NI Holdings, Inc.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020 or
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____

Commission file number 001-37973

NI HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

NORTH DAKOTA
(State or other jurisdiction of
incorporation or organization)

1101 First Avenue North
Fargo, North Dakota
(Address of principal executive offices)

81-2683619
(IRS Employer
Identification No.)

58102
(Zip Code)

(701) 298-4200
Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

NODK

Nasdaq Capital Market

Indicate by check mark 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 ☒

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of the Securities Act) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files).
☒ Yes No ☐

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Non-accelerated filer

☐
☐

Accelerated filer
Smaller reporting company
Emerging growth company

☒
☐
☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 
 
 
 
 
 
 
 
 
 
 
 
Indicate by checkmark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issues its audit report. ☐

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☒

Based on the closing sales price of the Class A common stock on NASDAQ on June 30, 2020, the last business day of the Registrant’s second fiscal
quarter, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $131 million. All executive officers and
directors of the Registrant, and all stockholders holding more than 10% of the Registrant’s outstanding voting stock (other than institutional investors, such
as registered investment companies, eligible to file beneficial ownership reports on Schedule 13G), have been deemed, solely for the purpose of the
foregoing calculation, to be “affiliates” of the Registrant.

The number of the Registrant’s common shares outstanding on February 28, 2021 was 21,318,960. No preferred shares are issued or outstanding.

Documents incorporated by Reference
Portions of the definitive proxy statement relating to the annual meeting of shareholders to be held May 25, 2021 are incorporated by reference into Part III
of this report.

TABLE OF CONTENTS

CERTAIN IMPORTANT INFORMATION

FORWARD-LOOKING STATEMENTS

PART I

PART II

PART III

PART IV

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.

Item 10.
Item 11.
Item 12.
Item 13.
Item 14.

Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Information about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services

Item 15.
Item 16.

Exhibits and Financial Statement Schedules
Form 10-K Summary

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Unless the context otherwise requires, as used in this annual report on Form 10-K:

CERTAIN IMPORTANT INFORMATION

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“NI Holdings”, “the Company”, “we”, “us”, and “our” refer to NI Holdings, Inc., together with Nodak Insurance Company and its
subsidiaries and its affiliate (Battle Creek Mutual Insurance Company), Direct Auto Insurance Company (acquired August 31, 2018), and
Westminster American Insurance Company (acquired January 1, 2020), for periods discussed after completion of the conversion, and for
periods discussed prior to completion of the conversion refer to Nodak Mutual Insurance Company and all of its subsidiaries and Battle Creek
Mutual Insurance Company;  

“Nodak Mutual Group” refers to Nodak Mutual Group, Inc., which is the majority shareholder of NI Holdings;  

the “conversion” refers to the series of transactions consummated on March 13, 2017 by which Nodak Mutual Insurance Company converted
from a mutual insurance company to a stock insurance company, as Nodak Insurance Company, and became a wholly-owned subsidiary of NI
Holdings, an intermediate stock holding company formed on the date of conversion;  

“Nodak 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 Stock prior to the conversion;  

“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;  

“Battle Creek” refers to Battle Creek Mutual Insurance Company. Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak
Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle Creek. Battle Creek is
controlled by Nodak Insurance as a result of an affiliation agreement between Battle Creek and Nodak Insurance, and is consolidated with
Nodak Insurance for financial reporting purposes;  

“Direct Auto” refers to Direct Auto Insurance Company. On August 31, 2018, NI Holdings completed the acquisition of 100% of the common
stock of Direct Auto from the private shareholders of Direct Auto. Direct Auto became a consolidated subsidiary of NI Holdings on this date.
Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state of Illinois;  

“American West” refers to American West Insurance Company. American West is a wholly-owned subsidiary of Nodak Insurance;  

“Primero” refers to Primero Insurance Company. Primero is an indirect, wholly-owned subsidiary of Nodak Insurance;  

“Westminster” refers to Westminster American Insurance Company. On January 1, 2020, NI Holdings completed the acquisition of 100% of
the common stock of Westminster from the private shareholder of Westminster. The financial results of Westminster have been included in the
Consolidated Financial Statements herein since January 1, 2020. Westminster is a property and casualty insurance company specializing in
commercial multi-peril insurance in the Mid-Atlantic states; and  

“Nodak Agency” refers to Nodak Agency, Inc. Nodak Agency is a wholly-owned subsidiary of Nodak Insurance.  

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements, which can be identified by the use of such words as “estimate”, “project”, “believe”, “could”,

“may”, “intend”, “anticipate”, “plan”, “seek”, “expect” and similar expressions. These forward-looking statements include:

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statements of goals, intentions and expectations;

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statements regarding prospects and business strategy; and  

estimates of future costs, benefits and results.  

The forward-looking statements are subject to numerous assumptions, risks and uncertainties, including, among other things, the factors discussed

under the heading “Risk Factors” 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;

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future economic conditions in the markets in which we compete that are less favorable than expected;

the effect of legislative, judicial, economic, demographic, and regulatory events in the jurisdictions where we do business;

our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our
producer network;

our ability to successfully integrate acquired businesses;

financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing a reduction of investment
income or investment gains and a reduction in the value of our investment portfolio;

heightened competition, including specifically the intensification of price competition, the entry of new competitors, and the development of
new products by new or existing competitors, resulting in a reduction in the demand for our products;

changes in general economic conditions, including inflation, unemployment, interest rates, and other factors;

the impact of national or global events, including pandemics, military conflicts, and other wide-spread events;

estimates and adequacy of loss reserves and trends in loss and loss adjustment expenses;

changes in the coverage terms required by state laws with respect to minimum auto liability insurance, including higher minimum limits;

our inability to obtain regulatory approval of, or to implement, premium rate increases;

our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us and to collect amounts that we believe
we are entitled to under such reinsurance;

the potential impact on our reported net income that could result from the adoption of future accounting standards issued by the Securities and
Exchange Commission, the Financial Accounting Standards Board, or other standard-setting bodies;

unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;

the potential impact of fraud, operational errors, systems malfunctions, or cybersecurity incidents;

adverse litigation or arbitration results; and

adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, and tax or
accounting matters including limitations on premium levels, increases in minimum capital and reserves, and other financial viability
requirements, 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

implied by the forward-looking information.

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Item 1. Business

PART I

All dollar amounts, except per share amounts, are in thousands.

Overview

NI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance and became such in connection with

the conversion of Nodak Mutual from a mutual to stock form of organization and the creation of a mutual holding company. The conversion was
consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of common stock of Nodak Insurance were issued to
Nodak Mutual Group, which then contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings.
Nodak Insurance then became a wholly-owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NI Holdings conducted no business
and had no assets or liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Insurance and its existing subsidiaries.

Nodak Insurance was formed in 1946 to offer property and casualty insurance to members of the North Dakota Farm Bureau Federation (“North

Dakota Farm Bureau”). Nodak Insurance’s bylaws 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 of Nodak Insurance. Nodak Insurance’s bylaws also require that four members of the Board of Directors of
Nodak Insurance must be members of the North Dakota Farm Bureau. Similarly, one-third of the members of the Board of Directors of Nodak Mutual
Group must 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
insurance company’s inception in 1946, and the current version of the license agreement has been in place since 2002. The current license agreement
between the North Dakota Farm Bureau and Nodak Insurance renewed on October 1, 2020, with an expiration date of September 30, 2021. The agreement
has historically been renewed annually by a vote of the Nodak Insurance Board of Directors. Under the current license agreement, Nodak Insurance is
required to pay to the North Dakota 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 $1,370. The maximum royalty payment is
adjusted annually based upon the June index month for the Consumer Price Index.

Nodak Insurance’s subsidiaries include American West and Primero. Battle Creek is an affiliate of Nodak Insurance.

On August 31, 2018, NI Holdings completed the acquisition of 100% of the common stock of Direct Auto from private shareholders and Direct

Auto became a consolidated subsidiary of the Company. The results of Direct Auto are included as part of the Company’s non-standard auto business
segment following the closing date.

On January 1, 2020, NI Holdings completed the acquisition of 100% of the common stock of Westminster from the private shareholder of
Westminster and Westminster became a consolidated subsidiary of the Company. The results of Westminster are included as part of the Company’s
commercial business segment following the closing date.

All insurance subsidiaries of NI Holdings are rated “A” by A.M. Best, which is the third highest out of a possible 15 ratings.

The consolidated financial statements of NI Holdings presented herein include the financial position and results of operations of NI Holdings,
Direct Auto (after the acquisition date of August 31, 2018), Westminster (after the acquisition date of January 1, 2020), and Nodak Insurance, including
Nodak Insurance’s subsidiaries American West and Primero, and its affiliate Battle Creek. Each of the six insurance companies is subject to examination
and comprehensive regulation by the insurance department of its state of domicile.

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A chart of the corporate structure as of December 31, 2020 and a more complete description of each of the NI Holdings subsidiaries is included

below.

NI HOLDINGS, INC.
ORGANIZATIONAL CHART

Nodak Mutual Group, Inc.

≥ 55%
ownership

100%
ownership

NI Holdings, Inc.

Nodak Insurance Company

100%
ownership

Direct Auto Insurance
Company

100%
ownership

Nodak Agency, Inc.

100%
ownership

American West Insurance
Company

Affiliation

Battle Creek Mutual
Insurance Company

100%
ownership

Westminster American Insurance
Company

100%
ownership

Tri-State, Ltd

100%
ownership

Primero Insurance Company

The following tables provide selected amounts from the Company’s consolidated statements of operations and balance sheets. Additional

information is presented throughout this Annual Report on Form 10-K.

Direct premiums written
Net premiums earned
Net income after non-controlling interest

Total assets
Equity

Year Ended December 31,
2019

2020

2018

$

$

314,187
283,661
40,389

$

262,145
246,438
26,401

225,223
195,720
31,081

2020

As of December 31,
2019

$

617,603
348,872

$

508,159
309,803

$

2018

458,492
275,753

The executive offices of NI Holdings and Nodak Insurance are located at 1101 First Avenue North, Fargo, North Dakota 58102, and the main

office phone number is 701-298-4200. NI Holdings’ website address is www.niholdingsinc.com. Information contained on such website is not incorporated
by reference 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.

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Intercompany Reinsurance Pooling Arrangement

Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement.

This agreement was finalized, approved, and implemented during the fourth quarter of 2020, retroactive to the January 1 effective date. Nodak Insurance is
the lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak
Insurance then retrocedes balances back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool
percentages established in the respective pooling agreement. This arrangement allows each insurance company to rely upon the capacity of the pool’s total
statutory capital and surplus. As a result, they are evaluated by A.M. Best on a group basis and hold a single combined financial strength rating, long-term
issuer credit rating, and financial size category.

In connection with the pooling arrangement, the quota share reinsurance agreement between Battle Creek and Nodak Insurance was cancelled. As
a result, the Company’s consolidated financial position and results of operations are impacted by the portion of Battle Creek’s underwriting results that are
allocated to the policyholders of Battle Creek rather than the shareholders of NI Holdings.

For the year ended December 31, 2020, the pooling share percentages by insurance company subsidiary were:

Nodak Insurance Company
American West Insurance Company
Primero Insurance Company
Battle Creek Mutual Insurance Company
Direct Auto Insurance Company
Westminster American Insurance Company

Total

Insurance Subsidiary and Affiliate Companies

Nodak Insurance Company (“Nodak Insurance”)

Pool Percentage

66.0%
7.0%
3.0%
2.0%
13.0%
9.0%
100.0%

Nodak Insurance writes private passenger automobile, farmowners, homeowners, multi-peril crop, crop hail, and commercial property and liability

policies in North Dakota. Only members of the North Dakota Farm Bureau can purchase insurance coverage from Nodak Insurance. As of December 31,
2020, Nodak Insurance distributed its insurance products through 84 exclusive agents appointed by Nodak Insurance.

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, and currently issues policies

primarily in South Dakota, with a much lower level of writings in Minnesota and North Dakota. American West currently writes private passenger auto,
homeowners, farmowners, multi-peril crop, and crop hail insurance policies. American West distributes its products through independent agents located in
approximately 120 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 through

independent agents located in approximately 286 offices. Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides
underwriting, claims management, policy administration, and other administrative services to Battle Creek. Effective January 1, 2020, all of our insurance
company subsidiaries entered into an intercompany reinsurance pooling agreement. In conjunction with this agreement, the 100% quota-share reinsurance
agreement between Battle Creek and Nodak Insurance was terminated on a cut-off basis as of January 1, 2020. Upon termination, Nodak Insurance
transferred to Battle Creek all liabilities related to outstanding loss and loss adjustment expense reserves and all liabilities related to the adjusted unearned
premium reserve. In exchange, an intercompany cash payment was made to compensate Battle Creek for the transfer of these liabilities.

The $3.0 million surplus note originally issued by Battle Creek and purchased by Nodak Insurance in connection with their affiliation agreement

remains in place. It 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
Director of 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, Nodak Insurance is entitled to appoint two-thirds of the

Board of Directors of Battle Creek. The affiliation agreement can be terminated by mutual written agreement of

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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 15
days after written notice of such breach is given by the terminating party to the other party.

Primero Insurance Company (“Primero”)

Primero primarily writes non-standard automobile insurance in Nevada, Arizona, North Dakota, and South Dakota. Primero was acquired by

Nodak Insurance in 2014. Primero distributes its policies through independent agents in approximately 335 contracted agencies in those four states.

Direct Auto Insurance Company (“Direct Auto”)

Direct Auto writes non-standard automobile insurance in Illinois. Direct Auto was acquired by NI Holdings on August 31, 2018. Direct Auto

distributes its policies through independent agents located in approximately 136 offices, concentrated primarily in the Chicago area.

Westminster American Insurance Company (“Westminster”)

Westminster writes commercial multi-peril insurance in Delaware, Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina,

Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020. Westminster distributes its policies
through independent agents in approximately 92 contracted agencies in those nine states and the District of Columbia.

Market Overview

We market our property and casualty products in the upper Midwest states of North Dakota, South Dakota, Nebraska, and Minnesota. We offer

non-standard auto insurance in the states of Nevada, Arizona, North Dakota, South Dakota, and Illinois. We offer commercial multi-peril insurance in the
states of New Jersey, Maryland, Pennsylvania, Virginia, Georgia, North Carolina, Delaware, South Carolina, and West Virginia, North Dakota, South
Dakota, and the District of Columbia. The following chart depicts our direct premiums written during the last two years and our relative market share
within each of our states during the year ended December 31, 2019.

North Dakota
Illinois
Nebraska
South Dakota
New Jersey (1)
Maryland (1)
Pennsylvania (1)
Nevada
Virginia (1)
Georgia (1)
District of Columbia (1)
Minnesota
North Carolina (1)
Delaware (1)
South Carolina (1)
Arizona
West Virginia (1)

Total direct premiums written

Year Ended
December 31,
2020
Direct
Premiums
Written

$

$

143,516 $
43,004
41,843
20,790
11,065
10,522
9,131
8,350
5,955
5,836
3,810
3,624
3,123
1,653
972
899
94

314,187 $

Year Ended December 31, 2019

Direct
Premiums
Written

Market Size

144,954 $
43,655
41,004
17,855
6,791
7,426
7,943
9,799
4,042
80
3,892
3,441
1,181
1,206
208
1,437
122
295,036

2,617,000
27,127,000
5,246,000
2,556,000
22,951,000
12,880,000
26,196,000
6,256,000
15,047,000
22,955,000
2,062,000
12,463,000
17,429,000
2,907,000
10,655,000
12,415,000
3,165,000

Rank in State
4th
74th
30th
38th
138th
95th
164th
72nd
148th
310th
55th
133rd
200th
107th
246th
187th
166th

(1)

For comparison purposes, Westminster’s pre-acquisition 2019 Direct Premiums Written are included in the table above.

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Organic Growth Strategy

We believe we have many opportunities to increase business in our primary markets organically. Strategies we employ to grow organically

include:

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continued emphasis on our relationship with the North Dakota Farm Bureau, a key advocacy group for agricultural and rural interests which
enjoys a high and favorable profile throughout the state;  

using the cost advantage created by our low expense ratio compared to peers (30.0% expense ratio in 2020 compared to an average expense
ratio of our peers of 33.3% in 2019) to selectively expand market share in our primary markets;  

leveraging the improved A.M. Best financial strength rating and larger financial size category to strategically grow Westminster’s commercial
business;  

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 core
upper Midwest market area;  

strategic growth in our Direct Auto non-standard auto business;  

excellent claims service for all insureds; and  

selective expansion of our insurance products in states where we currently operate and those states where we hold insurance licenses.  

External Growth Strategy

We acquired Direct Auto in 2018 with capital raised through our initial public offering. The acquisition was the initial step in executing our

growth strategy developed at the time of the initial public offering. Prior to the initial public offering, we successfully acquired Primero in 2014, acquired
control of Battle Creek in 2011, and acquired American West in 2001.

We also acquired Westminster in January 2020 with capital raised through this offering. This acquisition has expanded our commercial insurance

business, geographically diversified our spread of insurance risks, and provided additional expense efficiencies.

Going forward, we plan to consider other strategic investments and acquisitions that can enhance our businesses and achieve appropriate risk-

adjusted returns over time.

Corporate Capital Strategy

Our philosophy is to deploy capital in a manner that provides long-term protection for our policyholders and creates long-term value for our

shareholders. This philosophy is supported by a number of underlying strategies implemented across the organization that are focused on preservation of
capital, including:

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prioritizing the use of data and modeling tools to help estimate the frequency and severity of risks within our insurance portfolio;  

• maintaining a conservatively managed investment portfolio that supports our insurance operations under a wide range of operating and market

conditions;  

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ensuring our reinsurance program is designed to provide sufficient protection against material insurance exposures including, but not limited
to, catastrophes caused by weather-related events; and  

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relying upon our Enterprise Risk Management framework to identify, quantify, and manage a broad range of risks across the organization.  

We view our capital position to consist of three layers, each of which has a specific size and purpose:

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The first layer of capital, which we refer to as “regulatory capital”, is the amount of capital needed to satisfy state insurance regulatory
requirements while supporting our growth objectives, and is held by each of our insurance company subsidiaries.  

The second layer of capital we call “contingency capital”. While our regulatory capital is, by definition, a cushion for absorbing financial
consequences of adverse events, such as loss reserve development, litigation, weather catastrophes, and investment market corrections, we
view that as a base and hold additional capital for even more extreme operating conditions. This capital is generally also held by each of our
insurance company subsidiaries.  

The third layer of capital is classified as “excess capital”, and represents the excess of the sum of the first two layers. This capital is available
for deployment by NI Holdings in conjunction with our excess capital deployment priorities.  

Our excess capital deployment priorities are to (1) invest in existing businesses where we see opportunities for profitable growth, (2) make
strategic investments and acquisitions that enhance our businesses and achieve appropriate risk-adjusted returns over time, and (3) return capital to
shareholders through share repurchases or shareholder dividends.

Products and Services

Private Passenger Auto

Nodak Insurance, Battle Creek, and American West each write private passenger auto insurance to provide protection against liability for bodily

injury and property damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured. Private
passenger auto accounted for $75,341 (24.0%) of direct premiums written by the Company on a consolidated basis during 2020.

Non-standard Auto

Primero and Direct Auto write non-standard auto insurance with a focus on minimum-limit auto liability coverage. Non-standard auto insurance

accounted for $53,692 (17.1%) of direct premiums written by the Company on a consolidated basis during 2020.

Home and Farm

Nodak 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 other
persons or their property while on the insured’s premises. Home and farm accounted for $83,393 (26.6%) of direct premiums written by the Company on a
consolidated basis during 2020.

Crop

Crop hail and multi-peril crop insurance policies are also offered by Nodak Insurance, American West, and Battle Creek. Multi-peril crop

insurance is a federal program that protects against crop yield losses from all types of natural causes including drought, excessive moisture, freeze, and
disease. Crop hail insurance is a private insurance product designed to provide protection against losses to farmer’s crops due primarily to hail damage.
Collectively, crop insurance accounted for $39,893 (12.7%) of direct premiums written by the Company on a consolidated basis during 2020.

Commercial

Nodak Insurance and Westminster write commercial multi-peril policies. Collectively, commercial insurance accounted for $57,097 (18.2%) of the

direct premiums written by the Company on a consolidated basis during 2020.

All Other

In addition to the products described above, Nodak Insurance and American West write excess liability coverages. Collectively, these other

coverages accounted for $4,771 (1.5%) of the direct premiums written by the Company on a consolidated

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basis during 2020. This segment also includes an assumed reinsurance block of business, with $4,693 of assumed premiums written on a consolidated basis
during 2020.

Crop Insurance

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their
crops (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 two
general categories of crop insurance are generally referred to as “crop-yield insurance” and “crop-revenue insurance”. Crop-yield insurance protects against
a reduction in the yield per acre from the historical average yield in a specified area, such as a county or National Oceanic and Atmospheric Administration
weather grid, while crop-revenue insurance provides protection against declines in the price of the particular crop. Most of the multi-peril crop insurance
policies written today combine both yield and revenue protection, with the revenue component providing the policyholder with the option to calculate
price-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. More
importantly, Congress permitted private sector insurers to market and administer federal insurance policies in exchange for an opportunity to earn a profit
while 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
increase in the acres insured from approximately 26 million acres in 1980 to 100 million acres in 1990. The Federal Crop Insurance Reform Act of 1994
made participation in the crop insurance program mandatory for farmers to be eligible to participate in other government support programs and provided a
minimum level of free catastrophic risk coverage for insured and noninsured crops.

The chart below illustrates the acres insured through the federal multi-peril crop insurance program during the years 2018 through 2020:

Federal crop acres insured:

Nationwide
North Dakota
South Dakota
Minnesota

Company crop acres insured:

North Dakota
South Dakota
Minnesota

Year Ended December 31,
2019

2020

2018

397,831,000
23,310,000
16,405,000
17,553,000

379,912,000
23,658,000
18,170,000
17,570,000

335,408,000
23,576,000
18,256,000
17,567,000

1,657,000
19,000
117,000

1,814,000
16,000
126,000

1,819,000
13,000
139,000

The Company writes a very small amount of multi-peril crop insurance in Nebraska.

American Farm Bureau Insurance Services (“AFBIS”) underwrites all of the multi-peril crop and crop hail insurance policies written by Nodak

Insurance, American West, and Battle Creek, as well as several other state Farm Bureau-affiliated insurers. AFBIS also processes and administers all claims
made by policyholders under such policies. We reimburse AFBIS for its actual loss adjustment expense with respect to the policies issued by us and pay
AFBIS a percentage of the premiums we received with respect to such policies. Nodak Insurance is a shareholder of AFBIS, as is each of the other insurers
for whom AFBIS provides such services. AFBIS targets a three percent return on capital and pays all remaining profits to Nodak Insurance and the other
shareholders of AFBIS. Nodak Insurance did not receive any material distributions from AFBIS during the years ended December 31, 2018 through 2020.

Segment Financial Information

See Note 22 to the Consolidated Financial Statements for the Company’s segment disclosures.

9

 
 
 
Table of Contents

Marketing and Distribution

Our marketing philosophy is to sell profitable business in our core states, using a focused, cost-effective distribution system. Nodak Insurance
distributes its insurance products through exclusive agents in North Dakota, while American West, Battle Creek, Primero, Direct Auto, and Westminster
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 a competitor 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 exclusive agents in Nodak Insurance are hired and trained by

our sales staff in North Dakota, while the independent producers in our other companies are appointed by the underwriting or marketing staff for each
respective company. We hold regular training sessions when we introduce new products or product changes, and we identify specific topics that may help
our producers more effectively market our products.

For the year ended December 31, 2020, no individual producer was responsible for more than 5% of the Company’s direct premiums written by

our insurance companies.

Producers are compensated through a fixed base commission structure. Agents receive commission as a percentage of premiums (generally 5% to

40%, with a wide variation by product) as their primary compensation from us. The Risk Management Agency of the United States Department of
Agriculture (“RMA”) establishes the maximum commission that can be paid to producers with respect to crop insurance policies. Battle Creek and
American West pay profit sharing commissions to their agencies based on various annual agency premium thresholds and the difference between the
agency’s loss ratio and the loss ratio goal established by the insurance company. The commission is paid with respect to all property and casualty (non-
crop) business earned within the calendar year. Nodak Insurance pays a profit sharing commission to its agents only with respect to farmowners business
originated by such agents. Westminster also pays profit sharing commissions to its agencies based on annual premium thresholds and profitability.

Our marketing efforts are further supported by our claims philosophy, which is designed to provide prompt and efficient service and claims

processing, resulting in a positive experience for producers and policyholders. We believe that these positive experiences result in higher policyholder
retention and new business opportunities when communicated by producers and policyholders to potential customers. While we rely on our independent
agents for distribution and customer support, underwriting and claim handling responsibilities are retained by us. Many of our agents have had direct
relationships with us for a number of years.

Underwriting, Risk Assessment and Pricing

Our underwriting philosophy is aimed at consistently generating profits through sound risk selection and pricing discipline. Through our

management 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 market

information 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 a
premium surcharge to achieve an appropriate return. Pricing flexibility allows us to provide a fair rate commensurate with the assumed risk. If our pricing
strategy 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
not to 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
effectively to information requests and policy submissions. We maintain information on all aspects of our business, which is regularly reviewed to
determine both agency and policyholder profitability. Specific information regarding individual insureds is monitored to assist us in making decisions about
policy renewals or modifications.

Our Nodak Insurance underwriting staff includes 20 employees with approximately 300 combined years of experience in property and casualty

underwriting. They are located primarily at our home office in Fargo, North Dakota, as well as our office in Battle Creek, Nebraska, and underwrite
coverage issued by Nodak Insurance, American West and Battle Creek.

Primero and Direct Auto each employ 5 underwriters in connection with their non-standard auto insurance business. Westminster has a staff of 8
in the underwriting area consisting of a Vice President, underwriters, and assistant underwriters in connection with its commercial insurance business. All
of our crop insurance is underwritten by AFBIS, as described above.

We strive to be disciplined in our pricing by pursuing rate increases to maintain or improve our underwriting profitability while still being able to
attract and retain customers. We utilize pricing reviews that we believe will help us price risks more accurately, improve account retention, and support the
production of profitable new business. Our pricing reviews involve evaluating

10

 
Table of Contents

our claims experience and loss trends on a periodic basis to identify changes in 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 the sufficiency of our underwriting guidelines.

Claims and Litigation Management

Our 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 of
adequate case reserves, and control of claims loss adjustment expenses.

Claims on insurance policies are received directly from the insured or through our producers. Our claims department supports our producer

relationship strategy by working to provide a consistently responsive level of claim service to our policyholders.

Our Nodak Insurance claims staff is comprised of 46 employees with over 856 years of combined experience in processing property and casualty

insurance claims. They are located primarily at our home office in Fargo, North Dakota, but also throughout our coverage areas of North Dakota, South
Dakota, and Nebraska.

Primero employs 11 claims personnel and Direct Auto employs 27 claims personnel in connection with the non-standard auto insurance business.

Westminster employs 4 claims personnel in connection with its commercial insurance business. All claims made under our multi-peril crop and crop hail
insurance policies are processed and administered by AFBIS.

Technology

Our insurance operations rely on software to provide the information management systems platform that runs our policy underwriting, policy

issuance, claims processing, and accounting functions. These systems permit us to integrate the accounting and reporting functions of 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. Our technology allows most employees with the capability to work remotely while
maintaining desired service levels. We seek to invest continuously in new technology to maximize our business opportunities while protecting our interests
and those of our clients.

Enterprise Risk Management

Our Company is subject to significant risks, including the normal risks of a property and casualty insurance company. These risks are discussed in

more detail in the “Item 1A. Risk Factors” section of this Form 10-K.

We consider an enterprise-wide risk management program to be an integral part of managing our business and a key element in our approach to

corporate governance. Our Enterprise Risk Management Committee (the “ERMC”) is responsible for the alignment of operational risk management
strategies as the coordination point for enterprise-level direction setting with regard to risk management issues. The multi-disciplinary ERMC regularly
monitors risk reports and metrics regarding a variety of continuing and emerging risks that may adversely affect the Company, its policyholders, or other
stakeholders. The Audit Committee of the Board of Directors oversees risk management and regularly receives reports from the ERMC.

Cybersecurity risk is an important and evolving focus for the Company. The increased sophistication and activities of unauthorized parties
attempting to access our systems is an ever-present risk. Cybersecurity risks may also arise from human error, fraud, or malice on the part of employees or
third parties who have authorized access to the Company’s systems or information.

Our cybersecurity strategy employs a variety of tactics to monitor and assess threat levels, remediate our exposures, and enhance our systems and

applications security. The Company collaborates with a third party cybersecurity advisor to provide periodic

11

 
 
 
Table of Contents

assessments and recommendations. The Company also requires monthly online security training to be completed by employees. While we have
experienced threats to our data and systems, to date, we are not aware of any cyber-security breach.

Reinsurance

Reinsurance Ceded

We reinsure a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies

written by us are reinsured with other insurance companies principally to:

•

•

•

reduce our net liability exposure on individual risks;  

stabilize our underwriting results; and  

increase our underwriting capacity.  

Reinsurance does not legally discharge us, as the insurance company issuing the policy, from primary liability for the full amount due under the

reinsured policies, 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 are

generally renegotiated annually or bi-annually. For the year ended December 31, 2020, NI Holdings ceded to reinsurers $23,633 of written premiums,
compared to $17,120 of written premiums for the year ended December 31, 2019 and $30,394 of written premiums for the year ended December 31, 2018.
Written premiums ceded for 2020 increased year-over-year due to the addition of Westminster’s commercial business. The higher level of premiums ceded
in 2018 was primarily due to additional sharing of multi-peril crop insurance premiums with the federal government as a result of the excellent loss
experience in that year.

The Company purchases reinsurance coverage under excess of loss treaties for both individual casualty and individual property risks. Prior to

2020, the Company retained $600 of risk on individual casualty risks with coverage of $12,000, and $500 of risk on individual property risks with coverage
of $25,000. Beginning in 2020, the Company retained $700 of risk on both casualty and property risks, with the same $12,000 coverage on casualty risks
and $25,000 coverage on property risks.

As a group, Nodak Insurance, American West, Battle Creek, and Westminster collectively retain the first dollars of weather-related losses from

catastrophic events and have reinsurance under various reinsurance agreements up to certain levels in excess of the retained risk. The table below illustrates
the Company’s reinsurance coverage during the years 2018 through 2021:

Year Ended December 31,
2021
2020
2019
2018

Weather-Related
Losses from
Catastrophic Events
Retained

Reinsurance
Coverage in
Excess
of Retention

$

$

10,000
10,000
10,000
10,000

117,000
97,000
78,600
74,600

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

financial condition. NI Holdings’ reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully
selected with the help of our reinsurance brokers. We use many reinsurers, both domestic and international, which helps us to avoid concentration of credit
risk associated with our reinsurance. We also monitor the solvency of reinsurers through regular review of their financial statements and their A.M. Best
ratings. All of our current reinsurance partners have at least an “A-” financial strength rating from A.M. Best. According to A.M. Best, companies with a
financial strength rating of “A-” or better “have an excellent ability to meet their ongoing obligations to policyholders”. We have experienced no significant
difficulties collecting amounts due from any reinsurers.

Reinsurance for multi-peril crop insurance is provided by the Federal Crop Insurance Corporation (“FCIC”). Insurers can assign each policy
issued to either its “assigned risk” or “commercial” fund. The FCIC retains an increasing percentage of underwriting losses at successively higher loss
ratios while ceding 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, which includes Illinois, Indiana,

12

 
Table of Contents

Iowa, Minnesota and Nebraska, the FCIC retains a larger share of the underwriting gains and a smaller portion of the underwriting losses when

compared to all other states.

Aggregate stop loss reinsurance is also purchased for crop hail and multi-peril insurance. During the years 2018 through 2020, we purchased fifty

percentage points of coverage above a 100% direct loss ratio for crop hail and we purchased forty-five percentage points of coverage for multi-peril crop
above a 105% loss ratio after the FCIC reinsurance protection. This represents the worst loss exposure given the FCIC formula, thereby capping the multi-
peril crop loss ratio at 105%.

The following table sets forth the amounts of reinsurance recoverables on losses by company as of December 31, 2020 and the current A.M. Best

rating of each as of February 2, 2021.

Reinsurance Company
Allied World Reinsurance Company
Arch Reinsurance Company
Aspen Insurance UK Limited
Axis Insurance Company
Employers Mutual Casualty Company
Everest Reinsurance Company
Federal Crop Insurance Corporation
General Reinsurance Corporation
Hannover Rueck SE
Helvetia Schweizerische
Munich Reinsurance of America
Partner Reinsurance Company Ltd
Renaissance Reinsurance US Inc.
Scor Reinsurance Company

Total reinsurance recoverables on losses

Reinsurance Assumed

Reinsurance
Recoverables
On Losses

Percentage of
Total
Recoverable

A.M. Best Rating

$

$

297
56
284
297
443
1,287
121
1,123
1,402
162
743
355
595
1,545
8,710

3.4%
0.6%
3.3%
3.4%
5.1%
14.8%
1.4%
12.9%
16.1%
1.9%
8.5%
4.1%
6.8%
17.7%
100.0%

A
A+
A
A
A
A+
NR
A++
A+
A (S&P)
A+
A+
A+
A+

Nodak Insurance is required by statute to participate in certain residual market pools. This participation requires Nodak Insurance to assume
business for property exposures that are not insured in the voluntary marketplace. 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 Insurance

participates in both domestic and international property insurance pools. Annually, Nodak Insurance reviews the available pools and selects the pools in
which it will participate. No multi-peril crop or crop hail insurance policies are included in such pools. Participation in such pools provides Nodak
Insurance with the opportunity to diversify its risk while increasing its annual net premiums earned. In 2020, 2019 and 2018, Nodak Insurance assumed
$4,290, $3,545, and $3,945, respectively, of written premiums from such pools.

Since 2016, Nodak Insurance has assumed 100% of the crop hail premiums and losses from American West and Rural Mutual Insurance Company

(a company affiliated with the Wisconsin Farm Bureau Federation). The business was then pooled annually with Nodak Insurance’s crop hail business and
proportionately retroceded back to each participant. This crop hail pool allows Nodak Insurance and American West to diversify their crop insurance risk
across an additional geographic region.

Unpaid Loss and Loss Adjustment Expense

NI Holdings is required by applicable insurance laws and regulations to maintain reserves for unpaid losses and LAE. Our liability for unpaid

losses and LAE consists of (1) case reserves, which are reserves for claims that have been reported to us, and (2) reserves for claims that have been
incurred but not yet been reported and for the future development of case reserves (“IBNR”). The laws and regulations require 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. The determination of reserves involves
actuarial and statistical projections of what we expect to be the cost of the ultimate settlement and administration of such claims. The liability for unpaid
losses and LAE is set based on facts and circumstances then known, estimates of future trends in claims severity, and other variable factors such as inflation
and changing judicial theories of liability.

13

 
Table of Contents

Estimating the ultimate liability for unpaid losses and LAE is an inherently uncertain process. Therefore, the liability for unpaid losses and LAE

does not represent an exact calculation of that liability. Our reserving policy recognizes this uncertainty by maintaining reserves at a level providing for the
possibility 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

be determined or estimated. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and
knowledge of 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. In many situations, we use average default
case reserve amounts for less costly claims. Case reserves are adjusted by our claims staff as more information becomes 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 IBNR
reserve is determined by estimating our ultimate net liability for both reported and IBNR claims, and then subtracting the case reserves and paid losses and
LAE for reported claims.

Each quarter, NI Holdings computes its estimated ultimate liability using methodologies and procedures that follow appropriate actuarial
standards. However, because the establishment of loss reserves is an inherently uncertain process, we cannot assure you that ultimate losses will not exceed
the established loss reserves. Adjustments in aggregate reserves, if any, are reflected in the operating results of the period during which such adjustments
are made.

The following table provides a reconciliation of beginning and ending unpaid losses and LAE reserve balances of NI Holdings for the years ended

December 31, 2020, 2019 and 2018.

Balance at beginning of year:

Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses
Net balance at beginning of year

Acquired unpaid losses and loss adjustment expenses related to:

Current year
Prior years

Total acquired

Incurred related to:
Current year
Prior years

Total incurred

Paid related to:
Current year
Prior years

Total paid

Balance at end of year:

Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses

Net balance at end of year

Year Ended December 31,
2019

2020

2018

$

$

93,250
4,045
89,205

$

87,121
2,232
84,889

—
8,568
8,568

165,181
(3,292)
168,473

116,755
52,451
169,206

—
—
—

176,219
(6,509)
169,710

125,940
39,454
165,394

45,890
4,128
41,762

17,795
23,172
40,967

119,677
(589)
119,088

92,175
24,753
116,928

105,750
8,710
97,040

$

93,250
4,045
89,205

$

87,121
2,232
84,889

$

The estimation process for determining the liability for unpaid losses and LAE inherently results in adjustments each year for claims incurred (but
not paid) in preceding years. Negative amounts reported for claims incurred related to prior years are a result of claims being settled for amounts less than
originally estimated (favorable development). Positive amounts reported for claims incurred related to prior years are a result of claims being settled for
amounts 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 2010 through 2020. The top line of the table
shows the liabilities at the balance sheet date, including losses incurred but not yet reported. The upper portion of the table shows the cumulative amounts
subsequently paid as of successive years with respect to the liability. The lower portion of the table shows the re-estimated amount of the previously
recorded liability based on experience as of the end of each succeeding year.

