{"url_path":"/sec/ufcs/10-k/2026/item-7a","section_key":"item-7a","section_title":"Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-02-26","source_url":"https://www.sec.gov/Archives/edgar/data/101199/0000101199-26-000015-index.html","accession_number":"0000101199-26-000015","cik":"0000101199","ticker":"UFCS","issuer_name":"UNITED FIRE GROUP INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/101199/0000101199-26-000015-index.html","primary_entity_key":"0000101199","primary_entity_name":"UNITED FIRE GROUP INC"},"word_count":925,"has_tables":true,"body_markdown":"ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK\n\nMarket Risk\n\nOur Consolidated Balance Sheets include financial instruments whose fair values are subject to market risk. The active management of market risk is integral to our operations. Market risk is the potential for loss due to a decrease in the fair value of securities resulting from uncontrollable fluctuations, such as: interest rate risk, equity price risk, foreign exchange risk, credit risk, inflation, or geopolitical conditions. Our primary market risk exposures are: changes in interest rates, deterioration of credit quality of specific issuers, sectors or the economy as a whole, and an unforeseen decrease in the liquidity of securities we hold.\n\nThe carrying value of the Company's investment portfolio at December 31, 2025 and 2024 was $2.5 billion and $2.1 billion, respectively, of which 89.5% and 89.3%, respectively, was invested in fixed maturity securities. The primary market risks to our portfolio include interest rate risk, credit risk, and foreign currency exchange rate risk. Duration of the portfolio is a key calculation that is managed relative to the payout pattern of our reserve liabilities. The exposure to equity price risk was eliminated in 2024 with repositioning of equity securities into fixed maturity securities.\n\n56\n\n[Table of Contents](#i9c41be50b13d4f0186d714192577cffa_4)\n\nInterest Rate Risk\n\nInterest rate risk is the price sensitivity of a fixed maturity security or portfolio of securities to changes in level of interest rates. Generally, there is an inverse relationship between changes in interest rates and changes in the price of a fixed maturity security. Plainly stated, if interest rates go up (down), bond prices go down (up). A vast majority of our holdings are fixed maturity and other interest rate sensitive securities that will decrease (increase) in value as interest rates increase (decrease). Available-for-sale fixed maturity securities are carried at fair value on the Consolidated Balance Sheets with unrealized gains or losses reported, net of tax, in accumulated other comprehensive income. A change in the prevailing interest rates generally translates into a change in the fair value of our fixed maturity securities, and by extension, our overall book value.\n\nThe amounts set forth in the following table detail the impact of hypothetical interest rate changes on the fair value of fixed maturity securities held at December 31, 2025. The sensitivity analysis measures the change in fair values arising from immediate changes in selected interest rate scenarios. We employed hypothetical parallel shifts in the yield curve of plus or minus 100 and 200 basis points in the simulations. Additionally, based upon the yield curve shifts, we employ estimates of prepayment speeds for mortgage-related products and the likelihood of call or put options being exercised within the simulations.\n\nThe selection of a 100-basis-point and 200-basis-point increase or decrease in interest rates should not be construed as a prediction by our management of future market events, but rather as an illustration of the potential impact of an event.\n\nDecember 31, 2025-200 Basis-100 Basis+100 Basis+ 200 Basis\n\n(In Thousands)PointsPointsBasePoints Points\n\nAVAILABLE-FOR-SALE\n\nFixed maturities:\n\nU.S. Treasury and government agencies$110,480 $107,987 $104,104 $99,227 $94,277 \n\nStates, municipalities and political subdivisions284,570 273,576 261,734 246,327 229,691 \n\nCorporate867,262 823,672 783,154 745,344 710,139 \n\nResidential mortgage-backed772,851 745,743 715,597 679,187 639,771 \n\nCommercial mortgage-backed166,500 155,307 145,407 136,606 128,748 \n\nOther asset-backed234,150 213,044 195,354 180,394 167,630 \n\nTotal Available-For-Sale Fixed Maturities$2,435,813 $2,319,329 $2,205,350 $2,087,085 $1,970,256 \n\nTo the extent actual results differ from the assumptions utilized, our duration and interest rate measures could be significantly affected. As a result, these calculations may not fully capture the impact of nonparallel changes in the relationship between short-term and long-term interest rates.\n\nCredit Risk\n\nCredit risk is the willingness and ability of a borrower to repay on time and in full any principal and interest due to the lender. Losses related to credit risk are realized through the income statement and have a direct impact on earnings. We believe that we maintain the appropriate balance of risk in our portfolio, consistent with our Investment Policy Statement and ensure the portfolio is compensated appropriately for the credit risk it holds. We do have within our municipal bond holdings a small number of securities whose ratings were enhanced by third-party insurance for the payment of principal and interest in the event of an issuer default. Of the municipal securities in our investment portfolio, 86.2 percent and 93.1 percent were rated \"AA\" or above, and 100.0 percent and 100.0 percent were rated \"A\" or above at December 31, 2025 and 2024, respectively, without the benefit of insurance. Due to the underlying financial strength of the issuers of the securities, we believe that the loss of insurance would not have a material impact on our operations, financial position, or liquidity.\n\nWe have no direct exposure in any of the guarantors of our investments. Our five largest indirect exposures to financial guarantors accounted for $23.0 million and $10.8 million of our municipal securities at December 31, 2025 and 2024, respectively.\n\n57\n\n[Table of Contents](#i9c41be50b13d4f0186d714192577cffa_4)\n\nForeign Currency Exchange Rate Risk\n\nForeign currency exchange rate risk arises from the possibility that changes in foreign exchange rates will impact our financial results. Foreign currency exchange rate risk can occur as a result of investment holdings in foreign currency, settlement of amounts due to or from foreign reinsurers or our participation in Lloyd's. We consider this risk to be immaterial to our operations as of December 31, 2025.\n\nRefer to Part II, Item 7, \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" under the headings \"Investments\" and \"Part II, Item 8, Note 2 \"Investments\" for more information on our investments.\n\n58\n\n[Table of Contents](#i9c41be50b13d4f0186d714192577cffa_4)"}