Summary of UNITED FIRE & CASUALTY CO

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about our company, the industry in which we operate, and beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "continues," "seeks," "estimates," "predicts," "should," "could," "may," "will continue," "might," "hope," "can" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part II Item 1A "Risk Factors" of this document. Among other factors that could cause our actual outcomes and results to differ are:
Х The impact of the current unprecedented volatility in the financial markets, including the duration of the credit crisis and the effectiveness of governmental solutions.

Х The adequacy of our loss reserves established for Hurricane Katrina, which are based on management estimates.

Х Additional government and NASDAQ policies relating to corporate governance, and the cost to comply.

Х Changing rates of inflation.

Х The valuation of invested assets.

Х The valuation of pension and other postretirement benefit obligations.

Х The calculation and recovery of deferred policy acquisition costs.

Х The ability to maintain and safeguard the security of our data.

Х The resolution of regulatory issues and litigation pertaining to and arising out of Hurricane Katrina.

Х Our relationship with our reinsurers.

Х Our relationship with our agents.

Х The pricing of our products.

Х The adequacy of the reinsurance coverage that we purchase.

These are representative of the risks, uncertainties and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission (the "SEC"), we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. Our discussion and analysis of our results of operations and financial condition is based upon our Consolidated Financial Statements, which we have prepared in accordance with GAAP. As we prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting estimates are: the valuation of investments; the valuation of reserves for losses, claims, and loss settlement expenses; the valuation of reserves for future policy benefits; and the calculation of the deferred policy acquisition costs asset. These critical accounting estimates are more fully described in our Management's Discussion and Analysis of Results of Operations and Financial Condition presented in our Annual Report on Form 10-K for the year ended December 31, 2008.

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OVERVIEW AND OUTLOOK
Our Business
We operate property and casualty and life insurance businesses, marketing our products through independent agents. Although we maintain a broad geographic presence that includes most of the United States, more than half of our property and casualty premiums were written in Iowa, Texas, Louisiana, Missouri and Illinois for the three-month period ended March 31, 2009. Approximately three-fourths of our life insurance premiums were written in Iowa, Wisconsin, Minnesota, Nebraska and Illinois for the three-month period ended March 31, 2009.
We conduct our operations through two distinct segments: property and casualty insurance and life insurance. We manage these segments separately because they generally do not share the same customer base, and they each have different pricing and expense structures. We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of the Management's Discussion and Analysis is reported on a pre-tax basis.
Financial Overview
From an operational standpoint our first quarter 2009 results were comparable to the first quarter of 2008. However, our earnings were significantly reduced by an increase in our loss reserves for litigation related to Hurricane Katrina. We continue to settle lawsuits related to Hurricane Katrina, but the legal environment in New Orleans has become increasingly challenging. To address the increasing uncertainty associated with claims being litigated in the Louisiana courts, we increased our reserves for losses that occurred in prior years by $11.9 million for the three-month period ended March 31, 2009.
In the property and casualty segment, we experienced a decline of 3.7 percent in our net premiums earned for the three-month period ended March 31, 2009 as compared to same period in 2008. We have seen some evidence that the pricing environment has improved from December 2008, as well as signs that premium rates have bottomed out. However, in order to achieve our profitability goals for 2009, pricing must increase.
We recorded other-than-temporary investment write-downs of $4.6 million for the three-month period ended March 31, 2009, related to the severe economic downturn. While investment strategies remain conservative, there is a potential for additional other-than-temporary investment write-downs in upcoming quarters as more businesses struggle in a weak global economy.
Our stockholders' equity declined 1.0 percent to $635.3 million at March 31, 2009 as compared to December 31, 2008. This is due primarily to unrealized losses in our investment portfolio.
Our annuity sales increased over 100.0 percent in the three-month period ended March 31, 2009, however, our life insurance sales were down. We attribute the significant increase in our annuity sales to more consumers choosing investment products that offer guaranteed rates of return. Also, because we had fewer annuities with expiring interest rate guarantees in the three-month period ended March 31, 2009, we experienced a net cash inflow of $19.4 million related to our annuity business, compared with a net cash outflow of $11.3 million related to our annuity business in the three-month period ended March 31, 2008.

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