NI Holdings, Inc. Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2017 or☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ____ to _____Commission file number 001-37973NI HOLDINGS, INC.(Exact name of registrant as specified in its charter) NORTH DAKOTA(State or other jurisdiction ofincorporation or organization) 81-2683619(IRS EmployerIdentification No.) 1101 First Avenue NorthFargo, North Dakota (Address of principal executive offices)58102(Zip Code)(701) 298-4200Registrant’s telephone number, including area codeSecurities registered pursuant to Section 12(b) of the Act:Common Stock, $0.01 par value per share(Title of each class)NASDAQ Capital Market(Name of each exchange on which registered)Securities registered pursuant to Section 12(g) of the Act: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes No ☒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 1934during 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 filingrequirements for the past 90 days. ☒ Yes No☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of the Securities Act) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files). ☒ Yes No ☐Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ☐Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company”in Rule 12b-2 of the Exchange Act.Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised 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 the Registrant’s common shares outstanding on March 7, 2018 was 22,352,844. No preferred shares are issued or outstanding.Documents incorporated by ReferencePortions of the definitive proxy statement relating to the annual meeting of shareholders to be held May 22, 2018 are incorporated by reference into Part III ofthis report. TABLE OF CONTENTSPageCERTAIN IMPORTANT INFORMATION1FORWARD-LOOKING STATEMENTS1PART I3Item 1. Business3Item 1A. Risk Factors21Item 1B.Unresolved Staff Comments31Item 2.Properties31Item 3.Legal Proceedings31Item 4.Mine Safety Disclosures31PART II32Item 5.Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities32Item 6. Selected Financial Data34Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations36Item 7A.Quantitative and Qualitative Information about Market Risk56Item 8.Financial Statements and Supplementary Data58Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure95Item 9A.Controls and Procedures95Item 9B. Other Information95PART III96Item 10.Directors, Executive Officers and Corporate Governance96Item 11.Executive Compensation96Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters96Item 13. Certain Relationships and Related Transactions, and Director Independence96Item 14.Principal Accounting Fees and Services96PART IV97Item 15. Exhibits97Item 16.Form 10-K Summary98 i Table of Contents CERTAIN IMPORTANT INFORMATIONUnless the context otherwise requires, as used in this annual report on Form 10-K:·“NI Holdings”, “the Company”, “we”, “us”, and “our” refer to NI Holdings, Inc., together with Nodak Insurance and its subsidiaries andBattle Creek Mutual Insurance Company, for periods discussed after completion of the conversion, and for periods discussed prior tocompletion of the conversion refer to Nodak Mutual Insurance Company and 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 by which Nodak Mutual Insurance Company converted from a mutual insurancecompany to a stock insurance company, as Nodak Insurance Company, and became a wholly owned subsidiary of NI Holdings, anintermediate stock holding company formed on the date of conversion;·“Nodak Stock” refers to Nodak Insurance Company, the successor company to Nodak Mutual Insurance Company after the conversion;·“Nodak Mutual” refers to Nodak Mutual Insurance Company, the predecessor company to Nodak Insurance Company prior to theconversion;·“Nodak Insurance” refers to Nodak Stock or Nodak Mutual interchangeably;·“members” refers to the policyholders of Nodak Insurance, who are the named insureds under insurance policies issued by Nodak Insurance;and·“Battle Creek” refers to Battle Creek Mutual Insurance Company. Battle Creek is not a subsidiary of Nodak Insurance, but all of itsinsurance policies are reinsured by Nodak Insurance through a 100% quota-share reinsurance agreement and Battle Creek is controlled byNodak Insurance as a result of an affiliation agreement between Battle Creek and Nodak Insurance. Battle Creek is consolidated with NodakInsurance for financial reporting purposes. FORWARD-LOOKING STATEMENTSThis 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 discussedunder the heading “Risk Factors” 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 ourproducer network;·financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing a reduction of investmentincome or investment gains and a reduction in the value of our investment portfolio;1Table of Contents ·heightened competition, including specifically the intensification of price competition, the entry of new competitors and the developmentof new products by new or existing competitors, resulting in a reduction in the demand for our products;·changes in general economic conditions, including inflation, unemployment, interest rates and other factors;·estimates and adequacy of loss reserves and trends in losses 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 on terms that adequately protect us and to collect amounts that we believewe 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 PublicCompany Accounting Oversight Board or 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, and tax oraccounting matters including limitations on premium levels, increases in minimum capital and reserves, and other financial viabilityrequirements, and changes that affect the cost of, or demand for our products.Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from that expressed or impliedby the forward-looking information.2Table of Contents PART IItem 1.BusinessAll dollar amounts, except per share amounts, are in thousands.OverviewNI Holdings, Inc. is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company and became such inconnection with the conversion of Nodak Mutual Insurance Company from the mutual to stock form of organization and the creation of a mutual holdingcompany. The conversion was consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of common stock ofNodak Stock were issued to Nodak Mutual Group, Inc., which then contributed the shares to NI Holdings in exchange for 55% of the outstanding shares ofcommon stock of NI Holdings. Nodak Stock then became a wholly owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NIHoldings conducted no business and had no assets or liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Stock andits existing subsidiaries.Nodak Insurance was formed in 1946 to offer property and casualty insurance to members of the North Dakota Farm Bureau. Nodak Insurance’sbylaws provide that a person must be a member and remain a member of the North Dakota Farm Bureau in order to become and remain a policyholder ofNodak Insurance. Such bylaws also require that four members of the Board of Directors of Nodak Insurance must be members of the Board of Directors of theNorth Dakota Farm Bureau Federation (“North Dakota Farm Bureau”). Similarly, one-third of the members of the Board of Directors of Nodak Mutual Groupmust be persons designated by the North Dakota Farm Bureau.The North Dakota Farm Bureau has granted Nodak Insurance a nonexclusive, nontransferable license to use the name “Farm Bureau” and the “FB”logo and associated trademarks to market Nodak Insurance products, including insurance products. Nodak Insurance has held this license since the insurancecompany’s inception in 1946, and the current version of the license agreement has been in place since 2002. The current license agreement between theNorth Dakota Farm Bureau and Nodak Insurance renewed on October 1, 2017, with an expiration date of September 30, 2018. The agreement has historicallybeen renewed annually by a vote of the Nodak Insurance Board of Directors. Under the license agreement, Nodak Insurance is required to pay to the NorthDakota Farm Bureau an annual royalty payment equal to 1.3% of Nodak Insurance’s written premiums (excluding multi-peril crop insurance premiums),subject to a minimum annual payment of $900 and a maximum annual payment of $1,303. The maximum royalty payment is adjusted annually based uponthe June index month for the Consumer Price Index.Nodak Insurance’s subsidiaries include American West Insurance Company (“American West”) and Primero Insurance Company (“Primero”). BattleCreek Mutual Insurance Company is an affiliate of Nodak Insurance. A chart of the corporate structure and a more complete description of each of the NodakInsurance subsidiaries is included below. Nodak Insurance and Battle Creek have been assigned “A” ratings by A.M. Best Company, Inc. (“A.M. Best”),which is the third highest out of 15 possible ratings. American West is rated A- and Primero is unrated. The consolidated financial statements presented hereinreflect the financial position and results of operations of NI Holdings, Nodak Insurance, American West, Battle Creek, and Primero. Each of the four insurancecompanies is subject to examination and comprehensive regulation by the insurance department of its state of domicile.3Table of Contents NI HOLDINGS, INC.ORGANIZATIONAL CHART Nodak Mutual Group, Inc. ≥ 55% ownership NI Holdings, Inc. 100% ownership Nodak Insurance Company 100% 100% 100% ownership ownership Affiliation ownership Nodak Agency, Inc. American West InsuranceCompany Battle Creek Mutual Insurance Company Tri-State, Ltd 100% ownership Primero Insurance Company Nodak Insurance writes multi-peril crop, crop hail, private passenger automobile, farmowners, homeowners, and commercial property and liabilitypolicies in North Dakota. Only members of the North Dakota Farm Bureau can purchase insurance coverage from Nodak Insurance. As of December 31, 2017,Nodak Insurance distributed its insurance products through 72 exclusive agents appointed by Nodak Insurance.The following tables provide selected amounts from the Company’s consolidated statements of operations and balance sheets. Additionalinformation is presented throughout this annual report. Year Ended December 31, 2017 2016 2015Direct premiums written $195,238 $180,870 $172,775 Net premiums earned 179,464 152,756 139,473 Net income after non-controlling interest 15,991 4,551 17,456 December 31, 2017 2016 2015Total assets $376,988 $278,703 $258,624 Equity 255,573 153,418 149,918 The executive offices of NI Holdings and Nodak Insurance are located at 1101 1st Avenue North, Fargo, North Dakota 58102, and the main officephone number is 701-298-4200. NI Holdings’ website address is www.niholdingsinc.com. Information contained on such website is not incorporated byreference into this Annual Report on Form 10-K, and such information should not be considered to be part of this Annual Report on Form 10-K.American West Insurance Company (“American West”)American West is licensed to write insurance in eight states in the Midwest and Western regions of the United States, but currently issues policies inSouth Dakota, Minnesota, and North Dakota. American West currently issues multi-peril crop, crop hail,4Table of Contents farmowners, private passenger auto, and homeowners insurance primarily in South Dakota. American West distributes its products through independentagents located in approximately 100 offices.Battle Creek Mutual Insurance Company (“Battle Creek”)Battle Creek issues private passenger automobile, homeowners, and farmowners policies in Nebraska. Battle Creek distributes its policies throughindependent agents located in approximately 290 offices. Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance providesunderwriting, claims management, policy administration, and other administrative services to Battle Creek. Under a 100% quota-share reinsuranceagreement, Battle Creek cedes 100% of its net premiums to Nodak Insurance and Nodak Insurance fully reinsures all of Battle Creek’s risk under its insurancepolicies. In connection with entering into the affiliation agreement, Nodak Insurance purchased a $3.0 million surplus note issued by Battle Creek. Thesurplus note bears interest at an annual rate of 1.0% and matures on December 30, 2040. Battle Creek must obtain the prior approval of the Nebraska Directorof Insurance before making any payment of interest or principal on the surplus note.Pursuant to the affiliation agreement, so long as the surplus note remains outstanding or the 100% quota-share reinsurance is in effect, NodakInsurance is entitled to appoint two-thirds of the Board of Directors of Battle Creek. The affiliation agreement can be terminated by mutual written agreementof Battle Creek and Nodak Insurance, or by either party if there is a material breach of the agreement by the other party and such breach is not cured within 15days after written notice of such breach is given by the terminating party to the other party. If Battle Creek terminated the quota-share reinsurance agreement,it would not have sufficient capital to continue to operate.Primero Insurance Company (“Primero”)Primero writes non-standard automobile insurance in Nevada, Arizona, North Dakota, and South Dakota. Primero was acquired by Nodak Insurancein 2014. Primero distributes its policies through independent agents located in approximately 325 offices in those four states. Market OverviewWe market our property and casualty products in the upper Midwest states of North Dakota, South Dakota, Nebraska, and Minnesota. We also offernon-standard auto insurance in the states of Nevada, Arizona, North Dakota, and South Dakota. The following chart depicts our direct premiums written forthe last two years and our relative market share within each of our key states during 2016. 2017 2016 Direct PremiumsWritten Direct Premiums Written Market Size Rank in StateNorth Dakota $138,950 $135,133 $2,400,000 4thNebraska 33,358 26,302 4,500,000 36thSouth Dakota 8,227 5,814 2,400,000 54thMinnesota 5,945 5,076 11,200,000 108thNevada 6,390 7,086 (1)Arizona 2,368 1,459 (1)Total direct premiums written $195,238 $180,870 (1) Our market share is not material in Nevada or Arizona, so market size andrank are not presented. Organic Growth StrategyGiven our market presence in each of our key states, we believe we have many opportunities to increase business in our primary markets organically.Strategies we employ to grow organically include:·Continued emphasis on our relationship with the North Dakota Farm Bureau, a key advocacy group for agricultural and rural interestswhich enjoys a high and favorable profile throughout the state;·Using the cost advantage created by our low expense ratio compared to peers (24.8% expense ratio in 2017 compared to an averageexpense ratio of our peers of 34.8% in 2016) to selectively expand market share in our primary markets;5Table of Contents ·Expansion and enhancement of agency relationships in Nebraska and South Dakota, including the use of technology such as mobile apps,online quoting, and policy issuance initiatives to make it easy for independent agents and insureds to do business with us;·Selective expansion of Primero in its core markets of Nevada and Arizona as well as expansion of the non-standard auto product in our coreupper Midwest market area;·Excellent claims service for all insureds; and·Selective expansion of our participation in the federal multi-peril crop insurance program, where we have many years of experience andhave developed expertise in managing this type of insurance product. External Growth StrategyWe successfully acquired Primero in 2014 and acquired control of Battle Creek in 2011. American West was acquired in 2001. With the additionalcapital we raised through our initial public offering, we desire to make selective acquisitions that complement our strategy. Areas of current interest includeacquisition of a commercial writer and geographic expansion of existing product lines. The acquisition of a commercial writer would help us to betterbalance our book of business among personal lines insurance, multi-peril crop insurance, and commercial lines insurance where we currently write only alimited amount of business. Selective geographic expansion would help to diversify our weather-related risks and assist us in maintaining competitiveexpense levels.The completion of our initial public offering supplied the additional capital needed to support substantial increases in premium volume, which weexpect to result from the implementation of both our organic and external growth strategies. Segment InformationSee Note 20 to the Consolidated Financial Statements for the Company’s segment disclosures. Products and ServicesPrivate Passenger AutoNodak Insurance, Battle Creek, and American West each write private passenger auto to provide protection against liability for bodily injury andproperty damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured. Private passenger autoaccounted for $60,747 or 31.1% of direct premiums written by the Company on a consolidated basis during 2017.Home and FarmNodak Insurance, Battle Creek, and American West each write homeowners and farmowners policies to provide coverage for damage to buildings,equipment, and contents for a variety of perils, including fire, lightning, wind, hail, and theft. These policies also cover liability arising from injury to otherpersons or their property while on the insured’s premises. Home and farm accounted for $66,615 or 34.1% of direct premiums written by the Company on aconsolidated basis during 2017.Non-standard AutoPrimero writes non-standard auto insurance with a focus on minimum-limit auto liability coverage. Primero’s direct premiums written on non-standard auto insurance during 2017 were $10,835, which accounted for 5.6% of the direct premiums written by the Company on a consolidated basis in2017.Crop InsuranceCrop hail and multi-peril crop insurance policies are also offered by Nodak Insurance, American West, and Battle Creek. Multi-peril crop insuranceis a federal program that protects against crop yield losses from all types of natural causes including drought, excessive moisture, freeze, and disease. Crophail insurance is a private insurance product designed to provide protection6Table of Contents against losses to farmer’s crops due primarily to hail damage. Collectively, crop insurance accounted for $49,012 or 25.1% of the direct premiums written bythe Company on a consolidated basis during 2017.All OtherIn addition to the products described above, Nodak Insurance and American West write commercial multi-peril policies and excess liabilitycoverages. Collectively, these other coverages accounted for $8,029, or 4.1%, of the direct premiums written by the Company on a consolidated basis during2017. Also in this segment is an assumed reinsurance block of business, with $3,959 of assumed premiums written during 2017. Crop InsuranceCrop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of theircrops (yield) due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural products. The twogeneral categories of crop insurance are generally referred to as “crop-yield insurance” and “crop-revenue insurance”. Crop-yield insurance protects against areduction in the yield per acre from the historical average yield in a specified area, such as a county or National Oceanic and Atmospheric Administrationweather grid, while crop-revenue insurance provides protection against declines in the price of the particular crop. Most of the multi-peril crop insurancepolicies written today combine both yield and revenue protection, with the revenue component providing the policyholder with the option to calculateprice-based losses on the higher of the prevailing price when the crop is planted or the price at harvest.Beginning in 1980, the U.S. Congress expanded the federal crop insurance program to cover more crops and regions of the country. Moreimportantly, Congress permitted private sector insurers to market and administer federal insurance policies in exchange for an opportunity to earn a profitwhile bearing a portion of the insurance risk. Congress also authorized a premium subsidy for the farmers and ranchers. As a result, there was a rapid increasein the acres insured from approximately 26 million acres in 1980 to 100 million acres in 1990. The Federal Crop Insurance Reform Act of 1994 madeparticipation in the crop insurance program mandatory for farmers to be eligible to participate in other government support programs and provided aminimum level of free catastrophic risk coverage for insured and noninsured crops.In 2017, the federal crop insurance program covered approximately 23.2 million acres in North Dakota, 17.4 million acres in South Dakota, 17.6million acres in Minnesota, and 311.6 million acres nationwide. In 2017, Nodak Insurance multi-peril crop insurance policies covered approximately 1.9million acres in North Dakota. During the same period, American West crop insurance policies covered approximately 13,000 acres in South Dakota andapproximately 145,000 acres in Minnesota. Nodak Insurance, through its Battle Creek affiliate, writes a very small amount of multi-peril crop insurance inNebraska.American Farm Bureau Insurance Services (“AFBIS”) underwrites all of the multi-peril crop and crop hail insurance policies written by NodakInsurance, American West, and Battle Creek, as well as several other farm bureau-affiliated insurers. AFBIS also processes and administers all claims made bypolicyholders under such policies. We reimburse AFBIS for its actual loss adjustment expense with respect to the policies issued by us and pay AFBIS apercentage of the premiums we received with respect to such policies. Nodak Insurance is a shareholder of AFBIS, along with each of the other insurers forwhom AFBIS provides such services. AFBIS targets a three percent return on capital and pays all remaining profits to Nodak Insurance and the othershareholders of AFBIS. Nodak Insurance did not receive any material distributions from AFBIS during the years ended December 31, 2014 through 2017. Marketing and DistributionOur marketing philosophy is to sell profitable business in our core states, using a focused, cost-effective distribution system. Nodak Insurancedistributes its insurance products through exclusive agents in North Dakota, while American West, Battle Creek, and Primero rely on independent producers.We view these independent producers as important partners because they are in a position to recommend either our insurance products or those of acompetitor to their customers. We consider our relationships with these producers to be good.We review our producers with respect to both premium volume and profitability. Our producers are monitored primarily by our three-personmarketing staff, who also have principal responsibility for recruiting and training exclusive agents in North Dakota and independent producers in otherstates. We hold annual seminars for producers and conduct training programs that provide both technical training about our products and sales training tohelp them effectively market our products.For the year ended December 31, 2017, no individual producer was responsible for more than 5% of the direct premiums written by our insurancecompanies.7Table of Contents Producers are compensated through a fixed base commission structure. Agents receive commission as a percentage of premiums (generally 5% to15%) as their primary compensation from us. The Risk Management Agency of the United States Department of Agriculture (“RMA”) establishes themaximum commission that can be paid to producers with respect to crop insurance policies. Battle Creek and American West pay profit sharing commissionsto their agencies based on various annual agency premium thresholds and the difference between the agency’s loss ratio and the loss ratio goal established bythe insurance company. The commission is paid with respect to all property and casualty (non-crop) business earned within the calendar year. NodakInsurance pays a profit sharing commission to its agents only with respect to farmowners business originated by such agents.Our marketing efforts are further supported by our claims philosophy, which is designed to provide prompt and efficient service and claimsprocessing, resulting in a positive experience for producers and policyholders. We believe that these positive experiences result in higher policyholderretention and new business opportunities when communicated by producers and policyholders to potential customers. While we rely on our independentagents for distribution and customer support, underwriting and claim handling responsibilities are retained by us. Many of our agents have had directrelationships with us for a number of years. Underwriting, Risk Assessment and PricingOur underwriting philosophy is aimed at consistently generating profits through sound risk selection and pricing discipline. Through ourmanagement and underwriting staff, we regularly establish rates and rating classifications for our insureds based on loss and loss adjustment expense (“LAE”)experience we have developed over the years. We have various rating classifications based on location, type of business, and other risk factors.The nature of our business requires that we remain sensitive to the marketplace and the pricing strategies of our competitors. Using the marketinformation as our background, we normally set our prices based on our estimated future costs. From time to time, we may reduce our discounts or apply apremium surcharge to achieve an appropriate return. Pricing flexibility allows us to provide a fair rate commensurate with the assumed risk. If our pricingstrategy cannot yield sufficient premium to cover our costs on a particular type of risk, we may determine not to underwrite that risk. It is our philosophy notto sacrifice profitability for premium growth.Our competitive strategy in underwriting is to provide very high quality service to our producers and insureds by responding quickly and effectivelyto information requests and policy submissions. We maintain information on all aspects of our business, which is regularly reviewed to determine bothagency and policyholder profitability. Specific information regarding individual insureds is monitored to assist us in making decisions about policy renewalsor modifications.Our underwriting staff located in Fargo, North Dakota, which underwrites coverage issued by Nodak Insurance, American West and Battle Creek,includes 22 employees with over 360 combined years of experience in property and casualty underwriting. Primero employs an additional 3 underwriters inconnection with its non-standard auto insurance business. All of the underwriting for our crop insurance is underwritten by AFBIS, as described in an earliersection.We strive to be disciplined in our pricing by pursuing rate increases to maintain or improve our underwriting profitability while still being able toattract and retain customers. We utilize pricing reviews that we believe will help us price risks more accurately, improve account retention, and support theproduction of profitable new business. Our pricing reviews involve evaluating our claims experience and loss trends on a periodic basis to identify changesin the frequency and severity of our claims. We then consider whether our premium rates are adequate relative to the level of underwriting risk as well as thesufficiency of our underwriting guidelines. Claims and Litigation ManagementOur claims management philosophy involves:·aggressive closure of claims through prompt and thorough investigation of the facts related to the claim;·equitable settlement of meritorious claims; and·vigorous defense of unfounded claims as to coverage, liability or the amount claimed.Our claims team supports our underwriting strategy by working to provide a timely, good faith claims handling response to our policyholders.Claims excellence is achieved by timely investigation and handling of claims, settlement of meritorious claims for equitable amounts, maintenance ofadequate case reserves, and control of claims loss adjustment expenses.8Table of Contents Claims on insurance policies are received directly from the insured or through our producers. Our claims department supports our producerrelationship strategy by working to provide a consistently responsive level of claim service to our policyholders.Our claims staff located in Fargo, North Dakota is comprised of 44 employees with over 760 years of combined experience in processing propertyand casualty insurance claims. Primero also employs 12 claims personnel in connection with its non-standard auto insurance business. All claims made underour multi-peril crop and crop hail insurance policies are processed and administered by AFBIS. TechnologyOur insurance operations rely on commercially available software to provide the information management systems platform that runs ouraccounting, policy underwriting and issuance, and claims processing functions. These systems permit us to integrate the accounting and reporting functionsof all of our insurance operations. We utilize offsite servers for our information systems with daily backup of data. We have adopted a disaster recovery plan,and other risk mitigation practices, tailored to meet our needs and geographic location. We seek to invest continuously in new technology to maximize ourbusiness opportunities while protecting our interests and those of our clients. ReinsuranceReinsurance CededWe reinsure a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policieswritten by us are reinsured with other insurance companies principally to:·reduce net liability on individual risks;·stabilize underwriting results; and·increase our underwriting capacity.Reinsurance does not legally discharge the insurance company issuing the policy from primary liability for the full amount due under the reinsuredpolicies, even though the assuming reinsurer is obligated to reimburse the company issuing the policy to the extent of the coverage ceded.A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength. Our reinsurance arrangements aregenerally renegotiated annually. For the year ended December 31, 2017, NI Holdings ceded to reinsurers $16,665 of written premiums, compared to $30,748of written premiums for the year ended December 31, 2016 and $33,439 of written premiums for the year ended December 31, 2015. The decrease inpremiums ceded in 2017 was primarily due to less sharing of multi-peril crop insurance premiums with the federal government and an increase to ourcatastrophe retention amount in the reinsurance program.The chart below illustrates the reinsurance coverage under our excess of loss treaty for individual casualty risks:Losses Incurred Retained byNodak Insurance Ceded Under Reinsurance Treaty Up to $600 100.0% 0.0%$11,400 in excess of $600 0.0% 100.0% The chart below illustrates the reinsurance coverage under our excess of loss treaty for individual property risks:Losses Incurred Retained byNodak Insurance Ceded Under Reinsurance Treaty Up to $500 100.0% 0.0%$19,500 in excess of $500 0.0% 100.0% As a group, during the year ended December 31, 2017, Nodak Insurance, American West, and Battle Creek retained $10,000 of losses fromcatastrophic events and had reinsurance under various reinsurance agreements up to $74,600 in excess of their $10,0009Table of Contents retained risk. For 2018, the catastrophe retention amount remained at $10,000. Prior to January 1, 2017, the group collectively retained the first $5,000 ofweather related loss.The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financialcondition. NI Holdings’ reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected withthe help of our reinsurance brokers. We monitor the solvency of reinsurers through regular review of their financial statements and their A.M. Best ratings. Allof our current reinsurance partners have at least an “A” rating from A.M. Best. According to A.M. Best, companies with a rating of “A-” or better “have anexcellent ability to meet their ongoing obligations to policyholders.” We have experienced no significant difficulties collecting amounts due from reinsurers.Reinsurance for multi-peril crop insurance is provided by the Federal Crop Insurance Corporation (“FCIC”). Insurers can assign each policy issued toeither its “assigned risk” or “commercial” fund. The FCIC retains an increasing percentage of underwriting losses at successively higher loss ratios whileceding an increasing percentage of the premium at lower loss ratios. The commercial fund permits insurers to retain more of the underwriting gains and losses,while the assigned risk fund cedes up to 80% of the risk to the FCIC. The exact treatment of the commercial fund varies by state groups. In Group 1, whichincludes Illinois, Indiana, Iowa, Minnesota and Nebraska, the FCIC retains a larger share of the underwriting gains and a smaller portion of the underwritinglosses when compared to all other states. Aggregate stop loss reinsurance is purchased for crop hail and multi-peril insurance. We purchase fifty percentagepoints of coverage above a 100% direct loss ratio for crop hail. We purchase forty-five percentage points of coverage for multi-peril crop above a 105% lossratio after the FCIC reinsurance protection. This represents the worst loss exposure given the FCIC formula, thereby capping the multi-peril crop loss ratio at105%.The following table sets forth the largest amounts of loss and LAE recoverable by the Company from reinsurers as of December 31, 2017 and thecurrent A.M. Best rating of each as of January 24, 2018.Reinsurance Company Loss & LAE Recoverable OnUnpaid Claims Percentage ofTotal Recoverable A.M. Best RatingAmerican Agricultural Insurance Company $407 9.9% AAspen Insurance UK Limited 404 9.8% AFederal Crop Insurance Corporation 133 3.2% NRHannover Rueck SE 704 17.1% A+Maiden Reinsurance North America 1,005 24.3% APartner Reinsurance Company Ltd 539 13.1% AQBE Reinsurance Corporation 823 19.9% AScor Reinsurance Company 113 2.7% A+Total reinsurance recoverables $4,128 100.0% Reinsurance AssumedNodak Insurance assumes 100% of the risk under policies written by Battle Creek. In addition, Nodak Insurance is required by statute to participatein certain residual market pools. This participation requires Nodak Insurance to assume business for property exposures that are not insured in the voluntarymarketplace. Nodak Insurance participates in these residual markets pro rata on a market share basis.Additionally, through American Agriculture Insurance Company (affiliated with the American Farm Bureau Federation), Nodak Insuranceparticipates in both domestic and international property insurance pools. Annually, Nodak Insurance reviews the available pools and selects the pools inwhich it will participate. No multi-peril crop or crop hail insurance policies are included in such pools. Participation in such pools provides Nodak Insurancewith the opportunity to diversify its risk while increasing its annual net premiums earned. In 2017, 2016 and 2015, Nodak Insurance assumed $3,959, $3,634,and $3,478, respectively, of premiums from such pools.Beginning on January 1, 2016, Nodak Insurance assumed 100% of the crop hail premiums and losses from American West and Rural MutualInsurance Company (a company affiliated with the Wisconsin Farm Bureau Federation). The business was then pooled with Nodak Insurance’s crop hailbusiness and proportionately retroceded back to each participant. This crop hail pool allows Nodak Insurance and American West to diversify their cropinsurance risk across an additional geographic region. Unpaid Loss and Loss Adjustment ExpenseNI Holdings is required by applicable insurance laws and regulations to maintain reserves for unpaid losses and LAE. Our liability for unpaid lossesand LAE consists of (1) case reserves, which are reserves for claims that have been reported to us, and (2)10Table of Contents reserves for claims that have been incurred but not yet been reported and for the future development of case reserves (“IBNR”). The laws and regulationsrequire that provision be made for the ultimate cost of those claims without regard to how long it takes to settle them or the time value of money. Thedetermination of reserves involves actuarial and statistical projections of what we expect to be the cost of the ultimate settlement and administration of suchclaims. The liability for unpaid losses and LAE is set based on facts and circumstances then known, estimates of future trends in claims severity, and othervariable factors such as inflation and changing judicial theories of liability.Estimating the ultimate liability for unpaid losses and LAE is an inherently uncertain process. Therefore, the liability for unpaid losses and LAEdoes not represent an exact calculation of that liability. Our reserving policy recognizes this uncertainty by maintaining reserves at a level providing for thepossibility of adverse development relative to the estimation process.When a claim is reported to us, our claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can bedetermined or estimated. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledgeof our claims staff. In estimating the appropriate reserve, our claims staff considers the nature and value of the specific claim, the severity of injury or damage,and the policy provisions relating to the type of loss, to the extent determinable at the time. Case reserves are adjusted by our claims staff as more informationbecomes available. It is our policy to settle each claim as expeditiously as possible.We maintain IBNR reserves to provide for already incurred claims that have not yet been reported and development on reported claims. The IBNRreserve is determined by estimating our ultimate net liability for both reported and IBNR claims, and then subtracting the case reserves and paid losses andLAE for reported claims.Each quarter, NI Holdings computes its estimated ultimate liability using its methodologies and procedures. However, because the establishment ofloss reserves is an inherently uncertain process, we cannot assure you that ultimate losses will not exceed the established loss reserves. Adjustments inaggregate reserves, if any, are reflected in the operating results of the period during which such adjustments are made.11Table of Contents The following table provides a reconciliation of beginning and ending unpaid losses and LAE reserve balances of NI Holdings for the years endedDecember 31, 2017, 2016 and 2015. Year ended December 31, 2017 2016 2015 Balance at beginning of year: Liability for unpaid losses and loss adjustment expenses $59,632 $45,342 $50,518 Reinsurance recoverables on losses 7,192 5,109 5,676 Net balance at beginning of year 52,440 40,233 44,842 Incurred related to: Current year 132,812 123,264 92,764 Prior years (10,101) (4,756) (8,888)Total incurred 122,711 118,508 83,876 Paid related to: Current year 104,769 90,772 70,290 Prior years 28,620 15,529 18,195 Total paid 133,389 106,301 88,485 Balance at end of year: Liability for unpaid losses and loss adjustment expenses 45,890 59,632 45,342 Reinsurance recoverables on losses 4,128 7,192 5,109 Net balance at end of year $41,762 $52,440 $40,233 The estimation process for determining the liability for unpaid losses and LAE inherently results in adjustments each year for claims incurred (butnot paid) in preceding years. Negative amounts reported for claims incurred related to prior years are a result of claims being settled for amounts less thanoriginally estimated (favorable development). Positive amounts reported for claims incurred related to prior years are a result of claims being settled foramounts greater than originally estimated (unfavorable or adverse development).The following table shows the development of NI Holding’s liability for unpaid loss and LAE from 2007 through 2017. The top line of the tableshows the liabilities at the balance sheet date, including losses incurred but not yet reported. The upper portion of the table shows the cumulative amountssubsequently paid as of successive years with respect to the liability. The lower portion of the table shows the re-estimated amount of the previously recordedliability based on experience as of the end of each succeeding year. The estimates change as more information becomes known about the frequency andseverity of claims for individual years. The redundancy (deficiency) exists when the re-estimated liability for each reporting period is less (greater) than theprior liability estimate. The “cumulative redundancy (deficiency)” depicted in the table, for any particular calendar year, represents the aggregate change inthe initial estimates over all subsequent calendar years.Gross deficiencies and redundancies may be significantly more or less than net deficiencies and redundancies due to the nature and extent ofapplicable reinsurance.12Table of Contents As of December 31, 2017 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Liability forunpaid loss andLAE, net ofreinsurancerecoverables $30,360 $29,698 $30,908 $28,266 $23,302 $25,466 $42,058 $44,842 $40,233 $52,440 $41,762 Cumulativeamount of liabilitypaid through One year later 10,740 13,550 12,247 11,691 11,911 5,056 16,249 18,166 14,932 28,426 — Two years later 13,553 17,278 16,323 12,362 9,053 8,654 20,899 20,802 20,612 — — Three years later 14,813 17,489 16,408 15,104 11,245 11,636 21,224 23,511 — — — Four years later 15,399 17,619 17,552 15,536 13,195 11,631 22,993 — — — — Five years later 15,348 17,774 17,838 16,662 13,092 12,295 — — — — — Six years later 15,492 17,955 18,682 16,627 13,311 — — — — — — Seven years later 15,537 18,617 18,405 16,629 — — — — — — — Eight years later 16,171 18,139 18,324 — — — — — — — — Nine years later 15,667 18,013 — — — — — — — — — Ten years later 15,523 — — — — — — — — — — Liabilityestimated after One year later 24,082 22,989 26,363 24,049 18,691 22,337 34,074 35,926 34,880 42,145 — Two years later 19,831 23,100 23,492 19,815 20,144 18,788 30,380 33,058 28,431 — — Three years later 17,835 21,931 20,763 20,518 17,678 16,620 28,871 28,526 — — — Four years later 17,586 20,082 21,516 19,356 16,294 15,459 25,852 — — — — Five years later 16,989 20,031 20,724 18,403 15,184 13,864 — — — — — Six years later 16,927 19,531 19,836 17,841 14,443 — — — — — — Seven years later 16,860 19,251 19,306 17,429 — — — — — — — Eight years later 16,720 18,696 19,011 — — — — — — — — Nine years later 16,082 18,485 — — — — — — — — — Ten years later 15,904 — — — — — — — — — — Cumulative totalredundancy(deficiency) Gross liability –end of year 38,913 53,770 51,413 39,332 38,852 38,007 46,900 50,518 45,342 59,632 45,890 Reinsurancerecoverable 8,553 24,072 20,505 11,066 15,550 12,541 4,842 5,676 5,109 7,192 4,128 Net liability –end of year 30,360 29,698 30,908 28,266 23,302 25,466 42,058 44,842 40,233 52,440 41,762 Gross re-estimatedliability –latest 24,763 34,600 31,481 26,424 29,405 23,431 29,299 33,615 32,761 49,686 — Re-estimatedreinsurancerecoverables –latest 8,859 16,115 12,470 8,995 14,962 9,567 3,447 5,089 4,330 7,542 — Net re-estimatedliability -latest 15,904 18,485 19,011 17,429 14,443 13,864 25,852 28,526 28,431 42,144 — Gross cumulativeredundancy(deficiency) 14,150 19,170 19,932 12,908 9,447 14,576 17,601 16,903 12,581 9,946 — 13Table of Contents InvestmentsNI Holdings’ investments in fixed income and equity securities are classified as available for sale and are carried at fair value with unrealized gainsand losses reflected as a component of equity, net of income taxes. The goal of the Company’s investment activities is to complement and support its overallmission. As such, the investment portfolio is structured to maximize after-tax investment income and price appreciation while maintaining the portfolio’starget risk profile.The Company’s overall investment objectives are (i) growth and preservation of capital, (ii) achieving favorable returns on invested assets throughinvestment in high quality income producing assets, and (iii) assuring proper levels of liquidity to fund expected operating needs. See “Item 7A. Quantitativeand Qualitative Information about Market Risk” for discussion about specific risks concerning investments.In addition to any investments prohibited by the insurance laws and regulations of North Dakota and any other applicable states, NI Holdings’investment policies prohibit the following investments and investing activities:·Commodities and futures contracts;·Options (except covered call options);·Non-investment grade debt obligations (determined at time of purchase);·Interest only, principal only, and residual tranche collateralized mortgage obligations;·Private placements;·Foreign currency trading;·Limited partnerships, other than publicly traded master limited partnerships;·Convertible securities;·Venture capital investments;·Real estate properties;·Securities lending;·Portfolio leveraging, i.e., margin transactions; and·Short selling.The Executive Committee of NI Holdings’ Board of Directors approved the Company’s investment policy and reviews it periodically. Theinvestment portfolio is managed by Conning, Inc. and Disciplined Growth Investors.The following table sets forth information concerning NI Holdings’ investments. December 31, 2017 2016 Cost orAmortized Cost Fair Value Cost or Amortized Cost Fair Value Fixed income securities: U.S. Government and agencies $9,531 $9,649 $5,834 $6,050 Obligations of states and political subdivisions 81,741 82,595 68,915 69,396 Corporate securities 88,474 89,451 50,610 51,170 Residential mortgage-backed securities 28,557 28,524 22,750 22,637 Commercial mortgage-backed securities 11,228 11,170 8,033 8,096 Asset-backed securities 15,447 15,369 4,118 4,121 Total fixed income securities 234,978 236,758 160,260 161,470 Equity securities 29,028 47,561 11,511 25,917 Total $264,006 $284,319 $171,771 $187,387 14Table of Contents The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below as of December 31, 2017. Actualmaturities could differ from contractual maturities because issuers of the securities may have the right to call or prepay certain obligations, which may or maynot include call or prepayment penalties. December 31, 2017 Amortized Cost Fair Value Less than one year $12,761 $12,766 One through five years 86,830 87,642 Five through ten years 69,586 70,680 Greater than ten years 10,569 10,607 Mortgage/asset-backed securities 55,232 55,063 Total debt securities $234,978 $236,758 At December 31, 2017, the average maturity of NI Holdings’ fixed income investment portfolio was 4.85 years and the average duration was 3.99years. As a result, the fair value of investments may fluctuate significantly in response to changes in interest rates. In addition, NI Holdings may experienceinvestment losses to the extent our liquidity needs require the disposition of fixed income securities in unfavorable interest rate environments.NI Holdings uses quoted values and other data provided by independent pricing services as inputs in its process for determining fair values of itsinvestments. The pricing services cover substantially all of the securities in the portfolio for which publicly quoted values are not available. The pricingservices’ evaluations represent an exit price, which is a good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale.The pricing is based on observable inputs either directly or indirectly, such as quoted prices in markets that are active, quoted prices for similar securities atthe measurement date, or other inputs that are observable.NI Holdings’ investment managers provide pricing information that they utilize, together with information obtained from independent pricingservices, to determine the fair value of its fixed income securities. After performing a detailed review of the information obtained from the pricing services, noadjustment was made to the values provided.The following table sets forth our average cash and invested assets, net investment income, and return on average cash and invested assets for thereported periods: Year Ended December 31, 2017 2016 2015 Average cash and invested assets $260,781 $202,735 $191,987 Net investment income 5,031 3,644 3,571 Return on average cash and invested assets 1.9% 1.8% 1.9% A.M. Best RatingA.M. Best rates insurance companies based on factors of concern to policyholders. The rating evaluates the claims paying ability of a company, andis not a recommendation on the merits of an investment in our common stock.Nodak Insurance and Battle Creek are rated “A” by A.M. Best, which is the third highest out of 15 possible ratings. A.M. Best has affirmed a stablefinancial strength outlook to both Nodak Insurance and Battle Creek. American West is rated “A-” with a stable financial strength outlook, and Primero isunrated because the nature of its business is not ratings sensitive. In its evaluation of a company’s financial and operating performance, A.M. Best reviews:·the company’s profitability, leverage and liquidity;·its book of business;·the adequacy and soundness of its reinsurance;·the quality and estimated fair value of its assets;·the adequacy of its reserves and surplus;15Table of Contents ·its capital structure;·the experience and competence of its management; and·its marketing presence.If we are unable to maintain at least an “A-” rating from A.M. Best, it may impair our ability to compete effectively. CompetitionThe property casualty and crop insurance markets are highly competitive. NI Holdings competes with stock insurance companies, mutualcompanies, and other underwriting organizations. Our largest competitors in North Dakota for private passenger auto and homeowners are State Farm,Progressive, American Family, QBE, Farmers Union, and Auto-Owners. In South Dakota and Nebraska, we have small market shares and our competitors arethe large national and regional companies as well as Farmers Mutual of Nebraska. Based on 2016 data, Nodak Insurance is the second largest writer offarmowners insurance in North Dakota. Our largest competitors are Farmers Union, North Star Mutual, and American Family. In Nebraska and South Dakota,we have a small farmowners market share, which is dominated by the large national and regional carriers. Certain of these competitors have substantiallygreater financial, technical, and operating resources than we do and may be able to offer lower rates or higher commissions to their producers.Total industry-reported premiums written for multi-peril crop insurance in 2017 was $929,135 in North Dakota and $634,021 in Minnesota. In NorthDakota, our multi-peril crop insurance direct premiums written were $39,270, $38,708, and $39,914 for the years ended December 31, 2017, 2016 and 2015,respectively. In Minnesota, our multi-peril crop insurance direct premium written were $4,534, $3,504, and $2,652 for the years ended December 31, 2017,2016 and 2015, respectively. NI Holdings wrote less than $500 in multi-peril crop insurance in Nebraska and South Dakota for each of the last three years.The principal competitors in our markets for multi-peril crop insurance are Chubb, RCIS, QBE, and Great American.The premium rates for multi-peril crop insurance are established by the RMA, and, accordingly, we compete with other insurance companies onfactors such as agency relationships, claim service, and market reputation in the crop insurance market. We believe that our relationship with the NorthDakota Farm Bureau and our leading market share are significant factors in maintaining our market share of the crop insurance business in North Dakota.With respect to writing property and casualty insurance, we compete on a number of factors such as pricing, agency relationships, policy support,claim service, and market reputation. Like other writers of property and casualty insurance, our policy terms vary from state to state based on the prescribedminimum liability limits in each state, as established by state law. We believe our company differentiates itself from many larger companies competing forthis business by focusing on ease of doing business and providing excellent claims service with local, knowledgeable employees.To compete successfully in the property and casualty insurance market, we rely on our ability to identify insureds that are most likely to produce anunderwriting profit, operate with a disciplined underwriting approach, practice prudent claims management, reserve appropriately for unpaid claims, andprovide quality service and competitive commissions to our independent and captive agents. RegulationGeneralWe are subject to extensive regulation, particularly at the state level. The method, extent, and substance of such regulation varies by state, butgenerally has its source in statutes and regulations that establish standards and requirements for conducting the business of insurance and that delegateregulatory authority to state insurance regulatory agencies. In general, such regulation is intended for the protection of those who purchase or use insuranceproducts, not the companies that write the policies. These laws and regulations have a significant impact on our business and relate to a wide variety ofmatters including accounting methods, agent and company licensure, claims procedures, corporate governance, examinations, investing practices, policyforms, pricing, trade practices, reserve adequacy, and underwriting standards.State insurance laws and regulations require our insurance company subsidiaries to file financial statements with state insurance departmentseverywhere they do business, and the operations of such companies and their respective accounts are subject to examination by those departments at anytime. Our insurance company subsidiaries prepare statutory financial statements in accordance with accounting practices and procedures prescribed orpermitted by the state in which they are domiciled. North Dakota16Table of Contents generally conforms to National Association of Insurance Commissioners (“NAIC”) practices and procedures, so its examination reports and other filingsgenerally are accepted by other states.Premium rate regulation varies greatly among jurisdictions and lines of insurance. In the states in which our insurance company subsidiaries writeinsurance, premium rates for the various lines of insurance are subject to either prior approval or limited review upon implementation. The premium rates formulti-peril crop insurance are established by the RMA. See “Item 1. Business — Crop Insurance.”Many jurisdictions have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit aninsurer’s ability to cancel or non-renew policies. Laws and regulations that limit cancellation and non-renewal may restrict our ability to exit unprofitablemarketplaces in a timely manner.Crop InsuranceThe multi-peril crop insurance business is overseen by the federal government through the RMA. The RMA outlines policy language, establishespremium rates, and develops loss adjustment procedures for insurance programs under the federal crop insurance program. In addition, through the FCIC, theRMA provides premium subsidies to farmers and sets the commission percentages that can be paid to agents. All participating insurance carriers are subject tothe same Standard Reinsurance Agreement (“SRA”), which outlines items such as reporting requirements and claims handling procedures, proportional andnon-proportional reinsurance terms, and the level of administrative and operating reimbursement paid to insurers. The RMA also provides oversight to theapproved insurance providers (“AIPs”). The AIPs are required to use the policies, premium rates, and loss adjustment procedures set by the RMA withoutmodification and are required to issue a policy to any eligible applicant regardless of risk or profitability. The RMA conducts audits of AIPs with respect toclaims and loss adjustment procedures.ExaminationsExaminations are conducted every three to five years by the Departments of Insurance where the insurance companies are domiciled. NodakInsurance and American West were last examined by the North Dakota Insurance Department as of December 31, 2016. The final examination report forAmerican West included a finding related to intercompany expense charges between the two companies, which offset in consolidation. The underlying causeof this finding has been resolved.Battle Creek was last examined by the Nebraska Insurance Department as of December 31, 2016, and the last examination of Primero by the NevadaInsurance Department was as of December 31, 2016. Neither examination resulted in any adjustments to their financial positions, nor were there anysubstantive matters raised in the final examination reports.NAIC Risk-Based Capital RequirementsNorth Dakota and most other states have adopted the NAIC system of risk-based capital requirements that require insurance companies to calculateand report information under a risk-based formula. These risk-based capital requirements attempt to measure statutory capital and surplus needs based on therisks in a company’s mix of products and investment portfolio. Under the formula, a company first determines its “authorized control level” risk-basedcapital. This authorized control level takes into account (i) the risk with respect to the insurer’s assets; (ii) the risk of adverse insurance experience withrespect to the insurer’s liabilities and obligations; (iii) the interest rate risk with respect to the insurer’s business; and (iv) all other business risks and suchother relevant risks as are set forth in the risk-based capital instructions. A company’s “total adjusted capital” is the sum of statutory capital and surplus andsuch other items as the risk-based capital instructions may provide. The formula is designed to allow state insurance regulators to identify weakly capitalizedcompanies.The requirements provide for four different levels of regulatory attention. The “company action level” is triggered if a company’s total adjustedcapital is less than 2.0 times its authorized control level but greater than or equal to 1.5 times its authorized control level. At the company action level, thecompany must submit a comprehensive plan to the regulatory authority that discusses proposed corrective actions to improve the capital position. The“regulatory action level” is triggered if a company’s total adjusted capital is less than 1.5 times but greater than or equal to 1.0 times its authorized controllevel. At the regulatory action level, the regulatory authority will perform a special examination of the company and issue an order specifying correctiveactions that must be followed. The “authorized control level” is triggered if a company’s total adjusted capital is less than 1.0 times but greater than or equalto 0.7 times its authorized control level. At this level, the regulatory authority may take action it deems necessary, including placing the company underregulatory control. The “mandatory control level” is triggered if a company’s total adjusted capital is less than 0.7 times its authorized control level. At thislevel, the regulatory authority is mandated to place the company under its control. The capital levels of our insurance company subsidiaries have nevertriggered any of these regulatory capital levels. We cannot guarantee, however, that the capital requirements applicable to such companies will not increasein the future.17Table of Contents NAIC RatiosThe NAIC also has developed a set of 13 financial ratios referred to as the Insurance Regulatory Information System (“IRIS”). Based on statutoryfinancial statements filed with state insurance regulators, the NAIC annually calculates these IRIS ratios to assist state insurance regulators in monitoring thefinancial condition of insurance companies. The NAIC has established an acceptable range for each of the IRIS financial ratios. If four or more of its IRISratios fall outside the range deemed acceptable by the NAIC, an insurance company may receive inquiries from individual state insurance departments.During each of the years ended December 31, 2017 and 2016, none of our insurance company subsidiaries produced results outside the acceptable range formore than two of the IRIS tests.Enterprise Risk AssessmentIn 2012, the NAIC adopted various changes to its Model Regulations, herein known as the “NAIC Amendments”. The NAIC Amendments, whenadopted by the various states, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States. TheNAIC Amendments includes a requirement that an insurance holding company system’s ultimate controlling person submit annually to its lead stateinsurance regulator an “enterprise risk report”. This enterprise risk report identifies the activities, circumstances, or events involving one or more affiliates ofan insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insuranceholding company system as a whole. While the NAIC Amendments have not been adopted in whole by the North Dakota Insurance Department, NorthDakota currently requires insurers domiciled in North Dakota to include an enterprise risk assessment in its annual report. The NAIC Amendments alsoinclude provisions requiring a controlling person to submit prior notice to its domiciliary insurance regulator of its divestiture of control, having detailedminimum requirements for cost sharing and management agreements between an insurer and its affiliates, and expanding of the agreements between aninsurer and its affiliates to be filed with its domiciliary insurance regulator.In 2012, the NAIC also adopted the Own Risk Solvency Assessment (“ORSA”) Model Act. The ORSA Model Act, when adopted by the variousstates, will require an insurance holding company system’s chief risk officer to submit at least annually to its lead state insurance regulator a confidentialreport detailing its own internal solvency assessment. Such an assessment is to be tailored to the nature, scale and complexity of an insurer. This assessmentwill include the material and relevant risks identified by the insurer associated with an insurer’s current business plan and the sufficiency of capital resourcesto support those risks. Although our insurance company subsidiaries are exempt from ORSA because of their size, NI Holdings intends to incorporate thoseelements of ORSA that it believes constitute “best practices” into its annual internal enterprise risk assessment.Market Conduct RegulationState insurance laws and regulations include numerous provisions governing trade practices and the marketplace activities of insurers, includingprovisions governing the form and content of disclosure to consumers, illustrations, advertising, sales practices and complaint handling. State regulatoryauthorities generally enforce these provisions through periodic market conduct examinations.Guaranty Fund LawsAll states have guaranty fund laws under which insurers doing business in the state can be assessed to fund policyholder liabilities of insolventinsurance companies. Under these laws, an insurer is subject to assessment depending upon its market share in the state of a given line of business. For theyears ended December 31, 2017, 2016 and 2015, we paid no assessments pursuant to state insurance guaranty association laws. We establish reserves relatingto insurance companies that are subject to insolvency proceedings when it becomes probable that we will be subject to an assessment and the amount of suchassessment can be estimated. We cannot predict the amount and timing of any future assessments under these laws. See “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations.”Federal RegulationThe U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance forcrops, flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affectthe insurance industry, including tort reform, corporate governance, and the taxation of reinsurance companies. The Dodd-Frank Act established the FederalInsurance Office, which is authorized to study, monitor and report to Congress on the insurance industry and to recommend that the Financial StabilityOversight Council designate an insurer as an entity posing risks to the U.S. financial stability in the event of the insurer’s material financial distress or failure.In December 2013, the Federal Insurance Office issued a report on alternatives to modernize and improve the system of insurance regulation in the UnitedStates, including by increasing national uniformity through either a federal charter or effective action by the states. Changes to federal legislation andadministrative policies in several areas, including changes in federal taxation, can also significantly affect the insurance industry and us. See “Item 1.Business — Crop Insurance.”18Table of Contents We are also subject to the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”) and the Health Insurance Portability and AccountabilityAct of 1996 (“HIPAA”), both of which require us to protect the privacy of our customers’ information, including health and credit information.PrivacyAs mandated by the Gramm-Leach-Bliley Act, states continue to promulgate and refine laws and regulations that require financial institutions,including insurance companies, to take steps to protect the privacy of certain consumer and customer information relating to products or services primarilyfor personal, family or household purposes. A recent NAIC initiative that affected the insurance industry was the adoption in 2000 of the Privacy ofConsumer Financial and Health Information Model Regulation, which assisted states in promulgating regulations to comply with the Gramm-Leach-BlileyAct. In 2002, to further facilitate the implementation of the Gramm-Leach-Bliley Act, the NAIC adopted the Standards for Safeguarding CustomerInformation Model Regulation. Several states have now adopted similar provisions regarding the safeguarding of customer information. NI Holdings and itssubsidiaries have each implemented procedures to comply with the Gramm-Leach-Bliley Act’s related privacy requirements.Office of Foreign Asset ControlThe Treasury Department’s Office of Foreign Asset Control (“OFAC”) maintains a list of “Specifically Designated Nationals and Blocked Persons”(“the SDN List”). The SDN List identifies persons and entities that the government believes are associated with terrorists, rogue nations or drug traffickers.OFAC’s regulations prohibit insurers, among others, from doing business with persons or entities on the SDN List. If the insurer finds and confirms a match,the insurer must take steps to block or reject the transaction, notify the affected person, and file a report with OFAC.Jumpstart Our Business Startups Act of 2012We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”), and we may takeadvantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies,such as reduced public company reporting, accounting, and corporate governance requirements. We currently intend to avail ourselves of the reduceddisclosure obligations available under the JOBS Act.Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of theSecurities Act for complying with new or revised accounting standards.We will remain an EGC for up to five years following our initial public offering (“IPO”), or until the earliest of (i) the last day of the first fiscal yearin which our annual gross revenue exceeds $1.07 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the SecuritiesExchange Act of 1934, as amended (“the Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds$700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion innon-convertible debt during the preceding three year period.DividendsNorth Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, butwithout prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of the insurance company’s surplus asregards policyholders as of the preceding December 31, or (ii) the insurance company’s statutory net income for the preceding calendar year (excludingrealized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurancecompany may carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends actually paid duringthose two calendar years. As of December 31, 2017, the amount available for payment of dividends by Nodak Insurance in 2018 without the prior approval of19Table of Contents the North Dakota Insurance Department is $15,654. “Extraordinary dividends” in excess of the foregoing limitations may only be paid with prior notice to,and approval of, the North Dakota Insurance Department. See “Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and IssuerPurchases of Equity Securities — Dividend Policy.”Holding Company LawsMost states, including North Dakota, have enacted legislation that regulates insurance holding company systems. Each insurance company in aholding company system is required to register with the insurance supervisory agency of its state of domicile and furnish certain information, includinginformation concerning the operations of companies within the holding company group that may materially affect the operations, management or financialcondition of the insurers within the group. Pursuant to these laws, the North Dakota Insurance Department requires disclosure of material transactionsinvolving an insurance company and its affiliates, and requires prior notice and/or approval of certain transactions, such as extraordinary dividendsdistributed by the insurance company. Under these laws, the North Dakota Insurance Department will have the right to examine us at any time.All transactions within our consolidated group affecting our insurance company subsidiaries must be fair and equitable. Notice of certain materialtransactions between NI Holdings and any person or entity in our holding company system will be required to be given to the North Dakota InsuranceDepartment. Certain transactions cannot be completed without the prior approval of the North Dakota Insurance Department.Approval of the state insurance commissioner is required prior to any transaction affecting the control of an insurer domiciled in that state. In NorthDakota, the acquisition of 10% or more of the outstanding voting securities of an insurer or its holding company is presumed to be a change in control. NorthDakota law also prohibits any person or entity from (i) making a tender offer for, or a request or invitation for tenders of, or seeking to acquire or acquiringany voting security of a North Dakota insurer if, after the acquisition, the person or entity would be in control of the insurer, or (ii) effecting or attempting toeffect an acquisition of control of or merger with a North Dakota insurer, unless the offer, request, invitation, acquisition, effectuation or attempt has receivedthe prior approval of the North Dakota Insurance Department. EmployeesAs of December 31, 2017, NI Holdings and its subsidiaries had 136 total employees. None of these employees are covered by a collective bargainingagreement, and we believe that our employee relations are good.20Table of Contents Item 1A.Risk FactorsAn investment in the Company’s common shares involves certain risks. The following is a discussion of the most significant risks and uncertaintiesthat may affect the Company’s business, financial condition, and future results.Risks Related to Our Business and IndustryCatastrophic or other significant natural or man-made losses may negatively affect our financial condition and operating results.As a property and casualty insurer, we are subject to claims from catastrophes that may have a significant negative impact on operating and financialresults. We have experienced catastrophe losses, and can be expected to experience catastrophe losses in the future. Catastrophe losses can be caused byvarious events, including snow storms, ice storms, freezing temperatures, earthquakes, tornadoes, wind, hail, fires, and other natural or man-made disasters.The frequency, number, and severity of these losses are unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insuredexposure in the area affected by the event and the severity of the event.Approximately 71.2% of NI Holdings’ consolidated direct premiums written in 2017 were written in North Dakota. Because NI Holdings’ business isconcentrated in North Dakota, adverse developments from severe weather events such as hailstorms, flooding, or droughts affecting a large portion of NorthDakota would have a disproportionately greater effect on NI Holdings’ financial condition and results of operations than if its business were lessgeographically concentrated. The incidence and severity of such events are inherently unpredictable. In recent years, changing climate conditions haveincreased the unpredictability, severity, and frequency of tornados and other storms.We attempt to reduce our exposure to catastrophe losses through the underwriting process and by obtaining reinsurance coverage. However, in theevent that we experience catastrophe losses, we cannot assure you that our unearned premiums, liabilities for unpaid losses and LAE, and reinsurance will beadequate to cover these risks. In addition, because accounting rules do not permit insurers to reserve for catastrophic events until they occur, claims fromcatastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could have a material adverse effect on ourfinancial condition or results of operations. Our ability to write new business also could be adversely affected.Our financial condition and results of operations also are affected periodically by losses caused by natural perils such as those described above thatare not deemed a catastrophe. If a number of these events occur in a short time period, it may materially affect our financial condition and results ofoperations.Any downgrade in our A.M. Best rating could affect our ability to write new business or renew our existing business, which would lead to adecrease in revenue and net income.Third-party rating agencies, such as A.M. Best, periodically assess and rate the claims-paying ability of insurers based on criteria established by therating agencies. Ratings assigned by A.M. Best are an important factor influencing the competitive position of insurance companies. A.M. Best ratings, whichare reviewed at least annually, represent independent opinions of financial strength and ability to meet obligations to policyholders and are not directedtoward the protection of investors. Therefore, our A.M. Best rating should not be relied upon as a basis for an investment decision to purchase our commonstock.Nodak Insurance holds a financial strength rating of “A” (Excellent) by A.M. Best, the third highest rating out of 15 rating classifications. NodakInsurance has held an “A” rating for the past six years. Our most recent rating by A.M. Best was issued on March 16, 2017. Battle Creek also holds an “A”rating and American West holds an “A-” rating. Financial strength ratings are used by producers and customers as a means of assessing the financial strengthand quality of insurers. If our financial position deteriorates, we may not maintain our favorable financial strength rating from A.M. Best. A downgrade of ourrating could severely limit or prevent us from writing desirable business or from renewing our existing business. In addition, a downgrade could negativelyaffect our ability to implement our strategy because it could cause our current or potential producers to choose other more highly rated competitors or reduceour ability to obtain reinsurance. See “Item 1. Business — A.M. Best Rating.”A significant percentage of NI Holdings’ written premiums and net profits are generated from its multi-peril crop insurance business, and theloss of such business as a result of a termination of or substantial changes to the Federal crop insurance program would have a material adverse effecton our revenues and net income.In 2017, 2016 and 2015, NI Holdings’ net premiums written generated from its multi-peril crop insurance line of business were 22.6%, 23.6%, and24.9%, respectively. Through the Federal Crop Insurance Corporation, the United States government subsidizes insurance companies by assuming anincreasingly higher portion of losses incurred by farmers as a result of weather-related and other perils as well as commodity price fluctuations. The UnitedStates government also subsidizes the premium cost to farmers21Table of Contents for multi-peril crop yield and revenue insurance. Without this risk assumption, losses incurred by insurance companies would be higher and without thepremium subsidy, the number of farmers purchasing multi-peril crop insurance would decline significantly. Periodically, members of the United StatesCongress propose to reduce significantly the government’s involvement in the federal crop insurance program in an effort to reduce government spending. Iflegislation is adopted to reduce the amount of risk the government assumes, the amount of insurance premium subsidy provided to farmers or otherwisereduce the coverage provided under multi-peril crop insurance policies, losses would increase and purchases of multi-peril crop insurance could experience asignificant decline nationwide and in our market area. Such changes could have a material adverse effect on our revenues and income.Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry.Results of companies in the insurance industry, and particularly the property and casualty insurance industry, historically have been subject tosignificant fluctuations and uncertainties and have fluctuated in cyclical periods of low premium rates and excess underwriting capacity resulting fromincreased competition (a so-called “soft market”), followed by periods of high premium rates and a shortage of underwriting capacity resulting fromdecreased competition (a so-called “hard market”). The industry’s profitability can be affected significantly by:·estimates of rising levels of actual costs that are not known by companies at the time they price their products;·volatile and unpredictable developments, including man-made and natural catastrophes;·changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretationsrelating to the scope of insurers’ liability develop; and·fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on investedcapital and may affect the ultimate payout of losses.Fluctuations in underwriting capacity, demand and competition, and the impact on our business of the other factors identified above, could have anegative impact on our results of operations and financial condition. Based on our analysis of the underwriting capacity and price competition in the currentmarket, we believe that we are generally in a “firming market” phase of the insurance industry cycle. If other insurers seek to expand the kinds or amounts ofinsurance coverage they offer, this could result in increased underwriting capacity and competition and declining pricing as some insurers seek to maintainmarket share at the expense of underwriting discipline.Competition for potential acquisitions from other property and casualty insurers could increase the price that NI Holdings will be required topay in connection with future acquisitions.Over-capacity in the property and casualty market has led other market participants to seek acquisitions in order to generate revenue growth. Thesemarket conditions may cause significant competition for acquisitions and increase the price for acquisitions. This competitive market could impedeexecution of NI Holdings’ external growth strategy.Integration of existing businesses and future acquisitions may require a significant investment of management’s time and distract managementfrom the day-to-day operations of NI Holdings’ business.NI Holdings has spent considerable time and effort integrating Battle Creek and Primero in the areas of sales and marketing, operations, financialreporting, and employee benefits. Future acquisitions will require additional integration, particularly to realize the anticipated coordination designed todrive revenue growth and reduce costs. NI Holdings’ executive management staff is small, and there can be no assurance that acquisitions will be successfullyexecuted and integrated.We may not be able to manage our growth effectively.We intend to grow our business in the future, which could require additional capital, systems development, and skilled personnel. We cannot assureyou that we will be able to locate profitable business opportunities, meet our capital needs, expand our systems and our internal controls effectively, allocateour human resources optimally, identify qualified employees or agents, or incorporate effectively the components of any businesses we may acquire in oureffort to achieve growth. The failure to manage our growth effectively and maintain underwriting discipline could have a material adverse effect on ourbusiness, financial condition, and results of operations.22Table of Contents We may not be able to grow our business if our insurance company subsidiaries cannot maintain and grow their agent relationships, or ifconsumers seek other distribution methods offered by our competitors.Our ability to retain existing agents, and to attract new agents, is essential to the continued growth of our business. If independent agents find iteasier to do business with our competitors, our agent base may erode and, as a result, be unable to retain existing business or generate sufficient new business.While we believe that we have good relationships with our independent agents, we cannot be certain that these agents will continue to sell our productsinstead of our competitors’ products.While our products are sold through either independent or captive agents, our competitors may sell insurance through other delivery models,including the internet, direct marketing, or other emerging alternative distribution methods. To the extent that current and potential policyholders changetheir insurance shopping preferences, this may have an adverse effect on our ability to grow, our financial position, and our results of operations.Our success depends on the ability of our insurance company subsidiaries to underwrite risks accurately and to price our commercial andpersonal lines insurance products accordingly.The nature of the insurance business is such that pricing must be determined before the underlying costs are fully known. This requires significantreliance on estimates and assumptions in setting prices. If our insurance subsidiaries fail to assess accurately the risks that they assume in our commercial andpersonal lines products, they may fail to charge adequate premium rates, which could affect our profitability and have a material adverse effect on ourfinancial condition, results of operations, or cash flows. Their ability to assess their policyholder risks and to price their products accurately is subject to anumber of risks and uncertainties, including, but not limited to:·Competition from other providers of property and casualty insurance;·Price regulation by insurance regulatory authorities;·Selection and implementation of appropriate rating formulae or other pricing methodologies;·Availability of sufficient reliable data;·Uncertainties inherent in estimates and assumptions generally;·Adverse changes in claim results;·Incorrect or incomplete analysis of available data;·Our ability to accurately predict policyholder retention, investment yields, and the duration of liability for losses and LAE; and·Unanticipated effects of court decisions, legislation, or regulation, including those related to legal liability for damages by our insureds.These risks and uncertainties could cause our insurance subsidiaries to underprice their policies, which would negatively affect their results ofoperations, or to overprice their policies, which could reduce their competitiveness. Either such event could have a material adverse effect on their financialcondition, results of operations, and cash flows.Under the federal crop insurance program, each insurer is required to accept every application for multi-peril crop insurance that they receive, andthe premiums and the policy terms are set by the RMA, which is the federal government agency administering the federal crop insurance program.Accordingly, no policy underwriting is necessary in connection with our multi-peril crop insurance line of business. We, and several other crop insurers, relyon AFBIS to underwrite our crop hail insurance line of business. Unlike the multi-peril crop business, however, we have the ability to decline to issue anycrop hail insurance policy if we believe the policy will expose us to too much risk in a particular geographic area or if we are unwilling to insure the crop thatthe policy would cover. If we accept the application for crop hail insurance, however, we could incur losses if AFBIS fails to adequately underwrite and pricesuch coverage.Our results and financial condition may be affected by a failure of our insurance subsidiaries to establish adequate liabilities for unpaid lossesand LAE or by adverse development of prior year reserves.NI Holdings maintains reserves to cover amounts it estimates will be needed to pay for unpaid losses and for the expenses necessary to settle insuredclaims. Estimating liabilities for unpaid losses and LAE is a difficult and complex process involving many variables and subjective judgments. The liabilityfor unpaid losses and LAE is the largest liability of NI Holdings and represents the financial statement item most sensitive to