14

 
 
 
 
Table of Contents

The estimates fluctuate as more information becomes known about the frequency and severity of claims for individual years. The redundancy (deficiency)
exists when the re-estimated liability for each reporting period is less (greater) than the prior liability estimate. The cumulative redundancy (deficiency)
depicted in the table, for any particular calendar year, represents the aggregate change in the 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 of

applicable reinsurance.

Liability for unpaid loss and
LAE, net of reinsurance
recoverables

Cumulative amount of liability

paid through
One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later

Liability estimated after

One year later
Two years later
Three years later
Four years later
Five years later
Six years later
Seven years later
Eight years later
Nine years later
Ten years later

Cumulative total redundancy

(deficiency)
Gross liability – end of year  
Reinsurance recoverable  
Net liability – end of year  

Gross re-estimated liability –

2010

2011

2012

2013

As of December 31, 2020
2016
2015
2014

2017

2018

2019

2020

$ 28,266

$ 23,302

$ 25,466

$ 42,058

$ 44,842

$ 40,233

$ 52,440

$ 41,762

$ 84,889

$ 89,205

$ 97,040

11,691
12,362
15,104
15,536
16,662
16,627
16,629
16,726
16,739
16,739

24,049
19,815
20,518
19,356
18,403
17,841
17,429
17,274
17,326
17,294

11,911
9,053
11,245
13,195
13,092
13,311
13,451
13,574
13,597
—

18,691
20,144
17,678
16,294
15,184
14,443
14,279
14,326
14,297
—

5,056
8,654
11,636
11,631
12,295
12,668
12,877
13,208
—
—

22,337
18,788
16,620
15,459
13,864
14,014
14,083
14,019
—
—

16,249
20,899
21,224
22,993
23,567
24,042
24,409
—
—
—

34,074
30,380
28,871
25,852
26,120
25,417
25,339
—
—
—

18,166
20,802
23,511
25,192
26,230
27,114
—
—
—
—

35,926
33,058
28,526
28,933
28,270
28,325
—
—
—
—

14,932
20,612
23,204
25,362
27,021
—
—
—
—
—

34,880
28,431
29,243
28,480
28,642
—
—
—
—
—

28,426
33,315
36,899
38,518
—
—
—
—
—
—

42,145
42,813
41,817
41,253
—
—
—
—
—
—

22,725
30,430
34,575
—
—
—
—
—
—
—

41,686
40,504
39,631
—
—
—
—
—
—
—

39,400
52,437
—
—
—
—
—
—
—
—

78,325
75,179
—
—
—
—
—
—
—
—

46,294
—
—
—
—
—
—
—
—
—

89,010
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—

39,332
11,066
28,266

38,852
15,550
23,302

38,007
12,541
25,466

46,900
4,842
42,058

50,518
5,676
44,842

45,342
5,109
40,233

59,632
7,192
52,440

45,890
4,128
41,762

87,121
2,232
84,889

93,250
4,045
89,205

105,750
8,710
97,040

latest

27,501

30,824

25,377

29,491

33,888

33,695

49,416

45,078

78,670

93,847

Re-estimated reinsurance
recoverables – latest
Net re-estimated liability -

9,247

15,621

10,579

3,383

4,820

5,053

8,163

5,447

3,491

4,837

latest

18,254

15,203

14,798

26,108

29,068

28,642

41,253

39,631

75,179

89,010

Gross cumulative redundancy

(deficiency)

11,831

8,028

12,630

17,409

16,630

11,647

10,216

812

8,451

(597 )

n/a

n/a

n/a

n/a

15

 
 
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Investments

NI Holdings’ investments in fixed income and equity securities are classified as available for sale and are carried at fair value.

Beginning in 2019, in accordance with a change in accounting principle, changes in unrealized gains and losses on the Company’s investments in
equity securities are reported in net income as a part of net capital gains and losses on investments. These gains and losses may be significant given the size
of the equity securities holdings and the inherent volatility in equity securities prices. Prior to 2019, the changes in unrealized gains and losses pertaining to
such investments were recorded in other comprehensive income, net of income taxes. These changes in unrealized gains and losses on fixed income
securities continue to be recorded in other comprehensive income, net of income taxes. The new accounting treatment has no effect on shareholders’ equity.

The goal of the Company’s investment activities is to complement and support its overall mission. As such, the investment portfolio is structured

to maximize after-tax investment income and price appreciation while maintaining the portfolio’s target risk profile.

The Company’s overall investment objectives are (i) growth and preservation of capital, (ii) achieving favorable returns on invested assets through

investment in high quality income producing assets, and (iii) assuring proper levels of liquidity to fund expected operating needs. See “Item 7A.
Quantitative and 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;  

foreign currency trading;  

limited partnerships, other than publicly traded master limited partnerships;  

convertible securities;  

venture capital investments;  

investment real estate properties;  

securities lending;  

portfolio leveraging (i.e., margin transactions); and  

short selling.  

The Executive Committee of NI Holdings’ Board of Directors reviews and approves the Company’s investment policy periodically. The

investment portfolio is managed by Conning, Inc., Disciplined Growth Investors, and CIBC Personal Wealth Management.

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The following table sets forth information concerning NI Holdings’ investments.

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Equity securities

Total

December 31,

2020

2019

Cost or
Amortized Cost

Fair Value

Cost or
Amortized Cost

Fair Value

$

$

13,334
61,001
119,826
35,017
23,976
50,751
303,905
42,203
346,108

$

$

14,383
64,244
128,434
36,494
25,655
51,200
320,410
69,952
390,362

$

$

17,078
55,232
109,457
50,458
26,450
30,029
288,704
38,036
326,740

$

$

17,546
56,652
113,213
51,486
27,057
29,991
295,945
59,932
355,877

The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below as of December 31, 2020. Actual

maturities could differ from contractual maturities because issuers of the securities may have the right to call or prepay certain obligations, which may or
may not include call or prepayment penalties.

Less than one year
One through five years
Five through ten years
Greater than ten years
Mortgage/asset-backed securities
Total fixed income securities

December 31, 2020

Amortized
Cost

Fair Value

$

$

17,722
86,709
59,408
30,322
109,744
303,905

$

$

17,933
91,457
64,987
32,684
113,349
320,410

At December 31, 2020, the average maturity of NI Holdings’ fixed income investment portfolio was 4.65 years and the average duration was 3.57
years. As a result, the fair value of investments may fluctuate significantly in response to changes in interest rates. In addition, NI Holdings may experience
investment 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 its

investments. The pricing services cover substantially all of the securities in the portfolio for which publicly quoted values are not available. The pricing
services’ 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 at
the measurement date, or other inputs that are observable.

NI Holdings’ investment managers provide pricing information that they utilize, together with information obtained from independent pricing

services, to determine the fair value of our fixed income securities. After a detailed review of the information obtained from the pricing services at
December 31, 2020 and 2019, no adjustment was made to the values provided.

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The following table sets forth our average cash and invested assets, net investment income, and return on average cash and invested assets for the

reported periods:

Weighted average cash and invested assets

Gross investment income
Investment expenses

Net investment income

Gross return on average cash and invested assets
Net return on average cash and invested assets

A.M. Best Ratings

$

$

$

Year Ended December 31,
2019

2020

$

$

$

449,148

10,519
3,248
7,271

2.3%
1.6%

$

$

$

394,403

9,826
2,393
7,433

2.5%
1.9%

2018

337,407

8,384
2,204
6,180

2.5%
1.8%

A.M. Best rates insurance companies based on factors of concern to policyholders. The rating evaluates the claims paying ability of a company,

and is not a recommendation of the merits of an investment in our common stock, or the common stock of any other insurer.

All of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by A.M. Best, which is the third highest out of 15

possible ratings, under a group rating due to the intercompany pooling reinsurance agreement. A.M. Best has affirmed a stable financial strength outlook to
the group.

In its evaluation of a company, A.M. Best’s Credit Rating Methodology (“BCRM”) builds on a focus of balance sheet strength, operating

performance, the business profile, and enterprise risk management. More specifically, the components of the BCRM include:

•

•

•

•

•

•

•

•

•

•

•

the company’s profitability, leverage, and liquidity;  

its book of business, product and geographic diversity, distribution channels, competition, and market position;  

the quality and appropriateness of its reinsurance program;  

the quality and management of its assets and liabilities;  

the adequacy of its reserves and surplus;  

its capital structure;  

its pricing sophistication and data quality;  

its regulatory, event, and product risks;  

the experience and competence of its management;  

its risk identification, management, appetite, and tolerances; and  

its governance and risk culture.  

If we are unable to maintain at least an “A-” rating from A.M. Best, it may impair our ability to compete effectively.

Competition

The property casualty and crop insurance markets are highly competitive. NI Holdings competes with stock insurance companies, mutual
companies, and other underwriting organizations. Our largest competitors in North Dakota for private passenger auto and homeowners include Progressive
Casualty Insurance Company, State Farm Mutual Insurance Company, American Family Insurance, Allstate Corporation, Farmers Union Mutual Insurance
Company, and Auto-Owners Insurance. In South Dakota and Nebraska, we have small market shares and our competitors are the large national and
regional companies as well as Farmers Mutual

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of Nebraska. In our non-standard auto markets, which are primarily Chicago, Nevada, and Arizona, our primary competitors are regional carriers.

Westminster’s primary competition comes from regional carriers including Harford Mutual Insurance Company, Greater New York Mutual, and

Millers Capital. We also see competition from national companies like The Travelers Companies and Nationwide Mutual Insurance Company.

Based on 2019 data, Nodak Insurance is the largest writer of farmowners insurance in North Dakota. Our largest competitors include Farmers

Union Mutual Insurance Company, North Star Mutual Insurance Company, American Family Insurance, and Nationwide Mutual Insurance Company. 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 substantially greater financial, technical, and operating resources than we do and may be able to offer lower rates or higher commissions
to their producers.

The chart below illustrates the reported premiums written for multi-peril crop insurance through the federal multi-peril crop insurance program

during the years 2018 through 2020 (in thousands):

Federal multi-peril crop premiums:

Nationwide
North Dakota
South Dakota
Minnesota

Company multi-peril crop premiums:

North Dakota
South Dakota
Minnesota

Year Ended December 31,
2019

2020

2018

$

$

9,956,185
861,567
597,283
575,232

$

10,048,685
845,902
654,266
584,093

9,821,604
875,821
596,956
575,723

32,674
673
2,828

34,598
720
2,686

37,374
331
3,980

The Company also wrote less than $100 in multi-peril crop insurance in Nebraska for each of the last three years. The principal competitors in our

markets for multi-peril crop insurance include Chubb Corporation, QBE Insurance Group, Rural Community Insurance Services, CGB Enterprises, and
Great American Insurance Group.

The premium rates for multi-peril crop insurance are established by the Risk Management Agency (“RMA”), an agency of the United States
Department of Agriculture, and, accordingly, we compete with other insurance companies on factors such as agency relationships, claim service, and
market reputation in the crop insurance market. We believe that our relationship with the North Dakota 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 state
regulations, competition, pricing, and other factors including the prescribed minimum liability limits in each state. We believe our company differentiates
itself from many larger companies competing for this 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

an underwriting profit, operate with a disciplined underwriting approach, practice prudent claims management, reserve appropriately for unpaid claims, and
provide quality service and competitive commissions to our independent and captive agents.

Regulation

General

We are subject to extensive regulation, particularly at the state level. The method, extent, and substance of such regulation varies by state, but
generally has its source in statutes and regulations that establish standards and requirements for conducting the business of insurance and that delegate
regulatory authority to state insurance regulatory agencies. In general, such regulation is intended for the protection of those who purchase or use insurance
products, not the companies that write the policies. These laws and regulations have a significant impact on our business and relate to a wide variety of
matters including accounting methods, agent and

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company licensure, claims procedures, corporate governance, examinations, investing practices, policy forms, 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 departments

everywhere they do business, and the operations of such companies and their respective accounts are subject to examination by those departments at any
time. Our insurance company subsidiaries prepare statutory-basis financial statements in accordance with accounting practices and procedures prescribed or
permitted by the state in which they are domiciled. Our domiciliary states generally conform to National Association of Insurance Commissioners
(“NAIC”) accounting practices and procedures, so our examination reports and other filings generally are accepted by other states.

The NAIC provides guidance to the states with respect to standardized laws and regulations (including the accounting practices and procedures

discussed above), which represent an effort to standardize insurance industry practices across state lines, oftentimes referred to as “Model Regulations”. It
should be noted that these “model” laws are regulations that have no authority until the individual states pass them as part of the state legislative process,
which may, or may not, be done as suggested, or with modifications.

Premium rate regulation varies greatly among jurisdictions and lines of insurance. In the states in which our insurance company subsidiaries write

insurance, premium rates for the various lines of insurance are subject to either prior approval or limited review upon implementation. The premium rates
for multi-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 an

insurer’s ability to cancel or non-renew policies. Laws and regulations that limit cancellation and non-renewal may restrict our ability to exit unprofitable
marketplaces in a timely manner.

Crop Insurance

The multi-peril crop insurance business is overseen by the federal government through the RMA. The RMA outlines policy language, establishes
premium rates, and develops loss adjustment procedures for insurance programs under the federal crop insurance program. In addition, through the FCIC,
the RMA provides premium subsidies to farmers and sets the commission percentages that can be paid to agents. All participating insurance carriers are
subject to the same Standard Reinsurance Agreement (“SRA”), which outlines items such as reporting requirements and claims handling procedures,
proportional and non-proportional reinsurance terms, and the level of administrative and operating reimbursement paid to insurers. The RMA also provides
oversight to the approved insurance providers (“AIPs”). The AIPs are required to use the policies, premium rates, and loss adjustment procedures set by the
RMA without modification and are required to issue a policy to any eligible applicant regardless of risk or profitability. The RMA conducts audits of AIPs
with respect to claims and loss adjustment procedures.

American Agricultural Insurance Company is the AIP through which we issue multi-peril crop insurance policies, and is the holder of the SRA

with the FCIC.

Examinations

Examinations for NI Holdings’ group of insurance companies are conducted every five years by the Departments of Insurance where the insurance

companies are domiciled. Nodak Insurance and American West were last examined by the North Dakota Insurance Department as of December 31, 2016.
Battle Creek was last examined by the Nebraska Insurance Department as of December 31, 2016, and the last examination of Primero by the Nevada
Insurance Department was as of December 31, 2016. Direct Auto was last examined by the Illinois Department of Insurance as of December 31, 2017.
None of these examinations resulted in any adjustments to their financial positions.

Westminster was last examined by the Maryland Insurance Administration as of December 31, 2017. The examination resulted in an adjustment to

their financial position relating to losses and loss adjustment expenses due to deficiencies in the liabilities for unpaid losses and LAE. Prior to its
acquisition by the Company, Westminster strengthened its liabilities for unpaid losses and LAE.

NAIC Risk-Based Capital Requirements

North Dakota and most other states have adopted the NAIC system of risk-based capital requirements that require insurance companies to

calculate and report information under a risk-based formula. These risk-based capital requirements attempt to measure statutory capital and surplus needs
based on the risks in a company’s mix of products and investment portfolio. Under the formula, a company first determines its “authorized control level”
risk-based capital. This authorized control level takes into account (i) the risk with respect to the insurer’s assets; (ii) the risk of adverse insurance
experience with respect 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 such other 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 and such

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other items as the risk-based capital instructions may provide. The formula is designed to allow state insurance regulators to identify weakly capitalized
companies.

The requirements provide for four different levels of regulatory attention. The “company action level” is triggered if a company’s total adjusted

capital 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, the
company 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 control
level. At the regulatory action level, the regulatory authority will perform a special examination of the company and issue an order specifying corrective
actions 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
equal to 0.7 times its authorized control level. At this level, the regulatory authority may take action it deems necessary, including placing the company
under regulatory 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 this level, the regulatory authority is mandated to place the company under its control. The capital levels of our insurance subsidiary and affiliate
companies all exceed the authorized control level, and have never triggered any of these regulatory capital levels. We cannot guarantee, however, that the
capital requirements applicable to such companies will not increase in the future, or that the underlying ratios will not erode.

NAIC Ratios

The NAIC has also developed a set of 13 financial ratios referred to as the Insurance Regulatory Information System (“IRIS”). Based on statutory-

basis financial statements filed with state insurance regulators, the NAIC annually calculates these IRIS ratios to assist state insurance regulators in
monitoring the financial condition of insurance companies. The NAIC has established an acceptable range for each of the IRIS financial ratios. If four or
more of its IRIS ratios 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, 2020, 2019 and 2018, none of our insurance company subsidiaries produced results outside the
acceptable range for more than three of the IRIS tests.

Enterprise Risk Assessment

In 2012, the NAIC adopted various changes to its Model Regulations, herein known as the “NAIC Amendments”. The NAIC Amendments, when
adopted by the various states, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States. The
NAIC Amendments include a requirement that an insurance holding company system’s ultimate controlling person submit annually to its lead state
insurance regulator an “enterprise risk report”. This enterprise risk report identifies the activities, circumstances, or events involving one or more affiliates
of an 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
insurance holding company system as a whole. The Company files a Form F Enterprise Report annually with each domiciliary state in support of this
requirement. The NAIC Amendments also include provisions requiring a controlling person to submit prior notice to its domiciliary insurance regulator of
its divestiture of control, having detailed minimum requirements for cost sharing and management agreements between an insurer and its affiliates, and
expanding of the agreements between an insurer 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 various

states, will require an insurance holding company system’s chief risk officer to submit at least annually to its lead state insurance regulator a confidential
report detailing its own internal solvency assessment. Such an assessment is to be tailored to the nature, scale, and complexity of an insurer. This
assessment will include the material and relevant risks identified by the insurer associated with an insurer’s current business plan and the sufficiency of
capital resources to support those risks. Although our insurance company subsidiaries are exempt from ORSA because of their size, NI Holdings intends to
incorporate those elements of ORSA that it believes constitute “best practices” into its annual internal enterprise risk assessment.

Market Conduct Regulation

State insurance laws and regulations include numerous provisions governing trade practices and the marketplace activities of insurers, including
provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales practices, and complaint handling. State regulatory
authorities generally enforce these provisions through periodic market conduct examinations.

Guaranty Fund Laws

All states have guaranty fund laws under which insurers doing business in the state can be assessed to fund policyholder liabilities of insolvent

insurance 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 the
years ended December 31, 2020, 2019 and 2018, we paid only minimal assessments pursuant to state insurance guaranty association laws. We establish
reserves relating to insurance companies that are subject to

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insolvency proceedings when it becomes probable that we will be subject to an assessment and the amount of such assessment can be estimated. We cannot
predict the amount and timing of any future assessments under these laws.

Federal Regulation

The U.S. federal government generally does not directly regulate the insurance industry except for certain areas of the market, such as insurance

for crops, flood, nuclear, and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may
affect the insurance industry, including tort reform, corporate governance, and the taxation of reinsurance companies. The Dodd-Frank Act established the
Federal Insurance Office, which is authorized to study, monitor, and report to Congress on the insurance industry and to recommend that the Financial
Stability Oversight 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 United States, including by increasing national uniformity through either a federal charter or effective action by the states. Changes to
federal legislation and administrative policies in several areas, including changes in federal taxation, can also significantly affect the insurance industry and
us.

We are also subject to the Fair and Accurate Credit Transactions Act of 2003 and the Health Insurance Portability and Accountability Act of 1996,

both of which require us to protect the privacy of our customers’ information, including health and credit information.

Privacy

We are subject to numerous U.S. federal and state laws governing the collection, disclosure, and protection of personal and confidential

information of our clients or employees. These laws and regulations are increasing in complexity and number, change frequently, and may conflict.
Congress, state legislatures, and regulatory authorities are expected to consider additional regulation relating to privacy and other aspects of customer
information.

As mandated by the Gramm-Leach-Bliley Act (“GLBA”), states have promulgated laws and regulations that require financial institutions,

including insurance companies, to take steps to protect the privacy of certain consumer and customer information. The NAIC has adopted several
provisions to facilitate the implementation of the GLBA, including the Privacy of Consumer Financial and Health Information Model Regulation and the
Standards for Safeguarding Customer Information Model Regulation. Several states adopted similar provisions regarding the safeguarding of customer
information. NI Holdings and its subsidiaries have implemented procedures to comply with the GLBA’s related privacy requirements.

In October 2017, the NAIC adopted the Insurance Data Security Model Law (“IDSML”), which would require insurers, insurance producers, and
other entities required to be licensed under state insurance laws to develop and maintain a written information security program, conduct risk assessments,
oversee the data security practices of third-party service providers, and other related requirements. It is not clear whether, and to what extent, legislatures or
insurance regulators in the states in which we, or our subsidiaries, operate will enact the IDMSL. Such enactments and regulations could raise compliance
costs and subject us to the risk of regulatory enforcement actions, penalties, and reputational harm. Any such events could potentially have an adverse
impact on our business, financial condition, or results of operations.

Office of Foreign Asset Control

The 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 2012

We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”), and we may take

advantage 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
reduced disclosure 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 the

Securities 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
year in 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
Securities Exchange Act of 1934, as amended (“the Exchange Act”), which would occur if

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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 $1.07 billion in non-convertible debt during the preceding three year period.

Dividends

North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance to NI Holdings during any twelve-month period

after notice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of the insurance
company’s surplus 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 life insurance company may carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends
actually paid during those two calendar years. As of December 31, 2020, the amount available for payment of dividends by Nodak Insurance in 2021
without the prior approval of the North Dakota Insurance Department is $21,628. “Extraordinary dividends” in excess of the foregoing limitations may
only be paid with prior notice to, and approval of, the North Dakota Insurance Department.

Illinois law sets the maximum amount of dividends that may be paid by Direct Auto to NI Holdings during any twelve-month period after notice

to, but without prior approval of, the Illinois Department of Insurance. This amount cannot exceed the greater of (i) 10% of the Company’s surplus as
regards policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized
capital gains). As of December 31, 2020, the amount available for payment of dividends by Direct Auto in 2021 without the prior approval of the Illinois
Department of Insurance is $3,582. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the Illinois
Department of Insurance.

The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland

Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three
preceding years. Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance
Administration. This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend
and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Maryland
Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation. These restrictions or
any subsequently imposed restrictions may affect our future liquidity.

See “Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend

Policy.”

Holding Company Laws

Most states, including North Dakota, have enacted legislation that regulates insurance holding company systems. Each insurance company in a
holding company system is required to register with the insurance supervisory agency of its state of domicile and furnish certain information, including
information concerning the operations of companies within the holding company group that may materially affect the operations, management, or financial
condition of the insurers within the group. Pursuant to these laws, the North Dakota Insurance Department requires prior disclosure of material transactions
involving an insurance company and its affiliates. 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 material
transactions between NI Holdings and any person or entity in our holding company system will be required to be given to the Department of Insurance of
the applicable domiciliary state. Certain transactions cannot be completed without the prior approval of the various Departments of Insurance.

Approval of the state insurance commissioner is required prior to any transaction affecting the control of an insurer domiciled in that state. In

North Dakota, 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. North Dakota 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 acquiring any 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 to effect an acquisition of control of or merger with a North Dakota insurer, unless the offer, request, invitation, acquisition,
effectuation, or attempt has received the prior approval of the North Dakota Insurance Department.

Human Capital

The Company’s key human capital management objectives are to attract, retain, and develop talent to deliver on the Company’s strategy. To

support these objectives, the Company’s human resources programs are designed to: recruit and retain

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talented individuals; provide training and development within the Company and the insurance industry; reward and support employees through competitive
pay and benefit programs; keep employees safe and healthy; and provide opportunities for community involvement.

We offer comprehensive compensation and benefits packages to our employees including a 401k Plan, employee stock ownership plan, healthcare

and insurance benefits, health savings and flexible spending accounts, paid time off, and flexible work arrangements. We also offer stock-based
compensation to certain management personnel as a way to attract and retain key talent. See Notes 14 and 20 to the Consolidated Financial Statements
included under Item 8 for further discussion of our benefit plans and stock-based compensation.

In response to the COVID-19 pandemic in March 2020, we pivoted to a remote working environment for substantially all of our employees with a

commitment to the safety of our employees, business partners, and the communities we serve. As appropriate, certain of our offices have opened on an
optional and limited basis in accordance with applicable rules and regulations in their respective jurisdictions. We believe that we have adjusted well to
date, benefitting from prior investments in technology, systems, and training, which have enabled us to maintain full, continuous operations through the
pandemic.

As of December 31, 2020, NI Holdings and its subsidiaries had 205 total employees. Employee turnover averaged 17.3% during 2020, with higher

than average rates experienced by our Direct Auto employee base located in Chicago. None of our employees are covered by a collective bargaining
agreement, and we believe that our employee relations are good.

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Item 1A. Risk Factors

An investment in the Company’s common shares involves certain risks. The following is a discussion of material risks and uncertainties that may

affect the Company’s business, financial condition, and future results.

Insurance Risks

The impact of COVID-19 and responses thereto, and related risks, could materially affect our results of operations, financial position,

and/or liquidity.

Beginning in March 2020, the global pandemic related to novel coronavirus COVID-19 (“COVID-19”) began to impact the global and U.S.

economy. We experienced a decrease in premiums in our non-standard auto segment due to the pandemic during 2020, along with experiencing generally
flat premium growth across our private passenger auto segment. We expect future premium growth as individuals and businesses resume travel and the
economy continues to recover.

Any future federal, state, and local government actions to address the impact of COVID-19 may adversely affect us. Regulatory restrictions or
requirements could impact pricing, risk selection, and our rights and obligations with respect to our policies and insureds, including our ability to cancel
policies or our right to collect premiums. It is also possible that changes in economic conditions and steps taken by federal, state, and local governments in
response to COVID-19 could require an increase in taxes at the federal, state, and local levels, which would adversely impact our results of operations.

After the immediate economic impacts of the COVID-19 pandemic in the first half of the year, capital markets staged a strong rally during the
second half of 2020, aided by significant fiscal and monetary support from world central banks to help the global economy. Despite rising slightly from
mid-year, 10-year U.S. Treasury rates remained extremely depressed given the negative impact on economic growth from the current public health crisis
and announcements from the U.S. Federal Reserve on its intention to maintain a near-zero interest rate policy for the foreseeable future. Our corporate
fixed income portfolio may also be adversely impacted by ratings downgrades, increased bankruptcies, and credit spread widening in distressed industries.
In addition, many state and local governments may be operating under deficits or projected deficits. These deficits may be exacerbated by the costs of
responding to COVID-19 and reduced tax revenues due to adverse economic conditions. The severity and duration of these deficits could have an adverse
impact on the collectability and valuation of our municipal bond portfolio. Our investment portfolio also includes residential and commercial mortgage-
backed securities, which could be adversely impacted by declines in real estate valuations and/or financial market disruption, including a heightened
collection risk on the underlying mortgages. Further disruptions in global financial markets due to the continuing impact of COVID-19 could result in
additional net realized and unrealized investment losses. In addition, declines in fixed income yields would result in decreases in net investment income
from future investment activity, including re-investments.

We expect that the impact of COVID-19 on general economic activity may continue to negatively impact our premium volumes, but the degree of

the impact will depend on the extent and remaining duration of the economic contraction.

It is also possible that changes in economic conditions and additional steps taken by the federal government and the Federal Reserve in response to
COVID-19 could lead to higher inflation than we had anticipated, which could in turn lead to an increase in our loss costs and the need to strengthen claims
and claim adjustment expense reserves. These impacts of inflation on loss costs and claims and claim adjustment expense reserves could be more
pronounced for those lines of business that require a relatively longer period of time to finalize and settle claims for a given accident year and, accordingly,
are relatively more inflation sensitive. Inflation could also adversely impact our general and administrative expenses. Increased interest rates caused by
inflation would likely have a negative effect on the carrying value of our fixed maturity investments and returns on our fixed maturity and short-term
investments. Increased interest rates would also reduce the market value of existing fixed maturity investments, thereby negatively impacting our book
value.

Catastrophic 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

financial results. We have experienced catastrophe losses, and can be expected to experience catastrophe losses in the future. Catastrophe losses can be
caused by various events, including snow storms, ice storms, freezing temperatures, tropical storms and hurricanes, earthquakes, tornadoes, wind, hail,
fires, and other natural or man-made disasters. In addition, longer-term natural catastrophe trends may be changing and new types of catastrophe losses
may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked to rising temperatures, and includes
effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow. The frequency, number, and severity of
these losses

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are unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and
the severity of the event.

Approximately 45.7% of NI Holdings’ consolidated direct premiums written in 2020 were written in North Dakota, compared to 55.3% in 2019.
Despite this reduction, NI Holdings’ business continues to have a concentration in North Dakota, thus adverse developments from severe weather events
such as hailstorms, flooding, or droughts affecting a large portion of North Dakota would have a disproportionately greater effect on NI Holdings’ financial
condition and results of operations than if its business were less geographically concentrated. The incidence and severity of such events are inherently
unpredictable. In recent years, changing climate conditions have increased, and may continue to increase, the unpredictability, severity, and frequency of
tornados and other storms, droughts, floods, and other extreme climatic events.

We attempt to reduce our exposure to catastrophe losses through the underwriting process and by obtaining reinsurance coverage. However, in the
event that we experience catastrophe losses, we cannot assure you that our unearned premiums, liabilities for unpaid losses and LAE, and reinsurance will
be adequate to cover these risks. In addition, because accounting rules do not permit insurers to reserve for catastrophic events until they occur, claims from
catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could have a material adverse effect on our
financial 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 that

are 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 of
operations.

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

a decrease 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

the rating agencies. Ratings assigned by A.M. Best are an important factor influencing the competitive position of insurance companies. A.M. Best ratings,
which are reviewed at least annually, represent independent opinions of financial strength and ability to meet obligations to policyholders and are not
directed toward 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
common stock.

All of the Company’s insurance subsidiaries hold a financial strength rating of “A” (Excellent) by A.M. Best, the third highest rating out of 15

rating classifications. Our most recent rating by A.M. Best was issued on April 14, 2020. Financial strength ratings are used by producers, customers,
lenders, and other insurance carriers as a means of assessing the financial strength and quality of insurance companies. If our financial position deteriorates,
we may not maintain our favorable financial strength rating from A.M. Best. A downgrade of our rating could severely limit or prevent us from writing
desirable business or from renewing our existing business. In addition, a downgrade could negatively affect our ability to implement our strategy because it
could cause our current or potential producers to choose other more highly rated competitors or reduce our ability to obtain reinsurance. See “Item 1.
Business — A.M. Best Rating.”

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 to
significant fluctuations and uncertainties and have fluctuated in cyclical periods of low premium rates and excess underwriting capacity resulting from
increased competition (a so-called “soft market”), followed by periods of high premium rates and a shortage of underwriting capacity resulting from
decreased competition (a so-called “hard market”). The industry’s profitability can be affected significantly by:

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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 interpretations
relating 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 invested capital
and may affect the ultimate payout of losses.  

Fluctuations in underwriting capacity, demand, competition, and the impact on our business of the other factors identified above, could have a

negative impact on our results of operations, financial condition, and our ability to grow profitability.

We monitor the marketplace both on a regional and line of business basis. The private passenger marketplace continues to be a very competitive

and challenging pricing environment. Rates for private passenger auto are competitive across the country. The

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non-standard auto market also remains competitive with more companies seeking to grow this line of business. Two large acquisitions took place in the
non-standard auto segment during the third quarter, indicating that others in the marketplace are recognizing profitable opportunities associated with this
segment and are seeking to grow their market share.

The commercial market has experienced significant hardening in recent years, allowing us to demand more premium while being more selective

on individual risks.

Our success depends on the ability of our insurance company subsidiaries to underwrite risks accurately and to price our commercial and

personal 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 significant

reliance on estimates and assumptions in setting prices. If our insurance subsidiaries fail to assess accurately the risks that they assume in our commercial
and personal lines products, they may fail to charge adequate premium rates, which could affect our profitability and have a material adverse effect on our
financial condition, results of operations, or cash flows. Their ability to assess their policyholder risks and to price their products accurately is subject to a
number of risks and uncertainties, including, but not limited to:

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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 of

operations, or to overprice their policies, which could reduce their competitiveness. Either such event could have a material adverse effect on their financial
condition, 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, and

the 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 rely on AFBIS to underwrite our
crop hail insurance line of business. Unlike the multi-peril crop business, we have the ability to underwrite and price crop hail insurance. 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, we have the ability to decline to issue the
policy.

Our results and financial condition may be affected by a failure to establish adequate liabilities for unpaid losses and 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

insured claims. Estimating liabilities for unpaid losses and LAE is a difficult and complex process involving many variables and subjective judgments. The
liability for unpaid losses and LAE is the largest liability of NI Holdings and represents the financial statement item most sensitive to estimation and
judgment. In developing its estimates of unpaid losses and LAE, NI Holdings has evaluated and considered actuarial projection techniques based on its
assessment of facts and circumstances then known, historical loss experience data, and estimates of anticipated trends. This process assumes that past
experience, adjusted for the effects of current developments, changes in operations, and anticipated trends, constitutes an appropriate basis for predicting
future events. While NI Holdings believes that its liability for unpaid losses and 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 to earnings, 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 results of operations. There can be no assurance that the estimates of such
liabilities will not change in the future. For additional information on our liability for unpaid losses and LAE, see “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”

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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 insurance

company. NI Holdings uses reinsurance arrangements to limit and manage the amount of risk it retains, to stabilize its underwriting results, and to increase
its underwriting capacity. The availability and cost of reinsurance are subject to current market conditions and may vary significantly over time. Any
decrease in the amount of reinsurance maintained will increase our risk of loss. We may be unable to maintain our desired reinsurance coverage or to obtain
other reinsurance coverage in adequate amounts and at favorable rates. If we are unable to renew the current coverage maintained by NI Holdings or obtain
new coverage, it may be difficult for us to manage our underwriting risks and operate our business profitably.

If we cannot collect loss recoveries from our reinsurers in accordance with our reinsurance agreements, we may incur additional 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
of our liability to policyholders. If such reinsurers were not capable of fulfilling their financial obligations to us, our insurance losses would increase. NI
Holdings secures reinsurance coverage from a number of reinsurers. The lowest A.M. Best rating issued to any of our current reinsurers is “A-” (Excellent),
which is the fourth highest of fifteen ratings. See “Item 1. Business — Reinsurance.”

Operational Risks

Competition for potential acquisitions from other property and casualty insurers could increase the price that NI Holdings will be

required to pay 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.

These market conditions may cause significant competition for acquisitions and increase the price for acquisitions. This competitive market could impede
execution of NI Holdings’ external growth strategy.

Integration of existing businesses and future acquisitions may require a significant investment of management’s time.

NI Holdings previously spent considerable time and effort integrating Battle Creek and Primero in the areas of sales and marketing, operations,

financial reporting, and employee benefits. Direct Auto, Westminster, and future acquisitions will require additional integration, particularly to realize the
anticipated coordination designed to drive revenue growth, reduce costs, and ensure operational efficiency and compliance. While NI Holdings’
management staff is experienced, there can be no assurance that acquisitions will be successfully executed and integrated in a timely manner.

We may not be able to grow our business if our insurance company subsidiaries cannot maintain and grow their agent relationships,
provide new products for their agents to offer to their customers, or if consumers 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 it

easier 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
products instead 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 change
their insurance shopping preferences, this may have an adverse effect on our ability to grow, our financial position, and our results of operations.

Future acquisitions 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. Acquisitions that we may

make or implement in the future entail a number of risks that could materially adversely affect our business and operating results, including:

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problems integrating the acquired operations with our existing business;  

operating and underwriting results of the acquired operations not meeting our expectations;  

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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. Our
business may be adversely affected if labor market conditions make it difficult for us to replace our current key officers with individuals having equivalent
qualifications and experience at compensation levels competitive for our industry. Our key officers include:

• Michael J. Alexander, our President and Chief Executive Officer;  

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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

with our key officers do not include covenants not to compete or non-solicitation provisions because they are unenforceable under North Dakota law.

NI Holdings has announced the impending retirement of Mr. Doom, effective May 25, 2021. Upon Mr. Doom’s departure, Seth C. Daggett will
assume the role of Executive Vice President, Treasurer and Chief Financial Officer, and Timothy J. Milius will assume the role of Vice President, Chief
Accounting Officer and Secretary. Mr. Daggett is currently the Executive Vice President of Strategy and Mr. Milius is currently the Vice President of
Finance.

We rely on our systems and employees, and those of certain third-party vendors and service providers, in conducting our operations, and

certain failures, including internal or external fraud, operational errors, systems malfunctions, or cyber-security incidents, could materially
adversely affect our operations.

