our path to ECOVERY R united fire group® annual report 2008 ANNUAL MEETING United Fire & Casualty Company’s annual stockholders’ meeting will be held on Wednesday, May 20, 2009, at 10 a.m. in our home office building in Cedar Rapids, Iowa. The usual notices and proxy materials will be mailed to stockholders in advance of the meeting. Our 2008 Form 10-K is included in this Annual Report. A copy is filed with the Securities and Exchange Commission and is available to stock holders upon request to: Corporate Secretary OR United Fire & Casualty Company Registrar and Transfer Agent 118 Second Avenue SE Computershare Investor Services, LLC P.O. Box 73909 2 North LaSalle Street Cedar Rapids, Iowa 52407-3909 Chicago, Illinois 60602 Telephone: 319-399-5700 2 COMPANY PROFILE Founded by Scott McIntyre Sr. in 1946, United Fire Group® • Effective risk selection and pricing based on our is a group of regional insurance companies that provides understanding of local markets protection to individuals, businesses and organizations. We • Talented and well-trained employees who deliver are represented by professional independent insurance agents superior customer service and who are accessible to throughout the country, predominantly in the Midwest, our agents and policyholders (our telephones are answered West and South. We offer a complete line of products, by our employees) including commercial insurance, personal insurance, life • Loss control support to our commercial policyholders, insurance and surety bonds. helping them operate their businesses at peak efficiency Since our inception over 60 years ago, United Fire has and prevent severe losses grown into a publicly traded multibillion-dollar company • Technology that improves ease of doing business without that has the added distinction of being the largest locally sacrificing our business relationships headquartered financial institution in Cedar Rapids. We maintain a conservative approach to the management of our United Fire takes a conservative approach to the manage- business operations, focusing on writing good business at an ment of investments and has historically earned strong adequate price and preferring quality to volume. financial strength ratings from A.M. Best Company. Our goal is to achieve consistent profitability through: We have been named to the Ward Group’s 50 outstanding property and casualty insurance companies in the United • Disciplined, experienced underwriting States for 16 consecutive years. Our life subsidiary, United • Strong agency relationships Life Insurance Company, has been named to the Ward’s • Emphasis on commercial lines business, primarily small 50 life-health insurance companies for three consecutive to midsized accounts years—we are one of only 13 organizations to have affiliated companies named to both lists. • Expanded product line that includes life insurance and surety bonds, allowing us to diversify our earnings TABLE OF CONTENTS Company Profile ........................ 1 Financial Highlights .................... 3 The Chairman’s Report .............. 4 “ Our Path to Recovery” ............... 7 The Form 10-K follows 3 1 506 492 496 503 503 4.04 3.68 3.37 Basic earnings (loss) per common share Cash dividends declared ’04 ’05 ’06 ’07 ’08 per common share GROWTH IN PREMIUM EARNED (in millions) 2,776 2,761 2,722 2,687 .56 .60 2,570 .42 .48 .50 .22 -.48 ’04 ’05 ’06 ’07 ’08 EARNINGS AND DIVIDENDS PER COMMON SHARE ’04 ’05 ’06 ’07 ’08 GROWTH IN ASSETS (in millions) 4 2 FINANCIAL HIGHLIGHTS (Dollars in Thousands Except Per Share Data) Years Ended December 31 2008 2007 2006 2005 2004 Total assets $ 2,687,130 $ 2,760,554 $ 2,776,067 $ 2,721,924 $ 2,570,387 Total stockholders’ equity $ 641,741 $ 751,497 $ 680,808 $ 500,212 $ 452,210 Book value per share $ 24.10 $ 27.63 $ 24.62 $ 21.20 $ 22.46 Revenues: Net premiums earned $ 503,375 $ 505,763 $ 503,122 $ 495,516 $ 492,291 Investment income, net 107,577 122,439 121,981 118,847 111,474 Realized investment gains (losses) (10,383) 9,670 9,965 4,540 4,060 Other income 880 654 532 702 300 $ 601,449 $ 638,526 $ 635,600 $ 619,605 $ 608,125 Net income (loss) $ (13,064) $ 111,392 $ 88,085 $ 9,044 $ 78,817 Earnings (losses) available to common shareholders (13,064) 111,392 88,085 4,938 74,075 Basic earnings (loss) per common share (0.48) 4.04 3.37 0.22 3.68 Diluted earnings (loss) per common share (0.48) 4.03 3.36 0.22 3.34 Cash dividends declared per common share 0.60 0.555 0.495 0.48 0.42 Combined ratio (statutory basis) 113.4 % 82.1 % 89.7 % 112.5 % 86.4 % The 2004 amounts reflect the retroactive effects of our December 15, 2004, one-for-one stock dividend. 5 3 chairman’s report A long, long time ago, back when I was in eighth grade, southwest of Cedar Rapids. We secured temporary office our English teacher had us memorize part of Coleridge’s space in nearby Norway, Iowa, but because of its limited classic poem, “The Rime of the Ancient Mariner.” As an accommodations, had to go to two shifts a day and institute overachiever eager to impress his teacher, I memorized a bus service between Cedar Rapids and Norway. But it the whole damn thing. Despite this feat, the only part of worked! The following Tuesday, 150 new computers were the poem that I can remember is the same line everyone delivered to our new Norway location, and by Friday most else remembers: “Water, water everywhere, but not a drop of our departments were back in operation. to drink.” Still, that line fairly well summarizes 2008 and One of our first crises was the writing of 72 annuity checks many of the challenges faced by your company and our that were due to be mailed out on June 16, as all our check- management during the year. writing and check-signing equipment was inaccessible as a Three years after Hurricane Katrina, we’re still wrestling result of the flood. Thanks to some fast work by our Gulf with the conflicting questions of whether all those drops of Coast regional office, all the checks got out on time, and water that inundated New Orleans constituted a flood or most of the recipients were never aware there was a problem. whether the devastation they caused is covered by insurance. To most computer illiterates, information services (IS) On April 8, in Joseph Sher vs. Lafayette Insurance Company departments are inhabited by a bunch of geeks. At United (a member of United Fire Group), the Louisiana Supreme Fire, we will never think of Court found unanimously in what was supposed to be a them as geeks again, for in the precedent-setting decision for the State of Louisiana that Flood of 2008 they proved to a flood is a flood is a flood! Unfortunately, a little over a be our company’s saviors. To month later, in a case involving United Fire & Casualty, me, the image that epitomizes a federal court appears to have disregarded that decision their “can-do attitude” and in its application of the law. That decision is under appeal. determination is the picture of Sometimes justice is not only blind, it’s hard of hearing! Kevin First, one of our IS techs, Then, on Friday, June 13, another few drops of water with his lighted miner’s cap presented your company with a whole different set of going through our darkened challenges when the Cedar River, which flows through buildings snatching memory downtown Cedar Rapids about a block and a half from our boards from computers and home office, crested at over 31 feet, inundating most of the servers so we could bring up downtown area, including the basements and 6 feet of the the new computers we were first floors of our offices. The previous record crest on the KEVIN FIRST installing in our Norway office. Cedar River in Cedar Rapids had been 20 feet in 1929. In It was also Kevin who convinced the National Guard that 1993, when the Cedar River crested at 19 feet, we survived we were two companies, rather than just one, so we could with only minimal damage to our basements. get twice as many people past the barricade. Fortunately, a couple of years ago, we had embarked on a It would be Labor Day weekend before we could start project to update our contingency plan in case of disaster, moving back into our building and then Thanksgiving and it paid off well. While we were forced to evacuate our before we could start to occupy the first floors of our offices on the afternoon of Wednesday, June 11, by that buildings. Our accounting department did not move back Friday we had most of our major computer systems up and into its new permanent quarters until the week running at our disaster recovery site in Fairfax, eight miles after Christmas. 6 4 Using the skywalk system, a group of our employees was allowed to return to the home office immediately after the flood to collect additional, less-critical computer servers. More damn drops of water rained on our parade when $13,064,000 or 48 cents per share. However, considering Hurricanes Gustav and Ike struck the Louisiana and the economic meltdown that occurred during this year, Texas coasts. These two storms cost your company nearly we consider it an accomplishment just to have your stock $36,000,000 and added approximately 7 points to our maintain its value as well as it did. For the year, UFCS’s combined ratio. 2008 was the most expensive year for book value decreased only 13 percent to $24.10 per share catastrophes since 2005, when Katrina struck, and the sixth and in a year when the Dow Jones Industrial Average (DJIA) worst year on record.