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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, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-34257
ufglogo2017color600a32.gif
________________________
 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: (319) 399-5700
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 2, 2023, 25,237,340 shares of common stock were outstanding.

United Fire Group, Inc.
Index to Quarterly Report on Form 10-Q
March 31, 2023
 Page
 
 
 

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/A for the year ended December 31, 2022 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:
◦Our ability to effectively underwrite and adequately price insured risks;
◦Risks related to our investment portfolio that could negatively affect our profitability;
◦General macroeconomic conditions, interest rate risk, the impact of inflation and changes in governmental regulations and monetary policy;
◦Geographic concentration risk in our property and casualty insurance business;
◦The properties we insure are exposed to various natural perils that can give rise to significant claims costs;
◦Changing weather patterns and climate change add to the unpredictability, frequency and severity of catastrophe losses and may adversely affect our results of operations, liquidity and financial condition;
◦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;
◦We may be unable to attract, retain or effectively manage the succession of key personnel;
◦The risk of not being able to predict the rising cost of insurance claims resulting from changing societal expectations that lead to increasing litigation, broader definitions of liability, broader contract interpretations, more plaintiff-friendly legal decisions and larger compensatory jury awards;
◦The potential disruption of our operations and reputation due to unauthorized data access, cyber-attacks or cyber-terrorism and other security breaches;
◦The adequacy of our reserves for property and casualty insurance losses and loss settlement expenses;
◦Competitive, legal, regulatory or tax changes that affect the distribution cost or demand for our products through our independent agent/agency distribution network;
◦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;
◦We will be at a competitive disadvantage if, over time, our competitors are more effective than us in their utilization of technology and evolving data analytics; and
◦We may be unable to secure reinsurance capacity that provides necessary risk protection at a reasonable cost.
1
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 any intention or obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.
2
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
United Fire Group, Inc.
Consolidated Balance Sheets
(In Thousands, Except Share Data)March 31,
2023		 December 31,
2022
 (unaudited)  
ASSETS   
Investments:   
Fixed maturities   
Available-for-sale, at fair value (amortized cost $1,684,249 in 2023 and $1,662,680 in 2022)
$1,591,169  $1,551,336 
Equity securities at fair value (cost $70,565 in 2023 and $75,292 in 2022)
159,378 169,106 
Mortgage loans37,912  37,947 
Less: allowance for mortgage loan losses49  49 
Mortgage loans, net37,863 37,898 
Other long-term investments91,003  86,276 
Short-term investments 275  275 
Total investments1,879,688  1,844,891 
Cash and cash equivalents53,230  96,650 
Accrued investment income15,396  14,480 
Premiums receivable (net of allowance for doubtful accounts of $1,701 in 2023 and $1,575 in 2022)
398,390  365,729 
Deferred policy acquisition costs107,489  104,225 
Property and equipment (primarily land and buildings, at cost, less accumulated depreciation of $62,027 in 2023 and $59,566 in 2022)
133,259  133,113 
Reinsurance receivables and recoverables (net of allowance for credit losses of $94 in 2023 and $82 in 2022)
162,425  170,953 
Prepaid reinsurance premiums10,569  11,300 
Intangible assets5,147 5,324 
Deferred tax asset13,980 15,531 
Income taxes receivable29,944 31,418 
Other assets88,886  88,672 
TOTAL ASSETS$2,898,403  $2,882,286 
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Liabilities   
Losses and loss settlement expenses$1,499,391  $1,497,274 
Unearned premiums490,798  474,388 
Accrued expenses and other liabilities106,419  120,510 
Long term debt50,000 50,000 
TOTAL LIABILITIES$2,146,608  $2,142,172 
Stockholders’ Equity   
Common stock, $0.001 par value; authorized 75,000,000 shares; 25,231,553 and 25,210,541 shares issued and outstanding in 2023 and 2022, respectively
$25  $25 
Additional paid-in capital208,010  207,030 
Retained earnings617,213  620,555 
Accumulated other comprehensive income, net of tax(73,453) (87,496)
TOTAL STOCKHOLDERS’ EQUITY$751,795  $740,114 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,898,403  $2,882,286 
The Notes to unaudited Consolidated Financial Statements are an integral part of these statements.
3
United Fire Group, Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended March 31,
(In Thousands, Except Share Data)2023 2022
Revenues   
Net premiums earned$256,127  $234,228 
Investment income, net of investment expenses12,722  11,276 
Net investment gains (losses) (includes reclassifications for net unrealized investment gains (losses) on available-for-sale securities of $(540) in 2023 and $318 in 2022; previously included in accumulated other comprehensive income (loss))
(1,745)(465)
Other income (loss)—  (25)
Total revenues$267,104  $245,014 
Benefits, Losses and Expenses  
Losses and loss settlement expenses$174,597  $130,376 
Amortization of deferred policy acquisition costs59,835  50,471 
Other underwriting expenses (includes reclassifications for employee benefit costs of $52 in 2023 and $900 in 2022; previously included in accumulated other comprehensive income (loss))
31,876  28,644 
Interest expense797 797 
Total benefits, losses and expenses$267,105  $210,288 
Income (loss) before income taxes$(1) $34,726 
Federal income tax expense (benefit) (includes reclassifications of $124 in 2023 and $122 in 2022; previously included in accumulated other comprehensive income (loss))
(695) 6,377 
Net Income (loss)$694 $28,349 
Other comprehensive income (loss)
Change in net unrealized appreciation on investments$18,004  $(82,965)
Change in liability for underfunded employee benefit plans(820)(4,591)
Other comprehensive income (loss), before tax and reclassification adjustments$17,184  $(87,556)
Income tax effect(3,609) 18,387 
Other comprehensive income (loss), after tax, before reclassification adjustments$13,575  $(69,169)
Reclassification adjustment for net investment losses included in income$540  $(318)
Reclassification adjustment for employee benefit costs included in expense52  900 
Total reclassification adjustments, before tax$592 $582 
Income tax effect(124)(122)
Total reclassification adjustments, after tax$468 $460 
Comprehensive income (loss)$14,737  $(40,360)
Diluted weighted average common shares outstanding25,500,115  25,323,105 
Earnings per common share:
Basic$0.03 $1.13 
Diluted 0.03 1.12 
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, 202325,210,541 $25 $207,030 $620,555 $(87,496)$740,114 
Net income— — — 694 — 694 
Stock based compensation21,012 — 980 — — 980 
Dividends on common stock ($0.16 per share)
— — — (4,037)— (4,037)
Change in net unrealized investment appreciation (depreciation)(1)
— — — — 14,650 14,650 
Change in liability for underfunded employee benefit plans(2)
— — — — (607)(607)
Balance, March 31, 202325,231,553 $25 $208,010 $617,213 $(73,453)$751,795 
(1)The change in net unrealized appreciation (depreciation) 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, 202225,082,104 $25 $203,375 $621,384 $54,337 $879,121 
Net income— — — 28,349 — 28,349 
Stock based compensation37,140 — 631 — — 631 
Dividends on common stock $0.15 per share)
— — — (3,767)— (3,767)
Change in net unrealized investment appreciation (depreciation)(1)
— — — — (65,793)(65,793)
Change in liability for underfunded employee benefit plans(2)
— — — — (2,916)(2,916)
Balance, March 31, 202225,119,244 $25 $204,006 $645,966 $(14,372)$835,625 
(1)The change in net unrealized appreciation (depreciation) 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.


5
United Fire Group, Inc.
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
(In Thousands)2023 2022
Cash Flows From Operating Activities   
Net income$694  $28,349 
Adjustments to reconcile net income to net cash provided by (used in) operating activities 
Net accretion of bond premium1,797  2,906 
Depreciation and amortization2,646  1,668 
Stock-based compensation expense1,076  979 
Net investment (gains) losses1,559  465 
Net cash flows from equity and trading investments8,523  18,387 
Deferred income tax expense (benefit)(2,182) (1,234)
Changes in: 
Accrued investment income(916) (539)
Premiums receivable(32,661) (18,119)
Deferred policy acquisition costs(3,264) (4,316)
Reinsurance receivables8,528  (7,173)
Prepaid reinsurance premiums731  464 
Income taxes receivable1,474  17,704 
Other assets(109) (14,768)
Losses and loss settlement expenses2,117  (26,274)
Unearned premiums16,410  6,318 
Accrued expenses and other liabilities(14,859) (3,469)
Other, net1,650  247 
Cash from operating activities(7,480)(26,754)
Net cash provided by (used in) operating activities$(6,786) $1,595 
Cash Flows From Investing Activities   
Proceeds from sale of available-for-sale investments$9,868  $— 
Proceeds from call and maturity of available-for-sale investments20,424  65,407 
Proceeds from sale of other investments972  1,581 
Purchase of investments in mortgage loans(128) — 
Purchase of investments available-for-sale(53,832)(82,942)
Purchase of other investments(7,190) (1,597)
Net purchases and sales of property and equipment(2,615) (2,510)
Net cash provided by (used in) investing activities$(32,501)$(20,061)
Cash Flows From Financing Activities   
Issuance of common stock$(96)$(349)
Payment of cash dividends(4,037)(3,767)
Net cash provided by (used in) financing activities$(4,133)$(4,116)
Net Change in Cash and Cash Equivalents$(43,420) $(22,582)
Cash and Cash Equivalents at Beginning of Period96,650 132,104 
Cash and Cash Equivalents at End of Period$53,230 $109,522 
Supplemental Disclosures of Cash Flow Information
Income taxes paid$12 $— 
Interest paid$797 $797 
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/A for the year ended December 31, 2022, 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 postretirement benefit obligations.
Management 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/A for the year ended December 31, 2022.
Segment Information

Our property and casualty insurance business is reported as one business 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. 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.



7
Lloyd's Syndicates
On January 1, 2021, the Company became a member of Lloyd's of London ("Lloyd's") through McIntyre Cedar Corporate Member LLP. 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, Syndicate 4747, Syndicate 2988, Syndicate 1699 and Syndicate 5623. At March 31, 2023, the Company's FAL investments were comprised of cash of $23,661 on deposit with Lloyd's in order to satisfy these FAL requirements.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts, cash on deposit and held at Lloyd's and non-negotiable certificates of deposit with original maturities of three months or less.
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, 2023.
Total
Recorded asset at beginning of period$104,225 
Underwriting costs deferred63,099 
Amortization of deferred policy acquisition costs(59,835)
Recorded asset at March 31, 2023
$107,489 

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 using the straight-line method over periods ranging from two 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").

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 long term debt 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
8
as of the applicable Interest Payment Date. For the three-month period ended March 31, 2023, interest totaled $797 and is included in accrued expenses and other liabilities in the Consolidated Balance Sheets and as interest expense in the Consolidated Statements of Income and Comprehensive Income. Payment of interest is subject to approval by the Iowa Insurance Division.

Income Taxes
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 a consolidated federal income tax benefit of $695 for the three-month period ended March 31, 2023 compared to an income tax expense of $6,377 during the same period of 2022. Our effective tax rate for 2023 and 2022 is different than the federal statutory rate of 21 percent, due principally to the net effect of tax-exempt municipal bond interest income.
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, 2023 or December 31, 2022. 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.
Deferred tax assets are reduced by a valuation allowance when management believes it is more likely than not that some, or all, of the deferred taxes will not be realized. After considering all positive and negative evidence of taxable income in the carryback and carryforward periods and our tax planning strategy of holding debt securities with unrealized losses to maturity or recovery, we believe it is more likely than not that all the deferred assets will be realized. As a result, we have no valuation allowance at March 31, 2023 or December 31, 2022.
For the three-month period ended March 31, 2023, we made payments for income taxes totaling $12. For the three-month period ended March 31, 2022, we did not make payments for income taxes. For the three-month period ended March 31, 2023, we received no federal tax refund. For the three-month period ended March 31, 2022, we received a federal tax refund of $10,000.
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 2018.

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 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."

9
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, 2023 was $2,998 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 versus 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 our 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 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, 2023 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, 2023, the Company had a credit loss allowance for reinsurance receivables of $94.
Rollforward of credit loss allowance for reinsurance receivables:
As of
March 31, 2023
Beginning balance, January 1, 2023$82 
Recoveries of amounts previously written off, if any12 
Ending balance of the allowance for reinsurance receivables, March 31, 2023
$94 

10
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.

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 2022

Inflation Reduction Act

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act ("IRA") which, among other changes, created a new corporate alternative minimum tax ("CAMT") based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. The effective date of these provisions is January 1, 2023. The Company does not expect to be subject to CAMT in 2023 and does not expect the IRA to have a material impact on the Company’s financial position and results of operations.


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, presented on a consolidated basis, as of March 31, 2023 and December 31, 2022, is provided below:
11
March 31, 2023
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$15,635 $10 $829 $14,816 $— $14,816 
U.S. government agency91,069 17 8,938 82,148 — 82,148 
States, municipalities and political subdivisions
General obligations:
Midwest58,832 213 157 58,888 — 58,888 
Northeast11,475 25 24 11,476 — 11,476 
South63,842 130 501 63,471 — 63,471 
West86,916 183 389 86,710 — 86,710 
Special revenue:
Midwest102,938 472 400 103,010 — 103,010 
Northeast55,161 166 713 54,614 — 54,614 
South180,683 561 2,279 178,965 — 178,965 
West113,332 401 831 112,902 — 112,902 
Foreign bonds38,119 — 3,818 34,301 — 34,301 
Public utilities146,966 260 11,515 135,711 — 135,711 
Corporate bonds
Energy36,614 — 2,188 34,426 — 34,426 
Industrials63,760 267 4,628 59,399 — 59,399 
Consumer goods and services100,455 54 8,757 91,752 — 91,752 
Health care34,960 124 4,587 30,497 — 30,497 
Technology, media and telecommunications69,144 21 5,869 63,296 — 63,296 
Financial services135,098 637 9,356 126,379 179 126,200 
Mortgage-backed securities25,959 — 2,425 23,534 — 23,534 
Collateralized mortgage obligations
Government national mortgage association102,127 12 12,636 89,503 — 89,503 
Federal home loan mortgage corporation93,395 43 11,984 81,454 — 81,454 
Federal national mortgage association53,846 152