estimation and judgment. Indeveloping its estimates of unpaid losses and LAE, NI23Table of Contents Holdings has evaluated and considered actuarial projection techniques based on its assessment of facts and circumstances then known, historical lossexperience data, and estimates of anticipated trends. This process assumes that past experience, adjusted for the effects of current developments, changes inoperations, and anticipated trends, constitutes an appropriate basis for predicting future events. While NI Holdings believes that its liability for unpaid lossesand LAE is appropriate, to the extent that such reserves prove to be inadequate or excessive in the future, we would adjust them and incur a charge or credit toearnings, as the case may be, in the period the reserves are adjusted. Any such adjustment could have a material impact on our financial condition and resultsof operations. There can be no assurance that the estimates of such liabilities will not change in the future. For additional information on our liability forunpaid losses and LAE, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”We rely on our systems and employees, and those of certain third-party vendors and service providers in conducting our operations, andcertain failures, including internal or external fraud, operational errors, systems malfunctions, or cyber-security incidents, could materially adverselyaffect our operations.We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors, andcomputer or telecommunications systems malfunctions. Our business depends on our ability to process a large number of increasingly complex transactions.If any of our operational, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected.Similarly, we depend on our employees. We could be materially adversely affected if one or more of our employees cause a significant operationalbreakdown or failure, either as a result of human error or intentional sabotage or fraudulent manipulation of our operations or systems.Third parties with whom we do business, including vendors that provide services or security solutions for our operations, could also be sources ofoperational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees. Any of theseoccurrences could diminish our ability to operate our business, or cause financial loss, potential liability to insureds, inability to secure insurance,reputational damage, or regulatory intervention, which could materially adversely affect us.We rely heavily on our operating systems in connection with issuing policies, paying claims, and providing the information we need to conduct ourbusiness. We also rely on the operating systems of AFBIS in connection with various processes with respect to our multi-peril crop line of business. We maybe subject to disruptions of such operating systems arising from events that are wholly or partially beyond our control, which may include, for example,electrical or telecommunications outages, natural or man-made disasters, such as earthquakes, floods or tornados, or events arising from terrorist acts. Suchdisruptions may give rise to losses in service to insureds and loss or liability to us. In addition, there is the risk that our controls and procedures as well as ourbusiness continuity, disaster recovery, and data security systems prove to be inadequate. The computer systems and network systems others and we use couldbe vulnerable to unforeseen problems. These problems may arise in both our internally developed systems and the systems of third-party service providers. Inaddition, our computer systems and network infrastructure present security risks and could be susceptible to hacking, computer viruses, or data breaches. Anysuch failure could affect our operations and could materially adversely affect our results of operations by requiring us to expend significant resources tocorrect the defect, as well as by exposing us to litigation or losses not covered by insurance. Although we have business continuity plans and othersafeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operatingsystems and those of third-party service providers that support our business.Our operations rely on the secure processing, transmission, and storage of confidential information in our computer systems and networks. Ourtechnologies, systems, and networks may become the target of cyber-attacks or information security breaches that could result in the unauthorized release,gathering, monitoring, misuse, loss or destruction of our or our insureds’ confidential, proprietary and other information, or otherwise disrupt our or ourinsureds’ or other third parties’ business operations, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, theincurrence of costs to eliminate or mitigate further exposure, and the loss of customers. Although to date we have not experienced any material losses relatingto cyber-attacks or other information security breaches, there can be no assurance that we will not suffer such losses in the future. Our risk and exposure tothese matters remains heightened because of, among other things, the evolving nature of these threats and the outsourcing of some of our business operations.As a result, cyber-security and the continued development and enhancement of our controls, processes, and practices designed to protect our systems,computers, software, data, and networks from attack, damage, or unauthorized access remain a priority. As cyber-threats continue to evolve, we may berequired to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any informationsecurity vulnerabilities.Disruptions or failures in the physical infrastructure or operating systems that support our business and customers, or cyber-attacks or securitybreaches of the networks, systems, or devices that our customers use to access our products and services could result in customer attrition, regulatory fines,penalties or intervention, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which couldmaterially adversely affect our financial condition or results of operations.24Table of Contents Our revenues and financial results may fluctuate with interest rates, investment results, and developments in the securities markets.NI Holdings invests the premiums it receives from policyholders until cash is needed to pay insured claims or other expenses. Investment securitiesrepresent one of the largest categories of assets of NI Holdings. The fair value of its investment holdings is affected by general economic conditions, andchanges in the financial and credit markets. NI Holdings relies on the investment income produced by its investment portfolio to contribute to itsprofitability. Changes in interest rates and credit quality may result in fluctuations in the income derived from, the valuation of, and in the case of declines incredit quality, payment defaults on our fixed income securities. In addition, deteriorating economic conditions could affect the value of our equity securities.Such conditions could give rise to significant realized and unrealized investment losses or the impairment of securities whose decreases in value are deemedother-than-temporary. These changes could have a material adverse effect on our financial condition, results of operations, or cash flows. The investmentportfolio of NI Holdings is also subject to credit and cash flow risk, including risks associated with its investments in asset-backed and mortgage-backedsecurities. Because the Company’s investment portfolio is the largest component of its assets and a multiple of its equity, adverse changes in economicconditions could result in other-than-temporary impairments that are material to our financial condition and operating results. Such economic changes couldarise from overall changes in the financial markets or specific changes to industries, companies, or municipalities in which we maintain investment holdings.See “Item 7. Quantitative and Qualitative Information about Market Risk.”Any acquisitions we make could disrupt our business and harm our financial condition or results of operations.As part of our growth strategy, we will continue to evaluate opportunities to acquire other property and casualty insurers and insurance-related feeincome businesses. Acquisitions that we may make or implement in the future entail a number of risks that could materially adversely affect our business andoperating results, including:·Problems integrating the acquired operations with our existing business;·Operating and underwriting results of the acquired operations not meeting our expectations;·Diversion of management’s time and attention from our existing business;·Need for financial resources above our planned investment levels;·Difficulties in retaining business relationships with agents and policyholders of the acquired company;·Risks associated with entering markets in which we lack extensive prior experience;·Tax issues associated with acquisitions;·Acquisition-related disputes, including disputes over contingent consideration and escrows;·Potential loss of key employees of the acquired company; and·Potential impairment of related goodwill and intangible assets.We could be adversely affected by the loss of our existing management or key employees.The success of our business is dependent, to a large extent, on our ability to attract and retain key employees, in particular our senior officers. Ourbusiness may be adversely affected if labor market conditions make it difficult for us to replace our current key officers with individuals having equivalentqualifications and experience at compensation levels competitive for our industry. Our key officers include:·Michael J. Alexander, our President and Chief Executive Officer;·Brian R. Doom, our Executive Vice President and Chief Financial Officer; and·Patrick W. Duncan, our Vice President of Operations.These key officers have extensive experience in the property and casualty and crop insurance industry. Our employment and other agreements withour key officers do not include covenants not to compete or non-solicitation provisions because they are unenforceable under North Dakota law.25Table of Contents Our ability to manage our exposure to underwriting risks depends on the availability and cost of reinsurance coverage.Reinsurance is the practice of transferring part of an insurance company’s liability and premium under an insurance policy to another insurancecompany. NI Holdings uses reinsurance arrangements to limit and manage the amount of risk it retains, to stabilize its underwriting results, and to increase itsunderwriting capacity. The availability and cost of reinsurance are subject to current market conditions and may vary significantly over time. Any decrease inthe amount of reinsurance maintained will increase our risk of loss. We may be unable to maintain our desired reinsurance coverage or to obtain otherreinsurance coverage in adequate amounts and at favorable rates. If we are unable to renew the current coverage maintained by NI Holdings or obtain newcoverage, it may be difficult for us to manage our underwriting risks and operate our business profitably.If our reinsurers do not pay our claims in accordance with our reinsurance agreements, we may incur losses.We are subject to loss and credit risk with respect to the reinsurers with whom NI Holdings deals because buying reinsurance does not relieve us ofour liability to policyholders. If such reinsurers were not capable of fulfilling their financial obligations to us, our insurance losses would increase. NIHoldings secures reinsurance coverage from a number of reinsurers. The lowest A.M. Best rating issued to any of such reinsurers is “A” (Excellent), which isthe third highest of fifteen ratings. See “Item 1. Business — Reinsurance.”If we fail to comply with insurance industry regulations, or if those regulations become more burdensome, we may not be able to operateprofitably.Nodak Insurance and American West are currently regulated by the North Dakota Insurance Department. Battle Creek is regulated by the NebraskaInsurance Department, and Primero is regulated by the Nevada Insurance Department. All four companies are also subject to regulation, to a more limitedextent, by the insurance departments of other states in which they do business. The failure to comply with the laws and regulations of each jurisdiction couldsubject NI Holdings to sanctions and fines, including the cancelation or suspension of its license. Because approximately 71.2% of our 2017 consolidateddirect premiums written originate from business written in North Dakota, the cancellation or suspension of our license in North Dakota, as a result of anyfailure to comply with the applicable insurance laws and regulations, would result in the most severe impact on our financial condition and results ofoperations.Most insurance regulations are designed to protect the interests of policyholders rather than shareholders and other investors. These regulationsrelate to, among other things:·approval of policy forms and premium rates;·standards of solvency, including establishing requirements for minimum capital and surplus, and for risk-based capital;·classifying assets as admissible for purposes of determining solvency and compliance with minimum capital and surplus requirements;·licensing of insurers and their producers;·advertising and marketing practices;·restrictions on the nature, quality, and concentration of investments;·assessments by guaranty associations and mandatory pooling arrangements;·restrictions on the ability to pay dividends;·restrictions on transactions between affiliated companies;·restrictions on the size of risks insurable under a single policy;·requiring deposits for the benefit of policyholders;·requiring certain methods of accounting;·periodic examinations of our operations and finances;·claims practices;26Table of Contents ·prescribing the form and content of reports of financial condition required to be filed; and·requiring reserves for unearned premiums, losses and other purposes.State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and otherreports relating to financial condition, holding company issues, and other matters. These regulatory requirements may adversely affect or inhibit our abilityto achieve some or all of our business objectives. The last examination of both Nodak Insurance and American West by the North Dakota InsuranceDepartment was as of December 31, 2016. The last examination of Battle Creek by the Nebraska Insurance Department was as of December 31, 2016, and thelast examination by the Nevada Insurance Department of Primero was as of December 31, 2016.In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation ofregulations. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatoryauthorities could adversely affect our ability to operate our business.We could be adversely affected by any interruption to our ability to conduct business at our current location.Our business operations could be substantially interrupted by flooding, snow, ice, and other weather-related incidents, or from fire, power loss,telecommunications failures, terrorism, or other such events. In such an event, we may not have sufficient redundant facilities to cover a loss or failure in allaspects of our business operations and to restart our business operations in a timely manner. Any damage caused by such a failure or loss may causeinterruptions in our business operations that may adversely affect our service levels and business. See “Item 1. Business — Technology.”Assessments and premium surcharges for state guaranty funds and other mandatory pooling arrangements may reduce our profitability.Most states require insurance companies authorized to do business in their state to participate in guaranty funds, which require the insurancecompanies to bear a portion of the unfunded obligations of impaired, insolvent, or failed insurance companies. These obligations are funded by assessments,which are expected to continue in the future. State guaranty associations levy assessments, up to prescribed limits, on all insurance companies doing businessin the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent, or failed insurance companies areengaged. Accordingly, the assessments levied on us may increase as we increase our written premiums. See “Item 1. Business — Regulation.”In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs toprovide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill theirresidual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are sharedby the participating insurance companies. Although we price our insurance to account for our potential obligations under these pooling arrangements, wemay not be able to accurately estimate our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits.As we write policies in new states that have mandatory pooling arrangements, we will be required to participate in additional pooling arrangements. Further,the impairment, insolvency, or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in thepool. The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our profitability in any given period orlimit our ability to grow our business. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”Future changes in financial accounting standards or practices may adversely affect our reported results of operations.Financial accounting standards in the United States are constantly under review and may be changed from time to time. We would be required toapply these changes when adopted. Once implemented, these changes could materially affect our financial condition and results of operations and/or the wayin which such financial condition and results of operations are reported.Similarly, we are subject to taxation in the United States and a number of state jurisdictions. Rates of taxation, definitions of income, exclusionsfrom income, and other tax policies are subject to change over time. Accounting standards would require that we recognize the effects of changes in tax ratesand laws on deferred income tax balances in the period in which the legislation is enacted.Enactment of significant income tax laws may adversely affect our reported results of operations.On December 22, 2017, the Tax Cuts and Jobs Act, or TCJA, was signed into law, significantly reforming the U.S. Internal Revenue Code. The TCJA,among other things, includes changes to U.S. federal income tax rates, imposes significant additional limitations on the deductibility of interest, allows forincreased expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorial system, and modifies orrepeals many business deductions and credits. We continue to examine the impact the TCJA may have on our business. We will continue to evaluate theeffect of the TCJA on our projection of cash flows and our net operating results. The estimated impact of the TCJA is based on our management’s currentknowledge and27Table of Contents assumptions and recognized impacts could be materially different from current estimates based on our actual results and our further analysis of the new law.Our net deferred income tax assets and liabilities have been revalued at the newly enacted U.S. corporate rate, and the impact has been recognized in ourincome tax expense in the current year based upon our understanding of the legislation at this time. Under certain circumstances, we have up to one year fromenactment to make changes to our deferred income tax assets and liabilities based upon clarification to the legislation. The impact of the TCJA on holders ofcommon shares is uncertain and could be adverse. This Form 10-K does not discuss any such tax legislation or the manner in which it might affect purchasersof common shares. We urge our stockholders, including purchasers of common shares, to consult with their own legal and tax advisors with respect to suchlegislation and the potential tax consequences of investing in common shares.We face uncertainties related to the effectiveness of internal controls, particularly with regard to our operating subsidiaries’ financialreporting controls and information technology security.It should be noted that any system of internal controls, however well designed and operated, can provide only reasonable, and not absolute,assurance that the objectives of the system are met. In addition, the design of any internal control system is based in part upon certain assumptions about thelikelihood of future events. Because of these and other inherent limitations of internal control systems, there can be no assurance that any design will achieveits stated goal under all potential future conditions, regardless of how remote. Deficiencies or weaknesses that are not yet identified could emerge, and theidentification and correction of these deficiencies or weaknesses could have a material impact on our results of operations.We will be required to publicly report on deficiencies or weaknesses in our internal controls that meet a materiality standard. Management may, at apoint in time, categorize a deficiency or weakness as immaterial or minor and therefore not be required to publicly report such deficiency or weakness. Suchdetermination, however, does not preclude a change in circumstances such that the deficiency or weakness could, at a later time, become a reportablecondition that could have a material impact on our results of operations.Risks Related to Our Common StockOur return on equity may be low compared to other insurance companies. A low return could lower the trading price of our common stock.Net income divided by average equity, known as “return on equity,” is a ratio many investors use to compare the performance of an insurancecompany to its peers. Our return on equity is expected to be reduced due to the large amount of capital that we raised in our IPO that has yet to be deployed,expenses we will incur in pursuing our growth strategies, the costs of being a public company, and added expenses associated with our employee stockownership plan (“ESOP”) and equity incentive plans. Until we can increase our earned premiums and net income, we expect our return on equity to be belowthe median return on equity for publicly traded insurance companies, which may negatively affect the value of our common stock.Additional expenses from new stock-based benefit plans will adversely affect our profitability.Our shareholders have approved the adoption of an equity incentive plan (“the Plan”). Under the Plan, we may award participants restricted shares ofour common stock, options to purchase shares of our common stock, or other forms of awards. Restricted stock awards will be made at no cost to theparticipants. The maximum number of shares of common stock that may be issued is set forth in the approved Plan.The additional compensation expense resulting from the ESOP and the Plan will adversely affect our profitability. We cannot determine the actualfuture amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be basedon the fair market value of the shares of common stock at specific points in the future; however, we expect them to be material. We will recognize expensesfor our ESOP when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and stock optionsover the vesting period of awards made to recipients. See our consolidated financial statements for the actual amount of expenses to date.Nodak Mutual Group’s majority control of our common stock will enable it to exercise voting control over most matters put to a vote ofshareholders and will prevent shareholders from forcing a sale or a second-step conversion transaction you may find advantageous.Nodak Mutual Group owns a majority of our outstanding common stock and, through its Board of Directors, is able to exercise voting control overmost matters put to a vote of shareholders. The votes cast by Nodak Mutual Group may not be in your personal best interests as a shareholder. For example,Nodak Mutual Group may exercise its voting control to defeat a shareholder nominee for election to the Board of Directors of NI Holdings. Moreover, NodakMutual Group’s ability to elect the Board of Directors of NI Holdings restricts the ability of the minority shareholders of NI Holdings to effect a change ofcontrol of management. Some28Table of Contents shareholders may desire a sale or merger transaction, since shareholders typically receive a premium for their shares, or a second-step conversion transaction,since fully converted institutions tend to trade at higher multiples than mutual holding companies.Our status as an insurance holding company with no direct operations could adversely affect our ability to fund operations, conduct futureshare repurchases, or meet our debt obligations.We are an insurance holding company. A significant source of funds available to us for the payment of operating expenses, share repurchases, anddebt-related amounts are net proceeds from our initial public offering retained at the holding company, management fees, and dividends from oursubsidiaries. The payment of dividends by Nodak Insurance will be restricted by North Dakota’s insurance law. American West and Primero historically havenot paid dividends to Nodak Insurance.Statutory provisions and provisions of our Articles of Incorporation and Bylaws may discourage takeover attempts of NI Holdings that youmay believe are in your best interests or that might result in a substantial profit to you.We are subject to provisions of North Dakota corporate and insurance law that hinder a change of control. North Dakota law requires the NorthDakota Insurance Department’s prior approval of a change of control of an insurance holding company. Under North Dakota law, the acquisition of 10% ormore of the outstanding voting stock of an insurer or its holding company is presumed to be a change in control. Approval by the North Dakota InsuranceDepartment may be withheld even if the transaction would be in the shareholders’ best interest if the North Dakota Insurance Department determines that thetransaction would be detrimental to policyholders.Our Articles of Incorporation and Bylaws also contain provisions that may discourage a change in control. These provisions include:·A prohibition on a person, including a group acting in concert, other than Nodak Mutual Group, from acquiring voting control of more than10% of our outstanding stock without prior approval of our Board of Directors;·A classified Board of Directors divided into three classes serving for successive terms of three years each;·The prohibition of cumulative voting in the election of directors;·The requirement that nominations for the election of directors made by shareholders and any shareholder proposals for inclusion on theagenda at any shareholders’ meeting must be made by notice (in writing) delivered or mailed to us not less than 90 days prior to themeeting;·The prohibition of shareholders’ action without a meeting (except for actions taken by Nodak Mutual Group) and of shareholders’ right tocall a special meeting;·The requirement imposing a mandatory tender offer requirement on a shareholder other than Nodak Mutual Group that has a combinedvoting power of 35% or more of the votes that our shareholders are entitled to cast, unless acquisition of such voting power by suchshareholder was approved by our Board of Directors;·The requirement that the foregoing provisions of our Articles of Incorporation can only be amended by an affirmative vote of shareholdersentitled to cast at least 80% of all votes that shareholder are entitled to cast, unless approved by an affirmative vote of at least 80% of themembers of the Board of Directors; and·The requirement that certain provisions of our Bylaws can only be amended by an affirmative vote of shareholders entitled to cast at least66 2/3%, or in certain cases 80%, of all votes that shareholders are entitled to cast.These provisions may serve to entrench management and may discourage a takeover attempt that you may consider to be in your best interest or inwhich you would receive a substantial premium over the current market price. These provisions may make it extremely difficult for any one person, entity, orgroup of affiliated persons or entities to acquire voting control of NI Holdings, with the result that it may be extremely difficult to bring about a change in theBoard of Directors or management. Some of these provisions also may perpetuate present management because of the additional time required to cause achange in the control of the Board of Directors. Other provisions make it difficult for shareholders owning less than a majority of the voting stock to be ableto elect even a single director.Ownership of a majority of our stock by Nodak Mutual Group will make removal of the management difficult.Nodak Mutual Group owns greater than 55% of our outstanding common stock. Therefore, it has the power to take actions that nonaffiliatedshareholders may deem to be contrary to the shareholders’ best interests. In addition, certain provisions of our Articles of Incorporation, such as the existenceof a classified Board of Directors, the prohibition of cumulative voting for the election29Table of Contents of directors, and the prohibition on any person or group acquiring and having the right to vote in excess of 10% of our outstanding stock without the priorapproval of the Board of Directors will make removal of NI Holdings’ management difficult.If our subsidiaries are not sufficiently profitable, our ability to pay dividends will be limited.We are a separate entity with no operations of our own other than holding the stock of Nodak Insurance and our other subsidiaries. We dependprimarily on dividends paid by Nodak Insurance and the proceeds from our IPO that were not contributed to Nodak Insurance to carry out our business plan,including future acquisitions, and to provide funds for the payment of dividends. To date, Nodak Insurance has not paid any dividends. We will receivedividends from Nodak Insurance only after all of Nodak Insurance’s obligations and regulatory requirements with the North Dakota Insurance Departmenthave been satisfied. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period afternotice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of the insurance company’ssurplus as regards policyholders as of the preceding December 31, or (ii) the insurance 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 lifeinsurance company may carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends actuallypaid during those two calendar years. If Nodak Insurance and our other subsidiaries are not sufficiently profitable, our ability to pay dividends to you in thefuture will be limited.We are an “emerging growth company” and have elected to comply with reduced public company reporting requirements.We are an EGC as defined by the JOBS Act. For as long as we continue to be an EGC, we may choose to take advantage of exemptions from variouspublic company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestationrequirements of Section 404 of SOX, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, andregistration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholderapproval of any golden parachute payments not previously approved. In this Annual Report on Form 10-K, we have elected to take advantage of certain ofthe reduced disclosure obligations regarding financial statements and executive compensation. In addition, Section 107(b) of the JOBS Act also provides thatan EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Exchange Act for complying with new or revisedaccounting standards. In other words, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to privatecompanies. We are choosing to “opt in” to such extended transition period election under Section 107(b). Therefore, we are electing to delay adoption ofcertain new or revised accounting standards, and as a result, we may choose to not comply with new or revised accounting standards on the relevant dates onwhich adoption of such standards is required for non-emerging growth companies. As a result of such election, our financial statements may not becomparable to the financial statements of other public companies. See Note 4 to our Consolidated Financial Statements for more information regarding newor revised accounting standards.We could be an EGC for up to five years, which such fifth anniversary will occur in 2022. However, if certain events occur prior to the end of suchfive-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion, or we issue more than $1.0 billion ofnon-convertible debt in any three-year period, we would cease to be an EGC prior to the end of such five-year period. We have taken advantage of certain ofthe reduced disclosure obligations regarding executive compensation in this Annual Report on Form 10-K and may elect to take advantage of other reducedburdens in future filings. As a result, the information that we provide to holders of our common stock may be different than you might receive from otherpublic reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive as a result of ourreliance on these exemptions. If some investors find our common stock less attractive as a result of any choice we make30Table of Contents to reduce disclosure, there may be a less active trading market for our common stock and the price for our common stock may be more volatile. Item 1B.Unresolved Staff CommentsNone Item 2.PropertiesOur headquarters is located at 1101 First Avenue North, Fargo, North Dakota, which is also the headquarters of Nodak Insurance. Nodak Insuranceowns this building and leases a portion of the building to the North Dakota Farm Bureau and to AFBIS.Battle Creek owns the building in which its offices are located at 603 South Preece Street, Battle Creek, Nebraska. Primero owns the building at2640 South Jones Blvd, Suite 2, Las Vegas, Nevada, and Tri-State Ltd. leases the building at 506 5th Street, Spearfish, South Dakota. Primero employees atthese two locations administer the non-standard auto business. We believe that the offices currently occupied by each of our subsidiaries are sufficient fortheir needs and any expected growth in the near future. Item 3.Legal ProceedingsWe are party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to bematerial. However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not bematerially adversely affected by any litigation. Item 4.Mine Safety DisclosuresNot Applicable.31Table of Contents PART IIItem 5.Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity SecuritiesMarket InformationThe Company’s shares trade on the NASDAQ Capital Market under the symbol “NODK”. As of March 2, 2018, there were 693 shareholders of recordfor the Company’s common stock. The closing price of our common stock on the NASDAQ on March 2, 2018 was $16.44.The following table sets forth the high and low intraday sales prices per share of the Company’s common shares as reported by the NASDAQ for theperiods indicated:Year Ended December 31, 2017 High Low First quarter (since March 16, 2017) (1) $15.00 $14.00 Second quarter 18.80 14.82 Third quarter 18.20 15.81 Fourth quarter 18.62 16.09 (1) Our common stock did not trade publicly prior to March 16, 2017. Stock Performance GraphThe following graph sets forth the cumulative total shareholder return (stock price increase plus dividends) on our common stock from March 16,2017 (the date of the initial public offering of our common stock) through December 31, 2017, along with the corresponding returns for the Russell 2000Index (as the broad stock market index) and the SNL US Insurance P&C Index (as the published industry index). The graph assumes that the value of theinvestment in the common stock and each index was $100 on March 16, 2017 and that all dividends were reinvested. Dividend PolicyOur Board of Directors continues to evaluate a potential policy of paying regular cash dividends, but has not decided on the amounts that may bepaid or when the payments may occur. Therefore, the timing and the amount of cash dividends that may be paid to shareholders in the future is uncertain. Inaddition, the Board of Directors may declare and pay periodic special cash dividends in addition to, or in lieu of, regular cash dividends. In determiningwhether to declare or pay any dividends, whether regular or special, the Board of Directors will take into account our financial condition and results ofoperations, income tax considerations, capital requirements, industry standards, and economic conditions. The regulatory restrictions that affect the paymentof dividends by Nodak Insurance to us as discussed below will also be considered. We cannot guarantee that we will pay dividends or that, if paid, we willnot reduce or eliminate dividends in the future.If we pay dividends to our shareholders, we also will be required to pay dividends to Nodak Mutual Group, unless Nodak Mutual Group elects towaive the receipt of dividends. Because Nodak Mutual Group has no current plans to utilize any cash dividends that it may receive from us, we anticipatethat it will waive its right to receive substantially all of the dividends that are paid to it by us or immediately return substantially all of such funds to us as anequity contribution. Because the Board of Directors of Nodak Mutual Group includes persons who are not members of our Board of Directors, we cannotprovide any assurance, however, that they will take such action with respect to every cash dividend that we may declare. If we are unable to obtain acommitment from the Board of Directors of Nodak Mutual Group that it will waive its right to receive any cash dividend that we intend to declare or that itwill return the funds from such dividend to the Company as an equity contribution, our Board of Directors may decide not to declare a cash dividend.We will not be subject to regulatory restrictions on the payment of dividends. Our ability to pay dividends, however, may depend, in part, upon ourreceipt of dividends from Nodak Insurance because we initially will have no source of income other than earnings from the investment of the net proceedsfrom our IPO that we retain. North Dakota law limits the amount of dividends and other distributions that Nodak Insurance may pay to us.North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, butwithout prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of the insurance company’s surplus asregards policyholders as of the preceding December 31, or (ii) the insurance company’s statutory net income for the preceding calendar year (excludingrealized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurancecompany may carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends actually paid duringthose two calendar years. As of December 31, 2017, the amount available for payment of dividends by Nodak Insurance to us in 2018 without the priorapproval of the North Dakota Insurance Department is $15,654. We cannot assure you that the North Dakota Insurance Department would approve thedeclaration or payment by Nodak Insurance of any dividends in excess of such amount to us. See “Item 1. Business — Regulation.”Even if we receive any dividends from Nodak Insurance, we may not declare any dividends to our shareholders because of our working capitalrequirements. We are not subject to regulatory restrictions on the payment of dividends to shareholders, but we are subject to the requirements of the NorthDakota Business Corporation Act. This law generally permits dividends or distributions to be paid as long as, after making the dividend or distribution, wewill be able to pay our debts in the ordinary course of business and32Table of Contents our total assets will exceed our total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of holders of stockwith senior liquidation rights if we were to be dissolved at the time the dividend or distribution is paid. Unregistered SecuritiesThe Company has not sold any unregistered securities within the past three years. Use of Proceeds from Initial Public OfferingOn January 17, 2017, the SEC declared effective our registration statement on Form S-1 registering our common stock. On March 13, 2017, theCompany completed the initial public offering 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 the underwriting discounts and offering expenses. Griffin Financial Group, LLC acted as our placement agent inconnection with the initial public offering.There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with theSEC on January 17, 2017. Issuer Stock PurchasesThe Company had no common shares outstanding during 2016 and 2015.During 2017, our Board of Directors approved an authorization for the repurchase of up to $8 million of the Company’s outstanding common stock.We purchased 446,671 shares of our common stock for $8,037 during the three months ended June 30, 2017. 