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 September 30, 2023
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
__________ to __________
Commission file number 001-37973
NI Holdings, Inc.
(Exact name of registrant as specified in its charter)
North Dakota | | 81-2683619 |
(State or other jurisdiction of | | (IRS Employer |
incorporation or organization) | | Identification No.) |
1101 First Avenue North Fargo, North Dakota | | 58102 |
(Address of principal executive offices) | | (Zip Code) |
(701) 298-4200
Registrant’s telephone number, including area
code
Not applicable
Former name, former address, and former fiscal
year, if changed since last report
Securities registered pursuant to Section
12(b) of the Securities Exchange Act of 1934:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | NODK | Nasdaq Capital Market |
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 No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes No ☐
Indicate by checkmark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☒
The number of shares of Registrant’s common stock outstanding
on October 31, 2023 was 20,575,593. No preferred shares are issued or outstanding.
TABLE OF CONTENTS
CERTAIN IMPORTANT INFORMATION
Unless the context otherwise requires, as used in this Quarterly
Report on Form 10-Q (“Form 10-Q"):
| ● | “NI Holdings”, “the Company”, “we”, “us”, and “our” refer to NI Holdings,
Inc., together with Nodak Insurance Company and its subsidiaries and its affiliate (Battle Creek Mutual Insurance Company), Direct Auto
Insurance Company (acquired August 31, 2018), and Westminster American Insurance Company (acquired January 1, 2020), for periods discussed
after completion of the conversion, and for periods discussed prior to completion of the conversion refer to Nodak Mutual Insurance Company
and all of its subsidiaries and Battle Creek Mutual Insurance Company; |
| ● | the “conversion” refers to the series of transactions consummated on March 13, 2017, by which Nodak Mutual Insurance Company
converted from a mutual insurance company to a stock insurance company, as Nodak Insurance Company, and became a wholly-owned subsidiary
of NI Holdings, an intermediate stock holding company formed on the date of conversion; |
| ● | “Nodak Mutual Group” refers to Nodak Mutual Group, Inc., which is the majority shareholder of NI Holdings; |
| ● | “Nodak Mutual” refers to Nodak Mutual Insurance Company, the predecessor company to Nodak Insurance Company prior to the
conversion; |
| ● | “Nodak Insurance” refers to Nodak Insurance Company or Nodak Mutual Insurance Company interchangeably; |
| ● | “members” refers to the policyholders of Nodak Insurance, who are the named insureds under insurance policies issued by
Nodak Insurance; |
| ● | “Battle Creek” refers to Battle Creek Mutual Insurance Company. Battle Creek became affiliated with Nodak Insurance in
2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle
Creek. Battle Creek is controlled by Nodak Insurance via a surplus note. The terms of the surplus note allow Nodak Insurance to appoint
two-thirds of the Battle Creek Board of Directors; |
| ● | “Direct Auto” refers to Direct Auto Insurance Company. On August 31, 2018, NI Holdings completed the acquisition of 100%
of the common stock of Direct Auto from the private shareholders of Direct Auto. Direct Auto became a consolidated subsidiary of NI Holdings
on this date. Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state
of Illinois; |
| ● | “American West” refers to American West Insurance Company. American West is a wholly-owned subsidiary of Nodak Insurance; |
| ● | “Primero” refers to Primero Insurance Company. Primero is an indirect, wholly-owned subsidiary of Nodak Insurance; |
| ● | “Westminster” refers to Westminster American Insurance Company. On January 1, 2020, NI Holdings completed the acquisition
of 100% of the common stock of Westminster from the private shareholder of Westminster, and Westminster became a consolidated subsidiary
of NI Holdings. Westminster is a property and casualty insurance company specializing in commercial multi-peril insurance in the Mid-Atlantic
states; and |
| ● | “Nodak Agency” refers to Nodak Agency, Inc. Nodak Agency is a wholly-owned subsidiary of Nodak Insurance. |
FORWARD-LOOKING STATEMENTS
This report contains, and management may make, certain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of
historical facts, may be forward-looking statements. Words such as “may”, “will”, “should”, “likely”,
“anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”,
“views”, “estimates”, and similar expressions are used to identify these forward-looking statements. These statements
include, among other things, the Company’s statements about:
| ● | our anticipated operating and financial performance, business plans, and prospects; |
| ● | strategic reviews, capital allocation objectives, dividends, and share repurchases; |
| ● | plans for and prospects of acquisitions, dispositions, and other business development activities, and our ability to successfully
capitalize on these opportunities; |
| ● | the impact of a future pandemic and related economic conditions, including the potential impact on the Company's investments; |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion
of our agent network; |
| ● | cyclical changes in the insurance industry, competition, and innovation and emerging technologies; |
| ● | expectations for impact of or changes to existing or new government regulations or laws; |
| ● | our ability to anticipate and respond to macroeconomic, geopolitical, health and industry trends, pandemics, acts of war, and other
large-scale crises; |
| ● | developments in general economic conditions, domestic and global financial markets, interest rates, unemployment, or inflation, that
could affect the performance of our insurance operations and/or investment portfolio; and |
| ● | our ability to effectively manage future growth, including additional necessary capital, systems, and personnel. |
Given their nature, we cannot assure that any outcome expressed
in these or other forward-looking statements will be realized in whole or in part. Actual outcomes may vary materially from past results
and those anticipated, estimated, implied, or projected. These forward-looking statements may be affected by underlying assumptions that
may prove inaccurate or incomplete, or by known or unknown risks and uncertainties, including those described in Part II, Item 1A, “Risk
Factors” of this Form 10-Q and in the Part I, Item 1A, “Risk Factors” section in our Annual Report on Form 10-K for
the year ended December 31, 2022 (“2022 Annual Report”). The occurrence of any of the risks identified in the Part I, Item
1A, “Risk Factors” section of the 2022 Annual Report, or other risks currently unknown, could have a material adverse effect
on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies. It is
not possible to predict or identify all such factors. Consequently, you should not consider such discussion to be a complete discussion
of all potential risks or uncertainties.
Therefore, you are cautioned not to unduly rely
on forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to update forward-looking
statements, whether as a result of new information, future events or otherwise, except as required by applicable securities law. You
are advised, however, to consult any further disclosures we make on related subjects.
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
NI Holdings, Inc.
Consolidated Balance Sheets
(dollar amounts in thousands, except par value)
| |
September 30, 2023 | | |
December 31,
2022 | |
| |
(Unaudited) | | |
| |
Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 34,506 | | |
$ | 47,002 | |
Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at September 30, 2023 and $0 at December 31, 2022) | |
| 325,168 | | |
| 303,324 | |
Equity securities, at fair value | |
| 24,853 | | |
| 52,393 | |
Other investments | |
| 2,004 | | |
| 2,005 | |
Total cash and investments | |
| 386,531 | | |
| 404,724 | |
| |
| | | |
| | |
Premiums and agents' balances receivable (net of allowance for expected credit losses of $424 at September 30, 2023 and $425 at December 31, 2022) | |
| 99,625 | | |
| 62,173 | |
Deferred policy acquisition costs | |
| 32,177 | | |
| 29,768 | |
Reinsurance premiums receivable | |
| 597 | | |
| 1,647 | |
Reinsurance recoverables on losses (net of allowance for expected credit losses of $0 at September 30, 2023 and $0 at December 31, 2022) | |
| 56,790 | | |
| 37,575 | |
Income tax recoverable | |
| 12,389 | | |
| 13,964 | |
Accrued investment income | |
| 2,724 | | |
| 2,456 | |
Property and equipment, net | |
| 10,200 | | |
| 9,843 | |
Deferred income taxes | |
| 14,266 | | |
| 9,005 | |
Receivable from Federal Crop Insurance Corporation | |
| 14,479 | | |
| 15,462 | |
Goodwill and other intangibles | |
| 16,901 | | |
| 17,250 | |
Other assets | |
| 10,415 | | |
| 10,365 | |
Total assets | |
$ | 657,094 | | |
$ | 614,232 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Unpaid losses and loss adjustment expenses | |
$ | 240,748 | | |
$ | 190,459 | |
Unearned premiums | |
| 165,498 | | |
| 148,513 | |
Accrued expenses and other liabilities | |
| 20,911 | | |
| 22,053 | |
Total liabilities | |
| 427,157 | | |
| 361,025 | |
| |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Common stock, $0.01 par value, authorized: 25,000,000 shares; issued: 23,000,000 shares; and outstanding: 2023 – 20,575,593 shares, 2022 – 21,076,255 shares | |
| 230 | | |
| 230 | |
Additional paid-in capital | |
| 96,159 | | |
| 95,671 | |
Unearned employee stock ownership plan shares | |
| (941 | ) | |
| (941 | ) |
Retained earnings | |
| 201,749 | | |
| 214,121 | |
Accumulated other comprehensive loss, net of income taxes | |
| (33,722 | ) | |
| (29,286 | ) |
Treasury stock, at cost, 2023 – 2,330,297 shares, 2022 – 1,829,635 shares | |
| (35,179 | ) | |
| (28,818 | ) |
Non-controlling interest | |
| 1,641 | | |
| 2,230 | |
Total shareholders’ equity | |
| 229,937 | | |
| 253,207 | |
| |
| | | |
| | |
Total liabilities and shareholders’ equity | |
$ | 657,094 | | |
$ | 614,232 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
(dollar amounts in thousands, except per share data)
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 90,770 | | |
$ | 89,532 | | |
$ | 262,543 | | |
$ | 243,615 | |
Fee and other income | |
| 455 | | |
| 476 | | |
| 1,228 | | |
| 1,319 | |
Net investment income | |
| 2,751 | | |
| 2,035 | | |
| 7,495 | | |
| 5,703 | |
Net investment gains (losses) | |
| (1,227 | ) | |
| (2,868 | ) | |
| 15 | | |
| (19,532 | ) |
Total revenues | |
| 92,749 | | |
| 89,175 | | |
| 271,281 | | |
| 231,105 | |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Losses and loss adjustment expenses | |
| 63,564 | | |
| 78,917 | | |
| 199,895 | | |
| 227,641 | |
Amortization of deferred policy acquisition costs | |
| 20,362 | | |
| 17,589 | | |
| 59,529 | | |
| 49,456 | |
Other underwriting and general expenses | |
| 8,695 | | |
| 5,912 | | |
| 27,646 | | |
| 23,695 | |
Total expenses | |
| 92,621 | | |
| 102,418 | | |
| 287,070 | | |
| 300,792 | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
| 128 | | |
| (13,243 | ) | |
| (15,789 | ) | |
| (69,687 | ) |
Income tax benefit | |
| (170 | ) | |
| (3,074 | ) | |
| (3,352 | ) | |
| (14,921 | ) |
Net income (loss) | |
| 298 | | |
| (10,169 | ) | |
| (12,437 | ) | |
| (54,766 | ) |
Net income (loss) attributable to non-controlling interest | |
| 67 | | |
| (184 | ) | |
| (336 | ) | |
| (780 | ) |
Net income (loss) attributable to NI Holdings, Inc. | |
$ | 231 | | |
$ | (9,985 | ) | |
$ | (12,101 | ) | |
$ | (53,986 | ) |
| |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) per common share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 0.01 | | |
$ | (0.47 | ) | |
$ | (0.57 | ) | |
$ | (2.53 | ) |
Diluted | |
$ | 0.01 | | |
$ | (0.47 | ) | |
$ | (0.57 | ) | |
$ | (2.53 | ) |
| |
| | | |
| | | |
| | | |
| | |
Share data: | |
| | | |
| | | |
| | | |
| | |
Weighted average common shares outstanding used in basic per common share calculations | |
| 21,111,832 | | |
| 21,328,383 | | |
| 21,253,168 | | |
| 21,360,151 | |
Plus: Dilutive securities | |
| 81,690 | | |
| — | | |
| — | | |
| — | |
Weighted average common shares used in diluted per common share calculations | |
| 21,193,522 | | |
| 21,328,383 | | |
| 21,253,168 | | |
| 21,360,151 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar amounts in thousands)
| |
Three Months Ended September 30, 2023 | | |
Nine Months Ended September 30, 2023 | |
| |
Attributable
to NI
Holdings, Inc. | | |
Attributable
to Non-
Controlling
Interest | | |
Total | | |
Attributable
to NI
Holdings, Inc. | | |
Attributable
to Non-
Controlling
Interest | | |
Total | |
Net income (loss) | |
$ | 231 | | |
$ | 67 | | |
$ | 298 | | |
$ | (12,101 | ) | |
$ | (336 | ) | |
$ | (12,437 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss, before income taxes: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Holding losses on investments | |
| (8,726 | ) | |
| (465 | ) | |
| (9,191 | ) | |
| (6,236 | ) | |
| (327 | ) | |
| (6,563 | ) |
Reclassification adjustment for net realized losses included in net loss | |
| 8 | | |
| — | | |
| 8 | | |
| 495 | | |
| — | | |
| 495 | |
Other comprehensive loss, before income taxes | |
| (8,718 | ) | |
| (465 | ) | |
| (9,183 | ) | |
| (5,741 | ) | |
| (327 | ) | |
| (6,068 | ) |
Income tax benefit related to items of other comprehensive loss | |
| 1,982 | | |
| 105 | | |
| 2,087 | | |
| 1,305 | | |
| 74 | | |
| 1,379 | |
Other comprehensive loss, net of income taxes | |
| (6,736 | ) | |
| (360 | ) | |
| (7,096 | ) | |
| (4,436 | ) | |
| (253 | ) | |
| (4,689 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (6,505 | ) | |
$ | (293 | ) | |
$ | (6,798 | ) | |
$ | (16,537 | ) | |
$ | (589 | ) | |
$ | (17,126 | ) |
| |
Three Months Ended September 30, 2022 | | |
Nine Months Ended September 30, 2022 | |
| |
Attributable
to NI
Holdings, Inc. | | |
Attributable
to Non-
Controlling
Interest | | |
Total | | |
Attributable
to NI
Holdings, Inc. | | |
Attributable
to Non-
Controlling
Interest | | |
Total | |
Net income (loss) | |
$ | (9,985 | ) | |
$ | (184 | ) | |
$ | (10,169 | ) | |
$ | (53,986 | ) | |
$ | (780 | ) | |
$ | (54,766 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss, before income taxes: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Holding losses on investments | |
| (12,319 | ) | |
| (447 | ) | |
| (12,766 | ) | |
| (48,254 | ) | |
| (1,794 | ) | |
| (50,048 | ) |
Reclassification adjustment for net realized losses included in net loss | |
| 19 | | |
| 20 | | |
| 39 | | |
| 81 | | |
| 20 | | |
| 101 | |
Other comprehensive loss, before income taxes | |
| (12,300 | ) | |
| (427 | ) | |
| (12,727 | ) | |
| (48,173 | ) | |
| (1,774 | ) | |
| (49,947 | ) |
Income tax benefit related to items of other comprehensive loss | |
| 2,796 | | |
| 97 | | |
| 2,893 | | |
| 10,950 | | |
| 403 | | |
| 11,353 | |
Other comprehensive loss, net of income taxes | |
| (9,504 | ) | |
| (330 | ) | |
| (9,834 | ) | |
| (37,223 | ) | |
| (1,371 | ) | |
| (38,594 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Comprehensive loss | |
$ | (19,489 | ) | |
$ | (514 | ) | |
$ | (20,003 | ) | |
$ | (91,209 | ) | |
$ | (2,151 | ) | |
$ | (93,360 | ) |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar amounts in thousands)
Three Months Ended September 30, 2023 |
| |
Common
Stock | | |
Additional
Paid-in
Capital | | |
Unearned
Employee
Stock
Ownership
Plan Shares | | |
Retained
Earnings | | |
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income
Taxes | | |
Treasury
Stock | | |
Non-Controlling
Interest | | |
Total
Shareholders’
Equity | |
Balance, July 1, 2023 | |
$ | 230 | | |
$ | 95,750 | | |
$ | (941 | ) | |
$ | 201,518 | | |
$ | (26,986 | ) | |
$ | (31,122 | ) | |
$ | 1,934 | | |
$ | 240,383 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income | |
| — | | |
| — | | |
| — | | |
| 231 | | |
| — | | |
| — | | |
| 67 | | |
| 298 | |
Other comprehensive loss, net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (6,736 | ) | |
| — | | |
| (360 | ) | |
| (7,096 | ) |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,057 | ) | |
| — | | |
| (4,057 | ) |
Share-based compensation | |
| — | | |
| 409 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 409 | |
Issuance of vested award shares | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Balance, September 30, 2023 | |
$ | 230 | | |
$ | 96,159 | | |
$ | (941 | ) | |
$ | 201,749 | | |
$ | (33,722 | ) | |
$ | (35,179 | ) | |
$ | 1,641 | | |
$ | 229,937 | |
Nine Months Ended September 30, 2023 |
| |
Common
Stock | | |
Additional
Paid-in
Capital | | |
Unearned
Employee
Stock
Ownership
Plan Shares | | |
Retained
Earnings | | |
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income
Taxes | | |
Treasury
Stock | | |
Non-Controlling
Interest | | |
Total
