UNITED FIRE GROUP INC

Investment Philosophy

The Company's assets are invested to preserve capital and maximize total return while maintaining an appropriate balance of risk. The risk-adjusted return on our portfolio is an important component of overall financial results, but quality and safety of principal is the highest priority of our investment program. We administer our investment portfolio based on investment guidelines approved by management and the Investment Committee of our Board of Directors that comply with applicable statutory regulations. The portfolio is structured to be compliant with state insurance laws that prescribe the quality, concentration and type of investments that may be made by insurance companies.

We monitor our portfolio to appropriately manage risk, achieve portfolio objectives and maximize investment income as market conditions change. Our overall investment strategy is to stay fully invested (i.e., minimize cash balances). If additional cash is needed, we have the ability to take advances through the Federal Home Loan Bank of Des Moines ("FHLB Des Moines") facility. The Company entered into an investment management agreement with NEAM effective as of February 1, 2024, pursuant to which NEAM will provide investment management services.

Investment Portfolio

Our invested assets at December 31, 2025 totaled $2.5 billion as compared to $2.1 billion at December 31, 2024. We utilize a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government and government agency bonds and tax-exempt U.S. municipal bonds.

The composition of our investment portfolio at December 31, 2025 is presented at carrying value in the following table:

(1) Available-for-sale fixed maturity securities are carried at fair value.

(2) As a member of Lloyd’s, the Company participates in the Syndicate results which include the fair value of the investments. Starting in Q4 2024, these investments are included in other long-term investments. The fair value of Lloyd's syndicate investments included in other long-term investments was $127.9 million as of December 31, 2025. Also included in our "Other long-term investments" on the Consolidated Balance Sheets is our interest in limited liability partnerships with a current fair value of $99.2 million at December 31, 2025.

Credit Quality

The following table shows the composition of fixed maturity securities by credit rating at December 31, 2025 and 2024. Information contained in the table is generally based upon issuer credit ratings provided by external rating agencies.

As of December 31, 2025 and 2024, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.

Duration

Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement used to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. Invested assets and reserve liability accounts with similar durations will have an offsetting effect of any change in interest rates. The primary purpose for matching invested assets and reserve liabilities is liquidity, and with appropriate matching, our investments will mature when cash is needed, preventing the need to liquidate other assets prematurely. Mismatches in the duration of assets and liabilities can cause significant fluctuations in our results of operations.

We analyze potential changes in the value of our investment portfolio due to the market risk factors noted above within the overall context of asset and liability management. A technique we use in the management of our investment portfolio specifically related to interest rate risk is the calculation of duration. Our actuaries estimate the payout pattern of our reserve liabilities to determine their duration, which is the present value of the weighted average payments expressed in years. We then establish a target duration for our investment portfolio so that at any given time the estimated cash generated by the investment portfolio will closely match the estimated cash required for the payment of the related reserves. We structure the investment portfolio to meet the target duration to achieve the required cash flow, based on liquidity and market risk factors.

The weighted average effective duration of our portfolio of fixed maturity securities was 4.3 years at December 31, 2025 compared to 4.2 years at December 31, 2024.

Refer to Note 2 "Investments" in Part II, Item 8 for more information on investment maturities.

Unrealized Investment Gains and Losses

Net unrealized investment losses, after tax, totaled $25.3 million, $72.2 million and $67.0 million as of December 31, 2025, 2024 and 2023, respectively. The unrealized investment loss position improved from December 31, 2024 due to the decrease in the bond market interest rates during the twelve-month period ended December 31, 2025. The net unrealized investment losses in 2024 and 2023 were a result of continued elevated interest rates that resulted in a change in unrealized gains and losses.

Refer to Note 2 "Investments" in Part II, Item 8 for more information on net unrealized investment gains and losses.

Expected Credit Losses and Watch List

We prepare a watch list to identify securities to evaluate for expected credit losses. Factors used in preparing the watch list include fair values relative to amortized cost, ratings, negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit impairment loss indicators and, where present, calculate an allowance for expected credit loss or direct write-down of a security’s amortized cost.

At December 31, 2025, our watch list included five fixed maturity securities in an unrealized loss position with an amortized cost of $13.4 million, no allowance for expected credit losses, unrealized losses of $0.6 million and a fair value of $12.5 million.

At December 31, 2024, our watch list included 10 fixed maturity securities in an unrealized loss position with an amortized cost of $21.8 million, no allowance for expected credit losses, unrealized losses of $2.2 million and a fair value of $24.0 million.

Refer to Note 2 "Investments" in Part II, Item 8 for more information on our investments.