We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors, and

computer 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
operational breakdown 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 of
operational and information security risk to us, including from breakdowns, failures, or capacity constraints of their own systems or employees. While we
attempt to manage the informational and operational risks that arise from our use of third party providers by reviewing and assessing such providers’
cybersecurity controls, as appropriate, we cannot assure that our attempts to do so will always be successful. Any problems caused by third party providers
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

our business. 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
may be 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, hurricanes, or events arising
from terrorist acts. Such disruptions 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

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our business continuity, disaster recovery, and data security systems prove to be inadequate. The computer systems and network systems others and we use
could be vulnerable to unforeseen problems. These problems may arise in both our internally developed systems and the systems of third-party service
providers. In addition, our computer systems and network infrastructure present security risks and could be susceptible to hacking, computer viruses, or
data breaches. Any such failure could affect our operations and could materially adversely affect our results of operations by requiring us to expend
significant resources to correct the defect, as well as by exposing us to litigation or losses not covered by insurance. Although we have business continuity
plans and other safeguards in place, our business operations may be adversely affected by significant and widespread disruption to our physical
infrastructure or operating systems and those of third-party service providers that support our business. As we continue to expand internet and mobile
strategies and to build and maintain an integrated digital enterprise, these risks are likely to increase.

Our operations rely on the secure processing, transmission, and storage of confidential information in our computer systems and networks. Our

technologies, 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 our
insureds’ or other third parties’ business operations, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the
incurrence of costs to eliminate or mitigate further exposure, and the loss of customers. Although to date we have not experienced any information security
breaches nor any losses relating to 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 to these matters remains heightened because of, among other things, the evolving nature and increasing frequency and
sophistication 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 be required to expend significant additional resources to continue to
modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

Disruptions or failures in the physical infrastructure or operating systems that support our business and customers, or cyber-attacks or security
breaches of the networks, systems, or devices that our customers use to access our products and services could result in customer attrition, reputational
damage, reimbursement or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our financial
condition or results of operations.

The compromise of personal, confidential or proprietary information could also subject us to legal liability or regulatory action, including fines,

penalties or intervention, under evolving cyber-security, data protection and privacy laws and regulations enacted by the U.S. federal and state
governments. Such laws and regulations have become increasingly widespread and demanding in recent years. As noted above, in October 2017, the NAIC
adopted the IDSML, which would require insurers and other regulated insurance entities to comply with detailed information security obligations.
Enactment of the IDSML or similar statute by the legislatures of the states in which we or our subsidiaries operate may result in increased compliance costs
and the risk of regulatory enforcement actions and penalties. If incurred, such regulatory penalties could harm our reputation. Any such events could have
an adverse impact on our business, financial condition or results of operations.

We face uncertainties related to the effectiveness of internal controls, particularly with regard to our operating subsidiaries’ financial

reporting 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
the likelihood of future events. Because of these and other inherent limitations of internal control systems, there can be no assurance that any design will
achieve its stated goal under all potential future conditions, regardless of how remote. Deficiencies or weaknesses that are not yet identified could emerge,
and the identification 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

a point in time, categorize a deficiency or weakness as immaterial or minor and therefore not be required to publicly report such deficiency or weakness.
Such determination, however, does not preclude a change in circumstances such that the deficiency or weakness could, at a later time, become a reportable
condition that could have a material impact on our results of operations.

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Regulatory Risks

A portion of NI Holdings’ written premiums and net profits are generated from its multi-peril crop insurance business, and the loss of
such business as a result of a termination of or substantial changes to the Federal crop insurance program could have an adverse effect on our
revenues and net income.

In 2020, 2019 and 2018, NI Holdings’ direct premiums written generated from its multi-peril crop insurance line of business were 11.5%, 13.3%,

and 18.5%, respectively, of total written premiums. Through the FCIC, the United States government subsidizes insurance companies by assuming an
increasingly higher portion of losses incurred by farmers as a result of weather-related and other perils as well as commodity price fluctuations. The United
States government also subsidizes the premium cost to farmers for multi-peril crop yield and revenue insurance. Without this risk assumption, losses
incurred by insurance companies would be higher. Without the premium subsidy, the number of farmers purchasing multi-peril crop insurance would
decline significantly. Periodically, members of the United States Congress propose to reduce significantly the government’s involvement in the federal crop
insurance program in an effort to reduce government spending. If legislation is adopted to reduce the amount of risk the government assumes, the amount
of insurance premium subsidy provided to farmers or otherwise reduce the coverage provided under multi-peril crop insurance policies, losses would
increase and purchases of multi-peril crop insurance could experience a significant decline nationwide and in our market area. Such changes could have an
adverse effect on our revenues and income.

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 insurance

companies 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 business in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent, or failed
insurance companies are engaged. 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 to

provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis. Insurance companies generally can fulfill their
residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared
by the participating insurance companies. Although we price our insurance to account for our potential obligations under these pooling arrangements, we
may 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 the pool. The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our profitability in
any given period or limit our ability to grow our business. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”

If we fail to comply with insurance industry regulations, or if those regulations become more burdensome, we may not be able to operate

profitably.

Nodak Insurance and American West are currently regulated by the North Dakota Insurance Department. Battle Creek is regulated by the
Nebraska Insurance Department. Primero is regulated by the Nevada Insurance Department. Direct Auto is regulated by the Illinois Department of
Insurance. Westminster is regulated by the Maryland Insurance Administration. All six companies are also subject to regulation, to a more limited extent,
by the insurance departments of other states in which they do business. The failure to comply with the laws and regulations of each jurisdiction could
subject NI Holdings to sanctions and fines, including the cancellation or suspension of its license. Because approximately 45.7% of our 2020 consolidated
direct premiums written originate in North Dakota, the cancellation or suspension of our license in North Dakota, as a result of any failure to comply with
the applicable insurance laws and regulations, would impact our financial condition and results of operations.

Most insurance regulations are designed to protect the interests of policyholders rather than shareholders and other investors. These regulations

relate to, among other things:

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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;  

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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;  

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 other

reports relating to financial condition, holding company issues, and other matters. These regulatory requirements may adversely affect or inhibit our ability
to achieve some or all of our business objectives. The last examination of both Nodak Insurance and American West by the North Dakota Insurance
Department was as of December 31, 2016. The last examination of Battle Creek by the Nebraska Insurance Department was as of December 31, 2016, and
the last examination by the Nevada Insurance Department of Primero was as of December 31, 2016. The last examination of Direct Auto by the Illinois
Department of Insurance was as of December 31, 2017. The last examination of Westminster by the Maryland Insurance Administration was as of
December 31, 2017.

In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of

regulations. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by
regulatory authorities could adversely affect our ability to operate our business.

Risks Related to Our Common Stock

Additional expenses from new stock-based benefit plans may adversely affect our profitability.

During 2020, our shareholders approved the adoption of our 2020 Stock and Incentive Plan (“the Plan”). Under the Plan, we may award
participants restricted shares of our 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 the participants. The maximum number of shares of common stock that may be issued is set forth in the Plan.

We consider the reasonableness of the awards under these programs in evaluating the fairness of the total compensation paid to our employees,

including our executives. We use our equity-type plans to assist us in aligning the interests of the management team and other employees with those of our
shareholders. Any additional compensation expense resulting from the ESOP and the Plan may adversely affect our profitability. We cannot determine the
actual future amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be
based on 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
expenses for our ESOP when shares are committed to be released to participants’ accounts and will recognize expenses for restricted stock awards and
stock options over the vesting period of awards made to recipients. See our Consolidated Financial Statements for the actual amount of expenses to date.

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Nodak Mutual Group’s majority control of our common stock will enable it to exercise voting control over most matters put to a vote of

shareholders 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 over
most 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,
Nodak Mutual 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 of control of management. Some 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

future share 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, and

debt-related amounts are net proceeds from our initial public offering retained at the holding company, management fees, and dividends from our
subsidiaries. The payment of dividends by Nodak Insurance to NI Holdings will be restricted by North Dakota’s insurance law. American West and Primero
historically have not paid dividends to Nodak Insurance, but would be restricted by laws in the domiciliary states. The payment of dividends by Direct
Auto to NI Holdings will be restricted by Illinois’ insurance law. The payment of dividends by Westminster to NI Holdings will be restricted by Maryland’s
insurance law.

Statutory provisions and provisions of our Articles of Incorporation and Bylaws may discourage takeover attempts of NI Holdings that

you may 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 North

Dakota Insurance Department’s prior approval of a change of control of an insurance holding company. Under North Dakota law, the acquisition of 10% or
more 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 Insurance
Department may be withheld even if the transaction would be in the shareholders’ best interest if the North Dakota Insurance Department determines that
the transaction 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 than
10% 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 the agenda
at any shareholders’ meeting must be made by notice (in writing) delivered or mailed to us not less than 90 days prior to the meeting;  

the prohibition of shareholders’ action without a meeting (except for actions taken by Nodak Mutual Group) and of shareholders’ right to call
a special meeting;  

the requirement imposing a mandatory tender offer requirement on a shareholder other than Nodak Mutual Group that has a combined voting
power of 35% or more of the votes that our shareholders are entitled to cast, unless acquisition of such voting power by such shareholder 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 shareholders
entitled 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 the
members 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 least 66
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 in
which you would receive a substantial premium over the current market price. These provisions may make it extremely difficult for any one person, entity,
or group of affiliated persons or entities to acquire voting control of NI Holdings, with

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the result that it may be extremely difficult to bring about a change in the Board of Directors or management. Some of these provisions also may perpetuate
present management because of the additional time required to cause a change 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 able to 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 nonaffiliated

shareholders may deem to be contrary to the shareholders’ best interests. In addition, certain provisions of our Articles of Incorporation, such as the
existence of a classified Board of Directors, the prohibition of cumulative voting for the election 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 prior approval 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 common stocks of Nodak Insurance, Direct Auto, Westminster, and

our other subsidiaries. We depend primarily on dividends paid by directly-owned subsidiaries, and the proceeds from our initial public offering that were
not contributed to Nodak Insurance or otherwise deployed or committed, to carry out our business plan, including future acquisitions, and to provide funds
for the payment of any future dividends.

We may receive dividends from Nodak Insurance only after all of Nodak Insurance’s obligations and regulatory requirements with the North

Dakota Insurance Department have been satisfied. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during
any twelve-month period after notice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i)
10% of the insurance company’s surplus 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, in the state of
North Dakota, any insurance company other than a life insurance company may carry forward net income from the preceding two calendar years, not
including realized capital gains, less any dividends actually paid during those two calendar years.

Illinois law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without

prior approval of, the Illinois Department of Insurance. This amount cannot exceed the greater of (i) 10% of the Company’s surplus as regards
policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized capital
gains).

We will have the ability to receive dividends from Westminster only after all of Westminster's obligations and regulatory requirements with the

Maryland Insurance Administration have been satisfied. In general, under Maryland law an insurer may pay dividends after providing notice to the
Maryland Insurance Commissioner within five business days after declaration of the dividend or at least 10 days prior to payment of the dividend.
However, Maryland law imposes additional limitations on “extraordinary dividends”. Maryland law defines an extraordinary dividend as a dividend that,
when combined with the value of other dividends made in the preceding 12 months, exceeds the lesser of (i) 10% of the insurer’s surplus as regards
policyholders as of the preceding December 31, or (ii) the insurer’s net investment income not including (a) realized capital gains for the 12-month period
ending December 31 of the preceding year and (b) pro rata distributions of any class of the insurer’s own securities. An insurer may not pay an
extraordinary dividend unless the insurer provides notice of the declaration to the Maryland Insurance Commissioner at least 30 days before the declaration
is made and the Maryland Insurance Commissioner has approved or not disapproved the declaration within 30 days.

If Nodak Insurance, Direct Auto, and Westminster are not sufficiently profitable, our ability to pay dividends to you in the future 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

various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor
attestation requirements of Section 404 of SOX, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy
statements, and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. In this Annual Report on Form 10-K, we have elected to take advantage
of certain of the reduced disclosure obligations regarding financial statements and executive compensation. In addition, Section 107(b) of the JOBS Act
provides that an 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
revised accounting standards. In other words, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply
to private companies. We are choosing to “opt in” to such extended transition period

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election under Section 107(b). Therefore, we are electing to delay adoption of certain 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 on which adoption of such standards is required for non-emerging growth
companies. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies. See Note 5
to our Consolidated Financial Statements for more information regarding new or 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 such

five-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 of
non-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
of the reduced disclosure obligations regarding executive compensation in this Annual Report on Form 10-K and may elect to take advantage of other
reduced burdens in future filings. As a result, the information that we provide to holders of our common stock may be different than the information you
might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less
attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result of any choice we make 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.

General Risks

Our revenues and financial results may fluctuate with interest rates, investment results, equity market fluctuations, 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
securities represent one of the largest categories of assets of NI Holdings. The fair value of its investment holdings is affected by general economic
conditions, and changes in the financial and credit markets. NI Holdings relies on the investment income produced by its investment portfolio to contribute
to its profitability. 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 in credit quality, payment defaults on our fixed income securities. Such conditions could give rise to significant realized and unrealized investment
losses or the impairment of securities whose decreases in value are deemed other-than-temporary.

The Company continues to allocate a portion of its investment portfolio to equity securities, as we believe the long-term investment returns remain
attractive. These securities are subject to general economic conditions, specific industry dynamics, and individual company financial results. Recent history
has also demonstrated that these securities are subject to short-term market fluctuations, more so than fixed income securities. Effective January 1, 2019,
the changes in the market values of our equity securities began to be reported as a component of our net income. Prior to this time, these changes, along
with the corresponding changes in our fixed income securities, were recorded, net of income taxes, in other comprehensive income. This accounting
standard change creates an increased level of volatility in our reported operating results going forward and may distract from the long-term investment
philosophy that we currently employ to achieve steady returns on our investments.

Any significant or long-running negative changes in the fixed income or equity markets could have a material adverse effect on our financial

condition, results of operations, or cash flows. The investment portfolio of NI Holdings is also subject to credit and cash flow risk, including risks
associated with its investments in asset-backed and mortgage-backed securities. Because the Company’s investment portfolio is the largest component of its
assets and a multiple of its equity, adverse changes in economic conditions could result in other-than-temporary impairments that are material to our
financial condition and operating results. Such economic changes could arise 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.”

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

assure you that we will be able to locate profitable business opportunities, meet our capital needs, expand our systems and our internal controls effectively,
innovate our products and technology to remain competitive, allocate our human resources optimally, identify qualified employees or agents, or incorporate
effectively the components of any businesses we may acquire in our effort to achieve growth. The failure to manage our growth effectively, obtain
efficiencies in our business processes, and maintain underwriting discipline could have a material adverse effect on our business, financial condition, and
results of operations.

We could be adversely affected by any interruption to our ability to conduct business at our current locations.

Our business operations could be substantially interrupted by flooding, snow, ice, wind, 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

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redundant facilities to cover a loss or failure in all aspects of our business operations and to restart our business operations in a timely manner. Any damage
caused by such a failure or loss may cause interruptions in our business operations that may adversely affect our service levels and business. See “Item 1.
Business — Technology.”

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 to

apply these changes when adopted. Once implemented, these changes could materially affect our financial condition and results of operations and/or the
way in 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, exclusions

from income, and other tax policies are subject to change over time. Accounting standards would require that we recognize the effects of changes in tax
rates and 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.

Federal and state income tax laws are also constantly under review and may be changed from time to time. The Tax Cuts and Jobs Act (the
“TCJA”), signed into law in 2017, significantly reformed the U.S. Internal Revenue Code. The TCJA, among other things, included changes to U.S. federal
income tax rates, allowed for increased expensing of capital expenditures, and modified or repealed many business deductions and credits.

The new Biden Administration has proposed to raise U.S. federal income tax rates for corporations. Higher corporate income tax rates, as well as

other potential tax reforms, may adversely impact our financial condition and results of operations.

The estimated impact of all past and any potential income tax actions is based on our management’s current knowledge and assumptions and

recognized impacts could be materially different from current estimates based on our actual results and further guidance released on the new law.
Additional tax-related impacts on holders of common 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 purchasers of common shares. We urge our stockholders, including purchasers of common shares, to consult with their
own legal and tax advisors with respect to such legislation and the potential tax consequences of investing in common shares.

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Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Our headquarters is located at 1101 First Avenue North, Fargo, North Dakota, which is also the headquarters of Nodak Insurance. Nodak

Insurance owns 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 at 2640 South Jones Blvd, Suite 2, Las Vegas, Nevada, and Tri-State Ltd. leases the building at 506 5th Street,

Spearfish, South Dakota. Primero employees at these two locations administer their non-standard auto business.

Direct Auto leases office space at 8700 West Bryn Mawr Avenue, Chicago, Illinois until August 31, 2029. Direct Auto employees at this location

administer their non-standard auto business.

Westminster owns the building in which its offices are located at 8890 McDonogh Road, Suite 310, Owings Mills, Maryland. Westminster

employees at this location administer their commercial business.

We believe that the offices currently occupied by each of our subsidiaries are sufficient for their needs and any expected growth in the near future.

Item 3. Legal Proceedings

We are party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to
be material. However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not be
materially adversely affected by any litigation.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
Market Information

The Company’s common shares trade on the NASDAQ Capital Market under the symbol “NODK”. As of February 28, 2021, there were

approximately 600 shareholders of record for the Company’s common stock.

Stock Performance Graph

The 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 IPO of our common stock) through December 31, 2020, along with the corresponding returns for the Russell 2000 Index (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 the investment in the
common stock and each index was $100 on March 16, 2017 and that all dividends were reinvested.

Dividend Policy

Our Board of Directors continues to evaluate a potential policy of paying regular cash dividends, but has not decided on the amounts that may be

paid, the frequency of any payment, or when any payments may begin. Therefore, the timing and the amount of cash dividends that may be paid to
shareholders in the future is uncertain. In addition, the Board of Directors may declare and pay periodic special cash dividends in addition to, or in lieu of,
regular cash dividends. In determining whether to declare or pay any dividends, whether regular or special, the Board of Directors will take into account
our financial condition and results of operations, income tax considerations, capital requirements, industry standards, and economic conditions. The
regulatory restrictions that affect the payment of dividends by Nodak Insurance, Direct Auto, and Westminster to us as discussed below will also be
considered. We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.

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If we pay dividends to our shareholders, we also will be required to pay dividends to Nodak Mutual Group, unless Nodak Mutual Group elects to
waive the receipt of dividends. Because Nodak Mutual Group has no current plans to utilize any cash dividends that it may receive from us, we anticipate
that 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
an equity contribution. Because the Board of Directors of Nodak Mutual Group includes persons who are not members of our Board of Directors, we
cannot provide 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 a
commitment 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 it
will 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 are not currently subject to regulatory restrictions on the payment of dividends to our shareholders. Our ability to pay dividends, however, may

depend, in part, upon our receipt of dividends from our directly-owned subsidiaries because we initially will have no source of income other than earnings
from the investment of the net proceeds from our IPO that we retain. North Dakota law limits the amount of dividends and other distributions that Nodak
Insurance may pay to us. Illinois law limits the amount of dividends and other distributions that Direct Auto may pay to us. Maryland law limits the amount
of dividends and other distributions that Westminster 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,

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 the preceding calendar year (excluding
realized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurance
company may carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends actually paid during
those two calendar years. As of December 31, 2020, the amount available for payment of dividends by Nodak Insurance to us in 2021 without the prior
approval of the North Dakota Insurance Department is $21,628. We cannot assure you that the North Dakota Insurance Department would approve the
declaration or payment by Nodak Insurance of any dividends to us in excess of such amount.

Illinois law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without

prior approval of, the Illinois Department of Insurance. This amount cannot exceed the greater of (i) 10% of the Company’s surplus as regards
policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized capital
gains). As of December 31, 2020, the amount available for payment of dividends from Direct Auto to us in 2021 without the prior approval of the Illinois
Department of Insurance is $3,582. Prior to its payment of any dividend, Direct Auto will be required to provide notice of the dividend to the Illinois
Department of Insurance. We cannot assure you that the Illinois Department of Insurance would approve the declaration or payment by Direct Auto of any
dividends to us in excess of such amount.

We have the ability to receive dividends from Westminster only after all of Westminster’s obligations and regulatory requirements with the
Maryland Insurance Administration have been satisfied. In general, under Maryland law an insurer may pay dividends after providing notice to the
Maryland Insurance Commissioner within five business days after declaration of the dividend or at least 10 days prior to payment of the dividend.
However, Maryland law imposes additional limitations on “extraordinary dividends”. Maryland law defines an extraordinary dividend as a dividend that,
when combined with the value of other dividends made in the preceding 12 months, exceeds the lesser of (i) 10% of the insurer’s surplus as regards
policyholders as of the preceding December 31, or (ii) the insurer’s net investment income not including (a) realized capital gains for the 12-month period
ending December 31 of the preceding year and (b) pro rata distributions of any class of the insurer’s own securities. An insurer may not pay an
extraordinary dividend unless the insurer provides notice of the declaration to the Maryland Insurance Commissioner at least 30 days before the declaration
is made and the Maryland Insurance Commissioner has approved or not disapproved the declaration within 30 days. As of December 31, 2020, the amount
available for payment of dividends by Westminster to us in 2021 without the prior approval of the Maryland Insurance Commissioner is $505. We cannot
assure you that the Maryland Insurance Commissioner would approve the declaration or payment by Westminster of any dividends to us in excess of such
amount.

See “Item 1. Business — Regulation”.

Even if we receive any dividends from Nodak Insurance, Direct Auto, or Westminster, we may not declare any dividends to our shareholders

because of our working capital requirements. We are not subject to regulatory restrictions on the payment of dividends to shareholders, but we are subject
to the requirements of the North Dakota Business Corporation Act. This law generally permits dividends or distributions to be paid as long as, after making
the dividend or distribution, we will be able to pay our debts in the ordinary course of business and 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 stock with senior liquidation rights if we were to be dissolved
at the time the dividend or distribution is paid.

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Unregistered Securities

The Company has not sold any unregistered securities within the past three years.

Use of Proceeds from Initial Public Offering

On January 17, 2017, the SEC declared effective our registration statement on Form S-1 registering our common stock. On March 13, 2017, the
Company completed the IPO of 10,350,000 shares of common stock at a price of $10.00 per share. The Company received net proceeds of $93,145 from
the offering, after deducting the underwriting discounts and offering expenses. Griffin Financial Group, LLC acted as our placement agent in connection
with the IPO.

Direct Auto was acquired on August 31, 2018 with $17,000 of the net proceeds from the IPO.

Westminster was acquired on January 1, 2020 for a purchase price of $40,000, subject to certain adjustments. The Company paid $20,000 from the

net proceeds from the IPO at time of closing. The Company will pay the remaining $20,000, subject to certain adjustments, in three equal installments on
each of the first and second anniversaries of the closing, and on the first business day of the month preceding the third anniversary of the closing. The
Company anticipates using net proceeds from the IPO to satisfy these obligations.

From time to time, the Company may also repurchase its own stock. These repurchases may be used to satisfy its obligations under the equity

incentive plans or may be done for other reasons. To date, the Company has used net proceeds from the IPO to fund these buyback programs. See “Issuer
Stock Purchases” below.

There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on January

17, 2017.

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Issuer Stock Purchases

The Company had no common shares outstanding prior to March 13, 2017.

During 2017, our Board of Directors approved an authorization for the repurchase of up to $8,000 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.

On February 28, 2018, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s

outstanding common stock. We completed the repurchase of 191,265 shares of our common stock for $2,966 during 2018, and an additional 116,034 shares
for $2,006 during 2019. During the six months ended June 30, 2020, we completed the repurchase of 402,056 shares of our common stock for $4,996 to
close out this authorization.

On May 4, 2020, our Board of Directors approved an additional authorization for the repurchase of up to approximately $10,000 of the Company’s

outstanding common stock. During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238
under this new authorization.

In total during the year ended December 31, 2020, we completed the repurchase of 856,499 shares of our common stock for $12,234. The

repurchases made in the three months ended December 31, 2020 are described below.

Period in 2020

October 1 – 31, 2020
November 1 – 30, 2020
December 1 – 31, 2020
Total

Total Number of
Shares Purchased
39,497
8,039
4,220
51,756

$

$

Average Price
Paid Per Share

16.86
16.82
16.64
16.84

Maximum
Approximate
Dollar Value of
Shares
That May Yet Be
Purchased Under the
Plans or Programs (1)
(in thousands)

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)

39,497
8,039
4,220
51,756

$

$

2,967
2,832
2,762
2,762

(1)

Shares purchased pursuant to the May 4, 2020 publicly announced share repurchase authorization of up to approximately $10,000 of the
Company’s outstanding common stock.

Item 6. Selected Financial Data

You should read the selected financial data set forth below in conjunction with our historical Consolidated Financial Statements and related notes
and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report on
Form 10-K.

NI Holdings evaluates its operations by monitoring certain key measures of growth and profitability. In addition to measures recognized under
accounting principles generally accepted in the United States of America (“GAAP”), NI Holdings utilizes 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 the

results that may be expected for a full year.

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NI Holdings, Inc.

Five-Year Summary of Selected Financial Data

Sales:

Direct premiums written
Net premiums written

Revenues:

Net premiums earned
Fee and other income
Net investment income
Net capital gain on investments

Total revenue

Components of net income:
Net premiums earned
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs
and other underwriting and general expenses
Underwriting gain (loss)

Fee and other income
Net investment income
Net capital gain on investments
Income before income taxes

Income taxes
Net income

Earnings per common share:

Basic
Diluted
Share data:

Weighted average shares outstanding used in basic

per share calculations
Plus: Dilutive securities
Weighted average shares used in diluted per share

calculations

Assets:

Cash and investments
Premiums and agents’ balances receivable
Deferred policy acquisition costs
Other assets

Total assets

Liabilities:

Unpaid losses and loss adjustment expenses
Unearned premiums
Other liabilities

Total liabilities

Equity

Total liabilities and equity

Per share data:

Total book value per basic share

2020 (2)

Year Ended December 31,
2018 (1)

2019

2017

2016

$

$

314,187
297,144

283,661
1,801
7,271
13,624
306,357

$

$

262,145
250,946

246,438
2,125
7,433
14,783
270,779

$

$

225,223
201,270

195,720
6,496
6,180
3,974
212,370

$

$

195,238
185,282

179,464
1,648
5,031
2,997
189,140

180,870
156,713

152,756
1,666
3,644
5,681
163,747

283,661
168,473

$

246,438
169,710

$

195,720
119,088

$

179,464
122,711

$

152,756
118,508

85,068
30,120
1,801
7,271
13,624
52,816
11,472
41,344

1.86
1.84

$

$
$

67,258
9,470
2,125
7,433
14,783
33,811
7,311
26,500

1.19
1.19

$

$
$

54,117
22,515
6,496
6,180
3,974
39,165
7,921
31,244

1.39
1.39

$

$
$

44,423
12,330
1,648
5,031
2,997
22,006
6,394
15,612

0.71
0.71

$

$
$

21,772,475
169,995

22,179,747
85,601

22,358,858
26,896

22,512,401
228

21,942,470

22,265,348

22,385,754

22,512,629

39,122
(4,874)
1,666
3,644
5,681
6,117
1,479
4,638

n/a
n/a

n/a
n/a

n/a

2020 (2)

2019

December 31,
2018 (1)

2017

2016

494,363
48,523
23,968
50,749
617,603

105,750
119,363
43,618
268,731

348,872
617,603

$

$

$

$

419,923
36,691
15,399
36,146
508,159

93,250
89,276
15,830
198,356

309,803
508,159

$

$

$

$

374,371
34,287
12,866
36,968
458,492

87,121
84,767
10,851
182,739

275,753
458,492

$

$

$

$

313,885
25,632
8,859
28,612
376,988

45,890
63,262
12,263
121,415

255,573
376,988

$

$

$

$

207,677
21,986
8,942
40,098
278,703

59,632
57,445
8,208
125,285

153,418
278,703

16.36

$

14.01

$

12.43

$

11.44

$

n/a

$

$

$

$

$
$

$

$

$

$

$

(1)

(2)

Effective August 31, 2018, the Company acquired Direct Auto Insurance Company.
Effective January 1, 2020, the Company acquired Westminster American Insurance Company. See Note 4 to the Company’s Consolidated Financial
Statements, included elsewhere in this Form 10-K.

42

 
 
 
 
 
 
 
 
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can

be obtained from reading the Consolidated Financial Statements alone. The discussion should be read in conjunction with the Consolidated Financial
Statements and the notes thereto included in “Item 8. Financial Statements and Supplementary Data.” Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report on Form 10-K constitutes forward-looking information that involves risks and uncertainties.
Please see “Forward-Looking Information” and “Item 1A. Risk Factors” for more information. You should review “Risk Factors” for a discussion of
important factors that could cause actual results to differ materially from the results described, or implied by, the forward-looking statements contained
herein.

All dollar amounts, except per share amounts, are in thousands.

Overview

NI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance and became such in connection with

the conversion of Nodak Mutual from a mutual to stock form of organization and the creation of a mutual holding company. The conversion was
consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of common stock of Nodak Insurance were issued to
Nodak Mutual Group, which then contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings.
Nodak Insurance then became a wholly-owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NI Holdings conducted no business
and had no assets or liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Insurance and its existing subsidiaries.

These consolidated financial statements of NI Holdings include the financial position and results of operations of NI Holdings and seven other

entities:

• Nodak Insurance – a wholly-owned subsidiary of NI Holdings;  
• Nodak Agency – a wholly-owned subsidiary of Nodak Insurance;  
• American West – a wholly-owned subsidiary of Nodak Insurance;  
•
Primero – an indirect wholly-owned subsidiary of Nodak Insurance;  
•
Battle Creek – an affiliated company of Nodak Insurance;  
• Direct Auto – a wholly-owned subsidiary of NI Holdings; and  
• Westminster – a wholly-owned subsidiary of NI Holdings.  

Battle Creek is managed by Nodak Insurance under the terms of a surplus note issued by Battle Creek to Nodak Insurance. Nodak Agency is an

inactive shell corporation.

On August 31, 2018, NI Holdings completed the acquisition of 100% of the common stock of Direct Auto from private shareholders and Direct

Auto became a consolidated subsidiary of the Company. Direct Auto is a property and casualty insurance company specializing in non-standard automobile
insurance in the state of Illinois. Direct Auto remains headquartered in Chicago, Illinois and continues to be led by its president and other key management
in place at the time of the acquisition. The results of Direct Auto are included as part of the Company’s non-standard auto business segment following the
closing date.

On January 1, 2020, NI Holdings completed the acquisition of 100% of the common stock of Westminster from the private shareholder of
Westminster and Westminster became a consolidated subsidiary of the Company. Westminster is a property and casualty insurance company specializing in
commercial multi-peril insurance in the states of Delaware, Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West
Virginia, and the District of Columbia. Westminster remains headquartered in Owings Mills, Maryland and continues to be led by its president and other
key management in place at the time of the acquisition. The results of Westminster are included as part of the Company’s commercial business segment
following the closing date.

Nodak Insurance offers property and casualty insurance, crop hail, and multi-peril crop insurance to members of the North Dakota Farm Bureau

through captive agents in North Dakota. American West and Battle Creek offer similar insurance coverage through independent agents in South Dakota and
Minnesota, and Nebraska, respectively. Primero offers limited nonstandard auto insurance coverage in Arizona, Nevada, North Dakota, and South Dakota.
Direct Auto offers limited nonstandard auto insurance coverage in Illinois. Westminster offers commercial multi-peril insurance in the Mid-Atlantic region
of the United States. All of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by A.M. Best, which is the third highest
out of a possible 15 ratings.

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Marketplace Conditions and Trends

Beginning in March 2020 and continuing throughout the year, the global pandemic caused by COVID-19 and related economic conditions

impacted the Company’s results of operations. Decreased economic activity limited revenue growth in our personal lines of business. This was partially
offset by reduced loss frequency in our private passenger and non-standard auto segments, primarily during the middle of the year. The continued impact of
COVID-19 and related risks, including from shelter-in-place orders, unemployment, and the financial market volatility, could continue to adversely impact
our results, including premiums written and investment income.

The property and casualty insurance industry is affected by recurring industry cycles known as “hard” and “soft” markets. A soft cycle is
characterized by intense competition resulting in lower pricing in order to compete for business. A hard market, generally considered a beneficial industry
trend, is characterized by reduced competition that results in higher pricing.

We monitor the marketplace both on a regional and line of business basis. The private passenger marketplace continues to be a very competitive
and challenging pricing environment, due to improved results and increased competitive pressure in the market. Rates for private passenger auto remain
competitive across the country. The non-standard auto market also remains competitive with companies seeking to grow this line of business. Two large
acquisitions took place in the non-standard auto segment during the third quarter, indicating that others in the marketplace are recognizing profitable
opportunities associated with this segment. As opposed to most personal lines, the commercial multi-peril market in which we participate continued to
harden, with accelerating positive rate changes in both liability and especially property during 2020.

Unlike property and casualty insurance, the total crop insurance premiums written each year vary mainly based on prevailing commodity prices

for the type of crops planted, because the aggregate number of acres planted usually does not vary much from year to year. Because the premiums that are
charged for crop insurance are established by the RMA, which is a division of the United States Department of Agriculture, and the policy forms and terms
are also established by the RMA, insurers do not compete on price or policy terms and conditions. Moreover, because participation in other federal farm
programs by a farmer is conditioned upon participation in the federal crop insurance program, most commercial farmers obtain crop insurance on their
plantings each year.

Principal Revenue Items

The Company derives its revenue primarily from net premiums earned, net investment income, and net capital gain on investments.

Gross and net premiums written

Gross premiums written is equal to direct premiums written and assumed premiums before the effect of ceded reinsurance. Gross premiums

written are recognized upon sale of new insurance contracts or renewal of existing contracts. Net premiums written is equal to gross premiums written less
premiums ceded or paid to reinsurers (ceded premiums written).

Premiums earned

Premiums earned is the earned portion of net premiums written. Gross premiums written include all premiums recorded by an insurance company
during a specified policy period. Insurance premiums on property and casualty policies are recognized in proportion to the underlying risk insured and are
earned ratably over the duration of the policies or, in the case of crop insurance, over the period of risk to the Company. At the end of each accounting
period, the portion of the premiums that is not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the
remaining term of the policy or period of risk. NI Holdings’ property and casualty policies, other than some of our auto lines and the non-standard auto
policies, typically have a term of twelve months. For example, for an annual policy that is written on July 1, 2020, one-half of the premiums would be
earned in 2020 and the other half would be earned in 2021.

Due to the nature of the crop planting and harvesting cycle and the deadlines for filing and processing claims under the federal crop insurance

program, insurance premiums for crop insurance are recognized and earned during the period of risk, which usually begins in spring and ends with harvest
in the fall. In the case of prevented planting claims, the period of risk is shortened to the date a valid prevented planting claim is filed, as the Company
believes the period of risk has ended. Under the federal crop insurance program, farmers must purchase crop insurance with respect to spring planted crops
by March 15. By July 15, the farmer must report the number of acres he has planted in each crop. On September 1, the insurer bills the farmer for the
insurance premium, which is due and payable by the farmer by October 1. If the farmer does not pay the premium by such date, the insurer must essentially
provide a loan to the farmer in an amount equal to the premium at an annual interest rate of 15% because the insurer is required to pay the farmer’s portion
of the premium to the FCIC by November 15, regardless of whether the farmer pays the premium to the insurer. Except for claims occurring in the spring
(primarily for prevented planting and required replanting claims), claims are required to be filed with the FCIC by December 15. A different cycle exists
for crops planted in the fall, such as winter wheat, but the vast majority of crop insurance written by NI Holdings covers crops planted in the spring.

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Net investment income and net capital gain (loss) on investments

NI Holdings invests its surplus and the funds supporting its insurance liabilities (including unearned premiums, and unpaid loss and loss
adjustment expenses) in cash, cash equivalents, equity securities, and fixed income securities. Investment income includes interest and dividends earned on
invested assets, and is reported net of investment-related expenses. Net capital gains and losses on investments are reported separately from net investment
income. NI Holdings recognizes realized capital gains when investments are sold for an amount greater than their cost or amortized cost (in the case of
fixed income securities) and recognizes realized capital losses when investments are written down as a result of an other-than-temporary impairment or
sold for an amount less than their cost or amortized cost, as applicable.

Beginning in 2019, in accordance with a change in accounting principle, changes in unrealized gains and losses on the Company’s investments in

equity securities are included in net income as a part of net capital gains and losses on investments. These gains and losses may be significant given the size
of the equity securities holdings and the inherent volatility in equity securities prices. Prior to 2019, the changes in unrealized gains and losses pertaining to
such investments were recorded in other comprehensive income. The changes in unrealized gains and losses on fixed income securities continue to be
recorded in other comprehensive income, net of income taxes. The new accounting treatment has no effect on total shareholders’ equity.

NI Holdings’ portfolio of investments is managed by Conning, Inc., Disciplined Growth Investors, and CIBC Personal Wealth Management.

These investment managers have discretion to buy and sell securities in accordance with the investment policy approved by our Board of Directors.

Principal Expense Items

NI Holdings’ expenses consist primarily of losses and LAE, amortization of deferred policy acquisition costs, other underwriting and general

expenses, and income taxes.

Losses and Loss Adjustment Expenses

Losses and LAE represent the largest expense item and include (1) claim payments made, (2) estimates for future claim payments and changes in

those estimates from prior periods, and (3) costs associated with investigating, defending, and adjusting claims, including legal fees.

Amortization of deferred policy acquisition costs and other underwriting and general expenses

Expenses incurred to underwrite risks are referred to as policy acquisition costs. Policy acquisition costs consist of commission expenses, state

premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business.
These policy acquisition costs are deferred and amortized over the effective period of the related insurance policies. Other underwriting and general
expenses consist of salaries, professional fees, office supplies, depreciation, and all other operating expenses not otherwise classified separately.