33Table of Contents Item 6.Selected Financial DataYou should read the selected financial data set forth below in conjunction with our historical consolidated financial statements and related notesand with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report onForm 10-K.NI Holdings evaluates its operations by monitoring certain key measures of growth and profitability. In addition to GAAP measures, NI Holdingsutilizes certain non-GAAP financial measures that it believes are valuable in managing its business and for providing comparisons to its peers.These historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of theresults that may be expected for a full year.34Table of Contents NI Holdings, Inc.Three-Year Summary of Selected Financial Data Year Ended December 31, 2017 2016 2015 Sales: Direct premiums written $195,238 $180,870 $172,775 Net premiums written 185,281 156,713 143,065 Revenues: Net premiums earned $179,464 $152,756 $139,473 Fee and other income 1,648 1,666 1,854 Net investment income 5,031 3,644 3,571 Net realized capital gain on investments 2,997 5,681 823 Total revenue 189,140 163,747 145,721 Components of net income: Net premiums earned $179,464 $152,756 $139,473 Losses and loss adjustment expenses 122,711 118,508 83,876 Amortization of deferred policy acquisition costs and other underwriting and general expenses 44,423 39,122 35,972 Underwriting gain (loss) 12,330 (4,874) 19,625 Fee and other income 1,648 1,666 1,854 Net investment income 5,031 3,644 3,571 Net realized capital gain on investments 2,997 5,681 823 Income before income taxes 22,006 6,117 25,873 Income taxes 6,394 1,479 8,288 Net income $15,612 $4,638 $17,585 Earnings per share: Basic $0.71 $n/a $n/a Diluted $0.71 $n/a $n/a Share data: Weighted average shares outstanding used in basic per share calculations 22,512,401 n/a n/a Plus: Dilutive securities 228 n/a n/a Weighted average shares used in diluted per share calculations 22,512,629 n/a n/a December 31, 2017 2016 2015 Assets: Cash and investments $313,885 $207,677 $197,793 Premiums and agents’ balances receivable 25,632 21,986 20,039 Deferred policy acquisition costs 8,859 8,942 8,444 Other assets 28,612 40,098 32,348 Total assets $376,988 $278,703 $258,624 Liabilities: Unpaid losses and loss adjustment expenses $45,890 $59,632 $45,342 Unearned premiums 63,262 57,445 53,487 Other liabilities 12,263 8,208 9,877 Total liabilities 121,415 125,285 108,706 Equity 255,573 153,418 149,918 Total liabilities and equity $376,988 $278,703 $258,624 Per share data: Total book value per basic share $11.44 $n/a $n/a 35Table of Contents Item 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than canbe obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the Consolidated FinancialStatements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.” Some of the information contained in this discussionand analysis or set forth elsewhere in this Annual Report on Form 10-K constitutes forward-looking information that involves risks and uncertainties. Pleasesee “Forward-Looking Information” and “Item 1A. Risk Factors” for more information. You should review “Risk Factors” for a discussion of important factorsthat could cause actual results to differ materially from the results described, or implied by, the forward-looking statements contained herein.All dollar amounts, except per share amounts, are in thousands. OverviewNI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company and became such in connectionwith the conversion of Nodak Mutual Insurance Company from a mutual to stock form of organization and the creation of a mutual holding company. Theconversion was consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of common stock of Nodak InsuranceCompany were issued to Nodak Mutual Group, which then contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of commonstock of NI Holdings. Nodak Insurance Company then became a wholly owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NIHoldings conducted no business and had no assets or liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak InsuranceCompany and its existing subsidiaries.Nodak Insurance offers property and casualty insurance, crop hail, and multi-peril crop insurance to members of the North Dakota Farm Bureauthrough captive agents in North Dakota. American West and Battle Creek offer similar insurance coverage through independent agents in South Dakota andMinnesota, and Nebraska, respectively. Primero offers limited nonstandard auto insurance coverage in Arizona, Nevada, North Dakota, and South Dakota.Nodak Insurance and Battle Creek are rated by “A” by A.M. Best, which is the third highest out of a possible 15 ratings. American West is rated “A-” andPrimero is unrated.American West is a wholly-owned subsidiary of Nodak Insurance, and Primero is an indirect wholly-owned subsidiary of Nodak Insurance. BattleCreek is managed by Nodak Insurance, and Nodak Insurance reinsures 100% of the risk on all insurance policies issued by Battle Creek. NI Holdings’financial statements set forth herein include the consolidated financial results of NI Holdings and Nodak Insurance, including Nodak Insurance’s subsidiariesAmerican West and Primero and its affiliate Battle Creek. Marketplace Conditions and TrendsThe property and casualty insurance industry is affected by recurring industry cycles known as “hard” and “soft” markets. A soft cycle ischaracterized by intense competition resulting in lower pricing in order to compete for business. A hard market, generally considered a beneficial industrytrend, is characterized by reduced competition that results in higher pricing. We believe that the market is in a “firming” phase in response to higherfrequency and severity of weather-related events in our markets as well as the rest of the world.Unlike property and casualty insurance, the total crop insurance premiums written each year vary mainly based on prevailing commodity prices forthe type of crops planted, because the aggregate number of acres planted does not vary much from year to year. Because the premiums that are charged forcrop insurance are established by the RMA, which is a division of the United States Department of Agriculture, and the policy forms and terms are alsoestablished by the RMA, insurers do not compete on price or policy terms and conditions. Moreover, because participation in other federal farm programs bya farmer is conditioned upon participation in the federal crop insurance program, most commercial farmers obtain crop insurance on their plantings each year. Principal Revenue ItemsNI Holdings derives its revenue primarily from premiums earned, net investment income, and net realized capital gain (loss) on investments.36Table of Contents Gross and net premiums writtenGross premiums written is equal to direct premiums written and assumed premiums before the effect of ceded reinsurance. Gross premiums written arerecognized upon sale of new insurance contracts or renewal of existing contracts. Net premiums written is equal to gross premiums written less premiumsceded or paid to reinsurers (ceded premiums written).Premiums earnedPremiums earned is the earned portion of net premiums written. Gross premiums written include all premiums recorded by an insurance companyduring a specified policy period. Insurance premiums on property and casualty policies are recognized in proportion to the underlying risk insured and areearned 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 termof the policy or period of risk. NI Holdings’ property and casualty policies typically have a term of twelve months. For example, for a policy that is written onJuly 1, 2017, one-half of the premiums would be earned in 2017 and the other half would be earned in 2018.Due to the nature of the crop planting and harvesting cycle and the deadlines for filing and processing claims under the federal crop insuranceprogram, insurance premiums for crop insurance are generally recognized and earned during the period of risk, which usually begins in spring and ends withharvest in the fall. Under the federal crop insurance program, farmers must purchase crop insurance with respect to spring planted crops by March 15. By July15, 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 isdue 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 inan amount equal to the premium at an annual rate of 15% because the insurer is required to pay the farmer’s portion of the premium to the FCIC by November15, regardless of whether the farmer pays the premium to the insurer. Except for claims made in the spring (primarily for prevented planting and requiredreplanting claims), claims are required to be made by December 15. A different cycle exists for crops planted in the fall, such as winter wheat, but the vastmajority of crop insurance written by NI Holdings covers crops planted in the spring.Net investment income and net realized capital gain (loss) on investmentsNI Holdings invests its surplus and the funds supporting its insurance liabilities (including unearned premiums and unpaid losses and LAE) in cash,cash equivalents, equities, and fixed income securities. Investment income includes interest and dividends earned on invested assets. Net realized capitalgains and losses on investments are reported separately from net investment income. NI Holdings recognizes realized capital gains when investments are soldfor an amount greater than their cost or amortized cost (in the case of fixed income securities) and recognizes realized capital losses when investments arewritten down as a result of other-than-temporary impairments or sold for an amount less than their cost or amortized cost, as applicable. The Company’sportfolio of investments is managed by Conning, Inc. and Disciplined Growth Investors, who have discretion to buy and sell securities in accordance with theinvestment policy approved by our Board of Directors. Principal Expense ItemsNI Holdings’ expenses consist primarily of loss and LAE, amortization of deferred policy acquisition costs, other underwriting and general expenses,and income taxes.Loss and Loss Adjustment ExpensesLoss and LAE represent the largest expense item and include (1) claim payments made, (2) estimates for future claim payments and changes in thoseestimates 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 expensesExpenses incurred to underwrite risks are referred to as policy acquisition expenses and other underwriting and general expenses. Policy acquisitioncosts consist of commission expenses, premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing andacquisition 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 otherwiseclassified separately, as well as payments to bureaus and assessments of statistical agencies for policy service and administration items such as ratingmanuals, rating plans, and experience data.37Table of Contents Income taxesNI Holdings uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes arise from the recognition oftemporary differences between financial statement carrying amounts and the tax bases of its assets and liabilities. A valuation allowance is provided when itis more likely than not that some portion of the deferred income tax asset will not be realized. At December 31, 2017, 2016 and 2015, NI Holdings hadrecorded valuation allowances with respect to its deferred income tax assets of $628, $1,022, and $1,084, respectively. The effect of a change in tax rates isrecognized in the period of the enactment date, which is the primary reason for the change in valuation allowance in 2017, as a result of the TCJA enacted onDecember 22, 2017. Key Financial MeasuresNI Holdings evaluates its insurance operations by monitoring certain key measures of growth and profitability. In addition to reviewing its financialperformance based on results determined in accordance with accounting principles generally accepted in the United States of America (“GAAP”), NIHoldings utilizes certain non-GAAP financial measures that are used widely in the property and casualty insurance industry and which it believes arevaluable in managing its business and for comparison to its peers. These non-GAAP measures are the expense ratio, loss and LAE ratio, combined ratio,written premiums, ratio of net written premiums to statutory surplus, underwriting gain, return on average equity, and risk-based capital.NI Holdings measures growth by monitoring changes in gross premiums written and net premiums written. The Company measures underwritingprofitability by examining its loss and LAE ratio, expense ratio, and combined ratio. It also measures profitability by examining underwriting gain (loss), netincome (loss), and return on average equity.Loss and LAE ratioThe loss and LAE ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned. NI Holdings measures the loss andLAE ratio on an accident year and calendar year loss basis to measure underwriting profitability. An accident year loss ratio measures loss and LAE forinsured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year lossratio measures loss and LAE for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage ofpremiums earned during that year.Expense ratioThe expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other underwriting and generalexpenses (attributable to insurance operations) to premiums earned, and measures our operational efficiency in producing, underwriting, and administeringthe Company’s insurance business.Combined ratioThe Company’s combined ratio is the sum of the loss and LAE ratio and the expense ratio, and measures its overall underwriting gain. If thecombined ratio is below 100%, NI Holdings is making an underwriting gain. If its combined ratio is at or above 100%, it is not profitable without investmentincome and may not be profitable if investment income is insufficient.Net premiums written to statutory surplus ratioThe net premiums written to statutory surplus ratio represents the ratio of net premiums written, after reinsurance ceded, to statutory surplus. Theratio is designed to measure the ability of the Company to absorb above-average losses and the Company’s financial strength. In general, a low premium tosurplus ratio is considered a sign of financial strength because the Company is theoretically using its capacity to write more policies. Statutory surplus isdetermined using accounting principles prescribed or permitted by the insurance subsidiaries’ state of domicile and differs from GAAP equity.Underwriting gain (loss)Underwriting gain (loss) measures the pre-tax profitability of insurance operations. It is derived by subtracting loss and LAE, amortization ofdeferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Each of these items is presented as a caption in theCompany’s Consolidated Statements of Operations.Net income (loss) and return on average equityNI Holdings uses net income (loss) to measure its profit and uses return on average equity to measure its effectiveness in utilizing equity to generatenet income. In determining return on average equity for a given year, net income (loss) is divided by the average of the beginning and ending equity for thatyear. 38Table of Contents Critical Accounting PoliciesGeneralThe preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application ofappropriate accounting policies. NI Holdings is required to make estimates and assumptions in certain circumstances that affect amounts reported in itsfinancial statements and related footnotes. NI Holdings evaluates these estimates and assumptions on an ongoing basis based on historical developments,market conditions, industry trends, and other information that it believes to be reasonable under the circumstances. There can be no assurance that actualresults will conform to these estimates and assumptions and that reported results of operations would not be materially adversely affected by the need to makeaccounting adjustments to reflect changes in these estimates and assumptions from time to time. NI Holdings believes the following policies are the mostsensitive to estimates and judgments.Unpaid Losses and Loss Adjustment ExpensesHow reserves are establishedWith respect to its traditional property and casualty insurance products, the Company maintains reserves for the payment of claims (indemnitylosses) and expenses related to adjusting those claims (LAE). The Company’s liability for unpaid losses and LAE consists of (1) case reserves, which arereserves for claims that have been reported to it, and (2) reserves for claims that have been incurred but have not yet been reported and for the futuredevelopment of case reserves (“IBNR”).When a claim is reported to NI Holdings, its claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extentit can be determined or estimated. The amount of the loss reserve for the reported claim is based primarily upon an evaluation of coverage, liability, damagessuffered, and any other information considered pertinent to estimating the exposure presented by the claim. Each claim is contested or settled individuallybased upon its merits and some property and casualty claims may take years to resolve, especially if legal action is involved. Case reserves are reviewed on aregular basis and are updated as new information becomes available.When a catastrophe occurs, which in the Company’s case mostly involves the weather perils of wind and hail, NI Holdings utilizes mappingtechnology through geographic coding of its property risks to overlay the path of the storm. This enables the Company to establish estimated damageamounts based on the wind speed and size of the hail for case or per claim loss amounts. This process allows the Company to determine within a reasonabletime (5 – 7 days) an estimated number of claims and estimated loss payments from the storm. If the Company estimates the damages to be in excess of itsretained catastrophe amount, reinsurers are notified immediately of a potential loss so that the Company can quickly recover reinsurance payments once theretention is exceeded.In addition to case reserves, NI Holdings maintains estimates of reserves for losses and LAE incurred but not reported. These reserves includeestimates for the future development of case reserves. Some claims may not be reported for several years. As a result, the liability for unpaid losses and LAEincludes significant estimates for IBNR.The Company estimates multi-peril crop insurance losses on a quarterly basis based upon historical loss patterns, current crop conditions, currentweather patterns, and input from crop loss adjusters. These estimates have proven to be reasonably accurate indicators of the Company’s anticipated losses forthis line of business.NI Holdings utilizes an independent actuary to assist with the estimation of its liability for losses and LAE. This actuary prepares estimates by firstderiving an actuarially based estimate of the ultimate cost of total losses and LAE incurred as of the financial statement date based on established actuarialmethods described below. The Company then reduces the estimated ultimate loss and LAE by loss and LAE payments and case reserves carried as of thefinancial statement date. The actuarially determined estimate is based upon indications from one of the following actuarial methodologies or uses a weightedaverage of these results. The specific method used to estimate the ultimate losses would vary depending on the judgment of the actuary as to what is the mostappropriate method for the property and casualty business. The Company’s management reviews these estimates and supplements the actuarial analysis withinformation not fully incorporated into the actuarially based estimate, such as changes in the external business environment and internal company processes.NI Holdings may adjust the actuarial estimates based on this supplemental information in order to arrive at the amount recorded in the ConsolidatedFinancial Statements.NI Holdings accrues its ultimate liability for unpaid losses and LAE by using the following actuarial methodologies:Bornhuetter-Ferguson Method — The Bornhuetter-Ferguson Method is a blended method that explicitly takes into account both actual lossdevelopment to date and expected future loss emergence. This method is applied on both a paid loss basis and an incurred loss basis. This method usesselected loss development patterns to calculate the expected percentage of loss unpaid (or unreported). The expected future loss component of the method iscalculated by multiplying earned premium for the given exposure39Table of Contents period by a selected a priori (i.e. deductive) loss ratio. The resulting dollars are then multiplied by the expected percentage of unpaid (or unreported) lossesdescribed above. This provides an estimate of future paid (or reported) losses that is then added to actual paid (or incurred) loss data to produce the estimatedultimate loss.Paid and Case Incurred Loss Method — The Paid and Case Incurred Loss Development Method utilizes ratios of cumulative paid or case incurredloss or LAE at each age of development as a percent of the preceding development age. Selected ratios are then multiplied together to produce a set of lossdevelopment factors which when applied to the most current data value, by accident year, develop estimated ultimate losses or LAE. Ultimate losses or LAEare then selected for each accident year from the various methods employed.Ratio of Paid ALAE to Paid Loss Method — This method utilizes the ratio of paid adjusted loss adjustment expense (“ALAE”) to paid losses and issimilar to the Paid and Case Incurred Method described above, except that the data projected are the ratios of paid ALAE to paid losses. The projectedultimate ratio is then multiplied by the selected ultimate losses, by accident year, to yield ultimate ALAE. ALAE reserves are calculated by subtracting paidlosses from ultimate ALAE.The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affectedby both internal and external events, such as changes in claims handling procedures, inflation, legal trends, and legislative changes, among others. Theimpact of many of these items on ultimate costs for claims and claim adjustment expenses is difficult to estimate. Loss reserve estimation is affected by thevolume of claims, the potential severity of individual claims, the determination of occurrence date for a claim, and reporting lags (the time between theoccurrence of the policyholder event and when it is actually reported to the insurer). Informed judgment is applied throughout the process, including theapplication of various individual experiences and expertise to multiple sets of data and analyses. NI Holdings continually refines its estimates of unpaidlosses and LAE in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. NI Holdings considers allsignificant facts and circumstances known at the time the liabilities for unpaid losses and LAE are established.There is an inherent amount of uncertainty in the establishment of liabilities for unpaid losses and LAE. This uncertainty is greatest in the currentand most recent accident years due to the relative newness of the claims being reported and the relatively small percentage of these claims that have beenreported, investigated, and adjusted by the Company’s claims staff. Therefore, the reserves carried in these more recent accident years are generally moreconservative than those carried for older accident years. As the Company has the opportunity to investigate and adjust the reported claims, both the case andIBNR reserves are adjusted to more closely reflect the ultimate expected loss.Other factors that have or can have an impact on the Company’s case and IBNR reserves include but are not limited to those described below.Changes in liability law and public attitudes regarding damage awardsLaws governing liability claims and judicial interpretations thereof can change over time, which can expand the scope of coverage anticipated byinsurers when initially establishing reserves for claims. In addition, public attitudes regarding damage awards can result in judges and juries granting higherrecoveries for damages than expected by claims personnel when claims are presented. In addition, these changes can result in both increased claim frequencyand severity, as both plaintiffs and their legal counsel perceive the opportunity for higher damage awards. Reserves established for claims that occurred inprior years would not have anticipated these legal changes and, therefore, could prove to be inadequate for the ultimate losses paid by the Company, causingthe Company to experience adverse development and higher loss payments in future years.Change in claims handling and/or setting case reservesChanges in Company personnel and/or the approach to how claims are reported, adjusted, and reserved may affect the reserves established by theCompany. As discussed above, the setting of IBNR reserves is not an exact science and involves the expert judgment of an actuary. One actuary’s reserveopinion may differ slightly from another actuary’s opinion. This is the primary reason why the IBNR reserve estimate is customarily reported as a range by acompany’s actuary, which provides a company with an acceptable “range” to use in establishing its best estimate for IBNR reserves.Economic inflationA sudden and extreme increase in the economic inflation rate could have a significant impact on the Company’s case and IBNR reserves. Whenestablishing case reserves, claims personnel generally establish an amount that in their opinion will provide a conservative amount to settle the loss. If thetime to settle the claim extends over a period of years, the initial reserve may not anticipate an economic inflation rate that is significantly higher than thecurrent inflation rate. This can also apply to IBNR reserves. Should the economic inflation rate increase significantly, it is likely that the Company may notanticipate the need to adjust the IBNR reserves accordingly, which could lead to the Company being deficient in its IBNR reserves.40Table of Contents Increases or decreases in claim severity for reasons other than inflationFactors exist that can drive the cost to settle claims for reasons other than standard inflation. For example, demand surge caused by a very largecatastrophe (as in the case of Hurricane Katrina) has an impact on not only the availability and cost of building materials such as roofing and other suchmaterials, but also on the availability and cost of labor. Other factors such as increased vehicle traffic in an area not designed to handle the increasedcongestion and increased speed limits on busy roads are examples of changes that could cause claim severity to increase beyond what the Company’s historicreserves would reflect. In addition, unexpected increases in the labor costs and healthcare costs that underlie insured risks, changes in costs of buildingmaterials, or changes in commodity prices for insured crops may cause fluctuations in the ultimate development of the case reserves.Actual settlement experience differs from historical data trendsWhen establishing IBNR reserves, the Company’s actuary takes into account many of the factors discussed above. One of the more important factorsthat is considered when setting reserves is the past or historical claim settlement experience. Our actuary considers factors such as the number of files enteringlitigation, payment patterns, length of time it takes Company claims personnel to settle the claims, and average payment amounts when estimating reserveamounts. Should future settlement patterns change due to legal environment, Company claims handling philosophy, or personnel, it may have an impact onthe future claims payments, which could cause existing reserves to either be redundant (excessive) or deficient (below) compared to the actual loss amount.Change in Reporting LagAs discussed above, NI Holdings and its actuary utilize historical patterns to provide an accurate estimate of what will take place in the future.Should we experience an unexpected delay in reporting time (claims are slower to be reported than in the past), our actuary or we may underestimate theanticipated number of future claims, which could cause the ultimate loss we may experience to be underestimated. A lag in reporting may be caused bychanges in how claims are reported (online vs. through company personnel), the type of business or lines of business the Company is writing, the Company’sdistribution system (direct writer, independent agent, or captive agent), and geographic area where the Company chooses to insure risk.Due to the inherent uncertainty underlying loss reserve estimates, final resolution of the estimated liability for unpaid losses and LAE may be higheror lower than the related loss reserves at the reporting date. Therefore, actual paid losses, as claims are settled in the future, may be materially higher or lowerin amount than current loss reserves. The Company reflects adjustments to the liability for unpaid losses and LAE in the results of operations during theperiod in which the estimates are changed.Year-End Actuarial Loss ReservesNI Holdings’ liabilities for unpaid loss and LAE are summarized below: December 31, 2017 2016 2015 Case reserves $29,376 $42,081 $31,038 IBNR reserves 12,386 10,359 9,195 Net unpaid losses and LAE 41,762 52,440 40,233 Reinsurance recoverables on losses 4,128 7,192 5,109 Liability for unpaid losses and LAE $45,890 $59,632 $45,342 41Table of Contents The following tables provides case and IBNR reserves for unpaid losses and LAE by segment.As of December 31, 2017 Case Reserves IBNR Reserves Total Reserves Private passenger auto $13,008 $4,107 $17,115 Non-standard auto 5,186 624 5,810 Home and farm 6,667 2,394 9,061 Crop 997 22 1,019 All other 3,518 5,239 8,757 Net unpaid losses and LAE $29,376 $12,386 $41,762 Reinsurance recoverables on losses 3,171 957 4,128 Liability for unpaid losses and LAE $32,547 $13,343 $45,890 As of December 31, 2016 Case Reserves IBNR Reserves Total Reserves Private passenger auto $19,767 $3,904 $23,671 Non-standard auto 5,209 724 5,933 Home and farm 9,533 2,105 11,638 Crop 3,607 84 3,691 All other 3,965 3,542 7,507 Net unpaid losses and LAE $42,081 $10,359 $52,440 Reinsurance recoverables on losses 6,286 906 7,192 Liability for unpaid losses and LAE $48,367 $11,265 $59,632 As of December 31, 2015 Case Reserves IBNR Reserves Total Reserves Private passenger auto $16,671 $2,862 $19,533 Non-standard auto 5,080 600 5,680 Home and farm 6,008 1,751 7,759 Crop 914 24 938 All other 2,365 3,958 6,323 Net unpaid losses and LAE $31,038 $9,195 $40,233 Reinsurance recoverables on losses 3,782 1,327 5,109 Liability for unpaid losses and LAE $34,820 $10,522 $45,342 Sensitivity of Major Assumptions Underlying the Liabilities for Unpaid Losses and Loss Adjustment ExpensesManagement has identified the impact on earnings of various factors used in establishing loss reserves so that users of the Company’s financialstatements can better understand how development on prior years’ reserves might affect the Company’s results of operations.Total ReservesAs of December 31, 2017, the impact of a 1% change in our estimate for unpaid losses and LAE, net of reinsurance recoverables, on our net incomeafter income taxes of 21% would be approximately $330.42Table of Contents InflationInflation is not explicitly selected in the loss reserve analysis. However, historical inflation is embedded in the estimated loss development factors.The following table displays the impact on net income after income taxes of 21% resulting from various changes from the inflation factor implicitlyembedded in the estimated payment pattern as of December 31, 2017. A change in inflation may or may not fully affect loss payments in the future becausesome of the underlying expenses have already been paid. The table below assumes that any change in inflation will be fully reflected in future loss payments.This variance in future IBNR emergence could occur in one year or over multiple years, depending when the change is recognized. Change in Inflation Impact on After-Tax Earnings -1% $(395) 1% $401 3% $1,219 5% $2,062 Inflation includes actual inflation as well as social inflation that includes future emergence of new classes of losses or types of losses, change injudicial awards, and any other changes beyond assumed levels that affect the cost of claims.Case ReservesWhen a claim is reported, claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can bedetermined or estimated. It is possible that the level of adequacy in the case reserve may differ from historical levels and/or the claims reporting pattern maychange. The following table displays the impact on net income after income taxes of 21%, which results from various changes to the level of case reserves asof December 31, 2017. This variance in future IBNR emergence could occur in one year or over multiple years, depending when the change is recognized. Change in Case Reserves Impact on After-Tax Earnings -10% $(2,575) -5% $(1,287) -2% $(515) +2% $515 +5% $1,287 +10% $2,575 InvestmentsNI Holdings’ fixed income securities and equity securities are classified as available-for-sale and carried at estimated fair value as determined bymanagement based upon quoted market prices or a recognized pricing service at the reporting date for those or similar investments. Changes in unrealizedinvestment gains or losses on the Company’s investments, net of applicable income taxes, are reflected directly in equity as a component of comprehensiveincome (loss) and, accordingly, have no effect on net income (loss). Investment income is recognized when earned, and capital gains and losses arerecognized when investments are sold, or an other-than-temporarily impairment is recognized.NI Holdings evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis. NI Holdings assesses whether OTTI ispresent when the fair value of a security is less than its amortized cost. OTTI is considered to have occurred with respect to fixed income securities if (1) anentity intends to sell the security, (2) it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis, or (3)the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis. When assessing whether the cost or amortized costbasis of the security will be recovered, the Company compares the present value of the cash flows likely to be collected, based on an evaluation of allavailable information relevant to the collectability of the security, to the cost or amortized cost basis of the security. The shortfall of the present value of thecash flows expected to be collected in relation to the cost or amortized cost basis is referred to as the “credit loss.” If there is a credit loss, the impairment isconsidered to be other than temporary. If NI Holdings identifies that an other-than-temporary impairment loss has occurred, it then determines whether itintends to sell the security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the cost or amortized costbasis less any current-period credit losses. If NI Holdings determines that it does not intend to sell, and it is not more likely than not that it will be required tosell the security, the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized in other comprehensive income (loss), net of income taxes. If NI Holdings determines that it intends to sell thesecurity, or 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-periodcredit losses, the full amount of the other-than-temporary impairment will be recognized in earnings.43Table of Contents Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates that generally translate,respectively, into decreases and increases in fair values of fixed income investments. The fair values of interest rate sensitive instruments also may be affectedby the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general marketconditions.For the year ended December 31, 2017, NI Holdings’ investment portfolio experienced a change in net unrealized gains of $4,697. The overallportfolio experienced increased in unrealized gains, with gains increasing in both fixed income and equity securities.NI Holdings has evaluated each security and taken into account the severity and duration of any impairment, the current rating on the bond, and theoutlook for the issuer according to independent analysts. The Company’s fixed income portfolio is managed by Conning Asset Management, whichspecializes in the handling of insurance company investments and participates in this evaluation.For the year ended December 31, 2017, NI Holdings recognized $330 of other-than-temporary impairments of its investment securities. For the yearended December 31, 2016, NI Holdings recognized no other-than-temporary impairments of its investment securities. Adverse investment market conditions,or poor operating results of underlying investments, could result in impairment charges in the future.For more information on the Company’s investments, see Note 5 to the Consolidated Financial Statements, included elsewhere in this Report.Fair Value MeasurementsNI Holdings uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Investmentsecurities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, NI Holdings may be required to record at fair valueother assets 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 tovaluation 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 orliabilities. Level II:Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full termof the asset or liability. Level II includes fixed income securities with quoted prices that are traded less frequently then exchangetraded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry tovalue fixed income securities without relying exclusively on quoted market prices for the specific securities but rather by relyingon 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).NI Holdings 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 betweenmarket participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs whendeveloping fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or noobservable market data and, therefore, are based primarily upon the estimates of NI Holdings or other third parties, are often calculated based on thecharacteristics of the asset, the economic and competitive environment, and other such factors. Management uses its best judgment in estimating the fairvalue of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financialinstruments, the fair value estimates herein are not necessarily indicative of the amounts that NI Holdings could have realized in a sale transaction on thedates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated forpurposes of our financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to therespective reporting dates may be different from 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.NI Holdings uses quoted values and other data provided by independent pricing services 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 acurrent sale. This pricing service provides NI Holdings 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 valueusing a wide array of44Table of Contents observable inputs including relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Theobservable market inputs that the Company’s independent pricing service utilizes may include (listed in order of priority for use) benchmark yields, reportedtrades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, and other reference data on markets, industry, and theeconomy. Additionally, the independent pricing service uses an option adjusted spread model to develop prepayment and interest rate scenarios. The pricingservice did not use broker quotes in determining fair values of the Company’s investments.Should the independent pricing service be unable to provide a fair value estimate, NI Holdings would attempt to obtain a non-binding fair valueestimate from a number of broker-dealers and review this estimate in conjunction with a fair value estimate reported by an independent business news serviceor other sources. In instances where only one broker-dealer would provide a fair value for a fixed income security, NI Holdings would use that estimate. Ininstances where NI Holdings would be able to obtain fair value estimates from more than one broker-dealer, the Company would review the range of estimatesand select the most appropriate value based on the facts and circumstances. Should neither the independent pricing service nor a broker-dealer provide a fairvalue estimate, NI Holdings would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservableinputs. Accordingly, NI Holdings classifies such a security as a Level III investment.The fair value estimates of NI Holdings’ investments provided by the independent pricing service at each period-end were utilized, among otherresources, 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 anomalies on individual securities relative toother similar securities. This will include looking for relative consistency across securities in common sectors, durations, and credit ratings. This review willalso include all fixed income securities rated lower than “A” by Moody’s or S&P. If, after this review, management does not believe the pricing for anysecurity 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 for the years ended December 31, 2017 and 2016, and no adjustments were made to the estimatesprovided by the pricing service for the years ended December 31, 2017 and 2016. The classification within the fair value hierarchy is then confirmed basedon the final conclusions from the pricing review.For more information on the Company’s fair value measurements, see Note 6 to the Consolidated Financial Statements, included elsewhere in thisReport.Deferred Policy Acquisition CostsCertain direct policy acquisition costs consisting of commissions, premium taxes, and other direct underwriting expenses that vary with and areprimarily related to the production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policypremiums are earned. At December 31, 2017 and 2016, deferred policy acquisition costs and the related liability for unearned premiums were as follows: December 31, 2017 2016 Deferred policy acquisition costs $8,859 $8,942 Liability for unearned premiums 63,262 57,445 The method followed in computing deferred policy acquisition costs limits the amount of deferred costs to their estimated realizable value, whichgives effect to the premium to be earned, related investment income, losses and LAE, and certain other costs expected to be incurred as the premium is earned.Future changes in estimates, the most significant of which is expected losses and LAE, may require adjustments to deferred policy acquisition costs. If theestimation of net realizable value indicates that the deferred policy acquisition costs are not recoverable, they would be written off or a premium deficiencyreserve would be established.Income TaxesNI Holdings uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes arise from the recognition oftemporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. A valuation allowance is provided when itis more likely than not that some portion of the deferred income tax asset will not be realized.NI Holdings had gross deferred income tax assets of $4,279 at December 31, 2017 and $6,648 at December 31, 2016. A valuation allowance isrequired to be established for any portion of the deferred income tax asset for which the Company believes it is more likely than not that it will not berealized. Valuation allowances of $628 and $1,022 had been established at December 31, 2017 and 2016, respectively.45Table of Contents NI Holdings had gross deferred income tax liabilities of $6,190 at December 31, 2017 and $8,541 at December 31, 2016, arising primarily fromdeferred policy acquisition costs and net unrealized capital gains on investments.NI Holdings exercises significant judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets.These judgments require NI Holdings to make projections of future taxable income. The judgments and estimates the Company makes in determining itsdeferred income tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction inestimated future taxable income may require the Company to record a valuation allowance against its deferred income tax assets.The effect of a change in income tax rates is recognized in the period of the enactment date. The TCJA enacted on December 22, 2017 will changethe income tax rate from 35% in 2017 to 21% in 2018 and beyond. Although current income taxes payable for 2017 are not impacted, accounting guidancerequires that deferred income tax assets and liabilities are re-valued upon date of enactment with the impact recorded in current year income tax expense. Theimpact to the Company’s deferred income taxes was to reduce the Company’s net deferred income tax liability by $1,274, which is reflected as a reduction ofincome tax expense in the Consolidated Statement of Operations for the year ended December 31, 2017.Accounting guidance provides companies the option to reclassify income tax effects that are stranded in accumulated other comprehensive income(“AOCI”) as a result of income tax reform to retained earnings. The Company accumulates unrealized gains on investments in equity with the correspondingincome tax effects. The Company has early adopted this guidance on a prospective basis as of December 31, 2017, and elects to reclassify material strandedincome tax effects in AOCI to retained earnings using a portfolio method.As of December 31, 2017, NI Holdings had no material unrecognized tax benefits or accrued interest and penalties. Federal tax years 2013 through2016 are open for examination. Results of OperationsNI 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, regulatory changes, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest rates, andother changes in the investment environment.NI Holdings premium levels and underwriting results have been, and will continue to be, influenced by market conditions. Pricing in the propertyand casualty insurance industry historically has been cyclical. During a soft market cycle, price competition is more significant than during a hard marketcycle and makes it difficult to attract and retain properly priced business. During a hard market, it is more likely that insurers will be able to increase theirrates or profit margins. A hard market typically has a positive impact on premium growth. The markets that NI Holdings serves are diversified enough suchthat management must regularly monitor the Company’s performance and competitive position to schedule appropriate rate actions by line of business andgeographic market. Current market conditions are neutral reflecting neither a hard nor a soft market.Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres planted and types of crops insured because thepricing is set by the RMA rather than individual insurance carriers. The expected experience of this business for the calendar year may also significantlyaffect the reported net premiums earned and losses due to the risk-sharing arrangement with the federal government. Multi-peril crop insurance premiums aregenerally written in second quarter, and earned ratably over the period of risk, which extends into fourth quarter. Losses on this business are more heavilyconcentrated in the second and third quarters.Premiums in the crop hail insurance business are also generally written in second quarter, but earned over a shorter period of risk than multi-perilcrop insurance.46Table of Contents Years ended December 31, 2017 and 2016The consolidated net income for NI Holdings was $15,612 for the year ended December 31, 2017 compared to $4,638 a year ago. The majorcomponents of NI Holdings’ operating revenues and net income for the two years were as follows: Year Ended December 31, 2017 2016 Revenues: Net premiums earned $179,464 $152,756 Fee and other income 1,648 1,666 Net investment income 5,031 3,644 Net realized capital gain on investments 2,997 5,681 Total revenues $189,140 $163,747 Components of net income: Net premiums earned $179,464 $152,756 Losses and loss adjustment expenses 122,711 118,508 Amortization of deferred policy acquisition costs and other underwriting and general expenses 44,423 39,122 Underwriting gain (loss) 12,330 (4,874)Fee and other income 1,648 1,666 Net investment income 5,031 3,644 Net realized capital gain on investments 2,997 5,681 Income before income taxes 22,006 6,117 Income taxes 6,394 1,479 Net income $15,612 $4,638 Net Premiums EarnedNI Holdings’ net premiums earned for the year ended December 31, 2017 increased 17.5% to $179,464 compared to $152,756 for the year endedDecember 31, 2016. Year Ended December 31, 2017 2016 Net premiums earned: Private passenger auto $55,378 $48,250 Non-standard auto 10,530 10,671 Home and farm 58,395 50,243 Crop 43,826 33,163 All other 11,335 10,429 Total net premiums earned $179,464 $152,756 Our personal lines of business (private passenger auto, home and farm) continued to grow outside of North Dakota, and were favorably impacted bylower ceding of premiums due to a higher retention amount in our catastrophe reinsurance program in 2017. Our non-standard auto business was relativelyflat year-over-year as rate increases were needed in Nevada to cover the higher losses experienced in this business. Our crop business experienced higherlosses in 2017, which reduced the level of premium sharing required with the federal government on relatively flat direct premiums earned.47Table of Contents Losses and LAENI Holdings’ net losses and LAE for the year ended December 31, 2017 increased 3.6% to $122,711 compared to $118,508 for the year endedDecember 31, 2016. The Company’s loss and LAE ratio decreased to 68.4% for 2017, compared to 77.6% for 2016. Year Ended December 31, 2017 2016 Loss and LAE ratio: Private passenger auto 62.8% 78.5% Non-standard auto 82.5% 93.4% Home and farm 68.0% 87.6% Crop 74.0% 58.4% All other 62.8% 69.8% Total loss and LAE ratio 68.4% 77.6% Our personal lines of business (private passenger auto, home and farm) experienced fewer weather related losses in 2017 compared to 2016,particularly in North Dakota. Our non-standard auto business improved from a year ago as a result of strategic pricing and underwriting actions.A very dry start to the 2017 growing season increased our loss experience for the multi-peril crop business when compared to prior years. The lossand LAE ratio for the entire year ended December 31, 2017 came in line with average expectations, which provided a normal level of premium retentionunder the risk-sharing arrangement with the federal government compared to a year ago.In the all other segment, the assumed reinsurance book of business was adversely impacted by hurricanes Harvey, Irma, and Maria during the thirdquarter of 2017, and by the California wildfires during the fourth quarter of 2017. This adverse experience was more than offset by improvements in excessliability and commercial multi-peril coverages.NI Holdings realized favorable development on prior accident years of $10,101 in 2017, compared to $4,756 of favorable development on prioraccident years realized in 2016. Net favorable development is primarily the result of prior years’ claims settling for less than originally estimated.Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to thereserve is appropriate.Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General ExpensesTotal underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $5,301 in 2017, or 13.6%, comparedto 2016. Expenses were higher in 2017 due to increased commissions and other policy acquisition costs as a result of increased premiums written. In addition,as a new public company, additional expenses were incurred due to increased salaries, legal and accounting costs, taxes and fees, and holding company costs.The expense ratio of 24.8% for the year ended December 31, 2017 was 0.8% less than the expense ratio in 2016, primarily due to higher net premiums earnedin 2017.Underwriting Gain (Loss)Underwriting gain (loss) measures the pretax profitability of a company’s insurance business. It is derived by subtracting losses and LAE,amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Year Ended December 31, 2017 2016 Underwriting gain (loss): Private passenger auto $3,739 $(3,595)Non-standard auto (1,217) (2,215)Home and farm 500 (9,582)Crop 6,959 9,269 All other 2,349 1,249 Total underwriting gain (loss) $12,330 $(4,874) The underwriting results for our personal lines of business (private passenger auto, home and farm) improved significantly year-over-year. The yearended December 31, 2016 included a high number of weather related events that generated underwriting losses. Strategic rating and underwriting actionsacross the personal lines of business, along with an average year of weather related losses, helped to bring those lines back to profitability.48Table of Contents Rate increases and other underwriting actions on our non-standard auto business reduced the underwriting loss considerably from a year ago. Feeincome attributable to this segment is a key component in measuring its profitability. Fee income on this business was $1,087 and $1,157 for the years endedDecember 31, 2017 and 2016, respectively.The crop insurance business generated a lower underwriting gain for 2017 compared to 2016. While loss experience was higher for 2017, premiumretention under the risk-sharing arrangement with the federal government was also higher to offset most of the increased loss experience.Underwriting results for the all other segment increased in 2017 due to improvements in the commercial multi-peril and excess liability businesses,partially offset by the impacts of the hurricane and wildfire activity in our assumed reinsurance business.Fee and Other IncomeNI Holdings had fee and other income of $1,648 for the year ended December 31, 2017, compared to $1,666 for the year ended December 31, 2016.The majority of fee income is attributable to the non-standard auto insurance business.Net Investment IncomeThe following table sets forth our average cash and invested assets, investment income, and return on average cash and invested assets for thereported periods: Year Ended December 31, 2017 2016 Average cash and invested assets $260,781 $202,735 Net investment income $5,031 $3,644 Return on average cash and invested assets 1.9% 1.8% Investment income, net of investment expense, increased $1,387 for the year ended December 31, 2017 compared to 2016. This increase isattributable to an increase in invested assets, as cash and invested assets increased to $313,885 at December 31, 2017 from $207,677 at December 31, 2016,primarily as a result of the proceeds from the Company’s IPO. The weighted average yield on invested assets rose slightly to 1.9% in 2017 from 1.8% in 2016.Net Realized Capital Gain on InvestmentsNI Holdings had realized capital gains on investment of $2,997 for the year ended December 31, 2017, compared to $5,681 for the year endedDecember 31, 2016. The Company recorded other-than-temporary impairments of $330 in the year ended December 31, 2017, and no other-than-temporaryimpairments in the year ended December 31, 2016.The Company’s fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales ofsecurities that are not impaired, consistent with our investment goals and policies. At December 31, 2017, the Company had net unrealized gains on fixedincome securities of $1,780 and net unrealized gains on equity securities of $18,533. At December 31, 2016, the Company had net unrealized gains on fixedincome securities of $1,210 and net unrealized gains on equity securities of $14,406.NI Holdings has evaluated each security in a loss position and taken into account the severity and duration of the impairment, the current rating onthe bond, and the outlook for the issuer according to independent analysts. NI Holdings believes that the foregoing declines in fair value in its existingportfolio are most likely attributable to short-term market trends and there is no evidence that it will not recover the entire amortized cost basis.Income before Income TaxesFor the year ended December 31, 2017, NI Holdings had pre-tax income of $22,006 compared to pre-tax income of $6,117 for the year endedDecember 31, 2016. The increase in pre-tax income was largely attributable to the decrease in losses and LAE on the private passenger auto and home andfarm lines of business when compared to the higher level of weather related losses in 2016.Income TaxesNI Holdings recorded income tax expense of $6,394 for the year ended December 31, 2017, compared to $1,479 of income tax expense for the yearended December 31, 2016.Income tax expense for 2017 included a reduction of $1,274 to income tax expense due to a new corporate income tax rate of 21% for tax years2018 and beyond, enacted on December 22, 2017. Accounting guidance requires that companies re-measure49Table of Contents existing deferred tax assets (including loss carryforwards) and liabilities and record an offset for the net amount as a component of income tax expense fromcontinuing operations in the period of enactment. Any change to a previously recorded valuation allowance as a result of re-measuring existing temporarydifferences and loss carryforward should also be reflected as a component of income tax expense from continuing operations. In addition, the valuationallowance against certain deferred income tax assets decreased by $394 to $628 at December 31, 2017 from $1,022 at December 31, 2016.Our effective tax rate for 2017 was 29.1% compared to an effective tax rate of 24.2% for 2016. The increase in the effective tax rate was the result ofa lesser impact of comparable permanent tax adjustments realized on a higher income before income taxes amount for 2017.Net IncomeFor the year ended December 31, 2017, NI Holdings had net income after non-controlling interest of $15,991 compared to net income after non-controlling interest of $4,551 for 2016. This increase in net income was primarily attributable to decreased losses and LAE in the Company’s privatepassenger auto and home and farm lines of business, when compared to a higher level of weather related losses in 2016.Return on Average EquityFor the year ended December 31, 2017, NI Holdings had annualized return on average equity, after non-controlling interest, of 7.9% compared toannualized return on average equity, after non-controlling interest, of 3.1% for the year ended December 31, 2016. Average equity is calculated as theaverage between beginning and ending equity excluding non-controlling interest for the year. 50Table of Contents Years ended December 31, 2016 and 2015The major components of NI Holdings’ operating revenues and net income are as follows: Year Ended December 31, 2016 2015 Revenues: Net premiums earned $152,756 $139,473 Fee and other income 1,666 1,854 Net investment income 3,644 3,571 Net realized capital gain on investments 5,681 823 Total revenues $163,747 $145,721 Components of net income: Net premiums earned $152,756 $139,473 Losses and loss adjustment expenses 118,508 83,876 Amortization of deferred policy acquisition costs and other underwriting and general expenses 39,122 35,972 Underwriting (loss) gain (4,874) 19,625 Fee and other income 1,666 1,854 Net investment income 3,644 3,571 Net realized capital gain on investments 5,681 823 Income before income taxes 6,117 25,873 Income taxes 1,479 8,288 Net income $4,638 $17,585 Net Premiums EarnedNI Holdings’ net premiums earned increased 9.5% to $152,756 for the year ended December 31, 2016 compared to $139,473 for the year endedDecember 31, 2015. Year Ended December 31, 2016 2015 Net premiums earned: Private passenger auto $48,250 $43,985 Non-standard auto 10,671 11,373 Home and farm 50,243 48,432 Crop 33,163 25,713 All other 10,429 9,970 Total net premiums earned $152,756 $139,473 Our personal lines of business (private passenger auto, home and farm) grew modestly in 2016, while our non-standard auto business declinedslightly. Loss experience in our crop business was extremely favorable in 2015, resulting in a very high level of premiums ceded to the federal government.Loss experience in 2016 was again favorable, but not as favorable as 2015 so premiums ceded were less than a year ago.51Table of Contents Losses and LAENI Holdings’ net losses and LAE for the year ended December 31, 2016 increased 41.3% to $118,508 compared to $83,876 for the year endedDecember 31, 2015. The Company’s loss and LAE ratio increased to 77.6% for 2016, compared to 60.1% for 2015. Year Ended December 31, 2016 2015 Loss and LAE ratio: Private passenger auto 78.5% 67.5% Non-standard auto 93.4% 87.5% Home and farm 87.6% 63.8% Crop 58.4% 42.9% All other 69.8% 23.4% Total loss and LAE ratio 77.6% 60.1% Our personal lines of business (private passenger auto, home and farm) experienced a very high number of weather related losses in 2016 comparedto 2015, particularly in North Dakota. Our non-standard auto business deteriorated due to higher frequency and severity of losses.The loss experience in our crop business was favorable in 2016, although not as favorable as in 2015. The favorable loss and LAE ratios resulted inlower levels of premium retention under the risk-sharing arrangement with the federal government.In the all other segment, the assumed reinsurance book of business was adversely impacted by Canadian wildfires during the second quarter of 2016.NI Holdings realized favorable development on prior accident years of $4,756 in 2016, compared to $8,888 of favorable development on prioraccident years realized in 2015. Net favorable development is primarily the result of prior years’ claims settling for less than originally estimated.Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to thereserve is appropriate.Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General ExpensesTotal underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $3,150 in 2016, or 8.8% higher thanin 2015. This increase is due to an increase of $1,802 in amortization of deferred policy acquisition costs and an increase of $1,348 in other underwriting andgeneral expenses.Underwriting Gain (Loss)Underwriting gain (loss) measures the pretax profitability of a company’s insurance business. It is derived by subtracting losses and LAE,amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Year Ended December 31, 2016 2015 Underwriting gain (loss): Private passenger auto $(3,595) $1,553 Non-standard auto (2,215) (1,251)Home and farm (9,582) 2,674 Crop 9,269 10,913 All other 1,249 5,736 Total underwriting gain (loss) $(4,874) $19,625 The underwriting loss for the year ended December 31, 2016 was primarily due to a high number of weather related events that generatedunderwriting losses in our personal lines of business (private passenger auto, home and farm). Non-standard auto and crop results in 2016 also deterioratedfrom 2015, although the underwriting gain on crop was still very favorable. The commercial multi-peril and excess liability lines of business within the allother segment experienced increased losses, along with losses from Canadian wildfires in the second quarter of 2016 in our assumed reinsurance book ofbusiness.52Table of Contents Fee and Other IncomeNI Holdings had fee and other income of $1,666 for the year ended December 31, 2016, compared to $1,854 for the year ended December 31, 2015.Fee income is primarily related to the non-standard auto insurance business.Net Investment IncomeThe following table sets forth our average cash and invested assets, investment income, and return on average cash and invested assets for thereported periods: Year Ended December 31, 2016 2015 Average cash and invested assets $202,735 $191,987 Net investment income $3,644 $3,571 Return on average cash and invested assets 1.8% 1.9% Investment income, net of investment expense, increased $73 for the year ended December 31, 2016 compared to 2015. This increase is attributableto an increase in invested assets, as cash and invested assets increased to $207,677 at December 31, 2016 from $197,793 at December 31, 2015. This increasemore than offset a decrease in the weighted average yield on invested assets to 1.8% in 2016 from 1.9% in 2015 as higher yielding fixed income securitiesmatured and were replaced with lower yielding securities.Net Realized Capital Gain on InvestmentsNI Holdings had realized capital gains on investment of $5,681 for the year ended December 31, 2016, compared to $823 for the year endedDecember 31, 2015. The Company recorded no other-than-temporary impairments in the year ended December 31, 2016, and $139 of other-than-temporaryimpairments in the year ended December 31, 2015.NI Holdings’ fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales ofsecurities that are not impaired, consistent with our investment goals and policies. At December 31, 2016, the Company had net unrealized gains on fixedincome securities of $1,210 and net unrealized gains on equity securities of $14,406. At December 31, 2015, the Company had net unrealized gains on fixedincome securities of $2,092 and net unrealized gains on equity securities of $15,453.NI Holdings has evaluated each security and taken into account the severity and duration of the impairment, the current rating on the bond, and theoutlook for the issuer according to independent analysts. NI Holdings believes that the foregoing declines in fair value in its existing portfolio are mostlikely attributable to short-term market trends and there is no evidence that it will not recover the entire amortized cost basis.Income before Income TaxesFor the year ended December 31, 2016, NI Holdings had pre-tax income of $6,117 compared to pre-tax income of $25,873 for the year endedDecember 31, 2015. The decrease in pre-tax income was largely attributable to the increase in losses and LAE on the private passenger auto and home andfarm lines of business due to a higher number of weather related losses in 2016.Income TaxesNI Holdings recorded income tax expense of $1,479 for the year ended December 31, 2016, compared to $8,288 of income tax expense for the yearended December 31, 2015. Our effective tax rate for 2016 was 24.2% compared to an effective tax rate of 32.0% for 2015. The decrease in the effective taxrate was the result of a greater impact of comparable permanent tax adjustments realized on a lower income before income taxes amount for 2016.Net IncomeFor the year ended December 31, 2016, NI Holdings had net income after non-controlling interest of $4,551 compared to net income after non-controlling interest of $17,456 for 2015. This decrease in net income was primarily attributable to increased losses and LAE in the company’s privatepassenger auto and home and farm lines of business, due to a higher number of weather related losses in 2016.Return on Average EquityFor the year ended December 31, 2016, NI Holdings had annualized return on average equity, after non-controlling interest, of 3.1% compared toannualized return on average equity, after non-controlling interest, of 12.2% for the year ended December 31,53Table of Contents 2015. Average equity is calculated as the average between beginning and ending equity excluding non-controlling interest for the year. Financial PositionThe major components of NI Holdings’ financial position are as follows: December 31, 2017 2016 Assets Cash and investments $313,885 $207,677 Premiums and agents’ balances receivable 25,632 21,986 Deferred policy acquisition costs 8,859 8,942 Other assets 28,612 40,098 Total assets $376,988 278,703 Liabilities Unpaid losses and loss adjustment expenses $45,890 $59,632 Unearned premiums 63,262 57,445 Other liabilities 12,263 8,208 Total liabilities 121,415 125,285 Equity 255,573 153,418 Total liabilities and equity $376,988 $278,703 At December 31, 2017, NI Holdings had total assets of $376,988, an increase of $98,285, or 35.3% over amounts reported at December 31, 2016. Theincrease was primarily attributable to net proceeds of $93,145 from issuance of NI Holdings common stock on March 13, 2017.At December 31, 2017, total liabilities were $121,415, a decrease of $3,870, or 3.1% over amounts reported at December 31, 2016. The decrease wasprimarily due to lower levels of unpaid losses and loss adjustment expenses offset by higher levels of unearned premiums. Unpaid losses and loss adjustmentexpenses decreased due to lower levels of open case claims, partially offset by higher IBNR on our assumed reinsurance business. Unearned premiumsincreased from a year ago, reflecting the increase in direct premiums written in our private passenger auto and home and farm lines of business.Total equity increased by $102,155, or 66.6% from December 31, 2016 to December 31, 2017. The increase in equity primarily reflects net proceedsof $93,145 from the issuance of NI Holdings common stock and net income of $15,612 for the year ended December 31, 2017, partially offset by the purchaseof treasury stock of $8,037. Effect of Stock Offering on Nodak Insurance Company and NI HoldingsNI Holdings was formed on March 13, 2017 and became the holding company for Nodak Insurance and its existing subsidiaries. The increasedcapitalization from our initial public offering should (i) enhance investment income by increasing our investment portfolio, and (ii) provide capital to permitthe Company to seek acquisitions and other diversification opportunities. The newly issued stock of NI Holdings was available for public trading on March16, 2017.54Table of Contents Liquidity and Capital ResourcesNI Holdings generates sufficient funds from its operations and maintains a high degree of liquidity in its investment portfolio to meet the demandsof claim settlements and operating expenses. The primary sources of funds are premium collections, investment earnings, and maturing investments. Inaddition, we raised $93,145 in net proceeds from our initial public offering, which are available if necessary to meet the demands of claim settlements andoperating expenses.NI Holdings’ philosophy is to provide sufficient cash flows from operations to meet its obligations in order to minimize the forced sales ofinvestments. 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 years ended December 31, 2017, 2016, and 2015 were as follows: Year Ended December 31, 2017 2016 2015 Cash flows provided by operating activities $18,425 $7,307 $17,177 Cash flows (used in) investing activities (91,857) (3,510) (24,385)Cash flows provided by financing activities 82,708 0 0 Net increase (decrease) in cash and cash equivalents $9,276 $3,797 $(7,208) For the year ended December 31, 2017, net cash provided by operating activities totaled $18,425 compared to $7,307 for the year ended December31, 2016. The Company reduced its levels of reinsurance receivables and collected more unearned premiums for the year ended December 31, 2017 comparedto the year ended December 31, 2016, while net income increased significantly from 2016. Net cash used in investing activities totaled $91,857 for the yearended December 31, 2017, compared to net cash used of $3,510 in the year ended December 31, 2016, primarily reflecting the opportunity to invest theproceeds from the common stock offering in longer-term investments in 2017. Net cash provided by financing activities of $82,708 for the year endedDecember 31, 2017 reflect the net proceeds from our initial public offering, offset by the initial funding of our new employee stock option plan and therepurchase of treasury stock for $8,037.For the year ended December 31, 2016, cash flows from operating activities totaled $7,307 compared to $17,177 for the year ended December 31,2015. This decrease in cash flows from operating activities was primarily due to the increase in loss payments to insureds. Cash flows used in investingactivities totaled $3,510 for the year ended December 31, 2016, compared to $24,385 in 2015, primarily reflecting the demand for cash due to higher weatherrelated losses in 2016.As a standalone entity, and outside of the net proceeds from the recent initial public offering, NI Holdings’ principal source of long-term liquiditywill be dividend payments from Nodak Insurance. Nodak Insurance will be restricted by the insurance laws of North Dakota as to the amount of dividends orother distributions it may pay to NI Holdings. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during anytwelve-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 insurance company’s surplus as regards policyholders as of the preceding December 31, or (ii) the insurance company’s statutory net income for thepreceding calendar year (excluding realized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurancecompany other than a life insurance company may carry forward net income from the preceding two calendar years, not including realized capital gains, lessany dividends actually paid during those two calendar years. Dividends in excess of this amount are considered “extraordinary” and are subject to theapproval of the North Dakota Insurance Department.The amount available for payment of dividends from Nodak Insurance after the conversion without the prior approval of the North Dakota InsuranceDepartment is $15,654 based upon the policyholders’ surplus of Nodak Insurance at December 31, 2017. 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 NorthDakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The NorthDakota Insurance Department has the power to limit or prohibit dividend payments if Nodak Insurance is in violation of any law or regulation. Theserestrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid in the year ended December 31,2017.As a public company, NI Holdings is subject to the proxy solicitation, periodic reporting, insider trading, and other requirements of the ExchangeAct and to most of the provisions of SOX. As a result, NI Holdings anticipates incurring higher levels of expenses related to accounting and legal services thatwill be necessary to comply with such requirements.55Table of Contents Contractual Obligations TableThe following table summarizes, as of December 31, 2017, NI Holdings’ future payments and estimated claims and claims related payments forcontinuing operations. Payments Due by Period Contractual Obligations Total Less than1 year 1 – 3 years 3 – 5 years More than5 years Estimated gross loss & LAE payments $45,890 $29,055 $12,389 $3,598 $848 Operating lease obligations 30 30 — — — Total $45,920 $29,085 $12,389 $3,598 $848 The timing of the amounts of the gross loss and LAE payments is an estimate based on historical experience and the expectations of future paymentpatterns. The actual timing and amounts of these payments in the future may vary from the amounts stated above. Off-Balance Sheet ArrangementsNI Holdings has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financialcondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital reserves. Recent Accounting PronouncementsFor a discussion of recent accounting pronouncements, see Note 4 to the Consolidated Financial Statements, included elsewhere in this Report. Item 7A.Quantitative and Qualitative Information about Market RiskMarket RiskMarket risk is the risk that a company will incur losses due to adverse changes in the fair value of financial instruments. NI Holdings has exposure tothree principal types of market risk through its investment activities: interest rate risk, credit risk, and equity risk. NI Holdings’ primary market risk exposureis to changes in interest rates. NI Holdings has not entered, and does not plan to enter, into any derivative financial instruments for hedging, trading, orspeculative purposes.Interest Rate RiskInterest rate risk is the risk that a company will incur economic losses due to adverse changes in interest rates. NI Holdings’ exposure to interest ratechanges primarily results from its significant holdings of fixed income securities. Fluctuations in interest rates have a direct impact on the fair value of thesesecurities.The portfolio duration of the fixed income securities in NI Holdings’ investment portfolio at December 31, 2017, was 3.99 years. The Company’sfixed income securities include U.S. government bonds, securities issued by government agencies, obligations of state and local governments andgovernmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderatefluctuations in fair value resulting from changes in interest rates. NI Holdings carries these investments as available for sale. This allows the Company tomanage its exposure to risks associated with interest rate fluctuations through active review of its investment portfolio by its management and Board ofDirectors and consultation with our outside investment manager.Fluctuations in near-term interest rates could have an impact on NI Holdings’ results of operations and cash flows. Certain of these securities mayhave call features. In a declining interest rate environment, these securities may be called by their issuer and replaced with securities bearing lower interestrates. If NI Holdings is required to sell these securities in a rising interest rate environment, it may recognize investment losses.As a general matter, NI Holdings attempts to match the durations of its assets with the durations of its liabilities. The Company’s investmentobjectives include maintaining adequate liquidity to meet its operational needs, optimizing its after-tax investment income, and its after-tax total return, allof which are subject to NI Holdings’ tolerance for risk.56Table of Contents The table below shows the interest rate sensitivity of NI Holdings’ fixed income securities measured in terms of fair value (which is equal to thecarrying value for all of its investment securities that are subject to interest rate changes) at December 31, 2017:Hypothetical Change in Interest Rate Estimated Change inFair Value Fair Value 200 basis point increase $(19,088) $217,449 100 basis point increase $(9,599) $226,938 No change $— $236,537 100 basis point decrease $9,396 $245,933 200 basis point decrease $18,598 $255,135 Credit RiskCredit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. NI Holdingsaddresses this risk by investing primarily in fixed income securities that are rated at least investment grade by Moody’s or an equivalent rating quality. NIHoldings also independently, and through its outside investment manager, monitors the financial condition of all of the issuers of fixed income securities inthe portfolio. To limit its exposure to risk, the Company employs diversification rules that limit the credit exposure to any single issuer or asset class.Equity RiskEquity price risk is the risk that NI Holdings will incur economic losses due to adverse changes in equity prices.Impact of InflationInflation increases consumers’ needs for property and casualty insurance due to the increase in the value of the property insured and any potentialliability exposure. Inflation also increases claims incurred by property and casualty insurers as property repairs, replacements, and medical expenses increase.These cost increases reduce profit margins to the extent that rate increases are not implemented on an adequate and timely basis. NI Holdings establishesinsurance premiums levels before the amount of losses and LAE, or the extent to which inflation may affect these expenses, are known. Therefore, NIHoldings attempts to anticipate the potential impact of inflation when establishing rates. Because inflation has remained relatively low in recent years,financial results have not been significantly affected by it.57Table of Contents Item 8.Financial Statements and Supplementary DataREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the shareholders and board of directors of NI Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of NI Holdings, Inc. and Subsidiaries (collectively, the “Company”) as of December 31,2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in thethree-year period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). Our audits also included thefinancial statement schedule listed in the Table of Contents at Item 15(a)(2). In our opinion, the consolidated financial statements present fairly, in allmaterial respects, the consolidated financial position of NI Holdings, Inc. and Subsidiaries as of December 31, 2017 and 2016, and the results of theiroperations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generallyaccepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financialstatements taken as a whole, present fairly in all material respects the information set forth therein. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sconsolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding ofinternal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud,and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosuresin the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since February 2016. /s/ Mazars USA LLPFort Washington, PennsylvaniaMarch 7, 201858 Table of Contents NI Holdings, Inc.Consolidated Balance SheetsDecember 31, 2017 and 2016(dollar amounts in thousands, except par value) 2017 2016 Assets: Cash and cash equivalents $27,594 $18,318 Fixed income securities, at fair value 236,758 161,470 Equity securities, at fair value 47,561 25,917 Other investments 1,972 1,972 Total cash and investments 313,885 207,677 Premiums and agents' balances receivable 25,632 21,986 Deferred policy acquisition costs 8,859 8,942 Reinsurance recoverables on losses 4,128 7,192 Accrued investment income 1,996 1,431 Property and equipment 5,877 4,819 Receivable from Federal Crop Insurance Corporation 10,501 16,761 Goodwill 2,628 2,628 Federal income tax recoverable — 2,933 Other assets 3,482 4,334 Total assets $376,988 $278,703 Liabilities: Unpaid losses and loss adjustment expenses $45,890 $59,632 Unearned premiums 63,262 57,445 Reinsurance payable 428 39 Federal income tax payable 991 — Deferred income taxes, net 2,539 2,915 Accrued expenses and other liabilities 8,305 5,254 Commitments and contingencies — — Total liabilities 121,415 125,285 Equity: Common stock, $0.01 par value, authorized 25,000,000 shares, issued: 2017 - 23,000,000 shares, 2016 – none; and outstanding: 2017 – 22,337,644 shares, 2016 - none 230 — Preferred stock, without par value, authorized 5,000,000 shares, no shares issued or outstanding — — Additional paid-in capital 93,496 — Unearned employee stock ownership plan shares (2,157) — Retained earnings 152,865 139,591 Accumulated other comprehensive income, net of income taxes 15,998 10,305 Treasury stock, at cost, 2017 – 446,671 shares, 2016 - none (8,037) — Non-controlling interest 3,178 3,522 Total equity 255,573 153,418 Total liabilities and equity $376,988 $278,703 The accompanying notes are an integral part of these consolidated financial statements. 59 Table of Contents NI Holdings, Inc.Consolidated Statements of OperationsYears Ended December 31, 2017, 2016 and 2015(dollar amounts in thousands, except per share data) 2017 2016 2015 Revenues: Net premiums earned $179,464 $152,756 $139,473 Fee and other income 1,648 1,666 1,854 Net investment income 5,031 3,644 3,571 Net realized capital gain on investments 2,997 5,681 823 Total revenues 189,140 163,747 145,721 Expenses: Losses and loss adjustment expenses 122,711 118,508 83,876 Amortization of deferred policy acquisition costs 27,750 20,423 18,621 Other underwriting and general expenses 16,673 18,699 17,351 Total expenses 167,134 157,630 119,848 Income before income taxes 22,006 6,117 25,873 Income taxes 6,394 1,479 8,288 Net income 15,612 4,638 17,585 Net income (loss) attributable to non-controlling interest (379) 87 129 Net income attributable to NI Holdings, Inc. $15,991 $4,551 $17,456 Basic earnings per common share $0.71 Diluted earnings per common share $0.71 The accompanying notes are an integral part of these consolidated financial statements. 60 Table of Contents NI Holdings, Inc.Consolidated Statements of Comprehensive IncomeYears Ended December 31, 2017, 2016 and 2015(dollar amounts in thousands) 2017 Attributable toNon-ControllingInterest Attributable toNI Holdings, Inc. Total Net income (loss) $(379) $15,991 $15,612 Other comprehensive income, before income taxes: Holding gains on investments 6 7,623 7,629 Reclassification adjustment for net realized capital loss (gain) included in net income 49 (3,046) (2,997)Other comprehensive income, before income taxes 55 4,577 4,632 Income tax (expense) related to items of other comprehensive income (20) (1,601) (1,621)Other comprehensive income, net of income taxes 35 2,976 3,011 Comprehensive income (loss) $(344) $18,967 $18,623 2016 Attributable toNon-ControllingInterest Attributable toNI Holdings, Inc. Total Net income $87 $4,551 $4,638 Other comprehensive income (loss), before income taxes: Holding gains on investments 68 3,862 3,930 Reclassification adjustment for net realized capital loss (gain) included in net income 10 (5,691) (5,681)Other comprehensive income (loss), before income taxes 78 (1,829) (1,751)Income tax benefit (expense) related to items of other comprehensive income (27) 640 613 Other comprehensive income (loss), net of income taxes 51 (1,189) (1,138)Comprehensive income $138 $3,362 $3,500 2015 Attributable toNon-ControllingInterest Attributable toNI Holdings, Inc. Total Net income $129 $17,456 $17,585 Other comprehensive (loss), before income taxes: Holding (losses) on investments (152) (4,192) (4,345)Reclassification adjustment for net realized capital (gain) included in net income — (823) (823)Other comprehensive (loss), before income taxes (152) (5,015) (5,168)Income tax benefit related to items of other comprehensive income 53 1,755 1,809 Other comprehensive (loss), net of income taxes (99) (3,260) (3,359)Comprehensive income $30 $14,196 $14,226 The accompanying notes are an integral part of these consolidated financial statements. 