Shareholders’
Equity | |
Balance, January 1, 2023 | |
$ | 230 | | |
$ | 95,671 | | |
$ | (941 | ) | |
$ | 214,121 | | |
$ | (29,286 | ) | |
$ | (28,818 | ) | |
$ | 2,230 | | |
$ | 253,207 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (12,101 | ) | |
| — | | |
| — | | |
| (336 | ) | |
| (12,437 | ) |
Other comprehensive loss, net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,436 | ) | |
| — | | |
| (253 | ) | |
| (4,689 | ) |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (7,280 | ) | |
| — | | |
| (7,280 | ) |
Share-based compensation | |
| — | | |
| 1,310 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,310 | |
Issuance of vested award shares | |
| — | | |
| (822 | ) | |
| — | | |
| (271 | ) | |
| — | | |
| 919 | | |
| — | | |
| (174 | ) |
Balance, September 30, 2023 | |
$ | 230 | | |
$ | 96,159 | | |
$ | (941 | ) | |
$ | 201,749 | | |
$ | (33,722 | ) | |
$ | (35,179 | ) | |
$ | 1,641 | | |
$ | 229,937 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’
Equity (Unaudited)
(dollar amounts in thousands)
Three Months Ended September 30, 2022 |
| |
Common
Stock | | |
Additional
Paid-in
Capital | | |
Unearned
Employee
Stock
Ownership
Plan Shares | | |
Retained
Earnings | | |
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income
Taxes | | |
Treasury
Stock | | |
Non-Controlling
Interest | | |
Total
Shareholders’
Equity | |
Balance, July 1, 2022 | |
$ | 230 | | |
$ | 96,827 | | |
$ | (1,184 | ) | |
$ | 223,217 | | |
$ | (22,482 | ) | |
$ | (26,569 | ) | |
$ | 2,572 | | |
$ | 272,611 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (9,985 | ) | |
| — | | |
| — | | |
| (184 | ) | |
| (10,169 | ) |
Other comprehensive loss, net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (9,504 | ) | |
| — | | |
| (330 | ) | |
| (9,834 | ) |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (939 | ) | |
| — | | |
| (939 | ) |
Share-based compensation | |
| — | | |
| (645 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (645 | ) |
Issuance of vested award shares | |
| — | | |
| (202 | ) | |
| — | | |
| (1 | ) | |
| — | | |
| — | | |
| — | | |
| (203 | ) |
Balance, September 30, 2022 | |
$ | 230 | | |
$ | 95,980 | | |
$ | (1,184 | ) | |
$ | 213,231 | | |
$ | (31,986 | ) | |
$ | (27,508 | ) | |
$ | 2,058 | | |
$ | 250,821 | |
Nine Months Ended September 30, 2022 |
| |
Common
Stock | | |
Additional
Paid-in
Capital | | |
Unearned
Employee
Stock
Ownership
Plan Shares | | |
Retained
Earnings | | |
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income
Taxes | | |
Treasury
Stock | | |
Non-Controlling
Interest | | |
Total
Shareholders’
Equity | |
Balance, January 1, 2022 | |
$ | 230 | | |
$ | 98,166 | | |
$ | (1,184 | ) | |
$ | 267,207 | | |
$ | 5,237 | | |
$ | (26,452 | ) | |
$ | 4,209 | | |
$ | 347,413 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (53,986 | ) | |
| — | | |
| — | | |
| (780 | ) | |
| (54,766 | ) |
Other comprehensive loss, net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (37,223 | ) | |
| — | | |
| (1,371 | ) | |
| (38,594 | ) |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,870 | ) | |
| — | | |
| (2,870 | ) |
Share-based compensation | |
| — | | |
| 406 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 406 | |
Issuance of vested award shares | |
| — | | |
| (2,592 | ) | |
| — | | |
| 10 | | |
| — | | |
| 1,814 | | |
| — | | |
| (768 | ) |
Balance, September 30, 2022 | |
$ | 230 | | |
$ | 95,980 | | |
$ | (1,184 | ) | |
$ | 213,231 | | |
$ | (31,986 | ) | |
$ | (27,508 | ) | |
$ | 2,058 | | |
$ | 250,821 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
| |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities: | |
| | | |
| | |
Net loss | |
$ | (12,437 | ) | |
$ | (54,766 | ) |
Adjustments to reconcile net loss to net cash flows from operating activities: | |
| | | |
| | |
Net investment losses (gains) | |
| (15 | ) | |
| 19,532 | |
Deferred income tax benefit | |
| (3,881 | ) | |
| (6,128 | ) |
Depreciation of property and equipment | |
| 558 | | |
| 517 | |
Amortization of intangibles | |
| 349 | | |
| 354 | |
Share-based compensation | |
| 1,310 | | |
| 406 | |
Amortization of deferred policy acquisition costs | |
| 59,529 | | |
| 49,456 | |
Deferral of policy acquisition costs | |
| (61,938 | ) | |
| (54,328 | ) |
Net amortization of premiums and discounts on investments | |
| 793 | | |
| 1,251 | |
Gain on sale of property and equipment | |
| (44 | ) | |
| (186 | ) |
Changes in operating assets and liabilities: | |
| | | |
| | |
Premiums and agents’ balances receivable | |
| (37,452 | ) | |
| (51,518 | ) |
Reinsurance premiums receivable / payable | |
| 1,050 | | |
| 1,223 | |
Reinsurance recoverables on losses | |
| (19,215 | ) | |
| (11,790 | ) |
Income tax recoverable / payable | |
| 1,575 | | |
| (11,020 | ) |
Accrued investment income | |
| (268 | ) | |
| 327 | |
Federal Crop Insurance Corporation receivable / payable | |
| 983 | | |
| (262 | ) |
Other assets | |
| (50 | ) | |
| (305 | ) |
Unpaid losses and loss adjustment expenses | |
| 50,289 | | |
| 46,275 | |
Unearned premiums | |
| 16,985 | | |
| 26,620 | |
Accrued expenses and other liabilities | |
| (1,142 | ) | |
| 19,662 | |
Net cash flows from operating activities | |
| (3,021 | ) | |
| (24,680 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Proceeds from maturities and sales of fixed income securities | |
| 24,828 | | |
| 68,584 | |
Proceeds from sales of equity securities | |
| 38,388 | | |
| 13,598 | |
Purchases of fixed income securities | |
| (54,027 | ) | |
| (49,444 | ) |
Purchases of equity securities | |
| (10,338 | ) | |
| (13,715 | ) |
Purchases of property and equipment | |
| (1,001 | ) | |
| (1,052 | ) |
Proceeds from sales of property and equipment | |
| 129 | | |
| 668 | |
Net cash flows from investing activities | |
| (2,021 | ) | |
| 18,639 | |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Purchases of treasury stock | |
| (7,280 | ) | |
| (2,870 | ) |
Installment payment on Westminster consideration payable | |
| — | | |
| (6,667 | ) |
Issuance of vested award shares | |
| (174 | ) | |
| (768 | ) |
Net cash flows from financing activities | |
| (7,454 | ) | |
| (10,305 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (12,496 | ) | |
| (16,346 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 47,002 | | |
| 70,623 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 34,506 | | |
$ | 54,277 | |
| |
| | | |
| | |
| |
| | | |
| | |
Federal and state income taxes paid | |
$ | — | | |
$ | 2,360 | |
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Unaudited Consolidated Financial Statements
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
NI Holdings is a North Dakota business corporation
that is the stock holding company of Nodak Insurance and became such in connection with the conversion of Nodak Mutual from a mutual to
stock form of organization and the creation of a mutual holding company. The conversion was consummated on March 13, 2017. Immediately
following the conversion, all of the outstanding shares of common stock of Nodak Insurance were issued to Nodak Mutual Group, which then
contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings. Nodak Insurance then
became a wholly-owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NI Holdings conducted no business and had
no assets or liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Insurance and its existing subsidiaries.
These unaudited consolidated financial statements include
the financial position and results of operations of NI Holdings and the following other entities:
Nodak Insurance Company
Nodak Insurance is the largest domestic property and
casualty insurance company in North Dakota, offering private passenger auto, homeowners, farmowners, commercial multi-peril, crop hail,
and Federal multi-peril crop insurance coverages through its captive agents in the state.
Nodak Agency, Inc.
Nodak Agency is an inactive shell corporation.
American West Insurance Company
American West is a property and casualty insurance company
licensed in eight states in the Midwest and Western regions of the United States (“U.S.”). American West began writing policies
in 2002 and primarily writes private passenger auto, homeowners, and farm coverages in South Dakota. American West also writes personal
auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages in Minnesota and South Dakota.
Primero Insurance Company
Primero is a wholly-owned subsidiary of Tri-State, Ltd.
Tri-State, Ltd. is an inactive shell corporation 100% owned by Nodak Insurance. Primero is a property and casualty insurance company writing
non-standard automobile coverage in the states of Nevada, Arizona, North Dakota, and South Dakota. Primero was acquired by Nodak Insurance
in 2014.
Battle Creek Mutual Insurance Company
Battle Creek is a property and casualty insurance company
writing private passenger auto, homeowners, and farm coverages solely in the state of Nebraska. Battle Creek became affiliated with Nodak
Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services
to Battle Creek. Because we have concluded that we control Battle Creek, we consolidate the financial statements of Battle Creek, and
Battle Creek’s policyholders’ interest in Battle Creek is reflected as a non-controlling interest in shareholders’ equity
in our Consolidated Balance Sheets for NI Holdings (“Consolidated Balance Sheets”) and its net income or loss is excluded
from net income or loss attributed to NI Holdings in our Consolidated Statements of Operations for NI Holdings (“Consolidated Statements
of Operations”).
Direct Auto Insurance Company
Direct Auto is a property and casualty insurance company
licensed in Illinois. Direct Auto began writing non-standard automobile coverage in 2007, and was acquired by NI Holdings on August 31,
2018, via a stock purchase agreement.
Westminster American Insurance Company
Westminster is a property and casualty insurance company
licensed in 18 states and the District of Columbia. Westminster is headquartered in Owings Mills, Maryland and underwrites commercial
multi-peril insurance in the states of Delaware, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina,
Tennessee, Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020, via a stock
purchase agreement.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Nodak Insurance markets and distributes its policies
through its captive agents, while all other companies utilize the independent agent distribution channel. Additionally, all of the Company’s
insurance subsidiary and affiliate companies are rated “A” Excellent by A.M. Best Company, Inc. (“AM Best”), a
global credit rating agency specializing in the insurance industry.
The same executive management team provides oversight
and strategic direction for the entire organization. Nodak Insurance provides common product oversight, pricing practices, and underwriting
standards, as well as underwriting and claims administration, to itself, American West, and Battle Creek. Primero, Direct Auto, and Westminster
personnel manage the day-to-day operations of their respective companies.
| 2. | Basis of Presentation and Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All material intercompany transactions
and balances have been eliminated. These financial statements should be read in conjunction with the financial statements and notes thereto
included in our 2022 Annual Report.
The Consolidated Balance Sheet at December 31,
2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and
footnotes required by GAAP for complete financial statements.
The preparation of the interim unaudited consolidated
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 interim unaudited consolidated financial
statements and the reported amounts of revenues, claims, and expenses during the reporting period. Actual results could differ from those
estimates. Operating results for the interim periods ended September 30, 2023, are not necessarily indicative of the results that may
be expected for the year ended December 31, 2023.
Our 2022 Annual Report describes the accounting
policies and estimates that are critical to the understanding of our results of operations, financial condition, and liquidity. The accounting
policies and estimation processes described in the 2022 Annual Report were consistently applied to the unaudited consolidated financial
statements as of and for the nine months ended September 30, 2023 and 2022.
Recent Accounting Pronouncements
Prior to December 31, 2022, we were classified as an emerging growth
company (“EGC”) and elected to use the extended transition period for complying with certain new or revised financial accounting
standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act. However,
beginning on December 31, 2022, we are no longer an EGC and are now unable to delay adoption of these new or revised accounting standards,
or to take advantage of reduced corporate governance disclosures.
Adopted
For information regarding accounting pronouncements
that the Company adopted during the periods presented, see Item II, Part 8, Note 2 “Recent Accounting Pronouncements” section
of the 2022 Annual Report.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
The amortized cost and estimated fair value of fixed income
securities as of September 30, 2023, and December 31, 2022, were as follows:
| |
September 30, 2023 | |
| |
Cost or
Amortized
Cost | | |
Allowance for
Expected
Credit Losses | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized
Losses | | |
Fair Value | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 9,941 | | |
$ | — | | |
$ | — | | |
$ | (1,019 | ) | |
$ | 8,922 | |
Obligations of states and political subdivisions | |
| 57,007 | | |
| — | | |
| 1 | | |
| (7,534 | ) | |
| 49,474 | |
Corporate securities | |
| 151,844 | | |
| — | | |
| 60 | | |
| (17,099 | ) | |
| 134,805 | |
Residential mortgage-backed securities | |
| 64,767 | | |
| — | | |
| — | | |
| (8,628 | ) | |
| 56,139 | |
Commercial mortgage-backed securities | |
| 30,289 | | |
| — | | |
| — | | |
| (5,432 | ) | |
| 24,857 | |
Asset-backed securities | |
| 52,295 | | |
| — | | |
| 18 | | |
| (5,159 | ) | |
| 47,154 | |
Redeemable preferred stocks | |
| 4,747 | | |
| — | | |
| — | | |
| (930 | ) | |
| 3,817 | |
Total fixed income securities | |
$ | 370,890 | | |
$ | — | | |
$ | 79 | | |
$ | (45,801 | ) | |
$ | 325,168 | |
| |
December 31, 2022 | |
| |
Cost or
Amortized
Cost | | |
Allowance for
Expected
Credit Losses | | |
Gross
Unrealized
Gains | | |
Gross
Unrealized
Losses | | |
Fair Value | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 11,174 | | |
$ | — | | |
$ | 1 | | |
$ | (1,008 | ) | |
$ | 10,167 | |
Obligations of states and political subdivisions | |
| 60,342 | | |
| — | | |
| 38 | | |
| (6,454 | ) | |
| 53,926 | |
Corporate securities | |
| 136,837 | | |
| — | | |
| 109 | | |
| (15,787 | ) | |
| 121,159 | |
Residential mortgage-backed securities | |
| 53,254 | | |
| — | | |
| 85 | | |
| (5,846 | ) | |
| 47,493 | |
Commercial mortgage-backed securities | |
| 30,837 | | |
| — | | |
| — | | |
| (4,702 | ) | |
| 26,135 | |
Asset-backed securities | |
| 45,786 | | |
| — | | |
| — | | |
| (5,061 | ) | |
| 40,725 | |
Redeemable preferred stocks | |
| 4,747 | | |
| — | | |
| — | | |
| (1,028 | ) | |
| 3,719 | |
Total fixed income securities | |
$ | 342,977 | | |
$ | — | | |
$ | 233 | | |
$ | (39,886 | ) | |
$ | 303,324 | |
The amortized cost and estimated fair value of fixed income
securities by contractual maturity are shown below. Actual maturities could differ from contractual maturities because issuers may have
the right to call or prepay these securities.
| |
September 30, 2023 | |
| |
Amortized Cost | | |
Fair Value | |
Due to mature: | |
| | | |
| | |
One year or less | |
$ | 13,605 | | |
$ | 13,354 | |
After one year through five years | |
| 77,699 | | |
| 72,443 | |
After five years through ten years | |
| 85,106 | | |
| 73,366 | |
After ten years | |
| 42,382 | | |
| 34,038 | |
Mortgage / asset-backed securities | |
| 147,351 | | |
| 128,150 | |
Redeemable preferred stocks | |
| 4,747 | | |
| 3,817 | |
Total fixed income securities | |
$ | 370,890 | | |
$ | 325,168 | |
| |
December 31, 2022 | |
| |
Amortized Cost | | |
Fair Value | |
Due to mature: | |
| | | |
| | |
One year or less | |
$ | 10,130 | | |
$ | 9,971 | |
After one year through five years | |
| 81,879 | | |
| 77,031 | |
After five years through ten years | |
| 76,648 | | |
| 65,966 | |
After ten years | |
| 39,696 | | |
| 32,284 | |
Mortgage / asset-backed securities | |
| 129,877 | | |
| 114,353 | |
Redeemable preferred stocks | |
| 4,747 | | |
| 3,719 | |
Total fixed income securities | |
$ | 342,977 | | |
$ | 303,324 | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Fixed income securities with a fair value of $5,734 at September
30, 2023, and $6,613 at December 31, 2022, were deposited with various state regulatory agencies as required by law. The Company has not
pledged any assets to secure any obligations.