Income taxes

Current income taxes represent amounts paid to the federal government and certain states whose payment is based upon net income (subject to

regulatory adjustments) generated by the Company. As noted above, it does not include state premium taxes that are based purely on the collection of
policyholder premiums.

NI Holdings uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes arise from the recognition of

temporary differences between financial statement carrying amounts and the income tax bases of its assets and liabilities. A valuation allowance is provided
when it is more likely than not that some portion of the deferred income tax asset will not be realized. The effect of a change in tax rates is recognized in
the period of the enactment date. Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability,
excluding amounts attributed to accumulated other comprehensive income.

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Non-GAAP Financial Measures

NI Holdings evaluates its insurance operations in the way it believes will be most meaningful and representative of its business results. Some of

these measurements are “non-GAAP financial measures” under Securities and Exchange Commission rules and regulations. GAAP is the acronym for
“accounting principles generally accepted in the United States of America”. The non-GAAP financial measures that NI Holdings presents may not be
compatible to similarly-named measures reported by other companies. The non-GAAP financial measures described in this section are used widely in the
property and casualty insurance industry, and are the expense ratio, loss and LAE ratio, combined ratio, written premiums, ratio of net written premiums to
statutory surplus, underwriting gain, and return on average equity.

NI Holdings measures growth by monitoring changes in gross premiums written and net premiums written. The Company measures underwriting

profitability by examining its loss and LAE ratio, expense ratio, and combined ratio. It also measures profitability by evaluating underwriting gain (loss),
net income (loss), and return on average equity.

Loss and LAE ratio

The loss and LAE ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned. NI Holdings measures the loss and

LAE ratio on an accident year and calendar year loss basis to measure underwriting profitability. An accident year loss ratio measures losses and LAE for
insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year
loss ratio measures losses and LAE for insured events occurring during a particular year and the change in loss reserves from prior policy years as a
percentage of premiums earned during that year.

Expense ratio

The expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other underwriting and general

expenses (attributable to insurance operations) to premiums earned, and measures our operational efficiency in producing, underwriting, and administering
the Company’s insurance business.

Combined ratio

The Company’s combined ratio is the ratio (expressed as a percentage) of the sum of losses and LAE incurred and expenses to premiums earned,

and measures its overall underwriting profit. Generally, if the combined ratio is below 100%, NI Holdings is making an underwriting profit. If the
combined ratio is above 100%, it is not profitable without investment income and may not be profitable if investment income is insufficient.

Premiums written

Premiums written represent a measure of business volume most relevant on an annual basis for the Company’s business model. This measure

includes the amount of premium purchased by policyholders as of the policy’s effective date, whereas premiums earned as presented in the Consolidated
Statement of Operations matches the amount of premium to the period of risk for those insurance policies. The Company’s insurance policies are sold with
a variety of effective periods, including annual, semi-annual, and monthly.

Net premiums written to statutory surplus ratio

The net premiums written to statutory surplus ratio represents the ratio of net premiums written to statutory surplus. This ratio 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 to surplus ratio is
considered a sign of financial strength because the Company has an adequate provision for adverse development of loss reserves within the Company’s
current book of business and provides a capacity to write more business. Statutory surplus is determined 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 losses and LAE, amortization of

deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Each of these items is presented as a caption in
NI Holdings’ Consolidated Statements of Operations.

Net income (loss) and return on average equity

NI Holdings uses net income (loss) to measure its profit and uses return on average equity to measure its effectiveness in utilizing equity to

generate net 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 attributable to NI Holdings for that year.

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Critical Accounting Policies

General

The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of
appropriate accounting policies. NI Holdings is required to make estimates and assumptions in certain circumstances that affect amounts reported in its
Consolidated Financial 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 actual results will conform to these estimates and assumptions and that reported results of operations would not be materially adversely
affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. NI Holdings believes the
following policies are the most sensitive to estimates and judgments.

Unpaid Losses and Loss Adjustment Expenses

How reserves are established

With respect to its traditional property and casualty insurance products, the Company maintains reserves for the payment of claims (indemnity

losses) and expenses related to adjusting those claims (LAE). The Company’s liability for unpaid losses and LAE

consists of (1) case reserves, which are reserves 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 future development of case reserves.

LAE consist of two components – allocated loss adjustment expenses (“ALAE”) and unallocated loss adjustment expenses (“ULAE”). ALAE are

defense and cost containment expenses, including legal fees, court costs, and investigation fees, which are linked to the settlement of specific individual
claims or losses. ULAE are expenses that generally cannot be associated with a specific claim, including internal costs such as salaries and other overhead
costs, and also represent estimates of future costs to administer claims.

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

extent it can be determined or estimated. The amount of the loss reserve for the reported claim is based primarily upon an evaluation of coverage, liability,
damages suffered, and any other information considered pertinent to estimating the exposure presented by the claim. Each claim is contested or settled
individually based upon its merits, and some property and casualty claims may take years to resolve, especially in the unusual situation that legal action is
involved. Case reserves are reviewed on a regular basis and are updated as new information becomes available.

When a catastrophe occurs, which in the Company’s case usually involves the weather perils of wind and hail, NI Holdings utilizes mapping
technology through geographic coding of its property risks to overlay the path of the storm. This enables the Company to establish estimated damage
amounts 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
reasonable time (5 – 7 days) an estimated number of claims and estimated losses from the storm. If the Company estimates the damages to be in excess of
its retained catastrophe amount, reinsurers are notified immediately of a potential loss so that the Company can quickly recover reinsurance payments once
the retention is exceeded.

In addition to case reserves, NI Holdings maintains estimates of reserves for losses and LAE incurred but not reported. These reserves include
estimates 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
LAE includes significant estimates for IBNR.

The Company estimates multi-peril crop insurance losses on a quarterly basis based upon historical loss patterns, current crop conditions, current
weather patterns, and input from crop loss adjusters. These estimates have proven to be reasonably accurate indicators of the Company’s anticipated losses
for this line of business.

NI Holdings utilizes an independent actuary to assist with the estimation of its liability for unpaid losses and LAE. This actuary prepares estimates

by first deriving an actuarially based estimate of the ultimate cost of total losses and LAE incurred as of the financial statement date based on established
actuarial methods as described below. The Company then reduces the estimated ultimate loss and LAE by loss and LAE payments and case reserves carried
as of the financial statement date. The actuarially determined estimate is based upon indications from one of the following actuarial methodologies or uses
a weighted average of these results. The specific method used to estimate the ultimate losses varies depending on the judgment of the actuary as to what is
the most appropriate method for the property and casualty business. The Company’s management reviews these estimates and supplements the actuarial
analysis with information 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
Consolidated Financial Statements.

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NI Holdings determines 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 loss
development to date and expected future loss emergence. This method is applied on both a paid loss basis and an incurred loss basis. This method uses
selected loss development patterns to calculate the expected percentage of losses unpaid (or unreported). The expected future loss component of the method
is calculated by multiplying earned premium for the given exposure 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) losses described 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 estimated ultimate loss.

Paid and Case Incurred Loss Development Method — The Paid and Case Incurred Loss Development Method utilizes ratios of cumulative

paid or case incurred losses 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 loss development factors which when applied to the most current data value, by accident year, develop the estimated ultimate losses or
LAE. Ultimate losses or LAE are then selected for each accident year from the various methods employed.

Ratio of Paid ALAE to Paid Loss Method — The Ratio of Paid ALAE to Paid Loss Method utilizes the ratio of paid ALAE to paid losses and is

similar to the Paid and Case Incurred Method described above, except that the data projected are the ratios of paid ALAE to paid losses. The projected
ultimate ratio is then multiplied by the selected ultimate losses, by accident year, to yield the ultimate ALAE. ALAE reserves are calculated by subtracting
paid losses 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 affected
by both internal and external events, such as changes in claims handling procedures, inflation, legal trends, increases in the state-dictated minimum liability
limits in the recent case of nonstandard auto insurance, and legislative changes, among others. The impact of many of these items on ultimate costs for
losses and loss adjustment expenses is difficult to estimate. Loss reserve estimation is also affected by the volume of claims, the potential severity of
individual claims, the determination of occurrence date for a claim, and reporting lags (the time between the occurrence of the policyholder event and when
it is actually reported to the insurer). Informed judgment is applied throughout the process, including the application of various individual experiences and
expertise to multiple sets of data and analyses. NI Holdings continually refines its estimates of unpaid losses and LAE in a regular ongoing process as
historical loss experience develops and additional claims are reported and settled. NI Holdings considers all significant 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 current
and most recent accident years due to the relative newness of the claims being reported and the relatively small percentage of these claims that have been
reported, investigated, and adjusted by the Company’s claims staff. Therefore, the reserves carried in these more recent accident years are generally more
conservative than those carried for older accident years. As the Company has the opportunity to investigate and adjust the reported claims, both the case
and IBNR 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 awards

Laws governing liability claims and judicial interpretations thereof can change over time, which can expand the scope of coverage anticipated by

insurers when initially establishing reserves for claims. In addition, public attitudes regarding damage awards can result in judges and juries granting higher
recoveries for damages than expected by claims personnel when claims are presented. In addition, these changes can result in both increased claim
frequency and severity as both plaintiffs and their legal counsel perceive the opportunity for higher damage awards. Reserves established for claims that
occurred in prior years would not have anticipated these legal changes and, therefore, could prove to be inadequate for the ultimate losses paid by the
Company, causing the Company to experience adverse development and higher loss payments in future years.

Change in claims handling and/or setting case reserves

Changes in Company personnel and/or the approach to how claims are reported, adjusted, and reserved may affect the reserves established by the
Company. As discussed above, the setting of IBNR reserves is not an exact science and involves the expert judgment of an actuary. One actuary’s reserve
opinion 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
a company’s actuary, which provides a company with an acceptable “range” to use in establishing its best estimate for IBNR reserves.

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Economic inflation

A sudden and extreme increase in the economic inflation rate could have a significant impact on the Company’s case and IBNR reserves. When
establishing case reserves, claims personnel generally establish an amount that in their opinion will provide a conservative amount to settle the loss. If the
time 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 the
current inflation rate. This can also apply to IBNR reserves. Should the economic inflation rate increase significantly, it is likely that the Company may not
anticipate the need to adjust the IBNR reserves accordingly, which could lead to the Company being deficient in its IBNR reserves.

Increases or decreases in claim severity for reasons other than inflation

Factors exist that can drive the cost to settle claims for reasons other than standard inflation. For example, demand surge caused by a very large
catastrophe, as in the case of a hurricane, has an impact on not only the availability and cost of building materials such as roofing and other materials, but
also on the availability and cost of labor. Other factors such as increased vehicle traffic in an area not designed to handle the increased congestion and
increased speed limits on busy roads are examples of changes that could cause claim severity to increase beyond what the Company’s historic reserves
would reflect. In addition, unexpected increases in the labor costs and healthcare costs that underlie insured risks, changes in costs of building materials, or
changes in commodity prices for insured crops may cause fluctuations in the ultimate development of the case reserves. During 2018, the state of Nevada
mandated the incorporation of higher minimum liabilities for nonstandard auto insurance policies written in the state. Similar mandates became effective in
July 2020 in the state of Arizona. While it is certain that these actions increase the average claim cost experienced in the state, the actual amount is subject
to judgement until further claim experience is obtained.

Actual settlement experience different from historical data trends

When establishing IBNR reserves, the Company’s actuary takes into account many of the factors discussed above. One of the more important

factors that is considered when setting reserves is the past or historical claim settlement experience. Our actuary considers factors such as the number of
files entering litigation, payment patterns, length of time it takes Company claims personnel to settle the claims, and average payment amounts when
estimating reserve amounts. Should future settlement patterns change due to the legal environment, Company claims handling philosophy, or personnel, it
may have an impact on the 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 Lag

As 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 the
anticipated number of future claims, which could cause the ultimate loss we may experience to be underestimated. A lag in reporting may be caused by
changes in how claims are reported (online vs. through company personnel), the type of business or lines of business the Company is writing, the
Company’s distribution system (direct writer, independent agent, or captive agent), and the 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

higher or 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 lower in amount than current loss reserves. The Company reflects adjustments to the liability for unpaid losses and LAE in the results of operations
during the period in which the estimates are changed.

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Actuarial Loss Reserves

NI Holdings’ liabilities for unpaid losses and LAE are summarized below:

Case reserves
IBNR reserves

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net unpaid losses and LAE

2020

December 31,
2019

2018

$

$

89,903
15,847
105,750
8,710
97,040

$

$

90,210
3,040
93,250
4,045
89,205

$

$

76,150
10,971
87,121
2,232
84,889

The following tables provides case and IBNR reserves for unpaid losses and LAE by segment.

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net unpaid losses and LAE

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net unpaid losses and LAE

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net unpaid losses and LAE

Case Reserves
14,984
$
50,702
7,705
756
10,749
5,007
89,903
5,102
84,801

$

Case Reserves
14,115
$
55,623
7,098
8,411
731
4,232
90,210
2,867
87,343

$

Case Reserves
13,298
$
49,109
8,216
2,070
427
3,030
76,150
1,201
74,949

$

December 31, 2020
IBNR Reserves
5,327
$
(7,366)
4,032
15
8,340
5,499
15,847
3,608
12,239

$

December 31, 2019
IBNR Reserves
5,777
$
(11,645)
3,405
168
345
4,990
3,040
1,178
1,862

$

December 31, 2018
IBNR Reserves
4,856
$
(2,323)
2,516
56
216
5,650
10,971
1,031
9,940

$

Total Reserves
20,311
$
43,336
11,737
771
18,174
10,506
104,835
7,795
97,040

$

Total Reserves
19,892
$
43,978
10,503
8,579
1,076
9,222
93,250
4,045
89,205

$

Total Reserves
18,154
$
46,786
10,732
2,126
643
8,680
87,121
2,232
84,889

$

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Sensitivity of Major Assumptions Underlying the Liabilities for Unpaid Losses and Loss Adjustment Expenses

Management has identified the impact on earnings of various factors used in establishing loss reserves so that users of the Company’s financial

statements can better understand how development on prior years’ reserves might affect the Company’s results of operations.

Total Reserves

As of December 31, 2020, the impact of a 1% change in our estimate for unpaid losses and LAE, net of reinsurance recoverables, on our net

income, after federal income taxes of 21%, would be approximately $767.

Inflation

Inflation 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 federal income taxes of 21%, resulting from various changes from the inflation factor
implicitly embedded in the estimated payment pattern as of December 31, 2020. A change in inflation may or may not fully affect loss payments in the
future because some 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
-1%
1%
3%
5%

$

Impact on After-Tax Earnings

(1,392)
1,429
4,402
7,540

Inflation includes actual inflation as well as social inflation that includes future emergence of new classes of losses or types of losses, change in

judicial awards, and any other changes beyond assumed levels that affect the cost of claims.

Case Reserves

When a claim is reported, claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be

determined 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
may change. The following table displays the impact on net income, after federal income taxes of 21%, which results from various changes to the level of
case reserves as of December 31, 2020. 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
-10%
-5%
-2%
+2%
+5%
+10%

Investments

$

Impact on After-Tax Earnings

7,102
3,551
1,420
(1,420)
(3,551)
(7,102)

NI Holdings’ fixed income securities and equity securities are classified as available-for-sale and carried at estimated fair value as determined by
management based upon quoted market prices or a recognized pricing service at the reporting date for those or similar investments. Changes in unrealized
investment gains or losses on the fixed income securities, and on equity securities through December 31, 2018, net of applicable income taxes, are reflected
directly in shareholders’ equity as a component of other comprehensive income (loss) and, accordingly, have no effect on net income (loss). Effective
January 1, 2019, changes in unrealized investments gains or losses on equity securities began to be reported in net income (loss), rather than as a
component of other comprehensive income (loss). Investment income is recognized when earned, and realized capital gains and losses on investments are
recognized when investments are sold, or an other-than-temporary impairment is recognized.

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NI Holdings evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis. For periods beginning January 1,
2019, this evaluation includes only fixed income securities, whereas prior to this time, it included both fixed income and equity securities. NI Holdings
assesses whether OTTI is present 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) an entity 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 cost basis of the security will be recovered, the Company compares the present value of the expected cash flows likely to be collected,
based on an evaluation of all available 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 the cash flows expected to be collected in relation to the cost of amortized cost basis is referred to as the “credit loss”. If
there is a credit loss, the impairment is considered to be other-than-temporary. If NI Holdings identifies that an OTTI loss has occurred, it then determines
whether it intends 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 cost basis 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 to sell the security, the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of
the OTTI loss will be recognized in other comprehensive income (loss), net of income taxes. If NI Holdings determines that it intends to sell the security, 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-period credit
losses, the full amount of the OTTI will be recognized in earnings.

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 securities. The fair values of interest rate sensitive instruments also may be affected
by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market
conditions.

For the year ended December 31, 2020, NI Holdings’ investment portfolio experienced an increase in net unrealized gains of $15,117.

Fixed income securities:
Gross unrealized gains
Gross unrealized losses

Net fixed income securities unrealized gains

Equity securities:

Gross unrealized gains
Gross unrealized losses

Net equity securities unrealized gains

Net unrealized gains

December 31,
2020

December 31,
2019

Change

$

$

16,801
(296)
16,505

$

7,595
(354)
7,241

29,139
(1,390)
27,749

22,878
(982)
21,896

9,206
58
9,264

6,261
(408 )
5,853

$

44,254

$

29,137

$

15,117

The fixed income portion of the portfolio experienced an increase in net unrealized gains of $9,264 during the year ended December 31, 2020. The

net increase is reflected directly in shareholders’ equity as a component of accumulated other comprehensive income.

After the immediate economic impacts of the COVID-19 pandemic in the first half of the year, capital markets staged a strong rally during the

second half of 2020, aided by significant fiscal and monetary support from world central banks to help the global economy. In the United States, the
benchmark S&P 500 index rebounded to finish with a gain of 16.3% for the year, or a total return of about 18%, including dividends. Despite rising slightly
from the second quarter, U.S. 10-year Treasury rates remained extremely depressed given the negative impact on economic growth from the current public
health crisis and announcements from the U.S. Federal Reserve on its intention to maintain a near-zero interest rate policy for the foreseeable future.

During the fourth quarter of 2020, vaccine rollout and an agreement on the next round of fiscal stimulus helped renew the risk-on sentiment,

which led to new highs in equities, tighter spreads, and a steeper Treasury curve. While the next wave of the COVID-19 virus is prompting further
restrictions in some areas of the United States and globally, market participants are looking forward, expecting that continued accommodative monetary
policy combined with fiscal support will bolster the economic recovery that is well underway.

The strong recovery in the financial markets led to a substantial increase in the Company’s net unrealized gains from equity securities for the year

ended December 31, 2020. The net increase of $5,853 is included in net capital gain on investments on the Company’s Consolidated Statements of
Operations for the year ended December 31, 2020.

NI Holdings has evaluated each security and taken into account the severity and duration of any impairment, the current rating on the security (if
any), and the outlook for the issuer according to independent analysts. The Company’s fixed income portfolio is managed by Conning Asset Management,
who specializes in the management of insurance company investment portfolios and participates in this evaluation.

For the years ended December 31, 2020 and 2019, NI Holdings did not recognize any OTTIs of its investment securities. For the year ended

December 31, 2018, NI Holdings recognized $382 of OTTIs of its investment securities. Adverse investment market conditions, in addition to poor
operating results of underlying investments, could result in impairment charges in the future.

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For more information on the Company’s investments, see Note 6 to the Consolidated Financial Statements, included elsewhere in this Form 10-K.

Fair Value Measurements

NI Holdings uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Investment

securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, NI Holdings may be required to record at fair
value other 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 to valuation methods used to measure fair value. The three levels of the fair value hierarchy are as follows:

Level I:

Level II:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities.

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full
term of the asset or liability. Level II includes fixed income securities with quoted prices that are traded less frequently than
exchange traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in
the industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities
but rather by relying on the securities’ relationship to other benchmark quoted prices.

Level III:

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable
(i.e., supported with little or no market activity).

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 between

market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when
developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or no
observable market data and, therefore, are based primarily upon the estimates of NI Holdings or other third-parties, and are often calculated based on the
characteristics of the asset, the economic and competitive environment, and other such factors. Management uses its best judgment in estimating the fair
value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily indicative of the amounts which NI Holdings could have realized in a sale transaction on the
dates indicated. The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for
purposes of our financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used,
including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

NI Holdings uses quoted values and other data provided by an independent pricing service in its process for determining fair values of its
investments. The evaluations of such pricing services represent an exit price and a good faith opinion as to what a buyer in the marketplace would pay for a
security in a current sale. This pricing service provides 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 value using a wide array of observable inputs including relevant market information, benchmark curves, benchmarking of like securities,
sector groupings, and matrix pricing. The observable market inputs that the Company’s independent pricing service utilizes may include (listed in order of
priority for use) benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, and
other reference data on markets, industry, and the economy. Additionally, the independent pricing service uses an option-adjusted spread model to develop
prepayment and interest rate scenarios. The pricing service did not use broker quotes in determining fair values for any of the Company’s investments at
December 31, 2020, 2019, or 2018.

Should the independent pricing service be unable to provide a fair value estimate, NI Holdings would attempt to obtain a non-binding fair value

estimate from a number of broker-dealers and would review this estimate in conjunction with a fair value estimate reported by an independent business
news service or other sources. In instances where only one broker-dealer provides a fair value for a fixed income security, NI Holdings would use that
estimate. In instances where NI Holdings would be able to obtain fair value estimates from more than one broker-dealer, the Company would review the
range of estimates and select the most appropriate value based on the facts and circumstances. Should neither the independent pricing service nor a broker-
dealer provide a fair value estimate, NI Holdings would develop a fair value estimate based on cash flow analyses and other valuation techniques that
utilize certain unobservable inputs. 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 other

resources, in reaching a conclusion as to the fair value of its investments.

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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 to
other similar securities. This will include looking for relative consistency across securities in common sectors, durations, and credit ratings. This review
will also include all fixed income securities rated lower than “A” by Moody’s or Standard & Poor’s. If, after this review, management does not believe the
pricing for any security is a reasonable estimate of fair value, then it will seek to resolve the discrepancy through discussions with the pricing service. In its
review, management did not identify any such discrepancies, and no adjustments were made to the estimates provided by the pricing service, for the years
ended December 31, 2020, 2019, or 2018. The classification within the fair value hierarchy is then confirmed based on the final conclusions from the
pricing review.

For more information on the Company’s fair value measurements, see Note 7 to the Consolidated Financial Statements, included elsewhere in this

Form 10-K.

Deferred Policy Acquisition Costs and Value of Business Acquired

Certain direct policy acquisition costs consisting of commissions, state premium taxes, and other direct underwriting expenses that vary with and

are primarily related to the production of business are deferred and amortized over the effective period of the related insurance policies as the underlying
policy premiums are earned.

As in the case of previous acquisitions, no deferred policy acquisition costs (“DAC”) were recorded in the acquisition of Westminster in
accordance with purchase accounting guidance. Rather, a separate intangible asset representing the value of business acquired (“VOBA”) was valued at
$4,750 and established at the closing date. This VOBA intangible asset was amortized into expense as the acquired unearned premiums were reported into
income, in the same way as DAC, and is fully amortized at December 31, 2020. Policy acquisition costs relating to new business written by Westminster
were deferred following the closing date. The release of the VOBA asset and the establishment of new DAC generally offset each other over the twelve
months following the acquisition of Westminster.

At December 31, 2020 and 2019, deferred policy acquisition costs, the VOBA intangible asset, and the related liability for unearned premiums

were as follows:

Deferred policy acquisition costs
Liability for unearned premiums

December 31,

2020

2019

$

23,968
119,363

$

15,399
89,276

The method followed in computing DAC limits the amount of deferred costs to their estimated realizable value, which gives 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 DAC. If the estimation of net realizable value indicates
that DAC are not recoverable, they would be written off or a premium deficiency reserve would be established.

Income Taxes

Current income taxes represent amounts paid to the federal government and certain states whose payment is based upon net income (subject to

regulatory adjustments) generated by the Company. NI Holdings uses the asset and liability method of accounting for deferred income taxes. Deferred
income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the income tax bases of our assets and
liabilities. A valuation allowance is provided when it is more likely than not that some portion of the deferred income tax asset will not be realized. Total
income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability, excluding amounts attributed to accumulated
other comprehensive income.

NI Holdings had gross deferred income tax assets of $8,603 at December 31, 2020 and $6,294 at December 31, 2019, arising primarily from

unearned premiums, loss reserve discounting, and net operating loss carryforwards. A valuation allowance is required 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 be realized. A valuation allowance of $931 and $594
was maintained at December 31, 2020 and December 31, 2019, respectively.

NI Holdings had gross deferred income tax liabilities of $16,429 at December 31, 2020 and $10,290 at December 31, 2019, arising primarily from

deferred policy acquisition costs, net unrealized capital gains on investments, and other intangible assets.

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 its
deferred income tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in
estimated future taxable income may require the Company to record a valuation allowance against its deferred income tax assets.

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As of December 31, 2020, NI Holdings had no material unrecognized tax benefits or accrued interest and penalties. Federal income tax returns for

the years 2014 through 2019 are open for examination.

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Results of Operations

NI Holdings’ results of operations are influenced by factors affecting the property and casualty insurance and crop insurance industries in general.

The operating results of the United States property and casualty industry and crop insurance industry are subject to significant variations due to
competition, weather, catastrophic events, regulation changes, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest
rates, and other changes in the investment environment.

NI Holdings premium levels and underwriting results have been, and will continue to be, influenced by market conditions. Pricing in the property
and casualty insurance industry historically has been cyclical. During a soft market cycle, price competition is more significant than during a hard market
cycle and makes it difficult to attract and retain properly priced business. During a hard market cycle, it is more likely that insurers will be able to increase
their rates or profit margins. A hard market typically has a positive effect on premium growth. The markets that NI Holdings serve are diversified, which
requires management to regularly monitor the Company’s performance and competitive position by line of business and geographic market to schedule
appropriate rate actions.

Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres and types of crops insured because the

pricing is set by the RMA rather than individual insurance carriers. The expected experience of this business for the calendar year may also significantly
affect the reported net earned premiums and losses due to the risk-sharing arrangement with the federal government. Multi-peril crop insurance premiums
are generally written in the second quarter, and earned ratably over the period of risk, which extends into the fourth quarter. However, as was the case in
2020, if the Company experiences a higher than average number of prevented planting claims early in the season, additional earned premiums may be
recognized in the second quarter due to the shortened risk period.

Premiums in the crop hail insurance business are also generally written in the second quarter, but earned over a shorter period of risk than multi-

peril crop insurance.

Premiums in the personal lines of business (private passenger auto and home and farm) are generally written and earned throughout the year.

Losses on this business are also incurred throughout the year, but usually are more frequent and/or severe during periods of weather-related activity in the
second and third quarters.

Premiums in the commercial lines of business are generally written and earned throughout the year. Losses on this business are also incurred

throughout the year, but generally are more frequent during the first and second quarters.

For more information on the Company’s results of operations by segment, see Note 22 to the Consolidated Financial Statements, included

elsewhere in this Form 10-K.

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Years ended December 31, 2020 and 2019

The consolidated net income for NI Holdings was $41,344 for the year ended December 31, 2020 compared to $26,500 for the year ended

December 31, 2019. The major components of NI Holdings’ operating revenues and net income for the two periods were as follows:

Revenues:

Net premiums earned
Fee and other income
Net investment income
Net capital gain on investments

Total revenues

Components of net income:
Net premiums earned
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs and other underwriting and general expenses

Underwriting gain
Fee and other income
Net investment income
Net capital gain on investments
Income before income taxes

Income taxes
Net income

Year Ended December 31,

2020

2019

$

$

$

$

283,661
1,801
7,271
13,624
306,357

283,661
168,473
85,068
30,120
1,801
7,271
13,624
52,816
11,472
41,344

$

$

$

$

246,438
2,125
7,433
14,783
270,779

246,438
169,710
67,258
9,470
2,125
7,433
14,783
33,811
7,311
26,500

Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company’s

results. The Company’s underwriting results were impacted by reduced net premiums earned in our non-standard auto segment. The Company also
experienced volatility in net unrealized investment gains and losses driven by the impact of changes in fair value on the Company’s equity investments,
attributable to the recent disruption in global financial markets. For further discussion regarding the potential impacts of COVID-19 and related economic
conditions of the Company, see “Part II – Item 1A – Risk Factors”.

Net Premiums Earned

NI Holdings’ net premiums earned for the year ended December 31, 2020 increased $37,223, or 15.1%, to $283,661 compared to $246,438 for the

year ended December 31, 2019.

Net premiums earned:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total net premiums earned

Net premiums earned:
Direct premium
Assumed premium
Ceded premium

Total net premiums earned

Year Ended December 31,

2020

2019

72,009
53,737
74,879
35,718
38,288
9,030
283,661

$

$

67,983
57,114
71,171
38,019
4,097
8,054
246,438

Year Ended December 31,

2020

2019

301,061
6,459
(23,859)
283,661

$

$

257,661
5,897
(17,120)
246,438

$

$

$

$

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Direct premiums earned for 2020 increased $43,400, or 16.9%, from 2019. The addition of the Westminster commercial business contributed

$40,742 in direct premiums earned during 2020.

Assumed premiums earned increased slightly, primarily related to the assumed reinsurance business from American Agricultural Insurance
Company. Ceded premiums earned increased due to incorporating Westminster into our reinsurance program and increasing our overall reinsurance
coverage limits.

Our personal lines of business (private passenger auto, home and farm) continued to grow significantly in South Dakota, while premiums in these
lines remained relatively flat in North Dakota and Nebraska due to the impact of both COVID-19 and increased competition in our markets. Non-standard
auto premiums earned decreased approximately 6% year-over-year due to the impact of COVID-19, reduced policy counts as a result of rate actions taken
in Primero’s primary markets which were driven by increased minimum liability limits, and competitive challenges in Direct Auto’s market. Direct
premiums for crop business were lower in 2020 compared to 2019, primarily due to lower commodity prices for multi-peril crop and fewer acres insured
under the crop hail line of business.

Losses and LAE

NI Holdings’ net losses and LAE for the year ended December 31, 2020 decreased $1,237, or 0.7%, to $168,473 compared to $169,710 for the

year ended December 31, 2019, due primarily to improved loss experience in the private passenger auto, non-standard auto, and home and farm segments.
This decrease is understated as the prior year’s losses and LAE did not include Westminster. The Company’s loss and LAE ratio decreased significantly.

Net losses and LAE:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total net losses and LAE

Loss and LAE ratio:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total loss and LAE ratio

Year Ended December 31,

2020

2019

$

$

45,511
30,347
36,745
31,379
20,430
4,061
168,473

$

$

52,696
32,654
45,601
32,091
2,489
4,179
169,710

Year Ended December 31,

2020

2019

63.2%
56.5%
49.1%
87.9%
53.4%
45.0%
59.4%

77.5%
57.2%
64.1%
84.4%
60.8%
51.9%
68.9%

Net losses for private passenger auto and non-standard auto decreased in 2020 compared to the prior year, due primarily to improved loss
frequency as insureds drove fewer miles, primarily during the second quarter of the year. In home and farm, losses and LAE decreased due primarily to a
lower frequency of weather-related losses. During 2019, private passenger auto also experienced significant bodily injury and underinsured losses, as well
as higher weather-related losses.

For the commercial business, while overall losses increased due to Westminster’s results being added to the segment, the year-over-year loss and

LAE ratio improved.

The 2019 multi-peril crop insurance business ended the year with less than 50% of the corn in North Dakota harvested and we carried a significant
number of open claims into 2020. All of those claims have been settled, but produced unfavorable loss development of $3,831 on a net basis. For the 2020
crop season, a higher than normal number of prevented planting claims were submitted due to fields not harvested from the prior year, resulting in an
elevated loss and LAE ratio.

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During the year ended December 31, 2020, reported losses and LAE included $3,292 of net unfavorable development on prior accident years,
compared to $6,509 of net favorable development on prior accident years during the year ended December 31, 2019. Net favorable development is the
result of prior years’ claims settling for less than originally estimated, while net unfavorable development is the result of prior years’ claims settling for
more 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 the reserve is appropriate. The net unfavorable development reported in 2020 is primarily related to the 2019 multi-peril
crop business.

Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses

Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $17,810, or 26.5%, during the year

ended December 31, 2020 compared to a year ago.

Underlying expenses
Deferral of policy acquisition costs

Other underwriting and general expenses

Amortization of deferred policy acquisition costs

Total reported expenses

Year Ended December 31,

2020

2019

$

$

93,637
(60,041)
33,596
51,472
85,068

$

$

69,791
(48,721)
21,070
46,188
67,258

Underlying expenses were $23,846 higher in the year ended December 31, 2020 compared to a year ago. Westminster contributed $19,163 of

underlying expenses to the current year, including $5,172 of other intangibles amortization expense. Policy acquisition costs have increased due to higher
written premiums. Compensation expenses have increased year-over-year. The Company also paid $1,129 of membership dues on behalf of its NDFB
members in North Dakota during 2020 in response to the COVID-19 pandemic.

Deferrals of policy acquisition costs were $11,320 higher in the year ended December 31, 2020 compared to 2019 primarily due to the addition of

Westminster. Amortization of those costs also increased consistent with the increase in earned premiums.

The expense ratio of 30.0% for the year ended December 31, 2020 was 2.7 percentage points higher than the expense ratio in 2019. This increase

in the ratio is reflective of the higher expense ratio of the Westminster business and increased compensation 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.

Underwriting gain (loss):
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total underwriting gain

Combined ratio:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total combined ratio

Year Ended December 31,

2020

2019

$

$

6,512
2,651
17,260
(468 )
1,500
2,665
30,120

$

$

(3,599)
3,383
5,464
1,532
745
1,945
9,470

Year Ended December 31,

2020

2019

91.0%
95.1%
76.9%
101.3%
96.1%
70.5%
89.4%

105.3%
94.1%
92.3%
96.0%
81.8%
75.9%
96.2%

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The underwriting profitability of the Company for the year ended December 31, 2020 increased year-over-year. As discussed above, loss

experience (as reflected in the loss and LAE ratio) decreased in the private passenger auto, non-standard auto, home and farm, and all other segments.

The improvement in the private passenger auto combined ratio reflects elevated loss experience during 2019 and favorable loss experience during
2020. Losses during 2019 were impacted by weather-related losses and significant bodily injury and underinsured liability losses. During 2020, a reduction
in miles driven due to the COVID-19 pandemic primarily during the second quarter resulted in decreased claims frequency. Claims frequency has mostly
returned to normal levels, although the level of large claims has moderated from a year ago.

For the non-standard auto segment, the combined ratio increased slightly year-over-year. The loss and LAE ratio improved as claims frequency for

this segment was reduced due to fewer miles driven. However, the expense ratio increased due to Direct Auto, which has a higher expense load than
Primero, writing a higher proportion of business in the segment compared to the prior year.

The combined ratio for the home and farm segment improved substantially as we experienced a lower number of weather-related events in 2020.

The favorable impact from fewer weather-related losses combined with modest rate adjustments resulted in a profitable year.

For the commercial segment, the results of Westminster are now combined with the commercial business of Nodak Insurance and American West.
The 2019 results reflected high loss experience. During 2020, the addition of Westminster decreased the loss and LAE ratio, although a higher expense load
led to a higher combined ratio. Underwriting expenses for Westminster were adversely impacted by amortization of its VOBA intangible asset in 2020.

For the crop segment, the combined ratio was elevated due to the high percentage of unharvested corn that remained in the field from the 2019

season. As those fields were harvested, the losses were higher than anticipated, resulting in adverse development. The 2020 multi-peril crop ratio was also
elevated due to the large number of prevented planting claims submitted during second quarter. The high combined ratio for multi-peril crop was partially
offset by favorable loss experience in our crop hail business.

Fee and Other Income

NI Holdings had fee and other income of $1,801 for the year ended December 31, 2020, compared to $2,125 for the year ended December 31,

2019. Fee income attributable to Primero’s non-standard auto business is a key component in measuring its profitability. Fee income on this business
decreased to $1,337 for 2020 from $1,638 for 2019, driven by a reduction in policy count. Primero also temporarily waived some of its policy maintenance
fees as a response to the COVID-19 pandemic.

Net Investment Income

The following table sets forth our average cash and invested assets, net investment income, and return on average cash and invested assets for the

reported periods:

Average cash and invested assets

Gross investment income
Investment expenses

Net investment income

Gross return on average cash and invested assets
Net return on average cash and invested assets

$

$

$

Year Ended December 31,

$

$

$

2020

449,148

10,519
3,248
7,271

2.3%
1.6%

2019

394,403

9,826
2,393
7,433

2.5%
1.9%

Investment income, net of investment expense, decreased $162 for the year ended December 31, 2020 compared to a year ago. This decrease is

partly attributable to lower market yields on the acquired Westminster’s fixed income securities and additional investment expenses from Westminster. The
weighted average gross yield on invested assets decreased to 2.3% in 2020 from 2.5% in 2019, driven by lower reinvestment yields on fixed income
securities.

As of December 31, 2020, our overall book yield for our combined fixed income and equity portfolio was 2.6%. The average duration of our fixed

income securities was 3.6 years at December 31, 2020.

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Net Capital Gain on Investments

NI Holdings had realized capital gains on investment of $7,771 for the year ended December 31, 2020, compared to $3,246 a year ago. This
increase was driven by the strong recovery in financial markets, along with the liquidation of certain investment holdings to fund intercompany cash
transfers needed to establish the new reinsurance pooling arrangement.

Effective January 1, 2019, in accordance with a change in accounting principle, market fluctuations on our equity securities began to be reported

in the Company’s results of operations. NI Holdings reported a net gain of $5,853 attributed to the change in unrealized appreciation of its equity securities
for the year ended December 31, 2020, compared to a net gain of $11,537 for the year ended December 31, 2019.

The Company recorded no OTTIs in the years ended December 31, 2020 and 2019.

The Company’s fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales of
securities that are not impaired, consistent with our investment goals and policies. At December 31, 2020, the Company had net unrealized gains on fixed
income securities of $16,505 and net unrealized gains on equity securities of $27,749. At December 31, 2019, the Company had net unrealized losses on
fixed income securities of $7,241 and net unrealized gains on equity securities of $21,896. The increase in the fair value of our fixed income securities was
driven primarily by the U.S. Federal Reserve’s implementation of the unprecedented efforts it announced in March to support the economy, as well as its
intention to maintain a near-zero interest rate policy for the foreseeable future. Additionally, the stock market recovery previously noted was the primary
driver of the increased unrealized gains in the equity securities portfolio.

NI Holdings has evaluated each security in a loss position and taken into account the severity and duration of the impairment, the current rating on

the bond, and the outlook for the issuer according to independent analysts. NI Holdings will continue to monitor these securities throughout the remainder
of the COVID-19 pandemic and economic recovery period.

Income before Income Taxes

For the year ended December 31, 2020, NI Holdings had pre-tax income of $52,816 compared to $33,811 for the year ended December 31, 2019.

The increase in pre-tax results was largely attributable to the significant improvement in loss experience during 2020.

Income Taxes

NI Holdings recorded income tax expense of $11,472 for the year ended December 31, 2020, compared to $7,311 for the year ended December 31,

2019. A portion of income tax expense relates to state income taxes primarily for the state of Illinois. Our effective tax rate for 2020 was 21.7% compared
to an effective tax rate of 21.6% for 2019.

The valuation allowance against certain deferred income tax assets was $931 as of December 31, 2020, compared to $594 as of December 31,

2019.

Net Income

For the year ended December 31, 2020, NI Holdings had net income before non-controlling interest of $41,344 compared to $26,500 for 2019.

This increase in net income was largely attributable to the significant improvement in loss experience during 2020.

Return on Average Equity

For the year ended December 31, 2020, NI Holdings had annualized return on average equity, after non-controlling interest, of 12.4% compared to

annualized return on average equity, after non-controlling interest, of 9.1% for the year ended December 31, 2019. Average equity is calculated as the
average between beginning and ending equity excluding non-controlling interest for the period.

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Years ended December 31, 2019 and 2018

The consolidated net income for NI Holdings was $26,500 for the year ended December 31, 2019 compared to $31,244 for the prior year. The

major components of NI Holdings’ operating revenues and net income for the two periods were as follows:

Revenues:

Net premiums earned
Fee and other income
Net investment income
Net capital gain on investments

Total revenues

Components of net income:
Net premiums earned
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs and other underwriting and general expenses

Underwriting gain
Fee and other income
Net investment income
Net capital gain on investments
Income before income taxes

Income taxes
Net income

Net Premiums Earned

Year Ended December 31,

2019

2018

$

$

$

$

246,438
2,125
7,433
14,783
270,779

246,438
169,710
67,258
9,470
2,125
7,433
14,783
33,811
7,311
26,500

$

$

$

$

195,720
6,496
6,180
3,974
212,370

195,720
119,088
54,117
22,515
6,496
6,180
3,974
39,165
7,921
31,244

NI Holdings’ net premiums earned for the year ended December 31, 2019 increased 25.9% to $246,438 compared to $195,720 for the year ended

December 31, 2018.

Net premiums earned:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total net premiums earned

Net premiums earned:
Direct premium
Assumed premium
Ceded premium

Total net premiums earned

Year Ended December 31,

2019

2018

67,983
57,114
71,171
38,019
4,097
8,054
246,438

$

$

62,465
27,964
64,677
28,699
3,809
8,106
195,720

Year Ended December 31,

2019

2018

257,661
5,897
(17,120)
246,438

$

$

219,600
6,514
(30,394)
195,720

$

$

$

$

Direct premiums earned for 2019 increased $38,061, or 17.3%, to $257,661 from $219,600 for 2018. The addition of the Direct Auto non-standard

auto business contributed $43,873 in direct premiums earned during 2019 compared to $14,516 for the prior year.

Assumed premiums earned decreased slightly, primarily related to crop hail business from Rural Mutual. Ceded premiums earned decreased due

to less gain-sharing of multi-peril crop premiums to the federal government.

Our personal lines of business (private passenger auto, home and farm) continued their strong growth in South Dakota. Our non-standard auto

premiums also increased year-over-year due to the acquisition of Direct Auto. Direct premiums for crop business are lower in 2019 compared to 2018 due
in part to lower commodity prices, although 2019 net premiums are higher than 2018 net premiums due to more ceding of 2018 premiums under the gain-
sharing provisions of the federal crop insurance program based on our more favorable loss ratio for 2018.

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Losses and LAE

NI Holdings’ net losses and LAE for the year ended December 31, 2019 increased 42.5% to $169,710 compared to $119,088 for the year ended

December 31, 2018. The Company’s loss and LAE ratio increased to 68.9% for 2019, compared to 60.8% for 2018.

Loss and LAE ratio:

Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total loss and LAE ratio

Year Ended December 31,

2019

2018

77.5%
57.2%
64.1%
84.4%
60.8%
51.9%
68.9%

71.3%
51.3%
66.0%
41.5%
39.5%
50.5%
60.8%

The Company’s overall loss and LAE experience deteriorated year-over-year, primarily with increases in the loss and LAE ratios in the private

passenger auto, non-standard auto, crop, and commercial segments.

Net losses for private passenger auto increased in 2019 compared to the prior year, as third quarter weather activity and liability losses each

increased compared to a year ago. The loss and LAE ratio for the home and farm segment was at the expected level, with favorable farmowners results
offsetting unfavorable homeowners results.

Net losses for non-standard auto included a combination of favorable loss experience development in Direct Auto, partially offset by unfavorable

loss experience development in Primero. In Primero, the statutory increase in minimum liability limits in the state of Nevada resulted in a higher than
anticipated increase in the average paid claim and average loss reserve. This has driven up our loss experience, which we have addressed through rate
increases. Unfortunately, these rate increases challenged our ability to write new policies during the second half of 2019, but we feel were necessary to
properly price the business following the statutory change in the limits.

Our loss experience was above average levels for both our multi-peril crop business and crop hail business for 2019, compared to favorable loss
experience during 2018. The wet spring and cool summer across North Dakota resulted in a delay for some crops to mature, while a wet fall delayed the
harvest of those crops. A substantial number of multi-peril crop claims remained open at year-end.

During 2019, reported losses and LAE included $6,509 of net favorable development on prior accident years, compared to $589 of net favorable
development on prior accident years during 2018. Net favorable development is the result of prior years’ claims settling for less than originally estimated,
while net unfavorable development is the result of prior years’ claims settling for more 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 the reserve is appropriate.

Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses

Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased 24.3% to $67,258 in the year

ended December 31, 2019 compared to $54,117 in 2018.

Underlying expenses
Deferral of policy acquisition costs

Other underwriting and general expenses

Amortization of deferred policy acquisition costs

Total reported expenses

Year Ended December 31,

2019

2018

$

$

69,791
(48,721)
21,070
46,188
67,258

$

$

58,124
(35,863)
22,261
31,856
54,117

Underlying expenses were $11,667 higher in the year ended December 31, 2019 compared to the prior year. The new Direct Auto subsidiary
contributed $16,792 of underlying expenses during 2019, compared to $5,981 for the prior year. Policy acquisition costs have increased due to higher
written premiums.

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Expense deferrals were $12,858 higher in the year ended December 31, 2019 compared to 2018 primarily due to increases in direct premiums

written in 2019 and the new Direct Auto business. Amortization of those costs was $14,332 higher in 2019 for the same reasons.

The expense ratio of 27.3% for the year ended December 31, 2019 was 0.4 percentage points lower than the expense ratio in 2018. This decrease

in the ratio primarily reflects increased net earned premiums as a result of less 2019 ceded premiums associated with the gain-sharing provisions of the
multi-peril crop program with the federal government, offset by a full year of the higher commission rates for the Direct Auto non-standard auto business.

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.

Underwriting gain (loss):
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other

Total underwriting gain

Year Ended December 31,

2019

2018

$

$

(3,599) $
3,383
5,464
1,532
745
1,945
9,470

$

(589 )
4,093
2,012
13,611
1,430
1,958
22,515

The underwriting results of the Company for the year ended December 31, 2019 decreased year-over-year. As discussed above, loss experience (as

reflected in the loss and LAE ratio) increased in the private passenger auto, non-standard auto, crop, and commercial segments.

Increased weather activity, and a higher frequency and severity of liability losses for the auto lines, resulted in lower 2019 underwriting results in

our private passenger auto and commercial businesses. The homeowners’ portion of the home and farm segment also experienced increased weather
activity, although the underwriting results for the segment as a whole for 2019 were favorable compared to a year ago based on strong results for our
farmowners’ business.

The non-standard auto results decreased from last year, as the increase in underwriting gain from the new Direct Auto business was offset by the

deterioration of the Primero business. The underwriting gain on crop insurance decreased, due to higher loss ratios for the multi-peril crop business and the
crop hail line.

Fee and Other Income

NI Holdings had fee and other income of $2,125 for the year ended December 31, 2019, compared to $6,496 for the year ended December 31,

2018. Fee income attributable to the non-standard auto segment is a key component in measuring its profitability. Fee income on this business increased to
$1,638 for 2019 from $1,406 for 2018, due to the addition of Direct Auto. In the third quarter of 2018, the Company recognized a pre-tax gain of $4,578 as
part of other income as a result of the purchase accounting afforded the purchase of Direct Auto.

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Net Investment Income

The following table sets forth our average cash and invested assets, net investment income, and return on average cash and invested assets for the

reported periods:

Average cash and invested assets

Gross investment income
Investment expenses

Net investment income

Gross return on average cash and invested assets
Net return on average cash and invested assets

$

$

$

Year Ended December 31,

$

$

$

2019

394,403

9,826
2,393
7,433

2.5%
1.9%

2018

337,407

8,384
2,204
6,180

2.5%
1.8%

Investment income, net of investment expense, increased $1,253 for the year ended December 31, 2019 compared to the prior year. This increase

is attributable to the increase in invested assets, due primarily to the acquisition of Direct Auto. The weighted average gross yield on invested assets
remained steady at 2.5% in 2019 compared to 2018.

As of December 31, 2019, our overall book yield for our combined fixed income and equity portfolio was 2.8% and the average duration for our
fixed income security portfolio was 3.5 years. The Direct Auto cash and cash equivalents acquired at the date of purchase have now been fully invested in
accordance with our investment policy.

Net Capital Gain on Investments

NI Holdings had realized capital gains on investment of $3,246 for the year ended December 31, 2019, compared to $3,974 the prior year.

Effective January 1, 2019, in accordance with a change in accounting principle, market fluctuations on our equity securities are reflected in the

Company’s results of operations. NI Holdings reported a net gain of $11,537 attributed to the change in unrealized gain of its equity securities for the year
ended December 31, 2019. Prior to January 1, 2019, such unrealized gains and losses were included in other comprehensive income. Pre-tax net unrealized
losses on equity securities recorded in other comprehensive income were $8,174 for the year ended December 31, 2018. Although we anticipate a higher
level of short-term volatility going forward in our reported results due to similar market fluctuations, we continue to believe that this asset class presents
viable investment opportunities.

The Company recorded no other-than-temporary impairments in the year ended December 31, 2019, and $382 of other-than-temporary

impairments in the year ended December 31, 2018.

The Company’s fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales of
securities that are not impaired, consistent with our investment goals and policies. At December 31, 2019, the Company had net unrealized gains on fixed
income securities of $7,241 and net unrealized gains on equity securities of $21,896. At December 31, 2018, the Company had net unrealized losses on
fixed income securities of $2,325 and net unrealized gains on equity securities of $10,359. The increase in the fair value of our fixed income securities was
driven by a sharp decline in U.S. interest rates over 2019 to result in a strong rally for the fixed income asset class. The increase in the fair value of our
equity securities is consistent with the fluctuations in the equity markets in the same period.

NI Holdings has evaluated each fixed income security in a loss position and taken into account the severity and duration of the impairment, the

current rating on the security (if any), and the outlook for the issuer according to independent analysts. NI Holdings believes that any declines in fair value
of individual securities in its existing portfolio are most likely attributable to short-term market trends and there is no evidence that the Company will not
recover the entire amortized cost basis.

Income before Income Taxes

For the year ended December 31, 2019, NI Holdings had pre-tax income of $33,811 compared to $39,165 for the year ended December 31, 2018.

The decrease in pre-tax income was largely attributable to increased loss experience in our private passenger auto and crop segments in 2019 and the
elimination of the 2018 purchase accounting gain associated with the acquisition of Direct Auto, offset by the net gain attributed to the favorable change in
unrealized gain of equity securities.

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Income Taxes

NI Holdings recorded income tax expense of $7,311 for the year ended December 31, 2019, compared to $7,921 for the year ended December 31,
2018. A portion of income tax expense relates to state income taxes primarily for the state of Illinois. Our effective tax rate for 2019 was 21.6% compared
to an effective tax rate of 20.2% for 2018.

The valuation allowance against certain deferred income tax assets was $594 as of December 31, 2019, compared to $587 as of December 31,

2018.

Net Income

For the year ended December 31, 2019, NI Holdings had net income before non-controlling interest of $26,500 compared to $31,244 for 2018.

This decrease in net income was primarily attributable to increased loss experience in our private passenger auto and crop segments in 2019 and the
elimination of the 2018 purchase accounting gain associated with the acquisition of Direct Auto, offset by the net gain attributed to the favorable change in
unrealized gain of equity securities.

Return on Average Equity

For the year ended December 31, 2019, NI Holdings had annualized return on average equity, after non-controlling interest, of 9.1% compared to

annualized return on average equity, after non-controlling interest, of 11.8% for the year ended December 31, 2018. Average equity is calculated as the
average between beginning and ending equity excluding non-controlling interest for the period.

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Financial Position

The major components of NI Holdings’ financial position are as follows:

Assets:

Cash and investments
Premiums and agents’ balances receivable
Deferred policy acquisition costs
Receivable from Federal Crop Insurance Corporation
Property and equipment
Goodwill and other intangibles
Other assets

Total assets

Liabilities:

Unpaid losses and loss adjustment expenses
Unearned premiums
Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and equity

December 31,
2020

December 31,
2019

$

$

$

$

$

$

$

494,363
48,523
23,968
6,646
9,899
18,194
16,010
617,603

105,750
119,363
43,618
268,731

348,872
617,603

$

419,923
36,691
15,399
14,230
7,694
2,912
11,310
508,159

93,250
89,276
15,830
198,356

309,803
508,159

At December 31, 2020, NI Holdings’ total assets increased $109,444, or 21.5%, from December 31, 2019. Cash and investments increased due to

positive earnings in the business, unrealized appreciation in equity securities, and the acquired Westminster assets. Premiums and agents’ balances
receivable also increased due to the acquired Westminster receivables. Deferred policy acquisition costs increased due partly to the Westminster
commercial business and growth in other segments. The receivable from the FCIC decreased due to a partial collection of past year amounts, partially
offset by 2020 activity. Goodwill and other intangibles recognized in the Westminster acquisition was $20,506, less amortization expense during 2020.
Other assets increased as a result of higher reinsurance recoverables from the Westminster commercial business.

At December 31, 2020, total liabilities increased $70,375, or 35.5%, from December 31, 2019. Unpaid losses and loss adjustment expenses
increased due primarily to Westminster liabilities. Unearned premiums increased due to Westminster acquired amounts of $16,611 and additional growth in
Westminster.

Total equity increased by $39,069, or 12.6%, during the year ended December 31, 2020. The increase in equity primarily reflects consolidated net
income of $41,344 for the year and other comprehensive income of $7,319, due to higher fair values within our fixed income securities portfolio, partially
offset by share repurchases of $12,234.

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Liquidity and Capital Resources

NI Holdings generates sufficient funds from its operations and maintains a high degree of liquidity in its investment portfolio to meet the demands

of claim settlements and operating expenses. The primary sources of funds are premium collections, investment earnings, and maturing investments. In
2017, we raised $93,145 in net proceeds from our IPO, which we planned to use for strategic acquisitions.

In 2018, we used $17,000 for the acquisition of Direct Auto. On January 1, 2020, we acquired Westminster for $40,000. We paid $20,000 at the

time of closing. We will pay the remaining $20,000, subject to certain adjustments, in three equal installments on each of the first and second anniversaries
of the closing, and on the first business day of the month preceding the third anniversary of the closing.

We currently anticipate that cash generated from our operations and available from our investment portfolio, along with the remaining IPO net

proceeds, will be sufficient to fund our operations.

The Company’s philosophy is to provide sufficient cash flows from operations to meet its obligations in order to minimize the forced sales of
investments. The Company maintains a portion of its investment portfolio in relatively short-term and highly liquid assets to ensure the availability of
funds.

The changes in cash and cash equivalents for the years ended December 31, 2020, 2019, and 2018 were as follows:

Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities

Net increase (decrease) in cash and cash equivalents

Year Ended December 31,
2019

2020

2018

$

$

51,010
200
(12,265)
38,945

$

$

$

25,665
(30,458)
(2,025)
(6,818) $

20,955
23,397
(2,996)
41,356

For the year ended December 31, 2020, net cash provided by operating activities totaled $51,010 compared to $25,665 a year ago. The

consolidated net income of $41,344 for the year ended December 31, 2020 compared to consolidated net income of $26,500 for the same period a year ago.
The increase in cash flows from operating activities also reflected differences in the activity between the Company and the FCIC during 2020 and 2019,
growth in unearned premiums due to increasing sales of the Westminster commercial business, and lower levels of loss and loss adjustment expenses.
During 2019, unrealized gains on investments were offset by increases in unpaid losses and LAE and unearned premiums to serve as the primary
reconciling items between net income and net cash flows from operating activities.

For the year ended December 31, 2020, net cash provided by investing activities totaled $200 compared to $30,458 used by investing activities a

year ago. In 2020, the initial cash installment payment for Westminster was $703 more than the cash and cash equivalents received in the acquisition.
During 2020, the sales and maturities of securities approximated the purchase of new securities. Normally, the excess cash generated from operations
would be invested in longer term investments. However, the implementation of the intercompany pooling reinsurance agreement necessitated substantial
cash transfers between the insurance company subsidiaries during December, 2020, which were not fully reinvested in longer-term investments by year-
end. The prior year reflects the impact of investing excess cash generated from operations into longer term investments, partially offset by sales and
maturities of fixed income securities.

For the year ended December 31, 2020, net cash used by financing activities totaled $12,265 compared to $2,025 a year ago. The Company

repurchased shares of its own common stock for $12,234 and $2,006 during 2020 and 2019, respectively.

As a standalone entity, and outside of the net proceeds from the IPO, NI Holdings’ principal source of long-term liquidity will be dividend

payments from its directly-owned subsidiaries.

Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of dividends or other distributions it may pay to NI
Holdings. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to,
but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of the Company’s surplus as
regards policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized
capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurance company may
carry forward net income from the preceding two calendar years, not including realized capital gains, less any dividends actually paid during those two
calendar years. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the North Dakota Insurance
Department.

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The amount available for payment of dividends from Nodak Insurance to us during 2021 without the prior approval of the North Dakota Insurance

Department is approximately $21,628 based upon the policyholders’ surplus of Nodak Insurance at December 31, 2020. Prior to its payment of any
extraordinary dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department. This notice must be
provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an
ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if an insurance company is in violation of
any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. The Nodak Insurance Board of Directors
declared and paid a $6,000 dividend to NI Holdings during the year ended December 31, 2020. No dividends were declared or paid by Nodak Insurance
during the years ended December 31, 2019 or 2018.

Direct Auto is restricted by the insurance laws of Illinois as to the amount of dividends or other distributions it may pay to NI Holdings. Illinois

law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without prior approval of,
the Illinois Department of Insurance. This amount cannot exceed the greater of (i) 10% of the Company’s surplus as regards policyholders as of the
preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized capital gains). Dividends in excess
of this amount are considered “extraordinary” and are subject to the approval of the Illinois Department of Insurance.

The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois

Department of Insurance is $3,582 based upon the policyholders’ surplus of Direct Auto at December 31, 2020. Prior to its payment of any dividend, Direct
Auto will be required to provide notice of the dividend to the Illinois Department of Insurance. This notice must be provided to the Illinois Department of
Insurance within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10
days prior to the payment of an ordinary dividend. The Illinois Department of Insurance has the power to limit or prohibit dividend payments if Direct Auto
is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were
declared or paid by Direct Auto during the years ended December 31, 2020, 2019 or 2018.

The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland

Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three
preceding years. Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance
Administration. This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend
and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Maryland
Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation. These restrictions or
any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid by Westminster during the year ended December
31, 2020.

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Contractual Obligations Table

The following table summarizes, as of December 31, 2020, NI Holdings’ future payments and estimated claims and claims related payments.

Contractual Obligations
Estimated gross loss & LAE payments
Acquisition of Westminster
Operating lease obligations

Total

Payments Due by Period

Total

105,750
20,000
2,598
128,348

$

$

$

$

Less than
1 year

1 – 3 years

3 – 5 years

More than
5 years

53,203
6,667
249
60,119

$

$

32,049
13,333
677
46,059

$

$

12,253
-
606
12,859

$

$

8,245
-
1,066
9,311

The timing of the amounts of the gross loss and LAE payments is an estimate based on historical experience and the expectations of future

payment patterns. The actual timing and amounts of these payments in the future may vary from the amounts stated above.

Westminster was acquired on January 1, 2020 for a purchase price of $40,000, subject to certain adjustments. The Company paid $20,000 from the

net proceeds from the IPO at time of closing, with another $20,000 payable in three equal installments. The Company paid the first installment on the first
anniversary of the closing. The Company will pay the remaining two installments, plus or minus any adjustments, on the second anniversary of the closing
and on the first business day of the month preceding the third anniversary of the closing.

Off-Balance Sheet Arrangements

NI Holdings has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial

condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital reserves.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 5 to the Consolidated Financial Statements, included elsewhere in this Form 10-

K.

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Item 7A. Quantitative and Qualitative Information About Market Risk

Market Risk

Market 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

to three principal types of market risk through its investment activities: interest rate risk, credit risk, and equity risk. NI Holdings’ primary market risk
exposure is to changes in interest rates. NI Holdings has not entered, and does not plan to enter, into any derivative financial instruments for hedging,
trading, or speculative purposes.

Interest Rate Risk

Interest rate risk is the risk that a company will incur economic losses due to adverse changes in interest rates. NI Holdings’ exposure to interest

rate changes primarily results from its significant holdings of fixed income securities. Fluctuations in interest rates have a direct impact on the fair value of
these securities.

The portfolio duration of the fixed income securities in NI Holdings’ investment portfolio at December 31, 2020 was 3.57 years. The Company’s

fixed income securities include U.S. government bonds, securities issued by government agencies, obligations of state and local governments and
governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderate
fluctuations in fair value resulting from changes in interest rates. NI Holdings carries these investments as available for sale. This allows the Company to
manage its exposure to risks associated with interest rate fluctuations through active review of its investment portfolio by its management and Board of
Directors 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 may
have call features. In a declining interest rate environment, these securities may be called by their issuer and replaced with securities bearing lower interest
rates. 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 investment

objectives include maintaining adequate liquidity to meet its operational needs, optimizing its after-tax investment income, and its after-tax total return, all
of which are subject to NI Holdings’ tolerance for risk.

The table below shows the interest rate sensitivity of NI Holdings’ fixed income securities measured in terms of fair value (which is equal to the

carrying value for all of its investment securities that are subject to interest rate changes) at December 31, 2020 and 2019:

Hypothetical Change in Interest Rate
200 basis point increase

100 basis point increase

No change

100 basis point decrease

200 basis point decrease

As of December 31, 2020

As of December 31, 2019

Estimated
Change
in Fair Value

Estimated
Change
in Fair Value

Fair Value

$

(23,122) $
(11,438)
—
11,279
23,046

297,288 $
308,972
320,410
331,689
343,456

(21,976) $
(10,875)
—
10,518
21,273

Fair Value

273,969
285,071
295,945
306,463
317,218

The interest rate exposure of the Company’s portfolio increased slightly this year compared to last year. The increase in interest rate exposure was

driven by several factors, including a decrease in portfolio cash balances and an increase in the allocation within our portfolio to taxable sectors which
historically have higher interest rate sensitivity relative to tax-exempt municipals. Further increases in the portfolio’s interest rate exposure are expected as
we gradually shift to a higher long-term duration target. Pandemic-related effects did not have a material impact on the portfolio’s interest rate exposure.

Credit Risk

Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. NI Holdings
addresses this risk by investing primarily in fixed income securities that are rated at least investment grade by Moody’s or an equivalent rating quality. NI
Holdings also independently, and through its outside investment manager, monitors the financial condition of all of the issuers of fixed income securities in
the 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 Risk

Equity price risk is the risk that NI Holdings will incur economic losses due to adverse changes in equity prices.

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Table of Contents

Impact of Inflation

Inflation increases consumers’ needs for property and casualty insurance due to the increase in the value of the property insured and any potential

liability 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
establishes insurance premiums levels before the amount of losses and LAE, or the extent to which inflation may affect these expenses, are known.
Therefore, NI Holdings attempts to anticipate the potential impact of inflation when establishing rates.

Although inflation has slowed in recent years, it is still a factor in our economy. In the auto insurance industry, the increasing cost of technology in
today’s newer vehicles has increased the repair costs after accidents and also increased the proportion of vehicles considered totaled due to the high cost of
repair parts. The private passenger auto insurance industry, including NI Holdings, has experienced upward pressure on loss and LAE ratios as premium
levels attempt to maintain pace with this inflation.

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Table of Contents

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To 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,
2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2020, and the related notes and the schedule listed in Item 15(a)(2) (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

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’s
consolidated 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 the
applicable 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 reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were 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 of internal controls over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial 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
disclosures in 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.

/s/ Mazars USA LLP

We have served as the Company’s auditor since February 2016.

Fort Washington, Pennsylvania
March 10, 2021

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Table of Contents

NI Holdings, Inc.
Consolidated Balance Sheets
December 31, 2020 and 2019
(dollar amounts in thousands, except par value)

Assets:

Cash and cash equivalents
Fixed income securities, at fair value
Equity securities, at fair value
Other investments

Total cash and investments

Premiums and agents' balances receivable
Deferred policy acquisition costs
Reinsurance premiums receivable
Reinsurance recoverables on losses
Accrued investment income
Property and equipment, net
Receivable from Federal Crop Insurance Corporation
Goodwill and other intangibles
Other assets

Total assets

Liabilities:

Unpaid losses and loss adjustment expenses
Unearned premiums
Reinsurance premiums payable
Income tax payable
Deferred income taxes, net
Westminster consideration payable
Accrued expenses and other liabilities

Total liabilities

Commitments and contingencies

Shareholders’ equity:

Common stock, $0.01 par value, authorized 25,000,000 shares, issued: 23,000,000 shares; and outstanding: 2020

– 21,318,638 shares, 2019 – 22,119,380 shares

Preferred stock, without par value, authorized 5,000,000 shares, no shares issued or outstanding
Additional paid-in capital
Unearned employee stock ownership plan shares
Retained earnings
Accumulated other comprehensive income, net of income taxes
Treasury stock, at cost, 2020 – 1,538,622 shares, 2019 – 713,565 shares
Non-controlling interest

Total shareholders’ equity

Total liabilities and shareholders’ equity

The accompanying notes are an integral part of these consolidated financial statements.

74

$

$

$

2020

2019

$

$

$

101,077
320,410
69,952
2,924
494,363

48,523
23,968
93
8,710
2,141
9,899
6,646
18,194
5,066
617,603

105,750
119,363
—
754
8,757
19,287
14,820
268,731

62,132
295,945
59,932
1,914
419,923

36,691
15,399
—
4,045
2,089
7,694
14,230
2,912
5,176
508,159

93,250
89,276
170
1,645
4,590
—
9,425
198,356

—

—

230
—
97,911
(1,427)
258,741
12,840
(23,968)
4,545
348,872

230
—
95,961
(1,671)
218,480
5,612
(12,308)
3,499
309,803

$

617,603

$

508,159

 
 
 
 
 
Table of Contents

NI Holdings, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2020, 2019 and 2018
(dollar amounts in thousands, except per share data)

Revenues:

Net premiums earned
Fee and other income
Net investment income
Net capital gain on investments

Total revenues

Expenses:

Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs
Other underwriting and general expenses

Total expenses

Income before income taxes
Income taxes
Net income

Net income (loss) attributable to non-controlling interest

Net income attributable to NI Holdings, Inc.

Earnings per common share:

Basic
Diluted

Share data:

2020

2019

2018

283,661
1,801
7,271
13,624
306,357

168,473
51,472
33,596
253,541

52,816
11,472
41,344
955
40,389

1.86
1.84

$

$

$
$

246,438
2,125
7,433
14,783
270,779

169,710
46,188
21,070
236,968

33,811
7,311
26,500
99
26,401

1.19
1.19

$

$

$
$

195,720
6,496
6,180
3,974
212,370

119,088
31,856
22,261
173,205

39,165
7,921
31,244
163
31,081

1.39
1.39

$

$

$
$

Weighted average common shares outstanding used in basic per common share calculations
Plus: Dilutive securities
Weighted average common shares used in diluted per common share calculations

21,772,475
169,995
21,942,470

22,179,747
85,601
22,265,348

22,358,858
26,896
22,385,754

The accompanying notes are an integral part of these consolidated financial statements.

75

 
 
 
 
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NI Holdings, Inc.
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2020, 2019 and 2018 (dollar amounts in thousands)

Net income (loss)
Other comprehensive income, before income taxes:

Holding gains on investments
Reclassification adjustment for net realized capital gain included in net income

Other comprehensive income, before income taxes

Income tax expense related to items of other comprehensive income

Other comprehensive income, net of income taxes

Comprehensive income

$

Net income
Other comprehensive income, before income taxes:

Holding gains on investments
Reclassification adjustment for net realized capital gain included in net income

Other comprehensive income, before income taxes

Income tax expense related to items of other comprehensive income

Other comprehensive income, net of income taxes

Comprehensive income

$

Attributable to
NI Holdings, Inc.
40,389
$

Attributable to
NI Holdings, Inc.
26,401
$

2020

Attributable to
Non-Controlling
Interest

Total

$

$

(955) $

41,344

116
(1)
115
(24)
91
(1,046) $

10,167
(903)
9,264
(1,945)
7,319
48,663

2019

Attributable to
Non-Controlling
Interest

Total

$

$

99

$

26,500

177
(3)
174
(37)
137
236

$

9,760
(194)
9,566
(2,009)
7,557
34,057

10,051
(902)
9,149
(1,921)
7,228
47,617

9,583
(191)
9,392
(1,972)
7,420
33,821

Net income
Other comprehensive loss, before income taxes:

Holding losses on investments
Reclassification adjustment for net realized capital gain included in net income

Other comprehensive loss, before income taxes

Income tax benefit related to items of other comprehensive income

Other comprehensive loss, net of income taxes

Comprehensive income

The accompanying notes are an integral part of these consolidated financial statements.

76

Attributable to
NI Holdings, Inc.
31,081
$

(8,206)
(3,974)
(12,180)
2,558
(9,622)
21,459

$

2018

Attributable to
Non-Controlling
Interest

Total

$

$

163

$

31,244

(99)
—
(99)
21
(78)
85

$

(8,305)
(3,974)
(12,279)
2,579
(9,700)
21,544

 
 
Table of Contents

NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2020, 2019 and 2018
(dollar amounts in thousands)

Unearned
Employee
Stock
Ownership
Plan
Shares

Retained
Earnings

Accumulated
Other
Comprehensive
Income,
Net of
Income
Taxes

Common
Stock

Additional
Paid-in
Capital

Treasury
Stock

Non-
Controlling
Interest

Total
Shareholders’
Equity

$

230

$

93,496

$

(2,517)

$

152,865

$

15,998

$

(8,037)

$

3,178

$

255,573

—

—

—

—

—

—

—

—

1,232

—

(399)

—

—

—

—

—

157

243

31,081

—

—

—

—

—

—

(9,622)

—

—

—

—

—

—

—

(2,996)

399

—

163

(78)

—

—

—

—

31,244

(9,700)

1,232

(2,996)

—

400

230

94,486

(1,914)

183,946

6,376

(10,634)

3,263

275,753

—
—

—

—

—

—

—

—
—

—

1,613

—

(300)

—
—

—

—

—

—

162

243

8,184
26,401

—

—

—

(51)

—

(8,184)
—

7,420

—

—

—

—

—
—

—

—

(2,006)

332

—

—
99

137

—

—

—

—

—
26,500

7,557

1,613

(2,006)

(19)

405

230

95,961

(1,671)

218,480

5,612

(12,308)

3,499

309,803

40,389

—

—

—

—

—

—

—

—

—

2,297

—

(477)

—

—

—

—

—

—

—

—

(128)

130

244

—

—

—

—

(12,234)

574

—

955

41,344

91

—

—

—

7,319

2,297

(12,234)

(31)

374

7,228

—

—

—

—

$

230

$

97,911

$

(1,427) $

258,741

$

12,840

$

(23,968) $

4,545

$

348,872

Balance,
January 1, 2018

Net income
Other comprehensive
loss, net of income taxes
Share-based
compensation
Purchase of treasury
stock
Issuance of vested award
shares
Distribution of employee
stock ownership plan
shares

Balance, December 31,

2018

Cumulative effect of
change in accounting for
equity securities
Net income
Other comprehensive
income, net of income
taxes
Share-based
compensation
Purchase of treasury
stock
Issuance of vested award
shares
Distribution of employee
stock ownership plan
shares
Balance,
December 31, 2019

Net income (loss)
Other comprehensive
income, net of income
taxes
Share-based
compensation
Purchase of treasury
stock
Issuance of vested award
shares
Distribution of employee
stock ownership plan
shares
Balance,
December 31, 2020

The accompanying notes are an integral part of these consolidated financial statements.

77

 
 
 
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NI Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2020, 2019 and 2018
(dollar amounts in thousands)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash flows from operating activities:  

2020

2019

2018

$

41,344

$

26,500

$

31,244

Gain on acquisition of Direct Auto Insurance Company
Net capital gain on investments
Deferred income tax expense (benefit)
Depreciation of property and equipment
Amortization of intangibles
Distribution of employee stock ownership plan shares
Share-based incentive compensation
Amortization of deferred policy acquisition costs
Deferral of policy acquisition costs
Net amortization of premiums and discounts on investments
Loss (gain) on sale of property and equipment
Changes in operating assets and liabilities:

Premiums and agents’ balances receivable
Reinsurance premiums payable
Reinsurance recoverables on losses
Accrued investment income
Receivable from Federal Crop Insurance Corporation
Income tax recoverable / payable
Other assets
Unpaid losses and loss adjustment expenses
Unearned premiums
Accrued expenses and other liabilities

Net cash flows from operating activities

Cash flows from investing activities:

Proceeds from maturities and sales of fixed income securities
Proceeds from sales of equity securities
Purchases of fixed income securities
Purchases of equity securities
Purchases of property and equipment
Acquisition of Direct Auto Insurance Company (cash consideration paid net of cash and

cash equivalents acquired)

Acquisition of Westminster American Insurance Company (cash consideration paid net of

cash and cash equivalents acquired)

Other

Net cash flows from investing activities

Cash flows from financing activities:

Purchases of treasury stock
Issuance of restricted stock awards

Net cash flows from financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Non-cash item: Present value of installment payable issued in connection with acquisition of

Westminster American Insurance Company

Income taxes paid

The accompanying notes are an integral part of these consolidated financial statements.

78

—
(13,624)
638
709
5,224
373
2,297
51,472
(60,041)
1,460
6

(3,325)
(828)
(3,902)
17
7,584
(753)
186
3,932
13,476
4,765
51,010

87,874
27,718
(91,559)
(22,312)
(543)

—

(703)
(275)
(200)

(12,234)
(31)
(12,265)

38,945

62,132

—
(14,783)
1,871
538
1,711
405
1,613
46,188
(48,721)
1,146
37

(2,404)
170
(1,813)
(191)
1,939
889
(109)
6,129
4,509
41
25,665

59,649
20,174
(92,012)
(17,042)
(1,290)

—

—
63
(30,458)

(2,006)
(19)
(2,025)

(6,818)

68,950

(4,578)
(3,974)
(692)
492
3,507
400
1,232
31,856
(35,863)
1,149
(11)

(2,806)
(428)
1,896
161
(5,668)
(1,721)
(1,477)
264
5,550
422
20,955

61,465
23,409
(73,871)
(13,557)
(1,552)

27,485

—
18
23,397

(2,996)
—
(2,996)

41,356

27,594

$

$

$

101,077

$

62,132

$

68,950

18,787

11,586

$

$

— $

—

4,000

$

10,300

 
 
 
 
 
 
 
 
Table of Contents

1.

Organization

NI Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2020, 2019 and 2018
(dollar amounts in thousands)

NI Holdings, Inc. (“NI Holdings”) is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company and
became such in connection with the conversion of Nodak Mutual Insurance Company from a mutual to stock form of organization and the creation of a
mutual holding company. The conversion was consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of
common stock of Nodak Insurance Company (the successor to Nodak Mutual Insurance Company) were issued to Nodak Mutual Group, Inc., which then
contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings. Nodak Insurance Company then
became a wholly-owned stock subsidiary of NI Holdings. Prior to completion of the conversion, NI Holdings conducted no business and had no assets or
liabilities. As a result of the conversion, NI Holdings became the holding company for Nodak Insurance Company and its existing subsidiaries. The newly
issued shares of NI Holdings were available for public trading on March 16, 2017.

These Consolidated Financial Statements of NI Holdings include the financial position and results of operations of NI Holdings and seven other

entities:

• Nodak Insurance Company (“Nodak Insurance”, formerly Nodak Mutual Insurance Company prior to the conversion);  
• Nodak Agency, Inc. (“Nodak Agency”);  
• American West Insurance Company (“American West”);  
•
•
• Direct Auto Insurance Company (“Direct Auto”); and  
• Westminster American Insurance Company (Westminster).  

Primero Insurance Company (“Primero”);  
Battle Creek Mutual Insurance Company (“Battle Creek”, an affiliated company with Nodak Insurance); and  

Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota. Nodak Insurance was incorporated on April

15, 1946 under the laws of North Dakota, and benefits from a strong marketing affiliation with the North Dakota Farm Bureau (“NDFB”). Nodak Insurance
specializes 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 the

Midwest and Western regions of the United States. American West began writing policies in 2002, and primarily writes personal auto, homeowners, and
farm coverages in South Dakota. American West also writes personal auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop
insurance coverages in Minnesota and South Dakota.

Primero is a wholly-owned subsidiary of Tri-State, Ltd. Tri-State, Ltd. is an inactive shell corporation 100% owned by Nodak Insurance. Primero
is a property and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota and South Dakota.

Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy

administration, and other administrative services to Battle Creek. Battle Creek is controlled by Nodak Insurance via a surplus note. The terms of the surplus
note allow Nodak Insurance to appoint two-thirds of the Battle Creek Board of Directors. Battle Creek is a property and casualty insurance company
writing personal auto, homeowners, and farm coverages solely in the state of Nebraska.

Direct Auto, a wholly-owned subsidiary of NI Holdings, is a property and casualty company licensed in Illinois. Direct Auto began writing non-

standard automobile coverage in 2007, and was acquired by NI Holdings on August 31, 2018 via a stock purchase agreement. The financial results of
Direct Auto have been included in the Consolidated Financial Statements herein since August 31, 2018. See Note 4.

Westminster, a wholly-owned subsidiary of NI Holdings, is a property and casualty insurance company licensed in seventeen states and the
District of Columbia. Westminster is headquartered in Owings Mills, Maryland and underwrites multi-peril commercial insurance in the states of Delaware,
Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia. Westminster was
acquired by NI Holdings on January 1, 2020 via a stock purchase agreement. The financial results of Westminster have been included in the Consolidated
Financial Statements herein since January 1, 2020. See Note 4.

The same executive management team provides oversight and strategic direction for the entire organization. Nodak Insurance provides common

product oversight, pricing practices, and underwriting standards, as well as underwriting and claims administration, to itself, American West, and Battle
Creek. Primero, Direct Auto, and Westminster personnel manage the day-to-day operations of their respective companies. The insurance companies share a
combined business plan to achieve market penetration and underwriting profitability objectives. Distinctions within the products of the insurance
companies generally relate to the states in which the risk is located and specific risk profiles targeted within similar classes of business.

79

Table of Contents

2.

Basis of Consolidation

Our Consolidated Financial Statements, which we have prepared in accordance with accounting principles generally accepted in the United States

of America (“GAAP”), include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity we control via contract. We
have eliminated all significant inter-company accounts and transactions in consolidation. The terms “we”, “us”, “our”, or “the Company” as used herein
refer to the consolidated entity.

3.

Summary of Significant Accounting Policies

Use of Estimates:

In preparing our Consolidated Financial Statements, management makes estimates and assumptions that affect the reported amounts of assets and

liabilities at the date of the balance sheet, and revenues and expenses for the periods then ended. Actual results could differ significantly from those
estimates.

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, earned premiums for crop insurance,
valuation of investments, determination of other-than-temporary impairments, valuation allowances for deferred income tax assets, deferred policy
acquisition costs, and the valuations used to establish intangible assets acquired related to business combinations. While we believe our estimates are
appropriate, the ultimate amounts may differ from the estimates provided. We regularly review our methods for making these estimates as well as the
continuing 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 another

company 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 subordinated
financial support, (b) the characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the
obligation 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 equity
holders 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 the
entity, 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
economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. We consider the
contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights, and board
representation of the respective parties in determining whether we qualify as the primary beneficiary. Our assessment of whether we are the primary
beneficiary of a VIE is performed at least annually.

We control Battle Creek via a surplus note which provides us with ability to appoint two-thirds of the Board of Directors of Battle Creek. Under
the quota share reinsurance agreement that existed through December 31, 2019, Battle Creek’s operating results included only net investment income, bad
debt expense, and income taxes. Effective January 1, 2020, the Company implemented an intercompany pooling reinsurance agreement, and Battle Creek’s
operating results now include their participation in the underwriting results of the pool (2% during 2020). See Note 13. Because we have concluded that we
control Battle Creek, we consolidate the financial statements of Battle Creek, and Battle Creek’s policyholders’ interest in Battle Creek is reflected as a
non-controlling interest in shareholders’ equity in our Consolidated Balance 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. Cost

approximates 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. Unrealized gains and losses on
fixed income securities, and on equity securities prior to January 1, 2019, net of income taxes, are reported in accumulated other comprehensive income.
Effective January 1, 2019, in accordance with a change in accounting principle, changes in unrealized gains and losses on equity securities began to be
reported as a component of net capital gain on investments in our operating results.

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Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using

quoted market prices for similar securities. Amortization of premium and accretion of discount are computed using an effective interest method. Net
investment income includes interest and dividend income together with amortization of purchase premiums and discounts, and is net of investment
management and custody fees. Realized gains and losses on investments are determined using the specific identification method and are included in net
capital gain on investments, along with the change in unrealized gains and losses on equity securities after January 1, 2019.

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 cost
basis. 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
to recovery of the amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the
amount due 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 present value of its expected future cash flows discounted at the security’s effective yield. The remaining difference between the security’s fair value
and the present value of future 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 Statement of 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 unadjusted

quoted market price in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III
measurements). 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
prices for 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
observable or 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 III
assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or
similar 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 accrued

expenses and accounts payable. The carrying amounts for cash and cash equivalents, premiums and agents’ balances receivable, and accrued expenses and
accounts payable approximate their fair value based on their short-term nature. Other invested assets that do not have observable inputs and little or no
market activity are carried on a cost basis, which approximates fair value. All other invested assets have been assessed for impairment. The carrying value
of these other invested assets was $2,924 at December 31, 2020 and $1,914 at December 31, 2019.

Reclassifications of Segment Information:

Effective in the first quarter of 2020, the Company’s results began to be reported in our Consolidated Financial Statements in the following five
primary operating segments – private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, and commercial
insurance. A sixth “all other” segment captures all other insurance business, including our assumed reinsurance lines of business.

Commercial insurance was previously reported within the all other segment. All prior periods presented have been reclassified to conform to this

presentation.

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 crop

insurance, over the period of risk. The portion of premiums that could be earned in the future is deferred and reported as unearned premiums. When
policies lapse, the Company reverses the unearned portion of the written premium and removes the applicable unearned premium. Policy-related fee
income is recognized when collected.

The period of risk for our crop insurance program, which comprise primarily spring-planted crops, typically runs from April 1 (the approximate

time when farmers can begin to work their fields) through December 15 (last date claims can be made for the most recent planting season). The crop
insurance program provides indemnification for acreage that cannot be planted because of flood, drought, or other natural disaster (known as “prevented
planting”). In cases where a valid prevented planting claim is made by an insured, the Company assumes that the risk period has ended as there will be no
additional coverage under the policy, and the Company will immediately recognize the remaining unearned premium.

The Company uses the direct write-off method for recognizing bad debts. Accounts billed directly to the policyholder are provided grace payment
and cancellation notice periods per state insurance regulations. Any earned but uncollected premiums are written off within 90 days after the effective date
of policy cancellation.

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Direct Auto also provides for agency billing for a portion of their agents. Accounts billed to agents are due within 60 days of the statement date.

The balances are carried as agents’ balances receivable until it is determined the amount is not collectible from the agent. At that time, the balance is
written off as uncollectible. The agent is responsible for all past due balances. As part of its agent appointment, Direct Auto requires a personal guarantee
for all balances due to Direct Auto from the principal of the contracted agency.

Policy Acquisition Costs:

We defer our policy acquisition costs, consisting primarily of commissions, premium taxes, and certain other underwriting costs, reduced by

ceding commissions, which vary with and relate directly to the production of business. We amortize these deferred policy acquisition costs over the period
in which we earn the premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their
estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain
other costs we expect 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 upon

estimated useful lives of the assets.

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 to
policyholder claims based on facts and circumstances then known. At the time of establishing our estimates, we recognize that our ultimate liability for
losses and loss adjustment expenses will exceed or be less than such estimates. We base our estimates of liabilities for unpaid losses and loss adjustment
expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability, and other factors. During the loss adjustment period,
we may learn additional facts regarding certain claims, and, consequently, it often becomes necessary for us to refine and adjust our estimates of the
liability. We reflect any adjustments to our liabilities for unpaid losses and loss adjustment expenses in our operating results in the period in which we
determine the need for 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 these

liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. We base the amount of our liability
for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim, and the
insurance policy provisions relating to the type of loss our policyholder incurred. We determine the amount of our liability for unreported losses and loss
adjustment expenses on the basis of historical information by line of insurance. Inflation is not explicitly selected in the loss reserve analysis. However,
historical inflation is embedded in the estimated loss development factors. We closely monitor our liabilities and update them periodically using new
information on reported claims and a variety of statistical techniques. We do not discount our liabilities for unpaid losses and loss adjustment expenses.

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 the
legal environment which may impact liability exposure, the trends in judicial interpretations of insurance coverage and policy provisions, and the rate of
loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment
and case reserving methodologies, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and
characteristics of business written within a given line of business, and consistency in reinsurance coverage and collectability of reinsured losses, among
other items. To the extent we determine that underlying factors impacting our assumptions have changed, we attempt to make appropriate adjustments for
such changes 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
which includes NI Holdings and its wholly-owned subsidiaries. Direct Auto and Westminster became part of the consolidated federal income tax return as
of their acquisition dates.

Insurance companies typically pay state premium taxes rather than state income taxes. However, Direct Auto is subject to state income taxes in the

state of Illinois, in addition to state premium taxes. Additionally, NI Holdings, on a stand-alone basis, pays state income taxes to the state of North Dakota
for income or losses generated as a separate financial entity. While state premium taxes are included as a part of amortization of deferred policy acquisition
costs, state income taxes are combined with federal income taxes within the financial reporting category labeled income taxes.

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The Company did not have any material uncertain tax positions. The Company’s policy is to recognize tax-related interest and penalties accrued

related to unrecognized benefits as a component of income tax expense (benefit). The Company did not recognize any tax-related interest and penalties, nor
did it have any tax-related interest or penalties accrued as of December 31, 2020 and 2019.

We account for deferred income taxes using the asset and liability method. The objective of the asset and liability method is to establish deferred
income tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of our assets and liabilities at
enacted tax rates expected to be in effect when we realize or settle such amounts.

We re-measure existing deferred income 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 a component of income tax expense from continuing operations in the period of enactment. We also record any
change to a previously recorded valuation allowance as a result of re-measuring existing temporary differences and loss carryforwards as a component of
income tax expense from continuing operations.

The Company has elected to reclassify any tax effects stranded in accumulated other comprehensive income as a result of a change in income tax

rates 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 income

securities 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 adverse
changes in the borrower’s ability to repay the debt. We manage this risk by performing an analysis of prospective investments and through regular reviews
of our portfolio by our management team and investment advisors. We also limit the amount of our total investment portfolio that we invest in any one
security.

Property and liability insurance coverages are marketed through captive agents in North Dakota and through independent insurance agencies

located throughout all other operating areas. All business, except for the majority of Direct Auto’s 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

the normal course of business, balances are maintained above the FDIC insurance limit. The Company maintains short-term investment balances in
investment grade money market accounts that are insured by the Securities Investor Protection Corporation (“SIPC”) up to $500. On occasion, balances for
these accounts 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) certain

levels of risks to other insurers or reinsurers, either on an automatic basis under general reinsurance contracts known as “treaties” or by negotiation on
substantial 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 companies

might be unable to meet their obligations under existing reinsurance agreements, the Company would be liable for such defaulted amounts.

Goodwill and Other Intangibles:

Goodwill represents the excess of the purchase price over the underlying fair value of acquired entities. When completing acquisitions, we seek
also to identify separately identifiable intangible assets that we have acquired. We assess goodwill and other intangibles with an indefinite useful life for
impairment annually. We also assess goodwill and other intangibles for impairment upon the occurrence of certain events. In making our assessment, we
consider 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 and
other intangibles could result from changes in economic and operating conditions in future periods. We did not record any impairments of goodwill or other
intangibles during the years ended December 31, 2020, 2019, or 2018.

Goodwill arising from the acquisition of Primero in 2014 represents the excess of the purchase price over the fair value of the net assets acquired.
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 upon the strategic
decision by Company management to expand both the geographic footprint and product lines of the Company. The nature of the business acquired was
such that there were limited intangibles not reflected in the net assets acquired. The purchase price was paid with a combination of cash and 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 net assets acquired and
is not deductible for income tax purposes.

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Intangible assets arising from the acquisition of Direct Auto in 2018 represent the estimated fair values of certain intangible assets, including a

favorable lease contract, a state insurance license, the value of the Direct Auto trade name, and the value of business acquired (“VOBA”). The state
insurance license asset has an indefinite life, while the favorable lease contract, Direct Auto trade name, and VOBA assets will be amortized over eighteen
months, five years, and twelve months, respectively, from the August 31, 2018 acquisition/valuation date.

Goodwill arising from the acquisition of Westminster in January 2020 represents the excess of the purchase price over the fair value of the net

assets acquired. 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
upon the strategic decision by Company management to expand both the geographic footprint and commercial business product line of the Company. Other
intangible assets arising from the acquisition of Westminster represent the estimated fair values of certain intangible assets, including state insurance
licenses, the value of Westminster’s distribution network, the value of the Westminster trade name, and the VOBA. The state insurance license asset has an
indefinite life, while the distribution networks asset, Westminster trade name, and VOBA assets will be amortized over twenty years, ten years, and twelve
months, respectively, from the January 1, 2020 acquisition/valuation date.

4.

Acquisitions

Direct Auto Insurance Company:

On August 31, 2018, the Company completed the acquisition of 100% of the common stock of Direct Auto from the private shareholders of Direct

Auto, and Direct Auto became a consolidated subsidiary of the Company. Direct Auto is a property and casualty insurance company specializing in non-
standard automobile insurance in the state of Illinois. The Company realized a $4,578 gain on the purchase of Direct Auto due to the use of applicable
purchase accounting guidance (known as a “bargain purchase”).

Direct Auto remains headquartered in Chicago, Illinois and continues to be led by its president (who was also one of the principal shareholders)

and other key management in place at the time of the acquisition. The results of Direct Auto are included as part of the Company’s non-standard auto
business segment following the closing date.

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most

assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which is the closing date for
the Direct Auto transaction. During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is
obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and
liabilities as of that date. The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the
measurement period exceed one year from the acquisition date. The Company did not make any adjustments during this period.

We assigned fair values to the acquired intangibles consisting of favorable lease contract, state insurance license, Direct Auto trade name, and

VOBA of $20, $100, $248, and $5,134, respectively. The state insurance license has an indefinite life, while the other intangibles will be amortized over
useful lives of up to five years.

During the year ended December 31, 2018, the acquired Direct Auto business contributed revenues of $14,178, and net income of $2,979, to the

Company. The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on
January 1, 2018:

Revenues

Net income attributable to NI Holdings, Inc.

Basic earnings per common share attributable to NI Holdings, Inc.

Pro Forma
Year Ended
December 31,
2018

$

237,346

27,166

1.21

The Company did not reflect any material, nonrecurring pro forma adjustments directly attributable to the business combination to the above pro

forma revenue and earnings.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Direct Auto’s

operations to reflect the deferral and amortization of policy acquisition costs and the additional amortization that would have been charged assuming the
fair value adjustments to intangibles had been applied from January 1, 2018, with the related income tax effects.

In 2018, the Company incurred $118 of acquisition-related costs. These expenses did not impact the pro forma amounts presented above.

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The Company paid $17,000 in cash consideration to the private shareholders of Direct Auto. The acquisition of Direct Auto did not include any

contingent consideration. The following table summarizes the consideration transferred to acquire Direct Auto and the amounts of identified assets acquired
and liabilities assumed at the acquisition date:

Fair Value of Consideration:
Total cash consideration transferred

Fair Value of Identifiable Assets Acquired and Liabilities Assumed:
Identifiable net assets:

Cash and cash equivalents
Fixed income securities
Equity securities
Premiums and agents' balances receivable
Accrued investment income
Property and equipment
Favorable lease contract (included in goodwill and other intangibles)
License (included in goodwill and other intangibles)
Trade name (included in goodwill and other intangibles)
Value of business acquired (included in goodwill and other intangibles)
Other assets
Unpaid losses and loss adjustment expenses
Unearned premiums
Federal income tax payable
Deferred income taxes, net
Accrued expenses and other liabilities

Total identifiable net assets

Gain on bargain purchase

$

$

$

$

17,000

44,485
11,414
14,634
5,849
63
31
20
100
248
5,134
107
(40,967)
(15,955)
(1,486)
(1,442)
(657)
21,578

4,578

The fair value of the assets acquired includes premiums and agents’ balances receivable of $5,849. This is the gross amount due from

policyholders and agents, none of which is anticipated to be uncollectible. The Company did not acquire any other material class of receivable as a result of
the acquisition of Direct Auto.

The gain realized on bargain purchase of $4,578 from the Direct Auto acquisition is included in fee and other income in the Company’s

Consolidated Statements of Operations for the year ended December 31, 2018.

Westminster American Insurance Company:

On January 1, 2020, the Company completed the acquisition of 100% of the common stock of Westminster from the private shareholder of
Westminster, and Westminster became a consolidated subsidiary of the Company. Westminster is a property and casualty insurance company specializing in
multi-peril commercial insurance in nine states and the District of Columbia.

Westminster remains headquartered in Owings Mills, Maryland, and continues to be led by its president and other key management in place at the

time of the acquisition. The results of Westminster are included as part of the Company’s commercial business segment following the closing date.

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most

assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which is the closing date for
the Westminster transaction. During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is
obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and
liabilities as of that date. The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the
measurement period exceed one year from the acquisition date.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on

January 1, 2019:

Revenues

Net income attributable to NI Holdings, Inc.

Basic earnings per common share attributable to NI Holdings, Inc.

Pro Forma
Year Ended
December 31,
2019

$

292,858

24,394

1.10

The Company did not reflect any material, nonrecurring pro forma adjustments directly attributable to the business combination in the above pro

forma revenue and earnings.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Westminster to
reflect the deferral and amortization of policy acquisition costs and the additional amortization that would have been charged assuming the fair value
adjustments to intangible assets had been applied from January 1, 2019, with the related income tax effects.

The Company incurred acquisition-related costs of $828 during the year ended December 31, 2020, and $83 during the year ended December 31,

2019. These expenses were reclassified to occur in first quarter 2019 in the pro forma amounts presented above.

 
 
 
 
The Company paid $20,000 in cash consideration to the private shareholder of Westminster as of the closing date, and will pay

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an additional $20,000 in three equal annual installments. The acquisition of Westminster did not include any contingent consideration other than a
provision regarding future changes to federal income tax rates. The following table summarizes the consideration transferred to acquire Westminster and
the amounts of identified assets acquired and liabilities assumed at the acquisition date:

Fair Value of Consideration:
Cash consideration transferred
Present value of future cash consideration

Total cash consideration

Fair Value of Identifiable Assets Acquired and Liabilities Assumed:
Identifiable net assets:

Cash and cash equivalents
Fixed income securities
Equity securities
Other investments
Premiums and agents' balances receivable
Reinsurance recoverables on losses
Accrued investment income
Property and equipment
Federal income tax recoverable
State insurance licenses (included in goodwill and other intangibles)
Distribution network (included in goodwill and other intangibles)
Trade name (included in goodwill and other intangibles)
Value of business acquired (included in goodwill and other intangibles)
Other assets
Unpaid losses and loss adjustment expenses
Unearned premiums
Deferred income taxes, net
Reinsurance premiums payable
Accrued expenses and other liabilities

Total identifiable net assets

Goodwill

$

$

$

$

$

20,000
18,787
38,787

19,297
12,073
2,705
735
8,507
763
70
2,376
138
1,800
6,700
500
4,750
76
(8,568)
(16,611)
(1,583)
(565)
(1,132)
32,031

6,756

The fair value of the assets acquired includes premiums and agents’ balances receivable of $8,507 and reinsurance recoverables on losses of $763.

These are the gross amounts due from policyholders and reinsurers, respectively, none of which are anticipated to be uncollectible. The Company did not
acquire any other material class of receivable as a result of the acquisition of Westminster.

We have completed our final analysis of the assets and liabilities acquired and assigned fair values to the acquired distribution network, state

insurance licenses, Westminster trade name, and VOBA intangible assets of $6,700, $1,800, $500, and $4,750, respectively. The state insurance license
intangible has an indefinite life, while the other intangible assets will be amortized over useful lives of up to twenty years. The goodwill is not deductible
for income tax purposes.

5.

Recent Accounting Pronouncements

As an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial
accounting standards pursuant to Section 13(a) of the Exchange Act. The following discussion includes effective dates for both public business entities and
emerging growth companies, as well as whether specific guidance may be adopted early.

Adopted

In January 2019, the Company adopted amended guidance from the Financial Accounting Standards Board (“FASB”) that generally requires
entities to measure equity securities at fair value and recognize changes in fair value in their results of operations. The FASB issued other impairment,
disclosure, and presentation improvements related to financial instruments within the guidance. Effective January 1, 2019, we applied this guidance, which
resulted in a cumulative-effect reclassification of after-tax unrealized net capital gains aggregating $8,184, from accumulated other comprehensive income
to retained earnings. This reclassification had no impact to the Company’s results of operations at the date of adoption. The after-tax change in accounting
for equity securities did not affect the Company’s total shareholders’ equity; however, the unrealized net capital gains reclassified at the transition date to
retained earnings will never be recognized in net income. Prior year financial statements were not restated. Going forward, the accounting used for equity
securities will record the market fluctuations attributed to equity securities through our results of operations rather than as a component of other
comprehensive income, which will add a level of volatility to our net income.

In December 2019, the Company adopted guidance from the FASB that establishes the manner in which an entity recognizes the amount of

revenue to which it expects to be entitled for the transfer of promised goods or services to customers. While the guidance replaces most existing GAAP
revenue recognition guidance, the scope of the guidance excludes insurance contracts. The Company has reviewed its sources of revenues, and has
determined that no material revenues are derived from non-insurance contracts and thus subject to the new revenue recognition guidance. As a result, there
was no impact to the Company’s financial position, results of operations, or cash flows.

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In December 2019, the Company adopted amended guidance from the FASB that addressed diversity in how certain cash receipts and cash
payments are presented and classified in the Consolidated Statement of Cash Flows, and the presentation of restricted cash in the Consolidated Statement of
Cash Flows. The amendments provided clarity on the treatment of eight specifically defined types of cash inflows and outflows, and requires entities to
explain the changes during a reporting period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash
equivalents. There was no impact to the Company’s financial position, results of operations, or cash flows.

In January 2020, the Company adopted amended guidance from the FASB that shortened the amortization period of premiums on certain fixed

income securities held at a premium to the earliest call date rather than through the maturity date of the callable security. The adoption of this guidance did
not materially impact the Company’s financial position, results of operations, or cash flows.

In March 2020, the Company adopted modified disclosure requirements from the FASB relating to the fair value of assets and liabilities. The
modifications primarily related to Level 3 fair value measurements. The Company does not currently carry any Level 3 assets or liabilities. As a result,
there was no impact to the Company’s financial statement disclosures.

Not Yet Adopted

In February 2016, the FASB issued new guidance that requires lessees to recognize leases, including operating leases, on the lessee’s Consolidated

Balance Sheet, unless a lease is considered a short-term lease. The new guidance also requires entities to make new judgments to identify leases. In July
2018, the FASB issued additional guidance to allow an optional transition method. An entity may apply the new leases guidance at the beginning of the
earliest period presented in the financial statements, or at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained
earnings in the period of adoption. The new guidance, which replaces the current lease guidance, is effective for annual and interim reporting periods
beginning after December 15, 2018 for public business entities. For private companies and emerging growth companies, this guidance is effective for
annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is
permitted for all entities. We do not expect the adoption of this new guidance to have a significant impact on our financial position, results of operations, or
cash flows. Upon adoption, the Company will recognize a right of use asset and operating lease liabilities on its consolidated balance sheet. The cumulative
adjustment to retained earnings is not expected to be significant.

In June 2016, the FASB issued a new standard that will require timelier recording of credit losses on loans and other financial instruments held by

financial institutions and other organizations. The guidance will require the measurement of all expected credit losses for financial assets held at the
reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations
will now use forward-looking information to better form their credit loss estimates. Many of the loss estimation techniques applied today will still be
permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use
judgment to determine which loss estimation method is appropriate for their circumstances. Additionally, the guidance requires enhanced disclosures to
help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the
credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide
additional information about the amounts recorded in the financial statements. Finally, the guidance amends the accounting for credit losses on available-
for-sale fixed income securities and purchased financial assets with credit deterioration. The guidance is effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019 for filers with the Securities and Exchange Commission (“SEC”) excluding smaller reporting
companies, and emerging growth companies that did not relinquish private company relief. For all other entities, this guidance is effective for annual
reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted for all entities. Based on our
evaluation, adoption of this new standard will not have a significant impact on our financial position, results of operations, and cash flows.

87

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In December 2019, the FASB issued amended guidance to simplify the accounting for income taxes. The amended guidance is effective for fiscal

years beginning after December 15, 2020, including interim periods within those fiscal years, for public business entities. For private companies and
emerging growth companies, this amended guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years
beginning after December 15, 2022. Early adoption is permitted, including adoption in an interim period. We are evaluating the impact this new guidance
will have on our financial position, results of operations, and cash flows.

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6.

Investments

The amortized cost and estimated fair value of fixed income securities as of December 31, 2020 and 2019 were as follows:

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Cost or
Amortized
Cost

December 31, 2020

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

1,055
3,278
8,755
1,478
1,700
535
16,801

$

$

(6) $

(35)
(147)
(1)
(21)
(86)
(296) $

14,383
64,244
128,434
36,494
25,655
51,200
320,410

December 31, 2019

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

472
1,511
3,772
1,050
658
132
7,595

$

$

(4) $

(91)
(16)
(22)
(51)
(170)
(354) $

17,546
56,652
113,213
51,486
27,057
29,991
295,945

13,334
61,001
119,826
35,017
23,976
50,751
303,905

Cost or
Amortized
Cost

17,078
55,232
109,457
50,458
26,450
30,029
288,704

$

$

$

$

$

$

$

$

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The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below. Actual maturities could differ

from contractual maturities because issuers of the securities may have the right to call or prepay certain obligations, which may or may not include call or
prepayment penalties.

Due to mature:

One year or less
After one year through five years
After five years through ten years
After ten years
Mortgage / asset-backed securities
Total fixed income securities

Due to mature:

One year or less
After one year through five years
After five years through ten years
After ten years
Mortgage / asset-backed securities
Total fixed income securities

December 31, 2020

Amortized Cost

Fair Value

$

$

17,722
86,709
59,408
30,322
109,744
303,905

$

$

17,933
91,457
64,987
32,684
113,349
320,410

December 31, 2019

Amortized Cost

Fair Value

$

$

19,567
84,937
55,927
21,336
106,937
288,704

$

$

19,663
87,134
58,466
22,148
108,534
295,945

Fixed income securities with a fair value of $6,093 at December 31, 2020 and $5,585 at December 31, 2019 were deposited with various state

regulatory agencies as required by law. The Company has not pledged any assets to secure any obligations.

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The investment category and duration of the Company’s gross unrealized losses on fixed income securities and equity securities were as follows:

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Less than 12 Months
Fair
Value

Unrealized
Losses

December 31, 2020
Greater than 12 months

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

$

$

$

$

931
1,806
3,215
68
1,103
5,785
12,908

$

$

(6)
(35)
(97)
(1)
(21)
(31)
(191)

Less than 12 Months
Fair
Value

Unrealized
Losses

494
8,018
2,066
2,911
4,841
8,511
26,841

$

$

(4)
(91)
(15)
(9)
(35)
(96)
(250)

91

$

$

$

$

— $
—
734
—
—
4,188
4,922

$

— $
—
(50)
—
—
(55)
(105) $

931
1,806
3,949
68
1,103
9,973
17,830

$

$

(6)
(35)
(147)
(1)
(21)
(86)
(296)

December 31, 2019
Greater than 12 months

Total

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

— $
—
650
2,583
653
7,686
11,572

$

— $
—
(1)
(13)
(16)
(74)
(104) $

494
8,018
2,716
5,494
5,494
16,197
38,413

$

$

(4)
(91)
(16)
(22)
(51)
(170)
(354)

 
Table of Contents

Investments with unrealized losses are categorized with a duration of greater than 12 months when all positions of a security have continually been

in a loss position for at least 12 months.

We frequently review our investment portfolio for declines in fair value. Our process for identifying declines in the fair value of investments that
are other than temporary involves consideration of several factors. These factors include (i) the time period in which there has been a significant decline in
value, (ii) an analysis of the liquidity, business prospects, and overall financial condition of the issuer, (iii) the significance of the decline, and (iv) our
intent and ability to hold the investment for a sufficient period of time for the value to recover. When our analysis of the above factors results in the
conclusion that declines in fair values are other than temporary, the cost of the securities is written down to fair value and the previously unrealized loss is
therefore reflected as a realized capital loss on investment.

The Company did not record any OTTI in 2020 or 2019. The Company recorded OTTI of $382 in the year ended December 31, 2018.

As of December 31, 2020, we held 67 fixed income securities with unrealized losses. As of December 31, 2019, we held 88 fixed income
securities with 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 than 80% of amortized cost for the preceding 12-month period.

Net investment income consisted of the following:

Fixed income securities
Equity securities
Real estate
Cash and cash equivalents

Total gross investment income

Investment expenses

Net investment income

Net realized capital gain on investments consisted of the following:

Gross realized gains:

Fixed income securities
Equity securities

Total gross realized gains

Gross realized losses, excluding other-than-temporary impairment losses:

Fixed income securities
Equity securities

Total gross realized losses, excluding other-than-temporary impairment losses  

Other-than-temporary impairment losses
Net realized gain on investments

Change in net unrealized gain on equity securities

Net capital gain on investments

92

Year Ended December 31,
2019

2020

2018

8,682
1,220
587
30
10,519
3,248
7,271

$

$

8,394
996
365
71
9,826
2,393
7,433

$

$

6,975
934
364
111
8,384
2,204
6,180

Year Ended December 31,
2019

2020

2018

$

1,035
8,705
9,740

$

341
4,311
4,652

(132)
(1,837)
(1,969)

—
7,771

(147)
(1,259)
(1,406)

—
3,246

5,853
13,624

$

11,537
14,783

$

72
5,890
5,962

(426)
(1,180)
(1,606)

(382)
3,974

—
3,974

$

$

$

$

 
 
 
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7.

Fair Value Measurements

We maximize the use of observable inputs in our valuation techniques and apply unobservable inputs only to the extent that observable inputs are

unavailable. The largest class of assets and liabilities carried at fair value by the Company at December 31, 2020 and 2019 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

technique and 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
income approach techniques. We may assign a lower level to inputs typically considered to be Level II based on our assessment of liquidity and relative
level of uncertainty surrounding inputs. There were no assets or liabilities classified at Level III at December 31, 2020 or 2019.

The following tables set forth our assets which are measured on a recurring basis by the level within the fair value hierarchy in which fair value

measurements fall:

Total

Level I

Level II

Level III

December 31, 2020

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Equity securities:
Basic materials
Communications
Consumer, cyclical
Consumer, non-cyclical
Energy
Financial
Industrial
Technology
Utility

Total equity securities

Cash and cash equivalents

Total assets at fair value

$

14,383
64,244
128,434
36,494
25,655
51,200
320,410

1,285
7,455
9,929
14,633
1,499
6,235
12,733
16,145
38
69,952

— $
—
—
—
—
—
—

$

14,383
64,244
128,434
36,494
25,655
51,200
320,410

1,285
7,455
9,929
14,633
1,499
6,235
12,733
16,145
38
69,952

—
—
—
—
—
—
—
—
—
—

101,077
491,439

$

65,354
135,306

$

35,723
356,133

$

$

$

93

—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—

—
—

 
 
Table of Contents

Fixed income securities:

U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities

Total fixed income securities

Equity securities:
Basic materials
Communications
Consumer, cyclical
Consumer, non-cyclical
Energy
Financial
Industrial
Technology

Total equity securities

Cash and cash equivalents

Total assets at fair value

Total

Level I

Level II

Level III

December 31, 2019

$

$

17,546
56,652
113,213
51,486
27,057
29,991
295,945

— $
—
—
—
—
—
—

$

17,546
56,652
113,213
51,486
27,057
29,991
295,945

1,210
6,996
9,612
12,567
2,456
5,929
9,299
11,863
59,932

1,210
6,996
9,612
12,567
2,456
5,929
9,299
11,863
59,932

—
—
—
—
—
—
—
—
—

62,132
418,009

$

43,707
103,639

$

18,425
314,370

$

$

—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—

There were no liabilities measured at fair value on a recurring basis at December 31, 2020 or 2019.

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8.

Reinsurance

The Company will assume and cede certain premiums and losses to and from various companies and associations under various reinsurance

agreements. The Company seeks to limit the maximum net loss that can arise from large risks or risks in concentrated areas of exposure through use of
these agreements, either on an automatic basis under general reinsurance contracts known as treaties or 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
obligations could result in significant losses to us. There can be no assurance that reinsurance will continue to be available to us at the same extent, and at
the same cost, as it has in the past. The Company may choose in the future to reevaluate the use of reinsurance to increase or decrease the amounts of risk
ceded to reinsurers.

As a group, during the year ended December 31, 2020, the Company retained the first $10,000 of weather-related losses from catastrophic events

and had reinsurance under various reinsurance agreements up to $97,000 in excess of its $10,000 retained risk. As a group, during the year ended
December 31, 2019, the Company retained the first $10,000 of weather-related losses from catastrophic events and had reinsurance under various
reinsurance agreements up to $78,600 in excess of its $10,000 retained risk. During the year ended December 31, 2018, the Company retained the first
$10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $74,600 in excess of its
$10,000 retained risk. For 2021, the catastrophe retention amount remains at $10,000 while the overall catastrophic reinsurance program limit increased to
$117,000 in excess of the $10,000 retention.

The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due
from reinsurers. Such estimates are made based on periodic evaluation of balances due from reinsurers, judgments regarding reinsurers’ solvency, known
disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions, and the state of reinsurer
relations in general. Collection risk is mitigated from reinsurers by entering into reinsurance arrangements only with reinsurers that have strong credit
ratings and statutory surplus above certain levels. The Company’s reinsurance recoverables on paid and unpaid losses were due from reinsurance
companies with A.M. Best ratings of “A” or higher.

A reconciliation of direct to net premiums on both a written and an earned basis is as follows:

Direct premium
Assumed premium
Ceded premium
Net premiums

Percentage of assumed premium
earned to direct premium
earned

2020

2019

2018

Premiums
Written

Premiums
Earned

Premiums
Written

Premiums
Earned

Premiums
Written

Premiums
Earned

$

$

314,187
6,590
(23,633)
297,144

$

$

301,061
6,459
(23,859)
283,661

$

$

262,145
5,921
(17,120)
250,946

$

$

257,661
5,897
(17,120)
246,438

$

$

225,223
6,441
(30,394)
201,270

$

$

219,600
6,514
(30,394)
195,720

2.1%

2.3%

3.0%

A reconciliation of direct to net losses and loss adjustment expenses is as follows:

Direct losses and loss adjustment expenses
Assumed losses and loss adjustment expenses
Ceded losses and loss adjustment expenses
Net losses and loss adjustment expenses

2020

2019

2018

185,370
3,308
(20,205)
168,473

$

$

173,943
4,032
(8,265)
169,710

$

$

119,894
3,399
(4,205)
119,088

$

$

If 100% of our ceded reinsurance was cancelled as of December 31, 2020, no ceded commissions would need to be returned to the reinsurers.

Reinsurance contracts are typically effective from January 1 through December 31 each year.

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9.

Deferred Policy Acquisition Costs

Activity with regards to our deferred policy acquisition costs was as follows:

Balance, beginning of year
Deferral of policy acquisition costs
Amortization of deferred policy acquisition costs

Balance, end of year

10.

Unpaid Losses and Loss Adjustment Expenses

Year Ended December 31,
2019

2020

2018

$

$

15,399
60,041
(51,472)
23,968

$

$

12,866
48,721
(46,188)
15,399

$

$

8,859
35,863
(31,856)
12,866

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

Year Ended December 31,
2019

2020

2018

Balance at beginning of year:

Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses
Net balance at beginning of year

Acquired unpaid losses and loss adjustment expenses related to:

Current year
Prior years

Total acquired

Incurred related to:
Current year
Prior years

Total incurred

Paid related to:
Current year
Prior years

Total paid

$

$

93,250
4,045
89,205

$

87,121
2,232
84,889

—
8,568
8,568

165,181
3,292
168,473

116,755
52,451
169,206

—
—
—

176,219
(6,509)
169,710

125,940
39,454
165,394

Balance at end of year:

Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses

Net balance at end of year

105,750
8,710
97,040

$

$

93,250
4,045
89,205

$

45,890
4,128
41,762

17,795
23,172
40,967

119,677
(589)
119,088

92,175
24,753
116,928

87,121
2,232
84,889

During the year ended December 31, 2020, the Company’s reported losses and LAE included $3,292 of net unfavorable development on prior

accident years, compared to $6,509 of net favorable development on prior accident years during the year ended December 31, 2019. Increases and
decreases are generally the result of ongoing analysis of recent loss development trends. As additional information becomes known regarding individual
claims, original estimates are increased or decreased accordingly. The net unfavorable development reported for the year ended December 31, 2020 was
primarily attributable to our 2019 multi-peril crop business.

96

 
 
 
 
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The following tables present information, organized by our primary operating segments, about incurred and paid claims development as of

December 31, 2020, 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 an estimated amount for unreported claims. The number of claims is measured by claim event (such as a car accident or storm damage) and an
individual claim event 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 does not result in a liability as a claim closed without payment. The segment information presented in the tables is prior to the effects
of the intercompany reinsurance pooling agreement.

The tables include unaudited information about incurred and paid claims development (a) for the years ended December 31, 2011 through 2015

for the Private Passenger Auto, Primero Non-Standard Auto, Home and Farm, and Crop segments, (b) through 2017 for the Direct Auto Non-Standard
Auto information, and (c) through 2019 for the Westminster Commercial information, which we present as supplementary information.

Private
Passenger
Auto

Accident
Year
(in
thousands,
except claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)

2012 (1)

2013 (1)

2014 (1)

2015 (1)

2016

2017

2018

2019

2020

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

$ 25,552 $ 24,126 $ 25,220 $ 24,409 $ 24,209 $ 23,967 $ 23,814 $ 23,826 $23,852
23,651
26,105
29,298
30,679
39,314
40,120
43,428
— 53,769
—
—
Total

24,787
— 29,079
—
—
—
—
—
—
—

24,323
27,840
— 32,548
—
—
—
—
—
—

— 26,962
—
—
—
—
—
—
—
—

23,621
26,138
29,144
30,503
39,057
40,199
— 44,925
—
—

23,298
26,014
29,099
30,461
39,260
— 40,779
—
—
—

24,098
27,363
31,349
— 32,438
—
—
—
—
—

24,133
27,334
30,427
31,532
— 40,227
—
—
—
—

$ 23,785
22,523
26,077
29,479
30,455
38,535
40,427
43,641
53,328
46,247
$354,497

—
3
36
115
230
298
287
591
1,279
2,477

11,485
9,726
10,825
11,744
11,687
14,317
13,740
14,651
16,451
12,624

(1) Prior years unaudited

Private
Passenger
Auto
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
$ 19,116

2019

2020

2012 (1)
$ 22,161
— 18,681
—
—
—
—
—
—
—
—

2013 (1)
$ 22,325
21,434
— 20,077
—
—
—
—
—
—
—
—
—
—
—
—
—
—

2014 (1)
$ 23,024
21,888
23,576
22,744
—
—
—
—
—
—

2015 (1)
$ 23,339
22,640
24,765
25,727
23,401
—
—
—
—
—

$ 23,852 $ 23,785
22,490
26,019
29,239
30,120
37,833
39,738
41,479
48,414
— 35,495
Total $334,612
14
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 19,899

23,324
26,035
28,765
29,795
38,108
38,331
40,213
42,414

All outstanding liabilities prior to 2011, net of reinsurance

2018
$ 23,747
23,271
25,843
28,281
29,598
37,307
37,050
34,358
—
—

2016
$ 23,583
22,726
24,918
27,076
27,171
29,009
—
—
—
—

2017
$ 23,732
23,073
25,718
27,443
28,933
35,845
31,033
—
—
—

97

Table of Contents

Non-Standard
Auto
(Primero)

Accident
Year
(in thousands,
except claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Non-Standard
Auto
(Primero)
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1)

2016

2017

2018

2019

2020

$ 8,129 $ 8,173 $ 8,178 $ 8,191 $ 8,168 $ 8,168 $ 8,168 $ 8,178 $ 8,178 $ 8,178
8,323
10,844
7,606
9,622
10,008
8,541
11,763
11,391
9,018
Total $95,294

8,324
10,833
7,612
9,691
10,054
8,654
— 10,445
—
—

8,361
10,800
7,619
— 9,727
—
—
—
—
—

8,369
10,823
— 7,297
—
—
—
—
—
—

8,312
10,843
7,577
9,655
10,048
— 8,722
—
—
—

8,302
10,804
7,591
9,806
— 9,967
—
—
—
—

8,491
— 11,063
—
—
—
—
—
—
—

8,324
10,828
7,625
9,641
10,033
8,556
11,804
— 12,264
—
—

— 8,749
—
—
—
—
—
—
—
—

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

—
—
—
—
—
9
18
40
163
992

1,939
2,048
2,617
1,838
1,793
1,740
1,460
1,791
1,490
899

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
4,457
$
—
—
—
—
—
—
—
—
—

2012 (1)
7,445
$
4,377
—
—
—
—
—
—
—
—

$

$

$

$

2016

2017

2018

2019

2013 (1)
7,984
$
7,522
6,320
—
—
—
—
—
—
—

2014 (1)
8,146
$
7,983
9,675
3,733
—
—
—
—
—
—

2015 (1)
8,168
$
8,276
10,508
6,707
5,335
—
—
—
—
—

8,178
8,324
10,818
7,605
9,620
9,912
8,204
10,536
6,309
—
Total
All outstanding liabilities prior to 2011, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

8,168
8,302
10,717
7,423
8,685
5,409
—
—
—
—

8,178
8,324
10,815
7,579
9,557
9,790
7,660
5,492
—
—

8,168
8,312
10,805
7,521
9,479
8,882
4,348
—
—
—

2020
8,178
8,323
10,844
7,606
9,622
9,974
8,460
11,616
10,007
4,111
$ 88,741
—
$ 6,553

98

Table of Contents

Non-Standard
Auto (Direct
Auto)

Accident Year
(in thousands,
except claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year
Ended December 31,

At December 31, 2020

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1) 2016 (1) 2017 (1)

2018

2019

2020

$ 5,296 $ 3,313 $ 3,134 $ 2,937 $ 2,902 $ 2,854 $ 2,874 $ 3,003 $ 2,983 $
3,916
5,869
9,068
— 17,917
—
—
—
—
—

4,909
5,160
6,745
10,538
13,552
18,621
— 25,791
—
—

4,159
— 10,596
—
—
—
—
—
—
—

4,643
5,278
8,381
13,043
14,660
— 23,376
—
—
—

3,927
6,020
— 14,010
—
—
—
—
—
—

4,215
5,261
6,224
14,498
— 20,547
—
—
—
—

4,930
5,049
6,476
10,704
13,956
15,858
22,662
— 24,932
—

— 7,164
—
—
—
—
—
—
—
—

2,984
5,009
5,131
6,672
10,945
12,876
14,648
21,980
25,473
— 24,036
Total $129,754

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

13
27
18
54
(219)
(282)
(2,938)
(501)
(1,678)
(3,092)

2,910
3,357
3,372
4,788
9,083
11,159
11,671
15,523
10,610
12,902

Non-Standard Auto (Direct
Auto)
Accident Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

$

2018

2019

2012 (1)
1,890
$
1,696
—
—
—
—
—
—
—
—

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31,
2011 (1)
1,290
$
—
—
—
—
—
—
—
—
—

2,937
4,730
4,890
6,151
9,560
10,603
10,034
12,285
10,203
—
Total
All outstanding liabilities prior to 2011, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

2017 (1)
2,851
$
4,503
4,602
5,369
7,057
6,272
4,385
—
—
—

2016 (1)
2,830
$
4,081
4,291
4,452
5,202
3,526
—
—
—
—

2015 (1)
2,761
$
3,587
3,796
3,573
2,967
—
—
—
—
—

2014 (1)
2,590
$
3,041
3,123
2,201
—
—
—
—
—
—

2013 (1)
2,342
$
2,421
1,944
—
—
—
—
—
—
—

2020
$ 2,939
4,915
4,960
6,327
10,057
11,058
11,366
15,204
16,214
9,964
$ 93,004
33
$ 36,783

2,925
4,671
4,808
5,781
8,327
8,559
6,981
6,034
—
—

$

99

Table of Contents

Home and
Farm

Accident
Year
(in thousands,
except claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Home and
Farm
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1)

2016

2017

2018

2019

2020

$ 31,948 $ 32,104 $ 32,113 $ 31,771 $ 31,684 $ 31,388 $ 31,306 $ 31,313 $31,312 $ 31,325
24,324
27,588
35,497
31,612
44,728
41,779
43,747
45,828
— 36,264
Total $362,692

— 25,179
—
—
—
—
—
—
—
—

24,088
28,315
35,684
31,577
44,945
41,593
— 42,515
—
—

24,079
28,286
35,589
31,297
44,510
— 42,110
—
—
—

24,439
— 29,976
—
—
—
—
—
—
—

24,081
28,315
35,770
31,818
— 45,825
—
—
—
—

24,320
29,217
— 36,663
—
—
—
—
—
—

24,091
28,531
36,001
— 32,789
—
—
—
—
—

24,086
27,593
35,534
31,446
44,602
41,886
43,846
— 45,438
—

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

—
—
—
12
15
91
204
323
911
2,416

5,946
3,631
4,189
5,241
3,923
6,346
4,932
4,561
5,426
3,721

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
$ 29,399
—
—
—
—
—
—
—
—
—

2012 (1)
$ 33,019
21,761
—
—
—
—
—
—
—
—

2013 (1)
$ 31,126
23,863
23,354
—
—
—
—
—
—
—

2015 (1)
$ 31,702
24,168
27,183
35,199
27,204
—
—
—
—
—

2014 (1)
$ 31,460
24,029
26,934
32,207
—
—
—
—
—
—

2019
$ 31,312
24,086
27,560
35,482
31,383
44,530
40,442
42,814
38,709
—
Total
All outstanding liabilities prior to 2011, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

2018
$ 31,313
24,087
27,495
35,481
30,573
44,270
38,928
37,881
—
—

2017
$ 31,304
24,076
27,456
35,371
30,350
44,942
34,657
—
—
—

2016
$ 31,277
24,075
27,221
35,219
30,164
37,656
—
—
—
—

2020
$ 31,325
24,324
27,583
35,485
31,597
44,583
40,941
43,178
43,253
29,274
$ 351,543
—
$ 11,149

100

Table of Contents

Crop

Accident
Year
(in thousands,
except claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Crop

Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1)

2016

2017

2018

2019

2020

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

$ 55,094 $ 54,953 $ 59,651 $ 59,651 $ 59,651 $ 59,651 $ 59,651 $ 59,651 $59,651 $ 59,651 $

— 13,546
—
—
—
—
—
—
—
—

13,676
— 40,976
—
—
—
—
—
—
—

13,673
39,665
— 22,686
—
—
—
—
—
—

13,673
39,665
20,333
— 13,813
—
—
—
—
—

13,673
39,665
20,333
13,849
— 20,209
—
—
—
—

13,673
39,665
20,333
13,849
19,582
— 33,733
—
—
—

13,673
39,665
20,333
13,849
19,487
34,181
— 12,506
—
—

13,673
39,665
20,333
13,849
19,487
34,181
11,730
— 33,913
—

13,673
39,665
20,333
13,849
19,487
34,181
11,730
37,629
— 28,688
Total $278,886

—
—
—
—
—
—
—
—
—
22

3,211
2,137
2,097
2,268
2,427
2,806
2,968
2,147
3,101
2,339

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
$ 57,741
—
—
—
—
—
—
—
—
—

2012 (1)
$ 59,651
13,078
—
—
—
—
—
—
—
—

2013 (1)
$ 59,651
13,673
35,511
—
—
—
—
—
—
—

2014 (1)
$ 59,651
13,673
39,665
17,788
—
—
—
—
—
—

2015 (1)
$ 59,651
13,673
39,665
20,333
12,866
—
—
—
—
—

2019
$ 59,651
13,673
39,665
20,333
13,849
19,487
34,181
11,730
26,332
—
Total
All outstanding liabilities prior to 2010, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

2018
$ 59,651
13,673
39,665
20,333
13,849
19,487
34,181
10,764
—
—

2017
$ 59,651
13,673
39,665
20,333
13,849
19,487
32,767
—
—
—

2016
$ 59,651
13,673
39,665
20,333
13,849
16,444
—
—
—
—

2020
$ 59,651
13,673
39,665
20,333
13,849
19,487
34,181
11,730
37,629
28,038
$ 278,236
—
650

$

101

Table of Contents

Commercial
(Westminster)

Accident
Year
(in thousands, except
claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Commercial
(Westminster)
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses,
Net of Reinsurance For the Year Ended December 31,

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1) 2016 (1)

2017 (1)

2018 (1)

2019 (1)

2020

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

$ 1,911 $ 1,740 $ 1,758 $ 1,828 $ 1,827 $ 1,821 $ 1,821 $ 1,821 $ 1,821 $ 1,848
2,680
2,036
4,445
4,238
6,248
7,347
12,414
13,051
— 14,774
Total $69,081

2,680
2,053
4,450
4,218
6,200
6,249
— 10,358
—
—

2,680
2,037
4,443
4,293
6,091
6,838
11,177
— 11,658
—

2,583
2,000
4,274
— 3,082
—
—
—
—
—
—
—
—
—
—

— 2,795
—
—
—
—
—
—
—
—

2,492
— 2,214
—
—
—
—
—
—
—

2,539
1,982
— 4,385
—
—
—
—
—
—

2,666
1,935
4,286
3,258
4,661
—
—
—
—

2,680
2,058
4,428
4,019
5,719
5,552

—
—
—
10
2
36
251
628
1,269
3,043

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
1,496
$
—
—
—
—
—
—
—
—
—

2012 (1)
1,718
$
1,634
—
—
—
—
—
—
—
—

2013 (1)
1,745
$
2,364
1,494
—
—
—
—
—
—
—

2015 (1)
1,781
$
2,537
1,829
3,921
2,126
—
—
—
—
—

2014 (1)
1,758
$
2,442
1,727
3,330
—
—
—
—
—
—

2019 (1)
1,821
$
2,680
2,036
4,403
4,206
5,693
5,865
9,472
6,294
—
Total
All outstanding liabilities prior to 2011, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

2017 (1)
1,821
$
2,680
1,949
4,269
3,332
5,289
3,573
—
—
—

2018 (1)
1,821
$
2,680
2,035
4,395
3,950
5,630
4,927
6,494
—
—

2016 (1)
1,821
$
2,591
1,889
4,151
2,794
3,172
—
—
—
—

102

137
133
138
272
278
264
320
476
399
390

2020
$ 1,848
2,680
2,036
4,410
4,231
6,112
6,576
10,591
9,925
8,146
$ 56,555
—
$ 12,526

Table of Contents

Commercial (non-
Westminster)

Accident
Year
(in thousands, except
claim
counts)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Commercial
(non-Westminster)
Accident
Year
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

(1) Prior years unaudited

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1) 2012 (1) 2013 (1) 2014 (1) 2015 (1)

2016

2017

2018

2019

2020

At December 31, 2020

Total IBNR
Plus
Expected
Development
on Reported
Claims

Cumulative
Number of
Reported
Claims

$ 1,937 $ 1,444 $ 1,414 $ 1,407 $ 1,429 $ 1,450 $ 1,433 $ 1,433 $ 1,433
969
2,511
1,650
1,580
2,516
2,510
1,576
— 2,607
—
—
Total

988
2,566
1,732
— 1,695
—
—
—
—
—

1,125
— 2,690
—
—
—
—
—
—
—

1,001
2,637
— 2,180
—
—
—
—
—
—

969
2,511
1,650
1,582
2,515
2,513
— 1,652
—
—

985
2,548
1,694
1,643
— 2,683
—
—
—
—

970
2,508
1,675
1,637
2,526
— 2,530
—
—
—

— 1,600
—
—
—
—
—
—
—
—

$ 1,433 $
970
2,511
1,650
1,580
2,512
2,497
1,609
2,782
2,293
$19,837

—
—
—
—
—
—
—
109
15
250

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,

2011 (1)
1,054
$
—
—
—
—
—
—
—
—
—

2012 (1)
1,357
$
776
—
—
—
—
—
—
—
—

$

$

$

$

2016

2017

2018

2019

2013 (1)
1,322
$
932
2,520
—
—
—
—
—
—
—

2015 (1)
1,393
$
969
2,530
1,925
1,274
—
—
—
—
—

2014 (1)
1,374
$
985
2,751
1,782
—
—
—
—
—
—

1,433
969
2,511
1,650
1,580
2,512
2,497
1,213
1,917
—
Total
All outstanding liabilities prior to 2011, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance

1,433
969
2,511
1,650
1,580
2,498
2,465
1,049
—
—

1,428
969
2,504
1,563
1,796
1,822
—
—
—
—

1,433
970
2,508
1,640
1,818
2,806
1,530
—
—
—

103

220
142
227
163
135
288
167
147
187
116

2020
$ 1,433
970
2,511
1,650
1,580
2,512
2,497
1,240
2,712
1,543
$ 18,648
—
$ 1,189

Table of Contents

The following table presents a reconciliation of the net incurred and paid claims development tables to the liability for unpaid losses and loss

adjustment expenses in our Consolidated Balance Sheet:

December 31, 2020

Liabilities for unpaid losses and loss adjustment expenses:

Private passenger auto
Non-standard auto (Primero)
Non-standard auto (Direct Auto)
Home and farm
Crop
Commercial (Westminster)
Commercial (non-Westminster)
All other

Total liabilities for unpaid losses and loss adjustment expenses

Reinsurance recoverables on losses:

Private passenger auto
Non-standard auto (Primero)
Non-standard auto (Direct Auto)
Home and farm
Crop
Commercial (Westminster)
Commercial (non-Westminster)
All other

Total reinsurance recoverables on losses

$

20,311
6,553
36,783
11,737
771
17,900
1,189
10,506
105,750

412
—
—
588
121
5,374
—
2,215
8,710

Net liability for unpaid losses and loss adjustment expenses

$

97,040

The following table presents required supplementary information about average historical claims duration as of December 31, 2020:

Years
Private Passenger Auto
Non-Standard Auto (Primero)
Non-Standard Auto (Direct Auto)
Home and Farm
Crop
Commercial (Westminster)
Commercial (non-Westminster)

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

1
50.0%
78.4%
34.5%
52.6%
100.0%
57.5%
68.2%

2
19.2%
16.3%
23.6%
8.2%
—
23.1%
13.2%

3
12.3%
3.9%
16.2%
9.5%
—
6.5%
6.6%

104

4
6.7%
1.0%
10.2%
5.1%
—
9.4%
4.0%

5
4.9%
0.2%
6.4%
1.7%
—
3.5%
1.2%

6
3.3%
0.1%
3.6%
1.9%
—
—
1.5%

7
1.7%
0.1%
2.4%
7.2%
—
—
1.4%

8
1.4%
—
1.5%
5.8%
—
—
0.9%

9
0.5%
—
0.8%
8.0%
—
—
0.9%

10

—
—
0.8%
—
—
—
2.2%

 
 
Table of Contents

11.

Property and Equipment

Property and equipment consisted of the following:

Cost:

Real estate
Electronic data processing equipment
Furniture and fixtures
Automobiles
Gross cost

Accumulated depreciation

Total property and equipment, net

December 31,

2020

2019

$

$

$

15,313
1,271
2,867
1,275
20,726

12,733
1,271
2,796
1,130
17,930

(10,827)
9,899

$

(10,236)
7,694

Estimated
Useful Life

10 - 31 years
5-7 years
5-7 years
2-3 years

Depreciation expense was $709, $538, and $492 during the years ended December 31, 2020, 2019 and 2018, respectively.

12.

Goodwill and Other Intangibles

Goodwill

The following table presents the carrying amount of the Company’s goodwill by segment:

Non-standard auto from acquisition of Primero
Commercial from acquisition of Westminster

Total

Other Intangible Assets

December 31,

2020

2019

$

$

2,628 $
6,756
9,384 $

2,628
—
2,628

The following table presents the carrying amount of the Company’s other intangible assets:

December 31, 2020
Subject to amortization:

Trade names
Distribution network

Total subject to amortization

Not subject to amortization – state insurance licenses

Total

December 31, 2019
Subject to amortization:

Trade names
Other

Total subject to amortization

Not subject to amortization – state insurance license

Total

Gross Carrying
Amount

Accumulated
Amortization

Net

$

$

748 $

6,700
7,448

1,900
9,348 $

166 $
372
538

-
538 $

Gross Carrying
Amount

Accumulated
Amortization

Net

$

$

248 $
20
268

100
368 $

66 $
18
84

-
84 $

582
6,328
6,910

1,900
8,810

182
2
184

100
284

Amortization expense was $5,224, $1,711, and $3,507 during the years ended December 31, 2020, 2019 and 2018, respectively. The VOBA

intangible asset of $4,750 acquired in the Westminster transaction was fully amortized during 2020.

Other intangible assets that have finite lives, including trade names and distribution networks, are amortized over their useful lives. The estimated

amortization of other intangible assets with finite lives for the next five years and thereafter is as follows:

Year ending December 31,
2021
2022
2023
2024
2025
Thereafter

Total other intangible assets with finite lives

13.

Related Party Transactions

Intercompany Reinsurance Pooling Arrangement

$

$

Amount

472
472
455
422
422
4,667
6,910

 
 
 
Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement.

This agreement was finalized, approved, and implemented during the fourth quarter of 2020, retroactive to the January 1 effective date. Nodak Insurance is
the lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak
Insurance then retrocedes balances back to each company, while retaining its

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own share of the pool’s net underwriting results, based on individual pool percentages established in the respective pooling agreement. This arrangement
allows each insurance company to rely upon the capacity of the pool’s total statutory capital and surplus. As a result, they are evaluated by A.M. Best on a
group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category.

In connection with the pooling agreement, the quota share agreement between Battle Creek and Nodak Insurance was cancelled. As a result, the

Company’s consolidated financial position and results of operations are impacted by the portion of Battle Creek’s underwriting results that are allocated to
the policyholders of Battle Creek rather than the shareholders of NI Holdings.

For the year ended December 31, 2020, the pooling share percentages by insurance company subsidiary were:

Nodak Insurance Company
American West Insurance Company
Primero Insurance Company
Battle Creek Mutual Insurance Company
Direct Auto Insurance Company
Westminster American Insurance Company
Total

North Dakota Farm Bureau

Pool Percentage

66.0%
7.0%
3.0%
2.0%
13.0%
9.0%
100.0%

We were organized by the NDFB to provide insurance protection for its members. We have a royalty agreement with the NDFB that recognizes
the use of their trademark and provides royalties to the NDFB based on the premiums written on Nodak Insurance’s insurance policies. Royalties paid to
the NDFB were $1,370, $1,352, and $1,315 during the years ended December 31, 2020, 2019, and 2018 respectively. Royalty amounts payable of $113 and
$115 were accrued as a liability to the NDFB at December 31, 2020 and 2019, respectively.

During 2020, Nodak Insurance paid $1,129 of membership dues on behalf of its NDFB members in North Dakota in response to the COVID-19

pandemic.

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Dividends

State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our

insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their
domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further affect
their ability to pay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2020 exceeded the amount of statutory capital and
surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2021 without the prior approval of the North Dakota

Insurance Department is $21,628 based upon the policyholders’ surplus of Nodak Insurance at December 31, 2020. Prior to its payment of any
extraordinary dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department. This notice must be
provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an
ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if Nodak Insurance is in violation of any
law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. The Board of Directors of Nodak Insurance
declared and paid a $6,000 dividend to NI Holdings during the year ended December 31, 2020. No dividends were declared or paid by Nodak Insurance
during the years ended December 31, 2019 or 2018.

The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois

Department of Insurance is $3,582 based upon the policyholders’ surplus of Direct Auto at December 31, 2020. Prior to its payment of any dividend, Direct
Auto will be required to provide notice of the dividend to the Illinois Department of Insurance. This notice must be provided to the Illinois Department of
Insurance within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10
days prior to the payment of an ordinary dividend. The Illinois Department of Insurance has the power to limit or prohibit dividend payments if Direct Auto
is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were
declared or paid by Direct Auto during the years ended December 31, 2020, 2019 or 2018.

The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland

Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three
preceding years. Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance
Administration. This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend
and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Maryland
Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation. These restrictions or
any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid by Westminster during the year ended December
31, 2020.

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Battle Creek Mutual Insurance Company

The following tables illustrate the impact of including Battle Creek in our Consolidated Balance Sheets and Statements of Operations prior to

intercompany eliminations:

Assets:

Cash and cash equivalents
Investments
Premiums and agents’ balances receivable
Deferred policy acquisition costs
Pooling receivable (1)
Reinsurance recoverables on losses (2)
Accrued investment income
Deferred income tax asset, net
Property and equipment
Other assets

Total assets

Liabilities:

Unpaid losses and loss adjustment expenses
Unearned premiums
Notes payable (1)
Reinsurance losses payable (2)
Accrued expenses and other liabilities

Total liabilities

Equity:

Non-controlling interest

Total equity

Total liabilities and equity

(1) Amount fully eliminated in consolidation.
(2) Amount partly eliminated in consolidation.

Revenues:

Net premiums earned
Fee and other income
Net investment income
Net capital gain on investments

Total revenues

Expenses:

Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs
Other underwriting and general expenses

Total expenses

Income before income taxes
Income taxes
Net income

14.

Benefit Plans

$

$

$

December 31,

2020

2019

$

$

$

6,055
5,543
4,738
479
920
5,646
27
101
337
49
23,895

2,445
2,381
3,000
11,221
303
19,350

4,545
4,545

—
4,661
4,801
—
—
26,330
33
343
348
45
36,561

10,622
15,708
3,000
1,706
2,026
33,026

3,499
3,499

$

23,895

$

36,561

Year Ended December 31,
2019

2020

2018

$

$

$

5,673
(23)
(3)
1
5,648

3,369
1,029
77
4,475

1,173
218
955

$

— $
(9)
139
3
133

—
—
—
—

133
34
99

$

—
12
147
-
159

—
—
—
—

159
(4)
163

The Company sponsors a money purchase plan that covers all eligible employees. Plan costs are funded annually as they are earned. The
Company reported expenses related to the money purchase plan totaling $900, $618, and $598 during the years ended December 31, 2020, 2019, and 2018,
respectively.

The Company also sponsors a 401(k) plan with an automatic contribution to all eligible employees and a matching contribution for eligible

employees of 50% up to 3% of eligible compensation. Primero, Direct Auto, and Westminster also sponsor 401(k) plans. The Company reported expenses
related to the 401(k) plans totaling $651, $516, and $475 during the years ended December 31, 2020, 2019, and 2018, respectively. All fees associated with
both plans are deducted from the eligible employee accounts.

Deferred Compensation Plan

The Board of Directors has authorized a non-qualified deferred compensation plan covering key executives of the Company (as designated by the
Board of Directors). The Company’s policy is to fund the plan by amounts that represent the excess of the maximum contribution allowed by the Employee

 
 
 
 
 
 
 
Retirement Income Security Act (“ERISA”) over the key executives’ allowable 401(k) contribution. The plan also allows employee-directed deferral of key
executive’s compensation or incentive payments. The Company reported expenses relating to this plan totaling $308, $458, and $451 for the years ended
December 31, 2020, 2019, and 2018, respectively.

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Employee Stock Ownership Plan

The Company has established an Employee Stock Ownership Plan (the “ESOP”). The ESOP is intended to be an employee stock ownership plan

within the meaning of Internal Revenue Code Section 4975(e)(7) and will invest solely in common stock of the Company.

In connection with our initial public offering in March 2017, Nodak Insurance loaned $2,400 to the ESOP’s related trust (the “ESOP Trust”). The
ESOP loan will be for 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 ESOP Trust 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 the Company’s authorized shares. The ESOP has purchased the shares for investment and not for resale.

The shares purchased by the ESOP Trust in the offering are held in a suspense account as collateral for the ESOP loan. The shares held in the

ESOP’s suspense account are not considered outstanding for earnings per share purposes. Nodak Insurance will make semi-annual cash contributions to the
ESOP in amounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance. While the ESOP makes two
loan payments per year, a pre-determined portion of the shares will be released from the suspense account and allocated to participant accounts at the end
of the calendar year. 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 of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance. If the ESOP is
terminated as a result of a change in control of the Company, the ESOP may be required to pay the costs of terminating the plan.

It is anticipated that the only assets held by the ESOP will be shares of the Company’s common stock. Participants in the ESOP cannot direct the

investment of any assets allocated to their accounts. The initial ESOP participants are employees of Nodak Insurance. The employees of Primero, Direct
Auto, and Westminster do not participate in the ESOP. American West and Battle Creek have no employees.

Each employee of Nodak Insurance will automatically become a participant in the ESOP if such employee is at least 21 years old, has completed a

minimum of one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period. Employees are not permitted to
make any contributions to the ESOP. Participants in the ESOP will receive annual reports from the Company showing the number of shares of common
stock of the Company allocated to the participant’s account and the market value of those shares. The shares are allocated to participants based on
compensation as provided for in the ESOP.

In connection with the initial public offering, the Company created a contra-equity account on the Company’s Consolidated Balance Sheet equal
to the ESOP’s basis in the shares. The basis of those shares was set at $10.00 per share as part of the initial public offering. As shares are released from the
ESOP suspense account, the contra-equity account will be credited, which shall reduce the impact of the contra-equity account on the Company’s
Consolidated Balance Sheet. The Company shall record a compensation expense related to the shares released, which compensation expense is equal to the
number of shares released from the suspense account multiplied by the average market value of the Company’s stock during the period.

The Company recognized compensation expense of $374, $405, and $400 during the years ended December 31, 2020, 2019, and 2018,

respectively, related to the ESOP.

Through December 31, 2020, 97,260 ESOP shares had been released and allocated to participants, with the remainder of 142,740 ESOP shares

held in suspense at December 31, 2020. Using the Company’s year-end market price of $16.42, the fair value of the unearned ESOP shares was $2,344 at
December 31, 2020.

15.

Line of Credit

Nodak Insurance has a $5,000 line of credit with Wells Fargo Bank, N.A. The terms of the line of credit include a floating interest rate with a floor

rate of 3.25%. There were no outstanding amounts during the years ended December 31, 2020, 2019, or 2018. This line of credit is scheduled to expire on
January 30, 2022.

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16.

Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted, implementing numerous changes to

tax law including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations
on interest deductions, and the creation of certain refundable employee retention credits. There has been no impact to the Company’s income taxes due to
this legislation.

The components of our provision for income tax expense were as follows:

Federal

Current
Deferred

Total federal

State

Total provision for income taxes

Year Ended December 31,
2019

2020

2018

$

$

10,109
638
10,747
725
11,472

$

$

5,116
1,871
6,987
324
7,311

$

$

8,020
(692)
7,328
593
7,921

The provision for income taxes differs from the amount that would be computed by applying the statutory federal rate to income before provision

for income taxes as a result of the following:

Income before income taxes

Expected provision for federal income taxes at 21%

Tax-exempt interest
Dividends received deduction
Executive compensation
Change in valuation allowance
State income taxes, net of federal impact
Other

Total provision for income taxes

Year Ended December 31,
2019

2020

$

$

$

52,816

11,091

(209)
(104)
130
(17)
570
11
11,472

$

$

$

33,811

7,100

(235)
(89)
151
7
224
153
7,311

$

$

$

2018

39,165

8,100

(232)
(87)
159
(41)
476
(454)
7,921

We re-measure existing deferred income 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 a component of income tax expense from continuing operations in the period of enactment. We record any
change to a previously recorded valuation allowance as a result of re-measuring existing temporary differences and loss carryforwards as a component of
income tax expense from continuing operations. The valuation allowance against certain deferred income tax assets was $931, $594, and $587 at December
31, 2020, 2019, and 2018, respectively.

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The income tax effects of temporary differences that give rise to significant portions of our deferred income tax assets and deferred income tax

liabilities at December 31, 2020 and 2019 are as follows:

Deferred income tax assets:

Unearned premium
Unpaid losses and loss adjustment expenses
Net operating loss carryovers
Other

Total deferred income tax assets

Deferred income tax liabilities:

Deferred policy acquisition costs
Net unrealized gains on investments
Intangibles
Other

Total deferred income tax liabilities

Net deferred income tax liability

Valuation allowance

Deferred income tax liability, net

December 31,

2020

2019

$

5,013
792
1,260
1,538
8,603

5,033
9,897
1,451
48
16,429

(7,826)

(931)
(8,757) $

3,750
615
977
952
6,294

3,234
6,927
39
90
10,290

(3,996)

(594)
(4,590)

$

$

At December 31, 2020 and 2019, 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, 2020, 2019, or 2018.

At December 31, 2020 and 2019, the Company, other than Battle Creek and Westminster, had no income tax related carryovers for net operating

losses, alternative minimum tax credits, or capital losses.

Battle Creek, which files its federal income tax returns on a stand-alone basis, had net operating loss carryovers of $3,390 and $4,652 at December

31, 2020 and 2019, respectively. The net operating loss carryforward expires beginning in 2021 through 2030, due to limitations on the use of this net
operating loss carryforward.

Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had $2,559 of net operating loss
carryover at December 31, 2020. This net operating loss carryforward expires beginning in 2021 through 2023, due to limitations on the use of this net
operating loss carryforward.

17.

Operating Leases

Our Primero subsidiary leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in 2023. Our Direct Auto

subsidiary leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029. Our Nodak Insurance subsidiary leases a facility in
Fargo, North Dakota under a non-cancellable operating lease expiring in 2024. There were expenses of $370, $316, and $140 related to these leases during
the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, we have minimum future commitments under non-cancellable leases as follows:

Year ending December 31,

2021
2022
2023
2024
2025
Thereafter

18.

Contingencies

$

Estimated Future
Minimum
Commitments

249
319
358
320
286
1,066

We have been named as a defendant in various lawsuits relating to our insurance operations. Contingent liabilities arising from litigation, income

taxes, and other matters are not considered to be material to our financial position.

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19.

Common Stock

Changes in the number of common stock shares outstanding are as follows:

Shares outstanding, beginning

Treasury shares repurchased through stock repurchase authorization
Issuance of treasury shares for vesting of stock awards
Issuance of shares related to employee stock ownership plan

Shares outstanding, ending

Year Ended December 31,
2019
22,192,894
(116,034)
18,205
24,315
22,119,380

2020
22,119,380
(856,499)
31,442
24,315
21,318,638

2018
22,337,644
(191,265)
22,200
24,315
22,192,894

On February 28, 2018, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s

outstanding common stock. We completed the repurchase of 191,265 shares of our common stock for $2,966 during 2018, and an additional 116,034 shares
for $2,006 during 2019. During the six months ended June 30, 2020, we completed the repurchase of 402,056 shares of our common stock for $4,996 to
close out this authorization.

On May 4, 2020, our Board of Directors approved an additional authorization for the repurchase of up to approximately $10,000 of the Company’s

outstanding common stock. During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238
under this new authorization.

The cost of this treasury stock is a reduction of shareholders’ equity within our Consolidated Balance Sheet.

20.

Stock Based Compensation

At its 2020 Annual Shareholders’ Meeting, the NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) was approved by shareholders. The
purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers,
consultants, independent contractors, advisors, and non-employee directors capable of assuring the future success of the Company, to offer such persons
incentives to put forth maximum efforts for the success of the Company’s business and to afford such persons an opportunity to acquire an ownership
interest in the Company, thereby aligning the interests of such persons with the Company’s shareholders.

The Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights,

dividend equivalents, and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent
contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made under the Plan are based
upon, among other things, a participant’s level of responsibility and performance within the Company.

The total aggregate number of shares of common stock that awards may be issued under all awards made under the Plan shall not exceed

1,000,000 shares of common stock, subject to adjustments as provided in the Plan. No eligible participant may be granted any awards for more than
100,000 shares in the aggregate in any calendar year, subject to adjustment in accordance with the Plan. The aggregate amount payable pursuant to all
performance awards denominated in cash to any eligible person in any calendar year is limited to $1,000 in value. Directors who are not also employees of
the Company may not be granted awards denominated in shares that exceed $150 in any calendar year.

Restricted Stock Units

The Compensation Committee has awarded RSUs to non-employee directors and select executives. RSUs are promises to issue actual shares of
common stock at the end of a vesting period. The RSUs granted to executives under the Plan were based on salary and vest 20% per year over a five-year
period, while RSUs granted to non-employee directors vest 100% on the date of the next annual meeting of shareholders following the grant date. Dividend
equivalents on RSUs are accrued during the vesting period and paid in cash at the end of the vesting period, but are subject to forfeiture until the underlying
shares become vested. Participants do not have voting rights with respect to RSUs.

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The Company recognizes stock-based compensation costs based on the grant date fair value. The compensation costs are normally expensed over

the vesting periods to each vesting date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain
retirement criteria and the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are
currently estimated.

A summary of the Company’s outstanding restricted stock units is presented below:

Weighted-Average
Grant-Date
Fair Value
Per Share

Shares

Units outstanding and unearned at January 1, 2018

RSUs granted during 2018
RSUs earned during 2018

Units outstanding and unearned at December 31, 2018

RSUs granted during 2019
RSUs earned during 2019

Units outstanding and unearned at December 31, 2019

RSUs granted during 2020
RSUs earned during 2020

Units outstanding and unearned at December 31, 2020

65,500
40,000
(31,620)
73,880

57,100
(34,440)
96,540

66,000
(46,760)
115,780

$

$

$

$

The following table shows the impact of RSU activity to the Company’s financial results:

RSU compensation expense
Income tax benefit

RSU compensation expense, net of income taxes

Total grant-date fair value of vested RSUs at end of period

Year Ended December 31,
2019

2020

2018

$

$

$

1,035
(217)
818

764

$

$

$

792
(166)
626

568

$

$

$

17.31
16.25
16.99
16.87

15.81
16.24
16.47

14.27
16.33
15.27

999
(210)
789

537

At December 31, 2020, there was $681 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized

over a weighted-average period of 1.89 years.

Performance Stock Units

The Compensation Committee has awarded PSUs to select executives. PSUs are promises to issue actual shares of common stock at the end of a

vesting period, if certain performance conditions are met. The PSUs granted to employees under the Plan were based on salary and include a three-year
book value cumulative growth target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s
continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid in cash at the
end of the performance period in accordance with the level of performance achieved, but are subject to forfeiture until the underlying shares become
vested. Participants do not have voting rights with respect to PSUs.

The Company recognizes stock-based compensation costs based on the grant date fair value over the performance period of the awards. Estimated

forfeitures are included in the determination of compensation costs. No forfeitures are currently estimated. The current cost estimate assumes that the
cumulative growth target will be achieved.

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A summary of the Company’s outstanding PSUs is presented below:

Performance
Share
Units

Weighted-Average
Grant-Date
Fair Value
Per Share

Units outstanding and unearned at January 1, 2018

PSUs granted during 2018 (at target)

Units outstanding and unearned at December 31, 2018

PSUs granted during 2019 (at target)

Units outstanding and unearned at December 31, 2019

PSUs granted during 2020 (at target)

Units outstanding and unearned at December 31, 2020

— $

48,600
48,600

62,400
111,000

63,600
174,600

$

$

$

The following table shows the impact of PSU activity to the Company’s financial results:

PSU compensation expense
Income tax benefit

PSU compensation expense, net of income taxes

Total grant-date fair value of vested PSUs at end of period

Year Ended December 31,
2019

2020

2018

$

$

$

1,262
(265 )
997

$

$

822
(173 )
649

$

$

— $

— $

—
16.25
16.25

15.21
15.27

14.26
15.15

233
(49 )
184

—

The PSU grants above represent initial target awards and do not reflect potential increases or decreases resulting from financial performance

objectives to be determined at the end of the performance period. The actual number of shares to be issued at the end of the performance period will range
from 0% to 150% of the initial target awards.

At December 31, 2020, there was $1,090 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized

over a weighted-average period of 1.59 years.

21.

Earnings Per Share

Earnings per share is computed by dividing net income available to common shareholders for the period by the weighted average number of

common shares outstanding for the same period. The weighted average number of common shares outstanding was 21,772,475, 22,179,747, and
22,358,858 for the years ended December 31, 2020, 2019, and 2018, respectively.

Unearned ESOP shares are not considered outstanding until they are released and allocated to plan participants. Unearned RSU and PSU shares

are not considered outstanding until they are earned by award participants.

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The following table presents a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for our

common stock:

Basic earnings per common share:

Numerator:

Net income attributable to NI Holdings

Denominator:

Weighted average shares outstanding

Basic earnings per common share

Diluted earnings per common share:

Numerator:

Net income attributable to NI Holdings

Denominator:

Number of shares used in basic computation
Weighted average effect of dilutive securities

Add: RSUs and PSUs

Number of shares used in diluted computation

Diluted earnings per common share

115

Year Ended December 31,
2019

2020

2018

40,389

$

26,401

$

31,081

21,772,475
1.86

$

22,179,747
1.19

$

22,358,858
1.39

40,389

$

26,401

$

31,081

21,772,475

22,179,747

22,358,858

169,995
21,942,470
1.84

$

85,601
22,265,348
1.19

$

26,896
22,385,754
1.39

$

$

$

$

 
Table of Contents

22.

Segment Information

We have five primary reportable operating segments, which consist of private passenger auto insurance, non-standard auto insurance, home and

farm insurance, crop insurance, and commercial insurance. A sixth segment captures all other insurance coverages we sell, including our assumed
reinsurance lines 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 tables provide available information of these segments for the years ended December 31, 2020, 2019, and 2018. For presentation in these tables,
“LAE” refers to loss adjustment expenses.

The ratios presented in these tables are non-GAAP financial measures under Securities and Exchange Commission rules and regulations. The non-

GAAP ratios may not be comparable to similarly-named measures reported by other companies. These ratios are used widely in the property and casualty
insurance industry.

The loss and LAE ratio equals losses and loss adjustment expenses divided by net premiums earned. The expense ratio equals amortization of

deferred policy acquisition costs and other underwriting and general expenses, divided by net premiums earned. The combined ratio equals losses and loss
adjustment expenses, amortization of deferred policy acquisition costs, and other underwriting and general expenses, divided by net premiums earned.

116

Table of Contents

Direct premiums earned
Assumed premiums earned
Ceded premiums earned

Net premiums earned

Direct losses and LAE
Assumed losses and LAE
Ceded losses and LAE

Net losses and LAE

Year Ended December 31, 2020

Private
Passenger
Auto

Non-
Standard
Auto

Home and
Farm

Crop

$

$

74,998
—
(2,989)
72,009

45,423
—
88
45,511

$

53,909
—
(172)
53,737

30,347
—
—
30,347

$

82,036
—
(7,157)
74,879

38,700
(116)
(1,839)
36,745

39,893
1,896
(6,071)
35,718

36,022
1,070
(5,713)
31,379

Commercial
45,557
$
—
(7,269)
38,288

All Other
4,668
$
4,563
(201)
9,030

$

32,620
—
(12,190)
20,430

2,258
2,354
(551)
4,061

Total
301,061
6,459
(23,859)
283,661

185,370
3,308
(20,205)
168,473

Gross margin

26,498

23,390

38,134

4,339

17,858

4,969

115,188

Underwriting and general expenses
Underwriting gain (loss)

19,986
6,512

Fee and other income

Net investment income
Net capital gain on investments

Income before income taxes

Income taxes
Net income
Net income attributable to non-controlling

interest

Net income attributable to NI

Holdings, Inc.

Non-GAAP Ratios:

Loss and LAE ratio
Expense ratio
Combined ratio

Balances at December 31, 2020:

Premiums and agents’ balances

receivable

Deferred policy acquisition costs
Reinsurance recoverables
Receivable from Federal Crop

Insurance Corporation

Goodwill and other intangibles

Unpaid losses and LAE
Unearned premiums

20,874
17,260

4,807
(468)

16,358
1,500

2,304
2,665

20,739
2,651

1,337
3,988

85,068
30,120

1,801

7,271
13,624
52,816
11,472
41,344

955

$

40,389

63.2%
27.8%
91.0%

56.5%
38.6%
95.1%

49.1%
27.9%
76.9%

87.9%
13.5%
101.3%

53.4%
42.7%
96.1%

45.0%
25.5%
70.5%

59.4%
30.0%
89.4%

$

$

18,540
5,461
412

—
—

20,311
28,293

6,543
4,649
—

—
2,860

43,336
16,147

9,072
7,828
588

—
—

11,737
41,301

$

117

$

— $
—
121

6,646
—

771
—

$

13,732
5,588
5,374

—
15,334

19,089
30,705

$

636
442
2,215

—
—

48,523
23,968
8,710

6,646
18,194

10,506
2,917

105,750
119,363

 
 
 
 
 
 
 
 
 
Table of Contents

Direct premiums earned
Assumed premiums earned
Ceded premiums earned

Net premiums earned

Direct losses and LAE
Assumed losses and LAE
Ceded losses and LAE

Net losses and LAE

Year Ended December 31, 2019

Private
Passenger
Auto

Non-
Standard
Auto

Home and
Farm

Crop

$

$

71,297
—
(3,314)
67,983

53,022
63
(389)
52,696

$

57,278
—
(164)
57,114

32,654
—
—
32,654

$

77,832
—
(6,661)
71,171

47,282
—
(1,681)
45,601

Gross margin

15,287

24,460

25,570

Underwriting and general expenses
Underwriting gain (loss)

18,886
(3,599)

20,106
5,464

21,077
3,383

1,638
5,021

42,277
2,072
(6,330)
38,019

35,148
1,582
(4,639)
32,091

5,928

4,396
1,532

Commercial
4,546
$
1
(450)
4,097

All Other
4,431
$
3,824
(201)
8,054

$

2,541
—
(52)
2,489

1,608

863
745

3,296
2,387
(1,504)
4,179

3,875

1,930
1,945

Total
257,661
5,897
(17,120)
246,438

173,943
4,032
(8,265)
169,710

76,728

67,258
9,470

2,125

7,433
14,783
33,811
7,311
26,500

99

77.5%
27.8%
105.3%

57.2%
36.9%
94.1%

64.1%
28.3%
92.3%

84.4%
11.6%
96.0%

60.8%
21.1%
81.8%

51.9%
24.0%
75.9%

68.9%
27.3%
96.2%

$

26,401

$

$

18,194
4,108
500

—
—

19,892
27,949

7,876
4,711
—

—
2,912

43,978
16,364

9,088
5,945
1,068

—
—

10,503
39,945

$

118

$

— $
—
998

14,230
—

8,579
—

$

940
315
6

—
—

1,076
2,334

$

593
320
1,473

—
—

9,222
2,684

36,691
15,399
4,045

14,230
2,912

93,250
89,276

Fee and other income

Net investment income
Net capital gain on investments

Income before income taxes

Income taxes

Net income

Net income attributable to non-controlling

interest

Net income attributable to NI

Holdings, Inc.

Non-GAAP Ratios:

Loss and LAE ratio
Expense ratio
Combined ratio

Balances at December 31, 2019:

Premiums and agents’ balances

receivable

Deferred policy acquisition costs
Reinsurance recoverables
Receivable from Federal Crop

Insurance Corporation

Goodwill and other intangibles

Unpaid losses and LAE
Unearned premiums

 
 
 
 
 
 
 
 
Table of Contents

Direct premiums earned
Assumed premiums earned
Ceded premiums earned

Net premiums earned

Direct losses and LAE
Assumed losses and LAE
Ceded losses and LAE

Net losses and LAE

Fee and other income

Net investment income
Net capital gain on investments

Income before income taxes

Income taxes

Net income

Net income attributable to non-controlling

interest

Net income attributable to NI

Holdings, Inc.

Non-GAAP Ratios:

Loss and LAE ratio
Expense ratio
Combined ratio

Balances at December 31, 2018:

Premiums and agents’ balances

receivable

Deferred policy acquisition costs
Reinsurance recoverables
Receivable from Federal Crop

Insurance Corporation

Goodwill and other intangibles

Unpaid losses and LAE
Unearned premiums

Private
Passenger
Auto

Non-
Standard
Auto

Home and
Farm

$

$

$

65,457
16
(3,008)
62,465

44,644
358
(478)
44,524

27,964
—
—
27,964

14,338
—
—
14,338

70,355
(17)
(5,661)
64,677

42,993
(295)
17
42,715

Year Ended December 31, 2018

$

Crop

47,505
2,306
(21,112)
28,699

Commercial
4,230
$
1
(422)
3,809

All Other
4,089
$
4,208
(191)
8,106

$

14,206
696
(2,990)
11,912

1,690
—
(186)
1,504

2,305

875
1,430

2,023
2,640
(568)
4,095

4,011

2,053
1,958

Gross margin

17,941

13,626

21,962

16,787

Underwriting and general expenses
Underwriting gain (loss)

18,530
(589)

19,950
2,012

3,176
13,611

9,533
4,093

1,406
5,499

Total
219,600
6,514
(30,394)
195,720

119,894
3,399
(4,205)
119,088

76,632

54,117
22,515

6,496

6,180
3,974
39,165
7,921
31,244

163

71.3%
29.7%
100.9%

51.3%
34.1%
85.4%

66.0%
30.8%
96.9%

41.5%
11.1%
52.6%

39.5%
23.0%
62.5%

50.5%
25.3%
75.8%

60.8%
27.7%
88.5%

$

31,081

$

$

16,558
3,658
176

—
—

18,154
26,022

7,769
3,364
—

—
4,623

46,786
17,177

8,630
5,279
730

—
—

10,732
36,883

$

119

$

— $
—
384

16,169
—

2,126
—

$

$

854
280
(28)

—
—

643
2,200

476
285
970

—
—

8,680
2,485

34,287
12,866
2,232

16,169
4,623

87,121
84,767

 
 
 
 
 
 
 
 
Table of Contents

For purposes of evaluating profitability of the non-standard auto segment, management combines the policy fees paid by the insured with the

underwriting gain or loss as its primary measure. As a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in
the above tables. The remaining fee and other income amounts are not allocated to any segment, including the $4,578 gain realized on the bargain purchase
of Direct Auto in 2018.

We do not assign or allocate all Consolidated Statement of Operations or Consolidated Balance Sheet line items to our operating segments. Those
line items include investment income, net capital gain on investments, other income excluding non-standard auto insurance fees, and income taxes within
the Consolidated Statement of Operations. For the Consolidated Balance Sheet, those items include cash and investments, property and equipment, other
assets, accrued expenses, federal income taxes recoverable or payable, and shareholders’ equity.

Beginning in March 2020, the global pandemic associated with novel coronavirus COVID-19 and related economic conditions began to impact the
Company’s results. The Company’s underwriting results for 2020 were impacted by reduced net premiums earned in our non-standard auto segment, which
decreased 6% from 2019. We anticipate additional pressure on premiums in this segment for 2021. Conversely, the pandemic favorably impacted loss
frequency in our private passenger and non-standard auto segments during the second and third quarters of 2020, due to fewer miles driven by our insureds,
resulting in improvements in our loss and LAE ratios.

120

Table of Contents

23.

Statutory Net Income, Capital and Surplus, and Dividend Restrictions

The following table presents selected information, as filed with insurance regulatory authorities, for our insurance subsidiaries as determined in
accordance with accounting practices prescribed or permitted by such insurance regulatory authorities as of and for the years ended December 31, 2020,
2019, and 2018:

2020

2019

2018

Nodak Insurance:

Statutory capital and surplus
Statutory unassigned surplus
Statutory net income

American West:

Statutory capital and surplus
Statutory unassigned surplus
Statutory net income

Primero:

Statutory capital and surplus
Statutory unassigned surplus (deficit)
Statutory net income (loss)

Battle Creek:

Statutory capital and surplus
Statutory unassigned surplus
Statutory net income

Direct Auto:

Statutory capital and surplus
Statutory unassigned surplus
Statutory net income

Westminster:

Statutory capital and surplus
Statutory unassigned surplus
Statutory net income

$

$

216,278
211,278
24,529

$

189,836
184,836
9,398

18,368
12,367
2,158

9,818
559
1,023

6,875
3,875
693

35,819
32,819
7,898

23,592
18,592
2,719

16,168
10,167
2,232

8,727
(532)
(1,256)

6,189
3,189
133

28,683
25,683
7,377

20,897
15,897
225

175,875
170,875
19,943

13,889
7,888
1,238

9,767
508
1,061

6,052
3,052
159

19,146
16,146
7,530

20,175
15,175
701

State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our

insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their
domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further affect
their ability to pay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2020 and 2019 exceeded the amount of statutory
capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

Amounts available for distribution in 2021 to Nodak Insurance as dividends from its insurance subsidiaries without prior approval of insurance
regulatory authorities are $1,837 from American West and $512 from Primero. No dividends were paid to Nodak Insurance from either entity during the
years ended December 31, 2020, 2019, or 2018.

The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2021 without the prior approval of the North Dakota

Insurance Department is $21,628 based upon the policyholders’ surplus of Nodak Insurance at December 31, 2020. Prior to its payment of any
extraordinary dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department. This notice must be
provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an
ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if Nodak Insurance is in violation of any
law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. The Board of Directors of Nodak Insurance
declared and paid a $6,000 dividend during the year ended December 31, 2020. No dividends were declared or paid in the years ended December 31, 2019
or 2018.

The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois

Department of Insurance is $3,582 based upon the policyholders’ surplus of Direct Auto at December 31, 2020. Prior to its payment of any dividend, Direct
Auto will be required to provide notice of the dividend to the Illinois Department of Insurance. This notice must be provided to the Illinois Department of
Insurance within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10
days prior to the payment of an ordinary dividend. The Illinois Department of Insurance has the power to limit or prohibit dividend payments if Direct Auto
is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were
declared or paid by Direct Auto during the years ended December 31, 2020, 2019 or 2018.

The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland

Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three
preceding years. Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance
Administration. This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend
and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend. The Maryland
Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation. These restrictions or
any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid by Westminster during the year ended December
31, 2020.

121

 
 
 
 
Table of Contents

24.

Interim Financial Data (Unaudited)

The following table provides a summary of unaudited quarterly results for the periods presented.

Net premiums earned
Net investment income
Total revenues
Total expenses
Net income (loss) before non-controlling interest
Net income (loss) attributable to NI Holdings, Inc.
Basic earnings (loss) per common share
Diluted earnings (loss) per common share

Net premiums earned
Net investment income
Total revenues
Total expenses
Net income (loss) before non-controlling interest
Net income (loss) attributable to NI Holdings, Inc.
Basic earnings (loss) per common share
Diluted earnings (loss) per common share

$

$

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year Ended December 31, 2020

$

58,772
1,971
46,186
50,581
(3,555)
(3,587)
(0.16)
(0.16)

$

82,006
2,018
95,667
71,989
18,767
18,733
0.86
0.85

$

73,342
1,886
80,854
75,980
3,686
3,664
0.17
0.17

69,541
1,396
83,650
54,991
22,446
21,579
1.01
1.00

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year Ended December 31, 2019

$

50,506
1,743
60,572
42,928
13,796
13,773
0.62
0.62

122

$

65,114
1,778
68,648
65,133
2,515
2,478
0.11
0.11

$

67,116
1,983
70,248
78,849
(6,959)
(6,979)
(0.32)
(0.31)

63,702
1,929
71,311
50,058
17,148
17,129
0.77
0.77

Table of Contents

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes or disagreements with accountants on accounting and financial disclosure.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure
controls and procedures (as required by Exchange Act Rules 240.13a-15(b) and 15d-14(a)) as of December 31, 2020. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective.

Evaluation of Internal Controls over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule

13a-15(f) under the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our
management has reviewed and evaluated the effectiveness of our internal control over financial reporting based on the framework and criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO
Framework”). Based on our evaluation under the COSO Framework, the Chief Executive Officer and Chief Financial Officer have concluded that the
Company’s current internal control over financial reporting is effective, and that our Consolidated Financial Statements we include in this Annual Report
on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with accounting principles
generally accepted in the United States of America.

Changes in Internal Controls

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-

15(f) under the Exchange Act) during the year ended December 31, 2020, to which this report relates that have materially affected, or are reasonably likely
to materially affect the Company’s internal control over financial reporting.

Item 9B.

Other Information

None.

123

Table of Contents

Item 10.

Directors, Executive Officers and Corporate Governance

PART III

We incorporate the response to this Item 10 by reference to our proxy statement we will file with the SEC on or about April 13, 2021 relating to

our Annual Meeting of Shareholders that we will hold on May 25, 2021 (our “Proxy Statement”).

We have posted a copy of our Code of Ethics and Business Conduct on the Governance Highlights page of the Corporate Governance section of

our website, www.niholdingsinc.com, which you can access free of charge. Information contained on the website is not incorporated by reference in, or
considered 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
that are required to be disclosed by law or NASDAQ Listing Rules.

Item 11.

Executive Compensation

We 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 Matters

We incorporate the response to this Item 12 by reference to our Proxy Statement.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

We incorporate the response to this Item 13 by reference to our Proxy Statement.

Item 14.

Principal Accountant Fees and Services

We incorporate the response to this Item 14 by reference to our Proxy Statement.

124

Table of Contents

PART IV

Item 15.

Exhibits and Financial Statement Schedules

List of Financial Statements and Financial Statement Schedules

(a)

(1)

(2)

The following documents are filed as a part of this report:

Financial Statements and

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 the
Consolidated 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:

2.1

3.1

3.2

3.3

3.4

4.1

Plan of Mutual Property and Casualty Insurance Company Conversion and Minority Offering of Nodak Mutual Insurance Company,
dated as of January 21, 2016 (1)

Articles of Incorporation of NI Holdings, Inc. (1)

Bylaws of NI Holdings, Inc. (1)

Amendment to the Bylaws of NI Holdings, Inc. (4)

Amendment No. 2 to the Bylaws of NI Holdings, Inc. (6)

Form of certificate evidencing shares of common stock of NI Holdings, Inc. (1)

4.2*

Description of Securities Registered Under Section 12 of the Exchange Act

10.1

2017 NI Holdings, Inc. Equity Incentive Plan (5)

10.2

Nodak 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 NI
Holdings, 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)

10.6

10.7

Trademark License Agreement dated as of October 1, 2016 between North Dakota Farm Bureau and Nodak Mutual Insurance Company
(1)

Multiple Peril Crop/Livestock Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and
Nodak Mutual Insurance Company, American West Insurance Company and Battle Creek Mutual Insurance Company for Crop Year 2016
(1)

10.8

Crop Hail Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and Nodak Mutual
Insurance Company, 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)

10.11 Affiliation Agreement dated as of December 30, 2010 between Nodak Mutual Insurance Company and Battle Creek Mutual Insurance

Company (2)

125

Table of Contents

10.12

Form of Time-Based Restricted Stock Unit Agreement for Non-Employee Directors (7)

21.1

Subsidiaries of NI Holdings, Inc. (1)

23.1*

Consent of Mazars USA LLP

31.1*

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32*

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document

101.SCH**

Inline XBRL Taxonomy Extension Schema Linkbase Document

101.CAL**

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Filed herewith.

Inline XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for

**
purposes of 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, as amended, and otherwise is not subject to liability under these sections.

#

Management contract or compensatory plan or arrangement.

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, and

(1)
incorporated herein by reference.

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

(2)
November 14, 2016, and incorporated herein by reference.

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

(3)
January 12, 2017, and incorporated herein by reference.

(4)

Filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on March 2, 2020, and incorporated herein by reference.

Filed as Exhibit 10.1 to the Company’s Form 8-K (File No.001-37973) filed with the SEC on September 18, 2017, and incorporated herein by

(5)
reference.

(6)

(7)

Filed as Exhibit 3.1 to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on April 22, 2020, and incorporated herein by reference.

Filed as Exhibit 10.2 to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on May 29, 2020, and incorporated herein by reference.

126

Table of Contents

Item 16.

Form 10-K Summary

None.

127

Table 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 Sheets

Assets:

Cash and cash equivalents
Fixed income securities, at fair value
Equity securities, at fair value
Total cash and investments

Income tax recoverables
Accrued investment income
Investment in wholly-owned subsidiaries
Deferred income tax asset, net

Total assets

Liabilities:

Westminster consideration payable
Accrued expenses and other liabilities
Federal income tax payable
Commitments and contingencies

Total liabilities

Shareholders’ equity

Total liabilities and equity

128

December 31,

2020

2019

$

$

$

8,838
20,979
9,646
39,463

1,036
134
324,305
529
365,467

19,287
1,853
—
—
21,140

22,395
35,381
9,454
67,230

—
198
240,619
138
308,185

—
1,842
39
—
1,881

344,327
365,467

$

306,304
308,185

$

$

$

$

 
 
 
Condensed Statements of Operations

Table of Contents

Revenues:

Fee and other income
Net investment income
Net capital gain on investments

Total revenues

Expenses:

Other underwriting and general expenses

Total expenses

Income (loss) before income taxes and equity in undistributed net income of subsidiaries

Income tax (benefit) expense

Income (loss) before equity in undistributed net income of subsidiaries

Equity in undistributed net income of subsidiaries

Net income attributable to NI Holdings, Inc.

Year Ended December 31,
2019

2020

2018

$

$

(31) $
717
425
1,111

5,711
5,711

(4,600)
(1,190 )
(3,410)
43,799
40,389

$

$

2
1,342
3,067
4,411

3,383
3,383

1,028
163
865
25,536
26,401

$

4,580
1,481
1,190
7,251

2,574
2,574

4,677
98
4,579
26,502
31,081

Condensed Statements of Comprehensive Income

Net income attributable to NI Holdings, Inc.
Other comprehensive income (loss), net of income taxes:

Unrealized gain (loss) on investments
Unrealized gain (loss) on subsidiaries

Other comprehensive income (loss), net of income taxes
Comprehensive income

129

Year Ended December 31,
2019

2020

2018

40,389

$

26,041

$

31,081

127
7,101
7,228
47,617

$

846
6,574
7,420
33,821

$

(745 )
(8,877 )
(9,622 )
21,459

$

$

 
 
 
Table of Contents

Condensed Statements of Cash Flows

Cash flows from operating activities:

Net income attributable to NI Holdings, Inc.
Adjustments:

Equity in undistributed net income of subsidiaries
Gain on acquisition of Direct Auto Insurance Company
Other

Net adjustments

Net cash flows from operating activities

Cash flows from investing activities:

Net sale of fixed income and equity securities
Acquisition of Direct Auto Insurance Company
Acquisition of Westminster American Insurance Company

Net cash flows from investing activities

Cash flows from financing activities:

Dividend from subsidiaries
Purchase of treasury stock
Issuance of restricted stock awards

Net cash flows from financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Year Ended December 31,
2019

2020

2018

$

40,389

$

26,401

$

31,081

(43,799)
—
1,395
(42,404)
(2,015)

14,723
—
(20,000)
(5,277)

6,000
(12,234)
(31)
(6,265)

(13,557)

22,395

(25,536)
—
(1,079)
(26,615)
(214)

18,748
—
—
18,748

—
(2,006)
(19)
(2,025)

16,509

5,886

(26,502)
(4,578)
1,109
(29,971)
1,110

17,941
(17,000)
—
941

—
(2,996)
—
(2,996)

(945)

6,831

5,886

Cash and cash equivalents at end of period

$

8,838

$

22,395

$

Note A – Basis of presentation

In the parent-company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of

subsidiaries since inception. The parent-company-only financial statements should be read in conjunction with the Company’s Consolidated Financial
Statements.

Note B – Dividends from subsidiaries

The Company received a cash dividend of $6,000 from Nodak Insurance during the year ended December 31, 2020. No dividends from its

subsidiaries were received during the years ended December 31, 2019 or 2018.

130

 
 
 
 
 
Table of Contents

Pursuant 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 its
behalf by the undersigned, thereunto duly authorized on March 10, 2021.

SIGNATURES

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 10, 2021, by the following persons on
behalf of the registrant and in the capacities indicated.

Signature

/s/ Michael J. Alexander

Michael J. Alexander

/s/ Brian R. Doom

Brian R. Doom

/s/ Eric K. Aasmundstad
Eric K. Aasmundstad

/s/ William R. Devlin
William R. Devlin

/s/ Duaine C. Espegard
Duaine C. Espegard

/s/ Cindy L. Launer
Cindy L. Launer

/s/ Stephen V. Marlow
Stephen V. Marlow

/s/ Jeffrey R. Missling
Jeffrey R. Missling

Capacity

President and Chief Executive Officer (Principal
Executive Officer), Director

Date

March 10, 2021

Chief Financial Officer (Principal Financial and
Accounting Officer)

March 10, 2021

Director

Director

Director

Director

Director

Director

131

March 10, 2021

March 10, 2021

March 10, 2021

March 10, 2021

March 10, 2021

March 10, 2021

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES
EXCHANGE ACT OF 1934

Exhibit 4.2

NI Holdings, Inc. (“NI Holdings,” “we,” “our,” or “us”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended: our common stock.

DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of our capital stock is based upon our Articles of Incorporation (the “Articles of Incorporation”) and our Bylaws (the
“Bylaws”). The summary is not complete, and is qualified by reference to our Articles of Incorporation and our Bylaws, which are filed as exhibits to this
Annual Report on Form 10-K and are incorporated by reference herein. We encourage you to read our Articles of Incorporation, our Bylaws, and the
applicable provisions of the North Dakota Business Corporation Act for additional information.

Authorized Shares of Capital Stock

Our authorized capital stock consists of 25,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of preferred stock. The outstanding
shares of our common stock are duly authorized, validly issued, fully paid, and non-assessable.

Listing

Our common stock is listed and principally traded on the NASDAQ Capital Market under the symbol “NODK”.

Voting Rights

Each holder of shares of our common stock is entitled to one (1) vote for each share held of record by such holder on the applicable record date on all
matters submitted to a vote of shareholders of common stock. Pursuant to our Articles of Incorporation, shareholders are not entitled to cumulate their votes
for election of directors.

Dividend Rights

Under the North Dakota Business Corporation Act, we may only pay dividends if solvent and if payment of such dividend would not render us insolvent.
Funds for the payment of dividends must come from either proceeds of offerings retained by us or dividends paid to us by our subsidiaries. Therefore, the
restrictions on our subsidiaries’ ability to pay dividends affect our ability to pay dividends.

Rights upon Liquidation

In the event of any liquidation, dissolution or winding up of any of our subsidiaries, we, as holder of all of the capital stock of our subsidiaries, would be
entitled to receive all assets of such subsidiaries after payment of all debts and liabilities. In the event of liquidation, dissolution or winding up of NI
Holdings, each holder of shares of our common stock would be entitled to receive a portion of our assets, after payment of all of our debts and liabilities. If
any preferred stock is issued, the holders thereof are likely to have a priority in liquidation or dissolution over the holders of the common stock.

Other Rights and Preferences

Holders of our common stock do not have preemptive rights with respect to any additional shares of common stock. The common stock is not subject to
call for redemption.

133

Transfer Agent and Registrar

Computershare Trust Company, N.A. is the transfer agent and registrar for our common stock.

Certain Anti-Takeover Effects

Certain provisions of our Articles of Incorporation and Bylaws may be deemed to have an anti-takeover effect.

Advance Notice Requirements for Shareholder Proposals and Director Nominations. Our Bylaws provide advance notice procedures for shareholders
seeking to bring business before our annual meeting of shareholders or to nominate candidates for election as directors at our annual meeting of
shareholders and specify certain requirements regarding the form and content of a shareholder’s notice. These provisions might preclude our shareholders
from bringing matters before our annual meeting of shareholders or from making nominations for directors at our annual meeting of shareholders if the
proper procedures are not followed.

Additional Authorized Shares of Capital Stock. The additional shares of authorized common stock and preferred stock available for issuance under our
Articles of Incorporation, could be issued at such times, under such circumstances and with such terms and conditions as to impede a change in control.

Issuance of Preferred Stock. Pursuant to our Articles of Incorporation, the board of directors of NI Holdings has authority to issue preferred stock from time
to time and to fix and determine, by resolution, the par value, voting powers, full or limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, including specifically, but not
limited to, the dividend rights, conversion rights, redemption rights and liquidation preferences, if any, of any wholly unissued series of preferred stock (or
the entire class of preferred stock if none of such shares have been issued), the number of shares constituting any such series and the terms and conditions
of the issue thereof.

Limitations on Stockholder Ability to Act by Written Consent or Call Meetings. During any period in which Nodak Mutual Group, Inc. holds at least a
majority of the outstanding shares of common stock, shareholders may approve by written consent any action that could be taken at a meeting of
shareholders of NI Holdings, provided that such written consent is executed by shareholders who own of record shares having the right to cast the number
of votes required to approve such action at a meeting of shareholders of NI Holdings. Except as provided in the first sentence above, no action required to
be taken or which may be taken at any annual or special meeting of shareholders of NI Holdings may be taken without a meeting, and the power of the
shareholders of NI Holdings to consent in writing to action without a meeting is specifically denied. A special meeting of the shareholders of NI Holdings
may be called only by: (i) the Chief Executive Officer, (ii) the Executive Committee of the board of directors, or (iii) two-thirds of the members of the
board of directors of NI Holdings.

Classified Board. The Company’s board of directors is divided into three classes. The directors in each class serve for a three-year term, one class being
elected each year by the Company’s shareholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of the
Company’s shareholders, with the other classes continuing for the remainder of their respective three-year terms.

Mergers, Sale of Assets, Liquidation Approval. Our Articles of Incorporation provide that any merger, consolidation, sale of assets or similar transaction
involving the Company requires the affirmative vote of shareholders entitled to cast at least 80% of the votes which all shareholders are entitled to cast,
unless the transaction is approved in advance by two-thirds of the members of the board of directors. If the transaction is approved in advance by two-thirds
of the members of the board of directors, approval by the affirmative vote of a majority of the votes cast by holders of outstanding voting stock at a meeting
at which a quorum was present would be required.

Prohibition of Ownership and Voting of Shares in Excess of 10%. Our Articles of Incorporation impose limitations upon the ability of certain shareholders
and groups of shareholders to acquire or vote shares of our stock. The articles of incorporation prohibit any person other than Nodak Mutual Group, Inc.
(whether an individual, company or a group acting in concert, as defined) from acquiring voting control, as defined. Voting control is generally defined as
the beneficial ownership at any time of shares with more than 10% of the total

134

voting power of the outstanding stock of NI Holdings. These provisions would not apply to the purchase of shares by underwriters in connection with a
public offering. A group acting in concert includes persons seeking to combine or pool their voting power or other interests in common stock for a common
purpose. Such a group does not include actions by the board of directors acting solely in their capacity as the board of directors. This provision will not
apply to any person or entity if two-thirds of the members of the board of directors approve in writing the acquisition by such person or entity of beneficial
ownership of shares with more than 10% of the total voting power of the outstanding stock of NI Holdings.

Under this provision, shares of common stock, if any, owned in excess of 10% will not be entitled to vote on any matter or take other shareholder action.
For purposes of determining the voting rights of other shareholders, these excess shares are essentially treated as no longer outstanding. As a result, where
excess shares are present, other shareholders will realize a proportionate increase in their voting power, but this 10% voting restriction will not be
applicable to other shareholders if their voting power increases above 10% as a result of application of this provision to another shareholder.

135

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-221630 and 333-239645) of our report dated March 10,
2021 on the consolidated balance sheets of NI Holdings, Inc. and Subsidiaries as of December 31, 2020 and 2019, and the related consolidated statements
of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020,
and the related notes and the schedule listed in Item 15(a)(2). This report appears in the December 31, 2020 Annual Report on Form 10-K of NI Holdings,
Inc. and Subsidiaries.

Exhibit 23.1

/s/ Mazars USA LLP
Fort Washington, PA
March 10, 2021

121

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Michael J. Alexander, certify that:

Exhibit 31.1

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of NI Holdings, Inc.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our

supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about

the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s

internal control over financial reporting.

March 10, 2021

122

/s/ Michael J. Alexander
Michael J. Alexander
President and Chief Executive Officer
(Principal Executive Officer)

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, Brian R. Doom, certify that:

Exhibit 31.2

1.

2.

3.

4.

I have reviewed this annual report on Form 10-K of NI Holdings, Inc.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our

supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about

the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s

internal control over financial reporting.

March 10, 2021

123

/s/ Brian R. Doom
Brian R. Doom
Chief Financial Officer
(Principal Financial Officer)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32

In connection with the annual report of NI Holdings, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), we, Michael J. Alexander, President and Chief Executive Officer, and Brian R.
Doom, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that, to our knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the

Company.

March 10, 2021

March 10, 2021

/s/ Michael J. Alexander
Michael J. Alexander
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Brian R. Doom
Brian R. Doom
Chief Financial Officer
(Principal Financial Officer)

123