61 Table of Contents NI Holdings, Inc.Consolidated Statement of Changes in EquityYears Ended December 31, 2017, 2016 and 2015(dollar amounts in thousands) CommonStock AdditionalPaid-in Capital Unearned EmployeeStock Ownership Plan Shares RetainedEarnings Accumulated Other ComprehensiveIncome, Net ofIncome Taxes Treasury Stock Non-Controlling Interest Total Equity Balance, January 1, 2015 $— $— $— $117,584 $14,754 $— $3,354 $135,692 Net income — — — 17,456 — — 129 17,585 Othercomprehensive(loss), net ofincome taxes — — — — (3,260) — (99) (3,359)Balance, December 31,2015 $— $— $— $135,040 $11,494 $— $3,384 $149,918 Net income — — — 4,551 — — 87 4,638 Othercomprehensiveincome (loss),net of incometaxes — — — — (1,189) — 51 (1,138)Balance, December 31,2016 $— $— $— $139,591 $10,305 $— $3,522 $153,418 Issuance ofcommon stock 230 92,915 (2,400) — — — — 90,745 Net income(loss) — — — 15,991 — — (379) 15,612 Othercomprehensiveincome, net ofincome taxes — — — — 2,976 — 35 3,011 Reclassificationof tax effectsstranded inAOCI from taxreform — — — (2,717) 2,717 — — — Share-basedcompensation — 423 — — — — — 423 Purchase oftreasury stock — — — — — (8,037) — (8,037)Distribution ofemployee stockownership planshares — 158 243 — — — — 401 Balance, December 31,2017 $230 $93,496 $(2,157) $152,865 $15,998 $(8,037) $3,178 $255,573 The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents NI Holdings, Inc.Consolidated Statements of Cash FlowsYears Ended December 31, 2017, 2016 and 2015(dollar amounts in thousands) 2017 2016 2015 Cash flows from operating activities: Net income $15,612 $4,638 $17,585 Adjustments to reconcile net income to net cash provided by operating activities: Net realized capital gain on investments (2,997) (5,681) (823)Deferred income tax expense (2,067) (82) 378 Depreciation of property and equipment 500 441 523 Amortization of intangibles 43 57 52 Distribution of employee stock ownership plan shares 401 — — Share-based incentive compensation 423 — — Amortization of deferred policy acquisition costs 27,750 20,423 18,621 Deferral of policy acquisition costs (27,667) (20,921) (19,825)Net amortization of premiums and discounts on investments 1,368 894 616 Changes in assets and liabilities which provided (used) cash: Premiums and agents’ balances receivable (3,646) (1,947) (2,501)Reinsurance recoverables on losses 3,064 (1,921) 1,853 Accrued investment income (565) (67) (169)Receivable from Federal Crop Insurance Corporation 6,260 (2,759) 2,304 Federal income tax recoverable / payable 3,924 (2,051) (2,049)Other assets 506 (902) 673 Unpaid losses and loss adjustment expenses (13,742) 14,290 (5,176)Unearned premiums 5,817 3,958 3,592 Reinsurance payable 389 (498) 382 Accrued expenses and other liabilities 3,052 (565) 1,141 Net cash provided by operating activities 18,425 7,307 17,177 Cash flows from investing activities: Proceeds from sales of fixed income securities 24,584 21,692 13,698 Proceeds from sales of equity securities 11,125 9,084 2,821 Purchases of fixed income securities (100,896) (31,188) (37,033)Purchases of equity securities (25,419) (2,624) (3,340)Purchases of property and equipment, net (1,334) (548) (531)Other 83 74 — Net cash used in investing activities (91,857) (3,510) (24,385) Cash flows from financing activities: Proceeds from issuance of common stock 93,145 — — Purchases of treasury stock (8,037) — — Loan to employee stock ownership plan (2,400) — — Net cash provided by financing activities 82,708 — — Net increase (decrease) in cash and cash equivalents 9,276 3,797 (7,208) Cash and cash equivalents at beginning of period 18,318 14,521 21,729 Cash and cash equivalents at end of period $27,594 $18,318 $14,521 The Company paid $4,550, $3,800 and $10,072 in income taxes during 2017, 2016 and 2015, respectively. The accompanying notes are an integral part of these consolidated financial statements. 63 Table of Contents NI Holdings, Inc.Notes to Consolidated Financial StatementsDecember 31, 2017, 2016 and 2015(dollar amounts in thousands)1. OrganizationNI Holdings, Inc. (“NI Holdings”) is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company andbecame such in connection with the conversion of Nodak Mutual Insurance Company from a mutual to stock form of organization and the creation of amutual holding company. The conversion was consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares ofcommon stock of Nodak Insurance Company (the successor to Nodak Mutual Insurance Company) were issued to Nodak Mutual Group, Inc., which thencontributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings. Nodak Insurance Company thenbecame a wholly-owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NI Holdings conducted no business and had no assets orliabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Insurance Company and its existing subsidiaries. The newlyissued shares of NI Holdings were available for public trading on March 16, 2017.The consolidated financial statements of NI Holdings consist primarily of five entities: Nodak Insurance Company (“Nodak Insurance”, formerlyNodak Mutual Insurance Company prior to the conversion), Nodak Agency, Inc. (“Nodak Agency”), American West Insurance Company (“American West”),Primero Insurance Company (“Primero”), and an affiliated company, Battle Creek Mutual Insurance Company (“Battle Creek”).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 Federation (“NDFB”). NodakInsurance is a leading writer of property and casualty insurance in North Dakota, specializing in providing private passenger auto, homeowners, farmowners,commercial, crop hail, and Federal multi-peril crop insurance coverages.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 theMidwest and Western regions of the United States. American West began writing policies in 2002, and primarily writes personal auto, homeowners, and farmcoverages in South Dakota. American West also writes personal auto in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages inMinnesota and South Dakota.Primero is a wholly-owned subsidiary of Tri-State, Ltd. Tri-State, Ltd. is an inactive shell corporation 100% owned by Nodak Insurance. Primero is aproperty and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota and South Dakota.Battle Creek is controlled by Nodak Insurance via a surplus note and 100% quota-share agreement. The terms of the surplus note and quota-shareagreement allow Nodak Insurance to appoint two-thirds of the Battle Creek Board of Directors. Battle Creek is a property and casualty insurance companywriting personal auto, homeowners, and farm coverages solely in the state of Nebraska.The same executive management and underwriting personnel administer products, classes of business, pricing practices, and underwriting standardsof Nodak Insurance and its insurance subsidiaries. In addition, the insurance companies share a combined business plan to achieve market penetration andunderwriting profitability objectives. Distinctions within the products of the insurance companies generally relate to the states in which the risk is locatedand specific risk profiles targeted within similar classes of business. 2. Basis of ConsolidationOur consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States ofAmerica (“GAAP”), include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity we control via contract. We haveeliminated all significant inter-company accounts and transactions in consolidation. The terms “we”, “us”, “our”, or “the Company” as used herein refer tothe consolidated entity.64 Table of Contents 3. Summary of Significant Accounting PoliciesUse of Estimates:In preparing our consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the balance sheet, and revenues and expenses for the periods then ended. Actual results could differ significantly from thoseestimates.We make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our consolidated financial statements.The most significant estimates relate to our reserves for unpaid losses and loss adjustment expenses, valuation of investments, determination of other-than-temporary impairments, valuation allowances for deferred income tax assets, and deferred policy acquisition costs. While we believe our estimates areappropriate, the ultimate amounts may differ from the estimates provided. We regularly review our methods for making these estimates as well as thecontinuing appropriateness of the estimated amounts, and we reflect any adjustment we consider necessary in our current results of operations.Variable-Interest Entities:Any company deemed to be a variable interest entity (“VIE”) is required to be consolidated by the primary beneficiary of the VIE.We assess our investments in other entities at inception to determine if any meet the qualifications of a VIE. We consider an investment in anothercompany to be a VIE if: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinatedfinancial support, (b) the characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, theobligation to absorb expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equityholders are not proportional to their obligations to absorb the expected losses of the entity and/or the rights to receive the expected residual returns of theentity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights.Upon the occurrence of certain events, we would reassess our initial determination of whether the investment is a VIE.We evaluate whether we are the primary beneficiary of each VIE and we consolidate the VIE if we have both (1) the power to direct the economicallysignificant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. We consider the contractualagreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights, and board representationof the respective parties in determining whether we qualify as the primary beneficiary. Our assessment of whether we are the primary beneficiary of a VIE isperformed at least annually.We control Battle Creek via a 100% quota-share reinsurance agreement between Nodak Insurance and Battle Creek, as well as the ability to control amajority of the Board of Directors of Battle Creek. Through the effects of the 100% quota-share agreement with Battle Creek, we are considered the primarybeneficiary of Battle Creek’s operating results excluding net investment income, bad debt expense, and income taxes. Therefore, we consolidate the financialstatements of Battle Creek, and Battle Creek’s policyholders’ interest in Battle Creek is reflected as a non-controlling interest in equity in our consolidatedbalance sheet.Cash and Cash Equivalents:Cash and cash equivalents include certain investments in highly liquid debt instruments with original maturities of three months or less. Costapproximates fair value for these short-term investments.Investments:We have categorized our investment portfolio as “available-for-sale” and have reported the portfolio at fair value, with unrealized gains and losses,net of income taxes, reported in accumulated other comprehensive income. Fair values are based on quoted market prices or dealer quotes, if available. If aquoted market price is not available, fair value is estimated using quoted market prices for similar securities. Amortization of premium and accretion ofdiscount are computed using an effective interest method. Realized gains and losses are determined using the specific identification method and included inthe determination of net income. Net investment income includes interest and dividend income together with amortization of purchase premiums anddiscounts, and is net of investment management and custody fees.We review our investments each quarter to determine whether a decline in fair value below the amortized cost basis is other than temporary.Accordingly, we assess whether we intend to sell or it is more likely than not that we will be required to sell a security before recovery of its amortized costbasis. For fixed income securities that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell prior torecovery of the amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amountdue to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the presentvalue of its65 Table of Contents expected future cash flows discounted at the security’s effective yield. The remaining difference between the security’s fair value and the present value offuture expected cash flows is due to factors that are not credit related and, therefore, is not required to be recognized as losses in the Consolidated Statementsof Operations, but is recognized in other comprehensive income.We classify each fair value measurement at the appropriate level in the fair value hierarchy. The hierarchy gives the highest priority to unadjustedquoted market price in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level IIImeasurements). An asset’s or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation.Level I – Quoted price in active markets for identical assets and liabilities.Level II – Quoted prices in markets that are not active or inputs that are observable either directly or indirectly. Level II inputs include quoted pricesfor similar assets or liabilities other than quoted in prices in Level I, quoted prices in markets that are not active, or other inputs that are observableor can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.Level III – Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.Unobservable inputs reflect the reporting entity’s own assumptions that market participants would use in pricing the asset or liability. Level IIIassets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, orsimilar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.Fair Value of Other Financial Instruments:Our other financial instruments, aside from investments, are cash and cash equivalents, premiums and agents’ balances receivable, and accruedexpenses and accounts payable. The carrying amounts for cash and cash equivalents, premiums and agents’ balances receivable, and accrued expenses andaccounts payable approximate their fair value based on their short-term nature. Other invested assets that do not have observable inputs and little or nomarket activity are carried on a cost basis. All other invested assets have been assessed for impairment. The carrying value of these other invested assets was$1,972 at both December 31, 2017 and 2016.Reclassifications:Certain amounts in the 2016 and 2015 consolidated financial statements have been reclassified to conform to the 2017 presentation. This includes achange in the Company’s reportable segments. The prior segments were non-standard auto, crop, and other property and casualty. The new segments usedthroughout this filing are private passenger auto, non-standard auto, home and farm, crop, and all other.Revenue Recognition:We record premiums written at policy inception and recognize them as revenue on a pro rata basis over the policy term or, in the case of cropinsurance, over the period of risk. The portion of premiums that could be earned in the future is deferred and reported as unearned premiums. When policieslapse, the Company reverses the unearned portion of the written premium and removes the applicable unearned premium. Policy-related fee income isrecognized when collected.The Company uses the direct write-off method for recognizing bad debts. Accounts are deemed to be delinquent after 60 days except for thoseaccounts associated with amounts due from insureds for premiums, in which case policy cancellation procedures are commenced in accordance with stateinsurance regulations. Any earned but uncollected premiums are written off immediately upon the effective date of policy cancellation.Policy Acquisition Costs:We defer our policy acquisition costs, consisting primarily of commissions, premium taxes, and certain other underwriting costs, reduced by cedingcommissions, which vary with and relate directly to the production of business. We amortize these deferred policy acquisition costs over the period in whichwe earn the premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimatedrealizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs weexpect to incur as we earn the premium.Property and Equipment:We report property and equipment at cost less accumulated depreciation. Depreciation is computed using the straight-line method based uponestimated useful lives of the assets.66 Table of Contents Losses and Loss Adjustment Expenses:Liabilities for unpaid losses and loss adjustment expenses are estimates at a given point in time of the amounts we expect to pay with respect topolicyholder claims based on facts and circumstances then known. At the time of establishing our estimates, we recognize that our ultimate liability for lossesand loss adjustment expenses will exceed or be less than such estimates. We base our estimates of liabilities for unpaid losses and loss adjustment expenseson assumptions as to future loss trends, expected claims severity, judicial theories of liability, and other factors. During the loss adjustment period, we maylearn additional facts regarding certain claims, and, consequently, it often becomes necessary for us to refine and adjust our estimates of the liability. Wereflect any adjustments to our liabilities for unpaid losses and loss adjustment expenses in our operating results in the period in which we determine the needfor a change in the estimates.We maintain liabilities for unpaid losses and loss adjustment expenses with respect to both reported and unreported claims. We establish theseliabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. We base the amount of our liabilityfor reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim, and theinsurance policy provisions relating to the type of loss our policyholder incurred. We determine the amount of our liability for unreported losses and lossadjustment expenses based on historical information by line of insurance. We account for inflation in the reserving function through analysis of costs andtrends and reviews of historical reserving results. We closely monitor our liabilities and update them periodically using new information on reported claimsand a variety of statistical techniques. We do not discount our liabilities for unpaid losses and loss adjustment expense.Reserve estimates can change over time because of unexpected changes in assumptions related to our external environment and, to a lesser extent,assumptions as to our internal operations. Assumptions related to our external environment include the absence of significant changes in tort law and thelegal environment that may affect liability exposure, the trends in judicial interpretations of insurance coverage and policy provisions, and the rate of losscost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment andcase reserving methodologies, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality andcharacteristics of business written within a given line of business, and consistency in reinsurance coverage and collectability of reinsured losses, among otheritems. To the extent we determine that underlying factors affecting our assumptions have changed, we attempt to make appropriate adjustments for suchchanges in our reserves. Accordingly, our ultimate liability for unpaid losses and loss adjustment expenses will likely differ from the amount recorded.Income Taxes:With the exception of Battle Creek, which files a stand-alone federal income tax return, we currently file a consolidated federal income tax return.For the year ended December 31, 2016, the consolidated federal income tax return included Nodak Mutual Insurance Company and its owned subsidiaries.For the year ended December 31, 2017, the consolidated federal income tax return will include NI Holdings, Inc. and its owned subsidiaries.The Company reports tax-related interest and penalties, if any, as part of income tax expense in the year such amounts are determinable.We account for deferred income taxes using the asset and liability method. The objective of the asset and liability method is to establish deferredincome tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted taxrates expected to be in effect when we realize or settle such amounts.Accounting guidance requires that companies re-measure existing deferred income tax assets (including loss carryforwards) and liabilities when achange in tax rate occurs, and record an offset for the net amount of the change as a component of income tax expense from continuing operations in theperiod of enactment. The guidance also requires any change to a previously recorded valuation allowance as a result of re-measuring existing temporarydifferences and loss carryforwards to be reflected as a component of income tax expense from continuing operations.New accounting guidance also allows companies to reclassify any tax effects stranded in accumulated other comprehensive income as a result of taxreform to retained earnings.Credit Risk:Our primary investment objective is to earn competitive returns by investing in a diversified portfolio of securities. Our portfolio of fixed incomesecurities and, to a lesser extent, short-term investments, is subject to credit risk. We define this risk as the potential loss in fair value resulting from adversechanges in the borrower’s ability to repay the debt. We manage this risk by performing an analysis of prospective investments and through regular reviews ofour portfolio by our investment staff and advisors. We also limit the amount of our total investment portfolio that we invest in any one security.67 Table of Contents Property and liability insurance coverages are marketed through captive agents in North Dakota and through independent insurance agencieslocated throughout all other operating areas. All business is billed directly to the policyholders.We maintain cash balances primarily at one bank, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250. During thenormal course of business, balances are maintained above the FDIC insurance limit. The Company maintains short-term investment balances in investmentgrade money market accounts that are insured by the Securities Investor Protection Corporation (“SIPC”) up to $500. On occasion, balances for theseaccounts are maintained in excess of the SIPC insurance limit.Reinsurance:The Company limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certainlevels of risks to other insurers or reinsurers, either on an automatic basis under general reinsurance contracts known as “treaties” or by negotiation onsubstantial individual risks. Ceded reinsurance is treated as the risk and liability of the assuming companies.Reinsurance contracts do not relieve the Company from its obligations to policyholders. In the event that all or any of the reinsuring companiesmight be unable to meet their obligations under existing reinsurance agreements, the Company would be liable for such defaulted amounts.Goodwill and Other Intangible Assets:Goodwill represents the excess of the purchase price over the underlying fair value of acquired entities. When completing acquisitions, we seek alsoto identify separately identifiable intangible assets that we have acquired. We assess goodwill and intangible assets with an indefinite useful life forimpairment annually. We also assess goodwill and other intangible assets for impairment upon the occurrence of certain events. In making our assessment, weconsider a number of factors including operating results, business plans, economic projections, anticipated future cash flows, and current market data.Inherent uncertainties exist with respect to these factors and to our judgment in applying them when we make our assessment. Impairment of goodwill andother intangible assets could result from changes in economic and operating conditions in future periods. We did not record any impairments of goodwill orother intangible assets during the years ended December 31, 2017, 2016, and 2015.Goodwill, representing the excess of the purchase price over the fair value of the net assets acquired, is reported separately in the ConsolidatedBalance Sheet. The purchase price in excess of the fair value of net assets acquired was negotiated at arms-length with an unrelated party and was based uponthe strategic decision by Company management to expand both the geographic footprint and product lines of the Company. The nature of the businessacquired was such that there were limited intangible assets not reflected in the net assets acquired. The purchase price was paid with a combination of cashand cancellation of obligations owed to the acquired company by the sellers. The goodwill that arose from this transaction is included in the basis of the netassets acquired and is not deductible for income tax purposes. 4. Recent Accounting PronouncementsAs an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial accountingstandards pursuant to Section 13(a) of the Exchange Act. The following discussion includes effective dates for both public business entities and emerginggrowth companies, as well as whether specific guidance may be adopted early.AdoptedOn July 1, 2017, the Company early adopted amended guidance from the Financial Accounting Standards Board (the “FASB”) on goodwillimpairment testing. Under the amended guidance, the optional qualitative assessment (Step 0) and the first step of the quantitative assessment (Step 1) remainunchanged. Step 2 is eliminated. As a result, for annual impairment testing or in the event a test is required prior to the annual test, the Company will use Step0 to determine if an impairment might exist and Step 1 to determine the amount of goodwill impairment. An impairment loss will be recognized for theamount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill in the reporting unit. Thisguidance is effective for annual and interim reporting periods beginning after December 15, 2019 for public business entities. For private companies andemerging growth companies, this guidance is also effective for annual and interim reporting periods beginning after December 15, 2021. Early adoption ispermitted for all entities beginning in 2017. The Company has early adopted this guidance on a prospective basis as a change in accounting principle,therefore at the date of adoption there is no impact to the Company’s financial position or results of operations.In March 2016, the FASB issued amended guidance to simplify several aspects of the accounting for share-based payment transactions, includingthe income tax consequences, classification of awards as either equity or liabilities, and classification on the68 Table of Contents Consolidated Statement of Cash Flows. All excess income tax benefits and income tax deficiencies should be recognized as income tax expense or benefit inthe Consolidated Statement of Operations, instead of affecting additional paid-in-capital on the Consolidated Balance Sheet. These discrete income tax itemsshould be classified along with other income tax cash flows as an operating activity on the Consolidated Statement of Cash Flows. In addition, cash paid byan employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. This guidance is effective for annualperiods beginning after December 15, 2016 for public business entities. For private companies and emerging growth companies, this guidance is effective forannual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption ispermitted for all entities in any period. An entity that elects early adoption must adopt all amendments in the same period. Amendments requiringrecognition of excess income tax benefits and income tax deficiencies in the Consolidated Statement of Operations should be applied prospectively. TheCompany has early adopted this guidance on a prospective basis for the year ended December 31, 2017. At the date of adoption, there is a minimal impact tothe computation of diluted earnings per share, but no impact to the Company’s financial position or results of operations.In February 2018, the FASB issued new guidance to provide companies the option to reclassify income tax effects that are stranded in accumulatedother comprehensive income as a result of income tax reform to retained earnings. This guidance is effective for all entities for fiscal years beginning afterDecember 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for reporting periods for which financial statements have notyet been issued or made available for issuance. In the period of adoption, an entity would be able to choose whether to apply the amendments retrospectivelyor in the period of adoption. The Company has elected to early adopt this guidance on a prospective basis, resulting in a $2,717 reclassification of strandedincome tax effects from accumulated other comprehensive income to retained earnings within the Equity section of the Consolidated Balance Sheet as ofDecember 31, 2017. There was no impact to the Company’s financial position, results of operations, or cash flows.Not Yet AdoptedIn May 2014, the FASB issued guidance that establishes the manner in which an entity recognizes the amount of revenue to which it expects to beentitled for the transfer of promised goods or services to customers. While the guidance will replace most existing GAAP revenue recognition guidance, thescope of the guidance excludes insurance contracts. The Company has reviewed its sources of revenues, and has determined that no material revenues arederived from non-insurance contracts and thus subject to the new revenue recognition guidance. This guidance is effective for annual and interim reportingperiods beginning after December 15, 2017 for public business entities. For private companies and emerging growth companies, this guidance is effective forannual reporting periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption ispermitted for all entities. We currently believe that this guidance will have no impact on our financial position, results of operations, or cash flows.In January 2016, the FASB issued amended guidance that generally requires entities to measure equity securities at fair value and recognize changesin fair value in their results of operations. The amended guidance also simplifies the impairment assessment of equity securities without readily determinablefair values by requiring entities to perform a qualitative assessment to identify impairment. The FASB issued other disclosure and presentation improvementsrelated to financial instruments within the guidance. The amended guidance is effective for annual and interim reporting periods beginning after December15, 2017 for public business entities. For private companies and emerging growth companies, this guidance is effective for annual reporting periodsbeginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all non-publicentities as of the fiscal year beginning after December 15, 2017, including interim periods within those fiscal years. We are evaluating the requirements ofthis amended measurement and classification of financial instruments guidance and the potential impact on our financial position, results of operations, andcash flows.In February 2016, the FASB issued new guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet,unless a lease is considered a short-term lease. The new guidance also requires entities to make new judgments to identify leases. The new guidance, whichreplaces the current lease guidance, is effective for annual and interim reporting periods beginning after December 15, 2018 for public business entities. Forprivate companies and emerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2019 and interimperiods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities. We do not expect the adoption of this newguidance to have a significant impact on our financial position, results of operations, or cash flows.In June 2016, the FASB issued a new standard that will require timelier recording of credit losses on loans and other financial instruments held byfinancial institutions and other organizations. The guidance will require the measurement of all expected credit losses for financial assets held at thereporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizationswill now use forward-looking information to better form their credit loss estimates. Many of the loss estimation techniques applied today will still bepermitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to usejudgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the guidance requires enhanced disclosures to helpinvestors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the creditquality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative69 Table of Contents requirements that provide additional information about the amounts recorded in the financial statements. Finally, the guidance amends the accounting forcredit losses on available-for-sale fixed income securities and purchased financial assets with credit deterioration. The guidance is effective for fiscal years,and interim periods within those fiscal years, beginning after December 15, 2019 for public business entities that are SEC filers. For private companies andemerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2020 and interim periods within fiscalyears beginning after December 15, 2021. Early adoption is permitted for all entities as of the fiscal years beginning after December 15, 2018, includinginterim periods within those fiscal years. We are evaluating the impact this new guidance will have on our financial position, results of operations, and cashflows.In August and November 2016, the FASB issued amended guidance on the presentation and classification of various items in the Statement of CashFlows. The amendments address specific cash flow issues, including debt prepayments and contingent consideration payments made after a businesscombination. The amended guidance also requires the Statement of Cash Flows to explain the change during the period in the total of cash, cash equivalents,and amounts generally described as restricted cash or restricted cash equivalents. Currently, the Statement of Cash Flows only explains the change in cashand cash equivalents. The amended guidance is effective for annual and interim reporting periods beginning after December 15, 2017 for public businessentities. For private companies and emerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2018and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted for all entities, including adoption in an interimperiod. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includesthat interim period. The amendments are to be applied using a retrospective transition method to each period presented. The adoption of this amendedguidance will not have an impact on our financial position or results of operations. We are evaluating the impact this amended guidance will have on ourStatement of Cash Flows.In March 2017, the FASB issued amended guidance to shorten the amortization period of premiums on certain purchased callable fixed incomesecurities to the earliest call date. The amended guidance is effective for fiscal years beginning after December 15, 2018, including interim periods withinthose fiscal years. For private companies and emerging growth companies, this amended guidance is effective for fiscal years beginning after December 15,2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If anentity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interimperiod. An entity should apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as ofthe beginning of the period of adoption. We are evaluating the requirements of this guidance and the potential impact to our financial position, results ofoperations, and cash flows. 70 Table of Contents 5. InvestmentsThe amortized cost and estimated fair value of investment securities as of December 31, 2017 and 2016 were as follows: December 31, 2017 Cost or AmortizedCost Gross UnrealizedGains Gross Unrealized Losses Fair Value Fixed income securities: U.S. Government and agencies $9,531 $175 $(57) $9,649 Obligations of states and political subdivisions 81,741 1,171 (317) 82,595 Corporate securities 88,474 1,197 (220) 89,451 Residential mortgage-backed securities 28,557 124 (157) 28,524 Commercial mortgage-backed securities 11,228 61 (119) 11,170 Asset-backed securities 15,447 10 (88) 15,369 Total fixed income securities 234,978 2,738 (958) 236,758 Equity securities: Basic materials 768 124 — 892 Communications 3,027 1,449 (154) 4,322 Consumer, cyclical 5,303 4,156 (120) 9,339 Consumer, non-cyclical 7,090 3,940 (125) 10,905 Energy 2,003 272 (44) 2,231 Financial 2,007 410 — 2,417 Industrial 5,038 4,167 — 9,205 Technology 3,792 4,668 (210) 8,250 Total equity securities 29,028 19,186 (653) 47,561 Total investments $264,006 $21,924 $(1,611) $284,319 December 31, 2016 Cost or AmortizedCost Gross UnrealizedGains Gross Unrealized Losses Fair Value Fixed income securities: U.S. Government and agencies $5,834 $260 $(44) $6,050 Obligations of states and political subdivisions 68,915 882 (401) 69,396 Corporate securities 50,610 1,028 (468) 51,170 Residential mortgage-backed securities 22,750 102 (215) 22,637 Commercial mortgage-backed securities 8,033 104 (41) 8,096 Asset-backed securities 4,118 17 (14) 4,121 Total fixed income securities 160,260 2,393 (1,183) 161,470 Equity securities: Basic materials 90 13 (1) 102 Communications 1,307 1,601 (81) 2,827 Consumer, cyclical 1,665 3,646 (50) 5,261 Consumer, non-cyclical 2,015 2,411 (208) 4,218 Energy 1,053 234 — 1,287 Financial 314 277 — 591 Industrial 2,251 2,766 — 5,017 Technology 2,816 3,855 (57) 6,614 Total equity securities 11,511 14,803 (397) 25,917 Total investments $171,771 $17,196 $(1,580) $187,387 71 Table of Contents The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below. Actual maturities could differ fromcontractual maturities because issuers of the securities may have the right to call or prepay certain obligations, which may or may not include call orprepayment penalties. December 31, 2017 Amortized Cost Fair Value Due to mature: One year or less $12,761 $12,766 After one year through five years 86,830 87,642 After five years through ten years 69,586 70,680 After ten years 10,569 10,607 Mortgage / asset-backed securities 55,232 55,063 Total fixed income securities $234,978 $236,758 December 31, 2016 Amortized Cost Fair Value Due to mature: One year or less $10,935 $11,069 After one year through five years 45,904 46,891 After five years through ten years 55,430 55,619 After ten years 13,090 13,037 Mortgage / asset-backed securities 34,901 34,854 Total fixed income securities $160,260 $161,470 Fixed income securities with a fair value of $3,493 at December 31, 2017 and $3,530 at December 31, 2016 were deposited with various stateregulatory agencies as required by law. The Company has not pledged any assets to secure any obligations.72 Table of Contents The investment category and duration of the Company’s gross unrealized losses on fixed income securities and equity securities were as follows: December 31, 2017 Less than 12 Months Greater than 12 months Total FairValue Unrealized Losses FairValue Unrealized Losses FairValue Unrealized Losses Fixed income securities: U.S. Government and agencies $6,442 $(54) $497 $(3) $6,939 $(57)Obligations of states and political subdivisions 28,219 (251) 3,593 (66) 31,812 (317)Corporate securities 39,025 (201) 1,195 (19) 40,220 (220)Residential mortgage-backed securities 7,573 (40) 7,248 (117) 14,821 (157)Commercial mortgage-backed securities 4,652 (64) 1,643 (55) 6,295 (119)Asset-backed securities 13,386 (80) 781 (8) 14,167 (88)Total fixed income securities 99,297 (690) 14,957 (268) 114,254 (958) Equity securities: Communications 840 (48) 107 (106) 947 (154)Consumer, cyclical 898 (116) 214 (4) 1,112 (120)Consumer, non-cyclical 1,894 (125) — — 1,894 (125)Energy 243 (44) — — 243 (44)Technology 634 (120) 152 (90) 786 (210)Total equity securities 4,509 (453) 473 (200) 4,982 (653)Total investments $103,806 $(1,143) $15,430 $(468) $119,236 $(1,611) December 31, 2016 Less than 12 Months Greater than 12 months Total FairValue Unrealized Losses FairValue Unrealized Losses FairValue Unrealized Losses Fixed income securities: U.S. Government and agencies $2,750 $(44) $— $— $2,750 $(44)Obligations of states and political subdivisions 16,559 (396) 245 (5) 16,804 (401)Corporate securities 13,479 (175) 2,006 (293) 15,485 (468)Residential mortgage-backed securities 15,692 (215) — — 15,692 (215)Commercial mortgage-backed securities 2,513 (41) — — 2,513 (41)Asset-backed securities 2,291 (14) — — 2,291 (14)Total fixed income securities 53,284 (885) 2,251 (298) 55,535 (1,183) Equity securities: Basic materials 32 (1) — — 32 (1)Communications 167 (81) — — 167 (81)Consumer, cyclical 63 (5) 174 (45) 237 (50)Consumer, non-cyclical 239 (208) — — 239 (208)Technology 543 (57) — — 543 (57)Total equity securities 1,044 (352) 174 (45) 1,218 (397)Total investments $54,328 $(1,237) $2,425 $(343) $56,753 $(1,580) Investments with unrealized losses are categorized with a duration of greater than 12 months when all positions of a security have continually beenin 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 areother than temporary involves consideration of several factors. These factors include (i) the time period in73 Table of Contents 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) thesignificance 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 ofthe above factors results in the conclusion that declines in fair values are other than temporary, the cost of the securities is written down to fair value and thepreviously unrealized loss is therefore reflected as a realized capital loss on investment.The Company recorded impairments of $330 in the year ended December 31, 2017. The Company did not record any impairments in 2016 andrecorded $139 of impairments in 2015.As of December 31, 2017, we held 196 fixed income securities with unrealized losses. As of December 31, 2016, we held 129 fixed income securitieswith unrealized losses. In conjunction with our outside investment advisors, we analyzed the credit ratings of the securities as well as the historical monthly-amortized cost to fair value ratio of securities in an unrealized loss position. This analysis yielded no fixed income securities that had fair values less than80% of amortized cost for the preceding 12-month period.Net investment income consisted of the following: Year Ended December 31, 2017 2016 2015 Fixed income securities $6,067 $4,709 $4,420 Equity securities 650 376 368 Real estate 352 311 293 Cash and cash equivalents — 64 98 Total gross investment income 7,069 5,460 5,179 Investment expenses 2,038 1,816 1,608 Net investment income $5,031 $3,644 $3,571 Net realized capital gain on investments consisted of the following: Year Ended December 31, 2017 2016 2015 Gross realized gains $3,615 $6,098 $1,328 Gross realized losses, excluding other-than-temporary impairment losses (288) (417) (366)Other-than-temporary impairment losses (330) — (139)Net realized capital gain on investments $2,997 $5,681 $823 6. Fair Value MeasurementsWe maximize the use of observable inputs in our valuation techniques and apply unobservable inputs only to the extent that observable inputs areunavailable. The largest class of assets and liabilities carried at fair value by the Company at December 31, 2017 and 2016 were fixed income securities.Prices provided by independent pricing services and independent broker quotes can vary widely, even for the same security.Our available-for-sale investments are comprised of a variety of different securities, which are classified into levels based on the valuation techniqueand inputs used in their valuation. The valuation of cash equivalents and equity securities are generally based on Level I inputs, which use the market-approach valuation technique. The valuation of our fixed income securities generally incorporates significant Level II inputs using the market and incomeapproach techniques. We may assign a lower level to inputs typically considered to be Level II based on our assessment of liquidity and relative level ofuncertainty surrounding inputs. There were no assets or liabilities classified at Level III at December 31, 2017 or 2016.74 Table of Contents The following tables set forth our assets that are measured on a recurring basis by the level within the fair value hierarchy in which fair valuemeasurements fall: December 31, 2017 Total Level I Level II Level III Fixed income securities: U.S. Government and agencies $9,649 $— $9,649 $— Obligations of states and political subdivisions 82,595 — 82,595 — Corporate securities 89,451 — 89,451 — Residential mortgage-backed securities 28,524 — 28,524 — Commercial mortgage-backed securities 11,170 — 11,170 — Asset-backed securities 15,369 — 15,369 — Total fixed income securities 236,758 — 236,758 — Equity securities: Basic materials 892 892 — — Communications 4,322 4,322 — — Consumer, cyclical 9,339 9,339 — — Consumer, non-cyclical 10,905 10,905 — — Energy 2,231 2,231 — — Financial 2,417 2,417 — — Industrial 9,205 9,205 — — Technology 8,250 8,250 — — Total equity securities 47,561 47,561 — — Cash and cash equivalents 27,594 27,594 — — Total assets at fair value $311,913 $75,155 $236,758 $— December 31, 2016 Total Level I Level II Level III Fixed income securities: U.S. Government and agencies $6,050 $— $6,050 $— Obligations of states and political subdivisions 69,396 — 69,396 — Corporate securities 51,170 — 51,170 — Residential mortgage-backed securities 22,637 — 22,637 — Commercial mortgage-backed securities 8,096 — 8,096 — Asset-backed securities 4,121 — 4,121 — Total fixed income securities 161,470 — 161,470 — Equity securities: Basic materials 102 102 — — Communications 2,827 2,827 — — Consumer, cyclical 5,261 5,261 — — Consumer, non-cyclical 4,218 4,218 — — Energy 1,287 1,287 — — Financial 591 591 — — Industrial 5,017 5,017 — — Technology 6,614 6,614 — — Total equity securities 25,917 25,917 — — Cash and cash equivalents 18,318 18,318 — — Total assets at fair value $205,705 $44,235 $161,470 $— There were no liabilities measured at fair value on a recurring basis at December 31, 2017 or 2016.75 Table of Contents 7. ReinsuranceThe Company will assume and cede certain premiums and losses to and from various companies and associations under various reinsuranceagreements. 