The investment category and duration of the Company’s
gross unrealized losses on fixed income securities are shown below. Investments with unrealized losses are categorized with a duration
of greater than 12 months when all positions of a security have continually been in a loss position for at least 12 months.
| |
September 30, 2023 | |
| |
Less than 12 Months | | |
Greater than 12 months | | |
Total | |
| |
Fair Value | | |
Unrealized
Losses | | |
Fair Value | | |
Unrealized
Losses | | |
Fair Value | | |
Unrealized
Losses | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | — | | |
$ | — | | |
$ | 8,922 | | |
$ | (1,019 | ) | |
$ | 8,922 | | |
$ | (1,019 | ) |
Obligations of states and political subdivisions | |
| 8,706 | | |
| (957 | ) | |
| 39,242 | | |
| (6,577 | ) | |
| 47,948 | | |
| (7,534 | ) |
Corporate securities | |
| 23,227 | | |
| (1,294 | ) | |
| 108,062 | | |
| (15,805 | ) | |
| 131,289 | | |
| (17,099 | ) |
Residential mortgage-backed securities | |
| 24,639 | | |
| (1,144 | ) | |
| 31,500 | | |
| (7,484 | ) | |
| 56,139 | | |
| (8,628 | ) |
Commercial mortgage-backed securities | |
| 1,908 | | |
| (67 | ) | |
| 22,949 | | |
| (5,365 | ) | |
| 24,857 | | |
| (5,432 | ) |
Asset-backed securities | |
| 10,817 | | |
| (216 | ) | |
| 33,134 | | |
| (4,943 | ) | |
| 43,951 | | |
| (5,159 | ) |
Redeemable preferred stocks | |
| — | | |
| — | | |
| 3,817 | | |
| (930 | ) | |
| 3,817 | | |
| (930 | ) |
Total fixed income securities | |
$ | 69,297 | | |
$ | (3,678 | ) | |
$ | 247,626 | | |
$ | (42,123 | ) | |
$ | 316,923 | | |
$ | (45,801 | ) |
| |
December 31, 2022 | |
| |
Less than 12 Months | | |
Greater than 12 months | | |
Total | |
| |
Fair Value | | |
Unrealized
Losses | | |
Fair Value | | |
Unrealized
Losses | | |
Fair Value | | |
Unrealized
Losses | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 7,078 | | |
$ | (537 | ) | |
$ | 2,587 | | |
$ | (471 | ) | |
$ | 9,665 | | |
$ | (1,008 | ) |
Obligations of states and political subdivisions | |
| 40,213 | | |
| (3,554 | ) | |
| 9,045 | | |
| (2,900 | ) | |
| 49,258 | | |
| (6,454 | ) |
Corporate securities | |
| 76,645 | | |
| (7,944 | ) | |
| 39,683 | | |
| (7,843 | ) | |
| 116,328 | | |
| (15,787 | ) |
Residential mortgage-backed securities | |
| 21,017 | | |
| (1,805 | ) | |
| 18,519 | | |
| (4,041 | ) | |
| 39,536 | | |
| (5,846 | ) |
Commercial mortgage-backed securities | |
| 18,932 | | |
| (2,674 | ) | |
| 7,204 | | |
| (2,028 | ) | |
| 26,136 | | |
| (4,702 | ) |
Asset-backed securities | |
| 18,904 | | |
| (1,522 | ) | |
| 21,809 | | |
| (3,539 | ) | |
| 40,713 | | |
| (5,061 | ) |
Redeemable preferred stocks | |
| 3,015 | | |
| (732 | ) | |
| 705 | | |
| (296 | ) | |
| 3,720 | | |
| (1,028 | ) |
Total fixed income securities | |
$ | 185,804 | | |
$ | (18,768 | ) | |
$ | 99,552 | | |
$ | (21,118 | ) | |
$ | 285,356 | | |
$ | (39,886 | ) |
We, along with our investment advisors, frequently
review our investment portfolio for declines in fair value that could be indicative of credit losses. Beginning on December 31, 2022,
credit losses are recognized through an allowance account. We consider a number of factors when determining if an allowance for credit
losses is necessary, including payment and default history, credit spreads, credit ratings and rating actions, and probability of default.
We determine the credit loss component of fixed maturity investments by utilizing discounted cash flow modeling to determine the present
value of the security and comparing the present value with the amortized cost of the security. We did not recognize any credit losses
for fixed income securities at the time of adoption of the new credit loss accounting standard or during the three or nine months ended
September 30, 2023. Therefore, there was no beginning or ending balance of credit losses for the three or nine months ended September
30, 2023, or the year ended December 31, 2022. See Item II, Part 8, Note 3 “Summary of Significant Accounting Policies” section
of the 2022 Annual Report for additional information.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Net investment income consisted of the following:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Fixed income securities | |
$ | 2,906 | | |
$ | 2,303 | | |
$ | 8,317 | | |
$ | 6,870 | |
Equity securities | |
| 355 | | |
| 402 | | |
| 958 | | |
| 1,126 | |
Real estate | |
| 158 | | |
| 149 | | |
| 464 | | |
| 390 | |
Cash and cash equivalents | |
| 154 | | |
| 18 | | |
| 300 | | |
| 30 | |
Total gross investment income | |
| 3,573 | | |
| 2,872 | | |
| 10,039 | | |
| 8,416 | |
Investment expenses | |
| 822 | | |
| 837 | | |
| 2,544 | | |
| 2,713 | |
Net investment income | |
$ | 2,751 | | |
$ | 2,035 | | |
$ | 7,495 | | |
$ | 5,703 | |
Net investment gains (losses) consisted of the following:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Gross realized gains: | |
| | | |
| | | |
| | | |
| | |
Fixed income securities | |
$ | — | | |
$ | 67 | | |
$ | — | | |
$ | 118 | |
Equity securities | |
| 722 | | |
| 1,219 | | |
| 13,810 | | |
| 3,488 | |
Total gross realized gains | |
| 722 | | |
| 1,286 | | |
| 13,810 | | |
| 3,606 | |
| |
| | | |
| | | |
| | | |
| | |
Gross realized losses, excluding credit impairment losses: | |
| | | |
| | | |
| | | |
| | |
Fixed income securities | |
| (8 | ) | |
| (106 | ) | |
| (495 | ) | |
| (219 | ) |
Equity securities | |
| (183 | ) | |
| (1,097 | ) | |
| (1,317 | ) | |
| (1,339 | ) |
Total gross realized losses, excluding credit impairment losses | |
| (191 | ) | |
| (1,203 | ) | |
| (1,812 | ) | |
| (1,558 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net realized gains | |
| 531 | | |
| 83 | | |
| 11,998 | | |
| 2,048 | |
| |
| | | |
| | | |
| | | |
| | |
Change in net unrealized gains on equity securities | |
| (1,758 | ) | |
| (2,951 | ) | |
| (11,983 | ) | |
| (21,580 | ) |
Net investment gains (losses) | |
$ | (1,227 | ) | |
$ | (2,868 | ) | |
$ | 15 | | |
$ | (19,532 | ) |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 4. | Fair Value Measurements |
The Company uses fair value measurements to record fair value
adjustments to certain assets to determine fair value disclosures. Investment securities available for sale are recorded at fair value
on a recurring basis. Additionally, from time to time, we may be required to record other assets or liabilities at fair value on a nonrecurring
basis. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of
individual assets. Accounting guidance on fair value measurements and disclosures establishes a fair value hierarchy that prioritizes
the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy are as follows:
|
Level 1: |
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
Level 2: |
Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 includes fixed income securities with quoted prices that are traded less frequently than exchange traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. |
|
Level 3: |
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). |
The Company bases its fair values on the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements,
in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or no observable market data
and, therefore, are based primarily upon the estimates of the Company or other third-parties, are often calculated based on the characteristics
of the asset, the economic and competitive environment, and other such factors. Management uses its best judgment in estimating the fair
value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts which could have
been realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective
period-end and have not been re-evaluated or updated for purposes of our consolidated financial statements subsequent to those respective
dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different
than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates
of future cash flows, could significantly affect the results of current or future valuations.
The Company uses quoted values and other data provided by an
independent pricing service in its process for determining fair values of its investments. The evaluations of such pricing services represent
an exit price and a good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale. This pricing
service provides us with one quote per instrument. For fixed income securities that have quoted prices in active markets, market quotations
are provided. For fixed income securities that do not trade on a daily basis, the independent pricing service prepares estimates of fair
value using a wide array of observable inputs including relevant market information, benchmark curves, benchmarking of like securities,
sector groupings, and matrix pricing. The observable market inputs that the Company’s independent pricing service utilizes may include
(listed in order of priority for use) benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark
securities, market bids/offers, and other reference data on markets, industry, and the economy. Additionally, the independent pricing
service uses an option-adjusted spread model to develop prepayment and interest rate scenarios.
Should the independent pricing service be unable to provide
a fair value estimate, we would attempt to obtain a non-binding fair value estimate from a number of broker-dealers and would review this
estimate in conjunction with a fair value estimate reported by an independent business news service or other sources. In instances where
only one broker-dealer provides a fair value for a fixed income security, we would use that estimate. In instances where the Company would
be able to obtain fair value estimates from more than one broker-dealer, we would review the range of estimates and select the most appropriate
value based on the facts and circumstances. Should neither the independent pricing service nor a broker-dealer provide a fair value estimate,
we would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs.
Accordingly, the Company classifies such a security as a Level 3 investment.
The fair value estimates of our investments provided by the
independent pricing service at each period-end were utilized, among other resources, in reaching a conclusion as to the fair value of
its investments.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Management reviews the reasonableness of the pricing provided
by the independent pricing service by employing various analytical procedures. We also use information from our third-party investment
advisors who utilize different independent pricing services to further validate the reasonableness of the valuation of our fixed income
portfolio. If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair value, then
it will seek to resolve the discrepancy through discussions with the independent pricing service. In its review, management did not identify
any such discrepancies and no adjustments were made to the estimates provided by the independent pricing service for the three or nine
months ended September 30, 2023, or the year ended December 31, 2022. The classification within the fair value hierarchy is then confirmed
based on the final conclusions from the pricing review.
The valuation of money market accounts and equity securities
are generally based on Level 1 inputs, which use the market-approach valuation technique. The valuation of certain cash equivalents and
our fixed income securities generally incorporates significant Level 2 inputs using the market and income approach techniques. We may
assign a lower level to inputs typically considered to be Level 2 based on our assessment of liquidity and relative level of uncertainty
surrounding inputs. There were no assets or liabilities classified at Level 3 at September 30, 2023, or December 31, 2022.
The following tables set forth our assets which are measured
on a recurring basis by the level within the fair value hierarchy in which fair value measurements fall:
| |
September 30, 2023 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 8,922 | | |
$ | — | | |
$ | 8,922 | | |
$ | — | |
Obligations of states and political subdivisions | |
| 49,474 | | |
| — | | |
| 49,474 | | |
| — | |
Corporate securities | |
| 134,805 | | |
| — | | |
| 134,805 | | |
| — | |
Residential mortgage-backed securities | |
| 56,139 | | |
| — | | |
| 56,139 | | |
| — | |
Commercial mortgage-backed securities | |
| 24,857 | | |
| — | | |
| 24,857 | | |
| — | |
Asset-backed securities | |
| 47,154 | | |
| — | | |
| 47,154 | | |
| — | |
Redeemable preferred stock | |
| 3,817 | | |
| — | | |
| 3,817 | | |
| — | |
Total fixed income securities | |
| 325,168 | | |
| — | | |
| 325,168 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Equity securities: | |
| | | |
| | | |
| | | |
| | |
Common stock | |
| 23,132 | | |
| 23,132 | | |
| — | | |
| — | |
Non-redeemable preferred stock | |
| 1,721 | | |
| 1,721 | | |
| — | | |
| — | |
Total equity securities | |
| 24,853 | | |
| 24,853 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Money market accounts and cash equivalents | |
| 11,116 | | |
| 4,850 | | |
| 6,266 | | |
| — | |
Total assets at fair value | |
$ | 361,137 | | |
$ | 29,703 | | |
$ | 331,434 | | |
$ | — | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
December 31, 2022 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 10,167 | | |
$ | — | | |
$ | 10,167 | | |
$ | — | |
Obligations of states and political subdivisions | |
| 53,926 | | |
| — | | |
| 53,926 | | |
| — | |
Corporate securities | |
| 121,159 | | |
| — | | |
| 121,159 | | |
| — | |
Residential mortgage-backed securities | |
| 47,493 | | |
| — | | |
| 47,493 | | |
| — | |
Commercial mortgage-backed securities | |
| 26,135 | | |
| — | | |
| 26,135 | | |
| — | |
Asset-backed securities | |
| 40,725 | | |
| — | | |
| 40,725 | | |
| — | |
Redeemable preferred stock | |
| 3,719 | | |
| — | | |
| 3,719 | | |
| — | |
Total fixed income securities | |
| 303,324 | | |
| — | | |
| 303,324 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Equity securities: | |
| | | |
| | | |
| | | |
| | |
Common stock | |
| 50,699 | | |
| 50,699 | | |
| — | | |
| — | |
Non-redeemable preferred stock | |
| 1,694 | | |
| 1,694 | | |
| — | | |
| — | |
Total equity securities | |
| 52,393 | | |
| 52,393 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Money market accounts and cash equivalents | |
| 27,255 | | |
| 27,255 | | |
| — | | |
| — | |
Total assets at fair value | |
$ | 382,972 | | |
$ | 79,648 | | |
$ | 303,324 | | |
$ | — | |
There were no liabilities measured at fair value on a recurring
basis at September 30, 2023, or December 31, 2022.
External Reinsurance
The Company’s consolidated financial statements reflect
the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that
other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written
and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The primary purpose of
these agreements is to protect the Company, at a cost, from losses in excess of the amount it is prepared to accept and to protect the
Company’s capital. Our ceded reinsurance is placed either on an automatic basis under general reinsurance contracts known as treaties
or through facultative contracts placed on substantial individual risks. These contracts do not relieve the Company from its obligations
to policyholders.
During the nine-month period ended September 30, 2023, the
Company maintained property catastrophe reinsurance protection covering $133,000 in excess of a $20,000 retention. Additionally, per risk
excess of loss treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000 for casualty
risks, with facultative contracts in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance
agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing
50 points of cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the
aggregate covers, underlying multi-peril crop reinsurance was provided through the Federal Crop Insurance Corporation (“FCIC”).
During the year ended December 31, 2022, the Company maintained
property catastrophe reinsurance protection covering $125,000 in excess of a $15,000 retention. Additionally, per risk excess of loss
treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000 for casualty risks, with facultative
contracts in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance agreements were
placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing 50 points
of cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the aggregate
covers, underlying multi-peril crop reinsurance was provided through the FCIC.
The Company actively monitors and evaluates the financial
condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers. Beginning on December 31, 2022, credit
losses are recognized through an allowance account developed using a new credit loss model (current expected credit losses or “CECL”).
See the Part II, Item 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report for additional information.
Credit loss estimates are made based on periodic evaluation of balances due from reinsurers, changes in reinsurer credit standing, judgments
regarding reinsurers’ solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience,
current economic conditions, and the state of reinsurer relations in general. Collection risk is mitigated by entering into reinsurance
arrangements only with reinsurers that have strong financial strength ratings. At September 30, 2023, and December 31, 2022, management
has concluded that it is not necessary to record an allowance for expected credit losses related to reinsurance recoverables. All of our
significant reinsurance partners are rated “A-” (Excellent) or better by AM Best, and there is no history of write-offs.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
A reconciliation of direct to net premiums on both a written
and an earned basis is as follows:
| |
Three Months Ended September 30, 2023 | | |
Nine Months Ended September 30, 2023 | |
| |
Premiums Written | | |
Premiums Earned | | |
Premiums Written | | |
Premiums Earned | |
Direct premium | |
$ | 81,223 | | |
$ | 104,540 | | |
$ | 316,029 | | |
$ | 296,176 | |
Assumed premium | |
| 175 | | |
| 2,045 | | |
| 3,014 | | |
| 3,448 | |
Ceded premium | |
| (10,773 | ) | |
| (15,815 | ) | |
| (39,671 | ) | |
| (37,081 | ) |
Net premiums | |
$ | 70,625 | | |
$ | 90,770 | | |
$ | 279,372 | | |
$ | 262,543 | |
| |
Three Months Ended September 30, 2022 | | |
Nine Months Ended September 30, 2022 | |
| |
Premiums Written | | |
Premiums Earned | | |
Premiums Written | | |
Premiums Earned | |
Direct premium | |
$ | 81,147 | | |
$ | 102,173 | | |
$ | 301,642 | | |
$ | 269,823 | |
Assumed premium | |
| 680 | | |
| 2,460 | | |
| 5,767 | | |
| 6,012 | |
Ceded premium | |
| (10,765 | ) | |
| (15,101 | ) | |
| (36,600 | ) | |
| (32,220 | ) |
Net premiums | |
$ | 71,062 | | |
$ | 89,532 | | |
$ | 270,809 | | |
$ | 243,615 | |
| |
| | | |
| | | |
| | | |
| | |
A reconciliation of direct to net losses and loss adjustment
expenses is as follows:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Direct losses and loss adjustment expenses | |
$ | 71,107 | | |
$ | 94,446 | | |
$ | 237,117 | | |
$ | 250,611 | |
Assumed losses and loss adjustment expenses | |
| 725 | | |
| 868 | | |
| 882 | | |
| 2,413 | |
Ceded losses and loss adjustment expenses | |
| (8,268 | ) | |
| (16,397 | ) | |
| (38,104 | ) | |
| (25,383 | ) |
Net losses and loss adjustment expenses | |
$ | 63,564 | | |
$ | 78,917 | | |
$ | 199,895 | | |
$ | 227,641 | |
If 100% of our ceded reinsurance was cancelled as of September
30, 2023, or December 31, 2022, no ceded commissions would need to be returned to the reinsurers. Reinsurance contracts are typically
effective from January 1 through December 31 each year.
Intercompany Reinsurance Pooling Arrangement
Effective January 1, 2020, all of our insurance subsidiary and
affiliate companies entered into an intercompany reinsurance pooling agreement. Nodak Insurance is the lead company of the pool, and assumes
the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak Insurance then retrocedes balances
back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool percentages
established in the respective pooling agreement. This arrangement allows each insurance company to rely upon the capacity of the pool’s
total statutory capital and surplus. As a result, they are evaluated by AM Best on a group basis and hold a single combined financial
strength rating, long-term issuer credit rating, and financial size category.
For the nine months ended September 30, 2023, and the year ended
December 31, 2022, the pooling share percentages by insurance company were:
| |
Pool Percentage | |
Nodak Insurance Company | |
| 66.0% | |
American West Insurance Company | |
| 7.0% | |
Primero Insurance Company | |
| 3.0% | |
Battle Creek Mutual Insurance Company | |
| 2.0% | |
Direct Auto Insurance Company | |
| 13.0% | |
Westminster American Insurance Company | |
| 9.0% | |
Total | |
| 100.0% | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 6. | Deferred Policy Acquisition Costs |
Expenses directly related to successfully acquired insurance
policies, primarily commissions, premium taxes, and underwriting costs, are deferred and amortized over the terms of the policies. We
update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability. The table
below shows the deferred policy acquisition costs and asset reconciliation:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Balance, beginning of period | |
$ | 34,124 | | |
$ | 30,917 | | |
$ | 29,768 | | |
$ | 24,947 | |
Deferral of policy acquisition costs | |
| 18,415 | | |
| 16,491 | | |
| 61,938 | | |
| 54,328 | |
Amortization of deferred policy acquisition costs | |
| (20,362 | ) | |
| (17,589 | ) | |
| (59,529 | ) | |
| (49,456 | ) |
Balance, end of period | |
$ | 32,177 | | |
$ | 29,819 | | |
$ | 32,177 | | |
$ | 29,819 | |
| 7. | Unpaid Losses and Loss Adjustment Expenses |
Activity in the liability for unpaid losses and loss adjustment
expenses is summarized as follows:
| |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | |
Balance, beginning of period: | |
| | | |
| | |
Liability for unpaid losses and loss adjustment expenses | |
$ | 190,459 | | |
$ | 139,662 | |
Reinsurance recoverables on losses | |
| 37,575 | | |
| 21,200 | |
Net balance, beginning of period | |
| 152,884 | | |
| 118,462 | |
| |
| | | |
| | |
Incurred related to: | |
| | | |
| | |
Current year | |
| 180,895 | | |
| 234,823 | |
Prior years | |
| 19,000 | | |
| (7,182 | ) |
Total incurred | |
| 199,895 | | |
| 227,641 | |
| |
| | | |
| | |
Paid related to: | |
| | | |
| | |
Current year | |
| 91,979 | | |
| 141,810 | |
Prior years | |
| 76,842 | | |
| 51,346 | |
Total paid | |
| 168,821 | | |
| 193,156 | |
| |
| | | |
| | |
Balance, end of period: | |
| | | |
| | |
Liability for unpaid losses and loss adjustment expenses | |
| 240,748 | | |
| 185,937 | |
Reinsurance recoverables on losses | |
| 56,790 | | |
| 32,990 | |
Net balance, end of period | |
$ | 183,958 | | |
$ | 152,947 | |
During the nine months ended September 30, 2023, the Company’s
incurred reported losses and loss adjustment expenses included $19,000 of net unfavorable development on prior accident years. The net
unfavorable development was primarily attributable to Direct Auto and Westminster, partially offset by net favorable development on prior
accident years for Nodak Insurance, American West, and Battle Creek. During the nine months ended September 30, 2022, the Company’s
incurred reported losses and loss adjustment expenses included $7,182 of net favorable development on prior accident years, primarily
attributable to Battle Creek and American West.
Changes in unpaid losses and loss adjustment expense reserves
are generally the result of ongoing analysis of recent loss development trends. As additional information becomes known regarding individual
claims, original estimates are increased or decreased accordingly.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Property and equipment consisted of the following:
| |
September 30, 2023 | | |
December 31, 2022 | | |
Estimated Useful Life |
Cost: | |
| | | |
| | | |
|
Land | |
$ | 1,403 | | |
$ | 1,403 | | |
indefinite |
Building and improvements | |
| 14,538 | | |
| 14,271 | | |
10 – 43 years |
Electronic data processing equipment | |
| 1,637 | | |
| 1,310 | | |
5 – 7 years |
Furniture and fixtures | |
| 3,034 | | |
| 2,919 | | |
5 – 7 years |
Automobiles | |
| 1,317 | | |
| 1,310 | | |
2 – 3 years |
Gross cost | |
| 21,929 | | |
| 21,213 | | |
|
| |
| | | |
| | | |
|
Accumulated depreciation | |
| (11,729 | ) | |
| (11,370 | ) | |
|
Total property and equipment, net | |
$ | 10,200 | | |
$ | 9,843 | | |
|
| |
| | | |
| | | |
|
Depreciation expense was $188 and $174 for the three months
ended September 30, 2023 and 2022, respectively, and $558 and $517 for the nine months ended September 30, 2023 and 2022, respectively.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 9. | Goodwill and Other Intangibles |
Goodwill
The following table presents the carrying amount of the Company’s
goodwill by segment:
| |
September 30, 2023 | | |
December 31, 2022 | |
Non-standard auto from acquisition of Primero | |
$ | 2,628 | | |
$ | 2,628 | |
Commercial from acquisition of Westminster | |
| 6,756 | | |
| 6,756 | |
Total | |
$ | 9,384 | | |
$ | 9,384 | |
Other Intangible Assets
The following table presents the carrying amount of the Company’s
other intangible assets:
September 30, 2023 | |
Gross Carrying
Amount | | |
Accumulated
Amortization | | |
Net | |
Subject to amortization: | |
| | | |
| | | |
| | |
Trade names | |
$ | 748 | | |
$ | 435 | | |
$ | 313 | |
Distribution network | |
| 6,700 | | |
| 1,396 | | |
| 5,304 | |
Total subject to amortization | |
| 7,448 | | |
| 1,831 | | |
| 5,617 | |
Not subject to amortization: | |
| | | |
| | | |
| | |
State insurance licenses | |
| 1,900 | | |
| — | | |
| 1,900 | |
Total | |
$ | 9,348 | | |
$ | 1,831 | | |
$ | 7,517 | |
| |
| | | |
| | | |
| | |
December 31, 2022 | |
Gross Carrying
Amount | | |
Accumulated
Amortization | | |
Net | |
Subject to amortization: | |
| | | |
| | | |
| | |
Trade names | |
$ | 748 | | |
$ | 365 | | |
$ | 383 | |
Distribution network | |
| 6,700 | | |
| 1,117 | | |
| 5,583 | |
Total subject to amortization | |
| 7,448 | | |
| 1,482 | | |
| 5,966 | |
Not subject to amortization: | |
| | | |
| | | |
| | |
State insurance licenses | |
| 1,900 | | |
| — | | |
| 1,900 | |
Total | |
$ | 9,348 | | |
$ | 1,482 | | |
$ | 7,866 | |
| |
| | | |
| | | |
| | |
Amortization expense was $114 and $118 for the three months
ended September 30, 2023 and 2022, respectively, and $349 and $354 for the nine months ended September 30, 2023 and 2022, respectively.
Other intangible assets that have finite lives, including trade
names and distribution networks, are amortized over their useful lives. As of September 30, 2023, the estimated amortization of other
intangible assets with finite lives for each of the five years in the period ending December 31, 2027, and thereafter is as follows:
Year ending December 31, | |
| |
2023 (three months remaining) | |
$ | 106 | |
2024 | |
| 422 | |
2025 | |
| 422 | |
2026 | |
| 422 | |
2027 | |
| 422 | |
Thereafter | |
| 3,823 | |
Total other intangible assets with finite lives | |
$ | 5,617 | |
| |
| | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 10. | Royalties, Dividends, and Affiliations |
North Dakota Farm Bureau
Nodak Insurance was organized by the North Dakota Farm Bureau
(“NDFB”) to provide insurance protection for its members. We have a royalty agreement with the NDFB that recognizes the use
of their trademark and provides royalties to the NDFB based on the premiums written on Nodak Insurance’s policies. Royalties paid
to the NDFB were $426 and $397 during the three months ended September 30, 2023 and 2022, respectively, and $1,225 and $1,141 for the
nine months ended September 30, 2023 and 2022, respectively. Royalty amounts payable of $112 and $119 were accrued as a liability to the
NDFB at September 30, 2023, and December 31, 2022, respectively.
Dividends
State insurance laws require our insurance subsidiaries to maintain
certain minimum capital and surplus amounts on a statutory basis. Our insurance subsidiaries are subject to regulations that restrict
the payment of dividends from statutory surplus and may require prior approval from their domiciliary insurance regulatory authorities.
Our insurance subsidiaries are also subject to risk-based capital requirements that may further affect their ability to pay dividends.
Our insurance subsidiaries statutory capital and surplus at December 31, 2022, exceeded the amount of statutory capital and surplus necessary
to satisfy risk-based capital requirements by a significant margin.
For information regarding the availability of
subsidiaries to pay dividends to NI Holdings during 2023, see Item II, Part 8, Note 12 “Related Party Transactions” section
of the 2022 Annual Report.
Battle Creek Mutual Insurance Company
The following tables disclose the standalone balance sheets
and statements of operations of Battle Creek, prior to intercompany eliminations, to illustrate the impact of including Battle Creek in
our Consolidated Balance Sheets and Statements of Operations:
| |
September 30, 2023 | | |
December 31, 2022 | |
Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 123 | | |
$ | 5,008 | |
Investments | |
| 13,675 | | |
| 13,350 | |
Premiums and agents’ balances receivable | |
| 5,887 | | |
| 5,422 | |
Deferred policy acquisition costs | |
| 644 | | |
| 595 | |
Reinsurance recoverables on losses (2) | |
| 15,601 | | |
| 12,597 | |
Accrued investment income | |
| 71 | | |
| 59 | |
Income tax recoverable | |
| — | | |
| 225 | |
Deferred income taxes | |
| 884 | | |
| 780 | |
Property and equipment | |
| 310 | | |
| 319 | |
Other assets | |
| 82 | | |
| 52 | |
Total assets | |
$ | 37,277 | | |
$ | 38,407 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Unpaid losses and loss adjustment expenses | |
$ | 4,842 | | |
$ | 6,453 | |
Unearned premiums | |
| 3,295 | | |
| 2,959 | |
Notes payable (1) | |
| 3,000 | | |
| 3,000 | |
Pooling payable (1) | |
| 9,847 | | |
| 8,337 | |
Reinsurance losses payable (2) | |
| 13,635 | | |
| 13,125 | |
Accrued expenses and other liabilities | |
| 1,017 | | |
| 2,303 | |
Total liabilities | |
| 35,636 | | |
| 36,177 | |
| |
| | | |
| | |
Equity: | |
| | | |
| | |
Non-controlling interest | |
| 1,641 | | |
| 2,230 | |
Total equity | |
| 1,641 | | |
| 2,230 | |
| |
| | | |
| | |
Total liabilities and equity | |
$ | 37,277 | | |
$ | 38,407 | |
(1)
(2)
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 1,816 | | |
$ | 1,790 | | |
$ | 5,251 | | |
$ | 4,872 | |
Fee and other income (expenses) | |
| 10 | | |
| (1 | ) | |
| 27 | | |
| (8 | ) |
Net investment income (expense) | |
| 80 | | |
| (8 | ) | |
| 227 | | |
| 32 | |
Total revenues | |
| 1,906 | | |
| 1,781 | | |
| 5,505 | | |
| 4,896 | |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Losses and loss adjustment expenses | |
| 1,271 | | |
| 1,579 | | |
| 3,998 | | |
| 4,553 | |
Amortization of deferred policy acquisition costs | |
| 408 | | |
| 352 | | |
| 1,191 | | |
| 989 | |
Other underwriting and general expenses | |
| 139 | | |
| 89 | | |
| 457 | | |
| 363 | |
Total expenses | |
| 1,818 | | |
| 2,020 | | |
| 5,646 | | |
| 5,905 | |
| |
| | | |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
| 88 | | |
| (239 | ) | |
| (141 | ) | |
| (1,009 | ) |
Income tax expense (benefit) | |
| 21 | | |
| (55 | ) | |
| 195 | | |
| (229 | ) |
Net income (loss) | |
$ | 67 | | |
$ | (184 | ) | |
$ | (336 | ) | |
$ | (780 | ) |
Nodak Insurance sponsors a 401(k) plan with an automatic and
matching contribution for eligible employees at Nodak Insurance, Primero, and Direct Auto. Nodak Insurance also contributes an additional
elective amount of employee compensation as a profit-sharing contribution for its eligible employees. Westminster also sponsors a separate
401(k) plan. American West and Battle Creek have no employees. The Company reported expenses related to these plans totaling $656 and
$383 during the three months ended September 30, 2023 and 2022, respectively, and $1,315 and $1,150 during the nine months ended September
30, 2023 and 2022, respectively.
All fees associated with the plans are deducted from the
eligible employee accounts.
The Company also offers a non-qualified deferred compensation
plan to key executives of the Company (as designated by the Board of Directors). The Company’s policy is to fund the plan by amounts
that represent the excess of the maximum contribution allowed by the Employee Retirement Income Security Act over the key executives’
allowable 401(k) contribution. The plan also allows employee-directed deferral of key executives’ compensation or incentive payments.
The Company reported expenses related to this plan totaling $45 and $23 during the three months ended September 30, 2023 and 2022, respectively,
and $143 and $150 during the nine months ended September 30, 2023 and 2022, respectively.
In connection with our initial public offering (“IPO”)
in March 2017, the Company established its Employee Stock Ownership Plan (the “ESOP”). The ESOP is intended to be an employee
stock ownership plan within the meaning of Internal Revenue Code Section 4975(e)(7) and invests solely in common stock of the Company.
Upon establishment of the ESOP, Nodak Insurance loaned $2,400 to
the ESOP’s related trust (the “ESOP Trust”). The ESOP loan was for a period of ten years, bearing interest at the long-term
Applicable Federal Rate effective on the closing date of the offering (2.79% annually). The ESOP Trust used the proceeds of the loan to
purchase shares in our IPO, which resulted in the ESOP Trust owning approximately 1.0% of the Company’s authorized shares. The ESOP
has purchased the shares for investment and not for resale.
The shares purchased by the ESOP Trust in the offering are held
in a suspense account as collateral for the ESOP loan. Nodak Insurance makes semi-annual cash contributions to the ESOP in amounts no
smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance. While the ESOP makes two loan payments
per year, a pre-determined portion of the shares are released from the suspense account and allocated to participant accounts at the end
of the calendar year. This release and allocation occurs on an annual basis over the ten-year term of the ESOP loan. Nodak Insurance has
a lien on the shares of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance.
If the ESOP is terminated as a result of a change in control of the Company, the ESOP may be required to pay the costs of terminating
the plan.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
It is anticipated that the only assets held by the ESOP will be
shares of the Company’s common stock. Participants in the ESOP cannot direct the investment of any assets allocated to their accounts.
The ESOP participants are employees of Nodak Insurance. The employees of Primero, Direct Auto, and Westminster do not participate in the
ESOP.
Each employee of Nodak Insurance automatically becomes a participant
in the ESOP if such employee is at least 21 years old, has completed a minimum of one thousand hours of service with Nodak Insurance,
and has completed an Eligibility Computation Period. Employees are not permitted to make any contributions to the ESOP. Participants in
the ESOP receive annual reports from the Company showing the number of shares of common stock of the Company allocated to the participants’
accounts and the market value of those shares. The shares are allocated to participants based on compensation as provided for in the ESOP.
In connection with the establishment of the ESOP, the Company created
a contra-equity account on the Consolidated Balance Sheet equal to the ESOP’s basis in the shares. The basis of those shares was
set at $10.00 per share as part of the IPO. As shares are released from the ESOP suspense account, the contra-equity account is credited,
which reduces the impact of the contra-equity account on the Company’s Consolidated Balance Sheet over time. The Company records
compensation expense related to the shares released, equal to the number of shares released from the suspense account multiplied by the
average market value of the Company’s stock during the period.
The Company recognized compensation expense related to the ESOP
of $81 and $88 during the three months ended September 30, 2023 and 2022, respectively, and $245 and $298 during the nine months ended
September 30, 2023 and 2022, respectively.
Through September 30, 2023, and December 31, 2022, the Company had
released and allocated 145,890 ESOP shares to participants, with a remainder of 94,110 ESOP shares in suspense at September 30, 2023,
and December 31, 2022. Using the Company’s quarter-end market price of $12.87 per share, the fair value of the unearned ESOP shares
was $1,211 at September 30, 2023.
Nodak Insurance has a $5,000 line of credit with Wells Fargo
Bank, N.A. The terms of the line of credit include a floating interest rate of the bank’s Prime Rate with a floor rate of 3.25%.
There were no outstanding amounts during the nine months ended September 30, 2023, or the year ended December 31, 2022. This line of credit
is scheduled to expire on March 31, 2024.
At September 30, 2023, and December 31, 2022, we had no unrecognized
tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No interest and penalties were recognized
during the three- and nine-month periods ended September 30, 2023 or the year ended December 31, 2022.
At September 30, 2023, and December 31, 2022, the Company, other
than Battle Creek and Westminster, had no income tax related carryforwards for net operating losses, alternative minimum tax credits,
or capital losses.
Battle Creek, which files its income tax returns on a stand-alone
basis, had net operating loss carryforwards of $3,963 at December 31, 2022. These net operating loss carryforwards expire through 2032.
Westminster, which became part of the Company’s consolidated
federal income tax return beginning in 2020, had a $1,270 net operating loss carryforward at December 31, 2022. This net operating loss
carryforward expires at the end of 2023.
As of September 30, 2023, we are no longer subject to federal tax
examination for years prior to 2019.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Primero leases a facility in Spearfish, South Dakota under
a non-cancellable operating lease expiring in 2028, and leases a facility in Las Vegas, Nevada on a month-to-month basis. Direct Auto
leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029. Nodak Insurance leases a facility in
Fargo, North Dakota under a non-cancellable operating lease expiring in 2024.
Effective for the year ended December 31, 2022, the Company
adopted the updated guidance for leases. This guidance was adopted in the fourth quarter of 2022, and accordingly, the expense amounts
for the periods ended September 30, 2023, are not comparable to the periods ended September 30, 2022. See Part II, Item 8, Note 2 “Recent
Accounting Pronouncements” in the 2022 Annual Report for additional information. Under the new guidance, lease expense for these
operating leases is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized
as part of other assets and other liabilities, respectively, in the Consolidated Balance Sheet at the origination of the lease. We currently
do not have leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to
the Company.
We determine whether a contract is or contains a lease at the
inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and directs
the use of identified property or equipment for a period of time in exchange for consideration. We generally must also have the right
to obtain substantially all of the economic benefits from the use of the property and equipment. Operating lease assets and liabilities
are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present
value of lease payments not yet paid, we estimate incremental borrowing rates based on the floating interest rate on our Line of Credit
with Wells Fargo Bank, N.A. at the lease commencement date, as rates are not implicitly stated in most leases.
Additional information regarding our operating leases are as
follows:
| |
As of and For the Three Months
Ended September 30, | | |
As of and For the Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Operating lease expense | |
$ | 98 | | |
$ | 98 | | |
$ | 293 | | |
$ | 293 | |
| |
| | | |
| | | |
| | | |
| | |
Other information on operating leases: | |
| | | |
| | | |
| | | |
| | |
Operating cash outflow from operating leases | |
| 103 | | |
| 101 | | |
| 307 | | |
| 239 | |
Right-of-use assets obtained in exchange for new lease liabilities | |
| — | | |
| — | | |
| 247 | | |
| — | |
Weighted average discount rate | |
| 3.95% | | |
| 3.25% | | |
| 3.95% | | |
| 3.25% | |
Weighted average remaining lease term in years | |
| 5.6 years | | |
| 6.4 years | | |
| 5.6 years | | |
| 6.4 years | |
| |
| | | |
| | | |
| | | |
| | |
The following table presents the contractual maturities of our operating
leases for each of the five years in the period ending December 31, 2027, and thereafter, reconciled to our operating lease liability
at September 30, 2023:
Year ending December 31, | |
| |
2023 (three months remaining) | |
$ | 97 | |
2024 | |
| 381 | |
2025 | |
| 346 | |
2026 | |
| 351 | |
2027 | |
| 356 | |
Thereafter | |
| 509 | |
Total undiscounted lease payments | |
| 2,040 | |
Less: present value adjustment | |
| 200 | |
Operating lease liability at September 30, 2023 | |
$ | 1,840 | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
We have been named as a defendant in various lawsuits relating
to our insurance operations. Contingent liabilities arising from litigation, income taxes, and other matters are not considered to be
material to our financial position.
| 16. | Common and Preferred Stock |
Changes in the number of common stock shares outstanding
are as follows:
| |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | |
Shares outstanding, beginning of period | |
| 21,076,255 | | |
| 21,219,808 | |
Treasury shares repurchased through stock repurchase authorization | |
| (548,549 | ) | |
| (173,419 | ) |
Issuance of treasury shares for vesting of restricted stock units | |
| 47,887 | | |
| 101,292 | |
Shares outstanding, end of period | |
| 20,575,593 | | |
| 21,147,681 | |
The changes in the number of common shares outstanding excludes
certain non-forfeitable stock award shares that are included in the weighted average common shares outstanding used in basic earnings
per common share calculations. The net loss per diluted common share for the nine-month period ended September 30, 2023, excluded the
weighted average effects of 68,380 shares of stock awards since the impacts of these potential shares of common stock were anti-dilutive.
The net loss per diluted common share for the three- and nine-month periods ended September 30, 2022, excluded the weighted average effects
of 99,960 and 171,209 shares of stock awards, respectively, since the impacts of these potential shares of common stock were anti-dilutive.
On August 11, 2021, our Board of Directors approved
an authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock. During the year ended
December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this authorization. During the year
ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this authorization.
Of these amounts, 173,419 shares were repurchased for $2,870 during the nine months ended September 30, 2022.
On May 9, 2022, our Board of Directors approved
an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. During the year ended
December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this authorization. During the nine
months ended September 30, 2023, we completed the repurchase of 548,549 shares of our common stock for $7,280, including the applicable
excise tax. At September 30, 2023, $2,052 remains available under this authorization.
The cost of this treasury stock is a reduction
of shareholders’ equity within our Consolidated Balance Sheets.
On August 16, 2022, the U.S. government enacted
the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”)
based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases, subject to certain adjustments.
The effective date of these provisions was January 1, 2023. The Company is not currently subject to the AMT based on our reported GAAP
earnings for the past three years and does not expect the IRA to have a material impact on the Company’s financial position and
results of operations.
Preferred Stock
The Company’s Articles of Incorporation
provide authority to issue up to five million shares of preferred stock. No preferred shares are issued or outstanding.
| 17. | Share-Based Compensation |
The NI Holdings, Inc. 2020 Stock and Incentive
Plan (the “Plan”) is designed to promote the interests of the Company and its shareholders by aiding the Company in attracting
and retaining employees, officers, consultants, independent contractors, advisors, and non-employee directors capable of assuring the
future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business,
and to afford such persons an opportunity to acquire an ownership interest in the Company, thereby aligning the interests of such persons
with the Company’s shareholders.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
The Plan provides for the grant of nonqualified
stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalents,
and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent
contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made
under the Plan are based upon, among other things, a participant’s level of responsibility and performance within the Company.
The total aggregate number of shares of common
stock that may be issued under the Plan shall not exceed 1,000,000 shares, subject to adjustments as provided in the Plan. No eligible
participant may be granted any awards for more than 100,000 shares in the aggregate in any calendar year, subject to adjustment in accordance
with the Plan. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in any calendar
year is limited to $1,000 in value. Directors who are not also employees of the Company may not be granted awards denominated in shares
that exceed $150 in any calendar year.
Restricted Stock Units
The Compensation Committee has awarded RSUs to
non-employee directors and select executives. RSUs are promises to issue actual shares of common stock at the end of a vesting period.
The RSUs granted to executives under the Plan were based on salary and vest 20% per year over a five-year period, while RSUs granted to
non-employee directors vest 100% on the date of the next annual meeting of shareholders following the grant date. Dividend equivalents
on RSUs are accrued during the vesting period and paid in cash at the end of the vesting period but are subject to forfeiture until the
underlying shares become vested. Participants do not have voting rights with respect to RSUs.
The Company recognizes stock-based compensation
costs for RSUs based on the grant date fair value. The compensation costs are normally expensed over the vesting periods to each vesting
date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain retirement criteria and
the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are currently
estimated.
A summary of the Company’s outstanding and
unearned RSUs is presented below:
| |
RSUs | | |
Weighted-Average
Grant-Date
Fair Value
Per Share | |
Units outstanding and unearned at January 1, 2022 | |
| 108,380 | | |
$ | 16.86 | |
RSUs granted during 2022 | |
| 59,600 | | |
| 17.61 | |
RSUs earned during 2022 | |
| (52,620 | ) | |
| 17.39 | |
Units outstanding and unearned at December 31, 2022 | |
| 115,360 | | |
| 17.00 | |
| |
| | | |
| | |
RSUs granted during 2023 | |
| 85,000 | | |
| 13.76 | |
RSUs earned during 2023 | |
| (53,780 | ) | |
| 16.32 | |
Units outstanding and unearned at September 30, 2023 | |
| 146,580 | | |
| 15.37 | |
The following table shows the impact of RSU activity
to the Company’s financial results:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
RSU compensation expense | |
$ | 268 | | |
$ | 227 | | |
$ | 827 | | |
$ | 725 | |
Income tax benefit | |
| (61 | ) | |
| (52 | ) | |
| (188 | ) | |
| (165 | ) |
RSU compensation expense, net of income taxes | |
$ | 207 | | |
$ | 175 | | |
$ | 639 | | |
$ | 560 | |
At September 30, 2023, there was $1,159 of unrecognized
compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.70 years.
Performance Share Units
The Compensation Committee has awarded PSUs to
select executives. PSUs are promises to issue actual shares of common stock at the end of a vesting period if certain performance conditions
are met. The PSUs granted to employees under the Plan were based on salary and include a three-year adjusted book value cumulative growth
target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s
continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid
in cash at the end of the performance period in accordance with the level of performance achieved but are subject to forfeiture until
the underlying shares become vested. Participants do not have voting rights with respect to PSUs.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
The Company recognizes stock-based compensation
costs for PSUs based on the grant date fair value over the performance period of the awards. Estimated forfeitures are included in the
determination of compensation costs. The current cost estimates represent the Company’s forecasted performance against cumulative
growth targets.
A summary of the Company’s outstanding PSUs is presented below:
| |
PSUs | | |
Weighted-Average
Grant-Date
Fair Value
Per Share | |
Units outstanding at January 1, 2022 | |
| 190,600 | | |
$ | 16.06 | |
PSUs granted during 2022 (at target) | |
| 61,800 | | |
| 18.10 | |
PSUs earned during 2022 | |
| (86,684 | ) | |
| 15.21 | |
Performance adjustment (1) | |
| 31,200 | | |
| 15.21 | |
Forfeitures | |
| (6,916 | ) | |
| 15.21 | |
Units outstanding at December 31, 2022 | |
| 190,000 | | |
| 17.00 | |
| |
| | | |
| | |
PSUs granted during 2023 (at target) | |
| 87,400 | | |
| 13.85 | |
PSUs earned during 2023 | |
| — | | |
| — | |
Performance adjustment (1) | |
| (63,600 | ) | |
| 14.26 | |
Forfeitures | |
| — | | |
| — | |
Units outstanding at September 30, 2023 | |
| 213,800 | | |
| 16.53 | |
(1)
The following table shows the impact of PSU activity
to the Company’s financial results:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
PSU compensation expense (benefit) | |
$ | 141 | | |
$ | (872 | ) | |
$ | 418 | | |
$ | (349 | ) |
Income tax expense (benefit) | |
| (32 | ) | |
| 198 | | |
| (95 | ) | |
| 79 | |
PSU compensation expense, net of income taxes | |
$ | 109 | | |
$ | (674 | ) | |
$ | 323 | | |
$ | (270 | ) |
The cost estimates for PSU grants represent initial
target awards until we can reasonably forecast the financial performance of each PSU award grant. At the end of the performance period,
we will reflect a performance adjustment, which may be either an increase or decrease from the initial target awards. The actual number
of shares to be issued at the end of the performance period will range from 0% to 150% of the initial target awards.
At September 30, 2023, there was $1,175 of unrecognized compensation cost
related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 2.20 years.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 18. | Allowance for Expected Credit Losses |
Premiums Receivable
Beginning on December 31, 2022, credit losses
are recognized through an allowance account developed using the new CECL model. This guidance was adopted in the fourth quarter of 2022,
and accordingly, there was no allowance for expected credit losses as of September 30, 2022. See the Part II, Item 8, Note 2 “Recent
Accounting Pronouncements” section of the 2022 Annual Report for additional information. The following table presents the balances
of premiums and agents’ receivable balances, net of the allowance for expected credit losses as of September 30, 2023, and the changes
in the allowance for expected credit losses for the three and nine months ended September 30, 2023.
| |
As of and For the Three Months Ended
September 30, 2023 | |
| |
Premiums and
Agents’ Balances
Receivable, Net of
Allowance for
Expected Credit
Losses | | |
Allowance for
Expected Credit
Losses | |
Balance, beginning of period | |
$ | 106,946 | | |
$ | 434 | |
| |
| | | |
| | |
Current period charge for expected credit losses | |
| | | |
| 45 | |
Write-offs of uncollectible premiums receivable | |
| | | |
| 55 | |
| |
| | | |
| | |
Balance, end of period | |
$ | 99,625 | | |
$ | 424 | |
| |
As of and For the Nine Months Ended September 30, 2023 | |
| |
Premiums and
Agents’ Balances
Receivable, Net of
Allowance for
Expected Credit
Losses | | |
Allowance for
Expected Credit
Losses | |
Balance, beginning of period | |
$ | 62,173 | | |
$ | 425 | |
| |
| | | |
| | |
Current period charge for expected credit losses | |
| | | |
| 323 | |
Write-offs of uncollectible premiums receivable | |
| | | |
| 324 | |
| |
| | | |
| | |
Balance, end of period | |
$ | 99,625 | | |
$ | 424 | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
We have six reportable operating segments, which
consist of private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, commercial insurance,
and all other (which primarily consists of assumed reinsurance and our excess liability business). We operate only in the U.S., and no
single customer or agent provides 10 percent or more of our revenues. The following tables provide available information of these segments
for the three- and nine-month periods ended September 30, 2023 and 2022.
For purposes of evaluating profitability of the
non-standard auto segment, we combine the policy fees paid by the insured with the underwriting gain or loss as its primary measure. As
a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in the tables below. The remaining
fee and other income amounts are not allocated to any segment.
We do not assign or allocate all line items in
our Unaudited Consolidated Statement of Operations or Unaudited Consolidated Balance Sheet to our operating segments. Those line items
include net investment income, net investment gains (losses), fee and other income excluding non-standard auto, and income tax expense
(benefit) within the Unaudited Consolidated Statement of Operations. For the Unaudited Consolidated Balance Sheet, those items include
cash and investments, property and equipment, other assets, accrued expenses and other liabilities, income taxes recoverable or payable,
and shareholders’ equity.
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
Three Months Ended September 30, 2023 | |
| |
Private
Passenger
Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 22,377 | | |
$ | 21,334 | | |
$ | 23,650 | | |
$ | 15,283 | | |
$ | 20,544 | | |
$ | 1,352 | | |
$ | 104,540 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 1,792 | | |
| — | | |
| 253 | | |
| 2,045 | |
Ceded premiums earned | |
| (1,142 | ) | |
| (103 | ) | |
| (2,341 | ) | |
| (7,329 | ) | |
| (4,793 | ) | |
| (107 | ) | |
| (15,815 | ) |
Net premiums earned | |
| 21,235 | | |
| 21,231 | | |
| 21,309 | | |
| 9,746 | | |
| 15,751 | | |
| 1,498 | | |
| 90,770 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 16,148 | | |
| 18,838 | | |
| 14,611 | | |
| 4,899 | | |
| 17,043 | | |
| (432 | ) | |
| 71,107 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 558 | | |
| — | | |
| 167 | | |
| 725 | |
Ceded losses and loss adjustment expenses | |
| 455 | | |
| — | | |
| (559 | ) | |
| (1,767 | ) | |
| (6,771 | ) | |
| 374 | | |
| (8,268 | ) |
Net losses and loss adjustment expenses | |
| 16,603 | | |
| 18,838 | | |
| 14,052 | | |
| 3,690 | | |
| 10,272 | | |
| 109 | | |
| 63,564 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 4,632 | | |
| 2,393 | | |
| 7,257 | | |
| 6,056 | | |
| 5,479 | | |
| 1,389 | | |
| 27,206 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 6,078 | | |
| 8,671 | | |
| 6,159 | | |
| 1,950 | | |
| 5,810 | | |
| 389 | | |
| 29,057 | |
Underwriting gain (loss) | |
| (1,446 | ) | |
| (6,278 | ) | |
| 1,098 | | |
| 4,106 | | |
| (331 | ) | |
| 1,000 | | |
| (1,851 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 278 | | |
| | | |
| | | |
| | | |
| | | |
| 455 | |
| |
| | | |
| (6,000 | ) | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,751 | |
Net investment losses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (1,227 | ) |
Income before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 128 | |
Income tax benefit | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (170 | ) |
Net income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 298 | |
Net income attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 67 | |
Net income attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 231 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expense ratio | |
| 78.2% | | |
| 88.7% | | |
| 65.9% | | |
| 37.9% | | |
| 65.2% | | |
| 7.3% | | |
| 70.0% | |
Expense ratio | |
| 28.6% | | |
| 40.8% | | |
| 28.9% | | |
| 20.0% | | |
| 36.9% | | |
| 26.0% | | |
| 32.0% | |
Combined ratio | |
| 106.8% | | |
| 129.5% | | |
| 94.8% | | |
| 57.9% | | |
| 102.1% | | |
| 33.3% | | |
| 102.0% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at September 30, 2023: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
$ | 23,901 | | |
$ | 15,854 | | |
$ | 9,655 | | |
$ | 35,982 | | |
$ | 13,438 | | |
$ | 795 | | |
$ | 99,625 | |
Deferred policy acquisition costs | |
| 5,744 | | |
| 9,797 | | |
| 7,973 | | |
| 1,046 | | |
| 7,160 | | |
| 457 | | |
| 32,177 | |
Reinsurance recoverables on losses | |
| 139 | | |
| — | | |
| 3,918 | | |
| 4,676 | | |
| 46,097 | | |
| 1,960 | | |
| 56,790 | |
Receivable from Federal Crop Insurance Corporation | |
| — | | |
| — | | |
| — | | |
| 14,479 | | |
| — | | |
| — | | |
| 14,479 | |
Goodwill and other intangibles | |
| — | | |
| 2,728 | | |
| — | | |
| — | | |
| 14,173 | | |
| — | | |
| 16,901 | |
Unpaid losses and loss adjustment expenses | |
| 33,124 | | |
| 59,663 | | |
| 24,489 | | |
| 16,614 | | |
| 99,521 | | |
| 7,337 | | |
| 240,748 | |
Unearned premiums | |
| 35,059 | | |
| 31,072 | | |
| 48,636 | | |
| 10,208 | | |
| 37,663 | | |
| 2,860 | | |
| 165,498 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
Three Months Ended September 30, 2022 | |
| |
Private
Passenger Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 20,523 | | |
$ | 17,646 | | |
$ | 22,429 | | |
$ | 20,921 | | |
$ | 19,342 | | |
$ | 1,312 | | |
$ | 102,173 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 1,768 | | |
| — | | |
| 692 | | |
| 2,460 | |
Ceded premiums earned | |
| (710 | ) | |
| (67 | ) | |
| (2,678 | ) | |
| (8,123 | ) | |
| (3,458 | ) | |
| (65 | ) | |
| (15,101 | ) |
Net premiums earned | |
| 19,813 | | |
| 17,579 | | |
| 19,751 | | |
| 14,566 | | |
| 15,884 | | |
| 1,939 | | |
| 89,532 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 20,969 | | |
| 11,958 | | |
| 34,051 | | |
| 12,040 | | |
| 14,646 | | |
| 782 | | |
| 94,446 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 539 | | |
| — | | |
| 329 | | |
| 868 | |
Ceded losses and loss adjustment expenses | |
| (615 | ) | |
| — | | |
| (5,229 | ) | |
| (5,605 | ) | |
| (4,834 | ) | |
| (114 | ) | |
| (16,397 | ) |
Net losses and loss adjustment expenses | |
| 20,354 | | |
| 11,958 | | |
| 28,822 | | |
| 6,974 | | |
| 9,812 | | |
| 997 | | |
| 78,917 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| (541 | ) | |
| 5,621 | | |
| (9,071 | ) | |
| 7,592 | | |
| 6,072 | | |
| 942 | | |
| 10,615 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 5,061 | | |
| 6,399 | | |
| 5,396 | | |
| 343 | | |
| 5,840 | | |
| 462 | | |
| 23,501 | |
Underwriting gain (loss) | |
| (5,602 | ) | |
| (778 | ) | |
| (14,467 | ) | |
| 7,249 | | |
| 232 | | |
| 480 | | |
| (12,886 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 246 | | |
| | | |
| | | |
| | | |
| | | |
| 476 | |
| |
| | | |
| (532 | ) | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,035 | |
Net investment losses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (2,868 | ) |
Loss before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (13,243 | ) |
Income tax benefit | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (3,074 | ) |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (10,169 | ) |
Net loss attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (184 | ) |
Net loss attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (9,985 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expense ratio | |
| 102.7% | | |
| 68.0% | | |
| 145.9% | | |
| 47.9% | | |
| 61.8% | | |
| 51.4% | | |
| 88.1% | |
Expense ratio | |
| 25.6% | | |
| 36.4% | | |
| 27.3% | | |
| 2.3% | | |
| 36.8% | | |
| 23.8% | | |
| 26.3% | |
Combined ratio | |
| 128.3% | | |
| 104.4% | | |
| 173.2% | | |
| 50.2% | | |
| 98.6% | | |
| 75.2% | | |
| 114.4% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at September 30, 2022: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
$ | 21,252 | | |
$ | 17,754 | | |
$ | 9,461 | | |
$ | 42,395 | | |
$ | 11,343 | | |
$ | 765 | | |
$ | 102,970 | |
Deferred policy acquisition costs | |
| 5,311 | | |
| 8,992 | | |
| 7,708 | | |
| 436 | | |
| 6,928 | | |
| 444 | | |
| 29,819 | |
Reinsurance recoverables on losses | |
| 1,135 | | |
| — | | |
| 7,035 | | |
| 8,226 | | |
| 15,763 | | |
| 831 | | |
| 32,990 | |
Goodwill and other intangibles | |
| — | | |
| 2,773 | | |
| — | | |
| — | | |
| 14,595 | | |
| — | | |
| 17,368 | |
Unpaid losses and loss adjustment expenses | |
| 29,821 | | |
| 41,231 | | |
| 31,792 | | |
| 25,244 | | |
| 49,545 | | |
| 8,304 | | |
| 185,937 | |
Unearned premiums | |
| 31,331 | | |
| 27,031 | | |
| 44,841 | | |
| 11,071 | | |
| 37,042 | | |
| 3,093 | | |
| 154,409 | |
Payable to Federal Crop Insurance Corporation | |
| — | | |
| — | | |
| — | | |
| 4,700 | | |
| — | | |
| — | | |
| 4,700 | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
Nine Months Ended September 30, 2023 | |
| |
Private
Passenger Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 64,426 | | |
$ | 64,049 | | |
$ | 69,077 | | |
$ | 32,800 | | |
$ | 61,850 | | |
$ | 3,974 | | |
$ | 296,176 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 2,293 | | |
| — | | |
| 1,155 | | |
| 3,448 | |
Ceded premiums earned | |
| (2,995 | ) | |
| (295 | ) | |
| (7,363 | ) | |
| (12,735 | ) | |
| (13,440 | ) | |
| (253 | ) | |
| (37,081 | ) |
Net premiums earned | |
| 61,431 | | |
| 63,754 | | |
| 61,714 | | |
| 22,358 | | |
| 48,410 | | |
| 4,876 | | |
| 262,543 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 50,227 | | |
| 50,015 | | |
| 42,548 | | |
| 16,932 | | |
| 76,050 | | |
| 1,345 | | |
| 237,117 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 558 | | |
| — | | |
| 324 | | |
| 882 | |
Ceded losses and loss adjustment expenses | |
| 867 | | |
| — | | |
| (1,862 | ) | |
| (6,363 | ) | |
| (29,535 | ) | |
| (1,211 | ) | |
| (38,104 | ) |
Net losses and loss adjustment expenses | |
| 51,094 | | |
| 50,015 | | |
| 40,686 | | |
| 11,127 | | |
| 46,515 | | |
| 458 | | |
| 199,895 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 10,337 | | |
| 13,739 | | |
| 21,028 | | |
| 11,231 | | |
| 1,895 | | |
| 4,418 | | |
| 62,648 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 18,249 | | |
| 26,349 | | |
| 18,515 | | |
| 4,630 | | |
| 18,146 | | |
| 1,286 | | |
| 87,175 | |
Underwriting gain (loss) | |
| (7,912 | ) | |
| (12,610 | ) | |
| 2,513 | | |
| 6,601 | | |
| (16,251 | ) | |
| 3,132 | | |
| (24,527 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 748 | | |
| | | |
| | | |
| | | |
| | | |
| 1,228 | |
| |
| | | |
| (11,862 | ) | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 7,495 | |
Net investment gains | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 15 | |
Loss before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (15,789 | ) |
Income tax benefit | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (3,352 | ) |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (12,437 | ) |
Net loss attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (336 | ) |
Net loss attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (12,101 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expense ratio | |
| 83.2% | | |
| 78.5% | | |
| 65.9% | | |
| 49.8% | | |
| 96.1% | | |
| 9.4% | | |
| 76.1% | |
Expense ratio | |
| 29.7% | | |
| 41.3% | | |
| 30.0% | | |
| 20.7% | | |
| 37.5% | | |
| 26.4% | | |
| 33.2% | |
Combined ratio | |
| 112.9% | | |
| 119.8% | | |
| 95.9% | | |
| 70.5% | | |
| 133.6% | | |
| 35.8% | | |
| 109.3% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| |
Nine Months Ended September 30, 2022 | |
| |
Private
Passenger Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 59,648 | | |
$ | 47,665 | | |
$ | 65,312 | | |
$ | 38,612 | | |
$ | 54,733 | | |
$ | 3,853 | | |
$ | 269,823 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 2,259 | | |
| — | | |
| 3,753 | | |
| 6,012 | |
Ceded premiums earned | |
| (1,830 | ) | |
| (196 | ) | |
| (6,393 | ) | |
| (14,023 | ) | |
| (9,630 | ) | |
| (148 | ) | |
| (32,220 | ) |
Net premiums earned | |
| 57,818 | | |
| 47,469 | | |
| 58,919 | | |
| 26,848 | | |
| 45,103 | | |
| 7,458 | | |
| 243,615 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 52,360 | | |
| 24,582 | | |
| 103,430 | | |
| 25,173 | | |
| 42,791 | | |
| 2,275 | | |
| 250,611 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 781 | | |
| — | | |
| 1,632 | | |
| 2,413 | |
Ceded losses and loss adjustment expenses | |
| (442 | ) | |
| — | | |
| (5,938 | ) | |
| (8,819 | ) | |
| (9,970 | ) | |
| (214 | ) | |
| (25,383 | ) |
Net losses and loss adjustment expenses | |
| 51,918 | | |
| 24,582 | | |
| 97,492 | | |
| 17,135 | | |
| 32,821 | | |
| 3,693 | | |
| 227,641 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 5,900 | | |
| 22,887 | | |
| (38,573 | ) | |
| 9,713 | | |
| 12,282 | | |
| 3,765 | | |
| 15,974 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 16,382 | | |
| 19,357 | | |
| 17,425 | | |
| 1,400 | | |
| 16,752 | | |
| 1,835 | | |
| 73,151 | |
Underwriting gain (loss) | |
| (10,482 | ) | |
| 3,530 | | |
| (55,998 | ) | |
| 8,313 | | |
| (4,470 | ) | |
| 1,930 | | |
| (57,177 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 888 | | |
| | | |
| | | |
| | | |
| | | |
| 1,319 | |
| |
| | | |
| 4,418 | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 5,703 | |
Net investment losses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (19,532 | ) |
Loss before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (69,687 | ) |
Income tax benefit | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (14,921 | ) |
Net loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (54,766 | ) |
Net loss attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (780 | ) |
Net loss attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (53,986 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expense ratio | |
| 89.8% | | |
| 51.8% | | |
| 165.5% | | |
| 63.8% | | |
| 72.8% | | |
| 49.5% | | |
| 93.5% | |
Expense ratio | |
| 28.3% | | |
| 40.8% | | |
| 29.6% | | |
| 5.2% | | |
| 37.1% | | |
| 24.6% | | |
| 30.0% | |
Combined ratio | |
| 118.1% | | |
| 92.6% | | |
| 195.1% | | |
| 69.0% | | |
| 109.9% | | |
| 74.1% | | |
| 123.5% | |
Item 2. - Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion is intended to provide a more comprehensive
review of our operating results and financial condition than can be obtained from reading the unaudited consolidated financial statements
alone. This discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included
in Part I, Item 1, “Financial Statements.” Some of the information contained in this discussion and analysis or set forth
elsewhere in this Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking
Statements” included elsewhere in this Form 10-Q. Part I, Item 1A, “Risk Factors” included in our 2022 Annual Report
should also be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described,
or implied by, the forward-looking statements contained herein.
All dollar amounts included in Item 2 herein are in thousands.
Results of Operations
Our consolidated net income was $298 for the three months ended
September 30, 2023, compared to net loss of $10,169 for the three months ended September 30, 2022. Our consolidated net loss was $12,437
for the nine months ended September 30, 2023, compared to net loss of $54,766 for the nine months ended September 30, 2022.
The major components of revenues and net loss are shown below:
| |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenues: | |
| | |
| | |
| | |
| |
Net premiums earned | |
$ | 90,770 | | |
$ | 89,532 | | |
$ | 262,543 | | |
$ | 243,615 | |
Fee and other income | |
| 455 | | |
| 476 | | |
| 1,228 | | |
| 1,319 | |
Net investment income | |
| 2,751 | | |
| 2,035 | | |
| 7,495 | | |
| 5,703 | |
Net investment gains (losses) | |
| (1,227 | ) | |
| (2,868 | ) | |
| 15 | | |
| (19,532 | ) |
Total revenues | |
| 92,749 | | |
| 89,175 | | |
| 271,281 | | |
| 231,105 | |
| |
| | | |
| | | |
| | | |
| | |
Components of net income: | |
| | | |
| | | |
| | | |
| | |
Net premiums earned | |
| 90,770 | | |
| 89,532 | | |
| 262,543 | | |
| 243,615 | |
Losses and loss adjustment expenses | |
| 63,564 | | |
| 78,917 | | |
| 199,895 | | |
| 227,641 | |
Amortization of deferred policy acquisition costs and other underwriting and general expenses | |
| 29,057 | | |
| 23,501 | | |
| 87,175 | | |
| 73,151 | |
Underwriting loss | |
| (1,851 | ) | |
| (12,886 | ) | |
| (24,527 | ) | |
| (57,177 | ) |
| |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| 455 | | |
| 476 | | |
| 1,228 | | |
| 1,319 | |
Net investment income | |
| 2,751 | | |
| 2,035 | | |
| 7,495 | | |
| 5,703 | |
Net investment gains (losses) | |
| (1,227 | ) | |
| (2,868 | ) | |
| 15 | | |
| (19,532 | ) |
Income (loss) before income taxes | |
| 128 | | |
| (13,243 | ) | |
| (15,789 | ) | |
| (69,687 | ) |
Income tax benefit | |
| (170 | ) | |
| (3,074 | ) | |
| (3,352 | ) | |
| (14,921 | ) |
Net income (loss) | |
$ | 298 | | |
$ | (10,169 | ) | |
$ | (12,437 | ) | |
$ | (54,766 | ) |
Net Premiums Earned
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net premiums earned: | |
| | | |
| | | |
| | | |
| | |
Direct premium | |
$ | 104,540 | | |
$ | 102,173 | | |
$ | 296,176 | | |
$ | 269,823 | |
Assumed premium | |
| 2,045 | | |
| 2,460 | | |
| 3,448 | | |
| 6,012 | |
Ceded premium | |
| (15,815 | ) | |
| (15,101 | ) | |
| (37,081 | ) | |
| (32,220 | ) |
Total net premiums earned | |
$ | 90,770 | | |
$ | 89,532 | | |
$ | 262,543 | | |
$ | 243,615 | |
| |
| | | |
| | | |
| | | |
| | |
Our net premiums earned for the three months ended September 30,
2023, increased $1,238, or 1.4%, compared to the three months ended September 30, 2022. Net premiums earned for the nine months ended
September 30, 2023, increased $18,928, or 7.8%, compared to the nine months ended September 30, 2022.
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net premiums earned: | |
| | | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | 21,235 | | |
$ | 19,813 | | |
$ | 61,431 | | |
$ | 57,818 | |
Non-standard auto | |
| 21,231 | | |
| 17,579 | | |
| 63,754 | | |
| 47,469 | |
Home and farm | |
| 21,309 | | |
| 19,751 | | |
| 61,714 | | |
| 58,919 | |
Crop | |
| 9,746 | | |
| 14,566 | | |
| 22,358 | | |
| 26,848 | |
Commercial | |
| 15,751 | | |
| 15,884 | | |
| 48,410 | | |
| 45,103 | |
All other | |
| 1,498 | | |
| 1,939 | | |
| 4,876 | | |
| 7,458 | |
Total net premiums earned | |
$ | 90,770 | | |
$ | 89,532 | | |
$ | 262,543 | | |
$ | 243,615 | |
Below are comments regarding net premiums earned by business segment:
Private passenger auto – Net premiums earned
for the third quarter of 2023 increased $1,422, or 7.2%, from the third quarter of 2022. Net premiums earned for the first nine months
of 2023 increased $3,613, or 6.2% from the first nine months of 2022. Results were driven by significant rate increases in North Dakota,
South Dakota, and Nebraska, partially offset by lower new business production as a result of underwriting actions taken to improve profitability.
Non-standard auto – Net premiums earned for
the third quarter of 2023 increased $3,652, or 20.8%, from the third quarter of 2022. Net premiums earned for the first nine months of
2023 increased $16,285, or 34.3% from the first nine months of 2022. Results were driven by new business growth, improved retention, and
significant rate increases in the Chicago market where our non-standard auto business is concentrated.
Home and farm – Net premiums earned for the
third quarter of 2023 increased $1,558, or 7.9%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023
increased $2,795, or 4.7% from the first nine months of 2022. Results were driven by rate increases along with increased insured property
values, which were primarily the result of higher inflationary factors. These premium increases were partially offset by lower levels
of new business production as a result of underwriting actions taken to improve profitability.
Crop – Net premiums earned for the third quarter
of 2023 decreased $4,820, or 33.1%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 decreased $4,490,
or 16.7% from the first nine months of 2022. These decreases were driven by lower commodity prices and lower muti-peril crop insurance
rates, combined with fewer acres insured in the current year.
Commercial – Net premiums earned for the third
quarter of 2023 decreased $133, or 0.8%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 increased
$3,307, or 7.3% from the first nine months of 2022. The current quarter decrease was driven by higher levels of ceded premium. The year-to-date
increase was driven by prior period new business growth, increased insured values which were primarily the result of higher inflationary
factors, and continued increases in rate, partially offset by higher levels of ceded premium and the impact of underwriting actions taken
to improve profitability.
All other – Net premiums earned for the third
quarter of 2023 decreased $441, or 22.7%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 decreased
$2,582, or 34.6%, from the first nine months of 2022. These decreases were driven by the decision to non-renew our participation in an
assumed domestic and international reinsurance pool of business as of January 1, 2022.
Losses and Loss Adjustment Expenses
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net losses and loss adjustment expenses: | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
$ | 71,107 | | |
$ | 94,446 | | |
$ | 237,117 | | |
$ | 250,611 | |
Assumed losses and loss adjustment expenses | |
| 725 | | |
| 868 | | |
| 882 | | |
| 2,413 | |
Ceded losses and loss adjustment expenses | |
| (8,268 | ) | |
| (16,397 | ) | |
| (38,104 | ) | |
| (25,383 | ) |
Total net losses and loss adjustment expenses | |
$ | 63,564 | | |
$ | 78,917 | | |
$ | 199,895 | | |
$ | 227,641 | |
Our net losses and loss adjustment expenses for the three months
ended September 30, 2023, decreased $15,353, or 19.5%, compared to the three months ended September 30, 2022. Our net losses and loss
adjustment expenses for the nine months ended September 30, 2023, decreased $27,746, or 12.2%, compared to the nine months ended September
30, 2022.
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net losses and loss adjustment expenses: | |
| | | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | 16,603 | | |
$ | 20,354 | | |
$ | 51,094 | | |
$ | 51,918 | |
Non-standard auto | |
| 18,838 | | |
| 11,958 | | |
| 50,015 | | |
| 24,582 | |
Home and farm | |
| 14,052 | | |
| 28,822 | | |
| 40,686 | | |
| 97,492 | |
Crop | |
| 3,690 | | |
| 6,974 | | |
| 11,127 | | |
| 17,135 | |
Commercial | |
| 10,272 | | |
| 9,812 | | |
| 46,515 | | |
| 32,821 | |
All other | |
| 109 | | |
| 997 | | |
| 458 | | |
| 3,693 | |
Total net losses and loss adjustment expenses | |
$ | 63,564 | | |
$ | 78,917 | | |
$ | 199,895 | | |
$ | 227,641 | |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Loss and loss adjustment expenses ratio: | |
| | | |
| | | |
| | | |
| | |
Private passenger auto | |
| 78.2% | | |
| 102.7% | | |
| 83.2% | | |
| 89.8% | |
Non-standard auto | |
| 88.7% | | |
| 68.0% | | |
| 78.5% | | |
| 51.8% | |
Home and farm | |
| 65.9% | | |
| 145.9% | | |
| 65.9% | | |
| 165.5% | |
Crop | |
| 37.9% | | |
| 47.9% | | |
| 49.8% | | |
| 63.8% | |
Commercial | |
| 65.2% | | |
| 61.8% | | |
| 96.1% | | |
| 72.8% | |
All other | |
| 7.3% | | |
| 51.4% | | |
| 9.4% | | |
| 49.5% | |
Total loss and loss adjustment expenses ratio | |
| 70.0% | | |
| 88.1% | | |
| 76.1% | | |
| 93.5% | |
Below are comments regarding significant changes in the net losses
and loss adjustment expenses, and the net loss and loss adjustment expense ratios, by business segment:
Private passenger auto – The net loss and loss
adjustment expense ratio decreased 24.5 percentage points and 6.6 percentage points in the three- and nine-month periods ended September
30, 2023, respectively, compared to the same periods in 2022. Both periods were affected by lower loss frequency in the current year,
partially offset by elevated loss costs due to continued high levels of inflation during the current year and elevated winter weather-related
losses in the first quarter of 2023.
Non-standard auto – The net loss and loss adjustment
expense ratio increased 20.7 percentage points and 26.7 percentage points in the three- and nine-month periods ended September 30, 2023,
respectively, compared to the same periods in 2022. These increases were driven by elevated loss severity as a result of inflationary
factors as well as unfavorable prior year loss reserve development. We continue to take significant rate and underwriting actions as a
result of these elevated losses and challenging market conditions.
Home and farm – The net loss and loss adjustment expense
ratio decreased 80.0 percentage points and 99.6 percentage points in the three- and nine-month periods ended September 30, 2023, respectively,
compared to the same periods in 2022. These decreases in net loss and loss adjustment expense ratios were driven by the much-improved
loss experience as a result of having no catastrophe losses during 2023 compared to 2022, combined with improved non-catastrophe weather
losses and the significant underwriting actions we have implemented to address the profitability on these lines of business. Catastrophe
losses for the Home and Farm segment accounted for 96.3 percentage points of the net loss and loss adjustment expense ratio for the nine
months ended September 30, 2022.
Crop – The net loss and loss adjustment expense
ratio decreased 10.0 percentage points and 14.0 percentage points in the three- and nine-month periods ended September 30, 2023, respectively,
compared to the same periods in 2022. These decreases were driven by improved crop growing conditions compared to the prior year.
Commercial – The net
loss and loss adjustment expense ratio increased 3.4 percentage points and 23.3 percentage points in the three- and nine-month periods
ended September 30, 2023, respectively, compared to the same periods in 2022. These increases were driven by unfavorable prior year reserve
development and elevated loss severity, partially offset by higher ceded losses. We continue to take significant rate and underwriting
actions and continue to evaluate additional measures to improve the segment’s profitability.
All other – The net loss and loss adjustment
expense ratio decreased 44.1 percentage points and 40.1 percentage points in the three-and nine-month periods ended September 30, 2023,
respectively, compared to the same period for 2022. These decreases were driven by improved loss experience related to the excess liability
lines of business.
Underwriting and General Expenses and Expense Ratio
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Underwriting and general expenses: | |
| | | |
| | | |
| | | |
| | |
Amortization of deferred policy acquisition costs | |
$ | 20,362 | | |
$ | 17,589 | | |
$ | 59,529 | | |
$ | 49,456 | |
Other underwriting and general expenses | |
| 8,695 | | |
| 5,912 | | |
| 27,646 | | |
| 23,695 | |
Total underwriting and general expenses | |
| 29,057 | | |
| 23,501 | | |
| 87,175 | | |
| 73,151 | |
| |
| | | |
| | | |
| | | |
| | |
Expense Ratio | |
| 32.0% | | |
| 26.3% | | |
| 33.2% | | |
| 30.0% | |
The expense ratio is calculated by dividing other underwriting and
general expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company’s
operational efficiency in producing, underwriting, and administering its insurance business. The overall expense ratio increased 5.7 percentage
points and 3.2 percentage points in the three-and nine-month periods ended September 30, 2023, respectively, compared to the same periods
in 2022. The increase in both the current quarter and year-to-date amortization of deferred policy acquisition costs was driven by higher
deferrable costs resulting from overall premium growth compared to the prior year, including significant growth in the non-standard auto
segment which generally pays higher agent commissions than our other segments. The increase in both the current quarter and year-to-date
other underwriting and general expenses was due to 2022 expenses being impacted by multi-peril crop insurance final settlements as well
as the impact of continued high levels of inflation.
Underwriting Gain (Loss) and Combined Ratio
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Underwriting gain (loss): | |
| | | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | (1,446 | ) | |
$ | (5,602 | ) | |
$ | (7,912 | ) | |
$ | (10,482 | ) |
Non-standard auto | |
| (6,278 | ) | |
| (778 | ) | |
| (12,610 | ) | |
| 3,530 | |
Home and farm | |
| 1,098 | | |
| (14,467 | ) | |
| 2,513 | | |
| (55,998 | ) |
Crop | |
| 4,106 | | |
| 7,249 | | |
| 6,601 | | |
| 8,313 | |
Commercial | |
| (331 | ) | |
| 232 | | |
| (16,251 | ) | |
| (4,470 | ) |
All other | |
| 1,000 | | |
| 480 | | |
| 3,132 | | |
| 1,930 | |
Total underwriting loss | |
$ | (1,851 | ) | |
$ | (12,886 | ) | |
$ | (24,527 | ) | |
$ | (57,177 | ) |
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Combined ratio: | |
| | | |
| | | |
| | | |
| | |
Private passenger auto | |
| 106.8% | | |
| 128.3% | | |
| 112.9% | | |
| 118.1% | |
Non-standard auto | |
| 129.5% | | |
| 104.4% | | |
| 119.8% | | |
| 92.6% | |
Home and farm | |
| 94.8% | | |
| 173.2% | | |
| 95.9% | | |
| 195.1% | |
Crop | |
| 57.9% | | |
| 50.2% | | |
| 70.5% | | |
| 69.0% | |
Commercial | |
| 102.1% | | |
| 98.6% | | |
| 133.6% | | |
| 109.9% | |
All other | |
| 33.3% | | |
| 75.2% | | |
| 35.8% | | |
| 74.1% | |
Combined ratio | |
| 102.0% | | |
| 114.4% | | |
| 109.3% | | |
| 123.5% | |
Underwriting gain (loss) measures the pre-tax profitability of our
insurance operations. It is derived by subtracting losses and loss adjustment expenses, amortization of deferred policy acquisition costs,
and other underwriting and general expenses from net premiums earned. The combined ratio represents the sum of these losses and expenses
as a percentage of net premiums earned and measures our overall underwriting profit.
The total underwriting loss decreased $11,035, or 85.6%, for the
three-month period ended September 30, 2023, compared to the same period in 2022. The total underwriting loss decreased $32,650, or 57.1%,
for the nine-month period ended September 30, 2023, compared to the same period in 2022. These results were driven by the factors discussed
in the Loss and Loss Adjustment Expenses section above.
The overall combined ratio decreased 12.4 percentage points in the
three-month period ended September 30, 2023, compared to the same period in 2022. The overall combined ratio decreased 14.2 percentage
points in the nine-month period ended September 30, 2023, compared to the same period in 2022. These results were driven by the factors
discussed in the Loss and Loss Adjustment Expenses section above.
Fee and Other Income
We had fee and other income of $455 and $1,228 for the three and
nine months ended September 30, 2023, respectively, compared to $476 and $1,319 for the three and nine months ended September 30, 2022,
respectively. Fee income is largely attributable to the non-standard auto segment and is a key component in measuring its profitability.
The decrease in fee and other income for the nine-month period ended September 30, 2023, was driven by a shifting mix of business in the
Chicago market as well as miscellaneous income from the sale of property in the first quarter of the prior year.
Net Investment Income
The following table shows our average cash and invested assets,
net investment income, and return on average cash and invested assets for the reported periods:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Average cash and invested assets | |
$ | 399,408 | | |
$ | 436,714 | | |
$ | 402,508 | | |
$ | 468,026 | |
Net investment income | |
$ | 2,751 | | |
$ | 2,035 | | |
$ | 7,495 | | |
$ | 5,703 | |
| |
| | | |
| | | |
| | | |
| | |
Gross return on average cash and invested assets | |
| 3.6% | | |
| 2.6% | | |
| 3.3% | | |
| 2.4% | |
Net return on average cash and invested assets | |
| 2.8% | | |
| 1.9% | | |
| 2.5% | | |
| 1.6% | |
| |
| | | |
| | | |
| | | |
| | |
Net investment income increased $716 for the three months ended
September 30, 2023, compared to the three months ended September 30, 2022. Net investment income increased $1,792 for the nine months
ended September 30, 2023, compared to the nine months ended September 30, 2022. These increases were primarily driven by the rising interest
rate environment which resulted in higher reinvestment rates in our fixed income portfolio.
Gross and net return on average cash and invested assets increased
year-over-year, driven by the higher net investment income and a higher proportion of the equity portfolio being invested in high dividend
yield equities in 2023, along with a decrease in average cash and invested assets (measured at fair value). This decrease in average cash
and invested assets was driven by lower fixed income fair values caused by an increasing interest rate environment and challenging equity
market conditions particularly during the middle and later stages of 2022, combined with investment sales as a result of an unusually
high number of weather-related losses in 2022.
Net Investment Gains (Losses)
Net investment gains (losses) consisted of the following:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Gross realized gains | |
$ | 722 | | |
$ | 1,286 | | |
$ | 13,810 | | |
$ | 3,606 | |
Gross realized losses, excluding credit impairment losses | |
| (191 | ) | |
| (1,203 | ) | |
| (1,812 | ) | |
| (1,558 | ) |
Net realized gains | |
| 531 | | |
| 83 | | |
| 11,998 | | |
| 2,048 | |
Change in net unrealized gains on equity securities | |
| (1,758 | ) | |
| (2,951 | ) | |
| (11,983 | ) | |
| (21,580 | ) |
Net investment gains (losses) | |
$ | (1,227 | ) | |
$ | (2,868 | ) | |
$ | 15 | | |
$ | (19,532 | ) |
We had net realized gains of $531 and $11,998 for the three and
nine months ended September 30, 2023, respectively, compared to net realized gains of $83 and $2,048 for the three and nine months ended
September 30, 2022, respectively. The year-to-date increase in net realized gains was primarily the result of a strategic liquidation
of a portfolio of equity securities in the first quarter of 2023. The gross realized gains from the sale of these securities were largely
offset by the elimination of the unrealized gain position of these securities. No credit impairment losses were reported during any of
the periods presented.
We experienced a decrease in net unrealized gains on equity securities
of $1,758 and $11,983 during the three and nine months ended September 30, 2023, respectively, and a decrease in net unrealized gains
on equity securities of $2,951 and $21,580 during the three and nine months ended September 30, 2022, respectively. The current period
year-to-date change in net unrealized gains on equity securities was driven by the equity portfolio liquidation noted above, additional
sales of equity securities during the current quarter, and the impact of changes in fair value attributable to equity market volatility.
The prior year decreases were driven by the impact of changes in fair value attributable to unfavorable equity markets.
Our fixed income securities are classified as available for sale
because we will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies.
The fixed income portion of the portfolio experienced net unrealized losses of $9,183 and net unrealized losses of $6,068 during the three
and nine months ended September 30, 2023, respectively, compared to net unrealized losses of $12,727 and $49,947 during the three and
nine months ended September 30, 2022, respectively. The changes were primarily the result of changes in U.S. interest rates. The change
in the fair value of fixed income securities is not reflected in net income; rather it is reflected as a separate component (net of income
taxes) of other comprehensive income.
Income (Loss) before Income Taxes
For the three months ended September 30, 2023, we had a pre-tax
income of $128 compared to a pre-tax loss of $13,243 for the three months ended September 30, 2022. For the nine months ended September
30, 2023, we had a pre-tax loss of $15,789 compared to pre-tax loss of $69,687 for the nine months ended September 30, 2022. These year-over-year
improvements were largely attributable to the significant catastrophe losses during the second and third quarters of 2022 and significantly
higher investment losses during the first nine months of 2022, partially offset by year-to-date unfavorable prior year reserve development
during 2023 combined with year-to-date favorable prior year reserve development during 2022.
Income Tax Expense (Benefit)
We recorded an income tax benefit of $170 for the three months ended
September 30, 2023, compared to an income tax benefit of $3,074 for the three months ended September 30, 2022. Our effective tax rate
for the third quarter of 2023 was (132.8)% compared to an effective tax rate of 23.2% for the third quarter of 2022. The elevated 2023
third quarter effective tax rate was driven by the level of net income during the period and small modifications made to the annual effective
income tax rate between the second and third quarters of 2023.
We recorded an income tax benefit of $3,352 for the nine months
ended September 30, 2023, compared to income tax benefit of $14,921 for the nine months ended September 30, 2022. Our effective tax rate
for the first nine months of 2023 was 21.2% compared to an effective tax rate of 21.4% for the first nine months of 2022.
Net Income (Loss)
For the three months ended September 30, 2023, we had net income
before non-controlling interest of $298 compared to a net loss of $10,169 for the three months ended September 30, 2022. For the nine
months ended September 30, 2023, we had a net loss before non-controlling interest of $12,437 compared to net loss of $54,766 for the
nine months ended September 30, 2022. These year-over-year improvements were largely attributable to the significant catastrophe losses
during the second and third quarters of 2022 and significantly higher investment losses during the first nine months of 2022, partially
offset by year-to-date unfavorable prior year reserve development during 2023 combined with year-to-date favorable prior year reserve
development during 2022.
Return on Average Equity
For the three months ended September 30, 2023, we had annualized
return on average equity, after non-controlling interest, of 0.4% compared to annualized return on average equity, after non-controlling
interest, of (15.4)% for the three months ended September 30, 2022.
For the nine months ended September 30, 2023, we had annualized
return on average equity, after non-controlling interest, of (6.7)% compared to annualized return on average equity, after non-controlling
interest, of (24.3)% for the nine months ended September 30, 2022.
Average equity is calculated as the average between beginning and
ending equity, excluding non-controlling interest, for the period.
Critical Accounting Policies
The preparation of financial statements in accordance with GAAP
requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make
estimates and assumptions in certain circumstances that affect amounts reported in the unaudited consolidated financial statements and
related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions,
industry trends, and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual
results will conform to these estimates and assumptions or that reported results of operations will not be materially and adversely affected
by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Our critical accounting
policies are more fully described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of
Operations” presented in our 2022 Annual Report. There have been no changes in our critical accounting policies from December 31,
2022.
Liquidity and Capital Resources
We expect to generate sufficient funds from our operations and maintain
a high degree of liquidity in our investment portfolio to meet the demands of claim settlements and operating expenses for the foreseeable
future. Our primary sources of funds are premium collections, investment earnings, and fixed income maturities.
The change in cash and cash equivalents for the nine months ended
September 30, 2023 and 2022, were as follows:
| |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | |
Net cash flows from operating activities | |
$ | (3,021 | ) | |
$ | (24,680 | ) |
Net cash flows from investing activities | |
| (2,021 | ) | |
| 18,639 | |
Net cash flows from financing activities | |
| (7,454 | ) | |
| (10,305 | ) |
Net decrease in cash and cash equivalents | |
$ | (12,496 | ) | |
$ | (16,346 | ) |
For the nine months ended September 30, 2023, net cash used by operating
activities totaled $3,021 compared to $24,680 a year ago. This decrease was primarily driven by lower claim payments during the current
period and higher levels of cash received for premiums.
For the nine months ended September 30, 2023, net cash used by investing
activities totaled $2,021 compared to net cash provided of $18,639 a year ago. This change was primarily attributable to a decrease in
maturities and sales of fixed income securities and an increase in purchases of fixed income securities in the current year compared to
the prior year, partially offset by an increase in sales of equity securities and a decrease in purchases of equity securities.
For the nine months ended September 30, 2023, net cash used by financing
activities totaled $7,454 compared to $10,305 a year ago. This decrease in cash used was attributable to an installment payment of $6,667
on the Westminster consideration payable during the first quarter of 2022, partially offset by an increase in share repurchases during
the first nine months of 2023 compared to the first nine months of 2022.
As a holding company, a principal source of long-term liquidity
will be dividend payments from our directly-owned subsidiaries.
Nodak Insurance is restricted by the insurance laws of North Dakota
as to the amount of dividends or other distributions it may pay to NI Holdings. North Dakota law sets the maximum amount of dividends
that may be paid by Nodak Insurance during any twelve-month period after notice to, but without prior approval of, the North Dakota Insurance
Department. This amount cannot exceed the lesser of (i) 10% of surplus as regards policyholders as of the preceding December 31, or (ii)
the statutory net income for the preceding calendar year (excluding realized capital gains), less any prior dividends paid during such
twelve-month period. In addition, any insurance company other than a life insurance company may carry forward net income from the preceding
two calendar years, not including realized investment gains, less any dividends actually paid during those two calendar years. Dividends
in excess of this amount are considered “extraordinary” and are subject to the approval of the North Dakota Insurance Department.
There is no amount available for payment of dividends from Nodak
Insurance to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net
loss of Nodak Insurance during the year ended December 31, 2022. Prior to its payment of any dividend, Nodak Insurance will be required
to provide notice of the dividend to the North Dakota Insurance Department. This notice must be provided to the North Dakota Insurance
Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The North
Dakota Insurance Department has the power to limit or prohibit dividend payments if an insurance company is in violation of any law or
regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or
paid by Nodak Insurance during the nine months ended September 30, 2023. The Nodak Insurance Board of Directors declared and Nodak Insurance
paid dividends of $3,000 to NI Holdings during the year ended December 31, 2022.
Direct Auto re-domesticated from Illinois to North Dakota during
2021 and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from
Direct Auto to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net
loss of Direct Auto during the year ended December 31, 2022. No dividends were declared or paid by Direct Auto during the nine months
ended September 30, 2023, or the year ended December 31, 2022.
Westminster re-domesticated from Maryland to North Dakota during
2021 and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from
Westminster to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net
loss of Westminster during the year ended December 31, 2022. No dividends were declared or paid by Westminster during the nine months
ended September 30, 2023, or the year ended December 31, 2022.
Item 3. - Quantitative and Qualitative Disclosures
about Market Risk
The Company’s assessment of market risk as of September 30,
2023, indicates there have been no material changes in the quantitative and qualitative disclosures from those in Part II, Item 7A, “Quantitative
and Qualitative Disclosures About Market Risk” in our 2022 Annual Report.
Item 4. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial
Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Rules
13a-15(b) and 15d-15(b) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end
of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required
to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such material information
is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required
disclosures. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives
of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,
if any, within a company have been detected.
Changes in Internal Controls over Financial Reporting
In the ordinary course of business, we periodically review our
system of internal control over financial reporting to identify opportunities to improve our controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. There have not been any changes in the Company’s internal
control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal
quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
Part
II. - OTHER INFORMATION
Item 1. - Legal Proceedings
We are party to litigation in the normal course of business. Based
upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant
to litigation, we cannot assure you that our results of operations and financial condition will not be materially adversely affected by
any litigation.
Item 1A. - Risk Factors
There have been no material changes in our assessment of our risk
factors from those set forth in Part I, Item 1A, “Risk Factors” in our 2022 Annual Report.
Item 2. - Unregistered Sales of Equity Securities
and Use of Proceeds
All dollar amounts included in Item 2 herein, except per share data,
are in thousands.
The Company has not sold any unregistered securities within the
past three years.
On January 17, 2017, our registration statement on Form S-1 registering
our common stock was declared effective by the SEC. On March 13, 2017, the Company completed the IPO of 10,350,000 shares of common stock
at a price of $10.00 per share. The Company received net proceeds of $93,145 from the offering, after deducting underwriting discounts
and offering expenses.
Direct Auto was acquired on August 31, 2018, with $17,000 of the
net proceeds from the IPO.
On January 1, 2020, we acquired Westminster for $40,000. We paid
$20,000 at the time of closing. The terms of the acquisition agreement included payment of the remaining $20,000, subject to certain adjustments,
in three equal installments on each of the first and second anniversaries of the closing, and on the first business day of the month preceding
the third anniversary of the closing. The first two installments were paid in January 2021 and January 2022, and the final installment
was paid in December 2022 with no adjustments from the originally anticipated amount. The Company used net proceeds from the IPO to satisfy
these obligations.
From time to time, the Company may also repurchase its own stock.
To date, the Company has used the net proceeds from the IPO to fund these share repurchases.
There has been no material change in the planned use of proceeds
from our IPO as described in our final prospectus filed with the SEC on January 17, 2017.
On August 11, 2021, our Board of Directors approved an authorization
for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock. During the year ended December 31, 2021,
we completed the repurchase of 81,095 shares of our common stock for $1,554 under this authorization. During the year ended December 31,
2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this authorization.
On May 9, 2022, our Board of Directors approved
an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. During the year ended
December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this authorization. During the nine
months ended September 30, 2023, we repurchased an additional 548,549 shares of our common stock for $7,280, including the applicable
excise tax. At September 30, 2023, $2,052 remains available under this authorization.
Share repurchase activity during the three months
ended September 30, 2023, is presented below:
Period in 2023 | |
Total Number of
Shares
Purchased | | |
Average Price
Paid
Per Share (3) | | |
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1) | | |
Maximum Approximate
Dollar Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs (2)(3)
(in thousands) | |
July 1-31, 2023 | |
| 23,183 | | |
$ | 14.14 | | |
| 23,183 | | |
$ | 5,715 | |
August 1-31, 2023 | |
| 20,643 | | |
| 13.19 | | |
| 20,643 | | |
| 5,443 | |
September 1-30, 2023 | |
| 266,559 | | |
| 12.72 | | |
| 266,559 | | |
| 2,052 | |
Total | |
| 310,385 | | |
$ | 12.86 | | |
| 310,385 | | |
$ | 2,052 | |
|
(1) |
Shares purchased pursuant to the May 9, 2022, publicly announced share repurchase authorization of up to
approximately $10,000 of the Company’s outstanding common stock. |
|
(2) |
Maximum dollar value of shares that may yet be purchased consist of up to approximately $2,052 under the
May 9, 2022, publicly announced share repurchase authorization. |
| (3) | The Inflation Reduction Act of 2022 imposed a 1% excise tax on the net value of certain share repurchases made after December 31,
2022. All dollar amounts presented exclude such excise taxes, as applicable. |
Item 3. - Defaults upon Senior Securities
Not Applicable
Item 4. - Mine Safety Disclosures
Not Applicable
Item 5. - Other Information
10b5-1 Trading Plans
During the third quarter of
2023, none of our directors or executive officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any
“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a)
of Regulation S-K).
Item 6. - Exhibits
| (1) | Filed as Exhibit 10.1 to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on August 8, 2023, and incorporated
herein by reference. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2023.
|
|
|
NI HOLDINGS, INC.
|
|
|
|
/s/ Michael J. Alexander |
|
Michael J. Alexander |
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
/s/ Seth C. Daggett |
|
Seth C. Daggett |
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer) |
|
|
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I, Michael J. Alexander, certify that:
I, Seth C. Daggett, certify that:
In connection with the quarterly report of NI Holdings, Inc. (the
“Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the
date hereof (the “Report”), we, Michael J. Alexander, President and Chief Executive Officer, and Seth C. Daggett, Chief Financial
Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that, to our knowledge: