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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, 2005

Commission File Number 2-39621

UNITED FIRE & CASUALTY COMPANY

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (319) 399-5700

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  x    NO  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    YES  x    NO  ¨

As of May 4, 2005, 21,354,399 shares of common stock were outstanding.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

INDEX

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

The Notes to Unaudited Consolidated Financial Statements are an integral part of these statements.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The terms “United Fire,” “we,” “us,” or “our” refer to United Fire & Casualty Company or United Fire & Casualty Company and its consolidated subsidiaries and affiliate, as the context requires. In the opinion of the management of United Fire, the accompanying unaudited Consolidated Financial Statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position, the results of operations and cash flows for the periods presented. The results for the interim periods are not necessarily indicative of the results of operations that may be expected for the year. The Consolidated Financial Statements contained herein should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2004. The review report of Ernst & Young LLP as of and for the three-month periods ending March 31, 2005 accompanies the unaudited Consolidated Financial Statements included in Item 1 of Part I.

We maintain our records in conformity with the accounting practices prescribed or permitted by the insurance departments of the states in which we are domiciled. To the extent that certain of these practices differ from U.S. generally accepted accounting principles (“GAAP”), we have made adjustments to present the accompanying Consolidated Financial Statements on the basis of GAAP.

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 the valuation of investments, the valuation of reserves for losses, claims and settlement expenses, the valuation of reserves for future policy benefits, the calculation of deferred policy acquisition costs, and the valuation of pension and post-retirement benefit obligations.

We are a defendant in legal actions arising from normal business activities. Management, after consultation with legal counsel, is of the opinion that any liability resulting from these actions will not have a material impact on our financial position and operating results.

For purposes of reporting cash flows, cash and cash equivalents include cash, money market accounts and non-negotiable certificates of deposit with original maturities of three months or less. We made payments for income taxes of $2.0 million for the three-month period ended March 31, 2005, compared to none for the three-month period ended March 31, 2004. We made no significant payments of interest for the three month periods ended March 31, 2005 and 2004, other than interest credited to policyholders’ accounts.

Note 2. New Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123(R), “Share-Based Payment”. Statement No. 123(R) is a revision of Statement No. 123, “Accounting for Stock Based Compensation”, and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized as expense in the financial statements based on their grant date fair values. The pro forma disclosures previously allowed under Statement No. 123 no longer will be an alternative to financial statement recognition. Statement No. 123(R) was originally effective for the first reporting period beginning after June 15, 2005, with early adoption allowed. On April 14, 2005, the Securities and Exchange Commission announced that for calendar year companies, the effective date of Statement No. 123(R) will be deferred until January 1, 2006.

The transition methods for adopting Statement No. 123(R) include the modified-prospective and modified-retroactive methods. The modified-prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock that exist upon the adoption of Statement No. 123(R). Under the modified-retroactive method, prior periods may be restated for the recognition of compensation expense either as of the beginning of the year of adoption or for all periods presented. We are currently evaluating the requirements of Statement No. 123(R) and expect that the adoption of Statement No. 123(R) will not have a material impact on our Consolidated Financial Statements.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Stock Options

We have a nonqualified employee stock option plan that authorizes the issuance of up to 1,000,000 shares of United Fire common stock to employees. Through March 31, 2005 we have granted options for 462,042 shares of United Fire common stock, of which options for 79,872 shares have been exercised. Pursuant to Statement No. 123, we elected to apply Accounting Principles Board Opinion No. 25, and related interpretations in accounting for stock options issued under our stock-based compensation plan. Opinion No. 25 prescribes the use of the intrinsic value method of accounting for our employee and director stock-based compensation awards. Accordingly, we have not recognized compensation expense for these awards. If the stock options had been accounted for under Statement No. 123, compensation cost would have been recorded based on the grant-date fair value attributable to the number of options that eventually vest. This cost is recognized over the period in which the options vest, with the amount recognized at any date being at least equal to the value of the vested portion of the award at that date. We have determined that the unrecognized compensation expense for the three-month periods ended March 31, 2005 and 2004 determined upon application of Statement No. 123 has an immaterial impact on the net income and earnings per share as reported in our Consolidated Financial Statements.