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 theseagreements, either on an automatic basis under general reinsurance contracts known as treaties or by negotiation on substantial individual risks.Reinsurance contracts do not relieve the Company from its obligation to policyholders. Additionally, failure of reinsurers to honor their obligationscould 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 toreinsurers.As a group at December 31, 2017, the Company retained the first $10,000 of weather related losses from catastrophe events and had reinsuranceunder various reinsurance agreements up to $74,600 in excess of its $10,000 retained risk. These reinsurance risk limits will remain in effect for 2018. Prior toJanuary 1, 2017, the Company collectively retained the first $5,000 of weather related losses.The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts duefrom reinsurers. Such estimates are made based on periodic evaluation of balances due from reinsurers, judgments regarding reinsurers’ solvency, knowndisputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions, and the state of reinsurer relationsin general. Collection risk is mitigated from reinsurers by entering into reinsurance arrangements only with reinsurers that have strong credit ratings andstatutory surplus above certain levels. The Company’s largest reinsurance recoverables on paid and unpaid losses were due from reinsurance companies withA.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: 2017 2016 2015 Premiums Written Premiums Earned Premiums Written Premiums Earned Premiums Written Premiums Earned Direct premium $195,238 $189,418 $180,870 $176,958 $172,775 $169,222 Assumed premium 6,709 6,711 6,591 6,546 3,729 3,690 Ceded premium (16,665) (16,665) (30,748) (30,748) (33,439) (33,439)Net premiums $185,282 $179,464 $156,713 $152,756 $143,065 $139,473 Percentage of assumed premium earned to netpremium earned 3.7% 4.3% 2.6% A reconciliation of direct to net losses and loss adjustment expenses is as follows: 2017 2016 2015 Direct losses and loss adjustment expenses $124,117 $146,391 $89,242 Assumed losses and loss adjustment expenses 6,177 4,947 3,023 Ceded losses and loss adjustment expenses (7,583) (32,830) (8,389)Net losses and loss adjustment expenses $122,711 $118,508 $83,876 If 100% of our ceded reinsurance would be cancelled as of December 31, 2017, no ceded commissions would need to be returned to the reinsurers.Reinsurance contracts are typically effective from January 1 through December 31 each year. 76 Table of Contents 8. Deferred Policy Acquisition CostsActivity concerning our deferred policy acquisition costs was as follows: Year Ended December 31, 2017 2016 2015 Balance, beginning of year $8,942 $8,444 $7,240 Deferral of policy acquisition costs 27,667 20,921 19,825 Amortization of deferred policy acquisition costs (27,750) (20,423) (18,621)Balance, end of year $8,859 $8,942 $8,444 9. Unpaid Losses and Loss Adjustment ExpensesActivity in the liability for unpaid losses and loss adjustment expenses is summarized as follows: Year Ended December 31, 2017 2016 2015 Balance at beginning of year: Liability for unpaid losses and loss adjustment expenses $59,632 $45,342 $50,518 Reinsurance recoverables on losses 7,192 5,109 5,676 Net balance at beginning of year 52,440 40,233 44,842 Incurred related to: Current year 132,812 123,264 92,764 Prior years (10,101) (4,756) (8,888)Total Incurred 122,711 118,508 83,876 Paid related to: Current year 104,769 90,772 70,290 Prior years 28,620 15,529 18,195 Total paid 133,389 106,301 88,485 Balance at end of year: Liability for unpaid losses and loss adjustment expenses 45,890 59,632 45,342 Reinsurance recoverables on losses 4,128 7,192 5,109 Net balance at end of year $41,762 $52,440 $40,233 The prior years’ provision for unpaid losses and loss adjustment expenses decreased by $10,101, $4,756, and $8,888 during 2017, 2016, and 2015,respectively. The decrease is generally the result of ongoing analysis of recent loss development trends. As additional information becomes known regardingindividual claims, original estimates are increased or decreased accordingly.77 Table of Contents The following tables present information, organized by our primary operating segments, about incurred and paid claims development as ofDecember 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of IBNR reserves plus expected development on reported claims.The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include anestimated amount for unreported claims. The number of claims is measured by claim event (such as a car accident or storm damage) and an individual claimevent may result in more than one reported claim (such as a car accident with both property and liability damages). The Company considers a claim that doesnot result in a liability as a claim closed without payment. The tables include unaudited information about incurred and paid claims development for theyears ended December 31, 2008 through 2015, which we present as supplementary information. Private Passenger Auto Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, At December 31, 2017 (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total IBNRPlus Expected Development on Reported Claims Cumulative Number of Reported Claims (in thousands, except claimcounts) 2008 $26,058 $23,877 $24,140 $24,248 $23,215 $23,196 $23,040 $22,979 $22,975 $22,953 $— 9,945 2009 — 29,397 27,749 26,460 25,813 26,137 25,910 25,420 25,409 25,273 42 11,359 2010 — — 26,090 23,801 23,102 23,325 23,265 23,271 23,249 23,123 — 11,518 2011 — — — 25,552 24,126 25,220 24,409 24,209 23,967 23,814 32 11,480 2012 — — — — 26,962 24,787 24,323 24,098 24,133 23,298 65 9,718 2013 — — — — — 29,079 27,840 27,363 27,334 26,014 93 10,819 2014 — — — — — — 32,548 31,349 30,427 29,099 396 11,733 2015 — — — — — — — 32,438 31,532 30,461 320 11,658 2016 — — — — — — — — 40,227 39,260 918 14,203 2017 — — — — — — — — — 40,779 2,232 12,738 Total $284,074 Private Passenger Auto Paid Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $17,152 $20,367 $22,214 $22,484 $22,790 $22,799 $22,883 $22,926 $22,933 $22,952 2009 — 18,203 21,880 24,105 24,412 24,784 24,829 24,918 25,103 25,131 2010 — — 18,100 21,491 21,633 22,844 22,810 22,938 23,063 23,123 2011 — — — 19,116 22,161 22,325 23,024 23,339 23,583 23,732 2012 — — — — 18,681 21,434 21,888 22,640 22,726 23,073 2013 — — — — — 20,077 23,576 24,765 24,918 25,718 2014 — — — — — — 22,744 25,727 27,076 27,443 2015 — — — — — — — 23,401 27,171 28,933 2016 — — — — — — — — 29,009 35,845 2017 — — — — — — — — — 31,031 Total $266,981 All outstanding liabilities prior to 2008, net of reinsurance 22 Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $17,115 78 Table of Contents Non-Standard Auto Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, At December 31, 2017 (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total IBNRPlus ExpectedDevelopmenton Reported Claims CumulativeNumber ofReported Claims (in thousands, except claimcounts) 2008 $11,284 $11,029 $10,907 $10,895 $10,902 $10,901 $10,914 $10,896 $10,898 $10,898 $— 2,836 2009 — 13,269 12,790 12,702 12,655 12,604 12,586 12,584 12,584 12,584 — 3,250 2010 — — 8,462 8,536 8,442 8,411 8,410 8,400 8,400 8,402 — 2,092 2011 — — — 8,129 8,173 8,178 8,191 8,168 8,168 8,168 — 1,939 2012 — — — — 8,749 8,491 8,369 8,361 8,302 8,312 — 2,045 2013 — — — — — 11,063 10,823 10,800 10,804 10,843 10 2,596 2014 — — — — — — 7,297 7,619 7,591 7,577 17 1,760 2015 — — — — — — — 9,727 9,806 9,655 37 1,792 2016 — — — — — — — — 9,967 10,048 126 1,709 2017 — — — — — — — — — 8,722 434 1,372 Total $95,209 Non-Standard Auto Paid Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $6,123 $9,878 $10,680 $10,852 $10,867 $10,901 $10,899 $10,896 $10,898 $10,898 2009 — 7,356 11,621 12,495 12,624 12,602 12,584 12,584 12,584 12,584 2010 — — 4,788 7,792 8,332 8,411 8,410 8,400 8,400 8,402 2011 — — — 4,457 7,445 7,984 8,146 8,168 8,168 8,168 2012 — — — — 4,377 7,522 7,983 8,276 8,302 8,312 2013 — — — — — 6,320 9,675 10,508 10,717 10,805 2014 — — — — — — 3,733 6,707 7,423 7,521 2015 — — — — — — — 5,335 8,685 9,479 2016 — — — — — — — — 5,409 8,882 2017 — — — — — — — — — 4,348 Total $89,399 All outstanding liabilities prior to 2008, net of reinsurance — Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $5,810 79 Table of Contents Home and Farm Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, At December 31, 2017 (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total IBNRPlusExpectedDevelopmenton Reported Claims CumulativeNumber of Reported Claims (in thousands, exceptclaim counts) 2008 $20,151 $19,591 $19,913 $19,528 $19,386 $19,430 $19,138 $19,071 $19,071 $19,072 $— 4,544 2009 — 16,584 15,797 15,657 15,577 16,065 16,074 16,001 16,001 16,001 — 4,010 2010 — — 23,477 23,007 22,454 22,209 22,198 22,202 22,190 22,190 — 5,321 2011 — — — 31,948 32,104 32,113 31,771 31,684 31,388 31,306 2 5,851 2012 — — — — 25,179 24,439 24,320 24,091 24,081 24,079 3 3,607 2013 — — — — — 29,976 29,217 28,531 28,315 28,286 168 4,180 2014 — — — — — — 36,663 36,001 35,770 35,589 67 5,229 2015 — — — — — — — 32,789 31,818 31,297 222 3,908 2016 — — — — — — — — 45,825 44,510 225 6,244 2017 — — — — — — — — — 42,110 1,707 4,521 Total $294,440 Home and Farm Paid Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $16,353 $18,677 $18,975 $19,302 $19,075 $19,077 $19,089 $19,071 $19,071 $19,072 2009 — 12,657 14,654 14,904 15,436 15,935 15,960 16,000 16,001 16,001 2010 — — 19,902 21,940 21,955 22,068 22,117 22,154 22,190 22,190 2011 — — — 29,399 33,019 31,126 31,460 31,702 31,277 31,304 2012 — — — — 21,761 23,863 24,029 24,168 24,075 24,076 2013 — — — — — 23,354 26,934 27,183 27,221 27,456 2014 — — — — — — 32,207 35,199 35,219 35,371 2015 — — — — — — — 27,204 30,164 30,350 2016 — — — — — — — — 37,656 44,942 2017 — — — — — — — — — 34,657 Total $285,419 All outstanding liabilities prior to 2008, net of reinsurance 40 Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $9,061 80 Table of Contents Crop Incurred Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, At December 31, 2017 (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total IBNRPlus Expected Developmenton Reported Claims CumulativeNumber ofReported Claims (in thousands, except claim counts) 2008 $20,534 $20,868 $22,257 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 $— 2,962 2009 — 17,517 15,450 15,450 15,450 15,450 15,450 15,450 15,450 15,450 — 2,367 2010 — — 20,742 20,717 20,717 20,717 20,717 20,717 20,717 20,717 — 2,108 2011 — — — 55,094 54,953 59,651 59,651 59,651 59,651 59,651 — 3,211 2012 — — — — 13,546 13,676 13,673 13,673 13,673 13,673 — 2,137 2013 — — — — — 40,976 39,665 39,665 39,665 39,665 — 2,097 2014 — — — — — — 22,686 20,333 20,333 20,333 — 2,268 2015 — — — — — — — 13,813 13,849 13,849 — 2,427 2016 — — — — — — — — 20,209 19,582 2 2,803 2017 — — — — — — — — — 33,733 20 2,831 Total $259,594 Crop Paid Claims and Allocated Claim Adjustment Expenses, Net of ReinsuranceFor the Year Ended December 31, (prior years unaudited) AccidentYear 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $19,098 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 $22,941 2009 — 13,462 15,450 15,450 15,450 15,450 15,450 15,450 15,450 15,450 2010 — — 19,678 20,717 20,717 20,717 20,717 20,717 20,717 20,717 2011 — — — 57,741 59,651 59,651 59,651 59,651 59,651 59,651 2012 — — — — 13,078 13,673 13,673 13,673 13,673 13,673 2013 — — — — — 35,511 39,665 39,665 39,665 39,665 2014 — — — — — — 17,788 20,333 20,333 20,333 2015 — — — — — — — 12,866 13,849 13,849 2016 — — — — — — — — 16,444 19,487 2017 — — — — — — — — — 32,809 Total $258,575 All outstanding liabilities prior to 2008, net of reinsurance — Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $1,019 The following table presents a reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and lossadjustment expenses in our Consolidated Balance Sheet: December 31, 2017 Net outstanding liabilities: Private passenger auto $17,115 Non-standard auto 5,810 Home and farm 9,061 Crop 1,019 All other 8,757 41,762 Reinsurance ceded: Private passenger auto 690 Non-standard auto — Home and farm 1,449 Crop 133 All other 1,856 4,128 Gross liability for unpaid losses and loss adjustment expenses $45,890 81 Table of Contents The following table presents required supplementary information about average historical claims duration as of December 31, 2017: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Years 1 2 3 4 5 6 7 8 9 10 Private Passenger Auto 53.7% 21.7% 11.7% 6.3% 2.7% 1.7% 1.0% 0.4% 0.5% 0.1% Non-Standard Auto 75.1% 20.8% 3.2% 0.7% 0.2% —% —% —% —% —% Home and Farm 73.3% 8.4% 10.6% 2.5% 2.1% 1.2% 0.6% 0.2% 0.3% 0.1% Crop 93.4% 4.5% 2.1% —% —% —% —% —% —% —% 10. Property and EquipmentProperty and equipment consisted of the following: December 31, 2017 2016 Estimated Useful LifeCost: Real estate $10,633 $9,578 10 - 31 yearsElectronic data processing equipment 1,288 1,637 5-7 yearsFurniture and fixtures 3,511 3,762 5-7 yearsAutomobiles 1,595 1,488 2-3 yearsGross cost 17,027 16,465 Accumulated depreciation (11,150) (11,646) Total property and equipment, net $5,877 $4,819 Depreciation expense was $500, $441, and $523 during the years ended December 31, 2017, 2016 and 2015, respectively. 11. Related Party TransactionsWe were organized by the NDFB to provide insurance protection for its members. We have a royalty agreement with the NDFB that recognizes theuse of their trademark and provides royalties to the NDFB based on the premiums written on Nodak Insurance’s insurance policies. Royalties paid to theNDFB were $1,289, $1,258 and $1,230 for the years ended December 31, 2017, 2016 and 2015, respectively. Royalty amounts payable of $99 and $96 wereaccrued as a liability to the NDFB at December 31, 2017 and 2016, respectively.82 Table of Contents The following table illustrates the impact of including Battle Creek in our Consolidated Balance Sheets prior to intercompany eliminations: December 31, 2017 2016 Assets: Cash and cash equivalents (overdraft) $(726) $124 Investments 4,364 4,290 Premiums and agents’ balances receivable 4,055 2,841 Reinsurance recoverables (1) 20,932 19,299 Accrued investment income 29 31 Deferred income tax asset, net 389 915 Property and equipment 370 331 Other assets 54 55 Total assets $29,467 $27,886 Liabilities: Unpaid losses and loss adjustment expenses $7,995 $8,917 Unearned premiums 12,937 10,382 Notes payable (1) 3,000 3,000 Reinsurance payable (1) 965 992 Accrued expenses and other liabilities 1,392 1,073 Total liabilities 26,289 24,364 Equity: Non-controlling interest 3,178 3,522 Total equity 3,178 3,522 Total liabilities and equity $29,467 $27,886 (1) Amount eliminated in consolidation. Total statutory revenues and expenses of Battle Creek after intercompany eliminations, which is limited to net investment income and certainmiscellaneous other income and expenses, were $153 and $0 during the year ended December 31, 2017, $174 and $0 during the year ended December 31,2016, and $129 and $0 during the year ended December 31, 2015. 12. Benefit PlansThe Company sponsors a money purchase plan that covers all eligible employees. Plan costs are funded annually as they are earned. The Company’scontributions expense to the money purchase plan totaled $854, $762, and $701 for 2017, 2016 and 2015, respectively.The Company also sponsors a 401(k) plan with an automatic contribution to all eligible employees and a matching contribution for eligibleemployees of 50% up to 3% of eligible compensation. The Company’s contributions expense to the 401(k) plan totaled $411, $422, and $390 for 2017,2016 and 2015, respectively. All fees associated with both plans are deducted from the eligible employee accounts.Deferred Compensation PlanEffective April 28, 2016, the Board of Directors authorized a non-qualified deferred compensation plan covering key executives of the Company asdesignated by the Board of Directors. The Company’s policy is to fund the plan in a given calendar year by amounts that exceed the maximum contributionallowed by the Employee Retirement Income Security Act (“ERISA”), beginning in 2017. Funds deposited were $138 for the year ended December 31, 2017.Employee Stock Ownership PlanThe Company has established an Employee Stock Ownership Plan (the “ESOP”). The ESOP is intended to be an employee stock ownership planwithin the meaning of Internal Revenue Code Section 4975(e)(7) and will invest primarily in common stock of the Company.83 Table of Contents In connection with our initial public offering, Nodak Insurance loaned $2,400 to the ESOP’s related trust (the “ESOP Trust”). The ESOP loan will befor a period of ten years and bears interest at the long-term Applicable Federal Rate effective on the closing date of the offering (2.79% annually). The ESOPTrust used the proceeds of the loan to purchase shares in our initial public offering, which results in the ESOP Trust owning approximately 1.0% of theCompany’s authorized shares. The ESOP has purchased the shares for investment and not for resale.The shares purchased by the ESOP Trust in the offering are held in a suspense account as collateral for the ESOP loan. The shares held in the ESOP’ssuspense account are not considered outstanding for earnings per share purposes. Nodak Insurance will make semi-annual cash contributions to the ESOP inamounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance. While the ESOP makes two loan paymentsper year, a pre-determined portion of the shares will be released from the suspense account and allocated to participant accounts at the end of the calendaryear. This release and allocation will occur on an annual basis over the ten-year term of the ESOP loan. Nodak Insurance will have a lien on the shares ofcommon 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 achange 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 theinvestment of any assets allocated to their accounts. The initial ESOP participants are employees of Nodak Insurance. The employees of Primero will notparticipate in the ESOP.Each employee of Nodak Insurance will automatically become a participant in the ESOP if such employee is at least 21 years old, has completed aminimum of one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period. Employees are not permitted tomake any contributions to the ESOP. Participants in the ESOP will receive annual reports from the Company showing the number of shares of common stockof the Company allocated to the participant’s account and the market value of those shares. The shares are allocated to participants based on compensation asprovided for in the Plan.In connection with the initial public offering, the Company created a contra-equity account on the Company’s consolidated balance sheet equal tothe ESOP’s basis in the shares. The basis of those shares was set at $10.00 per share as part of the initial public offering. As shares are released from the ESOPsuspense account, the contra-equity account will be credited, which shall reduce the impact of the contra-equity account on the Company’s ConsolidatedBalance Sheet. The Company shall record a compensation expense related to the shares released, which compensation expense is equal to the number ofshares released from the suspense account multiplied by the average market value of the Company’s stock during the period.The Company recognized compensation expense of $401 for the year ended December 31, 2017. At the end of 2017, 24,315 ESOP shares werereleased and allocated to participants, with a remainder of 215,685 ESOP shares in suspense at December 31, 2017. Using the Company’s year-end marketprice of $16.98, the fair value of the unearned ESOP shares was $3,662 at December 31, 2017. 13. Line of CreditNodak Insurance has a $3,000 line of credit with Wells Fargo Bank, N.A., of which there were no outstanding amounts as of December 31, 2017 or2016. This line of credit is scheduled to expire on November 30, 2018. 14. Income TaxesThe components of our provision for income tax expense were as follows: Year Ended December 31, 2017 2016 2015 Current $8,461 $1,564 $7,910 Deferred (2,067) (85) 378 Total provision $6,394 $1,479 $8,288 84 Table of Contents The provision for income taxes differs from the amount that would be computed by applying the statutory federal rate to income before provision forincome taxes as a result of the following: Year Ended December 31, 2017 2016 2015 Income before income taxes $22,006 $6,117 $25,873 Expected provision for federal income taxes $7,702 $2,141 $9,067 Permanent differences (736) (670) (111)Change in valuation allowance (394) (62) Stock conversion and IPO expenses 568 — — Impact of effective tax rate change on deferred income tax assets and liabilities (1,274) — — Other 528 70 (668)Total provision $6,394 $1,479 $8,288 Income tax expense for the year ended December 31, 2017 includes a reduction of $1,274 to current income tax expense due to a new corporateincome tax rate for tax year 2018 and beyond, enacted on December 22, 2017. Accounting guidance requires that companies re-measure existing deferredincome tax assets (including loss carryforwards) and liabilities when a change in tax rate occurs and record an offset for the net amount of the change as acomponent of income tax expense from continuing operations in the period of enactment. The guidance also requires any change to a previously recordedvaluation allowance as a result of re-measuring existing temporary differences and loss carryforwards to be reflected as a component of income tax expensefrom continuing operations. The valuation allowance against certain deferred income tax assets decreased by $394 to $628 at December 31, 2017 from$1,022 at December 31, 2016.The income tax effects of temporary differences that give rise to significant portions of our deferred income tax assets and deferred income taxliabilities, valued at the new effective tax rate of 21% at December 31, 2017, are as follows: December 31, 2017 2016 Deferred income tax assets: Unearned premium $2,657 $4,023 Unpaid losses and loss adjustment expenses 251 563 Carryovers 1,040 1,810 Other 331 252 Total deferred income tax assets 4,279 6,648 Deferred income tax liabilities: Deferred policy acquisition costs 1,860 3,129 Net unrealized gains 4,266 5,407 Other 64 5 Total deferred income tax liabilities 6,190 8,541 Net deferred income tax liability (1,911) (1,893) Valuation allowance (628) (1,022)Deferred income tax liability, net $(2,539) $(2,915) At December 31, 2017 and 2016, we had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions.No interest and penalties were recognized during the years ended December 31, 2017, 2016, or 2015.At December 31, 2017 and 2016, the Company, other than Battle Creek, had no income tax related carryovers for net operating losses, alternativeminimum tax credits, or capital losses. Battle Creek, which files its income tax returns on a stand-alone basis, had net operating loss carryovers of $4,951 and$5,159 at December 31, 2017 and 2016, respectively. The net operating loss carryforward expires beginning in 2021 through 2030. In 2016, a $247 capitalloss carryover expired and none of the capital loss carryover was utilized against realized capital gains. 85 Table of Contents 15. Operating LeasesWe leased facilities, equipment, and software under non-cancellable operating leases expiring at various times through November 2017. Expensesrelated to these leases were $68, $74 and $236 for the years ended December 31, 2017, 2016 and 2015, respectively.As of December 31, 2017, we have no minimum future commitments under non-cancellable leases.We also sub-lease a portion of our home office building under non-cancellable operating leases. 16. ContingenciesWe have been named as a defendant in various lawsuits relating to our insurance operations. Contingent liabilities arising from litigation, incometaxes, and other matters are not considered to be material to our financial position.The Company does not have any unrecorded or potential contingent liabilities or material commitments requiring the use of assets as of December31, 2017 and 2016. 17. Common StockChanges in the number of common stock shares outstanding are as follows: Year Ended December 31, 2017 2016 2015 Shares outstanding, beginning — n/a n/a Initial public offering 23,000,000 — — Shares repurchased related to employee stock ownership plan (240,000) — — Shares repurchased (446,671) — — Issuance related to ESOP 24,315 — — Shares outstanding, ending 22,337,644 n/a n/a Note: Shares were not available prior to the Company’s IPO in March 2017. The Company is authorized to issue 25,000,000 shares of common stock, with a par value of $0.01. In addition, 5,000,000 shares of preferred stock,without par value, are authorized but have not been issued. 18. Stock Based CompensationAt its 2017 Annual Shareholders’ Meeting, the NI Holdings 2017 Stock and Incentive Plan (the “Plan”) was approved by shareholders. The purposeof the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers,consultants, advisors, and non-employee directors capable of assuring the future success of the Company, to offer such persons incentives to put forthmaximum efforts for the success of the Company’s business, to compensate such persons through various stock and cash-based arrangements, and to providethem with opportunities for stock ownership 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 independentcontractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made under the Plan are basedupon, 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 500,000shares of common stock, subject to adjustments as provided in the Plan. No eligible participant may be granted more than 100,000 shares from any stockoptions, stock appreciation rights, or performance awards denominated in shares, in the aggregate in any calendar year, subject to adjustment in accordancewith the Plan. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in any calendar year is limitedto $1,000 in value. Directors who are not also employees of the Company may not be granted awards denominated in shares that exceed $100 in any calendaryear.86 Table of Contents On December 1, 2017, the Compensation Committee awarded RSUs to non-employee directors and select employees. RSUs are promises to issueactual shares of common stock at the end of a vesting period. The RSUs granted to employees under the Plan were based on salary and generally vest 20% peryear over a five-year period, while RSUs granted to non-employee directors vest in 2018. RSU participants accumulate an unvested right to receive cashdividend equivalents during the restricted period and do not have voting rights during the restricted period.The Company recognizes stock-based compensation costs based on the grant date fair value over the vesting period of the awards. Estimatedforfeitures are included in the determination of compensation costs. No forfeitures are currently estimated.A summary of the Company’s outstanding restricted stock units is presented below: Shares Weighted-AverageGrant-DateFair Value Shares outstanding at December 31, 2016 — $— Grants 83,000 17.31 Vested (17,500) 17.31 Shares outstanding at December 31, 2017 65,500 $17.31 The following table shows a summary of RSU activity: Year Ended December 31, 2017 2016 2015 RSU compensation expense $423 $— $— Income tax benefit (148) — — RSU compensation expense, net of income taxes $275 $n/a $n/a Total grant-date fair value of vested RSUs at end of period $303 $n/a $n/a Note: Share-based compensation was not available prior to the Company’s IPO in March 2017. At December 31, 2017, there was $1,013 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognizedover a weighted-average period of 1.06 years. 19. Earnings Per ShareAs described in Note 1, the conversion of the mutual company to a stock company resulted in the issuance of NI Holdings common shares on March13, 2017. Earnings per share is computed by dividing net income available to common shareholders for the period by the weighted average number ofcommon shares outstanding for the same period. The weighted average number of common shares outstanding was 22,512,401 for the year ended December31, 2017. For the period prior to the date of the conversion, we assumed that the net common shares issued in the initial public offering of 22,760,000 shareswere outstanding since January 1, 2017.Unearned ESOP shares are not considered outstanding until they are released and allocated to plan participants. Unearned RSU shares are notconsidered outstanding until they are earned by award participants.On May 23, 2017, our Board of Directors approved an authorization for the repurchase of up to $8 million of the Company’s outstanding commonstock. We completed the repurchase of 446,671 shares of our common stock for $8,037 during the three months ended June 30, 2017, and reflected the cost ofthis treasury stock as a reduction of equity within our Consolidated Balance Sheet as of December 31, 2017.87 Table of Contents The following table presents a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for ourcommon stock: Year Ended December 31, 2017 2016 2015 Basic earnings per share: Numerator: Net income attributable to NI Holdings $15,991 $4,551 $17,456 Denominator: Weighted average shares outstanding 22,512,401 n/a n/a Basic earnings per share $0.71 $n/a $n/a Diluted earnings per share: Numerator: Net income attributable to NI Holdings $15,991 $4,551 $17,456 Denominator: Number of shares used in basic computation 22,512,401 n/a n/a Weighted average effect of dilutive securities Add: Director and employee restricted stock units 228 n/a n/a Number of shares used in per share computations 22,512,629 n/a n/a Diluted earnings per share $0.71 $n/a $n/a 88 Table of Contents 20. Segment InformationWe have four primary reportable operating segments, which consist of private passenger auto insurance, non-standard auto insurance, home and farminsurance, and crop insurance. A fifth segment captures all other insurance coverages we sell, including commercial coverages and our assumed reinsurancelines of business. We operate only in the United States, and no single customer or agent provides 10 percent or more of our revenues. The following tablesprovide available information of these segments for the years ended December 31, 2017, 2016, and 2015. Prior years have been restated to reflect the changein segments. For presentation in these tables, “LAE” refers to loss adjustment expenses. Year Ended December 31, 2017 Private Passenger Auto Non-Standard Auto Home and Farm Crop All Other Total Direct premiums earned $58,424 $10,530 $63,701 $49,012 $7,751 $189,418 Assumed premiums earned 15 — (17) 2,524 4,189 6,711 Ceded premiums earned (3,061) — (5,289) (7,710) (605) (16,665)Net premiums earned 55,378 10,530 58,395 43,826 11,335 179,464 Direct losses and LAE 34,743 8,690 40,381 36,110 4,193 124,117 Assumed losses and LAE 279 — — 1,654 4,244 6,177 Ceded losses and LAE (271) — (672) (5,322) (1,318) (7,583)Net losses and LAE 34,751 8,690 39,709 32,442 7,119 122,711 Gross margin 20,627 1,840 18,686 11,384 4,216 56,753 Underwriting and generalexpenses 16,888 3,057 18,186 4,425 1,867 44,423 Underwriting gain (loss) 3,739 (1,217) 500 6,959 2,349 12,330 Fee and other income 1,087 1,648 (130) Net investment income 5,031 Net realized capital gain oninvestments 2,997 Income before income taxes 22,006 Income taxes 6,394 Net income 15,612 Net (loss) attributable to non-controlling interest (379)Net income attributable to NIHoldings, Inc. $15,991 Loss and LAE ratio 62.8% 82.5% 68.0% 74.0% 62.8% 68.4% Expense ratio 30.5% 29.0% 31.1% 10.1% 16.5% 24.8% Combined ratio 93.2% 111.6% 99.1% 84.1% 79.3% 93.1% Balances at December 31, 2017: Premiums receivable $15,430 $1,196 $7,856 $— $1,150 $25,632 Deferred policy acquisitioncosts 3,404 306 4,638 — 511 8,859 Reinsurance recoverables 690 — 1,449 133 1,856 4,128 Receivable from Federal CropInsurance Corporation — — — 10,501 — 10,501 Unpaid losses and LAE 17,805 5,810 10,510 1,152 10,613 45,890 Unearned premiums 24,442 1,762 32,691 — 4,367 63,262 89 Table of Contents Year Ended December 31, 2016 PrivatePassenger Auto Non-Standard Auto Home and Farm Crop All Other Total Direct premiums earned $51,535 $10,671 $58,445 $48,876 $7,431 $176,958 Assumed premiums earned 2 — 1 2,691 3,852 6,546 Ceded premiums earned (3,287) — (8,203) (18,404) (854) (30,748)Net premiums earned 48,250 10,671 50,243 33,163 10,429 152,756 Direct losses and LAE 41,022 9,965 65,119 23,173 7,112 146,391 Assumed losses and LAE 316 — 634 766 3,231 4,947 Ceded losses and LAE (3,446) — (21,749) (4,570) (3,065) (32,830)Net losses and LAE 37,892 9,965 44,004 19,369 7,278 118,508 Gross margin 10,358 706 6,239 13,794 3,151 34,248 Underwriting and generalexpenses 13,953 2,921 15,821 4,525 1,902 39,122 Underwriting gain (loss) (3,595) (2,215) (9,582) 9,269 1,249 (4,874) Fee and other income 1,157 1,666 (1,058) Net investment income 3,644 Net realized capital gain oninvestments 5,681 Income before income taxes 6,117 Income taxes 1,479 Net income 4,638 Net income attributable to non-controlling interest 87 Net income attributable to NIHoldings, Inc. $4,551 Loss and LAE ratio 78.5% 93.4% 87.6% 58.4% 69.8% 77.6% Expense ratio 28.9% 27.4% 31.5% 13.6% 18.2% 25.6% Combined ratio 107.5% 120.8% 119.1% 72.1% 88.0% 103.2% Balances at December 31, 2016: Premiums receivable $13,390 $906 $6,671 $— $1,019 $21,986 Deferred policy acquisitioncosts 3,412 232 4,998 — 300 8,942 Reinsurance recoverables 1,042 — 3,845 579 1,726 7,192 Receivable from Federal CropInsurance Corporation — — — 16,761 — 16,761 Unpaid losses and LAE 24,713 5,933 15,483 4,270 9,233 59,632 Unearned premiums 22,119 1,457 29,777 — 4,092 57,445 90 Table of Contents Year Ended December 31, 2015 PrivatePassenger Auto Non-Standard Auto Home and Farm Crop All Other Total Direct premiums earned $46,721 $11,373 $54,372 $49,802 $6,954 $169,222 Assumed premiums earned 2 — — 20 3,668 3,690 Ceded premiums earned (2,738) — (5,940) (24,109) (652) (33,439)Net premiums earned 43,985 11,373 48,432 25,713 9,970 139,473 Direct losses and LAE 30,303 9,954 34,501 13,198 1,286 89,242 Assumed losses and LAE 29 — 303 810 1,881 3,023 Ceded losses and LAE (660) — (3,923) (2,971) (835) (8,389)Net losses and LAE 29,672 9,954 30,881 11,037 2,332 83,876 Gross margin 14,313 1,419 17,551 14,676 7,638 55,597 Underwriting and generalexpenses 12,760 2,670 14,877 3,763 1,902 35,972 Underwriting gain (loss) 1,553 (1,251) 2,674 10,913 5,736 19,625 Fee and other income 1,246 1,854 (5) Net investment income 3,571 Net realized capital gain oninvestments 823 Income before income taxes 25,873 Income taxes 8,288 Net income 17,585 Net income attributable to non-controlling interest 129 Net income attributable to NIHoldings, Inc. $17,456 Loss and LAE ratio 67.5% 87.5% 63.8% 42.9% 23.4% 60.1% Expense ratio 29.0% 23.5% 30.7% 14.6% 19.1% 25.8% Combined ratio 96.5% 111.0% 94.5% 57.6% 42.5% 85.9% Balances at December 31, 2015: Premiums receivable $11,933 $741 $6,326 $— $1,039 $20,039 Deferred policy acquisitioncosts 3,129 219 4,790 — 306 8,444 Reinsurance recoverables 1,571 — 2,230 302 1,006 5,109 Receivable from Federal CropInsurance Corporation — — — 14,002 — 14,002 Unpaid losses and LAE 21,104 5,680 9,989 1,240 7,329 45,342 Unearned premiums 20,498 1,327 27,775 — 3,887 53,487 For purposes of evaluating profitability of the non-standard auto segment, management combines the policy fees paid by the insured with theunderwriting 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) inthe above tables. 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. Thoseline items include investment income, net realized capital gain on investments, other income excluding non-standard auto insurance fees, and income taxesfor the Consolidated Statement of Operations statement. For the Consolidated Balance Sheet, those items include cash and investments, property andequipment, other assets, accrued expenses, federal income taxes recoverable or payable, and equity.91 Table of Contents 21. Statutory Net Income, Capital and Surplus, and Dividend RestrictionsThe following table presents selected information, as filed with insurance regulatory authorities, for our insurance subsidiaries as determined inaccordance with accounting practices prescribed or permitted by such insurance regulatory authorities as of and for the years ended December 31, 2017, 2016and 2015: 2017 2016 2015 Nodak Insurance: Statutory capital and surplus $156,545 $139,140 $135,771 Statutory unassigned surplus 151,545 139,140 135,771 Statutory net income 13,915 3,665 16,221 American West: Statutory capital and surplus $12,409 $11,801 $11,185 Statutory unassigned surplus 6,408 5,800 5,184 Statutory net income 429 782 458 Primero: Statutory capital and surplus 8,936 8,616 8,827 Statutory unassigned surplus (323) (643) (432)Statutory net income 208 (324) (11) Battle Creek: Statutory capital and surplus 5,873 5,735 5,561 Statutory unassigned surplus 2,873 2,735 2,561 Statutory net income 153 174 127 State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurancesubsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their domiciliaryinsurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further affect their ability topay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2017 and 2016 exceeded the amount of statutory capital and surplusnecessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.Amounts available for distribution to Nodak Insurance as dividends from its insurance subsidiaries without prior approval of insurance regulatoryauthorities are $1,241 in 2018 and $1,180 in 2017 from American West. Dividends available from Primero are $143 in 2018 and $0 in 2017.The amount available for payment of dividends from Nodak Insurance to NI Holdings after the conversion without the prior approval of the NorthDakota Insurance Department is $15,654 based upon the policyholders’ surplus of Nodak Insurance at December 31, 2017. Prior to its payment of anyextraordinary dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department. This notice must beprovided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of anordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if Nodak Insurance is in violation of anylaw or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid in the yearended December 31, 2017. 92 Table of Contents 22. Reconciliation of Statutory Filings to Amounts Reported HereinOur insurance subsidiaries must file financial statements with state insurance regulatory authorities using accounting principles and practicesprescribed or permitted by those authorities. We refer to these accounting principles and practices as statutory accounting principles (“SAP”). Accountingprinciples used to prepare these SAP financial statements differ from those used to prepare financial statements based on GAAP.Reconciliations of statutory net income and capital and surplus, as determined using SAP, to the amounts included in the accompanying GAAP-basis financial statements are as follows as of and for the years ended December 31, 2017, 2016 and 2015: 2017 2016 2015 Total equity on a GAAP basis $255,573 $153,418 $149,918 Equity of non-statutory entities (84,321) (30) (30)Investment in subsidiaries 21,345 20,417 20,009 Non-admitted assets (4,077) (5,520) (4,185)Deferred policy acquisition costs (8,859) (8,942) (8,444)Unrealized (gains) / losses on fixed income securities (2,099) (1,209) (1,938)Unrealized gains / (losses) on investments carried at cost 2,374 2,092 1,931 Deferred income taxes 1,477 2,792 1,932 Goodwill (648) (365) (83)Other intangibles — (43) (100)Surplus notes 3,000 3,000 3,000 Other (2) (318) (666)Aggregate statutory surplus of insurance subsidiaries $183,763 $165,292 $161,344 Net income on a GAAP basis $15,612 $4,638 $17,585 Losses on non-statutory entities 323 — — Deferred policy acquisition costs 76 (517) (1,222)Deferred income taxes (287) (61) 398 Other than temporary impairment losses — — 139 Other (1,018) 237 (105)Aggregate statutory net earnings $14,706 $4,297 $16,795 93 Table of Contents 23. Interim Financial Data (Unaudited)The following table provides a summary of unaudited quarterly results for the periods presented. Earnings per share data is only available for thequarterly periods subsequent to the conversion and sale of stock.For the year ended December 31, 2017 First Quarter Second Quarter Third Quarter Fourth Quarter Net premiums earned $32,809 $45,653 $52,525 $48,477 Net investment income 999 1,303 1,404 1,325 Total revenues 34,771 47,616 56,566 50,187 Total expenses 27,740 47,655 59,691 32,048 Net income before non-controlling interest 4,749 117 (2,693) 13,439 Net basic earnings per common share 0.21 0.01 (0.12) 0.62 For the year ended December 31, 2016 First Quarter Second Quarter Third Quarter Fourth Quarter Net premiums earned $30,115 $37,136 $52,639 $32,866 Net investment income 982 1,032 820 810 Total revenues 31,490 38,806 59,135 34,316 Total expenses 21,788 41,472 61,696 32,674 Net income before non-controlling interest 6,219 (1,819) (999) 1,237 Net basic earnings per common share n/a n/a n/a n/a Net investment income, total revenues, and total expenses have been reduced for prior quarters due to a reclassification to bring our figures fromstatutory accounting principles to U.S. generally accepted accounting principles. There was no impact to net income before non-controlling interest.24. Subsequent EventsWe have evaluated subsequent events through March 7, 2018, the date these consolidated financial statements were available for issuance. 94 Table of Contents Item 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureThere have been no changes or disagreements with accountants on accounting and financial disclosure. Item 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresThe Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)) as of December 31, 2017. Based on that evaluation, the ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective and timely,providing them with material information relating to the Company required to be disclosed in the reports the Company files or submits under the ExchangeAct.Evaluation of Internal Controls over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule13a-15(f) under the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, ourmanagement has reviewed and evaluated the effectiveness of our internal control over financial reporting based on the framework and criteria established inInternal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSOFramework”). Based on our evaluation under the COSO Framework, the Chief Executive Officer and Chief Financial Officer have concluded that theCompany’s current internal control over financial reporting is effective, and that our consolidated financial statements we include in this Form 10-K Reportpresent fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with GAAP.Changes in Internal ControlsThere 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 year ended December 31, 2017, to which this report relates that have materially affected, or are reasonably likely tomaterially affect the Company’s internal control over financial reporting. Item 9B.Other InformationOn December 1, 2017, the Board of Directors awarded a total of 83,000 time-based Restricted Stock Unit grants to non-employee directors andcertain executive officers of the Company, pursuant to grant agreements, the forms of which are attached as Exhibits 10.12 and 10.13 in this Annual Reporton Form 10-K.95Table of Contents PART IIIItem 10.Directors, Executive Officers and Corporate GovernanceWe incorporate the response to this Item 10 by reference to our proxy statement we will file with the SEC on or about April 12, 2018 relating to ourAnnual Meeting of Shareholders that we will hold on May 22, 2018 (our “Proxy Statement”). We respond to this Item with respect to our executive officersby reference to Part I of this Annual Report on Form 10-K.We have posted a copy of our Code of Ethics and Business Conduct on the Governance Highlights page of the Corporate Governance section of ourwebsite, www.niholdingsinc.com, which you can access free of charge. Information contained on the website is not incorporated by reference in, orconsidered part of, this Form 10-K. We intend to disclose on our website any amendments to, or waivers from, our Code of Ethics and Business Conduct thatare required to be disclosed by law or NASDAQ Listing Rules. Item 11.Executive CompensationWe incorporate the response to this Item 11 by reference to our Proxy Statement. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersWe incorporate the response to this Item 12 by reference to our Proxy Statement. Item 13.Certain Relationships and Related Transactions, and Director IndependenceWe incorporate the response to this Item 13 by reference to our Proxy Statement. Item 14.Principal Accounting Fees and ServicesWe incorporate the response to this Item 14 by reference to our Proxy Statement. 96Table of Contents PART IVItem 15.ExhibitsList of Financial Statements and Financial Statement Schedules(a)The following documents are filed as a part of this report:(1)Financial Statements and(2)Financial Statement schedules required to be filed by Item 8 of this report.Schedule I Condensed financial information of registrant – NI Holdings, Inc.All other financial schedules are not required under the related instructions, as they are inapplicable or the information has been included in theConsolidated Financial Statements, and therefore have been omitted.(3)The following exhibits are required by Item 601 of Regulation S-K and are included as part of this Form 10-K:2.1Plan of Mutual Property and Casualty Insurance Company Conversion and Minority Offering of Nodak Mutual Insurance Company, datedas of January 21, 2016 (1)3.1Articles of Incorporation of NI Holdings, Inc. (1)3.2Bylaws of NI Holdings, Inc. (1)4.1Form of certificate evidencing shares of common stock of NI Holdings, Inc. (1)10.12016 NI Holdings, Inc. Equity Incentive Plan (1)10.2Nodak Mutual Insurance Company Nonqualified Deferred Compensation Plan (1)10.3#Employment Agreement dated as of April 28, 2016, between Michael J. Alexander and Nodak Mutual Insurance Company and NIHoldings, Inc. (1)10.4#Employment Agreement dated as of April 28, 2016, between Brian R. Doom and Nodak Mutual Insurance Company and NI Holdings, Inc.(1)10.5#Employment Agreement dated as of April 28, 2016, between Patrick W. Duncan and Nodak Mutual Insurance Company and NI Holdings,Inc. (1)10.6Trademark License Agreement dated as of October 1, 2016 between North Dakota Farm Bureau and Nodak Mutual Insurance Company (1)10.7Multiple Peril Crop/Livestock Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and NodakMutual Insurance Company, American West Insurance Company and Battle Creek Mutual Insurance Company for Crop Year 2016 (1)10.8Crop Hail Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and Nodak Mutual InsuranceCompany, American West Insurance Company and Battle Creek Mutual Insurance Company for Crop Year 2016 (1)10.9#Nodak Mutual Insurance Company Cash Incentive Bonus Plan (3)10.10#NI Holdings, Inc. Employee Stock Ownership Plan (1)10.11Affiliation Agreement dated as of December 30, 2010 between Nodak Mutual Insurance Company and Battle Creek Mutual InsuranceCompany (2)10.12*#NI Holdings, Inc. Time-Based Restricted Stock Unit Agreement for Named Executive Officers10.13*#NI Holdings, Inc. Time-Based Restricted Stock Unit Agreement for Non-Employee Directors97Table of Contents 21.1Subsidiaries of NI Holdings, Inc. (1)31.1*Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2*Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32*Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.101.INS**XBRL Instance Document101.SCH**XBRL Taxonomy Extension Schema Linkbase Document101.CAL**XBRL Taxonomy Extension Calculation Linkbase Document101.DEF**XBRL Taxonomy Extension Definition Linkbase Document101.LAB**XBRL Taxonomy Extension Label Linkbase Document101.PRE**XBRL Taxonomy Extension Presentation Linkbase Document* Filed herewith.** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposesof Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, asamended, and otherwise is not subject to liability under these sections.# Management contract or compensatory plan or arrangement.(1) Filed as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on October 11, 2016, andincorporated herein by reference.(2) Filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on November14, 2016, and incorporated herein by reference.(3) Filed as an exhibit to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on January12, 2017, and incorporated herein by reference. Item 16.Form 10-K SummaryNone. 98Table of Contents Schedule I – Condensed financial information of registrant – NI Holdings, Inc.NI Holdings, Inc. was formed on March 13, 2017. The following condensed financial information begins with that date. Condensed Balance Sheet December 31, 2017 Assets: Cash and cash equivalents $6,831 Fixed income securities, at fair value 60,759 Equity securities, at fair value 18,458 Total cash and investments 86,048 Accrued investment income 464 Investment in wholly-owned subsidiaries 168,103 Federal income tax recoverable 275 Total assets $254,890 Liabilities: Accrued expenses and other liabilities 2,260 Deferred income taxes, net 236 Commitments and contingencies — Total liabilities 2,496 Shareholders’ equity 252,394 Total liabilities and equity $254,890 Condensed Statement of Operations Year EndedDecember 31, 2017 Revenues: Fee and other income $19 Net investment income 916 Net realized capital gain on investments 330 Total revenues 1,265 Expenses: Other underwriting and general expenses 2,068 Total expenses 2,068 Income (loss) before income taxes and equity in undistributed net income of subsidiaries (803)Income taxes (572)Income (loss) before equity in undistributed net income of subsidiaries (231)Equity in undistributed net income of subsidiaries 16,222 Net income attributable to NI Holdings, Inc. $15,991 Condensed Statement of Comprehensive Income Year EndedDecember 31, 2017 Net income attributable to NI Holdings, Inc. $15,991 Other comprehensive income, net of income taxes: Unrealized gain on investments 990 Unrealized gain on subsidiaries 1,986 Other comprehensive income, net of income taxes 2,976 Comprehensive income $18,967 99Table of Contents Condensed Statement of Cash Flows Year EndedDecember 31, 2017 Cash flows from operating activities: Net income attributable to NI Holdings, Inc. $15,991 Adjustments: Equity in undistributed net income of subsidiaries (16,222)Other 2,072 Net adjustments (14,150)Net cash provided by operating activities 1,841 Cash flows from investing activities: Net purchase of fixed income and equity securities (77,718)Net cash used by investing activities (77,718) Cash flows from financing activities: Proceeds from issuance of common stock 93,145 Purchase of treasury stock (8,037)Loan to employee stock ownership plan (2,400)Net cash flows from financing activities 82,708 Net increase in cash and cash equivalents 6,831 Cash and cash equivalents at beginning of period — Cash and cash equivalents at end of period $6,831 Note A – Basis of presentationIn the parent-company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings ofsubsidiaries since inception. The parent-company-only financial statements should be read in conjunction with the Company’s Consolidated FinancialStatements.Note B – Dividends from subsidiariesThe Company has received no dividends from its subsidiaries since being formed on March 13, 2017.100Table of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized on March 7, 2018. NI HOLDINGS, INC. /s/ Michael J. Alexander Michael J. Alexander President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 7, 2018, by the following persons on behalfof the registrant and in the capacities indicated.Signature Capacity Date/s/ Michael J. Alexander President and Chief Executive Officer (PrincipalExecutive Officer), Director March 7, 2018Michael J. Alexander /s/ Brian R. Doom Chief Financial Officer (Principal Financial andAccounting Officer) March 7, 2018Brian R. Doom /s/ Eric K. Aasmundstad Director March 7, 2018Eric K. Aasmundstad /s/ William R. Devlin Director March 7, 2018William R. Devlin /s/ Duaine C. Espegard Director March 7, 2018Duaine C. Espegard /s/ Jeffrey R. Missling Director March 7, 2018Jeffrey R. Missling /s/ Stephen V. Marlow Director March 7, 2018Stephen V. Marlow 101 Exhibit 10.12NI HOLDINGS, INC. Time-Based Restricted Stock Unit Agreement for Named Executive Officers Name of Participant: [___________]Date of Grant:No. of Units Covered: [___________]Vesting Commencement Date: Vesting Dates: THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) governs the Stock Unit Award granted by NI HOLDINGS, INC., a NorthDakota corporation (the “Company”) to the above-named individual (the “Participant”), in accordance with and subject to the provisions of the Company’s2017 Stock and Incentive Plan (the “Plan”). A copy of the Plan has been made available to the Participant. Unless the context indicates otherwise, capitalizedterms that are not defined in this Agreement shall have the meaning set forth in the Plan. I. Grant of Restricted Stock Units.A. In accordance with the Plan, and effective as of the Date of Grant specified above, the Company has granted to the Participant thenumber of Stock Units specified at the beginning of this Agreement (collectively, the “Restricted Stock Units,” and each a “Restricted Stock Unit.”). EachRestricted Unit represents the right to receive a share of Common Stock (a “Share”) and dividend equivalent amounts corresponding to the Share, subject tothe terms and conditions of this Agreement and the Plan.B. The Restricted Stock Units granted to the Participant shall be credited to an account in the Participant’s name. This account shall be arecord of book-keeping entries only and shall be utilized solely as a device for the measurement and determination of the number of Shares to be issued to orin respect of the Participant pursuant to this Agreement. Restricted Stock Units may not be transferred by the Participant without the Committee’s priorwritten consent other than by will or the laws of descent and distribution.II. Vesting of the Shares.A. The Participant’s interest in the Restricted Stock Units shall vest and become non-forfeitable on each of the vesting dates set forthabove (each a “Vesting Date”) if the Participant remains in the continuous employ of the Company or an Affiliate from the Vesting Commencement Datethrough each applicable Vesting Date. Except as provided in paragraphs 2(b) through (e) below, if the Participant’s employment with the Company or anAffiliate is terminated prior to a Vesting Date, any Restricted Stock Units that remain unvested as of the date of such termination shall be forfeited.B. If the Participant remains in the continuous employ of the Company or an Affiliate from the Vesting Commencement Date until thedate the Participant’s employment is terminated due to Disability or death that occurs before the last Vesting Date, then any Restricted Stock Units thatremain unvested will vest in full and become non-forfeitable as of the date of such termination.C. If the Participant remains in the continuous employ of the Company or an Affiliate from the Vesting Commencement Date until theParticipant’s Retirement Age, then any Restricted Stock Units that remain unvested upon attainment of Retirement Age will cease to be forfeitable upon theParticipant’s subsequent termination of employment for any reason other than Cause; but rather, such Units shall remain outstanding and continue to “vest”and become payable upon each applicable Vesting Date.102 D. If the Participant remains in the continuous employ of the Company or an Affiliate from the Vesting Commencement Date until theParticipant incurs an Involuntary Termination Due to Position Elimination or Reorganization that occurs before the last Vesting Date, then any RestrictedStock Units that remain unvested will vest in a pro rata number of the Restricted Stock Units. The pro rata number of Restricted Stock Units that vest shallbe determined by multiplying the unvested Restricted Stock Units corresponding to a particular Vesting Date by a fraction, the numerator of which is thenumber of full and partial calendar months of the Participant’s employment with the Company or an Affiliate from the first day of the VestingCommencement Date to the date of termination, and the denominator of which is the number of full calendar months from the Vesting Commencement Dateto the Vesting Date. A partial month of service shall count as a full month.E. If the Participant remains in the continuous employ of the Company or an Affiliate from the Vesting Commencement Date until aChange in Control that occurs before the last Vesting Date, and the Participant’s Restricted Stock Units are neither assumed nor substituted or replaced withsimilar rights (or cash equivalent value thereof), then any Restricted Stock Units that remain unvested will vest in full and become non-forfeitable upon theChange in Control. If the Participant’s Restricted Stock Units are assumed (or substituted or replaced with an award of equivalent value), then, in addition tothe circumstances described in paragraphs (a) through (d) above, if the Participant is involuntarily terminated without Cause or resigns for Good Reasonwithin twenty four (24) months following the Change in Control but prior to a Vesting Date, any Restricted Stock Units (or replacement award) that remainsunvested will vest in full and become non-forfeitable as of the date of such termination.III. Issuance and Settlement.A. After any Restricted Stock Units vest in accordance with Section 2, the Company shall cause to be issued to the Participant, or to theParticipant’s designated beneficiary or estate in the event of the Participant’s death, one Share in payment and settlement of each vested Restricted StockUnit, subject to applicable required tax withholding. The Committee shall cause the Shares issuable in connection with the vesting of any such RestrictedStock Units to be issued as soon as practicable after vesting, but in all events no later than 30 days after vesting, and the Participant shall have no power toaffect the timing of such issuance. Such issuance shall be evidenced by a stock certificate or appropriate entry on the books of the Company or a dulyauthorized transfer agent of the Company and shall be in complete settlement and satisfaction of such vested Restricted Stock Units.B. Notwithstanding the foregoing, if the Participant has attained or will attain Retirement Age prior to the last Vesting Date under thisAgreement, such Units shall be treated as “deferred compensation” subject to section 409A of the Internal Revenue Code (the “Code”). In such case, thefollowing special provisions shall apply to the payment of the underlying Shares:1. if any Restricted Stock Units vest and become payable on account of a Change in Control, the Restricted Stock Units shallnot become payable (even though non-forfeitable) unless the Change in Control constitutes a “change in control event” as defined in Treasury Regulationspromulgated under section 409A of the Code; and2. if any Restricted Stock Units vest and become payable on account of the Participant’s (A) Involuntary Termination Due toPosition Elimination or Reorganization or (B) involuntary termination without Cause or resignation for Good Reason on or after a Change in Control, theRestricted Stock Units shall not become payable (even though non-forfeitable) unless the termination constitutes a “separation from service” as defined inTreasury Regulations promulgated under section 409A of the Code. In addition, if the Participant is a Specified Employee, payment on account of separationfrom service hereunder shall be made as of the date that is six months following the Participant’s separation from service (or, if earlier, upon the Participant’sdeath).C. The Participant may elect to satisfy any applicable required tax arising in relation to the Restricted Stock Units by (i) delivering cash(including check, draft, money order or wire transfer made payable to the order of the Company) or (ii) having the Company withhold a portion of the Sharesotherwise to be delivered having a Fair Market Value equal to the amount of such tax liability (subject to any limitations required under applicable financialaccounting standards to avoid liability accounting for the Award). In the case of clause (ii), the Company will not deliver to the Participant any fractionalShares (or equivalent cash value) remaining after reduction for taxes; rather, any remaining fractional Shares will be cancelled without payment.IV. Shareholder Rights. The Restricted Stock Units do not entitle the Participant to any rights of a shareholder of the Company. Notwithstandingthe foregoing, the Participant shall accumulate an unvested right to payment of cash dividend equivalents on the Shares underlying Restricted Stock Units ifcash dividends are declared by the Company on the Shares on or after the Date of Grant. Such dividend equivalents will be in an amount of cash perRestricted Stock Unit equal to the cash dividend paid with respect to one Share, subject to applicable required tax withholding. The Participant shall beentitled solely to payment of accumulated dividend equivalents with respect to the number of Restricted Stock Units equal to the number of Shares thatbecome issuable to the Participant pursuant to this Agreement. Dividend equivalents will be paid to the Participant as soon as administratively possiblefollowing the date that the Shares are issued to the Participant. The Participant shall not be entitled to dividend equivalents with respect to dividendsdeclared prior to the Date of Grant. All dividend equivalents accumulated with respect to forfeited Restricted103 Stock Units shall also be irrevocably forfeited. As of the date of issuance of Shares underlying Restricted Stock Units, the Participant shall have all of therights of a shareholder of the Company with respect to any Shares issued pursuant hereto.V. Definitions. For purposes of this Agreement, the following shall have the following meanings:A. “Cause” means (i) the Participant’s willful conduct that is demonstrably and materially injurious to the Company or an Affiliate,monetarily or otherwise; (ii) the Participant’s material breach of written agreement between the Participant and the Company; (iii) the Participant’s breach ofthe Participant’s fiduciary duties to the Company or an Affiliate; (iv) the Participant’s conviction of any crime (or entering a plea of guilty or nolo contendreto any crime) constituting a felony; or (v) the Participant’s entering into an agreement or consent decree or being the subject of any regulatory order that inany of such cases prohibits the Participant from serving as an officer or director of a company that has publicly traded securities. A termination of theParticipant shall not be for “Cause” unless the decision to terminate the Participant is set forth in a resolution of the Board to that effect and which specifiesthe particulars thereof and that is approved by a majority of the members of the Board (exclusive of the Participant if the Participant is a member of the Board)adopted at a meeting called and held for such purpose (after reasonable notice to the Participant and an opportunity for the Participant to be heard before theBoard). No act or failure to act by the Participant will be deemed “willful” if it was done or omitted to be done by the Participant in good faith or with areasonable belief on the part of the Participant that the action or omission was in the best interests of the Company or an Affiliate. Any act or failure to act bythe Participant based upon authority given pursuant to a resolution duly adopted by the Board or based on the advice of counsel to the Company shall beconclusively presumed to be done or omitted to be done by the Participant in good faith and in the best interest of the Company and its Affiliates.B. “Change in Control” means:1. the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory shareexchange of the Company with any person in which the surviving entity would not have as its directors at least a majority of the Incumbent Board and as aresult of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after suchtransaction, at least 50% of the Voting Power of the Company then outstanding or the combined voting power of the surviving entity’s then outstandingvoting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of theCompany; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company. For purposes of this Section 5(a),“Voting Power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now orhereafter authorized; or2. the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by theCompany’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered tobe a member of the Incumbent Board).C. “Disability” means the Participant has been determined, by a physician selected by the Company and reasonably acceptable to theParticipant, to be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can beexpected to result in death or can be expected to last for a continuous period of not less than 12 months.D. “Good Reason” means without the express written consent of the Participant (i) a change in the Participant’s position with theCompany or an Affiliate which results in a material diminution of the Participant’s authority, duties or responsibilities; (ii) a material reduction by theCompany or an Affiliate in the annual rate of the Participant’s base salary; or (iii) a change in the location of the Participant’s principal office to a differentplace that is more than fifty miles from the Participant’s principal office immediately prior to such change. A reduction in the Participant’s rate of annual basepay shall be material if the rate of annual base salary on any date is less than ninety percent (90%) of the Participant’s highest rate of annual base pay as ineffect on any date in the preceding thirty-six (36) months. Notwithstanding the two preceding sentences, a change in the Participant’s duties orresponsibilities shall not constitute Good Reason, and the Participant shall not have Good Reason to resign, solely because the Company does not havecommon shares or other securities that are publicly traded. A resignation by the Participant shall not be with “Good Reason” unless the Participant gives theCompany written notice specifying the event or condition that the Participant asserts constitutes Good Reason, the notice is given no more than ninety daysafter the occurrence of the event or initial existence of the condition that the Participant asserts constitutes Good Reason and the Company has failed toremedy or cure the event or condition during the thirty day period after such written notice is given to the Company.E. “Involuntary Termination Due to Position Elimination or Reorganization” means an involuntary termination of the Participant’semployment by the Company or its Affiliates due to a job elimination, reduction in force, business104 restructuring or other circumstances the Committee deems appropriate, in its sole discretion, as qualifying as an Involuntary Termination Due to PositionElimination or Reorganization.F. “Retirement Age” means the Participant has both attained age sixty (60) and accumulated at least seventy (70) points. TheParticipant’s points shall equal the sum of the participant’s age (in years) plus completed full years of employment with the Company and its Affiliates.VI. No Right to Continued Employment. This Agreement and the grant of the Stock Unit Award do not give the Participant any rights withrespect to continued employment by the Company or an Affiliate. This Agreement and the grant of the Stock Unit Award shall not interfere with the right ofthe Company or an Affiliate to terminate the Participant’s employment.VII. Change in Capital Structure. In accordance with the terms of the Plan, the terms of this Agreement and the number and kind of Shares shallbe adjusted as the Board determines to be equitably required in the event the Company effects one or more stock dividends, stock split-ups, subdivisions orconsolidations of shares or other similar changes in capitalization.VIII. Governing Law; Venue. The laws of the State of North Dakota shall govern all matters arising out of or relating to this Agreementincluding, without limitation, its validity, interpretation, construction and performance but without giving effect to the conflict of laws principles that mayrequire the application of the laws of another jurisdiction. Any party bringing a legal action or proceeding against any other party arising out of or relating tothis Agreement may bring the legal action or proceeding in the United States District Court for the District of North Dakota or in any court of the State ofNorth Dakota sitting in Fargo, North Dakota. Each party waives, to the fullest extent permitted by law (i) any objection it may now or later have to the layingof venue of any legal action or proceeding arising out of or relating to this Agreement brought in a court described in the preceding sentence and (ii) anyclaim that any legal action or proceeding brought in any such court has been brought in an inconvenient forum.IX. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on the Date of Grant and this Agreement, the provisionsof the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the Date of Grant.X. Participant Bound by Plan. The Participant hereby acknowledges that a copy of the Plan has been made available to the Participant and theParticipant agrees to be bound by all of the terms and provisions of the Plan.XI. Binding Effect. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon the Participant and theParticipant’s successors in interest and the Company and any successors of the Company.XII. Recoupment. The Participant acknowledges and agrees that the Participant’s rights in the Restricted Stock Units, the Shares and anydividends, dividend equivalents or other distributions paid or payable with respect to the Restricted Stock Units and the Shares are subject to recoupment orrepayment if, and to the extent that, such action is required under applicable law or any Company recoupment or “clawback” policy. IN WITNESS WHEREOF, the Company and the Participant have executed this Restricted Stock Unit Agreement as of the date first set forth above. NI HOLDINGS, INC. [NAME OF PARTICIPANT] By: Signature: Name: Date: Title: 105 Exhibit 10.13NI HOLDINGS, INC. Time-Based Restricted Stock Unit Agreement for Non-Employee Directors Name of Participant: [___________]Date of Grant: No. of Units Covered: [___________]Vesting Commencement Date: Vesting Date: THIS RESTRICTED STOCK UNIT AGREEMENT (this “Agreement”) governs the Stock Unit Award granted by NI HOLDINGS, INC., a NorthDakota corporation (the “Company”) to the above-named individual (the “Participant”), in accordance with and subject to the provisions of the Company’s2017 Stock and Incentive Plan (the “Plan”). A copy of the Plan has been made available to the Participant. Unless the context indicates otherwise, capitalizedterms that are not defined in this Agreement shall have the meaning set forth in the Plan. I. Grant of Restricted Stock Units.A. In accordance with the Plan, and effective as of the Date of Grant specified above, the Company has granted to the Participant thenumber of Stock Units specified at the beginning of this Agreement (collectively, the “Restricted Stock Units,” and each a “Restricted Stock Unit.”). EachRestricted Unit represents the right to receive a share of Common Stock (a “Share”) and dividend equivalent amounts corresponding to the Share, subject tothe terms and conditions of this Agreement and the Plan.B. The Restricted Stock Units granted to the Participant shall be credited to an account in the Participant’s name. This account shall be arecord of book-keeping entries only and shall be utilized solely as a device for the measurement and determination of the number of Shares to be issued to orin respect of the Participant pursuant to this Agreement. Restricted Stock Units may not be transferred by the Participant without the Committee’s priorwritten consent other than by will or the laws of descent and distribution.II. Vesting of the Shares.A. The Participant’s interest in the Restricted Stock Units shall vest and become non-forfeitable on the vesting date(s) set forth above(each a “Vesting Date”) if the Participant remains in the continuous service on the Company’s Board of Directors (the “Board”) from the VestingCommencement Date through each applicable Vesting Date. Except as provided in paragraphs 2(b) through (d) below, if the Participant’s service on theBoard is terminated prior to a Vesting Date, any Restricted Stock Units that remain unvested as of the date of such termination shall be forfeited.B. If the Participant remains on the Board from the Vesting Commencement Date until the date the Participant’s service is terminateddue to Disability or death that occurs before the Vesting Date, then any Restricted Stock Units that remain unvested will vest in full and become non-forfeitable as of the date of such termination.C. If the Participant voluntarily resigns from the Board for any reason prior to the Vesting Date (other than due to Disability), then theRestricted Stock Units will vest in a pro rata number of the Restricted Stock Units. The pro rata number of Restricted Stock Units that vest shall be determinedby multiplying the unvested Restricted Stock Units by a fraction, the numerator of which is the number of full and partial calendar months of the Participant’sservice with Board from the first day of the Vesting Commencement Date to the date of resignation, and the denominator of which is the number of fullcalendar months from the Vesting Commencement Date to the Vesting Date. A partial month of service shall count as a full month.D. If the Participant remains on the Board from the Vesting Commencement Date until a Change in Control that occurs before theVesting Date, then any Restricted Stock Units that remain unvested will vest in full and become non-forfeitable upon the Change in Control.106 III. Issuance and Settlement.A. After any Restricted Stock Units vest in accordance with Section 2, the Company shall cause to be issued to the Participant, or to theParticipant’s designated beneficiary or estate in the event of the Participant’s death, one Share in payment and settlement of each vested Restricted StockUnit. The Committee shall cause the Shares issuable in connection with the vesting of any such Restricted Stock Units to be issued as soon as practicableafter vesting, but in all events no later than 30 days after vesting, and the Participant shall have no power to affect the timing of such issuance. Such issuanceshall be evidenced by a stock certificate or appropriate entry on the books of the Company or a duly authorized transfer agent of the Company and shall be incomplete settlement and satisfaction of such vested Restricted Stock Units.B. Notwithstanding the foregoing, the Restricted Stock Units shall be treated as “deferred compensation” subject to section 409A of theInternal Revenue Code (the “Code”) if they are not otherwise exempt under the “short-term” deferral exemption. In such case, if any Restricted Stock Unitsvest and become payable on account of a Change in Control, the Restricted Stock Units shall not become payable (even though non-forfeitable) unless theChange in Control constitutes a “change in control event” as defined in Treasury Regulations promulgated under section 409A of the Code. In addition, ifany Units vest and become payable on account of a Participant’s resignation from the Board, the Units shall not become payable (even though non-forfeitable) unless the resignation constitutes a “separation from service” as defined in Treasury Regulations promulgated under section 409A of the Code.IV. Shareholder Rights. The Restricted Stock Units do not entitle the Participant to any rights of a shareholder of the Company. Notwithstandingthe foregoing, the Participant shall accumulate an unvested right to payment of cash dividend equivalents on the Shares underlying Restricted Stock Units ifcash dividends are declared by the Company on the Shares on or after the Date of Grant. Such dividend equivalents will be in an amount of cash perRestricted Stock Unit equal to the cash dividend paid with respect to one Share. The Participant shall be entitled solely to payment of accumulated dividendequivalents with respect to the number of Restricted Stock Units equal to the number of Shares that become issuable to the Participant pursuant to thisAgreement. Dividend equivalents will be paid to the Participant as soon as administratively possible following the date that the Shares are issued to theParticipant. The Participant shall not be entitled to dividend equivalents with respect to dividends declared prior to the Date of Grant. All dividendequivalents accumulated with respect to forfeited Restricted Stock Units shall also be irrevocably forfeited. As of the date of issuance of Shares underlyingRestricted Stock Units, the Participant shall have all of the rights of a shareholder of the Company with respect to any Shares issued pursuant hereto.V. Definitions. For purposes of this Agreement, the following shall have the following meanings:A. “Change in Control” means:1. the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory shareexchange of the Company with any person in which the surviving entity would not have as its directors at least a majority of the Incumbent Board and as aresult of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after suchtransaction, at least 50% of the Voting Power of the Company then outstanding or the combined voting power of the surviving entity’s then outstandingvoting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets of theCompany; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company. For purposes of this Section 5(a),“Voting Power” when used with reference to the Company shall mean the voting power of all classes and series of capital stock of the Company now orhereafter authorized; or2. the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the “IncumbentBoard”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by theCompany’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be considered tobe a member of the Incumbent Board).B. “Disability” means the Participant has been determined, by a physician selected by the Company and reasonably acceptable to theParticipant, to be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can beexpected to result in death or can be expected to last for a continuous period of not less than 12 months.VI. No Right to Continued Service. This Agreement and the grant of the Stock Unit Award do not give the Participant any rights with respect tocontinued service with the Company or an Affiliate.107 VII. Change in Capital Structure. In accordance with the terms of the Plan, the terms of this Agreement and the number and kind of Shares shall beadjusted as the Board determines to be equitably required in the event the Company effects one or more stock dividends, stock split-ups, subdivisions orconsolidations of shares or other similar changes in capitalization.VIII. Governing Law; Venue. The laws of the State of North Dakota shall govern all matters arising out of or relating to this Agreement including,without limitation, its validity, interpretation, construction and performance but without giving effect to the conflict of laws principles that may require theapplication of the laws of another jurisdiction. Any party bringing a legal action or proceeding against any other party arising out of or relating to thisAgreement may bring the legal action or proceeding in the United States District Court for the District of North Dakota or in any court of the State of NorthDakota sitting in Fargo, North Dakota. Each party waives, to the fullest extent permitted by law (i) any objection it may now or later have to the laying ofvenue of any legal action or proceeding arising out of or relating to this Agreement brought in a court described in the preceding sentence and (ii) any claimthat any legal action or proceeding brought in any such court has been brought in an inconvenient forum.IX. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on the Date of Grant and this Agreement, the provisionsof the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the Date of Grant.X. Participant Bound by Plan. The Participant hereby acknowledges that a copy of the Plan has been made available to the Participant and theParticipant agrees to be bound by all of the terms and provisions of the Plan.XI. Binding Effect. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon the Participant and theParticipant’s successors in interest and the Company and any successors of the Company. IN WITNESS WHEREOF, the Company and the Participant have executed this Restricted Stock Unit Agreement as of the date first set forth above. NI HOLDINGS, INC. [NAME OF PARTICIPANT] By: Signature: Name: Date: Title: 108 Exhibit 31.1CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Michael J. Alexander, certify that:1.I have reviewed this annual report on Form 10-K 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 definedin 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare 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’sinternal control over financial reporting.March 7, 2018/s/ Michael J. Alexander Michael J. Alexander President and Chief Executive Officer (Principal Executive Officer) 109 Exhibit 31.2CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THESARBANES-OXLEY ACT OF 2002I, Brian R. Doom, certify that:1.I have reviewed this annual report on Form 10-K 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 tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects 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 definedin 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 oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known tous 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 designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or isreasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare 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’sinternal control over financial reporting.March 7, 2018/s/ Brian R. Doom Brian R. Doom Chief Financial Officer (Principal Financial Officer) 110 Exhibit 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the annual report of NI Holdings, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2017, as filed with the Securitiesand Exchange Commission on the date hereof (the “Report”), we, Michael J. Alexander, President and Chief Executive Officer, and Brian R. Doom, ChiefFinancial 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, toour 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 theCompany.March 7, 2018/s/ Michael J. Alexander Michael J. Alexander President and Chief Executive Officer (Principal Executive Officer) March 7, 2018/s/ Brian R. Doom Brian R. Doom Chief Financial Officer (Principal Financial Officer) 115

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