A.M. Best Affirms Ratings of United Fire & Casualty Group

Business Wire, Feb 22, 2007

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and the issuer credit ratings (ICR) of "a" of United Fire & Casualty Group (United Fire) and its five property/casualty members, which operate under a business pooling agreement led by United Fire & Casualty Company (United Fire & Casualty) [NASDAQ:UFCS]. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-" of United Life Insurance Company (United Life), a wholly owned subsidiary of United Fire & Casualty. A.M. Best also has affirmed the debt rating of "bbb" on the preferred stock of United Fire & Casualty's indicative shelf registration. The outlook for all ratings is stable, and all companies are domiciled in Cedar Rapids, IA. (See below for a detailed listing of the ratings.)

The ratings of United Fire reflect its solid risk-adjusted capitalization, inclusive of the $107 million of net proceeds from its common stock offering in May 2006, as well as its solid underwriting performance -- excluding catastrophe losses -- over the past several years, in part attributable to substantially favorable prior year loss reserve development. While A.M. Best recognizes the consistency of United Fire's favorable core reserve development in recent years, the ability to release reserves of a similar magnitude may be under pressure in 2007. The ratings also acknowledge the group's diversified product offerings and the financial flexibility afforded by United Fire & Casualty, which is publicly traded, has no debt and has access to the capital markets.

These positive rating factors are partially offset by United Fire's above-average exposure to hurricane and other weather-related catastrophe losses -- as evidenced by its $197 million of net pretax catastrophe losses in 2005 (primarily related to Hurricane Katrina) and the $34 million of further development on those losses in 2006. Given the uncertain regulatory and legal environments in several of United Fire's catastrophe-prone regions, some limitations remain on its flexibility in managing these risks.

Following Hurricane Katrina, United Fire commenced a catastrophe exposure reduction initiative concentrated in Louisiana and substantially increased its catastrophe reinsurance coverage. However, A.M. Best remains concerned that potential hurricane losses, could exceed reinsurance protection and have a material adverse impact on surplus. A.M. Best will continue to monitor United Fire's progress in managing its catastrophe exposures in this regard.

The ratings of United Life reflect the historical capital support it has received from United Fire & Casualty and its favorable earnings trends, which have resulted in more than adequate levels of risk-adjusted capital and surplus for its business and investment risks. While the company has experienced some spread compression on its interest sensitive products, it has been able to maintain profitability in its core ordinary life and annuity product lines. In addition, while United Life has experienced substantial realized capital losses over the last five years, it has continued to decrease its exposure to below investment grade bonds and has not experienced any realized losses in the last couple of years. However, A.M. Best remains concerned about United Life's high concentration in interest sensitive annuity products and its geographic concentration in the Midwest. A.M. Best will continue to monitor United Life's ability to maintain adequate spreads on its annuity products in the current competitive market and interest rate environment.

The FSR of A (Excellent) and ICRs of "a" have been affirmed for United Fire and Casualty Group and its following property/casualty members:

* United Fire & Casualty Company

* Lafayette Insurance Company

* Addison Insurance Company

* United Fire & Indemnity Company

* United Fire Lloyds

The FSR of A- (Excellent) and the ICR of "a-" have been affirmed for United Life Insurance Company.

The following debt rating has been affirmed on the indicative shelf registration:

United Fire & Casualty Company --

-- "bbb" on preferred stock

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.