In accordance with the disclosure requirements of Statement No. 123, the pro forma effects of recognizing compensation expense on net income and income per share, had we applied the fair value method of accounting for stock options is as follows:

Note 4. Employee Benefit Plans

Among the employee benefit plans we offer, the two most significant plans are a non-contributory defined benefit pension plan and an employee/retiree health and dental benefit plan.

All of our employees are eligible to participate in the non-contributory defined benefit pension plan after they have completed one year of service and attained twenty-one years of age. Under our pension plan, retirement benefits are a function of the number of years of service and the level of compensation. Our policy is to fund this plan on a current basis to the extent that the contribution is deductible under existing tax regulations.

We offer the health and dental benefit plan to all of our eligible employees and retirees. The plan is composed of two programs: (1) the Self-Funded Retiree Health and Dental Benefit Plan and (2) the Self-Funded Employee Health and Dental Benefit Plan. The employee plan provides health and dental benefits to our employees who are regularly scheduled to work for us for 24 or more hours per week and their covered dependents. The retiree plan provides health and dental coverage benefits to retired employees and their covered dependents provided the retired employees have attained at least age 55 and have continuously participated in the employee plan for at least 10 consecutive years immediately prior to retirement. Both health care plans provide a prescription drug benefit.

Net periodic pension cost totaled $.6 million for the first quarter of 2005, compared to $.7 million for the first quarter of 2004. Net periodic postretirement benefit cost totaled $.4 million for the first quarter of 2005 and 2004. Due to the timing of the completion of our annual benefit plan valuations by our benefit actuary, these first quarter benefit costs are estimates. Upon receipt of the current year benefit plan valuations, we update the current year benefit expenses accordingly. We previously disclosed in our annual report on Form 10-K for the year ended December 31, 2004 that we expected to contribute $5.5 million to our pension plan in 2005. In the first three months of 2005, we contributed $.8 million to the pension plan. We do not anticipate that the total contribution for 2005 will vary significantly from the expected contribution.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Segment Information

We have two reportable business segments in our operations: property and casualty insurance and life insurance. Our property and casualty insurance segment conducts business from our home office in Cedar Rapids, Iowa and from two other locations. All three locations are aggregated because they target a similar customer base, market the same products and use the same marketing strategies. The life insurance segment operates from our home office in Cedar Rapids, Iowa. Because all of our insurance products are sold only domestically, we allocate no revenue to foreign operations. Our management evaluates the two segments both on the basis of accounting practices prescribed by our states of domicile and on the basis of GAAP. We analyze results based on a variety of factors, including profitability, expenses and return on equity. The bases we use to determine and analyze segments and to measure segment profit have not changed from that reported in our annual report on Form 10-K for the year ended December 31, 2004.

We report the following analysis on the basis of GAAP. We have reconciled the analysis to our unaudited Consolidated Financial Statements to adjust for inter-segment eliminations.

Note 6. Trading Securities

Our investment portfolio includes trading securities with embedded derivatives. These securities, which are primarily convertible redeemable preferred debt securities, are recorded at fair value. Income or loss, including the change in the fair value of these trading securities, is recognized currently in earnings as a component of realized investment gains and losses. Our portfolio of trading securities had a market value of $12.0 million at March 31, 2005, compared to $10.5 million at December 31, 2004.

Note 7. Comprehensive Income

Comprehensive income includes all changes in equity during a period except those resulting from investments by shareholders and dividends to shareholders. The major components of our comprehensive income are net income and the change in net unrealized investment gains and losses on available-for-sale securities as adjusted for amounts that have been reclassified as realized investment gains and losses. Comprehensive income was $16.8 million and $25.9 million for the three months ended March 31, 2005 and 2004, respectively.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Earnings Per Share

We compute earnings per share in accordance with Statement of Financial Accounting Standard No. 128, “Earnings per Share.” Accordingly, we compute basic earnings per share by dividing earnings available to common stockholders (net income or loss less dividends to preferred stockholders and accretions of preferred stock issuance costs) by the weighted-average number of common shares outstanding during the period. Diluted earnings per share gives effect to all potentially dilutive common shares outstanding during the period. The potentially dilutive shares we consider in our diluted earnings per share calculation relate to our convertible preferred stock and our outstanding stock options.

We determine the dilutive effect of our convertible preferred stock using the “if-converted” method. Under this method, we add to the denominator of the earnings per share calculation a number determined by multiplying the number of convertible preferred shares outstanding by the stated conversion rate. We add to the numerator of the earnings per share equation the amount of preferred stock dividends and accretions to reflect the assumed conversion to common stock of all the convertible preferred stock. If the effect of the if-converted method is anti-dilutive, the effect on diluted earnings per share of our convertible preferred stock is disregarded. The effect of the if-converted method was dilutive for the three-month periods ended March 31, 2005 and 2004, and was therefore included in the respective calculations of diluted earnings per share.

We determine the dilutive effect of our outstanding stock options using the “treasury stock” method. Under this method, we assume the exercise of all of the outstanding options whose exercise price is less than the weighted-average fair market value of our common stock during the reporting period. This method assumes that the proceeds from the hypothetical stock option exercises are used to repurchase shares of common stock at the weighted-average fair market value of the stock during the period. The net of the assumed options exercised and assumed common shares repurchased represents the number of potentially dilutive common shares, which we add to the denominator of the earnings per share calculation.

The components of basic and diluted earnings per share are displayed in the following table. All share and per share amounts reflect the retroactive effects of our December 15, 2004 one-for-one stock dividend.

Note 9. Subsequent Events

At a special meeting on April 8, 2005, the Board of Directors voted unanimously to redeem our 6.375% Convertible Preferred Stock, Series A (“Preferred Stock”). According to its terms, the Preferred Stock may be redeemed at our option any time after May 15, 2005. The Board has set Monday, May 16, 2005 as the Redemption Date. On the Redemption Date, we will redeem any shares of Preferred Stock not previously converted to common stock by holders of Preferred Stock. The Redemption Price is $26.02 per share (the liquidation preference of $25; plus accrued and unpaid dividends through, but excluding, May 16, 2005 of $.27; plus a premium of $.75, which is three percent (3%) of the liquidation preference). The current conversion price of our Preferred Stock is $20.13 per share. The current conversion rate of our Preferred Stock is 1.242 shares of common stock for each share of Preferred Stock. Holders of shares of Preferred Stock may convert them at any time prior to 5:00 p.m., Central Daylight Time, on Friday, May 13, 2005.

During the first quarter of 2005, 162,449 shares of preferred stock were converted into common stock, with 2,597,151 shares of preferred stock outstanding at March 31, 2005. Subsequent to quarter end, 797,245 shares of preferred stock have been converted into common stock.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of United Fire & Casualty Company

We have reviewed the consolidated balance sheet of United Fire & Casualty Company as of March 31, 2005, and the related consolidated statements of income for the three-month periods ended March 31, 2005 and 2004, and the consolidated statements of cash flows for the three-month periods ended March 31, 2005 and 2004. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of United Fire & Casualty Company as of December 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended, not presented herein, and in our report dated February 28, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Ernst & Young LLP

May 5, 2005

Chicago, Illinois

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENT

This discussion 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 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, management’s beliefs and assumptions made by management. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “continues,” “seeks,” “estimates,” “predicts,” “should,” “could,” “may,” “will continue,” “might”, “hope” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Among the factors that could cause our actual outcomes and results to differ are the following: inherent uncertainties with respect to loss reserving; the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding our estimates; the actual amount of new and renewal business and demand for our products and services; the competitive environment in which we operate, including price, product and service competition; developments in domestic and global financial markets that could affect our investment portfolio and financing plans; impact of regulatory actions on our Consolidated Financial Statements; uncertainties relating to government and regulatory policies; additional government and NASDAQ policies relating to corporate governance, and the cost to comply; legal developments; changing rates of inflation, interest rates and other economic conditions; a continuation or worsening of global economic conditions; a slow recovery from the United States recession; our relationship with our agencies; the valuation of invested assets; the recovery of deferred acquisition costs; the resolution of legal issues pertaining to the World Trade Center catastrophe; or our relationship with our reinsurers. 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 their dates. Except as required under the federal securities laws and the rules and regulations of the Securities and Exchange Commission, 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.

REGULATION G COMPLIANCE MEASURES

In response to disclosure regulations adopted by the Securities and Exchange Commission as part of its implementation of the Sarbanes-Oxley Act of 2002 (specifically Regulation G, which became effective in March 2003), measures used in this discussion that are not based on GAAP (Non-GAAP) are defined and reconciled to the most directly comparable GAAP measures and operating measures in the “Non-GAAP Financial Measures” section at the end of this discussion.

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. Our discussion and analysis of our results of operations and financial condition are based upon our Consolidated Financial Statements, which we have prepared in accordance with GAAP. As we prepare these financial statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies most sensitive to estimates include the valuation of investments, the valuation of reserves for losses, claims and settlement expenses, the valuation of reserves for future policy benefits, the calculation of the deferred acquisition cost asset, and the valuation of pension and post-retirement benefit obligations. These critical accounting policies are more fully described in our Management’s Discussion and Analysis of Results of Operations and Financial Condition presented in our annual report on Form 10-K for the year ended December 31, 2004.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW AND OUTLOOK

United Fire operates property and casualty and life insurance businesses, marketing its products through independent agents. Although it maintains a broad geographic presence that includes most of the United States, more than half of its property and casualty premiums and more than two-thirds of its life insurance premiums are written in five states. We have historically focused on our core property and casualty commercial lines. Through disciplined underwriting and strong agency relationships, we have traditionally emphasized writing good business at an adequate price, preferring quality to volume. Our goal of consistent profitability is supported by these business strategies.

Our first quarter 2005 earnings were marked by exceptional property and casualty underwriting results. These results were driven primarily by a 12 percent decrease in claim counts as compared to the first quarter of 2004. While encouraged by this performance, we are mindful of the approaching Midwest storm and Atlantic hurricane seasons, which generally produce increased claims activity. Increased premiums earned also contributed to the improved underwriting results. The growth in net premiums earned achieved during 2005 is attributable to pricing and other underwriting initiatives that we pursued in recent years.

In an increasingly competitive insurance marketplace characterized by decreasing premium rates, we feel it is important that we remain resolute in our philosophy of practicing disciplined underwriting. We feel this philosophy is reflected in our continued strong results. Despite the tightening market conditions, we achieved a 3 percent increase in our commercial lines premiums written (excluding surety) in the first quarter of 2005 as compared to the first quarter of 2004. The main challenge in 2005 continues to be retention and acquisition of quality business while offering pricing that is adequate yet competitive for the risk.

Our life insurance segment’s total annuity deposits and life insurance premiums increased by nearly 39 percent. We periodically re-evaluate our product line to ensure that we’re offering innovative products to meet the needs of our agents’ customers, and we are hopeful that new product developments will result in additional improvements in sales throughout the year.

RESULTS OF OPERATIONS

Consolidated Financial Highlights

All per share amounts reflect the retroactive effects of our December 15, 2004 one-for-one stock dividend.

First quarter 2005 net income totaled $32.6 million, or $1.55 per share (after providing for the dividend on convertible preferred stock), which includes net realized investment gains (before tax) of $1.8 million. Net income for the first quarter of 2004 was $18.5 million, or $.86 per share (after providing for the dividend on convertible preferred stock), which included net realized investment gains (before tax) of $.3 million. First quarter diluted earnings were $1.38 per share and $.79 per share for 2005 and 2004, respectively. We achieved improvement in first quarter net income primarily as a result of a decrease in non-catastrophe claims.

Total revenues were $153.4 million in the first quarter of 2005, an increase of $8.1 million, or 5.6 percent, over the first quarter of 2004. Net premiums earned increased 3.6 percent to $122.7 million in the first quarter of 2005, compared to $118.4 million in the first quarter of 2004. Net realized investment gains were $1.8 million in the first quarter of 2005, compared to $.3 million in the first quarter of 2004. Investment income was $28.8 million in the first quarter of 2005 compared to $26.5 million in the first quarter of 2004.

Pre-tax catastrophe losses, net of reinsurance, of $.4 million for the first quarter of 2005 added .4 points to the combined ratio, resulting in a reduction in after-tax earnings of $.01 per share. In comparison, pre-tax catastrophe losses, net of reinsurance, of $.3 million for the first quarter of 2004 added .2 points to the combined ratio, resulting in a reduction in after-tax earnings of $.01 per share.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Property and Casualty Insurance Segment Results

In the first quarter of 2005, our property and casualty insurance segment’s pre-tax income was $44.9 million, compared to $25.4 million in the first quarter of 2004. This improvement is attributable primarily to a significant decrease in non-catastrophe claims. In addition, we experienced improvement in premiums earned, investment income and realized investment gains.

Net premiums written in the first quarter of 2005 were $116.4 million compared to $116.5 million in the first quarter of 2004. Net premiums earned in the first quarter of 2005 were $113.5 million compared to $110.7 million in the first quarter of 2004. The growth in net premiums earned achieved during 2005 is attributable to pricing and other underwriting initiatives that we pursued in recent years, from which we continue to realize benefits as the related premium is earned. However, moderation in pricing is evident, as rate increases have slowed or ceased on many lines. Some lines have actually experienced a decrease in rates. Investment income increased $1.6 million and realized investment gains increased $.8 million in the first quarter of 2005, as compared to the first of quarter of 2004.

Our incurred losses related to the 2004 hurricane season are still developing. Subsequent to the first quarter, in April of 2005, we were notified of $2.5 million in assumed losses attributable to the series of hurricanes that hit the southern United States in the latter half of 2004.

We analyze our property and casualty financial results through the review and comparison of financial measures common to the insurance industry, which include the loss and loss adjustment expense ratios (collectively referred to as the “net loss ratio”), the underwriting expense ratio (the “expense ratio”) and the combined ratio. The ratios used in this discussion have been prepared on the basis of GAAP.

The combined ratio, a commonly used financial measure of underwriting performance, is the sum of the net loss ratio and the expense ratio. A combined ratio below 100 percent indicates a profitable book of business. Our combined ratio for the first quarter of 2005 was 68.9 percent, compared to 83.6 percent for the first quarter of 2004.

We review the net loss ratio to measure our profitability by line. We make pricing and underwriting decisions based upon these results. Our net loss ratio was 39.6 percent for the first quarter of 2005 versus 53.2 percent for the first quarter of 2004. The improvement in the net loss ratio is primarily attributable to the underwriting initiatives pursued in recent years and a decrease in non-catastrophe claims. The commercial lines net loss ratios (including reinsurance) were as follows: first quarter of 2005 – 39.8 percent; first quarter of 2004 – 53.4 percent. The personal lines net loss ratios (including reinsurance) were as follows: first quarter of 2005 – 37.5 percent; first quarter of 2004 – 51.8 percent. The table on the following page displays our loss ratio experience on a by-line basis.

The expense ratio was 29.3 percent for the first quarter of 2005 compared to 30.4 percent in the first quarter of 2004. The improvement in the expense ratio is attributable to our ability to defer a larger proportion of our underwriting expenses during the first quarter of 2005 than we deferred in the first quarter of 2004. The method prescribed by U.S. generally accepted accounting principles to compute deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which takes into account the expected premium to be earned, expected losses and expenses to be incurred, and certain other costs expected to be incurred as the premium is earned.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three-month periods ended March 31,

Life Insurance Segment Results

In the first quarter of 2005, our life insurance segment recorded pre-tax income of $2.5 million, compared to $1.4 million for the first quarter of 2004. The improvement was the result of a combination of several factors, of which the most significant was a $1.6 million increase in net premium earned. This increase was primarily the result of marketing initiatives pursued in recent years that have led to increased sales of single premium whole life and term products. A $.6 million increase in investment income and a $.7 million increase in realized investment gains also contributed to the improvement in our life insurance segment’s first quarter revenues.

These improvements in the life insurance segment’s results were offset to some extent by an increase in total benefits, losses and expenses. The primary factor leading to this increase was a $1.8 million increase in the provision for liability for future policyholder benefits. This increase was driven by the increase in future policy benefits resulting from the increase in sales levels of single premium whole life and term products.

The principal product of our life insurance segment has been the single premium deferred annuity. Pursuant to U.S. generally accepted accounting principles, we do not report annuity deposits as net premiums earned. Rather, annuity deposits are recorded as liabilities for future policyholder benefits. Revenues for annuities consist of policy surrender charges and investment income earned on policyholder deposits. In the first quarter of 2005, annuity deposits were $15.8 million compared to $10.4 million in the first quarter of 2004.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Investment Results

We recorded net investment income (before tax) of $28.8 million for the three-month period ended March 31, 2005, compared to $26.5 million for the three-month period ended March 31, 2004. Our invested assets grew from $1,964.3 million at December 31, 2004 to $2,037.3 million at March 31, 2005.

Net realized investment gains (before tax) for the three-month period ended March 31, 2005 totaled $1.8 million, versus a $.3 million net realized investment gain (before tax) for the three-month period ended March 31, 2004. During the first three months of 2005, we recorded $.8 million in investment write-downs, compared to none in the same period in 2004.

We continually monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policy for impairment recognition requires other-than-temporary impairment charges to be recorded when we determine that it is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security or that the anticipated recovery in market value of the equity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on the fair value of the investments at the measurement date and are included in net realized investment gains and losses. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of time and the extent to which the fair value has been less than cost; the financial conditions and near-term prospects of the issuer; and our intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery.

LIQUIDITY & CAPITAL RESOURCES

Liquidity

Cash flow and liquidity is derived from three sources: 1)operating activities; 2)investing activities; and 3)financing activities.

Net cash provided by our operating activities was $31.4 million for the three months ended March 31, 2005 compared to $42.9 million for the three months ended March 31, 2004. The decrease in cash provided by operating activities was primarily attributable to the elevated amount of losses settled in the first quarter of 2005 as compared to the same period in 2004.

We also have significant cash flows from sales of investments and from scheduled and unscheduled investment security maturities, redemptions and prepayments. These cash flows totaled $84.0 million through March 31, 2005 and $64.6 million through March 31, 2004. We invest in fixed maturities that mature at regular intervals in order to meet our scheduled obligations to pay policy benefits, claims and claim adjusting expenses.

Financing activities provided cash of $5.2 million through the first three months of 2005 compared to $4.1 million through the first three months of 2004. Cash provided by financing activities included annuity and universal life deposits, less withdrawals, of $8.5 million through March 31, 2005 compared to $6.9 million for the same period of 2004.

If our operating, investment and financing cash flows are not sufficient to support our operations, we have additional short-term investments that we could utilize for this purpose. At March 31, 2005, our consolidated invested assets included $34.8 million of short-term investments, which consist primarily of fixed maturities that mature within a year. We may also borrow up to $50 million on a bank line of credit. Under the terms of our credit agreement, interest on outstanding debt is payable at the lender’s prevailing prime rate, minus one percent. We did not utilize our line of credit during 2004 or in the first three months of 2005.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Capital Resources

At March 31, 2005 our consolidated total assets were $2,592.8 million, compared to $2,570.4 million at December 31, 2004. Invested assets, comprised primarily of fixed maturity securities, increased $73.0 million, or 3.7 percent, from December 31, 2004. The increase in invested assets we have experienced this year is attributable to improvements in the investment environment. As interest rates have increased, we have realized an increase in the suitable investment opportunities available to us. As a result, we have purchased investments during the first three months of the year at a frequency exceeding sales, calls and maturities of investments. Somewhat offsetting this increase in invested assets during the first quarter was a decline in the unrealized appreciation recorded on our available-for-sale investments. The primary factor leading to this decline was the impact that increasing interest rates had on the carrying value of our available-for-sale fixed maturity portfolio. Available-for-sale fixed maturities are carried at fair market value, which generally declines as interest rates rise. The net unrealized gain from these investments is reported net of tax as a separate component of stockholders’ equity. The changes in our total reported invested asset balance are summarized by the following table:

The composition of our investment portfolio at March 31, 2005 is presented in the following table in accordance with GAAP:

At March 31, 2005 $1,717.0 million, or 95.4 percent, of our fixed income security portfolio was classified as available-for-sale, compared to $1,633.6 million, or 94.3 percent, at December 31, 2004. We classify our remaining fixed maturities as held-to-maturity or trading. Held-to-maturity fixed maturities are reported at amortized cost. Our trading securities consist primarily of convertible redeemable preferred debt securities, which are recorded at fair value, with any changes in fair value recognized in earnings. At March 31, 2005, cash and cash equivalents totaled $232.1 million compared to $305.6 million at December 31, 2004. The decrease was the result of our increased level of investment activity in the first three months of 2005.

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UNITED FIRE & CASUALTY COMPANY AND SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS