UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM |
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For the transition period from ____ to _____
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Former name, former address, and former fiscal year, if changed since last report | ||
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: | ||
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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. ☒
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). ☒
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.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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, 2021 was
TABLE OF CONTENTS
CERTAIN IMPORTANT INFORMATION
Unless the context otherwise requires, as used in this quarterly report on 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;
•
“Nodak Mutual Group” refers to Nodak Mutual Group, Inc., which is the majority shareholder of NI Holdings;
•
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” 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. The financial results of Westminster have been included in the Consolidated Financial Statements herein since January 1, 2020. 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 document contains forward-looking statements, which can be identified by the use of such words as “estimate”, “project”, “believe”, “could”, “may”, “intend”, “anticipate”, “plan”, “seek”, “expect” and similar expressions. These forward-looking statements include:
•
statements of goals, intentions, and expectations;
•
statements regarding prospects and business strategy; and
•
estimates of future costs, benefits, and results.
The forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, among other things, the factors discussed under the heading “Risk Factors” in this Quarterly Report and our Annual Report on Form 10-K (“2020 Annual Report”) that could affect the actual outcome of future events.
All of these factors are difficult to predict and many are beyond our control. These important factors include those discussed under “Risk Factors” and those listed below:
•
material changes to the federal crop insurance program;
•
future economic conditions in the markets in which we compete that are less favorable than expected;
•
the effect of legislative, judicial, economic, demographic, and regulatory events in the jurisdictions where we do business;
•
our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our producer network;
•
our ability to successfully integrate acquired businesses;
•
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;
•
heightened competition, specifically the intensification of price competition, the entry of new competitors, and the development of new products by new or existing competitors, resulting in a reduction in the demand for our products;
•
the impact of national or global events, including pandemics, military conflicts, and other wide-spread events;
•
estimates and adequacy of loss reserves and trends in loss and loss adjustment expenses;
•
changes in the coverage terms required by state laws with respect to minimum auto liability insurance, including higher minimum limits;
•
our inability to obtain regulatory approval of, or to implement, premium rate increases;
•
our ability to obtain reinsurance coverage at reasonable prices or with terms that adequately protect us and to collect amounts that we believe we are entitled to under such reinsurance;
•
the potential impact on our reported net income that could result from the adoption of future accounting standards issued by the Securities and Exchange Commission, the Financial Accounting Standards Board, or other standard-setting bodies;
•
unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;
•
the potential impact of fraud, operational errors, systems malfunctions, or cybersecurity incidents;
•
adverse litigation or arbitration results; and
•
adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, changes that affect the cost of, or demand for our products, and tax or accounting matters including limitations on premium levels, increases in minimum capital, or other financial viability requirements.
Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from that expressed or implied by the forward-looking information.
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
NI Holdings, Inc.
Consolidated Balance Sheets
(dollar amounts in thousands, except par value)
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September 30, 2021 |
December 31, 2020 | |||||||
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(Unaudited) | ||||||||
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Assets: | ||||||||
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Cash and cash equivalents |
$ |
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$ |
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Fixed income securities, at fair value |
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Equity securities, at fair value |
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Other investments |
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Total cash and investments |
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Premiums and agents' balances receivable |
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Deferred policy acquisition costs |
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Reinsurance premiums receivable |
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Reinsurance recoverables on losses |
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Income tax recoverable |
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Accrued investment income |
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Property and equipment |
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Receivable from Federal Crop Insurance Corporation |
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Goodwill and other intangibles |
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Other assets |
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Total assets |
$ |
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$ |
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Liabilities: | ||||||||
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Unpaid losses and loss adjustment expenses |
$ |
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$ |
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Unearned premiums |
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Reinsurance premiums payable |
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Income tax payable |
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Deferred income taxes |
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Westminster consideration payable |
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Accrued expenses and other liabilities |
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Total liabilities |
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Commitments and contingencies |
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Shareholders’ equity: | ||||||||
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Common stock, $ |
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Preferred stock, without par value, authorized |
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Additional paid-in capital |
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Unearned employee stock ownership plan shares |
( |
) |
( |
) | ||||
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Retained earnings |
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Accumulated other comprehensive income, net of income taxes |
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Treasury stock, at cost, 2021 – |
( |
) |
( |
) | ||||
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Non-controlling interest |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Unaudited Consolidated Statements of Operations
(dollar amounts in thousands, except per share data)
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Three Months Ended |
Nine Months Ended | |||||||||||||||
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September 30, |
September 30, | |||||||||||||||
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2021 |
2020 |
2021 |
2020 | |||||||||||||
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Revenues: | ||||||||||||||||
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Net premiums earned |
$ |
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$ |
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$ |
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$ |
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Fee and other income |
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Net investment income |
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Net capital gain on investments |
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Total revenues |
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Expenses: | ||||||||||||||||
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Losses and loss adjustment expenses |
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Amortization of deferred policy acquisition costs |
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Other underwriting and general expenses |
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Total expenses |
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Income (loss) before income taxes |
( |
) |
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Income tax expense (benefit) |
( |
) |
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Net income (loss) |
( |
) |
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Net income (loss) attributable to non-controlling interest |
( |
) |
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( |
) |
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Net income (loss) attributable to NI Holdings, Inc. |
$ |
( |
) |
$ |
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$ |
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$ |
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Earnings (loss) per common share: | ||||||||||||||||
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Basic |
$ |
( |
) |
$ |
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$ |
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$ |
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Diluted |
$ |
( |
) |
$ |
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$ |
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$ |
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Share data: | ||||||||||||||||
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Weighted average common shares outstanding used in basic per common share calculations |
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Plus: Dilutive securities |
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Weighted average common shares used in diluted per common share calculations |
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The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(dollar amounts in thousands)
|
Three Months Ended September 30, 2021 |
Nine Months Ended September 30, 2021 | |||||||||||||||||||||||
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Attributable to NI Holdings, Inc. |
Attributable to Non- Controlling Interest |
Total |
Attributable to NI Holdings, Inc. |
Attributable to Non- Controlling Interest |
Total | |||||||||||||||||||
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Net income (loss) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
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Other comprehensive loss, before income taxes: | ||||||||||||||||||||||||
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Holding losses on investments |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
Reclassification adjustment for net realized capital gain included in net income (loss) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
Other comprehensive loss, before income taxes |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
Income tax benefit related to items of other comprehensive loss |
|
|
|
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| ||||||||||||||||||
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Other comprehensive loss, net of income taxes |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
| ||||||||||||||||||||||||
|
Comprehensive loss |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
|
Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
|
Attributable to NI Holdings, Inc. |
Attributable to Non- Controlling Interest |
Total |
Attributable to NI Holdings, Inc. |
Attributable to Non- Controlling Interest |
Total | |||||||||||||||||||
|
Net income |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||
|
| ||||||||||||||||||||||||
|
Other comprehensive income, before income taxes: | ||||||||||||||||||||||||
|
Holding gains on investments |
|
|
|
|
|
| ||||||||||||||||||
|
Reclassification adjustment for net realized capital gain (loss) included in net income |
( |
) |
|
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||
|
Other comprehensive income, before income taxes |
|
|
|
|
|
| ||||||||||||||||||
|
Income tax expense related to items of other comprehensive income |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||
|
Other comprehensive income, net of income taxes |
|
|
|
|
|
| ||||||||||||||||||
|
| ||||||||||||||||||||||||
|
Comprehensive income |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Unaudited Consolidated Statements of Changes in Shareholders’ Equity
(dollar amounts in thousands)
|
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
|
Common Stock |
Additional Paid-in Capital |
Unearned Employee Stock Ownership Plan Shares |
Retained Earnings |
Accumulated Other Comprehensive Income, Net of Income Taxes |
Treasury Stock |
Non-Controlling Interest |
Total Shareholders’ Equity | |||||||||||||||||||||||||
|
Balance, July 1, 2021 |
$ |
|
$ |
|
$ |
( |
|
$ |
|
$ |
|
$ |
( |
|
$ |
|
$ |
| ||||||||||||||
|
| ||||||||||||||||||||||||||||||||
|
Net loss |
- |
- |
- |
( |
) |
- |
- |
( |
) |
( |
) | |||||||||||||||||||||
|
Other comprehensive loss, net of income taxes |
- |
- |
- |
- |
( |
) |
- |
( |
) |
( |
) | |||||||||||||||||||||
|
Purchase of treasury stock |
- |
- |
- |
- |
- |
( |
) |
- |
( | |||||||||||||||||||||||
|
Share-based compensation |
- |
|
- |
- |
- |
- |
- |
| ||||||||||||||||||||||||
|
Balance, September 30, 2021 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
|
Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
|
Common Stock |
Additional Paid-in Capital |
Unearned Employee Stock Ownership Plan Shares |
Retained Earnings |
Accumulated Other Comprehensive Income, Net of Income Taxes |
Treasury Stock |
Non-Controlling Interest |
Total Shareholders’ Equity | |||||||||||||||||||||||||
|
Balance, January 1, 2021 |
$ |
|
$ |
|
$ |
( |
|
$ |
|
$ |
|
$ |
( |
|
$ |
|
$ |
| ||||||||||||||
|
| ||||||||||||||||||||||||||||||||
|
Net income (loss) |
- |
- |
- |
|
- |
- |
( |
) |
| |||||||||||||||||||||||
|
Other comprehensive loss, net of income taxes |
- |
- |
- |
- |
( |
) |
- |
( |
) |
( |
) | |||||||||||||||||||||
|
Purchase of treasury stock |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||
|
Share-based compensation |
- |
|
- |
- |
- |
- |
- |
| ||||||||||||||||||||||||
|
Issuance of vested award shares |
- |
( |
) |
- |
|
- |
|
- |
( |
) | ||||||||||||||||||||||
|
Balance, September 30, 2021 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Unaudited Consolidated Statements of Changes in Shareholders’ Equity
(dollar amounts in thousands)
|
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
|
Common Stock |
Additional Paid-in Capital |
Unearned Employee Stock Ownership Plan Shares |
Retained Earnings |
Accumulated Other Comprehensive Income, Net of Income Taxes |
Treasury Stock |
Non-Controlling Interest |
Total Shareholders’ Equity | |||||||||||||||||||||||||
|
Balance, July 1, 2020 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
|
| ||||||||||||||||||||||||||||||||
|
Net income |
- |
- |
- |
|
- |
- |
|
| ||||||||||||||||||||||||
|
Other comprehensive income, net of income taxes |
- |
- |
- |
- |
|
- |
|
| ||||||||||||||||||||||||
|
Purchase of treasury stock |
- |
- |
- |
- |
- |
( |
) |
- |
( | |||||||||||||||||||||||
|
Share-based compensation |
- |
|
- |
- |
- |
- |
- |
| ||||||||||||||||||||||||
|
Balance, September 30, 2020 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
|
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||
|
Common Stock |
Additional Paid-in Capital |
Unearned Employee Stock Ownership Plan Shares |
Retained Earnings |
Accumulated Other Comprehensive Income, Net of Income Taxes |
Treasury Stock |
Non-Controlling Interest |
Total Shareholders’ Equity | |||||||||||||||||||||||||
|
Balance, January 1, 2020 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
|
| ||||||||||||||||||||||||||||||||
|
Net income |
- |
- |
- |
|
- |
- |
|
| ||||||||||||||||||||||||
|
Other comprehensive income, net of income taxes |
- |
- |
- |
- |
|
- |
|
| ||||||||||||||||||||||||
|
Purchase of treasury stock |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||
|
Share-based compensation |
- |
|
- |
- |
- |
- |
- |
| ||||||||||||||||||||||||
|
Issuance of vested award shares |
- |
( |
) |
- |
( |
) |
- |
|
- |
( |
) | |||||||||||||||||||||
|
Balance, September 30, 2020 |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
( |
) |
$ |
|
$ |
| ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Unaudited Consolidated Statements of Cash Flows
(dollar amounts in thousands)
|
Nine Months Ended September 30, | ||||||||
|
2021 |
2020 | |||||||
|
Cash flows from operating activities: | ||||||||
|
Net income |
$ |
|
$ |
| ||||
|
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
|
Net capital gain on investments |
( |
) |
( |
) | ||||
|
Deferred income tax benefit |
( |
) |
( |
) | ||||
|
Depreciation of property and equipment |
|
| ||||||
|
Amortization of intangibles |
|
| ||||||
|
Share-based compensation |
|
| ||||||
|
Amortization of deferred policy acquisition costs |
|
| ||||||
|
Deferral of policy acquisition costs |
( |
) |
( |
) | ||||
|
Net amortization of premiums and discounts on investments |
|
| ||||||
|
Loss on sale of property and equipment |
|
| ||||||
|
Changes in operating assets and liabilities: | ||||||||
|
Premiums and agents’ balances receivable |
( |
) |
( |
) | ||||
|
Reinsurance premiums receivable / payable |
|
|
| |||||
|
Reinsurance recoverables on losses |
( |
) |
( |
) | ||||
|
Accrued investment income |
( |
) |
|
| ||||
|
Receivable from Federal Crop Insurance Corporation |
( |
) |
| |||||
|
Income tax recoverable / payable |
( |
) |
( |
) | ||||
|
Other assets |
( |
) |
| |||||
|
Unpaid losses and loss adjustment expenses |
|
| ||||||
|
Unearned premiums |
|
| ||||||
|
Accrued expenses and other liabilities |
|
| ||||||
|
Net cash flows from operating activities |
|
| ||||||
|
| ||||||||
|
Cash flows from investing activities: | ||||||||
|
Proceeds from maturities and sales of fixed income securities |
|
| ||||||
|
Proceeds from sales of equity securities |
|
| ||||||
|
Purchases of fixed income securities |
( |
) |
( |
) | ||||
|
Purchases of equity securities |
( |
) |
( |
) | ||||
|
Purchases of property and equipment |
( |
) |
( |
) | ||||
|
Acquisition of Westminster American Insurance Company (cash consideration paid net of cash and cash equivalents acquired) |
|
( |
) | |||||
|
Proceeds from sale of other investments and other |
|
( |
) | |||||
|
Net cash flows from investing activities |
( |
) |
( |
) | ||||
|
| ||||||||
|
Cash flows from financing activities: | ||||||||
|
Purchases of treasury stock |
( |
) |
( |
) | ||||
|
Installment payment on Westminster consideration payable |
( |
) |
| |||||
|
Issuance of restricted stock awards |
( |
) |
( |
) | ||||
|
Net cash flows from financing activities |
( |
) |
( |
) | ||||
|
| ||||||||
|
Net (decrease) increase in cash and cash equivalents |
( |
) |
| |||||
|
| ||||||||
|
Cash and cash equivalents at beginning of period |
|
| ||||||
|
| ||||||||
|
Cash and cash equivalents at end of period |
$ |
|
$ |
| ||||
|
| ||||||||
|
| ||||||||
|
Non-cash item: Present value of installment payable issued in connection with acquisition of Westminster American Insurance Company |
$ |
|
$ |
| ||||
|
| ||||||||
|
Federal and state income taxes paid |
$ |
|
$ |
| ||||
The accompanying notes are an integral part of these consolidated financial statements.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
1.Organization
NI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company and became such in connection with the conversion of Nodak Mutual Insurance Company 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 Company (the successor to Nodak Mutual Insurance Company) were issued to Nodak Mutual Group, Inc., which then contributed the shares to NI Holdings in exchange for
These Consolidated Financial Statements include the financial position and results of NI Holdings and seven other entities:
•
Nodak Insurance – a wholly-owned subsidiary of NI Holdings;
•
Nodak Agency – a wholly-owned subsidiary of Nodak Insurance;
•
American West – a wholly-owned subsidiary of Nodak Insurance;
•
Primero – an indirect wholly-owned subsidiary of Nodak Insurance;
•
Battle Creek – an affiliated company of Nodak Insurance;
•
Direct Auto – a wholly-owned subsidiary of NI Holdings; and
•
Westminster – a wholly-owned subsidiary of NI Holdings.
Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota. Nodak Insurance was incorporated on April 15, 1946 under the laws of North Dakota, and benefits from a strong marketing affiliation with the North Dakota Farm Bureau (“NDFB”). Nodak Insurance offers private passenger auto, homeowners, farmowners, commercial multi-peril, crop hail, and Federal multi-peril crop insurance coverages through its captive agents.
Nodak Agency, a wholly-owned subsidiary of Nodak Insurance, is an inactive shell corporation.
American West, a wholly-owned subsidiary of Nodak Insurance, is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the United States. American West began writing policies in 2002 and primarily writes personal 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 is a wholly-owned subsidiary of Tri-State, Ltd. Tri-State, Ltd. is an inactive shell corporation
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. Battle Creek is a property and casualty insurance company writing personal auto, homeowners, and farm coverages in Nebraska.
Direct Auto, a wholly-owned subsidiary of NI Holdings, is a property and casualty 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, a wholly-owned subsidiary of NI Holdings, is a property and casualty insurance company licensed in seventeen 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, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020 via a stock purchase agreement. The financial results of Westminster have been included in the Consolidated Financial Statements and the Company’s commercial segment following the acquisition close date. See Note 3.
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 AM Best.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
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 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 and are unaudited. 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 Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Annual Report”).
The preparation of the interim 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 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, 2021 are not necessarily indicative of the results that may be expected for the year ended December 31, 2021.
Our Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity we control via contract. The terms “we”, “us”, “our”, or “the Company” as used herein refer to the consolidated entity.
Our 2020 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 2020 Annual Report were consistently applied to the Unaudited Consolidated Financial Statements as of and for the nine months ended September 30, 2021.
Recent Accounting Pronouncements
As an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial accounting standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act. The following discussion includes effective dates for both public business entities and emerging growth companies, as well as whether specific guidance may be adopted early.
Adopted
In January 2020, the Company adopted amended guidance from the FASB that shortened the amortization period of premiums on certain fixed income securities held at a premium to the earliest call date rather than through the maturity date of the callable security. The adoption of this guidance did not materially impact the Company’s financial position, results of operations, or cash flows.
In March 2020, the Company adopted modified disclosure requirements from the FASB relating to the fair value of assets and liabilities. The modifications primarily related to Level 3 fair value measurements. The Company does not currently carry any Level 3 assets or liabilities. As a result, there was no impact to the Company’s financial statement disclosures.
Not Yet Adopted
In February 2016, the FASB issued new guidance that requires lessees to recognize leases, including operating leases, on the lessee’s Consolidated Balance Sheet, unless a lease is considered a short-term lease. The new guidance also requires entities to make new judgments to identify leases. In July 2018, the FASB issued additional guidance to allow an optional transition method. An entity may apply the new leases guidance at the beginning of the earliest period presented in the financial statements, or at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
new guidance was effective for annual and interim reporting periods beginning after December 15, 2018 for public business entities. For private companies and emerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for all entities. We do not expect the adoption of this new guidance to have a significant impact on our financial position, results of operations, or cash flows. Upon adoption, the Company will recognize a right of use asset and operating lease liability on its Consolidated Balance Sheet. The cumulative adjustment to retained earnings is not expected to be significant.
In June 2016, the FASB issued a new standard that requires timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance also requires financial institutions and other organizations to use forward-looking information to better form their credit loss estimates. Many of the loss estimation techniques applied prior to adoption of this standard are still permitted, although the inputs to those techniques have changed to reflect the full amount of expected credit losses. Organizations are to continue to use judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. Finally, the guidance amends the accounting for credit losses on available-for-sale fixed income securities and purchased financial assets with credit deterioration. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for filers with the Securities and Exchange Commission (“SEC”) excluding smaller reporting companies, and emerging growth companies that did not relinquish private company relief. For all other entities, this guidance will be effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted for all entities. Based on our evaluation, adoption of this new standard will not have a significant impact on our financial position, results of operations, and cash flows.
In December 2019, the FASB issued amended guidance to simplify the accounting for income taxes. The amended guidance was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, for public business entities. For private companies and emerging growth companies, the amended guidance will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. We are evaluating the impact this new guidance will have on our financial position, results of operations, and cash flows.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
3.Acquisition of Westminster American Insurance Company
On January 1, 2020, the Company completed the acquisition of
We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which was the closing date for the Westminster transaction. During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the measurement period exceed one year from the acquisition date. The measurement period for the Westminster acquisition ended December 31, 2020.
The Company incurred acquisition-related costs of $
The Company paid $20,000 in cash consideration to the private shareholder of Westminster as of the closing date, with an additional $
The following table summarizes the consideration transferred to acquire Westminster and the amounts of identified assets acquired and liabilities assumed at the acquisition date:
|
Fair Value of Consideration: | ||||
|
Cash consideration transferred |
$ |
| ||
|
Present value of future cash consideration |
| |||
|
Total cash consideration |
$ |
| ||
|
| ||||
|
Fair Value of Identifiable Assets Acquired and Liabilities Assumed: | ||||
|
Identifiable net assets: | ||||
|
Cash and cash equivalents |
$ |
| ||
|
Fixed income securities |
| |||
|
Equity securities |
| |||
|
Other investments |
| |||
|
Premiums and agents' balances receivable |
| |||
|
Reinsurance recoverables on losses |
| |||
|
Accrued investment income |
| |||
|
Property and equipment |
| |||
|
Federal income tax recoverable |
| |||
|
State insurance licenses (included in goodwill and other intangibles) |
| |||
|
Distribution network (included in goodwill and other intangibles) |
| |||
|
Trade name (included in goodwill and other intangibles) |
| |||
|
Value of business acquired (included in goodwill and other intangibles) |
| |||
|
Other assets |
| |||
|
Unpaid losses and loss adjustment expenses |
( |
) | ||
|
Unearned premiums |
( |
) | ||
|
Deferred income taxes, net |
( |
) | ||
|
Reinsurance premiums payable |
( |
) | ||
|
Accrued expenses and other liabilities |
( |
) | ||
|
Total identifiable net assets |
$ |
| ||
|
| ||||
|
Goodwill |
$ |
| ||
The fair value of the assets acquired included premiums and agents’ balances receivable of $8,507 and reinsurance recoverables on losses of $763. These are the gross amounts due from policyholders and reinsurers, respectively, none of which were anticipated to be uncollectible. The Company did not acquire any other material receivables as a result of the acquisition of Westminster.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
The fair values of the acquired distribution network, state insurance licenses, Westminster trade name, and value of business acquired (“VOBA”) intangible assets were $6,700, $1,800, $500, and $4,750, respectively. The state insurance license intangible has an indefinite life, while the other intangible assets are being amortized over useful lives of up to
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
4.Investments
The amortized cost and estimated fair value of fixed income securities as of September 30, 2021 and December 31, 2020, were as follows:
|
September 30, 2021 | ||||||||||||||||
|
Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
|
Fixed income securities: | ||||||||||||||||
|
U.S. Government and agencies |
$ |
|
$ |
|
$ |
( |
) |
$ |
| |||||||
|
Obligations of states and political subdivisions |
|
|
( |
) |
| |||||||||||
|
Corporate securities |
|
|
( |
) |
| |||||||||||
|
Residential mortgage-backed securities |
|
|
( |
) |
| |||||||||||
|
Commercial mortgage-backed securities |
|
|
( |
) |
| |||||||||||
|
Asset-backed securities |
|
|
( |
) |
| |||||||||||
|
Total fixed income securities |
$ |
|
$ |
|
$ |
( |
) |
$ |
| |||||||
|
December 31, 2020 | ||||||||||||||||
|
Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
|
Fixed income securities: | ||||||||||||||||
|
U.S. Government and agencies |
$ |
|
$ |
|
$ |
( |
) |
$ |
| |||||||
|
Obligations of states and political subdivisions |
|
|
( |
) |
| |||||||||||
|
Corporate securities |
|
|
( |
) |
| |||||||||||
|
Residential mortgage-backed securities |
|
|
( |
) |
| |||||||||||
|
Commercial mortgage-backed securities |
|
|
( |
) |
| |||||||||||
|
Asset-backed securities |
|
|
( |
) |
| |||||||||||
|
Total fixed income securities |
$ |
|
$ |
|
$ |
( |
) |
$ |
| |||||||
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 of the securities may have the right to call or prepay certain obligations, which may or may not include call or prepayment penalties.
|
September 30, 2021 | ||||||||
|
Amortized Cost |
Fair Value | |||||||
|
Due to mature: | ||||||||
|
One year or less |
$ |
|
$ |
| ||||
|
After one year through five years |
|
| ||||||
|
After five years through ten years |
|
| ||||||
|
After ten years |
|
| ||||||
|
Mortgage / asset-backed securities |
|
| ||||||
|
Total fixed income securities |
$ |
|
$ |
| ||||
|
December 31, 2020 | ||||||||
|
Amortized Cost |
Fair Value | |||||||
|
Due to mature: | ||||||||
|
One year or less |
$ |
|
$ |
| ||||
|
After one year through five years |
|
| ||||||
|
After five years through ten years |
|
| ||||||
|
After ten years |
|
| ||||||
|
Mortgage / asset-backed securities |
|
| ||||||
|
Total fixed income securities |
$ |
|
$ |
| ||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
Fixed income securities with a fair value of $
The investment category and duration of the Company’s gross unrealized losses on fixed income securities were as follows:
|
September 30, 2021 | ||||||||||||||||||||||||
|
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 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) | ||||||||||
|
Obligations of states and political subdivisions |
|
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Corporate securities |
|
( |
) |
|
( |
) |
|
( |
) | |||||||||||||||
|
Residential mortgage-backed securities |
|
( |
) |
|
|
|
( |
) | ||||||||||||||||
|
Commercial mortgage-backed securities |
|
( |
) |
|
|
|
( |
) | ||||||||||||||||
|
Asset-backed securities |
|
( |
) |
|
( |
) |
|
( |
) | |||||||||||||||
|
Total fixed income securities |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) | |||||||||
|
December 31, 2020 | ||||||||||||||||||||||||
|
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 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) | ||||||||||
|
Obligations of states and political subdivisions |
|
( |
) |
|
|
|
|
( |
) | |||||||||||||||
|
Corporate securities |
|
( |
) |
|
( |
) |
|
( |
) | |||||||||||||||
|
Residential mortgage-backed securities |
|
( |
) |
|
|
|
( |
) | ||||||||||||||||
|
Commercial mortgage-backed securities |
|
( |
) |
|
|
|
( |
) | ||||||||||||||||
|
Asset-backed securities |
|
( |
) |
|
( |
) |
|
( |
) | |||||||||||||||
|
Total fixed income securities |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
$ |
( |
) | |||||||||
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.
We frequently review our investment portfolio for declines in fair value. Our process for identifying declines in the fair value of investments that are other than temporary involves consideration of several factors. These factors include (i) the time period in which there has been a significant decline in value, (ii) an analysis of the liquidity, business prospects, and overall financial condition of the issuer, (iii) the significance of the decline, and (iv) our intent and ability to hold the investment for a sufficient period of time for the value to recover. When our analysis of the above factors results in the conclusion that declines in fair values are other than temporary, the credit loss component of the impairment is reflected in net income (loss) as a realized capital loss on investment if the Company does not intend to sell the security, and the remaining portion of the other-than-temporary loss is recognized in other comprehensive income (loss), net of income taxes. If the Company intends to sell the security, or determines that it is more likely than not that it will be required to sell the security prior to recovering its cost or amortized cost basis less any current-period credit losses, the full amount of the other-than-temporary loss is recognized in net income (loss).
As of September 30, 2021, we held
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
The Company did not record any other-than-temporary impairments during the three- or nine-month periods ended September 30, 2021 and 2020. For the year ended December 31, 2020, the Company also did not recognize any other-than-temporary impairments of its investment securities. Adverse investment market conditions, in addition to poor operating results of underlying investments, could result in impairment charges in the future.
Net investment income was attributable to the following types of securities:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Fixed income securities |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Equity securities |
|
|
|
| ||||||||||||
|
Real estate |
|
|
|
| ||||||||||||
|
Cash and cash equivalents |
|
|
|
| ||||||||||||
|
Total gross investment income |
|
|
|
| ||||||||||||
|
Investment expenses |
|
|
|
| ||||||||||||
|
Net investment income |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
Net capital gain on investments consisted of the following:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Gross realized gains: | ||||||||||||||||
|
Fixed income securities |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Equity securities |
|
|
|
| ||||||||||||
|
Total gross realized gains |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Gross realized losses, excluding other-than-temporary impairment losses: | ||||||||||||||||
|
Fixed income securities |
( |
) |
|
|
( |
) |
( |
) | ||||||||
|
Equity securities |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Total gross realized losses, excluding other-than-temporary impairment losses |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
| ||||||||||||||||
|
Net realized gain on investments |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Change in net unrealized gain on equity securities |
( |
) |
|
|
( |
) | ||||||||||
|
Net capital gain on investments |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
5.Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and 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 I: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level II: 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 II 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 III: 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, and 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 weaknesses 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 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. The pricing service did not use broker quotes in determining any fair values of the Company’s investments at September 30, 2021 or December 31, 2020.
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 we 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 III investment.
The fair value estimates of the Company’s 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.
Management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures. Management reviews all securities to identify recent downgrades, significant changes in pricing, and pricing
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
anomalies on individual securities relative to other similar securities. This will include looking for relative consistency across securities in common sectors, durations, and credit ratings. This review will also include all fixed income securities rated lower than “A” by Moody’s or Standard & Poor’s. 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 pricing service. In its review, management did not identify any such discrepancies, and no adjustments were made to the estimates provided by the pricing service, for the nine-month period ended September 30, 2021, or the year ended December 31, 2020. The classification within the fair value hierarchy is then confirmed based on the final conclusions from the pricing review.
The following tables set forth our assets which are measured at fair value on a recurring basis by the level within the fair value hierarchy in which fair value measurements fall:
|
September 30, 2021 | ||||||||||||||||
|
Total |
Level I |
Level II |
Level III | |||||||||||||
|
Fixed income securities: | ||||||||||||||||
|
U.S. Government and agencies |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Obligations of states and political subdivisions |
|
|
|
| ||||||||||||
|
Corporate securities |
|
|
|
| ||||||||||||
|
Residential mortgage-backed securities |
|
|
|
| ||||||||||||
|
Commercial mortgage-backed securities |
|
|
|
| ||||||||||||
|
Asset-backed securities |
|
|
|
| ||||||||||||
|
Total fixed income securities |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Equity securities: | ||||||||||||||||
|
Basic materials |
|
|
|
| ||||||||||||
|
Communications |
|
|
|
| ||||||||||||
|
Consumer, cyclical |
|
|
|
| ||||||||||||
|
Consumer, non-cyclical |
|
|
|
| ||||||||||||
|
Energy |
|
|
|
| ||||||||||||
|
Financial |
|
|
|
| ||||||||||||
|
Industrial |
|
|
|
| ||||||||||||
|
Technology |
|
|
|
| ||||||||||||
|
Total equity securities |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Cash equivalents |
|
|
|
| ||||||||||||
|
Total assets at fair value |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
|
December 31, 2020 | ||||||||||||||||
|
Total |
Level I |
Level II |
Level III | |||||||||||||
|
Fixed income securities: | ||||||||||||||||
|
U.S. Government and agencies |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Obligations of states and political subdivisions |
|
|
|
| ||||||||||||
|
Corporate securities |
|
|
|
| ||||||||||||
|
Residential mortgage-backed securities |
|
|
|
| ||||||||||||
|
Commercial mortgage-backed securities |
|
|
|
| ||||||||||||
|
Asset-backed securities |
|
|
|
| ||||||||||||
|
Total fixed income securities |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Equity securities: | ||||||||||||||||
|
Basic materials |
|
|
|
| ||||||||||||
|
Communications |
|
|
|
| ||||||||||||
|
Consumer, cyclical |
|
|
|
| ||||||||||||
|
Consumer, non-cyclical |
|
|
|
| ||||||||||||
|
Energy |
|
|
|
| ||||||||||||
|
Financial |
|
|
|
| ||||||||||||
|
Industrial |
|
|
|
| ||||||||||||
|
Technology |
|
|
|
| ||||||||||||
|
Utility |
|
| ||||||||||||||
|
Total equity securities |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Cash equivalents |
|
|
|
| ||||||||||||
|
Total assets at fair value |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
There were no liabilities measured at fair value on a recurring basis at September 30, 2021 or December 31, 2020.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
6.Reinsurance
The Company cedes and assumes certain premiums and losses to and from various companies and associations under a variety of reinsurance agreements. The Company seeks to limit the maximum net loss that can arise from large risks or risks in concentrated areas of exposure through use of these agreements, either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts on substantial individual risks.
Reinsurance contracts do not relieve the Company from its obligation to policyholders. Additionally, failure of reinsurers to honor their obligations could result in significant losses to us. There can be no assurance that reinsurance will continue to be available to us at the same extent, and at the same cost, as it has in the past. The Company may choose in the future to reevaluate the use of reinsurance to increase or decrease the amounts of risk ceded to reinsurers.
During the nine-month period ended September 30, 2021, the Company retained the first $
The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers. Such estimates are made based on periodic evaluation of balances due from reinsurers, 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 from reinsurers by entering into reinsurance arrangements only with reinsurers that have strong credit ratings and statutory surplus above certain levels. The Company’s reinsurance recoverables on paid and unpaid losses were due from reinsurance companies with A.M. Best ratings of “A” or higher.
A reconciliation of direct to net premiums on both a written and an earned basis is as follows:
|
Three Months Ended September 30, 2021 |
Nine Months Ended September 30, 2021 | |||||||||||||||
|
Premiums Written |
Premiums Earned |
Premiums Written |
Premiums Earned | |||||||||||||
|
Direct premium |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Assumed premium |
|
|
|
| ||||||||||||
|
Ceded premium |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Net premiums |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Percentage of assumed earned premium to direct earned premium |
|
| ||||||||||||||
|
Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 | |||||||||||||||
|
Premiums Written |
Premiums Earned |
Premiums Written |
Premiums Earned | |||||||||||||
|
Direct premium |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Assumed premium |
|
|
|
| ||||||||||||
|
Ceded premium |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
Net premiums |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Percentage of assumed earned premium to direct earned premium |
|
| ||||||||||||||
A reconciliation of direct to net losses and loss adjustment expenses is as follows:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
| ||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
| ||||
|
Direct losses and loss adjustment expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Assumed losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded losses and loss adjustment expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net losses and loss adjustment expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
If
7.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, |
| ||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
| ||||
|
Balance, beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Deferral of policy acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred policy acquisition costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance, end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
8.Unpaid Losses and Loss Adjustment Expenses
Activity in the liability for unpaid losses and loss adjustment expenses (“LAE”) is summarized as follows:
|
Nine Months Ended September 30, | ||||||||
|
2021 |
2020 | |||||||
|
Balance at beginning of period: | ||||||||
|
Liability for unpaid losses and LAE |
$ |
|
$ |
| ||||
|
Reinsurance recoverables on losses |
|
| ||||||
|
Net balance at beginning of period |
|
| ||||||
|
| ||||||||
|
Acquired unpaid losses and LAE related to: | ||||||||
|
Current year |
|
| ||||||
|
Prior years |
|
| ||||||
|
Total incurred |
|
| ||||||
|
| ||||||||
|
Incurred related to: | ||||||||
|
Current year |
|
| ||||||
|
Prior years |
( |
) |
( |
) | ||||
|
Total incurred |
|
| ||||||
|
| ||||||||
|
Paid related to: | ||||||||
|
Current year |
|
| ||||||
|
Prior years |
|
| ||||||
|
Total paid |
|
| ||||||
|
| ||||||||
|
Balance at end of period: | ||||||||
|
Liability for unpaid losses and LAE |
|
| ||||||
|
Reinsurance recoverables on losses |
|
| ||||||
|
Net balance at end of period |
$ |
|
$ |
| ||||
During the nine months ended September 30, 2021, the Company’s reported incurred losses and LAE included $6,894 of net favorable development on prior accident years, compared to $4,268 of net favorable development on prior accident years during the nine months ended September 30, 2020. The net favorable development on prior accident years through September 30, 2021 was primarily driven by favorable development in the non-standard auto segment and, to a lesser extent, the private passenger auto and home and farm segments.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
Increases and decreases are generally the result of ongoing analysis of loss development trends. As additional information becomes known regarding individual claims, original estimates are increased or decreased accordingly.
The Company’s liabilities for unpaid losses and LAE are summarized below:
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Case reserves |
$ |
|
$ |
| ||||
|
IBNR reserves |
|
| ||||||
|
Liability for unpaid LAE |
$ |
|
$ |
| ||||
|
Reinsurance recoverables on losses |
|
| ||||||
|
Net unpaid losses and LAE |
$ |
|
$ |
| ||||
The following table provides case and IBNR reserves for unpaid losses and LAE by segment.
|
September 30, 2021 | ||||||||||||
|
Case Reserves |
IBNR Reserves |
Total Reserves | ||||||||||
|
Private passenger auto |
$ |
|
$ |
|
$ |
| ||||||
|
Non-standard auto |
|
( |
) |
| ||||||||
|
Home and farm |
|
|
| |||||||||
|
Crop |
|
|
| |||||||||
|
Commercial |
|
|
| |||||||||
|
All other |
|
|
| |||||||||
|
Liability for unpaid losses and LAE |
$ |
|
$ |
|
$ |
| ||||||
|
Reinsurance recoverables on losses |
|
|
| |||||||||
|
Net unpaid losses and LAE |
$ |
|
$ |
|
$ |
| ||||||
|
December 31, 2020 | ||||||||||||
|
Case Reserves |
IBNR Reserves |
Total Reserves | ||||||||||
|
Private passenger auto |
$ |
|
$ |
|
$ |
| ||||||
|
Non-standard auto |
|
( |
) |
| ||||||||
|
Home and farm |
|
|
| |||||||||
|
Crop |
|
|
| |||||||||
|
Commercial |
|
|
| |||||||||
|
All other |
|
|
| |||||||||
|
Liability for unpaid losses and LAE |
$ |
|
$ |
|
$ |
| ||||||
|
Reinsurance recoverables on losses |
|
|
| |||||||||
|
Net unpaid losses and LAE |
$ |
|
$ |
|
$ |
| ||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
9.Property and Equipment
Property and equipment consisted of the following:
|
September 30, 2021 |
December 31, 2020 |
Estimated Useful Life | ||||||||
|
Cost: | ||||||||||
|
Real estate |
$ |
|
$ |
|
| |||||
|
Electronic data processing equipment |
|
|
| |||||||
|
Furniture and fixtures |
|
|
| |||||||
|
Automobiles |
|
|
| |||||||
|
Gross cost |
|
| ||||||||
|
| ||||||||||
|
Accumulated depreciation |
( |
) |
( |
) | ||||||
|
Total property and equipment, net |
$ |
|
$ |
| ||||||
Depreciation expense was $
10.Goodwill and Other Intangibles
Goodwill
The following table presents the carrying amount of the Company’s goodwill by segment:
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Non-standard auto from acquisition of Primero |
$ |
|
$ |
| ||||
|
Commercial from acquisition of Westminster |
|
| ||||||
|
Total |
$ |
|
$ |
| ||||
Other Intangible Assets
The following table presents the carrying amount of the Company’s other intangible assets:
|
September 30, 2021 |
Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||
|
Subject to amortization: | ||||||||||||
|
Trade names |
$ |
|
$ |
|
$ |
| ||||||
|
Distribution network |
|
|
| |||||||||
|
Total subject to amortization |
|
|
| |||||||||
|
| ||||||||||||
|
Not subject to amortization – state insurance licenses |
|
|
| |||||||||
|
Total |
$ |
|
$ |
|
$ |
| ||||||
|
December 31, 2020 |
Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||
|
Subject to amortization: | ||||||||||||
|
Trade names |
$ |
|
$ |
|
$ |
| ||||||
|
Distribution network |
|
|
| |||||||||
|
Total subject to amortization |
|
|
| |||||||||
|
| ||||||||||||
|
Not subject to amortization – state insurance license |
|
|
| |||||||||
|
Total |
$ |
|
$ |
|
$ |
| ||||||
Amortization expense was $
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
Other intangible assets that have finite lives, including trade names and distribution networks, are amortized over their useful lives. As of September 30, 2021, the estimated amortization of other intangible assets with finite lives for the next five years in the period ended December 31, 2025, and thereafter is as follows:
|
Year ending December 31, |
Amortization Expense | |||
|
2021 |
$ |
| ||
|
2022 |
| |||
|
2023 |
| |||
|
2024 |
| |||
|
2025 |
| |||
|
Thereafter |
| |||
|
Total other intangible assets with finite lives |
$ |
| ||
11.Related Party Transactions
Intercompany Reinsurance Pooling Arrangement
Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement. This agreement was finalized, approved, and implemented during the fourth quarter of 2020, retroactive to the January 1 effective date. 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.
In connection with the pooling agreement, the quota share agreement between Battle Creek and Nodak Insurance was cancelled. As a result, the Company’s consolidated financial position and results of operations are impacted by the portion of Battle Creek’s underwriting results that are allocated to the policyholders of Battle Creek rather than the shareholders of NI Holdings.
For the nine months ended September 30, 2021 and the year ended December 31, 2020, the pooling percentages by insurance company were:
|
Pool Percentage | ||||
|
Nodak Insurance |
|
% | ||
|
American West |
|
% | ||
|
Primero |
|
% | ||
|
Battle Creek |
|
% | ||
|
Direct Auto |
|
% | ||
|
Westminster |
|
% | ||
|
Total |
|
% | ||
North Dakota Farm Bureau
We were organized by the 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 insurance policies. Royalties paid to the NDFB were $
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
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
may require prior approval from their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further affect their ability to pay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2020 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.
The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2021 without the prior approval of the North Dakota Insurance Department is $
The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois Department of Insurance is $
The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland Insurance Administration is $
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
Battle Creek Mutual Insurance Company
The following tables illustrates the impact of including Battle Creek in our Consolidated Balance Sheets and Statements of Operations prior to intercompany eliminations:
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Assets: | ||||||||
|
Cash and cash equivalents |
$ |
|
$ |
| ||||
|
Investments |
|
| ||||||
|
Premiums and agents’ balances receivable |
|
| ||||||
|
Deferred policy acquisition costs |
|
| ||||||
|
Pooling receivable (1) |
|
| ||||||
|
Reinsurance recoverables on losses (2) |
|
| ||||||
|
Accrued investment income |
|
| ||||||
|
Deferred income tax asset |
|
| ||||||
|
Property and equipment |
|
| ||||||
|
Other assets |
|
| ||||||
|
Total assets |
$ |
|
$ |
| ||||
|
| ||||||||
|
Liabilities: | ||||||||
|
Unpaid losses and loss adjustment expenses |
$ |
|
$ |
| ||||
|
Unearned premiums |
|
| ||||||
|
Notes payable (1) |
|
| ||||||
|
Reinsurance losses payable (2) |
|
| ||||||
|
Pooling payable (1) |
|
| ||||||
|
Accrued expenses and other liabilities |
|
| ||||||
|
Total liabilities |
|
| ||||||
|
| ||||||||
|
Equity: | ||||||||
|
Non-controlling interest |
|
| ||||||
|
Total equity |
|
| ||||||
|
| ||||||||
|
Total liabilities and equity |
$ |
|
$ |
| ||||
|
(1) |
| |
|
(2) |
|
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
Revenues: | ||||||||||||||||
|
Net premiums earned |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Fee and other income (expense) |
( |
) |
|
|
( |
) |
| |||||||||
|
Net investment income |
|
|
|
| ||||||||||||
|
Net capital gain on investments |
|
( |
) |
|
| |||||||||||
|
Total revenues |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Expenses: | ||||||||||||||||
|
Losses and loss adjustment expenses |
|
|
|
| ||||||||||||
|
Amortization of deferred policy acquisition costs |
|
|
|
| ||||||||||||
|
Other underwriting and general expenses |
|
|
|
| ||||||||||||
|
Total expenses |
|
|
|
| ||||||||||||
|
| ||||||||||||||||
|
Income (loss) before income taxes |
( |
) |
|
( |
) |
| ||||||||||
|
Income tax expense (benefit) |
( |
) |
|
( |
) |
| ||||||||||
|
Net income (loss) |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
| ||||||
|
| ||||||||||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
12.Benefit Plans
Nodak Insurance sponsors a 401(k) plan with an automatic and matching contribution for eligible employees at Nodak Insurance, Primero, and Direct Auto. Westminster also sponsors a separate 401(k) plan. The Company reported expenses related to the 401(k) plans totaling $
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 (“ERISA”) over the key executives’ allowable 401(k) contribution. The plan also allows employee-directed deferral of key executive’s compensation or incentive payments. The Company reported expenses related to this plan totaling $
In connection with our initial public offering in March 2017, the Company established an 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 plan, Nodak Insurance loaned $
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.
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. American West and Battle Creek have no employees.
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 $
The Company recognized compensation expense of $
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
Through September 30, 2021 and December 31, 2020, the Company has released and allocated
13.Line of Credit
Nodak Insurance has a $
14.Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) was enacted, implementing numerous changes to tax law including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and the creation of certain refundable employee retention credits. There has been no impact to the Company’s income taxes due to this legislation.
At September 30, 2021 and December 31, 2020, we had
At September 30, 2021 and December 31, 2020, the Company, other than Battle Creek and Westminster, had no income tax related carryovers 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 carryovers of $
Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had net operating loss carryovers of $
NI Holdings had gross deferred income tax assets of $
NI Holdings had gross deferred income tax liabilities of $
As of September 30, 2021, NI Holdings had no material unrecognized income tax benefits or accrued interest and penalties. Federal income tax years 2017 through 2019 remain open for examination.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
15.Operating Leases
Primero leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in . Direct Auto leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in . Nodak Insurance leases a facility in Fargo, North Dakota under a non-cancellable operating lease expiring in 2024. There were expenses of $
As of September 30, 2021, we have minimum future commitments under non-cancellable leases for the next five years in the period ending December 31, 2025, and thereafter as follows:
|
Year ending December 31, |
Estimated Future Minimum Commitments | |||
|
2021 |
$ |
| ||
|
2022 |
| |||
|
2023 |
| |||
|
2024 |
| |||
|
2025 |
| |||
|
Thereafter |
| |||
|
Total minimum future commitments |
$ |
| ||
16.Contingencies
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.
17.Common Stock
Changes in the number of common stock shares outstanding were as follows:
|
Nine Months Ended September 30, | ||||||||
|
2021 |
2020 | |||||||
|
Shares outstanding, beginning of period |
|
| ||||||
|
Treasury shares repurchased through stock repurchase authorization |
( |
) |
( |
) | ||||
|
Issuance of treasury shares for vesting of restricted stock units |
|
| ||||||
|
Shares outstanding, end of period |
|
| ||||||
On February 28, 2018, our Board of Directors approved an authorization for the repurchase of up to approximately $
On May 4, 2020, our Board of Directors approved an additional authorization for the repurchase of up to approximately $
On August 11, 2021, our Board of Directors approved an additional authorization for the repurchase of up to approximately $
The cost of this treasury stock is a reduction of shareholders’ equity within our Consolidated Balance Sheets.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
18.Stock Based Compensation
At its 2020 Annual Shareholders’ Meeting, the NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) was approved by shareholders. The purpose of the Plan is 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.
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 awards may be issued under all awards made under the Plan shall not exceed
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
The Company recognizes stock-based compensation costs 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 restricted stock units is presented below:
|
RSUs |
Weighted-Average Grant-Date Fair Value Per Share | |||||||
|
Units outstanding and unearned at January 1, 2020 |
|
$ |
| |||||
|
RSUs granted during 2020 |
|
| ||||||
|
RSUs earned during 2020 |
( |
) |
| |||||
|
Units outstanding and unearned at December 31, 2020 |
|
$ |
| |||||
|
| ||||||||
|
RSUs granted during 2021 |
|
| ||||||
|
RSUs earned during 2021 |
( |
) |
| |||||
|
Units outstanding and unearned at September 30, 2021 |
|
$ |
| |||||
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, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
RSU compensation expense |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Income tax benefit |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
RSU compensation expense, net of income taxes |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
At September 30, 2021, there was $
Performance Stock 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 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.
The Company recognizes stock-based compensation costs 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 estimate assumes that the cumulative growth targets will be achieved or exceeded.
A summary of the Company’s outstanding performance share units is presented below:
|
PSUs |
Weighted-Average Grant-Date Fair Value Per Share | |||||||
|
Units outstanding at January 1, 2020 |
|
$ |
| |||||
|
PSUs granted during 2020 (at target) |
|
| ||||||
|
Units outstanding at December 31, 2020 |
|
$ |
| |||||
|
| ||||||||
|
PSUs granted during 2021 (at target) |
|
| ||||||
|
PSUs earned during 2021 |
( |
) |
| |||||
|
Performance adjustment (1) |
|
| ||||||
|
Forfeitures |
( |
) |
| |||||
|
Units outstanding at September 30, 2021 |
|
$ |
| |||||
(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, | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
|
PSU compensation expense |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Income tax benefit |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
|
PSU compensation expense, net of income taxes |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
The PSU grants above represent initial target awards and do not reflect potential increases or decreases resulting from financial performance objectives to be determined at the end of the performance period. 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, 2021, there was $
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
19.Segment Information
We have five primary reportable operating segments, which consist of private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, and commercial insurance. A sixth segment captures all other insurance coverages we sell, including our assumed reinsurance business. We operate only in the United States, 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, 2021 and 2020. For presentation in these tables, “LAE” refers to loss adjustment expenses.
The ratios presented in these tables are non-GAAP financial measures under SEC rules and regulations. While these ratios are used widely in the property and casualty insurance industry, such non-GAAP ratios may not be comparable to similarly-named measures reported by other companies.
The loss and LAE ratio equals losses and loss adjustment expenses divided by net premiums earned. The expense ratio equals amortization of deferred policy acquisition costs and other underwriting and general expenses, divided by net premiums earned. The combined ratio equals losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and other underwriting and general expenses, divided by net premiums earned.
For purposes of evaluating profitability of the non-standard auto segment, management combines 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 Consolidated Statement of Operations or Consolidated Balance Sheet line items to our operating segments. Those line items include investment income, net capital gain on investments, other income excluding non-standard auto insurance fees, and income taxes within the Consolidated Statement of Operations. For the Consolidated Balance Sheet, those items include cash and investments, property and equipment, other assets, accrued expenses, income taxes recoverable or payable, and shareholders’ equity.
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
|
Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
|
Private Passenger Auto |
Non- Standard Auto |
Home and Farm |
Crop |
Commercial |
All Other |
Total | ||||||||||||||||||||||
|
Direct premiums earned |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Assumed premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded premiums earned |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||
|
Net premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Direct losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Assumed losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded losses and LAE |
( |
) |
|
( |
) |
( |
) |
( |
) |
|
( |
) | ||||||||||||||||
|
Net losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Gross margin |
|
|
|
|
|
( |
) |
| ||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Underwriting and general expenses |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Underwriting gain (loss) |
( |
) |
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) | |||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Fee and other income |
|
| ||||||||||||||||||||||||||
|
|
( |
) | ||||||||||||||||||||||||||
|
Net investment income |
| |||||||||||||||||||||||||||
|
Net capital gain on investments |
| |||||||||||||||||||||||||||
|
Loss before income taxes |
( |
) | ||||||||||||||||||||||||||
|
Income tax benefit |
( |
) | ||||||||||||||||||||||||||
|
Net loss |
( |
) | ||||||||||||||||||||||||||
|
Net loss attributable to non-controlling interest |
( |
) | ||||||||||||||||||||||||||
|
Net loss attributable to NI Holdings, Inc. |
$ |
( |
) | |||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Non-GAAP Ratios: | ||||||||||||||||||||||||||||
|
Loss and LAE ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Expense ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Combined ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balances at September 30, 2021: | ||||||||||||||||||||||||||||
|
Premiums and agents’ balances receivable |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Deferred policy acquisition costs |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Reinsurance recoverables |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Receivable from Federal Crop Insurance Corporation |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Goodwill and other intangibles |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Unpaid losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Unearned premiums |
|
|
|
|
|
|
| |||||||||||||||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
|
Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
|
Private Passenger Auto |
Non- Standard Auto |
Home and Farm |
Crop |
Commercial |
All Other |
Total | ||||||||||||||||||||||
|
Direct premiums earned |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Assumed premiums earned |
|
|
|
( |
) |
|
|
| ||||||||||||||||||||
|
Ceded premiums earned |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||
|
Net premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Direct losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Assumed losses and LAE |
( |
) |
|
|
|
|
|
| ||||||||||||||||||||
|
Ceded losses and LAE |
|
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||||
|
Net losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Gross margin |
|
|
|
|
|
( |
) |
| ||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Underwriting and general expenses |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Underwriting gain (loss) |
( |
) |
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) | |||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Fee and other income |
|
| ||||||||||||||||||||||||||
|
|
( |
) | ||||||||||||||||||||||||||
|
Net investment income |
| |||||||||||||||||||||||||||
|
Net capital gain on investments |
| |||||||||||||||||||||||||||
|
Income before income taxes |
| |||||||||||||||||||||||||||
|
Income tax expense |
| |||||||||||||||||||||||||||
|
Net income |
| |||||||||||||||||||||||||||
|
Net income attributable to non-controlling interest |
| |||||||||||||||||||||||||||
|
Net income attributable to NI Holdings, Inc. |
$ |
| ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Non-GAAP Ratios: | ||||||||||||||||||||||||||||
|
Loss and LAE ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Expense ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Combined ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Balances at September 30, 2020: | ||||||||||||||||||||||||||||
|
Premiums and agents’ balances receivable |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Deferred policy acquisition costs |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Reinsurance recoverables |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Receivable from Federal Crop Insurance Corporation |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Goodwill and other intangibles |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Unpaid losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Unearned premiums |
|
|
|
|
|
|
| |||||||||||||||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
|
Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
|
Private Passenger Auto |
Non- Standard Auto |
Home and Farm |
Crop |
Commercial |
All Other |
Total | ||||||||||||||||||||||
|
Direct premiums earned |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Assumed premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded premiums earned |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||||||||
|
Net premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Direct losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Assumed losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded losses and LAE |
( |
) |
|
( |
) |
( |
) |
( |
) |
|
( |
) | ||||||||||||||||
|
Net losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Gross margin |
|
|
|
( |
) |
|
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Underwriting and general expenses |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Underwriting gain (loss) |
( |
) |
|
( |
) |
( |
) |
|
|
( |
) | |||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Fee and other income |
|
| ||||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Net investment income |
| |||||||||||||||||||||||||||
|
Net capital gain on investments |
| |||||||||||||||||||||||||||
|
Income before income taxes |
| |||||||||||||||||||||||||||
|
Income tax expense |
| |||||||||||||||||||||||||||
|
Net income |
| |||||||||||||||||||||||||||
|
Net loss attributable to non-controlling interest |
( |
) | ||||||||||||||||||||||||||
|
Net income attributable to NI Holdings, Inc. |
$ |
| ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Non-GAAP Ratios: | ||||||||||||||||||||||||||||
|
Loss and LAE ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Expense ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Combined ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
NI Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
(dollar amounts in thousands, except per share amounts)
|
Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
|
Private Passenger Auto |
Non- Standard Auto |
Home and Farm |
Crop |
Commercial |
All Other |
Total | ||||||||||||||||||||||
|
Direct premiums earned |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
| ||||||||||||||
|
Assumed premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded premiums earned |
( |
) |
( |
) |
( |
) |
|
( |
) |
( |
) |
( |
) | |||||||||||||||
|
Net premiums earned |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Direct losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Assumed losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Ceded losses and LAE |
( |
) |
|
( |
) |
( |
) |
( |
) |
( |
) |
( |
) | |||||||||||||||
|
Net losses and LAE |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Gross margin |
|
|
|
|
|
|
| |||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Underwriting and general expenses |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Underwriting gain (loss) |
|
|
|
( |
) |
|
|
| ||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Fee and other income |
|
| ||||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||
|
Net investment income |
| |||||||||||||||||||||||||||
|
Net capital gain on investments |
| |||||||||||||||||||||||||||
|
Income before income taxes |
| |||||||||||||||||||||||||||
|
Income tax expense |
| |||||||||||||||||||||||||||
|
Net income |
| |||||||||||||||||||||||||||
|
Net income attributable to non-controlling interest |
| |||||||||||||||||||||||||||
|
Net income attributable to NI Holdings, Inc. |
$ |
| ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||
|
Non-GAAP Ratios: | ||||||||||||||||||||||||||||
|
Loss and LAE ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Expense ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
|
Combined ratio |
|
|
|
|
|
|
| |||||||||||||||||||||
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 the Company’s 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 Quarterly Report on Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” and “Part II. Item 1A. Risk Factors” included elsewhere in this Quarterly Report. You should also review “Risk Factors” included in the Company’s 2020 Annual Report 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
NI Holdings’ results of operations are influenced by factors affecting the property and casualty insurance and crop insurance industries in general. The operating results of the United States property and casualty industry and crop insurance industry are subject to significant variations due to competition, weather, catastrophic events, changes in regulation, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest rates, and other changes in the investment environment.
NI Holdings premium levels and underwriting results have been, and continue to be, influenced by market conditions. Pricing in the property and casualty insurance industry historically has been cyclical. During a soft market cycle, price competition is more significant than during a hard market cycle and makes it difficult to attract and retain properly priced business. During a hard market cycle, it is more likely that insurers will be able to increase their rates or profit margins. A hard market typically has a positive effect on premium growth. The markets that NI Holdings serve are diversified, which requires management to regularly monitor the Company’s performance and competitive position by line of business and geographic market to schedule appropriate rate actions.
Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres, commodity prices, and types of crops insured because the rates are established by the Risk Management Agency of the United States Department of Agriculture (“RMA”) rather than individual insurance carriers. The expected loss experience of the multi-peril crop insurance business for the calendar year may also significantly affect the reported net earned premiums and losses due to the risk-sharing arrangement with the federal government. Multi-peril crop insurance premiums are generally written in the second quarter, and earned ratably over the period of risk, which generally extends into the fourth quarter. However, as was the case in 2020, if the Company experiences a higher than average number of prevented planting claims early in the risk period, recognition of earned premiums may be accelerated due to the shortened risk period.
Premiums in the crop hail insurance business are also generally written in the second quarter, but earned over a shorter period of risk than multi-peril crop insurance.
Premiums in the personal lines of business (private passenger auto, home and farm) are generally written and earned throughout the year based on their coverage periods. Losses on this business are also incurred throughout the year, but usually are more frequent and/or severe during periods of weather-related activity.
Premiums in the commercial lines of business are generally written and earned throughout the year. Losses on this business are also incurred throughout the year.
For more information on the Company’s results of operations by segment, see Note 19 to the Unaudited Consolidated Financial Statements, included elsewhere in this Form 10-Q.
Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company’s results. The immediate financial impact to the Company was volatility in our investment portfolio and significant declines in fair value on the Company’s equity investments, attributable to the disruption in global financial markets. The Company’s underwriting results, especially in the private passenger auto and non-standard auto segments, were impacted during the second and third quarters of 2020 as a result of fewer miles being driven and the increased unemployment rate in our Chicago and Las Vegas markets.
During the first nine months of 2021, we have continued to see a reduced impact from COVID-19 as economic activity has returned to near pre-pandemic levels. However, a possible resurgence of COVID-19 could impact our results.
The below discussion of results of operations for NI Holdings includes certain non-GAAP financial measures, including loss and LAE ratio, expense ratio, combined ratio, premiums written, and underwriting gain (loss). For a description of these non-GAAP financial measures, see the section titled “Non-GAAP Financial Measures” below.
Three and Nine Months ended September 30, 2021 and 2020
The consolidated net loss for NI Holdings was $4,859 for the three months ended September 30, 2021, compared to net income of $3,686 for the three months ended September 30, 2020. The consolidated net income for NI Holdings was $2,189 for the nine months ended September 30, 2021, compared to net income of $18,898 for the nine months ended September 30, 2020.
The major components of NI Holdings’ operating revenues and net income (loss) were as follows:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
| ||||||||||||
|
2021 |
2020 |
2021 |
2020 |
| ||||||||||
|
Revenues: |
| |||||||||||||
|
Net premiums earned |
$ |
82,173 |
$ |
73,342 |
$ |
221,589 |
$ |
214,120 | ||||||
|
Fee and other income |
501 |
524 |
1,338 |
1,332 | ||||||||||
|
Net investment income |
1,713 |
1,886 |
4,959 |
5,875 | ||||||||||
|
Net capital gain on investments |
222 |
5,102 |
10,734 |
1,380 | ||||||||||
|
Total revenues |
84,609 |
80,854 |
238,620 |
222,707 | ||||||||||
|
| ||||||||||||||
|
Components of net income: | ||||||||||||||
|
Net premiums earned |
82,173 |
73,342 |
221,589 |
214,120 | ||||||||||
|
Losses and loss adjustment expenses |
65,742 |
53,836 |
165,549 |
136,622 | ||||||||||
|
Amortization of deferred policy acquisition costs and other underwriting and general expenses |
25,348 |
22,144 |
70,175 |
61,928 | ||||||||||
|
Underwriting gain (loss) |
(8,917 |
) |
(2,638 |
) |
(14,135 |
) |
15,570 | |||||||
|
| ||||||||||||||
|
Fee and other income |
501 |
524 |
1,338 |
1,332 | ||||||||||
|
Net investment income |
1,713 |
1,886 |
4,959 |
5,875 | ||||||||||
|
Net capital gain on investments |
222 |
5,102 |
10,734 |
1,380 | ||||||||||
|
Income (loss) before income taxes |
(6,481 |
) |
4,874 |
2,896 |
24,157 | |||||||||
|
Income tax expense (benefit) |
(1,622 |
) |
1,188 |
707 |
5,259 | |||||||||
|
Net income (loss) |
$ |
(4,859 |
) |
$ |
3,686 |
$ |
2,189 |
$ |
18,898 | |||||
Net Premiums Earned
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Net premiums earned: | ||||||||||||||
|
Direct premium |
$ |
93,740 |
$ |
79,455 |
$ |
249,542 |
$ |
224,300 | ||||||
|
Assumed premium |
1,336 |
1,372 |
6,300 |
5,655 | ||||||||||
|
Ceded premium |
(12,903 |
) |
(7,485 |
) |
(34,253 |
) |
(15,835 |
) | ||||||
|
Total net premiums earned |
$ |
82,173 |
$ |
73,342 |
$ |
221,589 |
$ |
214,120 | ||||||
NI Holdings’ net premiums earned for the three months ended September 30, 2021 increased $8,831, or 12.0%, compared to the three months ended September 30, 2020. Net premiums earned for the nine months ended September 30, 2021 increased $7,469, or 3.5%, compared to the nine months ended September 30, 2020.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Net premiums earned: | ||||||||||||||
|
Private passenger auto |
$ |
18,491 |
$ |
17,947 |
$ |
54,057 |
$ |
52,632 | ||||||
|
Non-standard auto |
14,889 |
13,839 |
43,045 |
40,124 | ||||||||||
|
Home and farm |
18,775 |
18,548 |
54,602 |
53,937 | ||||||||||
|
Crop |
12,724 |
9,719 |
21,124 |
33,450 | ||||||||||
|
Commercial |
14,798 |
10,773 |
41,156 |
26,967 | ||||||||||
|
All other |
2,496 |
2,516 |
7,605 |
7,010 | ||||||||||
|
Total net premiums earned |
$ |
82,173 |
$ |
73,342 |
$ |
221,589 |
$ |
214,120 | ||||||
Below are comments regarding significant changes in the net premiums earned by business segment:
Private passenger auto – Net premiums earned for the third quarter of 2021 increased $544, or 3.0%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $1,425, or 2.7%, from the first nine months of 2020. Premiums have been impacted by continued soft market conditions in the segment.
Non-standard auto – Net premiums earned for the third quarter of 2021 increased $1,050, or 7.6%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $2,921, or 7.3%, from the first nine months of 2020. The segment has benefited from the improved economic environment in the Chicago market where our non-standard auto business is concentrated.
Home and farm – Net premiums earned for the third quarter of 2021 increased $227, or 1.2%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $665, or 1.2%, from the first nine months of 2020. The relatively flat premium growth on both a quarterly and year-to-date basis was due to competitive market conditions in this segment and the related rate reduction taken in early 2021 in the Nodak Insurance farmowners line of business.
Crop – Net premiums earned for the third quarter of 2021 increased $3,005, or 30.9%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 decreased $12,326, or 36.8%, from the first nine months of 2020. The increase in third quarter 2021 was primarily the result of accelerated recognition of premiums earned in 2020 prior to the third quarter. This acceleration was due to high levels of prevented-plant claims in the spring of 2020 which shortened the period of risk. On a year-to-date basis, direct earned premiums increased by $2,774 primarily due to higher commodity prices on multi-peril crop business. However, this increase was offset by a large increase in ceded earned premiums as a result of significant multi-peril crop losses from this year’s extreme drought conditions across North and South Dakota. We also placed a higher number of multi-peril crop policies in the assigned risk fund of the Standard Reinsurance Agreement for 2021, resulting in higher levels of premiums and losses being ceded to the federal government.
Commercial – Net premiums earned for the third quarter of 2021 increased $4,025, or 37.4%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $14,189, or 52.6%, from the first nine months of 2020. The increase
in both periods was primarily driven by growth in our Westminster commercial business as a result of a continuation of favorable market conditions, the positive impact of Westminster’s financial size category, and the AM Best rating upgrade.
All other – Net premiums earned for the third quarter of 2021 decreased $20, or 0.8%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $595, or 8.5%, from the first nine months of 2020. Net premiums earned increased modestly through nine months related to our participation in an assumed domestic and international reinsurance pool of business.
Losses and LAE
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Net losses and LAE: | ||||||||||||||
|
Direct losses and LAE |
$ |
87,453 |
$ |
59,936 |
$ |
201,630 |
$ |
153,203 | ||||||
|
Assumed losses and LAE |
2,308 |
2,436 |
5,216 |
3,538 | ||||||||||
|
Ceded losses and LAE |
(24,019 |
) |
(8,536 |
) |
(41,297 |
) |
(20,119 |
) | ||||||
|
Total net losses and LAE |
$ |
65,742 |
$ |
53,836 |
$ |
165,549 |
$ |
136,622 | ||||||
NI Holdings’ net losses and LAE for the three months ended September 30, 2021 increased $11,906, or 22.1%, compared to the three months ended September 30, 2020. Net losses and LAE for the nine months ended September 30, 2021 increased $28,927, or 21.2%, compared to the nine months ended September 30, 2020.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Net losses and LAE: | ||||||||||||||
|
Private passenger auto |
$ |
17,130 |
$ |
13,570 |
$ |
44,289 |
$ |
33,323 | ||||||
|
Non-standard auto |
9,620 |
9,425 |
25,910 |
23,560 | ||||||||||
|
Home and farm |
16,155 |
13,437 |
41,995 |
30,835 | ||||||||||
|
Crop |
12,482 |
9,225 |
22,375 |
30,699 | ||||||||||
|
Commercial |
7,770 |
5,577 |
25,433 |
14,529 | ||||||||||
|
All other |
2,585 |
2,602 |
5,547 |
3,676 | ||||||||||
|
Total net losses and LAE |
$ |
65,742 |
$ |
53,836 |
$ |
165,549 |
$ |
136,622 | ||||||
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Loss and LAE ratio: | ||||||||||||||
|
Private passenger auto |
92.6% |
75.6% |
81.9% |
63.3% | ||||||||||
|
Non-standard auto |
64.6% |
68.1% |
60.2% |
58.7% | ||||||||||
|
Home and farm |
86.0% |
72.4% |
76.9% |
57.2% | ||||||||||
|
Crop |
98.1% |
94.9% |
105.9% |
91.8% | ||||||||||
|
Commercial |
52.5% |
51.8% |
61.8% |
53.9% | ||||||||||
|
All other |
103.6% |
103.4% |
72.9% |
52.4% | ||||||||||
|
Total loss and LAE ratio |
80.0% |
73.4% |
74.7% |
63.8% | ||||||||||
Below are comments regarding significant changes in the net losses and LAE, and the net loss and LAE ratios, by business segment:
Private passenger auto – The net loss and LAE ratio deteriorated 17.0 percentage points and 18.6 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The increase in both the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020 was a result of a return to average loss frequency due to increased miles driven by our insureds compared to 2020 when pandemic-related restrictions were still in place. Loss experience in 2021 has also been adversely impacted by an increase in uninsured/underinsured motorist liability claims frequency. The continued soft market has limited our ability to implement the needed rate increases while still remaining competitive.
Non-standard auto – The net loss and LAE ratio was relatively consistent with the prior year, improving 3.5 percentage points and deteriorating 1.5 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. Direct Auto has experienced modest elevations in loss frequency and severity compared to 2020 despite increased miles being driven compared to 2020. Overall net losses and LAE have increased on both a quarterly and year-to-date basis due to strong year-to-date direct written premium growth at Direct Auto. These profitable results, on both a quarterly and year-to-date-basis, have been offset by Primero’s higher loss frequency and severity due largely to the continued economic challenges in the Las Vegas market.
Home and farm – The net loss and LAE ratio deteriorated 13.6 percentage points and 19.7 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. This increase was driven by above average weather-related losses in 2021. These losses included the June catastrophe event in North Dakota, along with significant weather-related losses in Nebraska and South Dakota during the third quarter.
Crop – The net loss and LAE ratio deteriorated 3.2 percentage points and 14.1 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The extreme drought conditions across North and South Dakota resulted in significantly elevated multi-peril crop losses. However, in anticipation of the dry weather, we placed a higher number of multi-peril crop policies in the assigned risk fund of the Standard Reinsurance Agreement for 2021, resulting in increased premiums and losses ceded to the federal government.
Commercial – The net loss and LAE ratio deteriorated 0.7 percentage points and 7.9 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. This increase on a year-to-date basis was primarily due to increased fire loss frequency in the Westminster book of business during the first and second quarters. Westminster had a strong third quarter as the Company continued to benefit from favorable market conditions, along with experiencing improved loss frequency and severity.
All other – The net loss and LAE ratio deteriorated 0.2 percentage points and 20.5 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The increase in both the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020 was primarily due to elevated loss severity in our assumed domestic and international reinsurance pool of business, in particular anticipated losses associated with Hurricane Ida.
Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses
Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $3,204, or 14.5%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. These expenses increased $8,247, or 13.3%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Underlying expenses |
$ |
21,167 |
$ |
21,825 |
$ |
71,683 |
$ |
70,414 | ||||||
|
Deferral of policy acquisition costs |
(8,717 |
) |
(14,742 |
) |
(47,879 |
) |
(47,763 |
) | ||||||
|
Other underwriting and general expenses |
12,450 |
7,083 |
23,804 |
22,651 | ||||||||||
|
Amortization of deferred policy acquisition costs |
12,898 |
15,061 |
46,371 |
39,277 | ||||||||||
|
Total reported expenses |
$ |
25,348 |
$ |
22,144 |
$ |
70,175 |
$ |
61,928 | ||||||
Underlying expenses for the three months ended September 30, 2021 decreased $658, or 3.0%, compared to a year ago. Underlying expenses for the nine months ended September 30, 2021 increased $1,269, or 1.8%, compared to a year ago.
Expense deferrals were $6,025 lower in the three months ended September 30, 2021 compared to 2020, while amortization of those costs was $2,163 lower in 2021. Expense deferrals were $116 higher in the nine months ended September 30, 2021 compared to 2020, while amortization of those costs was $7,094 higher in 2021. These nine-month increases were primarily due to strong year-over-year growth in our commercial and non-standard auto segments which generally pay higher agent commissions than our other lines, partially offset by adjustments to our methodology primarily impacting our private passenger auto and home and farm segments. In addition, under acquisition accounting, there was no deferred policy acquisition costs reported on the acquisition balance sheet of Westminster, which had the impact of decreasing 2020 amortization of deferred policy acquisition costs relative to future years. Offsetting this impact, the Company recorded an intangible asset, referred to as the value of business acquired, on its acquisition
balance sheet which was amortized during 2020 as a component of other underwriting and general expenses. As our mix of business has shifted and these premiums continue to be earned, the related deferral and amortization of expenses have also changed.
Underwriting Gain (Loss) and Combined Ratio
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Underwriting gain (loss): | ||||||||||||||
|
Private passenger auto |
$ |
(4,531 |
) |
$ |
(726 |
) |
$ |
(6,250 |
) |
$ |
5,061 | |||
|
Non-standard auto |
(741 |
) |
(726 |
) |
186 |
1,082 | ||||||||
|
Home and farm |
(4,007 |
) |
(396 |
) |
(4,704 |
) |
8,000 | |||||||
|
Crop |
(622 |
) |
(1,048 |
) |
(4,082 |
) |
(791 |
) | ||||||
|
Commercial |
1,771 |
907 |
674 |
596 | ||||||||||
|
All other |
(787 |
) |
(649 |
) |
41 |
1,622 | ||||||||
|
Total underwriting gain (loss) |
$ |
(8,917 |
) |
$ |
(2,638 |
) |
$ |
(14,135 |
) |
$ |
15,570 | |||
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Combined ratio: | ||||||||||||||
|
Private passenger auto |
124.5% |
104.0% |
111.6% |
90.4% | ||||||||||
|
Non-standard auto |
105.0% |
105.2% |
99.6% |
97.3% | ||||||||||
|
Home and farm |
121.3% |
102.1% |
108.6% |
85.2% | ||||||||||
|
Crop |
104.9% |
110.8% |
119.3% |
102.4% | ||||||||||
|
Commercial |
88.0% |
91.6% |
98.4% |
97.8% | ||||||||||
|
All other |
131.5% |
125.8% |
99.5% |
76.9% | ||||||||||
|
Combined ratio |
110.9% |
103.6% |
106.4% |
92.7% | ||||||||||
The results from underwriting operations decreased $6,279 and $29,705 for the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020.
The overall combined ratio deteriorated 7.3 percentage points and 13.7 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020.
The primary drivers behind the elevated combined ratio on both a quarterly and year-to-date basis were the extreme drought conditions across North and South Dakota on our multi-peril crop business; above average weather-related losses in North Dakota, South Dakota, and Nebraska; the continued return to average frequency of private passenger and non-standard auto physical damage claims; and higher levels of uninsured/underinsured motorist liability claims in private passenger auto.
These elevated losses have been partially offset by continued profitable and strong growth from Direct Auto in the non-standard segment, along with increased profitability and growth from Westminster’s commercial business, particularly during the third quarter.
Fee and Other Income
NI Holdings had fee and other income of $501 for the three months ended September 30, 2021, compared to $524 for the three months ended September 30, 2020. Fee income attributable to the non-standard auto segment is a key component in measuring its profitability. Fee income on this business decreased slightly to $301 for the three months ended September 30, 2021 from $336 for the three months ended September 30, 2020.
NI Holdings had fee and other income of $1,338 for the nine months ended September 30, 2021, compared to $1,332 for the nine months ended September 30, 2020. Fee income on the non-standard auto business increased slightly to $994 for the nine months ended September 30, 2021 from $993 for the nine months ended September 30, 2020.
Net Investment Income
The following table sets forth 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, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Average cash and invested assets |
$ |
503,538 |
$ |
457,238 |
$ |
499,226 |
$ |
437,845 | ||||||
|
| ||||||||||||||
|
Gross investment income |
$ |
2,536 |
$ |
2,514 |
$ |
7,519 |
$ |
8,025 | ||||||
|
Investment expenses |
823 |
628 |
2,560 |
2,150 | ||||||||||
|
Net investment income |
$ |
1,713 |
$ |
1,886 |
$ |
4,959 |
$ |
5,875 | ||||||
|
| ||||||||||||||
|
Gross return on average cash and invested assets |
2.0% |
2.2% |
2.0% |
2.4% | ||||||||||
|
Net return on average cash and invested assets |
1.4% |
1.7% |
1.3% |
1.8% | ||||||||||
Investment income, net of investment expense, decreased $173 for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Investment income, net of investment expense, decreased $916 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These decreases were primarily driven by the continued impact of lower reinvestment rates in the fixed income portfolio.
The Company's fixed-income portfolio book yield declined 27 basis points year-over-year, from 2.72% at September 30, 2020 to 2.45% at September 30, 2021. This was driven by a combination of factors, including a persistent low reinvestment rate environment, ongoing maturities of existing holdings with high embedded yields, and significant cash inflows to the investment portfolio from the Company's business operations. The dividend yield of the equity portfolio remained constant despite the ongoing rally in U.S. equity markets given a rotation of the equity allocation into high dividend equities.
Net Capital Gain on Investments
Net capital gain on investments consisted of the following:
|
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||
|
Gross realized gains |
$ |
2,805 |
$ |
916 |
$ |
9,766 |
$ |
3,643 | ||||||
|
Gross realized losses, excluding other-than-temporary impairment losses |
(72 |
) |
(280 |
) |
(256 |
) |
(1,622 |
) | ||||||
|
Net realized gain on investments |
2,733 |
636 |
9,510 |
2,021 | ||||||||||
|
| ||||||||||||||
|
Change in net unrealized gain on equity securities |
(2,511 |
) |
4,466 |
1,224 |
(641 |
) | ||||||||
|
Net capital gain on investments |
$ |
222 |
$ |
5,102 |
$ |
10,734 |
$ |
1,380 | ||||||
NI Holdings had net realized capital gains on investment of $2,733 and $9,510 for the three and nine months ended September 30, 2021, respectively, compared to net realized capital gains of $636 and $2,021 for the three and nine months ended September 30, 2020, respectively. The Company reported no other-than-temporary losses during any of the periods presented.
NI Holdings reported a net loss of $2,511 and a net gain of $1,224 attributed to the change in unrealized appreciation of its equity securities for the three and nine months ended September 30, 2021, respectively, compared to a net gain of $4,466 and a net loss of $641 for the three and nine months ended September 30, 2020, respectively. The reduction in net gain compared to the prior year quarter was a reflection of the market recovery in the third quarter of 2020 following the severe declines experienced at the height of the COVID-19 lockdown. Additionally, net realized gains taken on sales during third quarter 2021 contributed to the reduction in unrealized gains as equity markets remained relatively flat. From a year-to-date comparison perspective, the net gain increased in 2021 due to the continued strong performance in the U.S. equity markets in comparison with 2020.
The Company’s 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. At September 30, 2021, the Company had net unrealized gains on fixed income securities of $10,062 and net unrealized gains on equity securities of $28,973.
At December 31, 2020, the Company had net unrealized gains on fixed income securities of $16,505 and net unrealized gains on equity securities of $27,749.
Income (Loss) before Income Taxes
For the three months ended September 30, 2021, NI Holdings had pre-tax loss of $6,481 compared to pre-tax income of $4,874 for the three months ended September 30, 2020. The decrease in pre-tax results was largely attributable to reduced underwriting profitability.
For the nine months ended September 30, 2021, NI Holdings had pre-tax income of $2,896 compared to pre-tax income of $24,157 for the nine months ended September 30, 2020. The decrease in pre-tax results was largely attributable to reduced underwriting profitability, partially offset by the increase in net capital gain on investments.
Income Tax Expense (Benefit)
NI Holdings recorded income tax benefit of $1,622 for the three months ended September 30, 2021, compared to income tax expense of $1,188 for the three months ended September 30, 2020. Our effective tax rate for the third quarter of 2021 was 25.0% compared to an effective tax rate of 24.4% for the third quarter of 2020.
NI Holdings recorded income tax expense of $707 for the nine months ended September 30, 2021, compared to income tax expense of $5,259 for the nine months ended September 30, 2020. Our effective tax rate for the first nine months of 2021 was 24.4% compared to an effective tax rate of 21.8% for the first nine months of 2020.
A portion of the effective tax rate is due to Illinois state income taxes.
Net Income (Loss)
For the three months ended September 30, 2021, NI Holdings had net loss before non-controlling interest of $4,859 compared to net income of $3,686 for the three months ended September 30, 2020. This decrease was primarily attributable to reduced underwriting profitability.
For the nine months ended September 30, 2021, NI Holdings had net income before non-controlling interest of $2,189 compared to net income of $18,898 for the nine months ended September 30, 2020. This decrease in net income was primarily attributable to reduced underwriting profitability, partially offset by the increase in net capital gain on investments.
Return on Average Equity
For the three months ended September 30, 2021, NI Holdings had annualized return on average equity, after non-controlling interest, of -5.5% compared to annualized return on average equity, after non-controlling interest, of 4.6% for the three months ended September 30, 2020.
For the nine months ended September 30, 2021, NI Holdings had annualized return on average equity, after non-controlling interest, of 0.9% compared to annualized return on average equity, after non-controlling interest, of 8.0% for the nine months ended September 30, 2020.
Average equity is calculated as the average between beginning and ending equity excluding non-controlling interest for the period.
Financial Position
The major components of NI Holdings’ financial position are as follows:
|
September 30, 2021 |
December 31, 2020 | |||||||
|
Assets: | ||||||||
|
Cash and investments |
$ |
495,676 |
$ |
494,363 | ||||
|
Premiums and agents’ balances receivable |
82,388 |
48,523 | ||||||
|
Deferred policy acquisition costs |
25,476 |
23,968 | ||||||
|
Reinsurance recoverables on losses |
42,678 |
8,710 | ||||||
|
Property and equipment |
9,949 |
9,899 | ||||||
|
Receivable from Federal Crop Insurance Corporation |
9,362 |
6,646 | ||||||
|
Goodwill and other intangibles |
17,840 |
18,194 | ||||||
|
Other assets |
13,117 |
7,300 | ||||||
|
Total assets |
$ |
696,486 |
$ |
617,603 | ||||
|
| ||||||||
|
Liabilities: | ||||||||
|
Unpaid losses and loss adjustment expenses |
$ |
179,576 |
$ |
105,750 | ||||
|
Unearned premiums |
137,099 |
119,363 | ||||||
|
Deferred income taxes |
6,100 |
8,757 | ||||||
|
Westminster consideration payable |
12,920 |
19,287 | ||||||
|
Other liabilities |
16,815 |
15,574 | ||||||
|
Total liabilities |
352,510 |
268,731 | ||||||
|
| ||||||||
|
Shareholders’ equity |
343,976 |
348,872 | ||||||
|
Total liabilities and shareholders’ equity |
$ |
696,486 |
$ |
617,603 | ||||
At September 30, 2021, NI Holdings’ total assets increased by $78,883, or 12.8%, from December 31, 2020. Cash and investments increased slightly due to normal operations. Premiums and agents’ balances receivable increased due to the recognition of crop insurance written premiums. Reinsurance recoverables on losses increased primarily due to significantly higher multi-peril crop losses along with recoveries associated with the June catastrophe event in North Dakota. The receivable from the Federal Crop Insurance Corporation also increased due to the significantly higher multi-peril crop losses. Deferred policy acquisition costs increased primarily due to strong year-to-date premium growth in the non-standard auto and commercial segments.
At September 30, 2021, total liabilities increased by $83,779, or 31.2%, from December 31, 2020. Unpaid losses and loss adjustment expenses increased due to higher loss experience during the first nine months of 2021, especially the multi-peril crop business. Unearned premiums increased due to an increase in direct written premiums in all segments including the multi-peril crop business. The first installment of $6,667 was paid to the former shareholder of Westminster during the first quarter of 2021. Other liabilities increased due to commission and other expense accruals.
Total shareholders’ equity decreased by $4,896 during the nine months ended September 30, 2021. The decrease in shareholders’ equity reflects a consolidated net income of $2,189 for the nine-month period, share repurchases of $3,211, and a decrease of $5,090 in the fair market value of our fixed income portfolio which generally fluctuates with market interest rates at the measurement dates.
Principal Revenue Items
The Company derives its revenue primarily from net premiums earned, net investment income, and net capital gain (loss) on investments.
Gross and net premiums written
Gross premiums written is equal to direct premiums written and assumed premiums before the effect of ceded reinsurance. Gross premiums written are recognized upon sale of new insurance contracts or renewal of existing contracts. Net premiums written is equal to gross premiums written less premiums ceded or paid to reinsurers (ceded premiums written).
Premiums earned
Premiums earned is the earned portion of net premiums written. Gross premiums written include all premiums recorded by an insurance company during a specified policy period. Insurance premiums on property and casualty policies are recognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies or, in the case of crop insurance, over the period of risk to the Company. At the end of each accounting period, the portion of the premiums that is not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the remaining term of the policy or period of risk. The Company’s property and casualty policies, other than certain types of auto and non-standard auto policies, typically have a term of twelve months.
Due to the nature of the crop planting and harvesting cycle and the deadlines for filing and processing claims under the federal crop insurance program, insurance premiums for crop insurance are recognized and earned during the period of risk, which usually begins in spring and ends with harvest in the fall. In the case of prevented planting claims, the period of risk is shortened to the date a valid prevented planting claim is filed, when the Company believes the period of risk has ended. Under the federal crop insurance program, farmers must purchase crop insurance with respect to spring planted crops by March 15. By July 15, the farmer must report the number of acres he has planted in each crop. On September 1, the insurer bills the farmer for the insurance premium, which is due and payable by the farmer by October 1. If the farmer does not pay the premium by such date, the insurer must essentially provide a loan to the farmer in an amount equal to the premium at an annual interest rate of 15% because the insurer is required to pay the farmer’s portion of the premium to the Federal Crop Insurance Corporation (“FCIC”) by November 15, regardless of whether the farmer pays the premium to the insurer. Except for claims occurring in the spring (primarily for prevented planting and required replanting claims), claims are required to be filed with the FCIC by December 15. A different cycle exists for crops planted in the fall, such as winter wheat, but the vast majority of crop insurance written by the Company covers crops planted in the spring.
Net investment income and net capital gain (loss) on investments
The Company invests its excess cash in fixed income and equity securities. Investment income includes interest and dividends earned on invested assets, and is reported net of investment-related expenses. Net capital gains and losses on investments are reported separately from net investment income. The Company recognizes realized capital gains when investments are sold for an amount greater than their cost or amortized cost (in the case of fixed income securities) and realized capital losses when investments are written down as a result of other-than-temporary impairments or are sold for an amount less than their cost or amortized cost. The Company recognizes changes in unrealized gains and losses of equity securities in net income as part of net capital gains and losses on investments. These gains and losses may be significant given the fair market value of the equity portfolio and the inherent volatility in equity markets.
The changes in unrealized gains and losses on fixed income securities are recorded in other comprehensive income (loss), net of income taxes.
The portfolio of investments for NI Holdings and its insurance subsidiaries is managed by Conning, Inc., and Disciplined Growth Investors. These investment managers have discretion to buy and sell securities in accordance with the investment policy approved by our Board of Directors.
Principal Expense Items
The Company’s expenses consist primarily of losses and loss adjustment expenses (“LAE”), amortization of deferred policy acquisition costs, other underwriting and general expenses, and income taxes.
Losses and Loss Adjustment Expenses
Losses and LAE represent the largest expense item and include (1) claim payments made, (2) estimates for future claim payments and changes in those estimates from prior periods, and (3) costs associated with investigating, defending, and adjusting claims, including legal fees.
Amortization of deferred policy acquisition costs and other underwriting and general expenses
Expenses incurred to underwrite risks are referred to as policy acquisition costs. Policy acquisition costs consist of commission expenses, state premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business. These policy acquisition costs are deferred and amortized over the effective period of the related insurance policies. Other underwriting and general expenses consist of salaries, professional fees, office supplies, depreciation, and all other operating expenses not otherwise classified separately.
Income taxes
Current income taxes represent amounts paid or payable to the federal government and certain states whose payment is based upon net income (subject to regulatory adjustments) generated by the Company. As noted above, it does not include state premium taxes that are based purely on the collection of policyholder premiums.
NI Holdings uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the income tax bases of its assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion of the deferred income tax asset will not be realized. The effect of a change in tax rates is recognized in the period of the enactment date. Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability, excluding amounts attributed to accumulated other comprehensive income.
Non-GAAP Financial Measures
Our consolidated financial statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business. Management evaluates our operations by monitoring key measures of growth and profitability. We believe that disclosure of certain non-GAAP financial measures enhances investor understanding of our financial performance. The following provides further explanation of the key measures that management uses to evaluate our results:
Loss and LAE ratio
The loss and LAE ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned. The Company measures this ratio on an accident and calendar year basis to measure underwriting profitability. An accident year loss ratio measures losses and LAE for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year loss ratio measures losses and LAE for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage of premiums earned during that year.
Expense ratio
The expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other underwriting and general expenses (attributable to insurance operations) to premiums earned, and measures the Company’s operational efficiency in producing, underwriting, and administering our insurance business.
Combined ratio
The Company’s combined ratio is the ratio (expressed as a percentage) of the sum of losses and LAE incurred and expenses to premiums earned, and measures our overall underwriting profit. A combined ratio below 100% generally indicates a profitable book of business.
Premiums written
Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written are the total policy premiums, net of cancellations, associated with policies issued and underwritten by the Company. Assumed premiums written are the total premiums associated with the insurance risk transferred to us by other insurance and reinsurance companies pursuant to reinsurance contracts. Ceded premiums written is the portion of direct premiums written that we
cede to our reinsurers under our reinsurance contracts. Net premiums earned are recognized ratably over the life of a policy and differ from net premiums written, which are recognized on the effective date of the policy.
Underwriting gain (loss)
Underwriting gain (loss) measures the pre-tax profitability of the Company’s insurance operations. It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Each of these items is presented as a caption in the Company's Consolidated Statements of Operations.
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. The Company is required to make estimates and assumptions in certain circumstances that affect amounts reported in the 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 our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no changes in our critical accounting policies from December 31, 2020.
Liquidity and Capital Resources
NI Holdings generates sufficient funds from its operations and maintains a high degree of liquidity in its investment portfolio to meet the demands of claim settlements and operating expenses. The primary sources of funds are premium collections, investment earnings, and maturing investments. In 2017, we raised $93,145 in net proceeds from our initial public offering (“IPO”), which we planned to use for strategic acquisitions.
In 2018, we used $17,000 for the acquisition of Direct Auto. 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 installment was paid during the first quarter of 2021.
We currently anticipate that cash generated from our operations and available from our investment portfolio, along with the remaining IPO net proceeds, will be sufficient to fund our operations.
The Company’s philosophy is to provide sufficient cash flows from operations to meet its obligations in order to minimize the forced sales of investments. The Company maintains a portion of its investment portfolio in relatively short-term and highly liquid assets to ensure the availability of funds.
The change in cash and cash equivalents for the nine months ended September 30, 2021 and 2020 were as follows:
|
Nine Months Ended September 30, | ||||||||
|
2021 |
2020 | |||||||
|
Net cash flows from operating activities |
$ |
9,489 |
$ |
30,944 | ||||
|
Net cash flows from investing activities |
(52,471 |
) |
(10,377 |
) | ||||
|
Net cash flows from financing activities |
(10,366 |
) |
(11,394 |
) | ||||
|
Net increase (decrease) in cash and cash equivalents |
$ |
(53,348 |
) |
$ |
9,173 | |||
For the nine months ended September 30, 2021, net cash provided by operating activities totaled $9,489 compared to $30,944 a year ago. Consolidated net income of $2,189 for the nine months ended September 30, 2021 compared to consolidated net income of $18,898 for the same period a year ago. The decrease in consolidated net income, along with changes in net capital gain on investments, reinsurance recoverables on losses, and the receivable from the Federal Crop Insurance Corporation, were offset by the changes in unpaid losses and LAE.
For the nine months ended September 30, 2021, net cash used by investing activities totaled $52,471 compared to $10,377 a year ago. In the first nine months of 2021, the Company invested excess cash generated from operations and the implementation of the intercompany reinsurance pooling agreement into longer term investments.
For the nine months ended September 30, 2021, net cash used by financing activities totaled $10,366 compared to $11,394 a year ago. The Company paid the first installment of $6,667 of the additional consideration for Westminster during the first quarter of 2021. The Company repurchased shares of its own common stock for $3,211 during 2021, compared to $11,363 during 2020.
As a standalone entity, and outside of the net proceeds from the IPO, NI Holdings’ principal source of long-term liquidity will be dividend payments from its 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 the Company’s surplus as regards policyholders as of the preceding December 31, or (ii) the Company’s 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 capital 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.
The amount available for payment of dividends from Nodak Insurance to us during 2021 without the prior approval of the North Dakota Insurance Department is approximately $21,628 based upon the surplus of Nodak Insurance at December 31, 2020. Prior to its payment of any extraordinary 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, 2021. The Nodak Insurance Board of Directors declared and paid a $6,000 dividend to NI Holdings during the year ended December 31, 2020.
Direct Auto is restricted by the insurance laws of Illinois as to the amount of dividends or other distributions it may pay to NI Holdings. Illinois law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without prior approval of, the Illinois Department of Insurance. This amount cannot exceed the greater of (i) 10% of the Company’s surplus as regards policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized capital gains). Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the Illinois Department of Insurance.
The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois Department of Insurance is $3,582 based upon the surplus of Direct Auto at December 31, 2020. Prior to its payment of any dividend, Direct Auto will be required to provide notice of the dividend to the Illinois Department of Insurance. This notice must be provided to the Illinois Department of Insurance within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Illinois Department of Insurance has the power to limit or prohibit dividend payments if Direct Auto 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 Direct Auto during the nine months ended September 30, 2021 or the year ended December 31, 2020.
The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three preceding years. Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance Administration. This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Maryland Insurance Administration has the power to limit or prohibit dividend payments if Westminster 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 Westminster during the nine months ended September 30, 2021 or the year ended December 31, 2020.
Off-Balance Sheet Arrangements
NI Holdings has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital reserves.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 2 to the Unaudited Consolidated Financial Statements, included elsewhere in this Form 10-Q.
Item 3. - Quantitative and Qualitative Disclosures about Market Risk
The Company’s assessment of market risk as of September 30, 2021 indicates there have been no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC.
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 Exchange Act Rules 240.13a-15(b) and 15d-15(b)) as of September 30, 2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective.
Changes in Internal Controls
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. In addition, when we acquire new businesses, we incorporate our controls and procedures into the acquired business as part of our integration activities. Since 2018, we have invested significant resources to comprehensively document and analyze our system of internal control over financial reporting. We have identified areas requiring improvement, and continue to make selected improvements to processes and controls to address issues identified through this review. These improvements may include such activities as implementing new, more efficient systems, automating manual processes, formalizing policies and procedures, increasing monitoring controls, and updating existing systems. We plan to continue this initiative as well as prepare for the first audit of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 for the annual period ending December 31, 2022, which may result in changes to our internal control over financial reporting.
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 quarter ended September 30, 2021, 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 our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
All dollar amounts included in Item 2 herein, except per share amounts, are in thousands.
The Company has not sold any unregistered securities within the past three years.
On January 17, 2017, the SEC declared effective our registration statement on Form S-1 registering our common stock. 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. Griffin Financial Group, LLC acted as our placement agent in connection with the IPO.
Direct Auto was acquired on August 31, 2018 with $17,000 of the net proceeds from the IPO.
Westminster was acquired on January 1, 2020 for a purchase price of $40,000, subject to certain adjustments. The Company paid $20,000 from the net proceeds from the IPO at 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 installment was paid during the first quarter of 2021. The Company anticipates using the net proceeds from the IPO to satisfy these obligations.
From time to time, the Company may also repurchase its own stock. These repurchases may be used to satisfy its obligations under the equity incentive plans or may be done for other reasons. To date, the Company has used the net proceeds from the IPO to fund these buyback programs.
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 February 28, 2018, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. We completed the repurchase of 191,265 shares of our common stock for $2,966 during 2018, and an additional 116,034 shares for $2,006 during 2019. During the six months ended June 30, 2020, we completed the repurchase of 402,056 shares of our common stock for $4,996 to close out this authorization.
On May 4, 2020, our Board of Directors approved an additional authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this new authorization. During the nine months ended September 30, 2021, we repurchased an additional 144,110 shares of our common stock for $2,762 to close out this authorization.
On August 11, 2021, our Board of Directors approved an additional authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock. During the three months ended September 30, 2021, we completed the repurchase of 24,283 shares of our common stock for $449 under this new authorization.
|
Period in 2021 |
Total Number of Shares Purchased |
Average Price Paid Per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) (in thousands) | ||||||||||||
|
July 1-31, 2021 |
16,734 |
$ |
19.33 |
16,734 |
$ |
172 | ||||||||||
|
August 1-31, 2021 |
12,735 |
19.42 |
12,735 |
4,925 | ||||||||||||
|
September 1-30, 2021 |
20,393 |
18.35 |
20,393 |
4,551 | ||||||||||||
|
Total |
49,862 |
$ |
18.95 |
49,862 |
$ |
4,551 | ||||||||||
|
| |
|
(1) |
Shares purchased pursuant to the May 4, 2020 publicly announced share repurchase authorization of up to approximately $10,000 of the Company’s outstanding common stock, and the August 11, 2021 publicly announced share repurchase authorization of up to approximately $5,000 of the Company’s outstanding common stock. |
Item 3. - Defaults upon Senior Securities
Not Applicable
Item 4. - Mine Safety Disclosures
Not Applicable
Item 5. - Other Information
None
Item 6. - Exhibits
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Exhibit Number |
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Description |
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31.1 |
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Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
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Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
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XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Linkbase Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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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 5, 2021.
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NI HOLDINGS, INC. | |
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| |
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/s/ Michael J. Alexander | |
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Michael J. Alexander | |
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President and Chief Executive Officer (Principal Executive Officer) | |
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| |
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/s/ Seth C. Daggett | |
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Seth C. Daggett | |
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Chief Financial Officer (Principal Financial Officer) | |
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/s/ Timothy J. Milius | |
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Timothy J. Milius | |
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Chief Accounting Officer (Principal Accounting Officer) |
55
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael J. Alexander, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of NI Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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November 5, 2021 |
/s/ Michael J. Alexander |
|||
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Michael J. Alexander |
||||
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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56
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Seth C. Daggett, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of NI Holdings, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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November 5, 2021 |
/s/ Seth C. Daggett |
|||
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Seth C. Daggett |
||||
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Chief Financial Officer |
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(Principal Financial Officer) |
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57
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of NI Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021, 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:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
November 5, 2021 |
/s/ Michael J. Alexander |
|||
|
Michael J. Alexander |
||||
|
President and Chief Executive Officer |
||||
|
(Principal Executive Officer) |
||||
|
|
|
|||
|
November 5, 2021 |
/s/ Seth C. Daggett |
|||
|
Seth C. Daggett |
||||
|
Chief Financial Officer |
||||
|
(Principal Financial Officer) |
|
58