The following Management's Discussion and Analysis should be read in conjunction with Part II, Item 6, "Selected Financial Data" and Part II, Item 8, "Financial Statements and Supplementary Data." Amounts (except per share amounts) are presented in thousands, unless otherwise noted.

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 from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about the Company, the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will continue," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, financial performance or financial condition, are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part II Item 1A, "Risk Factors" of this document. 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;

• Occurrence of catastrophic events, occurrence of significant severe weather conditions, climate change, acts of terrorism, acts of war and pandemics;

• Developments in the domestic and global financial markets and "other-than-temporary" impairment losses that could affect our investment portfolio;

• The calculation and recovery of deferred policy acquisition costs ("DAC");

• The valuation of pension and other postretirement benefit obligations;

• Our relationship with our agencies and agents;

• Our relationship with our reinsurers;

• The financial strength rating of our reinsurers;

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

• 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;

• Changes in general economic conditions, interest rates, industry trends, increase in competition and significant industry developments;

• Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products;

• Litigation or regulatory actions that could require us to pay significant damages or change the way we do business;

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

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

These are representative of the risks, uncertainties, and assumptions that could cause actual outcomes and results to differ materially from what is expressed in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report or as of the date they are

made. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, we do not have any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

BUSINESS OVERVIEW
Originally founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("United Fire", the "Company", "we", "us", "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional companies. We are licensed as a property and casualty insurer in 43 states plus the District of Columbia and are represented by approximately 1,200 independent agencies. Our life insurance subsidiary is licensed in 36 states and is represented by approximately 900 independent agencies.
Segments
We operate two business segments that are comprised of a wide range of products:
• property and casualty insurance, which includes commercial insurance, personal insurance, and assumed reinsurance; and

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

We manage these business segments separately, as they generally do not share the same customer base, and they each have different products, pricing, and expense structures.
For 2012, property and casualty business accounted for approximately 90.0 percent of our net premiums earned, of which 90.0 percent was generated from commercial insurance. Life insurance business made up approximately 10.0 percent of our net premiums earned, of which over 71.0 percent was generated from traditional life insurance products.
Pooling Arrangement
All of our property and casualty insurance subsidiaries, with the exception of Texas General Indemnity Company, and our affiliate are members of 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. Geographic Concentration
For 2012, approximately 50.0 percent of our property and casualty premiums were written in Texas, Iowa, California, New Jersey, and Missouri; approximately 75.0 percent of our life insurance premiums were written in Iowa, Minnesota, Illinois, Wisconsin and Nebraska.
Sources of Revenue and Expense
We evaluate segment profit or loss based upon operating and investment results. Segment profit or loss described in the following sections of Management's Discussion and Analysis is reported on a pre-tax basis. Additional segment information is presented in Part II, Item 8, Note 10 "Segment Information" to the Consolidated Financial Statements.
Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, future policy benefits, underwriting and other operating expenses and interest on policyholders' accounts.
Profit Factors
Our profitability is influenced by many factors, including price, competition, economic conditions, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in

the law. To manage these risks and uncertainties, we seek to achieve consistent profitability through strong agency relationships, exceptional customer service, fair and prompt claims handling, disciplined underwriting, superior loss control services, and effective and efficient use of technology.

MEASUREMENT OF RESULTS
Our consolidated financial statements are prepared on the basis of U.S. generally accepted accounting principals ("GAAP"). We also prepare financial statements for each of our insurance subsidiaries based on statutory accounting principles ("SAP") and file them with insurance regulatory authorities in the states where they do business.
Management evaluates our operations by monitoring key measures of growth and profitability. We believe that disclosure of certain Non-GAAP financial measures enhances investor understanding of our financial performance. The following provides further explanation of the key measures management uses to evaluate our results:
Premiums written is a statutory measure of our overall business volume. Premiums written is an important measure of business production for the period under review. Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written is the amount of premiums charged for policies issued during the period. For the property and casualty insurance segment there are no differences between direct statutory premiums written and direct premiums written under GAAP. However, for the life insurance segment, deferred annuity deposits (i.e., sales) are included in direct statutory premiums written, whereas they are excluded for GAAP.
Assumed premiums written is consideration or payment we receive in exchange for insurance we provide to other insurance companies. We report these premiums as revenue as they are earned over the underlying policy period. Ceded premiums written is the portion of direct premiums written that we cede to our reinsurers under our reinsurance contracts.

                                                 Years Ended December 31,
(In Thousands)                               2012         2011(1)        2010
Net premiums written                      $ 720,881     $ 604,867     $ 463,892
Net change in unearned premium              (22,659 )     (16,401 )       5,669
Net change in prepaid reinsurance premium    (3,228 )      (1,683 )         (88 )
Net premiums earned                       $ 694,994     $ 586,783     $ 469,473

(1) The information presented for 2011 and after includes Mercer Insurance Group's results after the March 28, 2011 acquisition date. Combined ratio is a commonly used statutory financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of two separately calculated ratios, the loss and loss settlement expense ratio (the "net loss ratio") and the underwriting expense ratio (the "expense ratio"). When prepared in accordance with GAAP, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. The expense ratio is calculated by dividing nondeferred underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned. When prepared in accordance with SAP, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premium earned, and the expense ratio is calculated by dividing underwriting expenses by net premiums written. Catastrophe losses is a commonly used non-GAAP financial measure, which utilize the designations of the Insurance Services Office (ISO) and are reported with loss and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25.0 million or more in U.S. industry-wide direct insured losses to property and that affect a significant number of insureds and insurers ("ISO catastrophe"). In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may

include U.S. or international losses, that we believe are, or will be, material to our operations, either in amount or in number of claims made. Management, at times, may determine for comparison purposes that it is more meaningful to exclude extraordinary catastrophe losses and resulting litigation. The frequency and severity of catastrophic losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance segment, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in periodic earnings.

                              Years Ended December 31,
(In Thousands)              2012        2011        2010
ISO catastrophes         $  58,875    $ 57,238    $ 16,230
Non-ISO catastrophes (1)     5,847      23,555       3,540
Total catastrophes       $  64,722    $ 80,793    $ 19,770

(1) Includes international assumed losses.

CONSOLIDATED FINANCIAL HIGHLIGHTS
                                          Years Ended December 31,                  % Change
                                                                                2012         2011
(In Thousands)                        2012         2011(1)        2010        vs. 2011     vs. 2010
Revenues
Net premiums earned                $ 694,994     $ 586,783     $ 469,473        18.4  %      25.0  %
Investment income, net of
investment expenses                  111,905       109,494       111,685         2.2         (2.0 )
Net realized investment gains
(losses)
Other-than-temporary impairment
charges                                   (4 )        (395 )        (459 )      99.0         13.9
All other net realized gains           5,457         6,835         8,948       (20.2 )      (23.6 )
Total net realized investment
gains                                  5,453         6,440         8,489       (15.3 )      (24.1 )
Other income                             891         2,291         1,425       (61.1 )       60.8
Total revenues                     $ 813,243     $ 705,008     $ 591,072        15.4  %      19.3  %

Benefits, losses and expenses
Losses and loss settlement
expenses                           $ 459,706     $ 430,389     $ 309,796         6.8  %      38.9  %
Future policy benefits                43,095        32,567        27,229        32.3         19.6
Amortization of deferred policy
acquisition costs                    141,834       153,176       113,371        (7.4 )       35.1
Other underwriting expenses           81,125        58,757        39,305        38.1         49.5
Interest on policyholders'
accounts                              41,409        42,834        42,988        (3.3 )       (0.4 )
Total benefits, losses and
expenses                           $ 767,169     $ 717,723     $ 532,689         6.9  %      34.7  %

Income (loss) before income taxes  $  46,074     $ (12,715 )   $  58,383          NM       (121.8 )%
Federal income tax expense
(benefit)                              5,862       (12,726 )      10,870       146.1  %        NM
Net income                         $  40,212     $      11     $  47,513          NM       (100.0 )%

NM = not meaningful
(1) The information presented for 2011 and after includes Mercer Insurance Group's results after the March 28, 2011 acquisition date. Consolidated Results of Operations
During 2012 the increase in net income was driven by growth in property and casualty premium revenue and a reduction in the combined ratio. The reduction in the combined ratio resulted from lower catastrophe losses as well as improvement in non-catastrophe loss experience. In addition, the combined ratio improved due to an improvement in the expense ratio.
Net premiums earned increased to $695.0 million, compared to $586.8 million for the same period of 2011 due in part to the acquisition of Mercer Insurance Group in March 2011, which accounted for $34.9 million of additional earned premium. Our organic growth was $73.3 million over the same period of 2011.

Effective January 1, 2012, we prospectively adopted the change in accounting guidance that limits the amount of underwriting expenses eligible for deferral. The adoption of the updated accounting guidance resulted in the recognition of approximately $10.3 million ($8.7 million for our property and casualty insurance segment; $1.6 million for our life insurance segment) of additional expense during 2012 that we would not have recognized had the accounting guidance remained unchanged. This represents a reduction to net income of $0.26 per share. Refer to the "Deferred Policy Acquisition Costs" section of Part II, Item 8, Note 1 "Summary of Significant Accounting Policies" for further discussion of the impact of the updated accounting guidance on our reported results.
The year 2011 will be remembered for its devastating catastrophes, both domestic and abroad. According to various reports, 2011 was the costliest catastrophe year on record for the property and casualty insurance industry globally. We experienced losses in our direct and assumed books of business that negatively impacted our full-year results.

However, premium rates increased across all lines of business, and there were some positive signs in the overall economy. Additionally, we took steps to improve and strengthen our underwriting guidelines in response to our catastrophe experiences. Internal analyses of our catastrophe exposures, utilizing various approaches including the results of the updated RMS Model Version 11, supported the underwriting changes.
We also focused on our capital management strategy through our stock repurchase program and by entering into a new banking relationship with KeyBank National Association that established a $100.0 million syndicated line of credit, allowing us to reduce our cash position.
During 2011, we began the process of integrating Mercer Insurance Group into our operations. The integration of the West Coast business of Mercer Insurance Group's policy renewals into our processing systems was completed in 2012. We began the integration of the East Coast policy renewals into our processing systems which are on schedule to be completed in 2013. In addition, effective January 1, 2012, we consolidated Mercer Insurance Group's core and catastrophe reinsurance programs into our programs, resulting in increased coverage and reduction in Mercer Insurance Group's historical costs.
In 2012, we continued to expand the geographical footprint of our life insurance subsidiary by receiving approval to operate in California, Maryland and Delaware after receiving approval in 2011 to operate in New Jersey, North Carolina, Pennsylvania,Virginia and West Virginia, further leveraging the Mercer Insurance Group acquisition. Our life management team continues to improve service to our agents by increasing marketing support and automating life product processes. At a special meeting held on January 24, 2012, our stockholders approved our reorganization into a new holding company structure. United Fire Group, Inc. has replaced United Fire & Casualty Company as the publicly held corporation, and United Fire & Casualty Company is now a wholly owned subsidiary of United Fire Group, Inc. In addition to creating a more streamlined corporate structure, the new holding company's organizational documents enhanced our stockholder rights by reducing the percentage of stockholders required to amend our Articles of Incorporation, approve the merger or sale of substantially all Company assets, and call a special meeting. This new structure will potentially provide us with more flexibility to operate and finance our businesses, particularly if we should need to raise capital in the future.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

Property and Casualty Insurance Segment
                                         Years Ended December 31,                  % Change
                                                                               2012         2011
(In Thousands)                       2012         2011(1)        2010        vs. 2011     vs. 2010
Net premiums written (2)          $ 655,331     $ 551,923     $ 414,908        18.7  %      33.0  %
Net premiums earned               $ 629,411     $ 533,771     $ 420,373        17.9         27.0
Losses and loss settlement
expenses                           (439,137 )    (407,831 )    (289,437 )       7.7         40.9
Amortization of deferred policy
acquisition costs                  (134,444 )    (143,952 )    (100,310 )      (6.6 )       43.5
Other underwriting expenses         (63,620 )     (46,404 )     (30,313 )      37.1         53.1
Underwriting gain (loss) (2)      $  (7,790 )   $ (64,416 )   $     313        87.9  %        NM

Investment income, net of
investment expenses                  41,879        35,513        34,787        17.9  %       2.1  %
Net realized investment gains
(losses)
Other-than-temporary impairment
charges                                   -             -          (153 )         -  %     100.0  %
All other net realized gains          1,676         3,081         3,746       (45.6 )      (17.8 )
Total net realized investment
gains                                 1,676         3,081         3,593       (45.6 )%     (14.2 )%
Other income                            316         1,592           147       (80.2 )         NM
Income (loss) before income taxes $  36,081     $ (24,230 )   $  38,840          NM       (162.4 )%

GAAP Ratios:
Net loss ratio (without
catastrophes)                          59.5 %        61.3 %        64.2 %      (2.9 )%      (4.5 )%
Catastrophes - effect on net loss
ratio                                  10.3          15.1           4.7       (31.8 )      221.3
Net loss ratio                         69.8 %        76.4 %        68.9 %      (8.6 )%      10.9  %
Expense ratio (3)                      31.4          35.7          31.0       (12.0 )       15.2
Combined ratio                        101.2 %       112.1 %        99.9 %      (9.7 )%      12.2  %

Statutory Ratios:(2)
Net loss ratio (without
catastrophes)                          60.2 %        61.3 %        64.2 %      (1.8 )%      (4.5 )%
Catastrophes - effect on net loss
ratio                                  10.3          15.1           4.7       (31.8 )      221.3
Net loss ratio                         70.5 %        76.4 %        68.9 %      (7.7 )%      10.9  %
Expense ratio (3)                      31.3          32.2          31.0        (2.8 )        3.9
Combined ratio                        101.8 %       108.6 %        99.9 %      (6.3 )%       8.7  %

NM = not meaningful
(1) The information presented for 2011 and after includes Mercer Insurance Group's results after the March 28, 2011 acquisition date.
(2) The Measurement of Results section of this report defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than GAAP.
(3) Includes policyholder dividends.

For the year ended December 31, 2012, our property and casualty segment reported income before income taxes of $36.1 million compared to losses before income taxes of $24.2 million in the same period in 2011. The increase in income before income taxes during 2012 as compared to 2011 is primarily a result of a 17.9 percent increase in net premiums earned, a decrease in catastrophe losses, and a decrease in the amortization of deferred policy acquisition costs, partially offset by an increase in underwriting expenses, and an increase in loss and loss settlement expenses all discussed in more detail throughout this section.

Amortization of deferred policy acquisition costs decreased as the result of a change in accounting guidance that limits the amount of underwriting expenses eligible for deferral. We prospectively adopted the new accounting guidance effective January 1, 2012. As a result, the amount of underwriting expenses eligible for deferral has decreased, which resulted in the recognition of $8.7 million of additional expense in 2012 in our property and casualty insurance segment than would have been recognized had the guidance remained the same.

Premiums
The following table shows our premiums written and earned for 2012, 2011 and
2010:
                                                                         % Change
(In Thousands)                                                       2012        2011
Years ended December 31     2012        2011 (1)        2010       vs. 2011    vs. 2010
Direct premiums written  $ 682,390     $ 580,890     $ 435,706        17.5 %      33.3 %
Assumed premiums written    17,181        14,954        11,713        14.9        27.7
Ceded premiums written     (44,240 )     (43,921 )     (32,511 )       0.7        35.1
Net premiums written (2) $ 655,331     $ 551,923     $ 414,908        18.7 %      33.0 %
Net premiums earned        629,411       533,771       420,373        17.9        27.0

(1) The information presented for 2011 and after includes Mercer Insurance Group's results after the March 28, 2011 acquisition date.
(2) The Measurement of Results section of this report defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than GAAP. Net Premiums Written
Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written are the total policy premiums, net of cancellations, associated with policies issued and underwritten by our property and casualty insurance segment. Assumed premiums written are the total premiums associated with the insurance risk transferred to us by other insurance and reinsurance companies pursuant to reinsurance contracts. Ceded premiums written is the portion of direct premiums written that we cede to our reinsurers under our reinsurance contracts. Net premiums earned are recognized over the life of a policy and differ from net premiums written, which are recognized on the effective date of the policy.
Direct Premiums Written
Direct premiums written increased $101.5 million in 2012 as compared to 2011, of which $37.2 million resulted from our acquisition of Mercer Insurance Group. The remaining $64.3 million is due to organic growth primarily the result of rate increases and increase in audit premiums.
Direct premiums written increased $145.2 million in 2011 as compared to 2010, of which $115.3 million resulted from our acquisition of Mercer Insurance Group. The remaining $29.9 million reflects low-to mid-single-digit rate increases . . .