognized tax benefits at March 31, 2021 or December 31, 2020. In addition, we have not accrued for interest and penalties related to unrecognized tax benefits. However, if interest and penalties would need to be accrued related to unrecognized tax benefits, such amounts would be recognized as a component of federal income tax expense.
We file a consolidated federal income tax return. We also file income tax returns in various state jurisdictions. We are no longer subject to federal or state income tax examination for years before 2017.

Leases

The Company determines if a contract contains a lease at inception of the contract. The Company's inventory of leases consists of operating leases which are recorded as a lease obligation liability disclosed in the "Accrued expenses and other liabilities" line on the Consolidated Balance Sheets and as a lease right-of-use asset disclosed in the "Other assets" line on the Consolidated Balance Sheets. The Company's operating leases consist of office space, vehicles, computer equipment and office equipment. The lease right-of-use asset represents the Company's right to
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use each underlying asset for the lease term and the lease obligation liability represents the Company's obligation over the lease term. The Company's lease obligation is recorded at the present value of the lease payments based on the term of the applied lease. Short-term leases of 12 months or less are recorded on the Consolidated Balance Sheets and lease payments are recognized on the Consolidated Statements of Income and Comprehensive Income. For more information on leases refer to Note 10 "Leases."
Variable Interest Entities
The Company and certain related parties are equity investors in one investment which the Company determined is a variable interest entity ("VIE") as a result of participation in the risks and rewards of the VIE based on the objectives and strategies of the VIE. The VIE is a limited liability company that primarily invests in commercial real estate. The Company and certain related parties are not the primary beneficiary largely due to their inability to influence management or direct the activities that most significantly impact the VIE's economic performance. Based on these facts and circumstances, the Company has a variable interest in the VIE, but has not consolidated the VIE's financial results as it is not the primary beneficiary. The Company's investment is reported in other long-term investments in the Consolidated Balance Sheets and accounted for under the equity method of accounting. The fair value of the VIE at March 31, 2021 was $3,371 and there are no future funding commitments.
Credit Losses
The Company recognizes credit losses for our available-for-sale fixed-maturity portfolio, reinsurance receivables, mortgage loans and premium receivables by setting up allowances which are remeasured each reporting period and recorded in the Consolidated Statements of Income and Comprehensive Income.
For our available-for-sale fixed-maturity portfolio an allowance for credit losses is recorded net of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is recorded based on a number of factors including the current economic conditions, management's expectations of future economic conditions and performance indicators, such as market value vs. amortized cost, investment spreads widening or contracting, rating actions, payment and default history. For more information on credit losses and the allowance for credit losses for available-for-sale fixed-maturity portfolio, see Note 2 "Summary of Investments."
An allowance for mortgage loan losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments which have similar risk characteristics. To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future expected losses and then layers on a market-linked adjustment. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and financial statements are reviewed for each loan to determine if it is performing in line with its expectations. This allowance is presented as a separate line in the Consolidated Balance Sheets beneath the asset value as well as presented net and recorded through "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income. For more information on credit losses and the allowance for credit losses for our investment in mortgage loans see Note 3 "Fair Value of Financial Instruments."
For reinsurance receivables, the Company's model estimates expected credit loss by multiplying the exposure at default by both the probability of default and loss given default ("LGD"). The LGD is estimated by the rating of the reinsurer, historical relationship with UFG, existence of letters of credit and known regulation the Company may be held accountable for. The ultimate LGD percentage is estimated after considering Moody’s experience with unsecured year 1 bond recovery rates from 1983-2017. The allowance calculated as of March 31, 2021 is recorded through the line "Reinsurance receivables and recoverables" in the Consolidated Balance Sheets and through the line "Other underwriting expenses" in the Consolidated Statements of Income and Other Comprehensive Income. As of March 31, 2021, the Company had a credit loss allowance for reinsurance receivables of $233.
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Rollforward of credit loss allowance for reinsurance receivable:
As of
March 31, 2021
Beginning balance, January 1, 2021$190 
Current-period provision for expected credit losses43 
Ending balance of the allowance for reinsurance receivable, March 31, 2021$233 

With respect to premiums receivable, the Company utilizes an aging method to estimate credit losses. An allowance for doubtful accounts is based on a periodic evaluation of the aging and collectability of amounts due from agents and policyholders. "Premiums receivable" are presented in the Consolidated Balance Sheets net of an estimated allowance for doubtful accounts and recorded through "Other underwriting expenses" in the Consolidated Statements of Income and Comprehensive Income.

COVID-19 Pandemic

The COVID-19 pandemic caused significant financial market volatility, economic uncertainty and interruptions to normal business activities for the full year of 2020 and the economic uncertainty continued into the three-month period ended March 31, 2021. As of the date of this report, we expect the effect of the COVID-19 pandemic on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic, including the emergence of variant strains, continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition, liquidity, capital position, the value of investments we hold in our investment portfolio, premiums and the demand for our products and our ability to collect premiums or requirement to return premiums to our policyholders, will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which may impact our business, financial condition, results of operations or liquidity. See further discussion in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Subsequent Events

In the preparation of the accompanying financial statements, the Company has evaluated all material subsequent events or transactions that occurred after the balance sheet date through the date on which the financial statements were issued for potential recognition or disclosure in the Company's financial statements.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2021
Defined Benefit Plans - Disclosures
In August 2018, the FASB issued new guidance which modifies the disclosure requirements for employers that sponsor defined benefit pension and postretirement plans. The new guidance removes the requirement for disclosing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit costs in the next year and the sensitivity of postretirement health plans to one-percentage-point changes in medical trend rates. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance modifies disclosures, but will not have an impact on the Company's financial position and results of operations.
Income Taxes
In December 2019, the FASB issued new guidance which simplifies the accounting for income taxes by removing certain exceptions to income tax accounting. The amendments also improve consistent application of and simplify
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GAAP for other areas of income tax accounting. The new guidance clarifies and amends existing guidance, including removing certain requirements that an entity evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction and requiring an entity to reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The new guidance is effective for annual periods beginning after December 15, 2020. The Company adopted the new guidance as of January 1, 2021. The new guidance did not have an impact on the Company’s financial position and results of operations.
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NOTE 2. SUMMARY OF INVESTMENTS
Fair Value of Investments
A reconciliation of the amortized cost to fair value of investments in available-for-sale fixed maturity and short-term investments, presented on a consolidated basis, as of March 31, 2021 and December 31, 2020, is provided below:
March 31, 2021
Type of InvestmentCost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair ValueAllowance for Credit LossesCarrying Value
AVAILABLE-FOR-SALE
Fixed maturities:
Bonds
U.S. Treasury$70,254 $343 $505 $70,092 $ $70,092 
U.S. government agency87,150 3,265 2,258 88,157  88,157 
States, municipalities and political subdivisions
General obligations:
Midwest68,578 2,951  71,529  71,529 
Northeast29,018 1,081  30,099  30,099 
South94,493 4,695  99,188  99,188 
West97,459 6,042  103,501  103,501 
Special revenue:
Midwest123,401 8,257  131,658  131,658 
Northeast56,193 3,972  60,165  60,165 
South211,100 15,728 98 226,730  226,730 
West131,711 8,375  140,086  140,086 
Foreign bonds26,372 1,171 134 27,409  27,409 
Public utilities95,501 5,155 523 100,133  100,133 
Corporate bonds
Energy24,101 2,306  26,407  26,407 
Industrials53,535