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, 2023 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
Common Stock, $0.01 par value per share
Trading Symbol(s)
NODK
Name of each exchange on which registered
Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: NONE
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 ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit 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
issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
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, 2023, 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 $119 million. All executive officers and
directors of the Registrant, and all shareholders 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 29, 2024 was 20,615,384. 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 21, 2024 are incorporated by reference into Part III
of this report.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
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.
Schedule I – Condensed financial information of registrant – NI Holdings, Inc.
Exhibits and Financial Statement Schedules
Form 10-K Summary
i
PART II
PART III
PART IV
Page
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FORWARD-LOOKING STATEMENTS
This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may”, “will”, “should”, “likely”,
“anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”, “views”, “estimates”, and similar expressions are used to identify these forward-looking
statements. These statements include, among other things, the Company’s statements about:
● our anticipated operating and financial performance, business plans, and prospects;
● strategic reviews, capital allocation objectives, dividends, and share repurchases;
● plans for and prospects of acquisitions, dispositions, and other business development activities, and our ability to successfully capitalize on
these opportunities;
● the impact of a future pandemic and related economic conditions, including the potential impact on the Company's investments;
● our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our agent
network;
● cyclical changes in the insurance industry, competition, and innovation and emerging technologies;
● expectations for impact of, or changes to, existing or new government regulations or laws;
● our ability to anticipate and respond to macroeconomic, geopolitical, health and industry trends, pandemics, acts of war, and other large-scale
crises;
● developments in general economic conditions, domestic and global financial markets, interest rates, unemployment, or inflation, that could
affect the performance of our insurance operations and/or investment portfolio; and
● our ability to effectively manage future growth, including additional necessary capital, systems, and personnel.
Given their nature, we cannot assure that any outcome expressed in these or other forward-looking statements will be realized in whole or in part. Actual
outcomes may vary materially from past results and those anticipated, estimated, implied, or projected. These forward-looking statements may be affected
by underlying assumptions that may prove inaccurate or incomplete, or by known or unknown risks and uncertainties, including those described in this
section and in the Part I, Item 1A, “Risk Factors” section in this Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Annual
Report”). The occurrence of any of the risks identified in the Part I, Item 1A, “Risk Factors” section in this 2023 Annual Report, or other risks currently
unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals
for contingencies. It is not possible to predict or identify all such factors. Consequently, you should not consider such discussion to be a complete
discussion of all potential risks or uncertainties.
Therefore, you are cautioned not to unduly rely on forward-looking statements, which speak only as of the date of this 2023 Annual Report. We undertake
no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable
securities law. You are advised, however, to consult any further disclosures we make on related subjects.
1
Item 1.
Business
All dollar amounts, except per share amounts, are in thousands.
Overview
PART I
NI Holdings, Inc. (“NI Holdings”, “the Company”, “we”, “us”, and “our”) 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 (“Nodak Mutual”) from a mutual to
stock form of organization and the creation of a mutual holding company. The conversion was completed on March 13, 2017. Immediately following the
conversion, all of the outstanding shares of common stock of Nodak Insurance Company (“Nodak Insurance”, the successor to Nodak Mutual Insurance
Company) were issued to Nodak Mutual Group, Inc. (“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. Concurrent with the conversion, on March 13, 2017, the Company completed an initial
public offering (“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. The newly issued shares of NI Holdings were available for public trading on
March 16, 2017.
These consolidated financial statements include the financial position and results of operations of NI Holdings and the following other entities:
● Nodak Insurance – a wholly-owned subsidiary of NI Holdings;
● Nodak Agency, Inc. (“Nodak Agency”) – a wholly-owned subsidiary of Nodak Insurance;
● American West Insurance Company (“American West”) – a wholly-owned subsidiary of Nodak Insurance;
● Primero Insurance Company (“Primero”) – an indirect wholly-owned subsidiary of Nodak Insurance;
● Battle Creek Mutual Insurance Company (“Battle Creek”) – an affiliated company of Nodak Insurance;
● Direct Auto Insurance Company (“Direct Auto”) – a wholly-owned subsidiary of NI Holdings; and
● Westminster American Insurance Company (“Westminster”) – a wholly-owned subsidiary of NI Holdings.
2
A chart of the corporate structure as of December 31, 2023, and a more complete description of each of the NI Holdings subsidiaries, is included below.
NI HOLDINGS, INC.
ORGANIZATIONAL CHART
Nodak Mutual Group, Inc.
≥ 60%
ownership
NI Holdings, Inc.
100%
ownership
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 (1)
100%
ownership
Westminster American
Insurance Company
100%
ownership
Tri-State, Ltd
100%
ownership
Primero Insurance
Company
(1) As of January 2, 2024, Battle Creek Mutual Insurance Company converted from a mutual insurance company to a stock company and became a 100%
wholly-owned subsidiary. See Part II, Item 8, Note 22 “Subsequent Event” for additional information regarding changes to Battle Creek Mutual
Insurance Company.
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. The Company makes available on its website, free of charge, its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“the Exchange Act”) as soon as reasonably practicable after it electronically files such
material with, or furnish it to, the United States Securities and Exchange Commission (“SEC”). Information contained on such website is not incorporated
by reference into this 2023 Annual Report, and such information should not be considered to be part of this 2023 Annual Report.
3
Subsidiary and Affiliate Companies
Intercompany Reinsurance Pooling Arrangement
Effective January 1, 2020, all of our active 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 Company, Inc. (“AM Best”) on a group basis and hold a single combined financial
strength rating, long-term issuer credit rating, and financial size category.
In connection with the pooling agreement, the quota share agreement between Battle Creek and Nodak Insurance was cancelled. As a result, the Company’s
consolidated financial position and results of operations are impacted by the portion of Battle Creek’s underwriting results that are allocated to the
policyholders of Battle Creek rather than the shareholders of NI Holdings. For the years ended December 31, 2023, 2022, and 2021, the pooling share
percentages by insurance company 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
Nodak Insurance Company
Pool Percentage
66.0%
7.0%
3.0%
2.0%
13.0%
9.0%
100.0%
Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota, offering private passenger auto, homeowners,
farmowners, commercial multi-peril, crop hail, and Federal multi-peril crop insurance coverages through its captive agents in the state.
Nodak Insurance was formed in 1946 to offer property and casualty insurance to members of the North Dakota Farm Bureau (“NDFB”), and benefits from
a strong marketing affiliation with that organization. Nodak Insurance’s bylaws provide that a person must be a member and remain a member of the NDFB
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 NDFB. Similarly, one-third of the members of the Board of Directors of Nodak Mutual Group must be persons
designated by the NDFB.
The NDFB 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. 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 NDFB and Nodak Insurance renewed on October
1, 2023, with an expiration date of September 30, 2024. 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 NDFB 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 $1,623. The maximum royalty payment is adjusted annually based upon the June index month for the Consumer Price Index.
As of December 31, 2023, Nodak Insurance distributed its insurance products through 66 exclusive agents appointed by Nodak Insurance.
Nodak Agency, Inc.
Nodak Agency is an inactive shell corporation.
Tri-State, Ltd.
Tri-State, Ltd. is an inactive shell corporation.
4
American West Insurance Company
American West is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the United States (“U.S.”).
American West began writing policies in 2002 and primarily writes private passenger auto, homeowners, and farm coverages in South Dakota. American
West also writes private passenger auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages in Minnesota and
South Dakota. As of December 31, 2023, American West distributed its products through independent agents in 71 contracted agencies.
Primero Insurance Company
Primero is a wholly-owned subsidiary of Tri-State, Ltd. Tri-State, Ltd. is an inactive shell corporation 100% owned by Nodak Insurance. Primero is a
property and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota, and South Dakota.
Primero was acquired by Nodak Insurance in 2014. As of December 31, 2023, Primero distributed its policies through independent agents in 313 contracted
agencies in those four states.
Battle Creek Mutual Insurance Company
Battle Creek is a property and casualty insurance company writing private passenger auto, homeowners, and farm coverages solely in the state of Nebraska.
As of December 31, 2023, Battle Creek distributed its policies through independent agents in 114 contracted agencies. 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 previous 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.
As of December 31, 2023, the $3.0 million surplus note originally issued by Battle Creek and purchased by Nodak Insurance in connection with their
affiliation agreement remained in place. It bears interest at an annual rate of 1.0% and matures on December 30, 2040. Battle Creek must obtain prior
approval from the appropriate state of domicile 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 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.
Direct Auto Insurance Company
Direct Auto is a property and casualty insurance company licensed in Illinois. Direct Auto began writing non-standard automobile coverage in 2007, and
was acquired by NI Holdings on August 31, 2018, via a stock purchase agreement. As of December 31, 2023, Direct Auto distributed its policies through
independent agents in 153 contracted agencies, concentrated primarily in the Chicago area.
Westminster American Insurance Company
Westminster is a property and casualty insurance company licensed in 18 states and the District of Columbia. Westminster is headquartered in Owings
Mills, Maryland and underwrites commercial multi-peril insurance in the states of Delaware, Georgia, Kentucky, Maryland, New Jersey, North Carolina,
Pennsylvania, South Carolina, Tennessee, Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020, via a stock
purchase agreement. As of December 31, 2023, Westminster distributed its policies through independent agents in 53 contracted agencies in those 10 states
and the District of Columbia. The financial results of Westminster have been included in the consolidated financial statements and the Company’s
commercial segment following the acquisition date.
General Information
Nodak Insurance markets and distributes its policies through its captive agents, while all other companies utilize the independent agent distribution
channel. Additionally, all of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by AM Best.
5
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 consolidated financial statements of NI Holdings presented herein include the financial position and results of operations of NI Holdings, Direct Auto,
Westminster, and Nodak Insurance, including Nodak Insurance’s subsidiaries of 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.
Market Overview
We market our personal lines products in the upper Midwest states of North Dakota, Nebraska, South Dakota, and Minnesota. We offer non-standard auto
insurance in the states of Illinois, Arizona, Nevada, South Dakota, and North Dakota. We offer commercial multi-peril insurance in the states of Maryland,
North Carolina, Virginia, New Jersey, Georgia, North Dakota, Pennsylvania, South Carolina, Tennessee, Delaware, Kentucky, South Dakota, West Virginia,
and the District of Columbia. The following chart shows 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, 2022:
Year Ended
December 31, 2023
Direct Premiums
Written
Direct Premiums
Written
Year Ended December 31, 2022
$
North Dakota
Illinois
Nebraska
South Dakota
Maryland
North Carolina
Virginia
New Jersey
Georgia
Pennsylvania
South Carolina
District of Columbia
Arizona
Minnesota
Nevada
Tennessee
Delaware
Kentucky
West Virginia
Total direct premiums written
$
Market size information is not yet available for the year ended December 31, 2023.
6
163,505 $
86,348
50,698
29,660
13,389
11,822
11,554
11,539
7,576
6,279
4,976
4,342
4,077
4,008
2,938
2,552
2,122
1,014
—
418,399 $
Market Size
3,629,000
33,307,000
6,905,000
3,671,000
14,857,000
21,714,000
18,087,000
26,686,000
29,009,000
30,235,000
13,279,000
2,606,000
15,628,000
15,533,000
7,672,000
15,561,000
3,516,000
9,268,000
3,342,000
159,260 $
70,599
47,554
26,880
14,227
8,110
8,606
9,732
15,448
8,486
3,630
4,182
1,175
5,075
4,552
516
1,545
83
46
389,706
Rank in
State
6th
63rd
30th
31st
83rd
136th
126th
139th
117th
173rd
153rd
60th
215th
130th
110th
262nd
112th
274th
220th
Organic Growth Strategy
We believe we have many opportunities to organically grow our business. Strategies we employ to achieve this growth include:
●
●
●
●
continued emphasis on our relationship with the NDFB, a key advocacy group for agricultural and rural interests which enjoys a high
profile and favorable reputation throughout North Dakota;
expansion and enhancement of independent agency relationships, including the use of technology such as mobile apps, online quoting,
and policy issuance initiatives to make it easy for agents and insureds to do business with us;
capitalizing on our excellent claims service for all insureds; and
selective expansion of our insurance products in states where we currently operate, as well as those states where we hold insurance
licenses.
External Growth Strategy
We acquired Direct Auto in 2018 with capital raised through our IPO. The acquisition was the initial step in executing our growth strategy developed at the
time of the IPO.
We also acquired Westminster in January 2020 with capital raised through our IPO. This acquisition expanded our commercial insurance business and
geographically diversified our spread of insurance risks.
Prior to the IPO, we successfully acquired Primero in 2014, acquired control of Battle Creek in 2011, and acquired American West in 2001.
Going forward, we plan to consider other strategic investments and acquisitions that can enhance our businesses, provide diversification with respect to
geography and product line, and achieve appropriate risk-adjusted returns over time.
7
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:
● 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;
● 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
● 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:
● 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. This capital is held by each of our insurance company subsidiaries.
● The second layer of capital is considered “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.
Insurance Products by Segment
Our consolidated financial results include our Private Passenger Auto, Non-Standard Auto, Home and Farm, Commercial, Crop, and All Other reporting
segments. Information regarding products and services offered in each segment is included below. Additionally, revenues, underwriting results, and
identifiable assets and liabilities for each segment are shown in Part II, Item 8, Note 20 “Segment Information”. The financial performance of each segment
is discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
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 as well as protection against loss from damage to automobiles owned by the insured. Private passenger
auto accounted for $92,077 (22.0%) of direct premiums written by the Company on a consolidated basis during 2023.
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 $95,295 (22.8%) of direct premiums written by the Company on a consolidated basis during 2023.
8
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 $96,396 (23.0%) of direct premiums written by the Company on a
consolidated basis during 2023.
Crop
Nodak Insurance, American West, and Battle Creek offer crop hail and multi-peril crop insurance policies. Multi-peril crop insurance is a federal program
that protects against crop yield losses from all types of natural causes and loss of revenue due to declines in the prices of agricultural products. Crop hail
insurance is a private insurance product designed to provide protection against losses to farmers’ crops due primarily to hail damage. Collectively, crop
insurance accounted for $45,272 (10.8%) of direct premiums written by the Company on a consolidated basis during 2023.
Commercial
Nodak Insurance, American West, and Westminster write commercial multi-peril policies. Collectively, commercial insurance accounted for $83,854
(20.0%) of the direct premiums written by the Company on a consolidated basis during 2023.
All Other
In addition to the products described above, Nodak Insurance and American West write excess liability coverages. Collectively, these other coverages
accounted for $5,504 (1.3%) of the direct premiums written by the Company on a consolidated basis during 2023. This segment also includes an assumed
reinsurance book of business, with $836 of assumed premiums written on a consolidated basis during 2023. The Company made the decision to non-renew
its participation in this assumed book of business as of January 1, 2022, and the associated assumed premiums represent run-off of this business.
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, freezing, plant disease, 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.
American Farm Bureau Insurance Services (“AFBIS”) underwrites all of our, as well as several other state Farm Bureau affiliated insurers, multi-peril crop
and crop hail insurance policies. 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 receive with respect to such
policies.
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 agents.
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We review our agents with respect to both premium volume and profitability. Our captive agents for Nodak Insurance are hired and trained by our sales
staff in North Dakota, while the independent agents for 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 agents
more effectively market our products.
For the year ended December 31, 2023, no individual agent was responsible for more than 5% of the Company’s direct premiums written.
Agents are compensated through a fixed base commission structure. Agents receive commission as a percentage of premiums 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 agents 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 agents and policyholders. We believe that these positive experiences contribute to achieving higher policyholder
retention and new business growth over time. 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
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, maintain appropriate policyholder retention, and
support the production of profitable new business. These pricing reviews involve evaluating 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.
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 a reference point, we typically 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 choose not to underwrite that risk. It is our philosophy not to
sacrifice profitability for premium growth.
Our Nodak Insurance underwriting staff includes 20 employees with approximately 285 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 employ 17 underwriters in connection with their non-standard auto insurance businesses. Westminster has a staff of 12 in the
underwriting area of its commercial insurance business. All of our crop insurance is underwritten by AFBIS, as described above.
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 Part I, Item 1A, “Risk Factors”.
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 shareholders, its policyholders, or other
stakeholders. The Audit Committee of the Board of Directors oversees risk management and regularly receives reports from the ERMC.
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Reinsurance
We cede and assume certain premiums and losses to and from various companies and associations under a variety of reinsurance agreements. We seek to
limit the maximum net loss that can arise from large risks or risks in concentrated areas of exposure through use of these agreements, either on an
automatic basis under general reinsurance contracts known as treaties or through facultative contracts on substantial individual risks.
Reinsurance contracts do not relieve us from our 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 to the same extent, and at the same cost, as it has in
the past. We may choose in the future to reevaluate the use of reinsurance to increase or decrease the amounts of risk ceded to reinsurers.
For additional information, see Part II, Item 8, Note 6 “Reinsurance”.
Unpaid Losses and Loss Adjustment Expenses
We maintain reserves for unpaid losses and loss adjustment expenses. Our liability for unpaid losses and loss adjustment expenses 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”). We determine a provision 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 loss adjustment expenses 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. Our liability
for unpaid losses and loss adjustment expenses is not discounted.
For additional information, see Part II, Item 7, “Critical Accounting Policies” and Part II, Item 8, Note 8 “Unpaid Losses and Loss Adjustment Expenses”.
Investments
The majority of funds available for investments are deployed in a widely diversified portfolio of high quality, liquid taxable U.S. government, tax-exempt
and taxable U.S. municipal, taxable corporate, and U.S. agency mortgage-backed bonds. We regularly monitor the effective duration of our fixed income
investments, and our investment purchases and sales are executed with the objective of having adequate funds available to satisfy our insurance and debt
obligations. Generally, the expected principal and interest payments produced by our fixed income portfolio adequately fund the estimated runoff of the
Company’s insurance reserves. The substantial amount by which the fair value of the fixed income portfolio exceeds the value of the net insurance
liabilities, as well as the positive cash flow from newly sold policies and the large amount of high-quality liquid bonds, contribute to the Company’s ability
to fund claim payments without having to sell illiquid assets or access its credit facilities.
We also invest a much smaller percentage of the portfolio in private placement debt offerings and equity securities, which have the potential for higher
returns but also involve varying degrees of risk, including higher volatility and/or less liquidity.
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.
For additional information, see Part II, Item 7, “Critical Accounting Policies” and Part II, Item 8, Note 4 “Investments”.
Financial Strength
Ratings are an important factor in assessing the Company’s competitive position in the insurance industry. The Company is reviewed regularly by the
independent rating agency AM Best, who assigns a financial strength rating to the Company, which reflects its assessment of an insurer’s ability to meet its
financial obligations to policyholders. An insurer’s financial strength rating is one of the primary factors evaluated by those in the market to purchase
insurance. A poor rating indicates that there is an increased likelihood that the insurer could become insolvent and therefore not able to fulfill its obligations
under the insurance policies it issues. This rating can also affect an insurer’s level of premium writings, the lines of business it can write, and, for insurers
like us that are also public registrants, the market value of its securities.
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All of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by AM Best, which is the third highest out of 15 possible
ratings, under a group rating due to the intercompany pooling reinsurance agreement. Effective April 25, 2023, AM Best affirmed a stable financial
strength outlook to the group.
Competition
The property casualty and crop insurance markets are competitive. We compete with stock insurance companies, mutual insurance companies, and other
underwriting organizations. Our largest competitors in North Dakota for private passenger auto and homeowners include Progressive, State Farm,
American Family, National General, Farmers Union, and Auto-Owners insurance companies. 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 of Nebraska. In our non-standard auto markets, which are
primarily Illinois, 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 State Farm.
Based on 2022 data, Nodak Insurance is the second largest writer of farmowners insurance in North Dakota. Our largest competitors include Farmers
Union, North Star Mutual, American Family, and Farmers Alliance insurance companies. In Nebraska and South Dakota, we have a small farmowners
market share, which is dominated by the large national and regional carriers.
The principal competitors in our markets for multi-peril crop insurance include Chubb, QBE Insurance Group, Zurich, American Agri-Business Insurance
Company, and Great American Insurance Group. The premium rates for multi-peril crop insurance are established by the RMA 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 NDFB and our leading market share are significant factors in maintaining our market share of the crop insurance
business in North Dakota. The Company’s multi-peril crop insurance premiums for North Dakota were $39,073, $45,465, and $38,325 for the years ended
December 31, 2023, 2022, and 2021, respectively. Total North Dakota multi-peril crop premiums for the industry were $1,491,650, $1,537,758, and
$1,083,565 for the years ended December 31, 2023, 2022, and 2021, respectively.
With respect to writing property and casualty insurance, competitive factors include 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 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 they are subject to examination by the departments they are domiciled in 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.
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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. For additional information, see Part I, Item 1, “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 Federal Crop
Insurance Corporation (“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.
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 other items as the risk-based capital instructions may provide. The formula is designed to allow state insurance regulators to identify insufficiently
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
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insurance company may receive inquiries from individual state insurance departments. However, a ratio falling outside the usual range may not necessarily
be considered adverse. In some years, it may not be unusual for financially sound companies to have several ratios with results outside the usual ranges.
During the years ended December 31, 2023 and 2021, none of our insurance company subsidiaries produced results outside the acceptable range for more
than three of the IRIS tests. During the year ended December 31, 2022, our insurance company subsidiaries produced results outside the acceptable range
for as many as six of the IRIS tests, primarily driven by our significant net loss for the year that negatively impacted IRIS ratios related to the operating
ratio and certain ratios based on policyholders’ surplus.
Enterprise Risk Assessment
In 2012, the NAIC adopted various changes to its Model Regulations (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 U.S. 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, we intend to incorporate those elements of
ORSA that we believe constitute “best practices” into our 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, 2023, 2022, and 2021, we paid only minimal assessments pursuant to state insurance guaranty association laws. We establish reserves
relating to insurance companies that are subject to 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
U.S., 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.
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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. We
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 requires insurers, insurance agents, 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. Several states in which we operate, including North Dakota, have
adopted the IDSML. 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
Until December 31, 2022, we were an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS
Act”). We previously took advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not
EGCs, such as reduced public company reporting, accounting, and corporate governance requirements. However, beginning on December 31, 2022, we are
no longer an EGC and no longer have the ability to delay adoption of these new or revised accounting standards or to take advantage of reduced corporate
governance disclosures.
Dividends
As an insurance holding company with no independent operations or source of revenue, our capacity to pay dividends to our shareholders is based on the
ability of our insurance company subsidiaries to pay dividends to us. The ability of our subsidiaries to pay dividends to us is regulated by the laws of their
state of domicile. Under these laws, insurance companies must provide advance informational notice to the domicile state insurance regulatory authority
prior to payment of any dividend or distribution to its shareholders. Prior approval from the state insurance regulatory authority must be obtained before
payment of an “extraordinary dividend” as defined under the state's insurance code. For additional information, see Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”, and Part II, Item 8, Note 21 “Statutory Net
Income (Loss), Capital and Surplus, and Dividend Restrictions”.
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.
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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
Our key human capital management objectives are to attract, retain, and develop talent to deliver on the Company’s strategy. To support these objectives,
our human resources programs are designed to recruit and retain 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 (“ESOP”),
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. For additional information, see Part II, Item 8, Note 12 “Benefit
Plans” and Note 18 “Share-Based Compensation” for further discussion of our benefit plans and stock-based compensation.
As of December 31, 2023, NI Holdings and its subsidiaries had 234 total employees, of which 219 were full-time employees. Employee turnover averaged
22.7% during 2023, compared to 25.2% during 2022, and 14.7% during 2021.
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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
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 or other natural perils that may have a significant negative impact on our
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. Climate
change may also impact insurability by impairing our ability to identify and quantify potential hazards that will result in losses and offer our customers
products at an affordable price. The frequency, number, and severity of these losses are unpredictable. The extent of losses from a catastrophe is a function
of both the total amount of insured exposure in the area affected by the event and the severity of the event. Our ability to effectively manage catastrophe
risk is dependent, in part, on the reliance of various catastrophe models, which may produce unreliable output as a result of inaccurate or incomplete data,
along with the inherent uncertainty of future frequency and severity of losses. The impact of changing climate conditions on the overall insurance industry
may also materially affect the availability and cost of reinsurance to us. Our investment portfolio is also subject to the effects of climate change as
economic shifts alter the return dynamic of long-term investments and reduce valuations.
Despite our continued geographic expansion, we write a significant amount of business in North Dakota. As a result, adverse developments from severe
weather events in North Dakota would have a greater effect on our financial condition and results of operations than if our business was less geographically
concentrated. The incidence and severity of such events are inherently unpredictable.
We attempt to reduce our exposure to catastrophe losses through a disciplined underwriting and risk management approach that emphasizes long-term
profitability over short-term gains in premiums or market share, continued geographical diversification of our operations, and the use of reinsurance.
However, there can be no guarantee that our underwriting and risk management efforts will be successful in mitigating our exposure to catastrophe losses
or the impact of such losses when they occur. In addition, while we maintain reinsurance coverage with a catastrophe excess of loss program, such
coverage may be insufficient to cover our losses. Our reinsurance coverage includes a catastrophe excess of loss program, which in 2023 limited our
catastrophe exposure to $20 million retention per event, with $133 million of reinsurance coverage placed in excess of this retention. For 2024, we
anticipate that these amounts will remain consistent. If we are not able to effectively mitigate our exposure to catastrophe losses, whether through our
underwriting process or reinsurance coverage, in the event of such losses our business and results of operations could be adversely affected.
For additional information, see Part II, Item 8, Note 3 “Summary of Significant Accounting Policies” and Note 6 “Reinsurance.”
If actual losses exceed our loss and loss adjustment expense reserves or if changes in the estimated level of loss and loss adjustment expense
reserves are necessary as a result of changes in the legal, regulatory, and economic environments in which we operate, our financial results could
be materially and adversely affected.
We maintain reserves to cover estimated unpaid losses and expenses necessary to settle claims. The reserves for losses and loss adjustment expenses that
we have established are estimates of amounts needed to pay reported and unreported claims and related expenses, based on facts and circumstances known
to us at the time we established the reserves. Reserves are actuarially projected based on historical claims information, industry statistics, anticipated trends,
and other factors. The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. While we believe that
our reserves for unpaid losses and loss adjustment expenses are appropriate, to the extent that such reserves prove to be inadequate or excessive in the
future, we would adjust them and recognize the change in earnings in the period the reserves are adjusted. There can be no assurance that the estimates of
such liabilities will not change in the future and any such adjustment could have a material impact on our financial condition and results of operations. For
additional information, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Losses and Loss
Adjustment Expenses”, and Part II, Item 8, Note 8 “Unpaid Losses and Loss Adjustment Expenses.”
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It is possible that, among other things, past or future steps taken by the federal government and the Federal Reserve to manage the U.S. economy, including
fiscal and monetary policy measures, could lead to higher than anticipated levels of inflation, which generally leads to increased loss costs and other
operating expenses. However, our relatively high concentration in short tail lines of business limits the potential impact of this exposure long-term and
allows us to price for those increases in future policy periods.
Any downgrade in our financial strength 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 AM Best, periodically assess and rate the claims-paying ability of insurers based on criteria established by the rating
agencies. Ratings assigned by AM Best are an important factor influencing the competitive position of insurance companies. AM 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 AM 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 AM Best, the third highest rating out of 15 rating
classifications. Our most recent rating by AM Best was affirmed on April 25, 2023. Financial strength ratings are used by agents, 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 AM 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 agents to choose other more highly rated competitors or reduce our ability to obtain reinsurance. For additional information,
see Part I, Item 1, “Business” and “Financial Strength.”
Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry, competition, and innovation and
emerging technologies.
The property and casualty insurance industry has historically been characterized by soft markets (periods of relatively high levels of price competition, less
restrictive underwriting practices, and generally low premium rates) followed by hard markets (periods of capital shortages resulting in a lack of insurance
availability, relatively low levels of price competition, more selective underwriting of risks, and relatively high premium rates). During soft markets, we
may lose business to other carriers offering competitive insurance at lower rates. We may also choose to reduce our premiums or limit premium increases
leading to a reduction in profit margins and revenues. Our industry is also influenced by general economic conditions, which could reduce overall premium
volume for us and our competitors. Additionally, the industry could be impacted by changes in customer preferences, including customer demand for
direct, point-of-sale, or other non-traditional distribution channels. Consolidation within the industry could also influence future growth and profit
potential.
Innovation and emerging technologies continue to greatly impact the insurance industry. If we are unable to keep pace with the technological changes that
our competitors implement, we may not be able to attract and retain customers, adequately price risks, or operate as efficiently as our competitors. In
addition, emerging technologies in the automotive industry such as autonomous vehicles, driver-assistance and accident-avoidance features, sensor
technology, and other forms of automation may reduce the future need for, or decrease the future pricing of, our auto insurance products.
Our success depends primarily on our ability to underwrite risks effectively and price our insurance products appropriately.
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 used in pricing our policies. If we fail to appropriately price the risks we insure or if our claims experience is more frequent
or severe than our underlying risk assumptions, our profitability may be negatively affected. If we overestimate the risks we are exposed to, we may
overprice our products, and new business growth and retention of existing business may be adversely affected. The ability to effectively underwrite risks
and price products appropriately is subject to a number of uncertainties, including:
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availability of sufficient reliable data and our ability to properly analyze available data;
market and competitive conditions;
regulatory or legislative changes;
selection and application of appropriate pricing techniques; and
adverse changes in claims experience, such as distracted driving or a more aggressive tort environment.
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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. Unlike the multi-peril crop business,
we have the ability to underwrite and price crop hail insurance. We rely on AFBIS to underwrite our crop hail insurance line of business. 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.
Volatility in crop prices and yields, as a result of weather conditions or other events, could adversely impact our financial condition and operating
results.
Unpredictable weather conditions and other events such as excessive rain, flooding, droughts, hail, pests, and plant diseases can significantly impact crop
prices and yields, creating volatility in our crop insurance business. In addition, the amount of multi-peril crop insurance business we retain is subject to the
terms of the SRA and is dependent on the actual direct loss ratio experience. A significant decrease in crop prices and variability in the loss experience
could have a material negative effect on our business and results of operations.
Our ability to manage our exposure to underwriting risks depends on the availability and cost of reinsurance coverage.
We use reinsurance arrangements to manage the amount of risk we retain, stabilize underwriting results, and increase 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/or at favorable rates. If we are unable to maintain appropriate reinsurance coverage, it may be difficult for us to manage
our underwriting risks and operate our business profitably. For additional information, see Part II, Item 8, Note 6 “Reinsurance.”
If we cannot collect loss recoveries from our reinsurers in accordance with our reinsurance agreements, we may incur additional losses.
Although reinsurance creates a contractual liability for reinsurers to the extent the risk is transferred, it does not eliminate our liability to policyholders
because we remain liable as the primary insurer on all reinsured risks. Our reinsurance program strategically spreads exposure among a group of highly-
rated, geographically diverse, and well-capitalized reinsurers. All of our significant reinsurance partners are rated “A-” (Excellent) or better by AM Best.
However, we remain subject to credit risk relating to our ability to collect these recoverables. Our reinsurance recoveries are also subject to the underlying
losses meeting the qualifying conditions and specified limits within the respective contracts. Additionally, we are subject to the risk that reinsurers may
dispute their obligations to pay our claims. Our inability to collect a material recovery from a reinsurer on a timely basis, or at all, could have a material
adverse effect on our liquidity, operating results, and financial condition. For additional information, see Part II, Item 8, Note 6 “Reinsurance.”
Business and Operational Risks
The impact of a future pandemic, and related economic conditions, could materially affect our results of operations, financial position, and/or
liquidity.
We face risks associated with pandemics, including the impact of reduced economic activity and unemployment, government actions, and capital markets
disruption. These risks are unpredictable and difficult to quantify, and could vary significantly depending on the extent and duration of the pandemic and
related economic conditions, along with potentially impacting each of our business segments and geographic markets differently.
Any future federal, state, and local government actions to address the impact of a pandemic 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
could require an increase in taxes at the federal, state, and local levels, which would adversely impact our results of operations. Additionally, potential
capital markets disruption could lead to our fixed income portfolio being adversely impacted by ratings downgrades, increased bankruptcies, declines in
real estate valuations, and/or declines in fixed income yields, along with increased volatility in our equity portfolio.
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We may not be able to grow our business if we cannot retain and expand our captive and independent agent relationships, we cannot provide
competitive products for these agents to sell, and/or 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. Nodak Insurance utilizes captive agents
who only sell our Company’s products. Outside of North Dakota, we write business through the independent agent distribution model. If we are not able to
offer competitive products and a competitive compensation structure to our captive agents and/or if our independent agents find it easier to do business
with our competitors, we may be unable to retain existing business or generate sufficient new business.
While our products are sold through either independent or captive agents, our competitors may sell insurance through other distribution models, including
the internet, direct marketing, or other emerging forms of distribution. To the extent that current and potential policyholders change their insurance
shopping preferences, this may have an adverse effect on our ability to grow, financial position, and results of operations.
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 acquisition opportunities. Any acquisitions involve a number of risks that could materially
adversely affect our business and operating results, including:
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problems integrating the acquired operations into our existing business;
operating and underwriting results of the acquired operations not meeting our expectations;
diversion of management’s time and attention from our existing business;
higher than anticipated capital requirements;
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;
loss of key employees of the acquired company;
impairment of related goodwill and intangible assets; and
changes in strategy resulting in the sale of an acquired business which may result in a capital loss.
We may be unable to attract, retain or effectively manage the succession of key personnel.
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 and key
management of our insurance subsidiaries. Our business may be adversely affected if labor market conditions make it difficult for us to retain or, if needed,
replace our current key officers with individuals having equivalent qualifications and experience at compensation levels competitive for our industry. While
we believe we offer competitive compensation and benefit arrangements, there can be no guarantee that we will be able to retain our key employees. There
is significant competition from within the property and casualty insurance industry and from businesses outside the industry for those in key management
positions, as well as others possessing highly specialized knowledge in areas such as actuarial, accounting, information technology, and data and analytics.
In addition, our employment and other agreements with our key officers do not include non-compete covenants or non-solicitation provisions because they
are unenforceable under North Dakota law. If we are not able to successfully attract, retain, and motivate our employees, our business, financial results, and
reputation could be materially and adversely affected.
A failure in our operational systems or infrastructure, or those of our third-party service providers, including operational errors, could disrupt
business, damage our reputation, and cause losses.
Our operations rely on the secure processing, storage, and transmission of confidential information, including in our computer systems and networks and
those of third-party service providers. 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
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connection with various processes with respect to our crop lines of business. Our business depends on effective information security and systems, and we
place significant reliance on the integrity and timeliness of the data our information systems process to support our business. A breakdown or disruption of
any of these systems could materially adversely affect our ability to conduct our business and our results of operations.
We are exposed to many other 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.
Cyberattacks, security breaches, or similar events affecting the technologies and systems we rely on to operate our business and to maintain and
protect sensitive Company and customer data could disrupt our operations, harm our reputation, and result in material losses.
We have implemented administrative and technical controls, have taken actions to reduce the risk of cyber incidents and to protect our information
technology and assets, and will continue to modify such procedures as circumstances warrant and negotiate appropriate terms in our agreements with third-
party providers to protect our assets. However, such measures may be insufficient to prevent unauthorized access, computer viruses, malware or other
malicious code or cyberattack, business compromise attacks, catastrophic events, system failures and disruptions, employee errors or malfeasance, third-
party (including outsourced service providers) errors or malfeasance, loss of assets, and other events that could have security consequences. Such an event
may result in data loss or loss of assets which could result in significant losses, reputational damage, or other adverse effects on our operations.
In addition, our technologies, systems, and networks may become the target of cyberattacks 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 are not aware of any
information security breaches or losses relating to cyberattacks, 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, cybersecurity 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.
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 cybersecurity, 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 and may result in increased compliance costs and risk of
regulatory actions or penalties. If incurred, such regulatory actions or penalties could harm our reputation. Any such events could have an adverse impact
on our business, financial condition or results of operations.
Regulatory Risks
A portion of our written premiums and net profits are generated from 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 2023, 2022, and 2021, our direct premiums written generated from the multi-peril crop insurance line of business were 10.2%, 12.8%, and 12.0%,
respectively, of total written premiums. Through the FCIC, the U.S. 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 U.S. 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 U.S. Congress propose to significantly reduce 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
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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.
Our businesses are heavily regulated by the jurisdictions in which we conduct business and changes in regulation, including required participation
in pools, premium surcharges, and higher tax rates, may reduce our profitability and limit our growth.
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. For additional information, see Part I, Item 1,
“Business” and “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. In addition, state tax laws that specifically impact the insurance industry, such as premium taxes, or more general tax laws,
such as U.S. federal corporate income taxes, could be enacted or changed and could have a material adverse impact on us.
We are subject to insurance industry laws and regulations, as well as claims and legal proceedings, which if determined unfavorably, could have a
material adverse effect on our profitability.
We are subject to extensive supervision and regulation by the states in which we operate. The failure to comply with these regulations could subject the
Company to sanctions and fines, including the cancellation or suspension of our licenses, which could significantly impact our financial condition and
results of operations. 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.
Additionally, 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. Federal laws and regulations, and the influence of international laws and regulations,
may have adverse effects on our business, potentially including a change from a state-based system of regulation to a system of federal regulation, the
repeal of the McCarran Ferguson Act, and/or measures under the Dodd-Frank Act that establish the Federal Insurance Office and provide for a
determination that a non-bank financial company presents systemic risk and therefore should be subject to heightened supervision by the Federal Reserve
Board. It is not known how this federal office will coordinate and interact with the NAIC and state insurance regulators. Adoption or implementation of any
of these measures may restrict our ability to conduct our insurance business, govern our corporate affairs, or effectively manage our cost of doing business.
We also face a risk of litigation in the ordinary course of operating our businesses including the risk of class action lawsuits. We may become subject to
class actions and individual suits alleging breach of fiduciary or other duties, including our obligations to indemnify directors and officers in connection
with certain legal matters. We are also subject to litigation arising out of our general business activities such as contractual and employment relationships
and claims regarding the infringement of the intellectual property of others. Plaintiffs in class action and other lawsuits against us may seek large or
indeterminate amounts of damages, including punitive and treble damages, which may remain unknown for substantial periods of time.
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Risks Related to Our Common Stock
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.
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 the best interests of all shareholders. 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.
In addition, certain provisions of our Articles of Incorporation, such as 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 the Company’s management difficult.
Our status as an insurance holding company with no direct operations could adversely affect our ability to fund operations, execute future share
repurchases, or meet potential future shareholder dividend and/or debt obligations.
NI Holdings is an insurance holding company that transacts substantially all of its business through its subsidiaries. A significant source of funds available
to us for the payment of operating expenses, share repurchases, and potential future dividends to shareholders and/or debt servicing are management fees,
dividends from our subsidiaries, or other sources of capital. The payment of dividends by our subsidiaries are restricted by North Dakota’s insurance law. If
we are unable to obtain dividends from our subsidiaries as needed to fund our operations, our business and financial results could be adversely affected.
Statutory provisions and provisions of our Articles of Incorporation and Bylaws may discourage takeover attempts of NI Holdings that
shareholders may believe are in their best interests.
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 may serve to entrench
management and may discourage a takeover attempt that shareholders may consider to be in their best interest or in which they 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 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.
General Risks
Our investment portfolio is subject to credit and interest rate risk, and therefore our revenues and financial results may fluctuate with interest
rates, investment results, equity market fluctuations, and developments in the capital markets.
Investment income is an important component of our net income and overall profitability. We invest premiums received from policyholders and other
available cash to generate investment income and capital appreciation, while also maintaining sufficient liquidity to pay claims and operating expenses.
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. Potential higher interest rates could reduce the carrying value of our fixed income and short-term investments, negatively
impacting the Company’s carrying value in the short-term. Over the long-term, however, higher interest rates would provide an incremental benefit to our
net investment income as excess cash and the proceeds of maturing bonds are reinvested at higher rates. We manage our exposure to interest rate increases
by monitoring the duration within our investment portfolio and maintaining maturities that minimize any forced sales within the portfolio. However, even
with such monitoring efforts, we may be forced to sell securities at a loss, which would adversely affect our results of operations.
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We also invest a portion of our assets in equity securities, which are subject to greater volatility in their investment returns than fixed income investments.
Unlike fixed income securities, the changes in the fair value of our equity securities are recognized in net income. General economic conditions, stock
market volatility, changes in tax laws, and many other factors beyond our control can adversely affect the value of these securities and potentially reduce
our net investment income and/or lead to net investment losses.
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. Our investment portfolio is also subject to credit and cash flow risk, including risks associated with our investments in
asset-backed and mortgage-backed securities. Because our investment portfolio is the largest component of our assets and a multiple of our shareholders’
equity, adverse changes in economic conditions could result in 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 Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
We may not be able to manage our growth effectively.
We intend to continue to grow our business in the future, which could require additional capital, systems development, and skilled personnel. However,
there are inherent risks associated with this strategy, including the risks of unsuccessfully identifying profitable business opportunities, managing capital
requirements, expanding systems and internal controls, maintaining innovative products and technologies, allocating human capital resources, identifying
qualified employees and/or agents, and integrating future acquisitions. The failure to manage our growth effectively could have a material adverse effect on
our business, financial condition, and results of operations.
We could be adversely affected by a future unexpected business interruption involving our office buildings, operational systems and
infrastructure, key external vendors, and/or workforce.
Our business operations could be substantially interrupted by flooding, snow, ice, wind, and other weather-related incidents, or from fire, pandemics, power
loss, telecommunications failures, terrorism, or other such events. Our business continuity plans may not sufficiently remediate all risks associated with
future significant business interruptions. 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.
Item 1B.
Unresolved Staff Comments
None.
Item 1C.
Cybersecurity
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 our systems or information.
Our information security program is directly managed by a dedicated Director of Information Systems, whose team is responsible for enterprise-wide
cybersecurity strategy, policy, standards, architecture, and processes. Company employees are periodically required to affirm their understanding of several
policies and standards, including those related to cybersecurity. Our cybersecurity strategy is primarily focused on network security, data security,
vulnerability management, incident management, and disaster recovery. We utilize internal resources as well as third-party consultants and vendors to
periodically conduct cybersecurity vulnerability testing, facilitate employee training, perform system assessments, and provide recommendations based on
industry best practices.
The Director of Information Systems provides periodic reports to our ERMC related to cybersecurity risks and threats, the status of projects to strengthen
our information security systems and controls, assessments of the information security program and related third-party service providers, and the emerging
threat landscape. The ERMC provides oversight and support related to our cybersecurity program and consists of our Chief Executive Officer, Chief
Financial Officer, Director of Information Systems, and other appropriate members of senior management who possess the relevant expertise to assess and
manage cybersecurity risks as part of the broader enterprise risk management process. Periodic reports are also provided to appropriate members of senior
management that include information regarding prevention, detection, mitigation, and remediation efforts related to cybersecurity incidents.
Our Chief Executive Officer and Director of Information Systems also provide periodic reports to the Audit Committee of the Board of Directors regarding
ERMC activities and assessments, including those related to cybersecurity and cybersecurity incidents. The
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Audit Committee of the board oversees our risk management program, which focuses on the most significant risks we face in the short-, intermediate-, and
long-term timeframes. Audit Committee meetings include discussions of specific risk areas throughout the year, including, among others, those relating to
cybersecurity threats, and reports from management on our enterprise risk profile on an annual basis.
As of the date of this report, we are not aware of any risks from cybersecurity threats that have materially affected or are reasonably likely to materially
affect the Company, including our business strategy, results of operations, or financial condition. Refer to the risk factor captioned “Cyberattacks, security
breaches, or similar events affecting the technologies and systems we rely on to operate our business and to maintain and protect sensitive Company and
customer data could disrupt our operations, harm our reputation, and result in material losses” in Part I, Item 1A. “Risk Factors” for additional details
regarding cybersecurity risks and potential impacts on our business.
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 NDFB and to AFBIS.
Battle Creek owns the building in which its offices are located at 603 South Preece Street, Battle Creek, Nebraska.
On December 30, 2021, Primero entered into a new lease at 9950 West Cheyenne Ave, Las Vegas, Nevada, and sold its owned portion of the building at
2640 South Jones Blvd, Suite 2, Las Vegas, Nevada on January 5, 2022. Tri-State Ltd. leases the building at 506 5th Street, Spearfish, South Dakota.
Direct Auto leases office space at 8700 West Bryn Mawr Avenue, Chicago, Illinois under a lease that expires on August 31, 2029.
Westminster owns a portion of the building in which its offices are located at 8890 McDonogh Road, Suite 310, Owings Mills, Maryland.
We believe that the offices currently occupied by each of our subsidiaries are sufficient for their needs and any expected internal 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 inherent uncertainties of 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 29, 2024, there were approximately
533 shareholders of record for the Company’s common stock.
Stock Performance Graph
The following graph shows the cumulative total shareholder return (stock price increase plus dividends) on our common stock from December 31, 2018
through December 31, 2023, along with the corresponding returns for the Russell 2000 Index (as the broad stock market index) and the Standard & Poor’s
(S&P) 1500 US P&C Insurance 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 December 31, 2018, and that all dividends were reinvested.
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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. We cannot guarantee that
we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.
If we pay dividends to our shareholders, we also will be required to pay dividends to Nodak Mutual Group, unless Nodak Mutual Group elects 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. However, 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 that they will take such action with respect to any 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. However, any future dividends may be restricted to
those received from our insurance subsidiaries. North Dakota law limits the amount of dividends and other distributions that Nodak Insurance, Direct Auto,
and Westminster may pay to us. For information regarding the regulatory restrictions on dividends our insurance subsidiaries can pay, refer to Part II, Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Liquidity and Capital Resources”, and Part II, Item 8, Note
21 “Statutory Net Income (Loss), Capital and Surplus, and Dividend Restrictions”.
Even if we receive dividends from Nodak Insurance, Direct Auto, or Westminster, we may not declare any dividends to our shareholders due to 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, to the extent we still have the ability to pay our
debts in the ordinary course of business after making the dividend or distribution payments. This law requires our total assets to 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.
27
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, our registration statement on Form S-1 registering our common stock was declared effective by the SEC. On March 13, 2017, the
Company completed the IPO of 10,350,000 shares of common stock at a price of $10.00 per share. The Company received net proceeds of $93,145 from
the offering, after deducting the underwriting discounts and offering expenses.
Direct Auto was acquired on August 31, 2018, with $17,000 of the net proceeds from the IPO.
On January 1, 2020, we acquired Westminster for $40,000. We paid $20,000 at the time of closing. The terms of the acquisition agreement included
payment of the remaining $20,000, subject to certain adjustments, in three equal installments on each of the first and second anniversaries of the closing,
and on the first business day of the month preceding the third anniversary of the closing. The first two installments were paid in January 2021 and January
2022, and the final installment was paid in December 2022 with no adjustments from the originally anticipated amount. The Company used net proceeds
from the IPO to satisfy these obligations.
From time to time, the Company may also repurchase its own stock. To date, the Company has used net proceeds from the IPO to fund these share
repurchases. For more information, see Part II, Item 5, “Issuer Stock Purchases”.
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.
28
Issuer Stock Purchases
The Company had no common shares outstanding prior to March 13, 2017.
On May 4, 2020, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding
common stock. During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this
authorization. During the nine months ended September 30, 2021, we repurchased an additional 144,110 shares of our common stock for $2,762 to close
out this authorization.
On August 11, 2021, our Board of Directors approved an authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding
common stock. During the year ended December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this new
authorization. During the year ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this
authorization.
On May 9, 2022, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding
common stock. During the year ended December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this
authorization. During the year ended December 31, 2023, we repurchased an additional 548,549 shares of our common stock for $7,278, including the
effect from applicable excise taxes. At December 31, 2023, $2,052 remains available under this authorization.
Share repurchase activity during the three months ended December 31, 2023, is presented below:
Period in 2023
October 1 – 31, 2023
November 1 – 30, 2023
December 1 – 31, 2023
Total
Total Number of
Shares
Purchased
Average Price
Paid
Per Share (3)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (1)
Maximum Approximate
Dollar Value of Shares
That May Yet Be
Purchased Under the
Plans or Programs (2)(3)
(in thousands)
— $
—
—
— $
—
—
—
—
— $
—
—
— $
2,052
2,052
2,052
2,052
(1)
(2)
(3)
Shares purchased pursuant to the May 9, 2022, publicly announced share repurchase authorizations of up to approximately $10,000 of the
Company’s outstanding common stock.
Maximum dollar value of shares that may yet be purchased consist of up to approximately $2,052 under the May 9, 2022, publicly announced
share repurchase authorization.
The Inflation Reduction Act of 2022 imposed a 1% excise tax on the net value of certain share repurchases made after December 31, 2022. All
dollar amounts presented exclude such excise taxes, as applicable.
Item 6.
[Reserved]
29
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 our 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 Part II, Item 8, “Financial Statements and Supplementary Data.” Some of the information contained in this discussion and analysis or
set forth elsewhere in this 2023 Annual Report constitutes forward-looking information that involves risks and uncertainties. Please see “Forward-Looking
Statements” and Part I, Item 1A, “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.
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2023 and
2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that
are not included in this document can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 8, 2023.
All dollar amounts, except per share amounts, are in thousands.
Results of Operations
Our consolidated financial statements are prepared on the basis of accounting principles generally accepted in the United States of America (“GAAP”).
Management evaluates our operations by monitoring key measures of growth and profitability, which may include the disclosure of certain non-GAAP
financial measures. Our results of operations are influenced by numerous factors affecting the U.S. property and casualty insurance industry including
competition, weather, catastrophic events, innovation and emerging technologies, changes in regulations, inflation, general economic conditions, judicial
trends, fluctuations in interest rates, and other changes in the financial markets.
Our premium levels and underwriting results have been, and will continue to be, influenced by market conditions. The property and casualty insurance
industry has historically been characterized by soft markets (periods of relatively high levels of price competition, less restrictive underwriting practices,
and generally low premium rates) followed by hard markets (periods of capital shortages resulting in a lack of insurance availability, relatively low levels
of price competition, more selective underwriting of risks, and relatively high premium rates). During soft markets, we may lose business to other carriers
offering competitive insurance at lower rates. We may also choose to reduce our premiums or limit premium increases leading to a reduction in profit
margins and revenues. Our industry is also influenced by general economic conditions, which could reduce overall premium volume for us and our
competitors. Additionally, the industry is impacted by changes in customer preferences, including customer demand for direct, point-of-sale, or other non-
traditional distribution channels. We regularly monitor our performance and competitive position by line of business and geographic market to determine
appropriate rate actions.
Premiums in the multi-peril crop insurance business are primarily influenced by the types of crops planted, number of acres insured, and commodity prices
because the rates are established 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 generally extends into the fourth quarter.
Premiums in the crop hail insurance business are also generally written in the second quarter and earned ratably until the end of the third quarter.
Premiums in our other lines of business are written and earned throughout the year based on their coverage periods. Losses on this business are also
incurred throughout the year but are usually more frequent and/or severe during periods of elevated weather-related activity.
Property Claims Service (“PCS”), a division of the Insurance Services Office, maintains industry loss data related to catastrophe loss events. PCS defines a
catastrophe as an event that causes damage of $25 million or more in insured property losses and affects a significant number of insureds. When reporting
on our losses from catastrophe events, we may include losses from those events that were defined as a catastrophe by PCS or those events which may
include losses that we believe are, or will be, material to our operations, either in amount or in number of claims made. The frequency and severity of
catastrophic losses we experience in any year may significantly affect our results of operations and financial position. In analyzing the underwriting
performance of our property and casualty insurance business, we evaluate performance both including and excluding catastrophe losses. Portions of our
catastrophe losses may be recoverable under our catastrophe reinsurance agreements.
For more information on the Company’s results of operations by segment, see Part II, Item 8, Note 20 “Segment Information”.
30
Years ended December 31, 2023, 2022, and 2021
The consolidated net loss for the Company was $5,226 for the year ended December 31, 2023, compared to a net loss of $53,775 for the year ended
December 31, 2022, and net income of $8,332 for the year ended December 31, 2021.
The major components of our revenues and net income (loss) for the three periods are shown below:
Revenues:
Net premiums earned
Fee and other income
Net investment income
Net investment gains (losses)
Total revenues
Components of net income (loss):
Net premiums earned
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs and other underwriting and general
expenses
Underwriting loss
Fee and other income
Net investment income
Net investment gains (losses)
Goodwill impairment charge
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
31
Year Ended December 31,
2022
2023
2021
351,137 $
1,978
10,456
2,124
365,695 $
328,290 $
1,453
7,820
(13,126)
324,437 $
351,137 $
244,412
328,290 $
294,432
118,790
(12,065)
1,978
10,456
2,124
(6,756)
(4,263)
963
(5,226) $
99,034
(65,176)
1,453
7,820
(13,126)
—
(69,029)
(15,254)
(53,775) $
299,589
1,775
7,131
15,479
323,974
299,589
216,379
96,289
(13,079)
1,775
7,131
15,479
—
11,306
2,974
8,332
$
$
$
$
Net Premiums Earned
Net premiums earned:
Direct premium
Assumed premium
Ceded premium
Total net premiums earned
Year Ended December 31,
2022
2023
2021
$
$
401,945 $
3,570
(54,378)
351,137 $
368,886 $
6,550
(47,146)
328,290 $
333,254
8,035
(41,700)
299,589
Net premiums earned for the year ended December 31, 2023 increased $22,847, or 7.0%, to $351,137, compared to $328,290 for the year ended December
31, 2022.
Net premiums earned for the year ended December 31, 2022 increased $28,701, or 9.6%, to $328,290, compared to $299,589 for the year ended December
31, 2021.
Net premiums earned:
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other
Total net premiums earned
Year Ended December 31,
2022
2023
2021
$
$
83,360 $
87,760
83,389
25,817
64,476
6,335
351,137 $
77,605 $
66,911
78,381
34,721
61,431
9,241
328,290 $
72,533
58,585
73,792
26,848
57,285
10,546
299,589
Below are comments regarding significant changes in net premiums earned by business segment:
Private passenger auto – Net premiums earned for 2023 increased $5,755, or 7.4%, from 2022. This increase was driven by significant rate increases in
North Dakota, South Dakota, and Nebraska, partially offset by lower new business production as a result of underwriting actions taken to improve
profitability.
Non-standard auto – Net premiums earned for 2023 increased $20,849, or 31.2%, from 2022. This increase was driven by new business growth, improved
retention, and significant rate increases in the Chicago market where our non-standard auto business is concentrated.
Home and farm – Net premiums earned for 2023 increased $5,008, or 6.4%, from 2022. This increase was driven by rate increases along with increased
insured property values, which were primarily the result of higher inflationary factors. These premium increases were partially offset by lower levels of
new business production as a result of underwriting actions taken to improve profitability.
Crop – Net premiums earned for 2023 decreased $8,904, or 25.6%, from 2022. This decrease was driven by lower commodity prices and lower muti-peril
crop insurance rates, combined with fewer acres insured in the current year. In addition, the strong multi-peril crop results for the current year resulted in
higher ceded premiums as required by the SRA.
Commercial – Net premiums earned for 2023 increased $3,045, or 5.0%, from 2022. This increase was driven by prior period new business growth,
increased insured values which were primarily the result of higher inflationary factors, and continued increases in rate, partially offset by higher ceded
premiums and the impact of underwriting actions taken to improve profitability.
All other – Net premiums earned for 2023 decreased $2,906, or 31.4%, from 2022. This decrease was driven by the decision to non-renew our participation
in an assumed domestic and international reinsurance pool of business as of January 1, 2022.
32
Losses and Loss Adjustment Expenses
Net losses and loss adjustment expenses:
Direct losses and loss adjustment expenses
Assumed losses and loss adjustment expenses
Ceded losses and loss adjustment expenses
Total net losses and loss adjustment expenses
Year Ended December 31,
2022
2023
2021
$
$
293,978 $
1,140
(50,706)
244,412 $
333,397 $
2,369
(41,334)
294,432 $
280,998
6,899
(71,518)
216,379
The Company’s net losses and loss adjustment expenses for the year ended December 31, 2023 decreased $50,020, or 17.0%, to $244,412, compared to
$294,432 for the year ended December 31, 2022.
The Company’s net losses and loss adjustment expenses for the year ended December 31, 2022 increased $78,053, or 36.1%, to $294,432, compared to
$216,379 for the year ended December 31, 2021.
Net losses and loss adjustment expenses:
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other
Total net losses and loss adjustment expenses
Loss and loss adjustment expenses ratio:
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other
Total loss and loss adjustment expenses ratio
Year Ended December 31,
2022
2023
2021
$
$
60,204 $
63,041
50,935
10,793
58,745
694
244,412 $
65,420 $
39,400
107,823
19,418
57,216
5,155
294,432 $
59,721
34,453
52,145
27,831
34,779
7,450
216,379
Year Ended December 31,
2022
2023
2021
72.2%
71.8%
61.1%
41.8%
91.1%
11.0%
69.6%
84.3%
58.9%
137.6%
55.9%
93.1%
55.8%
89.7%
82.3%
58.8%
70.7%
103.7%
60.7%
70.6%
72.2%
Below are comments regarding significant changes in net losses and loss adjustment expenses, and the net loss and loss adjustment expenses ratios by
business segment:
Private passenger auto – The net loss and loss adjustment expenses ratio decreased 12.1 percentage points in 2023 compared to 2022. This decrease was
the result of recent significant rate increases, lower loss frequency in the current year, and favorable prior year reserve development, partially offset by
elevated loss costs due to continued high levels of inflation.
Non-standard auto – The net loss and loss adjustment expenses ratio increased 12.9 percentage points in 2023 compared to 2022. This increase was driven
by elevated loss severity as a result of inflationary factors as well as unfavorable prior year loss reserve development, partially offset by recent significant
rate increases. We continue to take significant rate and underwriting actions as a result of these elevated losses and challenging market conditions.
Home and farm – The net loss and loss adjustment expenses ratio decreased 76.5 percentage points in 2023 compared to 2022. This decrease was driven by
the much-improved loss experience as a result of having no catastrophe losses during 2023 compared to 2022, combined with improved non-catastrophe
weather losses and the significant rate increases and underwriting actions we have implemented to address the profitability on these lines of business.
Catastrophe losses, net of reinsurance, for the Home and Farm segment accounted for 72.1 percentage points of the net loss and loss adjustment expense
ratio for the year ended December 31, 2022.
33
Crop – The net loss and loss adjustment expenses ratio decreased 14.1 percentage points in 2023 compared to 2022. This decrease was due to improved
crop growing conditions in 2023 in comparison to 2022.
Commercial – The net loss and loss adjustment expenses ratio decreased 2.0 percentage points in 2023 compared to 2022. This decrease was driven by
higher ceded losses in the current year, partially offset by higher levels of unfavorable prior year reserve development and elevated loss severity in the
current year. We continue to take significant rate and underwriting actions to improve the segment’s profitability.
All other – The net loss and loss adjustment expenses ratio decreased 44.8 percentage points in 2023 compared to 2022. This decrease was driven by
improved loss experience related to the excess liability lines of business.
Underwriting and General Expenses and Expense Ratio
Underwriting and general expenses:
Amortization of deferred policy acquisition costs
Other underwriting and general expenses
Total underwriting and general expenses
Year Ended December 31,
2022
2023
2021
$
$
82,991 $
35,799
118,790 $
66,803 $
32,231
99,034 $
64,574
31,715
96,289
Expense ratio
33.8%
30.2%
32.1%
The expense ratio is calculated by dividing other underwriting and general expenses and amortization of deferred policy acquisition costs by net premiums
earned. The expense ratio measures a company’s operational efficiency in producing, underwriting, and administering its insurance business. The overall
expense ratio increased 3.6 percentage points in the year ended December 31, 2023, compared to the same period in 2022. The increase in amortization of
deferred policy acquisition costs was driven by higher deferrable costs resulting from overall premium growth compared to the prior year, including
significant growth in the non-standard auto segment which generally pays higher agent commissions than our other segments. The increase in other
underwriting and general expenses was due to the impact of continued high levels of inflation and 2022 expenses being favorably impacted by multi-peril
crop insurance final settlements.
34
Underwriting Gain (Loss) and Combined Ratio
Underwriting gain (loss):
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other
Total underwriting loss
Combined ratio:
Private passenger auto
Non-standard auto
Home and farm
Crop
Commercial
All other
Total combined ratio
Year Ended December 31,
2022
2023
2021
$
$
(1,341) $
(12,654)
7,752
8,762
(18,576)
3,992
(12,065) $
(9,416) $
622
(52,512)
12,294
(17,958)
1,794
(65,176) $
(7,704)
1,362
(475)
(9,195)
2,506
427
(13,079)
Year Ended December 31,
2022
2023
2021
101.6%
114.4%
90.7%
66.1%
128.8%
37.0%
103.4%
112.1%
99.1%
167.0%
64.6%
129.2%
80.6%
119.9%
110.6%
97.7%
100.7%
134.3%
95.6%
95.9%
104.3%
Underwriting gain (loss) measures the pre-tax profitability of our insurance operations. It is derived by subtracting losses and loss adjustment expenses,
amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. The combined ratio represents
the sum of these losses and expenses as a percentage of net premiums earned and measures our overall underwriting profit.
The total underwriting loss decreased $53,111, or 81.5%, for the year ended December 31, 2023, compared to the same period in 2022. These results were
driven by the factors discussed in the Losses and Loss Adjustment Expenses section above.
The overall combined ratio decreased 16.5 percentage points in the year ended December 31, 2023, compared to the same period in 2022. These results
were driven by the factors discussed in the Losses and Loss Adjustment Expenses section above.
Fee and Other Income
We had fee and other income of $1,978 for the year ended December 31, 2023, compared to $1,453 for the year ended December 31, 2022, and $1,775 for
the year ended December 31, 2021. Fee income is largely attributable to the non-standard auto segment and is a key component in measuring its
profitability. Fee and other income for non-standard auto increased to $1,293 for the year ended December 31, 2023, from $831 for the year ended
December 31, 2022, due to an increase in policies that generate fee income.
Goodwill Impairment Charge
We had a goodwill impairment charge of $6,756 for the year ended December 31, 2023, compared to $0 for the years ended December 31, 2022 and 2021.
See Part II, Item 8, Note 10 “Goodwill and Other Intangibles” for additional information.
35
Net Investment Income
The following table shows our average cash and invested assets, net investment income, and return on average cash and invested assets for the reported
periods:
Average cash and invested assets
Net investment income
Gross return on average cash and invested assets
Net return on average cash and invested assets
Year Ended December 31,
2022
2023
2021
$
$
408,845 $
10,456 $
455,366 $
7,820 $
3.4%
2.6%
2.5%
1.7%
502,375
7,131
2.1%
1.4%
Net investment income increased $2,636 for the year ended December 31, 2023, compared to the year ended December 31, 2022. This increase was
primarily driven by higher reinvestment rates as well as a strategic increased allocation to fixed income securities in our investment portfolio. Net
investment income increased $689 for the year ended December 31, 2022, compared to the year ended December 31, 2021.
Gross and net return on average cash and invested assets increased year-over-year, driven by the higher net investment income and a higher proportion of
the equity portfolio being invested in high dividend yield equities in 2023, along with a decrease in average cash and invested assets (measured at fair
value). This decrease in average cash and invested assets was driven by challenging equity market conditions, particularly during the middle and later
stages of 2022, combined with investment sales as a result of an unusually high number of weather-related losses in 2022.
Net Investment Gains (Losses)
Net investment gains (losses) consisted of the following:
Gross realized gains
Gross realized losses, excluding credit impairment losses
Net realized gains
Change in net unrealized gain on equity securities
Net investment gains (losses)
Year Ended December 31,
2022
2023
2021
13,975 $
(1,924)
12,051
(9,927)
2,124 $
7,195 $
(5,271)
1,924
(15,050)
(13,126) $
18,130
(362)
17,768
(2,289)
15,479
$
$
We had net realized gains of $12,051 for the year ended December 31, 2023, compared to $1,924 for the year ended December 31, 2022, and $17,768 for
the year ended December 31, 2021. The year-to-date increase in net realized gains was primarily the result of a strategic liquidation of a portfolio of equity
securities in the first quarter of 2023. The gross realized gains from the sale of these securities were largely offset by the elimination of the unrealized gain
position of these securities. No credit impairment losses were reported during any of the periods presented.
We experienced a decrease in net unrealized gains on equity securities of $9,927 during the year ended December 31, 2023. The current period change in
net unrealized gains on equity securities was driven by the equity portfolio liquidation noted above and the impact of changes in fair value attributable to
equity market volatility. The prior year decreases were driven by the impact of changes in fair value attributable to unfavorable equity markets. We had net
realized gains on the sale of equity securities of $12,633, $2,075, and $17,118 during the years ended December 31, 2023, 2022, and 2021, respectively.
Our fixed income securities are classified as available for sale because we will, from time to time, execute sales of securities that are not impaired,
consistent with our investment goals and policies. The fixed income portion of the portfolio experienced net unrealized gains of $10,654 during the year
ended December 31, 2023, compared to net unrealized losses of $46,362 during the year ended December 31, 2022. The changes were primarily the result
of changes in U.S. interest rates. The change in the fair value of fixed income securities is not reflected in net income; rather it is reflected as a separate
component (net of income taxes) of other comprehensive income. The fixed income portfolio experienced a decrease in net unrealized gains of $9,796
during the year ended December 31, 2021.
36
Income (Loss) before Income Taxes
We had a pre-tax loss of $4,263 for the year ended December 31, 2023, a pre-tax loss of $69,029 for the year ended December 31, 2022, and pre-tax
income of $11,306 for the year ended December 31, 2021. The year-over-year improvement in 2023 compared to 2022 was largely attributable to the
significant catastrophe losses and significantly higher investment losses during 2022, partially offset by higher unfavorable prior year reserve development
during 2023.
Income Tax Expense (Benefit)
We recorded income tax expense of $963 for the year ended December 31, 2023, an income tax benefit of $15,254 for the year ended December 31, 2022,
and income tax expense of $2,974 for the year ended December 31, 2021. Our effective tax rate for 2023 was (22.6)% compared to an effective tax rate of
22.1% and 26.3% for 2022 and 2021, respectively. Our 2023 effective tax rate was impacted by several factors, but the current year non-taxable goodwill
impairment charge was the most significant driver of the variance from the statutory rate. The valuation allowance against certain deferred income tax
assets was $505 as of December 31, 2023 compared to $694 as of December 31, 2022.
Net Income (Loss)
We had a net loss before non-controlling interest of $5,226 for the year ended December 31, 2023, a net loss of $53,775 for the year ended December 31,
2022, and net income of $8,332 for the year ended December 31, 2021. The year-over-year improvement in 2023 compared to 2022 was largely attributable
to the significant catastrophe losses and significantly higher investment losses during 2022, partially offset by higher unfavorable prior year reserve
development during 2023.
Return on Average Equity
For the year ended December 31, 2023, we had annualized return on average equity, after non-controlling interest, of (2.2)%, compared to annualized
return on average equity, after non-controlling interest, of (17.9)% and 2.4% for the years ended December 31, 2022 and 2021, respectively.
Average equity is calculated as the average between beginning and ending equity, excluding non-controlling interest, for the period.
Principal Revenue Items
Revenue is primarily derived from net premiums earned, net investment income, and net investment gains (losses).
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 to reinsurers.
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. Our property and casualty policies, other than some of our auto lines and the non-standard auto policies, typically have a
term of twelve months.
Due to the nature of the crop planting and harvesting cycle and the deadlines for filing and processing claims under the federal crop insurance program,
insurance premiums for multi-peril crop insurance are recognized and earned during the period of risk, which usually begins in spring and ends with
harvest in the fall. 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 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 will charge interest at a 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
37
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 we write covers crops planted in the spring.
Net Investment Income and Net Investment Gains (Losses)
We invest our excess cash in fixed income and equity securities. Investment income includes interest and dividends earned on invested assets and is
reported net of investment-related expenses. Net investment gains (losses) are reported separately from net investment income. We recognize realized gains
when investments are sold for an amount greater than their cost or amortized cost (in the case of fixed income securities) and realized losses when
investments are sold for an amount less than their cost or amortized cost or when credit impairments are recorded, as applicable. We recognize changes in
unrealized gains and losses of equity securities in net income as part of net investment gains (losses). These gains and losses may be significant given the
fair market value of the equity portfolio and the inherent volatility in equity markets. The changes in unrealized gains and losses on fixed income securities
are recorded in other comprehensive income (loss), net of income taxes. Therefore, these changes have no impact on net income but do impact
shareholders’ equity.
The portfolio of investments for NI Holdings and its insurance subsidiaries is managed by Conning, Inc., which has discretion to buy and sell securities in
accordance with the investment policy approved by our Board of Directors.
Principal Expense Items
Our expenses consist primarily of losses and loss adjustment expenses, amortization of deferred policy acquisition costs, other underwriting and general
expenses, and income taxes.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses represent the largest expense item and include (1) claim payments made, (2) estimates for future claim payments and
changes in those estimates from prior periods, and (3) costs associated with investigating, defending, and adjusting claims, including legal fees.
Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses
Expenses incurred to underwrite risks are referred to as policy acquisition costs. Policy acquisition costs consist of commission expenses, state premium
taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business. These
policy acquisition costs are deferred and amortized over the effective period of the related insurance policies. Other underwriting and general expenses
consist of salaries, professional fees, office supplies, depreciation, and all other operating expenses not otherwise classified separately.
Income Taxes
Current income taxes represent amounts paid or owed to the federal government and certain states whose payment is based upon net income (subject to
regulatory adjustments) generated by the Company. The generation of net losses may result in income tax benefits. As noted above, it does not include state
premium taxes that are based purely on the collection of policyholder premiums.
We use 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.
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. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial
statements and related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions,
industry trends, and other information that we believe to be
38
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. We believe the following policies are the most sensitive to estimates and judgments.
Unpaid Losses and Loss Adjustment Expenses
How reserves are established
With respect to our traditional property and casualty insurance products, we maintain reserves for the payment of claims (indemnity losses) and expenses
related to adjusting those claims (loss adjustment expenses). Our liability for unpaid losses and loss adjustment expenses consists of (1) case reserves,
which are reserves for claims that have been reported to us, and (2) IBNR, which represents reserves for claims that have been incurred but have not yet
been reported and for the future development of reported claims. As some claims may not be reported for several years, the liability for unpaid losses and
loss adjustment expenses includes significant estimates for IBNR.
Loss adjustment expenses consist of two components – allocated loss adjustment expenses and unallocated loss adjustment expenses. Allocated loss
adjustment expenses 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. Unallocated loss adjustment expenses 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 one of the insurance companies, 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 situations where legal action may
be involved. Case reserves are reviewed on a regular basis and are updated as new information becomes available.
When a catastrophe occurs, which in our case usually involves the weather perils of wind and hail, we utilize mapping technology through geographic
coding of our property risks to overlay the path of the storm. This enables us 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 us to determine within a reasonable time (5 – 7 days) an estimated number of claims and
estimated losses from the storm. We have also begun reviewing the results of the predicted cost of the claim generated by the catastrophe models as a
reasonability check on the anticipated cost of the storm. If we estimate the damages to be in excess of the retained catastrophe amount, reinsurers are
notified immediately of a potential loss so that we can quickly recover reinsurance payments once the retention is exceeded.
We estimate 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 our anticipated losses for this line of business.
Our actuaries assist with the estimation of the liability for unpaid losses and loss adjustment expenses. The actuaries prepare estimates by first deriving an
actuarially based estimate of the ultimate cost of total losses and loss adjustment expenses incurred as of the financial statement date based on established
actuarial methods as described below. We then reduce the estimated ultimate loss and loss adjustment expenses by loss and loss adjustment expenses
payments and case reserves carried as of the financial statement date. The actuarially determined estimate is based upon indications from various actuarial
methodologies including paid chain-ladder, incurred chain-ladder, Bornhuetter-Ferguson, weighted averages of the methods, and judgment. The specific
method used to estimate the ultimate losses varies depending on the judgment of the actuaries as to what is the most appropriate for the line of business.
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. Management may adjust the actuarial estimates based on this
supplemental information in order to arrive at the amount recorded in the consolidated financial statements.
A further discussion of the actuarial methodologies used follows:
Bornhuetter-Ferguson Method — The Bornhuetter-Ferguson Method is a blended method that explicitly considers 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
39
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 (Chain-Ladder) Method — The Paid and Case Incurred Loss Development Method utilizes ratios of
cumulative paid or case incurred losses or loss adjustment expenses 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 loss adjustment expenses. Ultimate losses or loss adjustment expenses are then selected for each accident year
from the various methods employed.
Ratio of Paid Allocated Loss Adjustment Expenses to Paid Loss Method — The Ratio of Paid Allocated Loss Adjustment Expenses to Paid Loss
Method utilizes the ratio of paid allocated loss adjustment expenses to paid losses and is similar to the Paid and Case Incurred Loss Development (Chain-
Ladder) Method described above, except that the data projected are the ratios of paid allocated loss adjustment expenses to paid losses. The projected
ultimate ratio is then multiplied by the selected ultimate losses, by accident year, to yield the ultimate allocated loss adjustment expenses. Allocated loss
adjustment expenses reserves are calculated by subtracting paid losses from ultimate allocated loss adjustment expenses.
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/staffing, inflation, weather, legal trends, and regulatory and legislative changes.
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. We continually refine our estimates of unpaid losses and
loss adjustment expenses in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. We consider all
significant facts and circumstances known at the time the liabilities for unpaid losses and loss adjustment expenses are established.
There is an inherent amount of uncertainty in the establishment of liabilities for unpaid losses and loss adjustment expenses. This uncertainty is greatest in
the current and most recent accident years due to the more recent nature of the claims being reported and relatively small percentage of these claims that
have been reported, investigated, and adjusted by our claims staff. Therefore, the reserves carried in these more recent accident years are generally more
conservative than those carried for older accident years. As we have 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 may have an impact on our 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 reserves are established. 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 us 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 we establish. 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.
Economic inflation
A sudden and extreme increase in the economic inflation rate could have a significant impact on our 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, which is possible but unlikely as we usually settle claims in less than 50 days on average, the initial reserve may not
anticipate an economic inflation rate that is significantly higher than the
40
current inflation rate. This can also apply to IBNR reserves. Should the economic inflation rate increase significantly, we may not anticipate the need to
adjust the IBNR reserves accordingly, which could lead to deficient 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 significant
catastrophe, such as a hurricane, has an impact on not only the availability and cost of building materials such as roofing and other materials, but also the
availability and cost of labor. Numerous other factors could also cause claim severity to increase beyond what our historic reserves would reflect. In
addition, unexpected increases in labor, healthcare, or building material costs and other factors may cause fluctuations in the ultimate development of the
case reserves.
Actual settlement experience different from historical data trends
When establishing IBNR reserves, our actuaries consider 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 actuaries consider factors such as the number of files entering litigation, payment
patterns, length of time it takes our claims personnel to settle the claims, and average payment amounts when estimating reserve amounts. Should future
settlement patterns change due to the legal environment, our 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, we 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), 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, the types or lines
of business we write, our distribution system, and the geographic area where we choose to insure risk.
Due to the inherent uncertainty underlying loss reserve estimates, final resolution of the estimated liability for unpaid losses and loss adjustment expenses
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. We reflect adjustments to the liability for unpaid losses and loss adjustment expenses in the
results of operations during the period in which the estimates are changed.
Investments
Our 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 independent pricing service at the reporting date for those or similar investments. Changes in unrealized
investment gains or losses on the fixed income securities, 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). Changes in unrealized investment gains or losses on equity
securities are reported in net income (loss). Investment income from fixed income securities is recognized when earned, and realized investment gains
(losses) are recognized when investments are sold, the fair value of equity securities change, or credit impairments are recognized.
For additional information on our investments, see Part II, Item 8, Note 4 “Investments” and Note 5 “Fair Value Measurements”.
Deferred Policy Acquisition Costs
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.
At December 31, 2023 and 2022, deferred policy acquisition costs (“DAC”) and the related liability for unearned premiums were as follows:
Deferred policy acquisition costs
Liability for unearned premiums
December 31,
2023
2022
$
34,120 $
164,100
29,768
148,513
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 loss adjustment expenses, and certain other costs expected to be
41
incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, 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 or owed to the federal government and certain states whose payment is based upon net income (subject to
regulatory adjustments) generated by the Company. The generation of net losses may result in income tax benefits, a portion of which may be in the form
of refunds of prior income taxes paid to taxing authorities. We use 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 established 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.
We had gross deferred income tax assets of $18,172 at December 31, 2023, and $17,900 at December 31, 2022, arising primarily from unearned premiums,
loss reserve discounting, net unrealized investment losses, and net operating loss carryforwards. A valuation allowance is required to be established for any
portion of the deferred income tax asset for which we believe it is more likely than not that it will not be realized. A valuation allowance of $505 and $694
was maintained at December 31, 2023, and December 31, 2022, respectively.
We had gross deferred income tax liabilities of $9,254 at December 31, 2023, and $8,201 at December 31, 2022, arising primarily from deferred policy
acquisition costs and other intangible assets.
We exercise significant judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments
require us to make projections of future taxable income. The judgments and estimates we make in determining our 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 us to record a valuation allowance against our deferred income tax assets.
As of December 31, 2023, we had no material unrecognized income tax benefits or accrued interest and penalties. Federal income tax returns for the years
2020 through 2022 are open for examination.
Changing Climate Conditions
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 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. Our ability to
effectively manage catastrophe risk is dependent, in part, on our reliance on various catastrophe models, which may produce unreliable output as a result of
inaccurate or incomplete data, along with the inherent uncertainty of future frequency and severity of losses. The impact of changing climate conditions on
the overall insurance industry may also materially affect the availability and cost of reinsurance to us. In addition, these changes could impact the
creditworthiness of issuers of securities in which we invest, subjecting our investment portfolio to increased credit and interest rate risk, with the potential
for reduced investment returns and/or material realized or unrealized losses.
42
Liquidity and Capital Resources
We expect to generate sufficient funds from our operations and maintain a high degree of liquidity in our investment portfolio to meet the demands of claim
settlements and operating expenses for the foreseeable future. Our primary sources of funds are premium collections, investment earnings, and fixed
income maturities.
We also have a $3,000 line of credit with Wells Fargo Bank, N.A. The terms of the line of credit include a floating interest rate of 2.50% above the daily
simple secured overnight financing rate. There were no outstanding amounts during the years ended December 31, 2023, 2022, or 2021. This line of credit
is scheduled to expire on December 13, 2024.
The changes in cash and cash equivalents for the years ended December 31, 2023, 2022, and 2021 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,
2022
2023
2021
$
$
25,970 $
(8,813)
(7,466)
9,691 $
(30,388) $
25,048
(18,281)
(23,621) $
29,168
(48,151)
(11,471)
(30,454)
For the year ended December 31, 2023, net cash provided by operating activities totaled $25,970 compared to $30,388 net cash used by operating activities
a year ago. This change was primarily driven by lower claim payments and the receipt of a significant income tax refund during the current period.
For the year ended December 31, 2023, net cash used by investing activities totaled $8,813 compared to $25,048 net cash provided by investing activities a
year ago. This change was primarily attributable to a decrease in maturities and sales of fixed income securities and an increase in purchases of fixed
income securities in the current year compared to the prior year, partially offset by an increase in sales of equity securities and a decrease in purchases of
equity securities.
For the year ended December 31, 2023, net cash used by financing activities totaled $7,466 compared to $18,281 a year ago. This decrease in cash used
was attributable to installment payments on the Westminster consideration payable during 2022, partially offset by an increase in share repurchases during
2023 compared to 2022.
For the year ended December 31, 2022, net cash used by operating activities totaled $30,388 compared to $29,168 net cash provided by operating activities
a year ago. This decrease was primarily driven by higher claim payments related to catastrophe losses during the current year and higher levels of
premiums and agents’ balances receivable and federal income tax recoverable.
For the year ended December 31, 2022, net cash provided by investing activities totaled $25,048 compared to $48,151 net cash used by investing activities
a year ago. This decrease in cash used was attributable to the significant catastrophe losses in Nebraska and South Dakota, which resulted in more sales of
securities to pay losses and less available cash for investment purchases. The decrease was also attributable to the Company investing a higher level of
excess cash during the first quarter of 2021.
For the year ended December 31, 2022, net cash used by financing activities totaled $18,281 compared to $11,471 a year ago. This increase in cash used
was primarily attributable to the Company making two installment payments for the Westminster purchase during 2022 for $13,333 compared to one
installment payment in 2021 for $6,667.
As a holding company, a principal source of long-term liquidity will be dividend payments from our directly-owned subsidiaries.
Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of dividends or other distributions it may pay to NI Holdings. North
Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, but without prior
approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of 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 investment gains), less any
prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurance company may carry forward net
income from the preceding two calendar years, not including realized investment gains, less any dividends actually paid during those two calendar years.
Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the North Dakota Insurance Department.
There is no amount available for payment of dividends from Nodak Insurance to NI Holdings during 2024 without the prior approval of the North Dakota
Insurance Department. Prior to its payment of any dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota
Insurance Department. This notice must be provided to the North Dakota Insurance Department
43
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 dividends of $3,000 to NI
Holdings during the year ended December 31, 2022. No dividends were declared or paid by Nodak Insurance during the years ended December 31, 2023
and 2021.
Direct Auto re-domesticated from Illinois to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Direct Auto to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $90 as of December 31, 2023. No dividends were declared or paid by Direct Auto during the years ended December 31, 2023,
2022, or 2021.
Westminster re-domesticated from Maryland to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Westminster to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $1,200 as of December 31, 2023. No dividends were declared or paid by Westminster during the years ended December 31,
2023, 2022 or 2021.
Contractual Obligations
The primary contractual obligations of the Company include gross loss and loss adjustment expenses payments as well as operating and finance lease
obligations.
The Company’s unpaid losses and loss adjustment expenses were $217,119 as of December 31, 2023. Historical payment experience indicates that
approximately 48% of this amount will be paid during 2024 and another 36% will be paid over the subsequent two years. The actual timing and amounts of
these payments in the future may vary.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Part II, Item 8, Note 2 “Recent Accounting Pronouncements”.
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Item 7A.
Quantitative and Qualitative Disclosures 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. We have exposure to three
principal types of market risk through our investment activities: interest rate risk, credit risk, and equity risk. Our primary market risk exposure is to
changes in interest rates. We have not entered, and do 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. Our exposure to interest rate changes
primarily results from our significant holdings of fixed income securities. Fluctuations in interest rates have a direct impact on the fair value of these
securities.
We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short and long-term liquidity needs,
general economic conditions, expected rates of inflation and regulatory requirements. The portfolio duration of the fixed income securities in our
investment portfolio at December 31, 2023 was 4.52 years. These 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. These fixed income securities may experience significant fluctuations in fair value resulting from changes in interest rates and are carried as
available for sale. We manage the exposure to risks associated with interest rate fluctuations through active management and consultation with our outside
fixed income portfolio manager.
Higher interest rates, oftentimes correlated to inflation, reduce the carrying value of our fixed income and short-term investments, negatively impacting the
Company’s book value in the short-term. Over the long-term, however, higher interest rates provide an incremental benefit to our net investment income
over time as excess cash and proceeds of maturing bonds are reinvested at higher rates. We manage our exposure to interest rate increases by monitoring
the duration within our investment portfolio and maintaining maturities that minimize forced sales within the portfolio.
Additionally, we hold certain fixed income securities that have call features. In a potential declining interest rate environment, these securities may be
called by their issuer and replaced with securities bearing lower interest rates.
If we are required to sell fixed income securities in a rising interest rate environment, we may recognize investment losses.
The table below shows the interest rate sensitivity of our fixed income securities measured in terms of fair value (which is equal to the carrying value for all
of our investment securities that are subject to interest rate changes) at December 31, 2023 and 2022:
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, 2023
As of December 31, 2022
Estimated Change
in Fair Value
Fair Value
Estimated Change
in Fair Value
Fair Value
$
(31,125) $
(15,826)
—
16,199
32,572
316,606 $
331,905
347,731
363,930
380,303
(26,433) $
(13,504)
—
13,986
28,347
276,891
289,820
303,324
317,310
331,671
The interest rate exposure of our portfolio was proportionately consistent in the current year compared to the prior year, which is expected given the
generally consistent composition and duration of the fixed income portfolio over this time.
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Credit Risk
Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. We address this risk
by investing primarily in fixed income securities that are rated investment grade by Moody’s Investors Services, Inc. or an equivalent rating quality. We
also work in conjunction with our outside fixed income portfolio manager to monitor the financial condition of all of the issuers of fixed income securities
in the portfolio. Additionally, our investment policy includes diversification rules that limit the credit exposure to any single issuer or asset class.
Equity Risk
Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. Our equity portfolio is subject to a variety of risk
factors, including general economic conditions which influence the performance of the underlying industries and companies within those industries.
Industry and company-specific risks also have the potential to substantially affect the value of our portfolio. Our investment policy helps mitigate these
risks by diversifying the portfolio and establishing parameters to help manage exposures.
46
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of NI Holdings, Inc.
Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NI Holdings, Inc. and Subsidiaries (collectively, the “Company”) as of December 31,
2023, and 2022, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2023, and the related notes and the schedule listed in Item 15(a)(2) (collectively referred to
as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based
on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2023, and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023,
in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated
Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion
on the Company’s internal control over financial reporting 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 audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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 consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
47
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of Losses and Loss Adjustment Expenses Reserves
Critical Audit Matter Description
On December 31, 2023, the Company’s liability for unpaid losses and loss adjustment expenses was approximately $217 million. As described in Note 3
and 8, the Company’s property and casualty insurance loss and loss expenses reserves (referred to as “losses and loss expenses reserves”), are determined
by the Company using actuarial methods, models, assumptions, and judgment to estimate the reserves required to pay for and settle all outstanding insured
claims as of the financial statement date. There is significant uncertainty inherent in determining management’s best estimate of the losses and loss
expenses reserves, requiring the use of informed actuarially based estimates and management’s judgment. The actuarial estimate of losses and loss
expenses reserves is subject to review and adjustment by Company management.
Losses and loss expenses are inherently uncertain as to timing and amount and the recorded losses and loss expense reserves may vary materially from the
actual ultimate cost of claims. Given the subjectivity in estimating ultimate losses and loss expenses, due to uncertainties concerning the future emergence
of losses and loss expenses, inflation trends, and the judicial environment, among other factors, auditing losses and loss expenses reserves involved an
especially high degree of auditor judgment, including the need to involve an actuarial specialist.
How the Critical Matter Was Addressed in the Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of certain internal controls over the Company’s reserving
process for losses and loss adjustment expenses reserves.
To test the Company’s estimate of losses and loss adjustment expenses reserves, our audit procedures included among others:
● With the assistance of the actuarial specialist, we used the Company’s claims data and other inputs, to develop a range of independent estimates for the
losses and loss expenses reserves. We used these independent estimates to assess the reasonableness of the Company’s reserves by comparing our
estimates to the Company’s recorded losses and loss expenses reserves.
● We tested the underlying data that served as the basis for the actuarial analysis, including historical claims data, to test the reasonableness of key inputs
to the actuarial estimate.
● We compared the Company’s prior years estimates of expected incurred losses to actual experience during the current year to identify potential bias in
the determination of losses and loss expenses reserves.
/s/ Mazars USA LLP
PCAOB ID 339
We have served as the Company’s auditor since 2016.
Fort Washington, Pennsylvania
March 15, 2024
48
NI Holdings, Inc.
Consolidated Balance Sheets
December 31, 2023 and 2022
(dollar amounts in thousands, except par value)
Assets:
Cash and cash equivalents
Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at December 31, 2023
and 2022)
Equity securities, at fair value
Other investments
Total cash and investments
Premiums and agents' balances receivable (net of allowance for expected credit losses of $402 at December 31,
2023 and $425 at December 31, 2022)
Deferred policy acquisition costs
Reinsurance premiums receivable
Reinsurance recoverables on losses (net of allowance for expected credit losses of $0 at December 31, 2023 and
2022)
Income tax recoverable
Accrued investment income
Property and equipment, net
Deferred income taxes
Receivable from Federal Crop Insurance Corporation
Goodwill and other intangibles
Other assets
Total assets
Liabilities:
Unpaid losses and loss adjustment expenses
Unearned premiums
Income tax payable
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity:
Common stock, $0.01 par value, authorized 25,000,000 shares, issued: 23,000,000 shares; and outstanding: 2023
– 20,599,908 shares, 2022 – 21,076,255 shares
Additional paid-in capital
Unearned employee stock ownership plan shares
Retained earnings
Accumulated other comprehensive income (loss), net of income taxes
Treasury stock, at cost, 2023 – 2,330,297 shares, 2022 – 1,829,635 shares
Non-controlling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
49
2023
2022
$
56,693 $
47,002
347,731
27,767
2,006
434,197
74,058
34,120
4,061
48,969
—
2,763
9,897
8,413
17,404
10,039
10,965
654,886 $
217,119 $
164,100
88
23,180
404,487
230
96,294
(698)
208,376
(21,384)
(35,177)
2,758
250,399
303,324
52,393
2,005
404,724
62,173
29,768
1,647
37,575
13,964
2,456
9,843
9,005
15,462
17,250
10,365
614,232
190,459
148,513
—
22,053
361,025
230
95,671
(941)
214,121
(29,286)
(28,818)
2,230
253,207
$
$
$
654,886 $
614,232
NI Holdings, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2023, 2022, and 2021
(dollar amounts in thousands, except per share data)
Revenues:
Net premiums earned
Fee and other income
Net investment income
Net investment gains (losses)
Total revenues
Expenses:
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs
Other underwriting and general expenses
Goodwill impairment charge
Total expenses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to NI Holdings, Inc.
Earnings (loss) per common share:
Basic
Diluted
Share data:
2023
2022
2021
351,137 $
1,978
10,456
2,124
365,695
244,412
82,991
35,799
6,756
369,958
(4,263)
963
(5,226)
250
(5,476) $
328,290 $
1,453
7,820
(13,126)
324,437
294,432
66,803
32,231
—
393,466
(69,029)
(15,254)
(53,775)
(679)
(53,096) $
299,589
1,775
7,131
15,479
323,974
216,379
64,574
31,715
—
312,668
11,306
2,974
8,332
(84)
8,416
(0.26) $
(0.26) $
(2.49) $
(2.49) $
0.39
0.39
$
$
$
$
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
21,159,073
—
21,159,073
21,333,389
—
21,333,389
21,424,060
232,366
21,656,426
The accompanying notes are an integral part of these consolidated financial statements.
50
NI Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2023, 2022, and 2021
(dollar amounts in thousands)
Net income (loss)
Other comprehensive income (loss), before income taxes:
Attributable to
NI Holdings, Inc.
2023
Attributable to
Non-Controlling
Interest
Total
$
(5,476) $
250 $
(5,226)
Holding gains (losses) on investments
Reclassification adjustment for net realized losses (gains) included in net income (loss)
Other comprehensive income (loss), before income taxes
Income tax benefit (expense) related to items of other comprehensive income (loss)
Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)
$
9,709
582
10,291
(2,389)
7,902
2,426 $
363
—
363
(85)
278
528 $
10,072
582
10,654
(2,474)
8,180
2,954
Net income (loss)
Other comprehensive income (loss), before income taxes:
Attributable to
NI Holdings, Inc.
2022
Attributable to
Non-Controlling
Interest
Total
$
(53,096) $
(679) $
(53,775)
Holding gains (losses) on investments
Reclassification adjustment for net realized losses (gains) included in net income (loss)
Other comprehensive income (loss), before income taxes
Income tax benefit (expense) related to items of other comprehensive income (loss)
Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)
(44,810)
131
(44,679)
10,156
(34,523)
(87,619) $
(1,703)
20
(1,683)
383
(1,300)
(1,979) $
(46,513)
151
(46,362)
10,539
(35,823)
(89,598)
$
Net income (loss)
Other comprehensive income (loss), before income taxes:
Attributable to
NI Holdings, Inc.
2021
Attributable to
Non-Controlling
Interest
Total
$
8,416 $
(84) $
8,332
Holding gains (losses) on investments
Reclassification adjustment for net realized losses (gains) included in net income (loss)
Other comprehensive income (loss), before income taxes
Income tax benefit (expense) related to items of other comprehensive income (loss)
Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)
$
(8,827)
(648)
(9,475)
1,872
(7,603)
813 $
(319)
(2)
(321)
69
(252)
(336) $
(9,146)
(650)
(9,796)
1,941
(7,855)
477
The accompanying notes are an integral part of these consolidated financial statements.
51
NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2023, 2022, and 2021
(dollar amounts in thousands)
Common
Stock
Additional
Paid-in
Capital
Unearned
Employee
Stock
Ownership
Plan Shares
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
Net of Income
Taxes
Treasury Stock
Non-
Controlling
Interest
Total
Shareholders’
Equity
Balance,
January 1, 2021
$
230 $
97,911 $
(1,427) $ 258,741 $
12,840
(23,968) $
4,545 $
348,872
Net income (loss)
Other comprehensive
income (loss), net of
income taxes
Purchase of treasury
stock
Share-based
compensation
Issuance of vested
award shares
Distribution of
employee stock
ownership plan shares
Balance,
December 31, 2021
Net income (loss)
Other comprehensive
income (loss), net of
income taxes
Purchase of treasury
stock
Share-based
compensation
Issuance of vested
award shares
Distribution of
employee stock
ownership plan shares
Balance,
December 31, 2022
Net income (loss)
Other comprehensive
income (loss), net of
income taxes
Purchase of treasury
stock
Share-based
compensation
Issuance of vested
award shares
Distribution of
employee stock
ownership plan shares
—
—
—
8,416
—
—
(84)
8,332
—
—
—
—
—
2,408
—
(2,370)
—
—
—
—
—
—
—
50
(7,603)
—
(252)
(7,855)
—
—
—
(4,316)
—
1,832
—
—
—
(4,316)
2,408
(488)
—
217
243
—
—
—
—
460
230
98,166
(1,184)
267,207
5,237
(26,452)
4,209
347,413
—
—
—
(53,096)
—
—
(679)
(53,775)
—
—
—
—
—
(40)
—
(2,592)
—
—
—
—
—
—
—
10
(34,523)
—
(1,300)
(35,823)
—
—
—
(4,180)
—
1,814
—
—
—
(4,180)
(40)
(768)
—
137
243
—
—
—
—
380
230
95,671
(941)
214,121
(29,286)
(28,818)
2,230
253,207
—
—
—
(5,476)
—
—
250
(5,226)
—
—
—
—
—
1,366
—
—
—
—
—
—
—
(822)
—
(269)
7,902
—
278
8,180
(7,278)
—
919
—
—
—
(7,278)
1,366
(172)
—
—
—
79
243
—
—
—
—
322
Balance,
December 31, 2023
$
230 $
96,294 $
(698) $ 208,376
(21,384)
(35,177) $
2,758 $
250,399
The accompanying notes are an integral part of these consolidated financial statements.
52
NI Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2023, 2022, and 2021
(dollar amounts in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
2023
2022
2021
$
(5,226) $
(53,775) $
8,332
Net investment losses (gains)
Deferred income tax expense (benefit)
Depreciation of property and equipment
Amortization of intangibles
Goodwill impairment charge
Distribution of employee stock ownership plan shares
Share-based 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 receivable / payable
Reinsurance recoverables on losses
Income tax recoverable / payable
Accrued investment income
Federal Crop Insurance Corporation receivable / 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
Proceeds from sales of property and equipment
Proceeds from sale of other investments and other
Net cash flows from investing activities
Cash flows from financing activities:
Purchases of treasury stock
Installment payment on Westminster consideration payable
Principal repayments of finance leases
Issuance of vested award shares
Net cash flows from financing activities
(2,124)
(1,882)
826
455
6,756
322
1,366
82,991
(87,343)
984
(55)
(11,885)
(2,414)
(11,394)
14,052
(307)
(1,942)
(600)
26,660
15,587
1,143
25,970
37,904
39,939
(73,222)
(12,607)
(974)
147
—
(8,813)
(7,278)
—
(16)
(172)
(7,466)
13,126
(3,972)
708
472
—
380
(40)
66,803
(71,624)
1,590
(186)
(10,721)
(1,973)
(16,375)
(13,600)
68
(20,424)
9
50,797
20,724
7,625
(30,388)
77,965
26,204
(64,742)
(13,884)
(1,162)
667
—
25,048
(4,180)
(13,333)
—
(768)
(18,281)
(15,479)
(1,310)
694
472
—
460
2,408
64,574
(65,553)
2,080
31
(2,929)
419
(12,490)
(1,118)
(383)
11,608
(3,669)
33,912
8,426
(1,317)
29,168
73,015
44,600
(128,480)
(37,491)
(739)
43
901
(48,151)
(4,316)
(6,667)
—
(488)
(11,471)
Net increase (decrease) in cash and cash equivalents
9,691
(23,621)
(30,454)
Cash and cash equivalents at beginning of period
47,002
70,623
101,077
Cash and cash equivalents at end of period
Federal and state income taxes paid (net of refunds received)
$
$
56,693 $
47,002 $
70,623
(11,102) $
2,175 $
4,452
The accompanying notes are an integral part of these consolidated financial statements.
53
NI Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2023, 2021, and 2020
(dollar amounts in thousands)
1.
Organization
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 include the financial position and results of operations of NI Holdings and the following other entities:
Nodak Insurance Company
Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota, offering private passenger auto, homeowners,
farmowners, commercial multi-peril, crop hail, and Federal multi-peril crop insurance coverages through its captive agents in the state.
Nodak Agency, Inc.
Nodak Agency is an inactive shell corporation.
American West Insurance Company
American West is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the U.S. American West began
writing policies in 2002 and primarily writes private passenger auto, homeowners, and farm coverages in South Dakota. American West also writes private
passenger auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages in Minnesota and South Dakota.
Primero Insurance Company
Primero is a wholly-owned subsidiary of Tri-State, Ltd. Tri-State, Ltd. is an inactive shell corporation 100% owned by Nodak Insurance. Primero is a
property and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota, and South Dakota.
Primero was acquired by Nodak Insurance in 2014.
Battle Creek Mutual Insurance Company
Battle Creek is a property and casualty insurance company writing private passenger auto, homeowners, and farm coverages solely in the state of Nebraska.
Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and
other administrative services to Battle Creek. Because we have concluded that we control Battle Creek, we consolidate the financial statements of Battle
Creek, and Battle Creek’s policyholders’ interest in Battle Creek is reflected as a non-controlling interest in shareholders’ equity in our Consolidated
Balance Sheets for NI Holdings (“Consolidated Balance Sheets”) and its net income or loss is excluded from net income or loss attributed to NI Holdings
in our Consolidated Statements of Operations for NI Holdings (“Consolidated Statements of Operations”).
Direct Auto Insurance Company
Direct Auto is a property and casualty insurance company licensed in Illinois. Direct Auto began writing non-standard automobile coverage in 2007, and
was acquired by NI Holdings on August 31, 2018, via a stock purchase agreement.
Westminster American Insurance Company
Westminster is a property and casualty insurance company licensed in 18 states and the District of Columbia. Westminster is headquartered in Owings
Mills, Maryland and underwrites commercial multi-peril insurance in the states of Delaware, Georgia, Kentucky, Maryland, New Jersey, North Carolina,
Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1,
2020, via a stock purchase agreement.
54
Nodak Insurance markets and distributes its policies through its captive agents, while all other companies utilize the independent agent distribution
channel. Additionally, all of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by AM Best, a global credit rating agency
specializing in the insurance industry.
The same executive management team provides oversight and strategic direction for the entire organization. Nodak Insurance provides common product
oversight, pricing practices, and underwriting standards, as well as underwriting and claims administration, to itself, American West, and Battle Creek.
Primero, Direct Auto, and Westminster personnel manage the day-to-day operations of their respective companies.
2.
Recent Accounting Pronouncements
Prior to December 31, 2022, we were classified as an EGC and elected to use the extended transition period for complying with certain new or revised
financial accounting standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act. However,
beginning on December 31, 2022, we are no longer an EGC and are now unable to delay adoption of these new or revised accounting standards or take
advantage of reduced corporate governance disclosures.
Adopted
Leases
Effective for the year ended December 31, 2022, the Company adopted the updated guidance for leases and elected to utilize a cumulative-effect
adjustment to the opening balance of retained earnings for the year of adoption, if necessary. Accordingly, the Company’s reporting for the comparative
periods prior to adoption continue to be presented in the consolidated financial statements in accordance with previous lease accounting guidance. The
Company also elected to apply all practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption,
including using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or contains a
lease, and whether the lease is an operating or finance lease. The adoption of the updated guidance resulted in the Company recognizing a right-of-use
asset of $1,637 as part of other assets, a lease liability of $1,837 as part of accrued expenses and other liabilities, and an elimination of the $200 deferred
rent liability in the Consolidated Balance Sheet. The cumulative effect adjustment to the opening balance of retained earnings was zero. The adoption of
the updated guidance did not affect the Company’s results of operations or cash flows.
Measurement of Credit Losses on Financial Instruments
In December 2022, the Company adopted amended guidance from the FASB that applies a new credit loss model (current expected credit losses or
“CECL”) for determining credit-related impairments for financial instruments measured at amortized cost and requires an entity to estimate the credit
losses expected over the life of an exposure or pool of exposures. The expected credit losses, and subsequent adjustments to such losses, are recorded
through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset
presented on the Consolidated Balance Sheet at the amount expected to be collected. The updated guidance also amends the previous other-than-temporary
impairment model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance
account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a
security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.
The Company adopted the updated guidance for the year ended December 31, 2022. The adoption of this guidance resulted in an allowance for expected
credit losses of $425 for premiums and agents' balances receivable. Based on the results of the receivable analyses and management’s review of our
available-for-sale fixed income securities, it was determined that no allowance was required for reinsurance recoverables or available-for-sale fixed income
securities at this time.
Income Taxes – Simplifying the Accounting for Income Taxes
In December 2022, the Company adopted amended guidance from the FASB relating to accounting for income taxes. The modifications primarily remove
or amend several exceptions contained in existing guidance to simplify income tax matters. The adoption of this guidance did not materially impact the
Company’s financial position, results of operations, or cash flows.
55
Not Yet Adopted
Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued guidance related to improving disclosures for reportable segments primarily through enhanced disclosures about
significant segment expenses that are provided to the chief operating decision maker (“CODM”). This guidance also requires disclosure of the title and
position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and
deciding how to allocate resources. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods
within fiscal years beginning after December 15, 2024. We are currently evaluating the impact of the new standard on our consolidated financial
statements, which is expected to result in enhanced disclosures.
Improvements to Income Tax Disclosures
In December 2023, the FASB issued guidance related to improving income tax disclosures. This guidance requires that an entity, on an annual basis,
disclose additional income tax information, primarily related to the rate reconciliation and income taxes paid. The guidance is intended to enhance the
transparency and decision usefulness of income tax disclosures. The amendments in this update are effective for annual periods beginning after December
15, 2024. We are currently evaluating the impact of the new standard on our consolidated financial statements, which is expected to result in enhanced
disclosures.
3.
Summary of Significant Accounting Policies
Basis of Consolidation
Our consolidated financial statements, which we have prepared in accordance with GAAP, include our accounts and those of our wholly-owned
subsidiaries, as well as Battle Creek, an entity we control via a surplus note agreement. We have eliminated all significant intercompany accounts and
transactions in consolidation.
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 credit impairments, valuation allowances for deferred income tax assets, deferred policy acquisition costs, as well as
valuation and impairments of goodwill and other intangible assets. 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 continued 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,
56
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 the 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 its participation in the underwriting results of the pool (2% during 2023, 2022, and 2021). For more information, see Part II,
Item 8, Note 11 “Royalties, Dividends, and Affiliations”. 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 and its net income or loss is excluded from net income or loss attributed to NI Holdings in our Consolidated Statement of
Operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market accounts, and certain investments in highly liquid debt instruments. Cost approximates fair value
for these short-term investments.
Investments
The Company’s 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 independent pricing service at the reporting date for those or similar investments. Changes in
unrealized investment gains or losses on the fixed income securities, 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). Changes in unrealized investment gains or losses
on equity securities are reported in net income (loss). Investment income from fixed income securities is recognized when earned, and realized investment
gains (losses) are recognized when investments are sold, the fair value of equity securities change, or credit impairments are recognized.
Fair values are based on quoted market prices or independent pricing services, 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 the 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
investment gains (losses), along with the change in unrealized gains and losses on equity securities. 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. The carrying value of these other invested assets was $2,006 at
December 31, 2023 and $2,005 at December 31, 2022.
Beginning on December 31, 2022, credit losses are recognized through an allowance account. See Part II, Item 8, Note 2 “Recent Accounting
Pronouncements” for additional information. We, along with our investment advisors, frequently review our investment portfolio for declines in fair value
that could be indicative of credit losses. The available-for-sale impairment model requires an estimate of expected credit losses only when the fair value of
the available-for-sale fixed income security is below its amortized cost basis. The Company considers a number of factors when determining if an
allowance for credit losses is necessary including payment and default history, credit spreads, credit ratings and rating actions, and probability of default.
The Company determines the credit loss component of fixed income securities by utilizing discounted cash flow modeling to determine the present value of
the security and comparing the present value with the amortized cost of the security. If the amortized cost is greater than the present value of the expected
cash flows, the difference is considered a credit loss and recognized as an impairment loss in net realized investment gains (losses). Credit impairments are
recognized as an allowance on the Consolidated Balance Sheet with a corresponding adjustment to earnings.
For fixed income securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell
before an anticipated recovery in value, the Company separates the credit loss component of the impairment from the amount related to all other factors and
reports the credit loss component in net realized investment gains (losses). The impairment related to all other factors (non-credit factors) is reported in
other comprehensive income. The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost
basis is not adjusted.
For fixed income securities the Company intends to sell or for which it is more likely than not that the Company will be required to sell before an
anticipated recovery in value, the full amount of the impairment is included in net investment gains (losses). The new cost basis of the investment is the
previous amortized cost basis less the impairment recognized in net investment gains (losses). The new cost basis is not adjusted for any subsequent
recoveries in fair value.
57
The Company reports investment income accrued separately from fixed income investments, available for sale, and has elected not to measure an
allowance for credit losses for investment income accrued. Investment income accrued is written off through net realized investment gains (losses) at the
time the issuer of the bond defaults or is expected to default on payments.
For more information on investment valuation measurements, see Part II, Item 8, Note 5 “Fair Value Measurements”.
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 is comprised of 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).
Premiums and Agents’ Balances Receivable
Premiums and agents’ balances receivable include both direct and agent billed premiums as well as crop notes receivable related to the multi-peril crop and
crop hail insurance.
Accounts billed directly to the policyholder are provided grace payment and cancellation notice periods per state insurance regulations.
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 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.
Beginning on December 31, 2022, the premium and agents’ receivable balances are reported net of an allowance for expected credit losses. See Part II,
Item 8, Note 2 “Recent Accounting Pronouncements” for additional information. We recognized $425 of credit losses for these receivables at the time of
adoption of CECL. Therefore, there was no beginning balance of credit losses as of January 1, 2022, and all 2022 activity was the result of adoption. As a
result of the transition from the previous accounting treatment, we did not record a cumulative effect adjustment to retained earnings at the time of
adoption. Given the nature of these receivables, the Company has elected to use a loss-rate method to determine the expected credit losses. The allowance
is based upon the Company’s ongoing review of amounts outstanding and write-offs. Management may also evaluate current economic conditions and
reasonable/supportable forecasts to adjust this calculation as deemed necessary.
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 typically 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 may differ from these 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
58
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 incurred through the reporting date, 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 potential impact 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 data, 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 file a consolidated federal income tax return which includes NI
Holdings and its wholly-owned subsidiaries.
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. State premium taxes are included as a part of amortization of deferred policy acquisition costs.
State income taxes are reported along with federal income taxes as income tax expense (benefit).
The Company did not have any material uncertain tax positions as of December 31, 2023 and 2022. The Company’s policy is to recognize tax-related
interest and penalties accrued related to unrecognized benefits as a component of income tax expense. 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, 2023 and 2022.
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.
Earnings Per Share
Earnings per share are 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. Unearned shares related to the Company’s ESOP are not considered outstanding until they are released and
allocated to plan participants. Unearned shares related to the Company’s Restricted Stock Units (“RSUs”) and Performance Share Units (“PSUs”) are not
considered outstanding until they are earned by award participants. See Part II, Item 8, Note 12 “Benefit Plans” and Note 18 “Share-Based Compensation”.
59
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. During the normal course of business,
balances for these accounts are often 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 reinsurers, either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts placed on substantial
individual risks. Ceded reinsurance is treated as the risk and liability of the assuming companies.
The ceding of insurance does not legally discharge us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its
obligation.
Amounts recoverable from reinsurers are estimated in a manner consistent with the associated claim liability. Beginning on December 31, 2022, credit
losses are recognized through an allowance account developed using the CECL model. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements”
for additional information. The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in
reinsurer credit standing, disputes, applicable coverage defenses and other relevant factors. Management has concluded that it is not necessary to record an
allowance for expected credit losses related to reinsurance recoverables. All of our significant reinsurance partners are rated “A-” (Excellent) or better by
AM Best, and there is no history of write-offs.
Goodwill and Other Intangibles
Goodwill assets arise from business combinations and consist of the excess of the fair value of consideration paid over the tangible and intangible assets
acquired and liabilities assumed. We evaluate goodwill and other intangible assets for impairment on an annual basis or more frequently if events or
changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed their fair
value.
When performing our goodwill impairment analyses, we typically first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. In making our assessment, we evaluate a number of factors including operating results, key
changes in the reporting unit, business plans, macroeconomic conditions, and industry considerations. Inherent uncertainties exist with respect to these
factors and to our judgment in applying them when we make our assessment, and impairment of goodwill and other intangibles could result from changes
in economic and operating conditions in future periods. We may also choose to bypass the qualitative assessment in any period for any reporting unit and
proceed directly to performing the quantitative assessment.
If our qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount or we choose to bypass
the qualitative assessment, we will perform a quantitative assessment that compares the reporting unit’s carrying value with its estimated fair value. The
determination of the fair value of our reporting units is based on a combination of a market approach that considers benchmark company market multiples,
and an income approach that utilizes discounted cash flows. The cash flows used to determine fair value are dependent on a number of significant
management assumptions such as our expectations of future performance and the expected future economic environment, which are partly based upon our
historical experience. Our estimates are subject to change given the inherent uncertainty in predicting future results. While we believe such assumptions
and estimates are reasonable, the actual results may differ materially from the projected amounts. Should the carrying value exceed the estimated fair value,
a goodwill impairment charge will be recognized in the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the total
goodwill assigned to the reporting unit.
60
For the goodwill arising from the acquisition of Primero in 2014, we performed the annual qualitative assessment as of the beginning of the fourth quarter
of 2023 and concluded there was no impairment of the goodwill. We also did not record any impairments of goodwill for this reporting unit during the
years ended December 31, 2022 or 2021.
For the goodwill arising from the acquisition of Westminster in 2020, we determined that it was appropriate to perform a quantitative assessment during the
fourth quarter of 2023. Based on our quantitative assessment as described above, we concluded that the goodwill related to Westminster was fully impaired
as of December 31, 2023, primarily due to Westminster’s actual and expected future performance being well below initial projections and expectations. We
did not record any impairments of goodwill for this reporting unit during the years ended December 31, 2022 or 2021.
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 Direct Auto trade name was amortized over five years from the August 31, 2018 acquisition/valuation date. The
favorable lease contract and VOBA assets have been fully amortized. We did not record any impairments of the intangible assets for this reporting unit
during the years ended December 31, 2023, 2022 or 2021.
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 and Westminster trade name are being amortized over twenty years and ten years, respectively, from the
January 1, 2020 acquisition/valuation date. The VOBA asset has been fully amortized. We did not record any impairments of the other intangible assets for
this reporting unit during the years ended December 31, 2023, 2022 or 2021.
61
4.
Investments
The amortized cost and estimated fair value of fixed income securities as of December 31, 2023 and 2022, 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
Redeemable preferred stocks
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
Redeemable preferred stocks
Total fixed income securities
$
$
$
$
Cost or
Amortized
Cost
Allowance for
Expected
Credit Losses
December 31, 2023
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
10,998 $
55,769
152,630
66,362
33,532
52,692
4,747
376,730 $
— $
—
—
—
—
—
—
— $
— $
408
442
180
148
142
—
1,320 $
(736) $
(4,716)
(10,856)
(5,379)
(4,241)
(3,805)
(586)
(30,319) $
10,262
51,461
142,216
61,163
29,439
49,029
4,161
347,731
Cost or
Amortized
Cost
Allowance for
Expected
Credit Losses
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
11,174 $
60,342
136,837
53,254
30,837
45,786
4,747
342,977 $
— $
—
—
—
—
—
—
— $
1 $
38
109
85
—
—
—
233 $
(1,008) $
(6,454)
(15,787)
(5,846)
(4,702)
(5,061)
(1,028)
(39,886) $
10,167
53,926
121,159
47,493
26,135
40,725
3,719
303,324
The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below. Actual maturities could differ from
contractual maturities because issuers may have the right to call or prepay these securities.
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
Redeemable preferred stocks
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
Redeemable preferred stocks
Total fixed income securities
62
December 31, 2023
Amortized Cost
Fair Value
$
$
9,612 $
75,794
86,185
47,806
152,586
4,747
376,730 $
9,436
72,602
79,281
42,620
139,631
4,161
347,731
December 31, 2022
Amortized Cost
Fair Value
$
$
10,130 $
81,879
76,648
39,696
129,877
4,747
342,977 $
9,971
77,031
65,966
32,284
114,353
3,719
303,324
Fixed income securities with a fair value of $6,403 at December 31, 2023, and $6,613 at December 31, 2022, were deposited with various state regulatory
agencies as required by law. The Company has not pledged any assets to secure any obligations.
The investment category and duration of the Company’s gross unrealized losses on fixed income securities are shown below. Investments with unrealized
losses are categorized with a duration of greater than 12 months when all positions of a security have continually been in a loss position for at least 12
months.
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
Redeemable preferred stocks
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
Redeemable preferred stocks
Total fixed income securities
Less than 12 Months
Fair
Value
Unrealized
Losses
December 31, 2023
Greater than 12 months
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
— $
5,239
8,018
12,054
2,678
4,463
—
32,452 $
— $
(359)
(93)
(104)
(5)
(18)
—
(579) $
9,018 $
36,194
110,117
33,341
23,713
30,200
4,161
246,744 $
(736) $
(4,357)
(10,763)
(5,275)
(4,236)
(3,787)
(586)
(29,740) $
9,018 $
41,433
118,135
45,395
26,391
34,663
4,161
279,196 $
(736)
(4,716)
(10,856)
(5,379)
(4,241)
(3,805)
(586)
(30,319)
Less than 12 Months
Fair
Value
Unrealized
Losses
December 31, 2022
Greater than 12 months
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
7,078 $
40,213
76,645
21,017
18,932
18,904
3,015
185,804 $
(537) $
(3,554)
(7,944)
(1,805)
(2,674)
(1,522)
(732)
(18,768) $
2,587 $
9,045
39,683
18,519
7,204
21,809
705
99,552 $
(471) $
(2,900)
(7,843)
(4,041)
(2,028)
(3,539)
(296)
(21,118) $
9,665 $
49,258
116,328
39,536
26,136
40,713
3,720
285,356 $
(1,008)
(6,454)
(15,787)
(5,846)
(4,702)
(5,061)
(1,028)
(39,886)
$
$
$
$
We, along with our investment advisors, frequently review our investment portfolio for declines in fair value that could be indicative of credit losses.
Beginning on December 31, 2022, credit losses are recognized through an allowance account. We consider a number of factors when determining if an
allowance for credit losses is necessary, including payment and default history, credit spreads, credit ratings and rating actions, and probability of default.
We determine the credit loss component of fixed income securities by utilizing discounted cash flow modeling to determine the present value of the
security and comparing the present value with the amortized cost of the security. We did not recognize any credit losses for fixed income securities at the
time of adoption of the new credit loss accounting standard or during the year ended December 31, 2023. Therefore, there was no beginning or ending
balance of credit losses for the years ended December 31, 2022 and 2023. See Item II, Part 8, Note 3 “Summary of Significant Accounting Policies” for
additional information.
63
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 investment gains (losses) consisted of the following:
Gross realized gains:
Fixed income securities
Equity securities
Total gross realized gains
Gross realized losses, excluding credit impairment losses:
Fixed income securities
Equity securities
Total gross realized losses, excluding credit impairment losses
Net realized gains
Change in net unrealized gain on equity securities
Net investment gains (losses)
5.
Fair Value Measurements
$
$
$
Year Ended December 31,
2022
2023
2021
11,506 $
1,118
622
579
13,825
3,369
10,456 $
9,226 $
1,485
595
30
11,336
3,516
7,820 $
8,489
1,221
625
4
10,339
3,208
7,131
Year Ended December 31,
2022
2023
2021
1 $
13,974
13,975
(583)
(1,341)
(1,924)
117 $
7,078
7,195
(268)
(5,003)
(5,271)
677
17,453
18,130
(27)
(335)
(362)
12,051
1,924
17,768
$
(9,927)
2,124 $
(15,050)
(13,126) $
(2,289)
15,479
The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Investment securities
available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets or liabilities at
fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-
downs of individual assets. Accounting guidance on fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to
valuation methods used to measure fair value. The three levels of the fair value hierarchy are as follows:
Level 1:
Level 2:
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 2 includes fixed income securities with quoted prices that are traded less frequently than
exchange traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the
industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities but
rather by relying on the securities’ relationship to other benchmark quoted prices.
Level 3:
Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e.,
supported with little or no market activity).
The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when
developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or no
observable market data and, therefore, are based primarily upon the estimates of the Company or other third-parties, are often calculated based on the
characteristics of the asset, the economic and competitive environment, and other such factors. Management uses its best judgment in estimating the fair
value of the Company’s
64
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 we 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 consolidated
financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective
reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including
discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.
The Company uses quoted values and other data provided by an independent pricing service in its process for determining fair values of its investments.
The evaluations of such pricing services represent an exit price and a good faith opinion as to what a buyer in the marketplace would pay for a security in a
current sale. This pricing service provides us with one quote per instrument. For fixed income securities that have quoted prices in active markets, market
quotations are provided. For fixed income securities that do not trade on a daily basis, the independent pricing service prepares estimates of fair value using
a wide array of observable inputs including relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix
pricing. The observable market inputs that the Company’s independent pricing service utilizes may include benchmark yields, reported trades, broker-
dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, and other reference data on markets, industry, and the economy.
Additionally, the independent pricing service uses an option-adjusted spread model to develop prepayment and interest rate scenarios.
Should the independent pricing service be unable to provide a fair value estimate, we would first attempt to obtain a fair value estimate from our third-party
investment advisors who utilize different independent pricing services. If unsuccessful, we would attempt to obtain a non-binding fair value estimate from a
number of broker-dealers and would review this estimate in conjunction with a fair value estimate reported by an independent business news service or
other sources. In instances where only one broker-dealer provides a fair value for a fixed income security, we would use that estimate. In instances where
the Company would be able to obtain fair value estimates from more than one broker-dealer, we would review the range of estimates and select the most
appropriate value based on the facts and circumstances. Should neither the independent pricing service nor a broker-dealer provide a fair value estimate, we
would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs. Accordingly, the
Company classifies such a security as a Level 3 investment.
The fair value estimates of our investments provided by the independent pricing service at each period-end were utilized, among other resources, in
reaching a conclusion as to the fair value of its investments.
Management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures. We also
use information from our third-party investment advisors who utilize different independent pricing services to further validate the reasonableness of the
valuation of our fixed income portfolio. If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair value,
then it will seek to resolve the discrepancy through discussions with the independent pricing service. In its review, management did not identify any such
discrepancies and no adjustments were made to the estimates provided by the independent pricing service for the years ended December 31, 2023, 2022, or
2021. The classification within the fair value hierarchy is then confirmed based on the final conclusions from the pricing review.
The valuation of money market accounts and equity securities are generally based on Level 1 inputs, which use the market-approach valuation technique.
The valuation of certain cash equivalents and our fixed income securities generally incorporates significant Level 2 inputs using the market and income
approach techniques. We may assign a lower level to inputs typically considered to be Level 2 based on our assessment of liquidity and relative level of
uncertainty surrounding inputs. There were no assets or liabilities classified at Level 3 at December 31, 2023 or 2022.
65
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:
$
$
$
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
Redeemable preferred stock
Total fixed income securities
Equity securities:
Common stock
Non-redeemable preferred stock
Total equity securities
Money market accounts and cash equivalents
Total assets at fair value
Fixed income securities:
U.S. Government and agencies
Obligations of states and political subdivisions
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities
Redeemable preferred stocks
Total fixed income securities
Equity securities:
Common stock
Non-redeemable preferred stocks
Total equity securities
Total
Level 1
Level 2
Level 3
December 31, 2023
10,262 $
51,461
142,216
61,163
29,439
49,029
4,161
347,731
25,890
1,877
27,767
25,596
401,094 $
— $
—
—
—
—
—
—
—
25,890
1,877
27,767
19,412
47,179 $
10,262 $
51,461
142,216
61,163
29,439
49,029
4,161
347,731
—
—
—
6,184
353,915 $
Total
Level 1
Level 2
Level 3
December 31, 2022
10,167 $
53,926
121,159
47,493
26,135
40,725
3,719
303,324
50,699
1,694
52,393
— $
—
—
—
—
—
—
—
50,699
1,694
52,393
27,255
79,648 $
10,167 $
53,926
121,159
47,493
26,135
40,725
3,719
303,324
—
—
—
—
303,324 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Money market accounts and cash equivalents
Total assets at fair value
$
27,255
382,972 $
There were no liabilities measured at fair value on a recurring basis at December 31, 2023 or 2022.
6.
Reinsurance
External Reinsurance
The Company’s consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the
acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks
(along with the related written and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The
primary purpose of these agreements is to protect the Company, at a cost, from losses in excess of the amount it is prepared to accept and to protect the
Company’s capital. Our ceded reinsurance is placed either on an automatic basis under general reinsurance contracts known as treaties or through
facultative contracts placed on substantial individual risks. These contracts do not relieve the Company from its obligations to policyholders.
66
During the year ended December 31, 2023, the Company maintained property catastrophe reinsurance protection covering $133,000 in excess of a $20,000
retention. Additionally, per risk excess of loss treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000
for casualty risks, with facultative contracts in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance
agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing 50 points of
cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-
peril crop reinsurance was provided through the FCIC.
During the year ended December 31, 2022, the Company maintained property catastrophe reinsurance protection covering $125,000 in excess of a $15,000
retention. Additionally, per risk excess of loss treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000
for casualty risks, with facultative contracts in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance
agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing 50 points of
cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-
peril crop reinsurance was provided through the FCIC.
During the year ended December 31, 2021, the Company maintained property catastrophe reinsurance protection covering $117,000 in excess of a $10,000
retention. Additionally, per risk excess of loss treaties provided coverage of $4,300 in excess of $700 for property risks and $11,300 in excess of $700 for
casualty risks, with facultative contracts in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance
agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing 50 points of
cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-
peril crop reinsurance was provided through the FCIC.
The Company experienced multiple catastrophe events during 2022 which resulted in reinsurance recoveries of $5,362 as of December 31, 2023. The
Company experienced one catastrophe event during 2021 which resulted in a reinsurance recovery of $5,764 as of December 31, 2023.
For 2024, the Company’s catastrophe retention and retention limit will remain consistent with the prior year, and there were no changes made to limits,
retentions, or attachment points in our other reinsurance contracts.
The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from
reinsurers. Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using the CECL model. See Part II,
Item 8, Note 2 “Recent Accounting Pronouncements” for additional information. Credit loss estimates are made based on periodic evaluation of balances
due from reinsurers, changes in reinsurer credit standing, judgments regarding reinsurers’ solvency, known disputes, reporting characteristics of the
underlying reinsured business, historical experience, current economic conditions, and the state of reinsurer relations in general. Collection risk is mitigated
by entering into reinsurance arrangements only with reinsurers that have strong financial strength ratings. At December 31, 2023, and December 31, 2022,
management has concluded that it is not necessary to record an allowance for expected credit losses related to reinsurance recoverables. All of our
significant reinsurance partners are rated “A-” (Excellent) or better by AM Best, and there is no history of write-offs.
A reconciliation of direct to net premiums on both a written and an earned basis is as follows:
2023
Year Ended December 31,
2022
2021
Premiums
Premiums
Premiums
Premiums
Premiums
Written
Earned
Written
Earned
Written
Direct premium
Assumed premium
Ceded premium
Net premiums
$
$
418,399 $
3,098
(54,848)
366,649 $
401,945 $
3,570
(54,378)
351,137 $
389,706 $
6,299
(46,993)
349,012 $
368,886 $
6,550
(47,146)
328,290 $
67
Premiums
Earned
333,254
8,035
(41,700)
299,589
342,215 $
8,183
(42,629)
307,769 $
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
Year Ended December 31,
2022
2023
2021
$
$
293,978 $
1,140
(50,706)
244,412 $
333,397 $
2,369
(41,334)
294,432 $
280,998
6,899
(71,518)
216,379
If 100% of our ceded reinsurance was cancelled as of December 31, 2023, no ceded commissions would need to be returned to the reinsurers. Reinsurance
contracts are typically effective from January 1 through December 31 each year.
Intercompany Reinsurance Pooling Arrangement
Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement. This
agreement was finalized, approved, and implemented during the fourth quarter of 2020, retroactive to the January 1 effective date. Nodak Insurance is the
lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak Insurance
then retrocedes balances back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool percentages
established in the respective pooling agreement. This arrangement allows each insurance company to rely upon the capacity of the pool’s total statutory
capital and surplus. As a result, they are evaluated by AM Best on a group basis and hold a single combined financial strength rating, long-term issuer
credit rating, and financial size category.
For the years ended December 31, 2023, 2022, and 2021, the pooling share percentages by insurance company 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
7.
Deferred Policy Acquisition Costs
Pool Percentage
66.0%
7.0%
3.0%
2.0%
13.0%
9.0%
100.0%
Expenses directly related to successfully acquired insurance policies, primarily commissions, premium taxes and underwriting costs, are deferred and
amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for
recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation:
Balance, beginning of year
Deferral of policy acquisition costs
Amortization of deferred policy acquisition costs
Balance, end of year
Year Ended December 31,
2022
2023
2021
$
$
29,768 $
87,343
(82,991)
34,120 $
24,947 $
71,624
(66,803)
29,768 $
23,968
65,553
(64,574)
24,947
68
8.
Unpaid Losses and Loss Adjustment Expenses
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
Balance, beginning of year:
Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses
Net balance, beginning of year
Incurred related to:
Current year
Prior years
Total incurred
Paid related to:
Current year
Prior years
Total paid
Balance, end of year:
Liability for unpaid losses and loss adjustment expenses
Reinsurance recoverables on losses
Net balance, end of year
Year Ended December 31,
2022
2023
2021
$
190,459 $
37,575
152,884
139,662 $
21,200
118,462
223,960
20,452
244,412
293,283
1,149
294,432
138,598
90,548
229,146
197,250
62,760
260,010
217,119
48,969
168,150 $
190,459
37,575
152,884 $
$
105,750
8,710
97,040
220,517
(4,138)
216,379
150,278
44,679
194,957
139,662
21,200
118,462
During the year ended December 31, 2023, the Company’s incurred reported losses and loss adjustment expenses included $20,452 of net unfavorable
development on prior accident years, primarily attributable to unfavorable development for the Westminster commercial and Direct Auto non-standard auto
businesses partially offset by favorable development for Battle Creek, American West, and Nodak Insurance. During the year ended December 31, 2022,
the Company’s incurred reported losses and loss adjustment expenses included $1,149 of net unfavorable development on prior accident years, primarily
attributable to unfavorable development for the Westminster commercial business partially offset by favorable development for Battle Creek and Nodak
Insurance. During the year ended December 31, 2021, incurred reported losses and loss adjustment expenses included $4,138 of net favorable development
on prior accident years, primarily attributable to the Direct Auto non-standard auto business.
Changes in unpaid losses and loss adjustment expense reserves are generally the result of ongoing analysis of recent loss development trends. As additional
information becomes known regarding individual claims, original estimates are increased or decreased accordingly.
The tables on the following pages present information, organized by our primary operating segments, about incurred and paid claims development as of
December 31, 2023, 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 arrangement.
The tables include unaudited information about incurred and paid claims development for the years ended December 31, 2014 (a) 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.
69
Private
Passenger
Auto
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2023
$
2014 (1)
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
32,548
—
—
—
—
—
—
—
—
—
2015 (1) 2016 2017 2018 2019 2020 2021 2022
$31,349 $ 30,427 $ 29,099 $ 29,144 $ 29,298 $ 29,479 $ 29,423 $ 29,409 $ 29,415 $
32,438 31,532 30,461 30,503 30,679 30,455 30,379 30,370 30,351
— 40,227 39,260 39,057 39,314 38,535 38,416 38,601 38,566
— 40,779 40,199 40,120 40,427 40,488 40,520 40,471
—
— 44,925 43,428 43,641 43,575 43,807 43,733
—
—
— 53,769 53,328 53,364 52,802 52,749
—
—
—
— 46,247 48,519 47,403 47,174
—
—
—
—
— 57,316 57,176 57,431
—
—
—
—
—
— 66,711 65,132
—
—
—
—
—
—
— 62,357
—
—
—
—
—
—
—
Total $ 467,379
(1)
(5)
24
44
206
329
680
660
1,379
3,753
11,745
11,688
14,325
13,753
14,675
16,540
13,541
15,321
16,146
12,671
(1) Prior years unaudited
Private
Passenger
Auto
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2022
2020
2017
2021
2019
2018
2016
2014 (1) 2015 (1)
2023
$ 22,744 $ 25,727 $ 27,076 $ 27,443 $ 28,281 $ 28,765 $ 29,239 $ 29,407 $ 29,409 $ 29,416
— 23,401 27,171 28,933 29,598 29,795 30,120 30,355 30,355 30,355
— 29,009 35,845 37,307 38,108 37,833 38,173 38,303 38,539
—
— 31,033 37,050 38,331 39,738 40,111 40,294 40,315
—
—
— 34,358 40,213 41,479 42,820 43,074 43,225
—
—
—
— 42,414 48,414 50,370 51,556 52,060
—
—
—
—
— 35,495 42,585 45,670 46,211
—
—
—
—
—
— 42,326 52,256 54,243
—
—
—
—
—
—
— 49,911 59,556
—
—
—
—
—
—
—
— 45,452
—
—
—
—
—
—
—
—
Total $ 439,372
17
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 28,022
All outstanding liabilities prior to 2014, net of reinsurance
70
Non-
Standard
Auto
(Primero)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
(1) Prior years unaudited
2014 (1) 2015 (1) 2016 2017 2018 2019 2020 2021 2022 2023
9,691
9,641
9,655
8,722
$ 7,297 $ 7,619 $ 7,591 $ 7,577 $ 7,612 $ 7,625 $ 7,606 $ 7,606 $ 7,606 $ 7,606 $
9,623
9,974
8,659
— 10,445 11,804 11,763 11,766 11,776 11,780
— 12,264 11,391 11,236 11,221 11,227
—
9,041
—
—
— 10,073 10,016 10,083
—
—
5,780
—
—
—
6,283
—
—
—
$ 90,056
9,622
— 9,967 10,048 10,054 10,033 10,008
— —
8,541
— —
— —
— —
— —
— —
— —
— 9,727 9,806
—
—
—
—
—
—
—
—
9,623
9,976
8,543
9,623
9,974
8,659
—
—
—
—
5,905
—
—
—
8,556
8,936
8,824
9,018
8,654
—
—
—
—
—
4
21
62
171
610
1,838
1,795
1,741
1,470
1,801
1,506
968
1,015
586
611
Non-Standard
Auto
(Primero)
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2014 (1) 2015 (1)
$
3,733 $
—
—
—
—
—
—
—
—
—
6,707 $
5,335
—
—
—
—
—
—
—
—
2016
2022
2021
2018
2019
2017
9,623
9,976
8,506
9,622
9,974
8,460
9,620
9,912
8,204
7,423 $
8,685
5,409
—
—
—
—
—
—
—
2023
2020
7,521 $ 7,579 $ 7,605 $ 7,606 $ 7,606 $ 7,606 $ 7,606
9,623
9,479
9,557
9,974
8,882
9,790
7,660
4,348
8,659
5,492 10,536 11,616 11,730 11,766 11,772
—
6,300 10,007 10,971 11,175 11,224
—
8,882
—
8,657
9,885
—
8,946
5,178
—
3,203
3,636
—
—
Total $ 86,439
—
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 3,617
All outstanding liabilities prior to 2014, net of reinsurance
7,645
4,844
—
—
4,112
—
—
—
—
—
—
—
—
9,623
9,974
8,659
—
—
—
—
71
Non-
Standard
Auto
(Direct
Auto)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2023
2014 (1) 2015 (1) 2016 (1) 2017 (1) 2018 2019 2020 2021 2022
$ 14,010 $ 9,068 $ 6,224 $ 8,381 $ 6,745 $ 6,476 $ 6,672 $ 6,524 $ 6,440 $
6,476 $
— 17,917 14,498 13,043 10,538 10,704 10,945 10,576 10,416 10,718
— 20,547 14,660 13,552 13,956 12,876 12,291 11,973 12,121
—
— 23,376 18,621 15,858 14,648 13,678 13,244 13,565
—
—
— 25,791 22,662 21,980 20,541 20,262 20,961
—
—
—
— 24,932 25,473 24,574 24,879 25,432
—
—
—
—
— 24,036 22,919 23,571 25,616
—
—
—
—
—
— 30,579 30,596 35,254
—
—
—
—
—
—
— 33,609 37,592
—
—
—
—
—
—
—
— 44,132
—
—
—
—
—
—
—
—
Total $ 231,867
—
(1)
(31)
(8)
60
649
1,059
1,748
1,721
15,675
4,776
9,057
11,137
11,720
14,917
10,918
13,348
14,758
12,564
11,389
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2014 (1) 2015 (1) 2016 (1) 2017 (1)
$
2,201 $
—
—
—
—
—
—
—
—
—
3,573 $
2,967
—
—
—
—
—
—
—
—
2022
2020
2018
2021
2019
4,452 $ 5,369 $ 5,781 $ 6,151 $ 6,327 $ 6,364 $ 6,421 $
5,202
3,526
—
—
—
—
—
—
—
2023
6,447
8,327
9,560 10,057 10,176 10,365 10,669
8,559 10,603 11,058 11,519 11,820 12,010
6,981 10,034 11,366 12,098 12,869 13,404
6,034 12,285 15,204 16,759 18,723 20,430
— 10,203 16,214 18,982 21,195 23,691
9,965 15,401 18,503 21,537
—
— 13,767 21,209 27,005
—
— 11,766 24,355
—
—
— 14,664
—
—
—
$ 174,212
0
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 57,655
7,057
6,272
4,385
—
—
—
—
—
—
All outstanding liabilities prior to 2014, net of reinsurance
—
—
—
—
72
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Non-Standard
Auto
(Direct Auto)
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Total
(1) Prior years unaudited
Home and
Farm
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2014 (1) 2015 (1) 2016 2017 2018 2019 2020 2021
2022
2023
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ 36,620 $35,981 $ 35,769 $ 35,591 $ 35,685 $ 35,534 $ 35,497 $ 35,503 $ 35,507 $ 35,765 $
— 32,740 31,804 31,300 31,577 31,446 31,612 31,600 31,601 31,599
— 45,713 44,513 44,945 44,597 44,728 44,745 44,809 44,788
—
— 42,112 41,593 41,882 41,779 41,804 41,640 41,590
—
—
— 42,486 43,840 43,747 43,682 43,712 43,731
—
—
—
— 45,334 45,828 45,471 45,352 45,106
—
—
—
—
— 36,264 35,668 34,656 34,761
—
—
—
—
—
— 53,079 50,322 50,759
—
—
—
—
—
—
— 112,049 105,409
—
—
—
—
—
—
—
— 57,205
—
—
—
—
—
—
—
—
Total $ 490,713
10
—
2
4
42
43
73
324
1,204
3,253
5,247
3,924
6,354
4,955
4,596
5,521
4,114
5,378
8,304
3,920
(1) Prior years unaudited
Home and
Farm
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2017
2020
2022
2019
2018
2021
2016
2014 (1) 2015 (1)
2023
$ 32,208 $ 35,199 $ 35,218 $ 35,371 $ 35,482 $ 35,482 $ 35,485 $ 35,503 $ 35,502 $ 35,505
— 27,204 30,165 30,350 30,573 31,383 31,597 31,597 31,599 31,599
— 37,655 44,942 44,270 44,529 44,583 44,650 44,690 44,736
—
— 34,657 38,928 40,441 40,941 41,414 41,504 41,506
—
—
— 37,880 42,814 43,178 43,549 43,634 43,688
—
—
—
— 38,718 43,253 44,119 44,847 45,053
—
—
—
—
— 29,273 33,988 34,243 34,688
—
—
—
—
—
— 41,096 48,890 50,117
—
—
—
—
—
—
— 92,482 101,957
—
—
—
—
—
—
—
— 46,607
—
—
—
—
—
—
—
—
Total $ 475,456
—
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 15,256
All outstanding liabilities prior to 2014, net of reinsurance
73
Crop
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2023
2014 (1) 2015 (1) 2016 2017 2018 2019 2020 2021 2022
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ 22,688 $20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $
— 13,813 13,849 13,849 13,849 13,849 13,849 13,849 13,849 13,849
— 20,209 19,582 19,487 19,487 19,487 19,487 19,487 19,487
—
— 33,734 34,181 34,181 34,181 34,181 34,181 34,181
—
—
— 12,506 11,730 11,730 11,730 11,730 11,730
—
—
—
— 33,913 37,629 37,629 37,629 37,630
—
—
—
—
— 28,688 28,759 28,759 28,760
—
—
—
—
—
— 28,574 28,144 28,146
—
—
—
—
—
—
— 21,834 20,745
—
—
—
—
—
—
—
— 12,728
—
—
—
—
—
—
—
—
Total $ 227,589
—
—
—
—
—
1
1
3
11
23
2,268
2,427
2,806
2,968
2,147
3,101
2,442
2,726
2,021
1,516
(1) Prior years unaudited
Crop
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2022
2020
2017
2021
2018
2019
2016
2014 (1) 2015 (1)
2023
$ 17,789 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333 $ 20,333
— 12,866 13,849 13,849 13,849 13,849 13,849 13,849 13,849 13,849
— 16,444 19,487 19,487 19,487 19,487 19,487 19,487 19,487
—
— 32,768 34,181 34,181 34,181 34,181 34,181 34,181
—
—
— 10,737 11,730 11,730 11,730 11,730 11,730
—
—
—
— 26,208 37,629 37,629 37,629 37,629
—
—
—
—
— 27,952 28,759 28,759 28,759
—
—
—
—
—
— 29,424 28,143 28,143
—
—
—
—
—
—
— 20,279 20,735
—
—
—
—
—
—
—
— 10,202
—
—
—
—
—
—
—
—
Total $ 225,048
—
2,541
All outstanding liabilities prior to 2014, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $
74
Commercial
(Westminster)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2023
2014 (1) 2015 (1) 2016 (1) 2017 (1) 2018 (1) 2019 (1) 2020 2021 2022
$ 4,385 $ 4,274 $ 4,286 $ 4,428 $ 4,450 $ 4,443 $ 4,445 $ 4,443 $ 4,443 $
4,290
4,218
6,353
6,200
7,855
6,249
4,293
6,091
6,838
— 3,082 3,258 4,019
— — 4,661 5,719
— 5,552
— —
—
— —
—
— —
—
— —
—
— —
—
— —
—
— —
4,238
6,248
7,347
4,294
6,354
7,905
4,443 $
4,317
6,396
7,900
— 10,358 11,177 12,414 12,769 13,100 12,893
— 11,658 13,051 14,564 15,370 15,764
—
— 14,774 14,063 15,404 16,327
—
—
— 30,911 35,525 39,720
—
—
—
— 45,647 58,372
—
—
—
—
— 39,751
—
—
—
—
—
Total $ 205,883
—
—
—
38
57
981
1,181
6,836
5,773
12,423
272
278
264
320
480
423
490
626
586
309
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2014 (1) 2015 (1) 2016 (1) 2017 (1) 2018 (1) 2019 (1)
$
3,330 $
—
—
—
—
—
—
—
—
—
3,921 $
2,126
—
—
—
—
—
—
—
—
2020
2022
2021
4,231
6,112
6,576
2023
4,443
4,151 $ 4,269 $ 4,395 $ 4,403 $ 4,410 $ 4,443 $ 4,443 $
4,317
4,287
4,290
4,206
2,794
6,396
6,346
6,338
5,693
3,172
5,865
—
7,612
7,512
7,206
9,472 10,591 11,911 12,136 12,607
—
9,925 11,056 12,993 14,627
6,294
—
8,146 10,853 12,171 14,136
—
—
— 16,269 25,105 28,660
—
—
— 15,817 40,527
—
—
—
— 17,134
—
—
—
—
Total $ 150,459
—
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $ 55,425
3,332
5,289
3,573
—
—
—
—
—
—
3,950
5,630
4,927
6,494
—
—
—
—
—
All outstanding liabilities prior to 2014, net of reinsurance
75
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Commercial
(Westminster)
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Commercial
(non-
Westminster)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
At December 31, 2023
Total IBNR
Plus
Expected
Development
on Reported
Claims
Cumulative
Number of
Reported
Claims
2023
2014 (1) 2015 (1) 2016 2017 2018 2019 2020 2021 2022
Accident
Year
(in thousands, except claim
counts)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ 2,180 $ 1,732 $ 1,694 $ 1,675 $ 1,650 $ 1,650 $ 1,650 $ 1,650 $ 1,650 $ 1,650 $
1,580
2,511
2,494
1,554
2,793
2,382
2,611
3,904
1,418
Total $ 22,897
— 1,695 1,643 1,637 1,582 1,580 1,580 1,580 1,580
— 2,683 2,526 2,515 2,516 2,512 2,512 2,511
—
— — 2,530 2,513 2,510 2,497 2,494 2,494
—
— 1,652 1,576 1,609 1,555 1,554
— —
—
— 2,607 2,782 2,777 2,793
—
— —
—
— 2,293 2,054 2,371
—
—
— —
—
— 2,726 2,507
—
—
—
— —
—
— 4,536
—
—
—
—
— —
—
—
—
—
—
—
—
— —
—
—
—
—
—
—
—
—
13
62
298
163
135
288
167
147
191
132
203
225
148
(1) Prior years unaudited
Commercial
(non-
Westminster)
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
(1) Prior years unaudited
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
2014 (1) 2015 (1)
$
1,782 $
—
—
—
—
—
—
—
—
—
1,925 $
1,274
—
—
—
—
—
—
—
—
2016
1,563 $
1,796
1,822
—
—
—
—
—
—
—
2017
2019
2021
2018
2022
2023
2020
1,640 $ 1,650 $ 1,650 $ 1,650 $ 1,650 $ 1,650 $ 1,650
1,580
1,818
2,511
2,806
2,494
1,530
1,554
—
2,793
—
2,382
—
2,372
—
3,843
—
954
—
Total $ 22,133
—
764
1,580
2,511
2,494
1,554
2,793
2,362
2,345
2,846
—
1,580
2,512
2,497
1,213
1,917
—
—
—
—
1,580
2,512
2,497
1,240
2,712
1,542
—
—
—
1,580
2,512
2,494
1,554
2,717
1,892
1,687
—
—
1,580
2,498
2,465
1,049
—
—
—
—
—
All outstanding liabilities prior to 2014, net of reinsurance
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance $
76
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:
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
December 31, 2023
$
28,037
3,617
57,655
18,205
3,884
97,934
764
7,023
217,119
15
—
—
2,949
1,343
42,509
—
2,153
48,969
Net liability for unpaid losses and loss adjustment expenses
$
168,150
The following table presents required supplementary information about average historical claims duration as of December 31, 2023:
Years
Private Passenger Auto
Non-Standard Auto
(Primero)
Non-Standard Auto
(Direct Auto)
Home and Farm
Crop
Commercial (Westminster)
Commercial (non-
Westminster)
1
50.8% 21.4%
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
9
2
0.2%
3
11.7%
4
6.7%
7
1.3%
5
4.3%
6
2.8%
8
0.8%
75.7% 17.5%
4.4%
1.5%
0.6%
0.2%
0.1%
—
—
10
—
—
43.0% 25.0% 12.7%
9.0%
67.4% 14.6%
—
—
5.4%
4.6%
—
41.7% 22.1% 17.6% 10.2%
100.0%
5.2%
1.3%
—
4.8%
4.4%
0.6%
—
1.6%
2.6%
0.5%
—
1.5%
1.6%
0.1%
—
0.5%
0.1%
0.6%
—
—
—
1.3%
—
—
78.9% 14.7%
3.7%
2.0%
0.7%
—
—
—
—
—
77
9.
Property and Equipment
Property and equipment consisted of the following:
Cost:
Land
Building and improvements
Electronic data processing equipment
Furniture and fixtures
Automobiles
Gross cost
Accumulated depreciation
Total property and equipment, net
December 31,
2023
2022
Estimated Useful
Life
$
$
1,403 $
14,538
1,441
2,953
1,319
21,654
(11,757)
9,897 $
1,403
14,271
1,310
2,919
1,310
21,213
(11,370)
9,843
indefinite
10 – 43 years
5 – 7 years
5 – 7 years
2 – 3 years
Depreciation expense was $826, $708, and $694 during the years ended December 31, 2023, 2022, and 2021, respectively.
10.
Goodwill and Other Intangibles
The following table presents the carrying amount of the Company’s goodwill and related impairment by segment:
Goodwill, beginning of year
Impairment recognized during the period
Goodwill, end of year
Year Ended December 31,
2023
2022
Non-standard
Auto
Commercial
Total
Non-standard
Auto
Commercial
Total
$
$
2,628 $
—
2,628 $
6,756 $
(6,756)
— $
9,384 $
(6,756)
2,628 $
2,628 $
—
2,628 $
6,756 $
—
6,756 $
9,384
—
9,384
Based on the qualitative analysis performed for the goodwill related to our non-standard auto segment as of the beginning of the fourth quarter of 2023, we
concluded that goodwill was not impaired. We performed a quantitative assessment of the goodwill related to the Westminster acquisition during the fourth
quarter of 2023, which is allocated to our commercial segment, and concluded that the goodwill was fully impaired as of December 31, 2023, resulting in a
non-cash impairment charge of $6,756 in the current year. The determination of the fair value of the reporting unit was based on a combination of a market
approach that considered benchmark company market multiples, and an income approach that utilized discounted cash flows. Under the income approach,
we determined fair value based on the present value of the most recent cash flow projections for the reporting unit as of the date of the analysis and
calculated a terminal value utilizing a terminal growth rate. The significant assumptions under this approach include, among others: income projections,
new product introductions, customer behavior, competitor pricing, operating expenses, the discount rate, and the terminal growth rate. The cash flows used
to determine fair value are dependent on a number of significant management assumptions such as our expectations of future performance and the expected
future economic environment, which are partly based upon our historical experience. Our estimates are subject to change given the inherent uncertainty in
predicting future results. Additionally, the discount rate and the terminal growth rate are based on our judgment of the rates that would be utilized by a
hypothetical market participant.
We determined during our reviews that there were no impairments of goodwill for any reporting units during the years ended December 31, 2022 and 2021.
78
Other Intangible Assets
The following table presents the carrying amount of the Company’s other intangible assets:
December 31, 2023
Subject to amortization:
Trade names
Distribution network
Total subject to amortization
Not subject to amortization – state insurance licenses
Total
December 31, 2022
Subject to amortization:
Trade names
Distribution network
Total subject to amortization
Not subject to amortization – state insurance licenses
Total
Gross Carrying
Amount
Accumulated
Amortization
Net
$
$
748 $
6,700
7,448
1,900
9,348 $
448 $
1,489
1,937
—
1,937 $
Gross Carrying
Amount
Accumulated
Amortization
Net
$
$
748 $
6,700
7,448
1,900
9,348 $
365 $
1,117
1,482
—
1,482 $
300
5,211
5,511
1,900
7,411
383
5,583
5,966
1,900
7,866
We determined during our reviews that there were no impairments of other indefinite-lived intangible assets or finite-lived intangible assets during the
years ended December 31, 2023, 2022, and 2021.
Amortization expense was $455, $472, and $472 during the years ended December 31, 2023, 2022, and 2021, respectively.
Other intangible assets that have finite lives, including trade names and distribution networks, are amortized over their useful lives. As of December 31,
2023, the estimated amortization of other intangible assets with finite lives for the next five years in the period ending December 31, 2028, and thereafter is
as follows:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total other intangible assets with finite lives
11.
Royalties, Dividends, and Affiliations
North Dakota Farm Bureau
$
$
422
422
422
422
422
3,401
5,511
Nodak Insurance was 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 policies. Royalties paid to
the NDFB were $1,603, $1,453, and $1,369 during the years ended December 31, 2023, 2022, and 2021, respectively. Royalty amounts payable of $131
and $119 were accrued as a liability to the NDFB at December 31, 2023 and 2022, respectively.
Dividends
State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurance
subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their domiciliary
insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital requirements that may further affect their ability to pay
dividends. Our insurance subsidiaries statutory capital and surplus at
79
December 31, 2023, exceeded the amount of statutory capital and surplus necessary to satisfy risk-based capital requirements by a significant margin.
There is no amount available for payment of dividends from Nodak Insurance to NI Holdings during 2024 without the prior approval of the North Dakota
Insurance Department. Prior to its payment of any dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota
Insurance Department. This notice must be provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend
and 10 days prior to the payment of an ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if
an insurance company is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity.
The Nodak Insurance Board of Directors declared and paid dividends of $3,000 to NI Holdings during the year ended December 31, 2022. No dividends
were declared or paid by Nodak Insurance during the years ended December 31, 2023 and 2021.
Direct Auto re-domesticated from Illinois to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Direct Auto to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $90 as of December 31, 2023. No dividends were declared or paid by Direct Auto during the years ended December 31, 2023,
2022, or 2021.
Westminster re-domesticated from Maryland to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Westminster to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $1,200 as of December 31, 2023. No dividends were declared or paid by Westminster during the years ended December 31,
2023, 2022 or 2021.
Battle Creek Mutual Insurance Company
The following tables disclose the standalone balance sheets and statements of operations of Battle Creek, prior to intercompany eliminations, to illustrate
the impact of including Battle Creek in our Consolidated Balance Sheets and Consolidated Statements of Operations:
Assets:
Cash and cash equivalents
Investments
Premiums and agents’ balances receivable
Deferred policy acquisition costs
Reinsurance recoverables on losses (2)
Accrued investment income
Income tax recoverable
Deferred income taxes
Property and equipment
Other assets
Total assets
Liabilities:
Unpaid losses and loss adjustment expenses
Unearned premiums
Notes payable (1)
Pooling payable (1)
Reinsurance losses payable (2)
Accrued expenses and other liabilities
Total liabilities
Equity:
Non-controlling interest
Total equity
Total liabilities and equity
(1)
(2)
Amount fully eliminated in consolidation.
Amount partly eliminated in consolidation.
80
$
$
$
December 31,
2023
2022
2,621 $
15,394
5,953
682
6,918
85
225
706
306
97
32,987 $
4,276 $
3,269
3,000
5,932
13,275
477
30,229
2,758
2,758
5,008
13,350
5,422
595
12,597
59
225
780
319
52
38,407
6,453
2,959
3,000
8,337
13,125
2,303
36,177
2,230
2,230
$
32,987 $
38,407
Revenues:
Net premiums earned
Fee and other income (expense)
Net investment income
Net investment gains (losses)
Total revenues
Expenses:
Losses and loss adjustment expenses
Amortization of deferred policy acquisition costs
Other underwriting and general expenses
Total expenses
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
12.
Benefit Plans
Year Ended December 31,
2022
2023
2021
$
$
7,023 $
37
320
1
7,381
4,888
1,660
588
7,136
245
(5)
250 $
6,566 $
(30)
113
(20)
6,629
5,889
1,336
564
7,789
(1,160)
(481)
(679) $
5,992
(11)
49
2
6,032
4,328
1,291
470
6,089
(57)
27
(84)
Nodak Insurance sponsors a 401(k) plan with an automatic and matching contribution for eligible employees at Nodak Insurance, Primero, and Direct
Auto. Nodak Insurance also contributes an additional elective amount of employee compensation as a profit-sharing contribution for eligible employees.
Westminster also sponsors a separate 401(k) plan. American West and Battle Creek have no employees. The Company reported expenses related to these
plans totaling $806, $693, and $1,365 during the years ended December 31, 2023, 2022, and 2021, respectively.
All fees associated with the plans are deducted from the eligible employee accounts.
The Company also offers a non-qualified deferred compensation plan to key executives of the Company (as designated by the Board of Directors). The
Company’s policy is to fund the plan by amounts that represent the excess of the maximum contribution allowed by the Employee Retirement Income
Security Act over the key executives’ allowable 401(k) contribution. The plan also allows employee-directed deferral of key executives’ compensation or
incentive payments. The Company reported expenses related to this plan totaling $368, $325, and $914 during the years ended December 31, 2023, 2022,
and 2021, respectively.
In connection with our IPO in March 2017, the Company established its ESOP, which is intended to be an employee stock ownership plan within the
meaning of Internal Revenue Code Section 4975(e)(7) and invests solely in common stock of the Company.
Upon establishment of the ESOP, Nodak Insurance loaned $2,400 to the ESOP’s related trust (the “ESOP Trust”). The ESOP loan was for a period of ten
years, bearing interest at the long-term Applicable Federal Rate effective on the closing date of the offering (2.79% annually). The ESOP Trust used the
proceeds of the loan to purchase shares in our IPO, which resulted in the ESOP Trust owning approximately 1.0% of the Company’s authorized shares. The
ESOP has purchased the shares for investment and not for resale.
The shares purchased by the ESOP Trust in the offering are held in a suspense account as collateral for the ESOP loan. Nodak Insurance makes semi-annual
cash contributions to the ESOP in amounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance. While
the ESOP makes two loan payments per year, a pre-determined portion of the shares are released from the suspense account and allocated to participant
accounts at the end of the calendar year. This release and allocation occurs on an annual basis over the ten-year term of the ESOP loan. Nodak Insurance
has a lien on the shares of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance. If the
ESOP is terminated as a result of a change in control of the Company, the ESOP may be required to pay the costs of terminating the plan.
It is anticipated that the only assets held by the ESOP will be shares of the Company’s common stock. Participants in the ESOP cannot direct the
investment of any assets allocated to their accounts. The ESOP participants are employees of Nodak Insurance. The employees of Primero, Direct Auto,
and Westminster do not participate in the ESOP.
Each employee of Nodak Insurance automatically becomes a participant in the ESOP if such employee is at least 21 years old, has completed a minimum of
one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period. Employees are not permitted to make any
contributions to the ESOP. Participants in the ESOP receive annual reports from the
81
Company showing the number of shares of common stock of the Company allocated to the participants’ accounts and the market value of those shares. The
shares are allocated to participants based on compensation as provided for in the ESOP.
In connection with the establishment of the ESOP, the Company created a contra-equity account on the Consolidated Balance Sheet equal to the ESOP’s
basis in the shares. The basis of those shares was set at $10.00 per share as part of the IPO. As shares are released from the ESOP suspense account, the
contra-equity account is credited, which reduces the impact of the contra-equity account on the Company’s Consolidated Balance Sheet over time. The
Company records compensation expense related to the shares released, equal to the number of shares released from the suspense account multiplied by the
average market value of the Company’s stock during the period.
The Company recognized compensation expense related to the ESOP of $322, $380, and $460 during the years ended December 31, 2023, 2022, and 2021,
respectively.
Through December 31, 2023, the Company had released and allocated 170,205 ESOP shares to participants, with a remainder of 69,795 ESOP shares in
suspense at December 31, 2023. Using the Company’s year-end market price of $12.99 per share, the fair value of the unearned ESOP shares was $907 at
December 31, 2023.
13.
Line of Credit
NI Holdings has a $3,000 line of credit with Wells Fargo Bank, N.A. The terms of the line of credit include a floating interest rate of 2.50% above the daily
simple secured overnight financing rate. There were no outstanding amounts during the years ended December 31, 2023, 2022, or 2021. This line of credit
is scheduled to expire on December 13, 2024.
14.
Income Taxes
The components of our provision for income tax expense (benefit) were as follows:
Current income tax expense (benefit)
Federal
State
Total current
Deferred income tax expense (benefit)
Total income tax expense (benefit)
Year Ended December 31,
2022
2023
2021
$
$
2,567 $
278
2,845
(1,882)
963 $
(11,280) $
(2)
(11,282)
(3,972)
(15,254) $
3,930
354
4,284
(1,310)
2,974
The provision for income tax expense (benefit) differs from the amount that would be computed by applying the statutory federal rate to income (loss)
before income taxes as a result of the following:
Income (loss) before income taxes
Expected provision for federal income taxes at 21%
State income taxes, net of federal impact
Tax-exempt interest
Dividends received deduction
Section 832(b)(5)(B) proration amount
Compensation-related expenses
Goodwill impairment
Research and development credit
Change in valuation allowance
Other
Total income tax expense (benefit)
Year Ended December 31,
2022
2023
2021
(4,263) $
(69,029) $
11,306
(895) $
(14,496) $
90
(204)
(118)
77
27
1,419
(59)
(189)
815
963 $
(2)
(187)
(147)
78
213
—
(70)
(314)
(329)
(15,254) $
2,374
474
(197)
(122)
72
326
—
(30)
77
—
2,974
$
$
$
82
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 (benefit) 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 (benefit) from continuing operations. The valuation allowance against certain deferred income tax assets was $505, $694, and $1,008 at
December 31, 2023, 2022, and 2021, respectively.
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, 2023 and 2022, were as follows:
Deferred income tax assets:
Unearned premium
Unpaid losses and loss adjustment expenses
Net unrealized losses on investments
Net operating loss carryovers
Deferred compensation
Other
Total deferred income tax assets
Deferred income tax liabilities:
Deferred policy acquisition costs
Intangibles
Other
Total deferred income tax liabilities
Net deferred income tax asset
Valuation allowance
Deferred income tax asset, net
December 31,
2023
2022
7,371 $
1,681
6,421
851
579
1,269
18,172
7,693
1,243
318
9,254
8,918
(505)
8,413 $
6,725
1,430
6,586
1,194
500
1,465
17,900
6,766
1,356
79
8,201
9,699
(694)
9,005
$
$
At December 31, 2023 and 2022, we had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No
interest and penalties were recognized during the years ended December 31, 2023, 2022, or 2021.
At December 31, 2023 and 2022, the Company, other than Battle Creek and Westminster, had no income tax related carryforwards for net operating losses,
alternative minimum tax credits, or capital losses.
Battle Creek, which files its federal income tax returns on a stand-alone basis, had net operating loss carryforwards of $3,756 and $3,963 at December 31,
2023 and 2022, respectively. The net operating loss carryforwards expire through 2032.
Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had $1,270 of net operating loss carryforward
at December 31, 2022. This net operating loss carryforward expired in 2023.
83
15.
Leases
Primero leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in 2028, and leases a facility in Las Vegas, Nevada on
a month-to-month basis. Direct Auto leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029. Nodak Insurance leases
a facility in Fargo, North Dakota under a non-cancellable operating lease expiring in 2024. In addition, Nodak Insurance leases server equipment under a
non-cancellable finance lease expiring in 2026.
Effective for the year ended December 31, 2022, the Company adopted the updated guidance for leases. See Part II, Item 8, Note 2 “Recent Accounting
Pronouncements” for additional information. We determine whether a contract is or contains a lease at the inception of the contract. A contract will be
deemed to be or contain a lease if the contract conveys the right to control and directs the use of identified property or equipment for a period of time in
exchange for consideration. We generally must also have the right to obtain substantially all of the economic benefits from the use of the property and
equipment. Lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To
determine the present value of lease payments not yet paid, we estimate incremental borrowing rates based on the floating interest rate on our Line of
Credit with Wells Fargo Bank, N.A. at the lease commencement date, as rates are not implicitly stated in most leases. Lease liabilities are included in
accrued expenses and other liabilities and right-of-use assets are included in other assets in the Consolidated Balance Sheet.
There were expenses of $407, $391, and $250 related to these leases during the years ended December 31, 2023, 2022, and 2021, respectively.
Additional information regarding the Company’s leases are as follows:
As of and For the Year Ended December 31,
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Finance lease cost
Total lease cost
Other information on leases:
Cash payments included in operating cash flows from operating leases
Cash payments included in operating cash flows from finance leases
Cash payments included in financing cash flows from finance leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in exchange for new finance lease liabilities
Weighted average discount rate – operating leases
Weighted average discount rate – finance leases
Weighted average remaining lease term in years – operating leases
Weighted average remaining lease term in years – finance leases
$
$
$
2023
2022
389
$
$
$
14
4
18
407
408
4
16
247
319
3.94%
8.50%
5.3 years
2.8 years
391
—
—
—
391
340
—
—
—
—
3.25%
—
6.3 years
—
The following table presents the contractual maturities of the Company’s lease liabilities for each of the five years in the period ending December 31, 2028,
and thereafter, reconciled to our lease liability at December 31, 2023:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total undiscounted lease payments
Less: present value adjustment
Lease liability at December 31, 2023
84
Operating Leases Finance Leases
381 $
$
346
351
356
331
178
1,943
184
1,759 $
120 $
120
100
—
—
—
340
36
304 $
$
Total
501
466
451
356
331
178
2,283
220
2,063
16.
Contingencies
We have been named as a defendant in various lawsuits relating to our insurance operations. Contingent liabilities arising from litigation, income taxes, and
other matters are not considered to be material to our financial position.
17.
Common and Preferred Stock
Common Stock
Changes in the number of common stock shares outstanding were 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,
2022
21,219,808
(269,160)
101,292
24,315
21,076,255
2023
21,076,255
(548,549)
47,887
24,315
20,599,908
2021
21,318,638
(225,205)
102,060
24,315
21,219,808
The changes in the number of common shares outstanding excludes certain non-forfeitable stock award shares that are included in the weighted average
common shares outstanding used in basic earnings per common share calculations. The net loss per diluted common share for the year ended December 31,
2023, excluded the weighted average effects of 76,532 shares of stock awards since the impacts of these potential shares of common stock were anti-
dilutive. The net loss per diluted common share for the year ended December 31, 2022, excluded the weighted average effects of 155,463 shares of stock
awards since the impacts of these potential shares of common stock were anti-dilutive.
On May 4, 2020, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding
common stock. During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this
authorization. During the nine months ended September 30, 2021, we repurchased an additional 144,110 shares of our common stock for $2,762 to close
out this authorization.
On August 11, 2021, our Board of Directors approved an authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding
common stock. During the year ended December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this
authorization. During the year ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this
authorization.
On May 9, 2022, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding
common stock. During the year ended December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this
authorization. During the year ended December 31, 2023, we completed the repurchase of 548,549 shares of our common stock for $7,278, including the
applicable excise tax discussed below. At December 31, 2023, $2,052 remains available under this authorization.
The cost of this treasury stock is a reduction of shareholders’ equity within our Consolidated Balance Sheets.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative
minimum tax (“AMT”) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases, subject to certain
adjustments. The effective date of these provisions was January 1, 2023. The Company is not currently subject to the AMT based on our reported GAAP
earnings for the past three years. For periods subsequent to the effective date of the IRA, the cost of treasury stock acquired will include any 1% excise tax
imposed by the IRA. The Company does not expect the IRA to have a material impact on the Company’s financial position and results of operations.
Preferred Stock
The Company’s Articles of Incorporation provide authority to issue up to five million shares of preferred stock. No preferred shares are issued or
outstanding.
85
18.
Share-Based Compensation
The NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) is designed to promote the interests of the Company and its shareholders by aiding the
Company in attracting and retaining employees, officers, consultants, independent contractors, advisors, and non-employee directors capable of assuring
the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to afford
such persons an opportunity to acquire an ownership interest in the Company, thereby aligning the interests of such persons with the Company’s
shareholders.
The Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights, dividend
equivalents, and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent contractors
designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made under the Plan are based upon,
among other things, a participant’s level of responsibility and performance within the Company.
The total aggregate number of shares of common stock that may be issued under the Plan shall not exceed 1,000,000 shares, subject to adjustments as
provided in the Plan. No eligible participant may be granted any awards for more than 100,000 shares in the aggregate in any calendar year, subject to
adjustment in accordance with the Plan. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in
any calendar year is limited to $1,000 in value. Directors who are not also employees of the Company may not be granted awards denominated in shares
that exceed $150 in any calendar year.
Restricted Stock Units
The Compensation Committee has awarded RSUs to non-employee directors and select executives. RSUs are promises to issue actual shares of common
stock at the end of a vesting period. The RSUs granted to executives under the Plan were based on salary and vest 20% per year over a five-year period,
while RSUs granted to non-employee directors vest 100% on the date of the next annual meeting of shareholders following the grant date. Dividend
equivalents on RSUs are accrued during the vesting period and paid in cash at the end of the vesting period but are subject to forfeiture until the underlying
shares become vested. Participants do not have voting rights with respect to RSUs.
The Company recognizes stock-based compensation costs for RSUs based on the grant date fair value. The compensation costs are normally expensed over
the vesting periods to each vesting date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain
retirement criteria and the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are
currently estimated.
A summary of the Company’s outstanding and unearned RSUs is presented below:
Units outstanding and unearned at January 1, 2021
RSUs granted during 2021
RSUs earned during 2021
Units outstanding and unearned at December 31, 2021
RSUs granted during 2022
RSUs earned during 2022
Units outstanding and unearned at December 31, 2022
RSUs granted during 2023
RSUs earned during 2023
Units outstanding and unearned at December 31, 2023
86
Weighted-Average
Grant-Date
Fair Value
Per Share
RSUs
115,780 $
58,700
(66,100)
108,380
59,600
(52,620)
115,360
85,000
(53,780)
146,580 $
15.27
18.76
15.77
16.86
17.61
17.39
17.00
13.76
16.32
15.37
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,
2022
2023
2021
1,095 $
(249)
846 $
952 $
(216)
736 $
872 $
915 $
1,065
(242)
823
1,042
$
$
$
At December 31, 2023, there was $891 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a
weighted-average period of 1.63 years.
Performance Share Units
The Compensation Committee has awarded PSUs to select executives. PSUs are promises to issue actual shares of common stock at the end of a vesting
period, if certain performance conditions are met. The PSUs granted to employees under the Plan were based on salary and include a three-year adjusted
book value cumulative growth target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s
continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid in cash at the
end of the performance period in accordance with the level of performance achieved but are subject to forfeiture until the underlying shares become vested.
Participants do not have voting rights with respect to PSUs.
The Company recognizes stock-based compensation costs for PSUs based on the grant date fair value over the performance period of the awards. Estimated
forfeitures are included in the determination of compensation costs. The current cost estimates represent the Company’s forecasted performance against
cumulative growth targets.
A summary of the Company’s outstanding PSUs is presented below:
Units outstanding at January 1, 2021
PSUs granted during 2021 (at target)
PSUs earned during 2021
Performance adjustment (1)
Forfeitures
Units outstanding at December 31, 2021
PSUs granted during 2022 (at target)
PSUs earned during 2022
Performance adjustment (1)
Forfeitures
Units outstanding at December 31, 2022
PSUs granted during 2023 (at target)
PSUs earned during 2023
Performance adjustment (1)
Forfeitures
Units outstanding at December 31, 2023
(1) Represents the change in PSUs issued based upon the attainment of performance goals established by the Company.
87
Weighted-Average
Grant-Date
Fair Value
Per Share
PSUs
174,600 $
64,600
(70,363)
24,300
(2,537)
190,600
61,800
(86,684)
31,200
(6,916)
190,000
87,400
—
(63,600)
—
213,800 $
15.15
18.64
16.25
16.25
16.25
16.06
18.10
15.21
15.21
15.21
17.00
13.85
—
14.26
—
16.53
The following table shows the impact of PSU activity to the Company’s financial results:
PSU compensation expense (benefit)
Income tax expense (benefit)
PSU compensation expense (benefit), net of income taxes
Total grant-date fair value of vested PSUs at end of period
Year Ended December 31,
2022
2023
2021
206 $
(47)
159 $
(1,022) $
232
(790) $
— $
1,319 $
1,344
(305)
1,039
1,143
$
$
$
The cost estimates for PSU grants represent initial target awards until we can reasonably forecast the financial performance of each PSU award grant. As of
December 31, 2023, the previously recognized compensation expense related to the PSU awards granted during 2022 was eliminated due to the Company's
expectation that the threshold performance goal will not be met. The compensation expense related to the PSU awards granted during 2021 was previously
eliminated. The actual number of shares to be issued at the end of each performance period will range from 0% to 150% of the initial target awards.
At December 31, 2023, there was $828 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a
weighted-average period of 2.16 years.
19.
Allowance for Expected Credit Losses
Premiums Receivable
Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using the new CECL model. The adoption of this
guidance resulted in an allowance for expected credit losses of $425 for premiums and agents' balances receivable as of December 31, 2022. See Part II,
Item 8, Note 2 “Recent Accounting Pronouncements” for additional information. The following table presents the balances of premiums and agents’
receivable balances, net of the allowance for expected credit losses as of December 31, 2023, and the changes in the allowance for expected credit losses
for the year ended December 31, 2023.
Year Ended
December 31, 2023
Premiums and
Agents’ Balances
Receivable, Net of
Allowance for
Expected Credit
Losses
Allowance for
Expected Credit
Losses
Balance, beginning of period
$
62,173 $
Current period charge for expected credit losses
Write-offs of uncollectible premiums receivable
Balance, end of period
$
74,058 $
88
425
335
358
402
20.
Segment Information
We have six reportable operating segments, which consist of private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop
insurance, commercial insurance, and all other (which primarily consists of assumed reinsurance and our excess liability business). We operate only in the
U.S., and no single customer or agent provides 10 percent or more of our revenues. The following tables provide available information of these segments
for the years ended December 31, 2023, 2022, and 2021.
For purposes of evaluating profitability of the non-standard auto segment, we combine the policy fees paid by the insured with the underwriting gain or loss
as its primary measure. As a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in the tables below. The
remaining fee and other income amounts are not allocated to any segment.
We do not assign or allocate all line items in our Consolidated Statement of Operations or Consolidated Balance Sheet to our operating segments. Those
line items include investment income, net investment gains (losses), fee and other income excluding non-standard auto, and income tax expense (benefit)
within the Consolidated Statement of Operations. For the Consolidated Balance Sheet, those items include cash and investments, property and equipment,
other assets, accrued expenses and other liabilities, income taxes recoverable or payable, and shareholders’ equity.
89
Private
Passenger
Auto
Non-Standard
Auto
Home and
Farm
Crop
Commercial All Other
Total
Year Ended December 31, 2023
Direct premiums earned
Assumed premiums earned
Ceded premiums earned
Net premiums earned
$
87,431 $
—
(4,071)
83,360
88,170 $
—
(410)
87,760
93,130 $
—
(9,741)
83,389
45,272 $
2,262
(21,717)
25,817
82,590 $
—
(18,114)
64,476
5,352 $
1,308
(325)
6,335
401,945
3,570
(54,378)
351,137
Direct losses and loss adjustment
expenses
Assumed losses and loss
adjustment expenses
Ceded losses and loss adjustment
expenses
Net losses and loss adjustment
expenses
59,385
63,041
52,455
17,669
99,677
1,751
293,978
—
819
—
—
787
—
353
1,140
—
(1,520)
(7,663)
(40,932)
(1,410)
(50,706)
60,204
63,041
50,935
10,793
58,745
694
244,412
Gross margin
23,156
24,719
32,454
15,024
5,731
5,641
106,725
Underwriting and general expenses
Underwriting gain (loss)
24,497
(1,341)
37,373
(12,654)
24,702
7,752
6,262
8,762
24,307
(18,576)
1,649
3,992
118,790
(12,065)
Fee and other income
1,293
(11,361)
1,978
Goodwill impairment charge
—
—
—
—
(6,756)
—
(6,756)
Net investment income
Net investment gains (losses)
Income (loss) before income
taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to
non-controlling interest
Net income (loss) attributable to
NI Holdings, Inc.
Operating Ratios:
Loss and loss adjustment
expenses ratio
Expense ratio
Combined ratio
Balances at December 31, 2023:
$
Premiums and agents’ balances
receivable
Deferred policy acquisition
costs
Reinsurance recoverables on
losses
Receivable from Federal Crop
Insurance Corporation
Goodwill and other intangibles
Unpaid losses and loss
adjustment expenses
Unearned premiums
10,456
2,124
(4,263)
963
(5,226)
250
$
(5,476)
72.2%
29.4%
101.6%
71.8%
42.6%
114.4%
61.1%
29.6%
90.7%
41.8%
24.3%
66.1%
91.1%
37.7%
128.8%
11.0%
26.0%
37.0%
69.6%
33.8%
103.4%
24,152 $
19,853 $
9,755 $
89 $
19,487 $
722 $
74,058
5,834
11,966
8,005
—
7,871
444
34,120
15
—
—
—
2,949
1,343
42,509
2,153
48,969
—
2,728
—
—
17,404
—
—
7,311
—
—
17,404
10,039
28,037
35,367
61,272
36,426
18,205
48,210
3,884
—
98,698
41,374
7,023
2,723
217,119
164,100
90
Private
Passenger
Auto
Non-Standard
Auto
Home and
Farm
Crop
Commercial All Other
Total
Year Ended December 31, 2022
Direct premiums earned
Assumed premiums earned
Ceded premiums earned
Net premiums earned
$
80,410 $
—
(2,805)
77,605
67,178 $
—
(267)
66,911
88,143 $
—
(9,762)
78,381
53,214 $
2,254
(20,747)
34,721
74,764 $
—
(13,333)
61,431
5,177 $
4,296
(232)
9,241
368,886
6,550
(47,146)
328,290
Direct losses and loss adjustment
expenses
Assumed losses and loss
adjustment expenses
Ceded losses and loss adjustment
expenses
Net losses and loss adjustment
expenses
66,250
39,400
114,195
27,146
82,817
3,589
333,397
—
—
—
634
—
1,735
2,369
(830)
—
(6,372)
(8,362)
(25,601)
(169)
(41,334)
65,420
39,400
107,823
19,418
57,216
5,155
294,432
Gross margin
12,185
27,511
(29,442)
15,303
4,215
4,086
33,858
Underwriting and general expenses
Underwriting gain (loss)
21,601
(9,416)
26,889
622
23,070
(52,512)
3,009
12,294
22,173
(17,958)
2,292
1,794
99,034
(65,176)
Fee and other income
Net investment income
Net investment gains (losses)
Income (loss) before income
taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to
non-controlling interest
Net income (loss) attributable to
NI Holdings, Inc.
Operating Ratios:
Loss and loss adjustment
expenses ratio
Expense ratio
Combined ratio
Balances at December 31, 2022:
$
Premiums and agents’ balances
receivable
Deferred policy acquisition
costs
Reinsurance recoverables on
losses
Receivable from Federal Crop
Insurance Corporation
Goodwill and other intangibles
Unpaid losses and loss
adjustment expenses
Unearned premiums
831
1,453
1,453
7,820
(13,126)
(69,029)
(15,254)
(53,775)
(679)
$
(53,096)
84.3%
27.8%
112.1%
58.9%
40.2%
99.1%
137.6%
29.4%
167.0%
55.9%
8.7%
64.6%
93.1%
36.1%
129.2%
55.8%
24.8%
80.6%
89.7%
30.2%
119.9%
20,669 $
14,884 $
9,388 $
381 $
16,138 $
713 $
62,173
5,040
9,378
7,376
—
7,561
413
29,768
1,440
—
5,732
589
29,018
796
37,575
—
—
—
2,761
—
—
15,462
—
—
14,489
—
—
15,462
17,250
27,439
30,721
46,231
29,301
27,989
44,957
2,145
—
78,053
40,506
8,602
3,028
190,459
148,513
91
Private
Passenger
Auto
Non-Standard
Auto
Home and
Farm
Crop
Commercial All Other
Total
Year Ended December 31, 2021
Direct premiums earned
Assumed premiums earned
Ceded premiums earned
Net premiums earned
$
76,749 $
—
(4,216)
72,533
58,842 $
—
(257)
58,585
84,102 $
—
(10,310)
73,792
43,541 $
2,106
(18,799)
26,848
65,104 $
—
(7,819)
57,285
4,916 $
5,929
(299)
10,546
333,254
8,035
(41,700)
299,589
Direct losses and loss adjustment
expenses
Assumed losses and loss
adjustment expenses
Ceded losses and loss adjustment
expenses
Net losses and loss adjustment
expenses
61,358
34,453
59,380
79,177
45,621
1,009
280,998
—
—
—
617
—
6,282
6,899
(1,637)
—
(7,235)
(51,963)
(10,842)
159
(71,518)
59,721
34,453
52,145
27,831
34,779
7,450
216,379
Gross margin
12,812
24,132
21,647
(983)
22,506
3,096
83,210
Underwriting and general expenses
Underwriting gain (loss)
20,516
(7,704)
22,770
1,362
22,122
(475)
8,212
(9,195)
20,000
2,506
2,669
427
96,289
(13,079)
Fee and other income
Net investment income
Net investment gains (losses)
Income (loss) before income
taxes
Income tax expense (benefit)
Net income (loss)
Net income (loss) attributable to
non-controlling interest
Net income (loss) attributable to
NI Holdings, Inc.
Operating Ratios:
Loss and loss adjustment
expenses ratio
Expense ratio
Combined ratio
Balances at December 31, 2021:
$
Premiums and agents’ balances
receivable
Deferred policy acquisition
costs
Reinsurance recoverables on
losses
Goodwill and other intangibles
Unpaid losses and loss
adjustment expenses
Unearned premiums
Payable to Federal Crop
Insurance Corporation
1,280
2,642
1,775
7,131
15,479
11,306
2,974
8,332
(84)
$
8,416
82.3%
28.3%
110.6%
58.8%
38.9%
97.7%
70.7%
30.0%
100.7%
103.7%
30.6%
134.3%
60.7%
34.9%
95.6%
70.6%
25.3%
95.9%
72.2%
32.1%
104.3%
19,039 $
8,143 $
8,914 $
— $
14,687 $
669 $
51,452
4,949
5,978
7,271
—
6,328
421
24,947
1,001
—
26,390
28,820
—
2,810
3,467
—
43,515
18,679
19,161
42,399
6,953
—
6,002
—
8,722
14,912
1,057
—
21,200
17,722
32,924
34,672
11,670
3,219
139,662
127,789
—
—
—
4,962
—
—
4,962
92
21.
Statutory Net Income (Loss), 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, 2023, 2022, and
2021:
Nodak Insurance:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
American West:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
Primero:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
Battle Creek:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
Direct Auto:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
Westminster:
Statutory capital and surplus
Statutory unassigned surplus
Statutory net income (loss)
2023
2022
2021
$
176,783 $
171,783
7,839
175,673 $
170,673
(29,978)
221,761
216,761
5,311
15,423
9,422
(38)
8,585
(675)
(136)
6,047
3,047
146
32,843
29,843
90
21,328
16,328
1,200
14,957
8,956
(3,228)
8,677
(582)
(1,211)
5,660
2,660
(1,189)
32,054
29,054
(6,074)
20,090
15,090
(3,861)
18,400
12,399
(54)
10,138
879
127
6,821
3,821
(77)
37,960
34,960
6,451
24,706
19,706
1,723
State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurance
subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their domiciliary
insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital requirements that may further affect their ability to pay
dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2023 and 2022 exceeded the amount of statutory capital and surplus
necessary to satisfy risk-based capital requirements by a significant margin.
Amounts available for distribution in 2024 to Nodak Insurance as dividends from its insurance subsidiaries without prior approval of insurance regulatory
authorities are $134 from American West and Primero. No dividends were paid to Nodak Insurance from either entity during the years ended December 31,
2023, 2022, or 2021.
There is no amount available for payment of dividends from Nodak Insurance to NI Holdings during 2024 without the prior approval of the North Dakota
Insurance Department. Prior to its payment of any dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota
Insurance Department. This notice must be provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend
and 10 days prior to the payment of an ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if
an insurance company is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity.
No dividends were declared or paid by Nodak Insurance during the years ended December 31, 2023 and 2021. The Nodak Insurance Board of Directors
declared and paid dividends of $3,000 to NI Holdings during the year ended December 31, 2022.
93
Direct Auto re-domesticated from Illinois to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Direct Auto to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $90 as of December 31, 2023. No dividends were declared or paid by Direct Auto during the years ended December 31, 2023,
2022, or 2021.
Westminster re-domesticated from Maryland to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. The
amount available for payment of dividends from Westminster to NI Holdings during 2024 without the prior approval of the North Dakota Insurance
Department is approximately $1,200 as of December 31, 2023. No dividends were declared or paid by Westminster during the years ended December 31,
2023, 2022 or 2021.
22.
Subsequent Event
As of January 2, 2024, the North Dakota Secretary of State approved the conversion of Battle Creek Mutual Insurance Company from a mutual
insurance company to a stock insurance company. In accordance with the approved plan of conversion, the name of Battle Creek Mutual Insurance
Company has become Battle Creek Insurance Company.
As of the conversion date, the outstanding principal of the surplus note due from Battle Creek Mutual Insurance Company to Nodak Insurance
Company was $3,000,000. There was no accrued interest as of the conversion date. Battle Creek Insurance Company has issued 300,000 shares of its
common stock to Nodak Insurance Company at a $10.00 per share par value and has become a 100% wholly-owned subsidiary of Nodak Insurance
Company. The surplus note is considered paid in full as of the conversion date.
We are currently in the process of finalizing the accounting for this transaction, which will be reflected in the consolidated financial statements for the
three months ended March 31, 2024, to be included in the first quarter 2024 Form 10-Q.
94
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 Rules 13a-15(b) and 15d-15(b) under the Exchange Act) as of December 31, 2023. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered
by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed in our periodic
reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and
that such material information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions
regarding required disclosures. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the
objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. 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”). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
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 at December 31, 2023, and that our consolidated financial statements we include in this 2023 Annual
Report 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.
Mazars USA LLP, our independent registered public accounting firm, has issued an audit report on the effectiveness of our internal control over financial
reporting as of December 31, 2023. This audit report appears in Part II, Item 8 “Financial Statements and Supplementary Data” of this 2023 Annual Report.
Changes in Internal Control over Financial Reporting
In the ordinary course of business, we periodically review our system of internal control over financial reporting to identify opportunities to improve our
controls and increase efficiency, while ensuring that we maintain an effective internal control environment. We continued this initiative during the annual
period ending December 31, 2023, in support of the audit of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, which resulted in various enhancements to our internal control over financial reporting.
Item 9B.
Other Information
10b5-1 Trading Plans
During the fourth quarter of 2023, none of our directors or executive officers (as defined in Rule 16a-1(f) under the Exchange Act)
adopted or terminated any “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a) of
Regulation S-K).
Adoption of 2024 Short-Term Cash Incentive Plan
On February 29, 2024, the Company’s Board of Directors approved the 2024 Short-Term Cash Incentive Plan (the “STIP”). Certain key employees,
including employees who are employed to serve as executive officers, participate in the STIP as determined by the
95
Compensation Committee. The STIP will be administered by the Compensation Committee as authorized by the Board. Participants are eligible to receive
cash bonuses based on the achievement of certain specified metrics, including based on the Company’s combined ratio, direct written premium growth, and
a measurable goal set by the Chief Executive Officer, depending on the individual participant.
The foregoing summary of the STIP does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the STIP, which is
attached as Exhibit 10.18 to this report and is incorporated by reference herein.
Performance Share Unit Agreement
On February 29, 2024, the Company’s Board of Directors adopted a form of Adjusted Return on Equity Performance Share Unit Agreement (the “PSU
Agreement”) for PSU awards granted under the 2020 Stock and Incentive Plan. Each PSU Agreement will set forth the maximum number of PSUs to be
earned, assuming achievement of the relevant adjusted return on equity over the measurement period commencing on January 1, 2024 and ending on
December 31, 2026.
Achievement of the Company’s objectives relating to adjusted return on equity during the measurement period will determine the actual number of PSUs to
be earned. The target number of PSUs will be divided into thirds, with one third assigned to each of the three fiscal years in the measurement period. The
number of PSUs that will be earned for a fiscal year in the measurement period will be determined based on the Company’s achievement of adjusted return
on equity goals for the applicable fiscal year. A PSU earned for a given fiscal year shall vest if the participant remains in service to the Company through
the end of the measurement period (subject to the exceptions described below). Each PSU earned and vested will be settled in one share of the Company’s
common stock. The Compensation Committee will certify performance following the measurement period no later than March 15, 2027.
If the participant dies while in service with the Company prior to the last day of the measurement period, then the number of PSUs earned for completed
fiscal years at the time of death, together with one-third of the target number of PSUs for each fiscal year not completed at the time of death, shall vest and
become immediately payable. If the participant’s service with the Company is terminated due to the participant’s disability, retirement, or involuntary
termination due to a position elimination or reorganization (each a “qualifying termination”), before the last day of the measurement period, the PSUs will
remain outstanding until the last day of the measurement period and the participant will have a fully vested interest in a pro rata number of the earned PSUs
as of the last day of the measurement period. If a change in control occurs after a qualifying termination but prior to the end of the measurement period, the
measurement period shall end upon the change in control, and the participant will have a vested interest in a pro rata number of the earned PSUs as of the
last day of the measurement period (using the target number of PSUs for any fiscal year not completed as of the change in control). If a change in control
occurs while the participant is in service to the Company, the PSUs earned for fiscal years completed as of the change in control, together with one-third of
the target number of PSUs for each fiscal year not completed as of the change in control, will be earned and converted into time-based RSUs. If such RSUs
are assumed in connection with the change in control, then the RSUs will become fully vested if the participant remains in service with the Company until
December 31, 2026, dies while in service, resigns at retirement age, or terminates their employment due to disability or involuntary termination due to
position elimination or reorganization. If the participant’s service with the Company is involuntarily terminated without cause or if the participant resigns
for good reason within 24 months following a change in control but prior to December 31, 2026, any RSUs that remain unvested will vest in full and
become non-forfeitable as of the date of such termination.
The foregoing summary does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the PSU Agreement, which is
attached as Exhibit 10.17 to this report and is incorporated by reference herein.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
96
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 10, 2024 relating to our Annual
Meeting of Shareholders that we will hold on May 21, 2024 (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 2023 Annual Report. 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.
97
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
4.1
4.2
10.1
10.2
10.3#
10.4#
10.5#
10.6
10.7
10.8
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)
Articles of Amendment to the Articles of Incorporation, dated May 24, 2023. (10)
Amended and Restated Bylaws of NI Holdings, Inc., dated May 24, 2023. (10)
Form of certificate evidencing shares of common stock of NI Holdings, Inc. (1)
Description of Securities Registered Under Section 12 of the Exchange Act (6)
2017 NI Holdings, Inc. Equity Incentive Plan (4)
Nodak Mutual Insurance Company Nonqualified Deferred Compensation Plan (1)
Employment Agreement dated as of April 28, 2016, between Michael J. Alexander and Nodak Mutual Insurance Company
and NI Holdings, Inc. (1)
Amended and Restated Employment Agreement dated as of August 8, 2023, between Seth C. Daggett and Nodak Insurance
Company and NI Holdings, Inc. (7)
Employment Agreement dated as of April 28, 2016, between Patrick W. Duncan and Nodak Mutual Insurance Company and
NI Holdings, Inc. (1)
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)
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)
10.12
Form of Time-Based Restricted Stock Unit Agreement for Non-Employee Directors (5)
98
10.13
10.14#
10.15#
10.16#
NI Holdings, Inc. 2020 Stock and Incentive Plan (5)
Form of Time-Based Restricted Stock Unit Agreement for Executives (8)
Form of NI Holdings, Inc. Growth in Book Value Per Share Performance Share Unit Agreement (8)
2022 NI Holdings, Inc. Short-Term Incentive Bonus (9)
10.17#*
Form of NI Holdings, Inc. Adjusted Return on Equity Performance Share Unit Agreement
10.18#*
2024 NI Holdings, Inc. Short-Term Incentive Bonus
21.1*
23.1*
31.1*
31.2*
32*
97*
Subsidiaries of NI Holdings, Inc.
Consent of Mazars USA LLP, Fort Washington, PA, PCAOB ID 339
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.
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.
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.
NI Holdings, Inc. Incentive Compensation Recovery Policy, adopted December 1, 2023.
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.
(1) Filed as an exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on October 11, 2016, and
incorporated herein by reference.
(2) Filed as an exhibit to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on
November 14, 2016, and incorporated herein by reference.
(3) Filed as an exhibit to Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on
January 12, 2017, and incorporated herein by reference.
(4) 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
reference.
99
(5) Filed as an exhibit to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on May 29, 2020, and incorporated herein by reference.
(6) Filed as an exhibit to the Company’s Form 10-K (File No. 001-37973) filed with the SEC on March 10, 2021, and incorporated herein by reference.
(7) Filed as Exhibit 10.1 to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on August 8, 2023, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company’s Form 10-K (File No. 001-37973) filed with the SEC on March 9, 2022, and incorporated herein by reference.
(9) Filed as an exhibit to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on May 6, 2022, and incorporated herein by reference.
(10) Filed as an exhibit to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on May 25, 2023, and incorporated herein by reference.
Item 16.
Form 10-K Summary
None.
100
Schedule I – Condensed financial information of registrant – NI Holdings, Inc.
Condensed Balance Sheets
Assets:
Cash and cash equivalents
Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at December 31, 2023 and
$0 at December 31, 2022)
Equity securities, at fair value
Total cash and investments
Income tax recoverable
Accrued investment income
Investment in wholly-owned subsidiaries
Deferred income taxes
Total assets
Liabilities:
Accrued expenses and other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
101
December 31,
2023
$
308 $
2022
3,791
1,013
6,211
11,015
946
2
239,110
1,088
252,161
810
13
1,131
844
1
246,360
427
248,763 $
1,122 $
1,122
1,184
1,184
247,641
248,763 $
250,977
252,161
Condensed Statements of Operations
Year Ended December 31,
2022
2023
2021
Revenues:
Net investment income
Net investment gains (losses)
Total revenues
Expenses:
Other underwriting and general expenses
Total expenses
$
Income (loss) before income taxes and equity in undistributed net income (loss) of subsidiaries
Income tax expense (benefit)
Income (loss) before equity in undistributed net income (loss) of subsidiaries
(122) $
(217)
(339)
4,612
4,612
(4,951)
(111)
(4,840)
143 $
(492)
(349)
3,002
3,002
(3,351)
(1,124)
(2,227)
Equity in undistributed net income (loss) of subsidiaries
Net income (loss) attributable to NI Holdings, Inc.
$
(636)
(5,476) $
(50,869)
(53,096) $
Condensed Statements of Comprehensive Income
396
2,119
2,515
4,543
4,543
(2,028)
(156)
(1,872)
10,288
8,416
Net income (loss) attributable to NI Holdings, Inc.
Other comprehensive income (loss), net of income taxes:
Unrealized gain (loss) on investments
Unrealized gain (loss) attributed to subsidiaries
Other comprehensive income (loss), net of income taxes
Comprehensive income (loss)
102
Year Ended December 31,
2022
2023
2021
$
(5,476) $
(53,096) $
8,416
15
7,887
7,902
2,426 $
(165)
(34,358)
(34,523)
(87,619) $
(346)
(7,257)
(7,603)
813
$
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income (loss) attributable to NI Holdings, Inc.
Adjustments to reconcile net income (loss) attributable to NI Holdings, Inc. to net cash flows
from operating activities:
$
Year Ended December 31,
2022
2023
2021
(5,476) $
(53,096) $
8,416
Equity in undistributed net income of subsidiaries
Other
Net adjustments
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
Net cash flows from investing activities
Cash flows from financing activities:
Dividend from subsidiaries
Purchase of treasury stock
Installment payment on Westminster consideration payable
Issuance of vested award shares
Net cash flows from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
636
2,603
3,239
(2,237)
223
6,863
—
(882)
6,204
—
(7,278)
—
(172)
(7,450)
50,869
359
51,228
(1,868)
9,942
4,278
—
(2,023)
12,197
3,000
(4,180)
(13,333)
(768)
(15,281)
(3,483)
(4,952)
3,791
8,743
Cash and cash equivalents at end of period
$
308 $
3,791 $
(10,288)
1,159
(9,129)
(713)
10,103
7,306
(808)
(4,512)
12,089
—
(4,316)
(6,667)
(488)
(11,471)
(95)
8,838
8,743
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 no cash dividends from its subsidiaries during the years ended December 31, 2023 and 2021. A cash dividend of $3,000 was
received from Nodak Insurance during the year ended December 31, 2022.
103
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 15, 2024.
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 15, 2024, by the following persons on
behalf of the registrant and in the capacities indicated.
Signature
Capacity
Date
President and Chief Executive Officer (Principal Executive Officer),
March 15, 2024
/s/ Michael J. Alexander
Michael J. Alexander
Director
/s/ Seth C. Daggett
Seth C. Daggett
/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/ Prakash Mathew
Prakash Mathew
/s/ Jeffrey R. Missling
Jeffrey R. Missling
Chief Financial Officer (Principal Financial Officer and Principal
March 15, 2024
Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
104
March 15, 2024
March 15, 2024
March 15, 2024
March 15, 2024
March 15, 2024
March 15, 2024
March 15, 2024
Exhibit 10.17
NI HOLDINGS, INC.
Adjusted Return on Equity Performance Share Unit Agreement
Name of Participant: [___________]
Target No. of Performance Share Units Covered:
[___________]
Maximum No. of Performance Share Units Covered:
[___________]
Date of Grant:
[___________]
THIS PERFORMANCE SHARE UNIT AGREEMENT (this “Agreement”) governs the Stock Unit Award granted by NI HOLDINGS, INC., a
North Dakota corporation (the “Company”) to the above-named individual (the “Participant”), in accordance with and subject to the provisions of the
Company’s 2020 Stock and Incentive Plan (the “Plan”). A copy of the Plan has been made available to the Participant. Unless the context indicates
otherwise, capitalized terms that are not defined in this Agreement shall have the meaning set forth in the Plan.
1. Grant of Performance Share Units.
a) In accordance with the Plan, and effective as of the Date of Grant specified above, the Company has granted to the Participant
the number of Performance Share Units specified at the beginning of this Agreement (collectively, the “Performance Share Units,” and each a
“Performance Share Unit.”). Each Performance Share Unit represents the right to receive a share of Common Stock (a “Share”) and dividend equivalent
amounts corresponding to the Share, subject to the terms and conditions of this Agreement and the Plan.
b) The Performance Share Units granted to the Participant shall be credited to an account in the Participant’s name. This account
shall be a record of bookkeeping entries only and shall be utilized solely as a device for the measurement and determination of the number of Shares to be
issued to or in respect of the Participant pursuant to this Agreement. Performance Share Units may not be transferred by the Participant without the
Committee’s prior written consent other than by will or the laws of descent and distribution.
2. Earned and Vested Performance Share Units.
a) The target number of Performance Share Units specified at the beginning of this Agreement shall be divided into thirds
(33.33%), with one third assigned to each of the three fiscal years in the Measurement Period. The number of Performance Share Units that will be earned
for a fiscal year in the Measurement Period shall be determined by reference to the Company’s Adjusted Return on Equity for that fiscal year as shown in
Exhibit 1, by taking the percentage earned for the fiscal year and multiplying the percentage times one third of the target number of Performance Share
Units. However, except as provided in paragraphs 2(c) through 2(e) below, the Participant must remain in continuous service with the Company or an
Affiliate from the Date of Grant until the last day of the entire Measurement Period in order to vest in the Performance Share Units earned for each of the
three fiscal years in the Measurement Period.
b) As soon as practicable after the end of the Measurement Period, but in all events no later than March 15, 2027 (the
“Determination Date”), the Committee shall certify the number of Performance Share Units (if any) that are earned and vested pursuant to the terms and
conditions hereof, and the Company shall cause the Shares issuable in connection with the vesting of any such Performance Share Units to be issued in
accordance with Section 3; provided, however, that if the Measurement Period ends on account of the Participant’s death or a Change in Control, the
Committee’s determination and certification shall be necessary solely with respect to fiscal years completed at the time of the Participant’s death or a
Change in Control.
c) If the Participant dies while in service with the Company or an Affiliate prior to the last day of the Measurement Period, then
the number of Performance Share Units earned for completed fiscal years at the time of death, together with one third of the target number of Performance
Share Units for each fiscal year not completed at the time of death, shall vest and become immediately payable.
105
d) If the Participant remains in continuous service with the Company or an Affiliate from the Date of Grant until the date of a
Qualifying Termination that occurs before the last day of the Measurement Period, then (i) the Performance Share Units will remain outstanding until the
last day of the Measurement Period, (ii) the number of earned Performance Share Units shall be determined in accordance with Section 2(a) (except, if the
Measurement Period ends due to a Change in Control, then the number of Performance Share Units earned for completed fiscal years at the time of the
Change in Control, together with one third of the target number of Performance Share Units for each fiscal year not completed at the time of the Change in
Control, shall be earned) and (iii) the Participant will have a fully vested and non-forfeitable interest in a pro rata number of the earned Performance Share
Units as of the last day of the Measurement Period. The pro rata number of earned Performance Share Units that vest shall be determined by multiplying
the total number of earned Performance Share Units by a fraction, the numerator of which is the number of full and partial calendar months of the
Participant’s service with the Company or an Affiliate from the first day of the Measurement Period to the date of a Qualifying Termination and the
denominator of which is the number of full calendar months in the Measurement Period. A partial month of service shall count as a full month.
e) If the Participant remains in continuous service with the Company or an Affiliate from the Date of Grant until a Change in
Control that occurs before the last day of the Measurement Period, then the Performance Share Units earned for fiscal years completed as of the Change in
Control, together with one third of the target number of Performance Share Units for each fiscal year not completed as of the Change in Control, shall be
earned and converted into time-based Restricted Stock Units. If the Participant’s Restricted Stock Units are assumed (or substituted or replaced with an
award of equivalent value), then the converted Restricted Stock Units shall become fully vested if the Participant remains in continuous service with the
Company or an Affiliate until December 31, 2026 or dies while in service or terminates on account of Disability or Involuntary Termination Due to
Position Elimination or Reorganization. If the Participant resigns at or after Retirement Age, the Restricted Stock Units shall continue to vest and become
payable as of December 31, 2026. In addition, if the Participant is involuntarily terminated without Cause or resigns for Good Reason within twenty-four
(24) months following the Change in Control but prior to December 31, 2026, any Restricted Stock Units (or replacement award) that remains unvested
will vest in full and become non-forfeitable as of the date of such termination. Notwithstanding the foregoing, if the Participant’s Restricted Stock Units are
neither assumed nor substituted or replaced with similar rights (or cash equivalent value thereof), then any unvested Restricted Stock Units will vest in full
and become non-forfeitable upon the Change in Control.
f) Any Performance Share Units that do not vest pursuant to this Agreement shall be forfeited without consideration therefor.
3. Issuance and Settlement.
a) After any Performance Share Units vest in accordance with Section 2, the Company shall cause to be issued to the Participant,
or to the Participant’s designated beneficiary or estate in the event of the Participant’s death, one Share in payment and settlement of each vested
Performance Share Unit, subject to applicable required tax withholding. The Committee shall cause the Shares issuable in connection with the vesting of
any such Performance Share Units to be issued as of the Determination Date (except, in cases where there is no determination, Shares shall be issued within
sixty (60) days of vesting), and the Participant shall have no power to affect the timing of such issuance. Such issuance shall be evidenced by a stock
certificate or appropriate entry on the books of the Company or a duly authorized transfer agent of the Company and shall be in complete settlement and
satisfaction of such vested Performance Share Units.
b) Notwithstanding the foregoing, if the Participant has attained or will attain Retirement Age prior to the last day of the
Measurement Period under this Agreement, such Units shall be treated as “deferred compensation” subject to section 409A of the Internal Revenue Code
(the “Code”). In such case, the following special provisions shall apply to the payment of the underlying Shares:
(i) if any Performance Share Units vest and become payable on account of a Change in Control, the Performance Share
Units shall not become payable (even though non-forfeitable) unless the Change in Control constitutes a “change in control event” as defined in Treasury
Regulations promulgated under section 409A of the Code; and
(ii) if any Performance Share Units vest and become payable on account of the Participant’s (A) Involuntary Termination
Due to Position Elimination or Reorganization or (B) involuntary termination without Cause or resignation for Good Reason on or after a Change in
Control, the Performance Share Units shall not become payable (even though non-forfeitable) unless the termination constitutes a “separation from service”
as defined in Treasury Regulations promulgated under section 409A of the Code. In addition, if the Participant is a Specified Employee, payment on
account of separation from service hereunder shall be made as of the date that is six months following the Participant’s separation from service (or, if
earlier, upon the Participant’s death).
(i) delivering cash (including check, draft, money order or wire transfer made payable to the order of the Company) or
c) The Participant may elect to satisfy any applicable required tax arising in relation to the Performance Share Units by
106
(ii) having the Company withhold a portion of the Shares otherwise to be delivered having a Fair Market Value equal to the amount of such tax liability
(subject to any limitations required under applicable financial accounting standards to avoid liability accounting for the Award). In the case of clause (ii),
the Company will not deliver to the Participant any fractional Shares (or equivalent cash value) remaining after reduction for taxes; rather, any remaining
fractional Shares will be cancelled without payment.
4. Shareholder Rights. The Performance Share Units do not entitle the Participant to any rights of a shareholder of the Company.
Notwithstanding the foregoing, the Participant shall accumulate an unvested right to payment of cash dividend equivalents on the Shares underlying
Performance Share Units if cash dividends are declared by the Company on the Shares on or after the Date of Grant. Such dividend equivalents will be in
an amount of cash per Performance Share Unit equal to the cash dividend paid with respect to one Share, subject to applicable required tax withholding.
The Participant shall be entitled solely to payment of accumulated dividend equivalents with respect to the number of Performance Share Units equal to the
number of Shares that become issuable to the Participant pursuant to this Agreement. Dividend equivalents will be paid to the Participant as soon as
administratively possible following the date that the Shares are issued to the Participant. The Participant shall not be entitled to dividend equivalents with
respect to dividends declared prior to the Date of Grant. All dividend equivalents accumulated with respect to forfeited Performance Share Units shall also
be irrevocably forfeited. As of the date of issuance of Shares underlying Performance Share Units, the Participant shall have all of the rights of a
shareholder of the Company with respect to any Shares issued pursuant hereto.
5. Definitions. For purposes of this Agreement, the following shall have the following meanings:
a) “Cause” means (i) the Participant’s willful conduct that is demonstrably and materially injurious to the Company or an Affiliate,
monetarily or otherwise; (ii) the Participant’s material breach of written agreement between the Participant and the Company; (iii) the Participant’s breach
of the Participant’s fiduciary duties to the Company or an Affiliate; (iv) the Participant’s conviction of any crime (or entering a plea of guilty or nolo
contendere to any crime) constituting a felony; or (v) the Participant’s entering into an agreement or consent decree or being the subject of any regulatory
order that in any of such cases prohibits the Participant from serving as an officer or director of a company that has publicly traded securities. A termination
of the Participant shall not be for “Cause” unless the decision to terminate the Participant is set forth in a resolution of the Board to that effect and which
specifies the particulars thereof and that is approved by a majority of the members of the Board (exclusive of the Participant if the Participant is a member
of the Board) adopted at a meeting called and held for such purpose (after reasonable notice to the Participant and an opportunity for the Participant to be
heard before the Board). No act or failure to act by the Participant will be deemed “willful” if it was done or omitted to be done by the Participant in good
faith or with a reasonable belief on the part of the Participant that the action or omission was in the best interests of the Company or an Affiliate. Any act or
failure to act by the Participant based upon authority given pursuant to a resolution duly adopted by the Board or based on the advice of counsel to the
Company shall be conclusively presumed to be done or omitted to be done by the Participant in good faith and in the best interest of the Company and its
Affiliates.
b) “Change in Control” means:
(i) the approval of the shareholders of the Company, and consummation, of (A) any consolidation, merger or statutory
share exchange of the Company with any person in which the surviving entity would not have as its directors at least a majority of the Incumbent Board
and as a result of which those persons who were shareholders of the Company immediately prior to such transaction would not hold, immediately after
such transaction, at least 50% of the Voting Power of the Company then outstanding or the combined voting power of the surviving entity’s then
outstanding voting securities; (B) any sale, lease, exchange or other transfer in one transaction or series of related transactions substantially all of the assets
of the Company; or (C) the adoption of any plan or proposal for the complete or partial liquidation or dissolution of the Company; provided, however, that
in any case, a sale of equity securities of the Company pursuant to an underwritten public offering, or transactions related to such sale, shall not constitute a
Change in Control. For purposes of this Section 5(a), “Voting Power” when used with reference to the Company shall mean the voting power of all classes
and series of capital stock of the Company now or hereafter authorized; or
(ii) the individuals who, as of the date of this Agreement, are members of the Board of Directors of the Company (the
“Incumbent Board”) cease for any reason to constitute at least a majority of the Board (provided, however, that if the election or nomination for election by
the Company’s shareholders of any new director was approved by a vote of at least a majority of the Incumbent Board, such new director shall be
considered to be a member of the Incumbent Board).
c) “Adjusted Return on Equity” shall have the meaning ascribed that term in Exhibit 1 attached hereto.
d) “Disability” means the Participant has been determined, by a physician selected by the Company and reasonably acceptable to
the Participant, to be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period of not less than 12 months.
107
e) “Good Reason” means, without the express written consent of the Participant (i) a change in the Participant’s position with the
Company or an Affiliate which results in a material diminution of the Participant’s authority, duties or responsibilities; (ii) a material reduction by the
Company or an Affiliate in the annual rate of the Participant’s base salary; or (iii) a change in the location of the Participant’s principal office to a different
place that is more than fifty miles from the Participant’s principal office immediately prior to such change. A reduction in the Participant’s rate of annual
base pay shall be material if the rate of annual base salary on any date is less than ninety percent (90%) of the Participant’s highest rate of annual base pay
as in effect on any date in the preceding thirty-six (36) months. Notwithstanding the two preceding sentences, a change in the Participant’s duties or
responsibilities shall not constitute Good Reason, and the Participant shall not have Good Reason to resign, solely because the Company does not have
common shares or other securities that are publicly traded. A resignation by the Participant shall not be with “Good Reason” unless the Participant gives
the Company written notice specifying the event or condition that the Participant asserts constitutes Good Reason, the notice is given no more than ninety
days after the occurrence of the event or initial existence of the condition that the Participant asserts constitutes Good Reason and the Company has failed
to remedy or cure the event or condition during the thirty day period after such written notice is given to the Company.
f) “Involuntary Termination Due to Position Elimination or Reorganization” means an involuntary termination of the Participant’s
service with the Company or its Affiliates due to a job elimination, reduction in force, business restructuring or other circumstances the Committee deems
appropriate, in its sole discretion, as qualifying as an Involuntary Termination Due to Position Elimination or Reorganization.
g) “Measurement Period” means the period of three fiscal years beginning on January 1, 2024 and ending on December 31, 2026;
provided, however, that if, during the Measurement Period, the Participant dies (while in service with the Company or an Affiliate) or there occurs a
Change in Control, the Measurement Period shall end as of the date of death or Change in Control, as applicable.
(iii) Involuntary Termination Due to Position Elimination or Reorganization.
h) “Qualifying Termination” means a termination of the Participant’s service on account of (i) Disability, (ii) Retirement or
i) “Retirement” means the Participant voluntarily resigns from service with the Company and all Affiliates after having both
attained age sixty (60) and accumulated at least seventy (70) points (“Retirement Age”). The Participant’s points shall equal the sum of the participant’s age
(in years) plus completed full years of employment with the Company and its Affiliates.
6. No Right to Continued Employment or Service. This Agreement and the grant of the Stock Unit Award do not give the Participant any
rights with respect to continued employment by or other service with the Company or an Affiliate. This Agreement and the grant of the Stock Unit Award
shall not interfere with the right of the Company or an Affiliate to terminate the Participant’s employment.
7. Change in Capital Structure. In accordance with the terms of the Plan, the terms of this Agreement and the number and kind of Shares
shall be adjusted as the Board determines to be equitably required in the event the Company effects one or more stock dividends, stock split-ups,
subdivisions or consolidations of shares or other similar changes in capitalization.
8. Governing Law; Venue. The laws of the State of North Dakota shall govern all matters arising out of or relating to this Agreement
including, without limitation, its validity, interpretation, construction and performance but without giving effect to the conflict of laws principles that may
require the application of the laws of another jurisdiction. Any party bringing a legal action or proceeding against any other party arising out of or relating
to this Agreement may bring the legal action or proceeding in the United States District Court for the District of North Dakota or in any court of the State
of North Dakota sitting in Fargo, North Dakota. Each party waives, to the fullest extent permitted by law (i) any objection it may now or later have to the
laying of venue of any legal action or proceeding arising out of or relating to this Agreement brought in a court described in the preceding sentence and
(ii) any claim that any legal action or proceeding brought in any such court has been brought in an inconvenient forum.
9. Conflicts. In the event of any conflict between the provisions of the Plan as in effect on the Date of Grant and this Agreement, the
provisions of the Plan shall govern. All references herein to the Plan shall mean the Plan as in effect on the Date of Grant.
10. Participant Bound by Plan. The Participant hereby acknowledges that a copy of the Plan has been made available to the Participant and
the Participant agrees to be bound by all of the terms and provisions of the Plan.
11. Binding Effect. Subject to the limitations stated above and in the Plan, this Agreement shall be binding upon the Participant and the
Participant’s successors in interest and the Company and any successors of the Company.
108
12. Recoupment. The Participant acknowledges and agrees that the Participant’s rights in the Performance Share Units, Shares and any
dividends, dividend equivalents or other distributions paid or payable with respect to the Performance Share Units or Shares are subject to recoupment or
repayment if, and to the extent that, such action is required under applicable law or any Company recoupment or “clawback” policy as may be amended
from time to time, including but not limited to the Company’s clawback policy dated effective as of October 2, 2023.
IN WITNESS WHEREOF, the Company and the Participant have executed this Performance Share Unit Agreement as of the date first set forth
above.
NI HOLDINGS, INC.
By:
Name:
Title:
[NAME OF PARTICIPANT]
109
Exhibit 10.18
NI HOLDINGS, INC
SHORT-TERM INCENTIVE BONUS PLAN
EFFECTIVE JANUARY 1, 2024
COMPONENTS
Reward performance.
Encourage teamwork.
Focus employees on success factors.
Employees with employment date on or before January 1 and employed on December 31 of the plan year.
Agents at Associate, Partner or Senior Partner level.
Employees on probation status are excluded.
Results from January 1 – December 31.
INCENTIVE
PLAN
Plan Objectives
Participants
Performance
Period
·
·
·
·
·
·
·
Payout Frequency ·
Annually – on or prior to April 15.
Performance
Tracking
Establishment of
Goal Percentages
Verification of
Goals
Payout
Calculation
·
·
·
·
·
·
Quarterly reports published on company employee portal.
Recommended by CEO and approved by NI Holdings, Inc. Board of Directors.
Reports provided to Compensation Committee.
Total of three goals:
1.
2
Combined Ratio
Direct Written Premium Growth
3. Measurable goal set by CEO; can vary by department and staff.
Target, Threshold, and Stretch goals established annually and approved by compensation committee.
Eligible Employees
o
o
o
Employees, hired on or before January 1, are eligible to receive stated amount for each goal achieved multiplied by their
earned salary for the calendar year (does not include bonuses or any other compensation).
Employees hired after January 1 and prior to July 1 of the plan year are eligible to receive 50% of bonus achieved
multiplied by the earned salary for the calendar year (does not include bonuses or any other compensation).
Employees hired after July 1 are not eligible until the following year.
Other
·
Board retains discretion on payment of Plan.
110
SUBSIDIARIES OF NI HOLDINGS, INC.
Company
Nodak Insurance Company
American West Insurance Company
Tri-State Ltd.
Primero Insurance Company
Nodak Agency, Inc.
Battle Creek Mutual Insurance Company
Direct Auto Insurance Company
Westminster American Insurance Company
State of Organization
North Dakota
North Dakota
South Dakota
North Dakota
North Dakota
North Dakota
North Dakota
North Dakota
Exhibit 21.1
Percentage of Equity Owned
Directly or Indirectly
100%
100%
100%
100%
100%
0%(1)
100%
100%
(1) See Part II, Item 8, Note 22 “Subsequent Event” for additional information regarding changes to Battle Creek Mutual Insurance Company.
111
CONSENT OF INDEPENDENT PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the registration statements on Form S-8 (File Nos. 333-221630 and 333-239645) of our report dated
March 15, 2024 relating to the consolidated financial statements, consolidated financial statement schedules of NI Holdings Inc. and Subsidiaries listed in
Item 15(a)(2), and the effectiveness of NI Holdings Inc. and Subsidiaries’ internal control over financial reporting, appearing in this Annual Report on
Form 10-K for the year ended December 31, 2023.
/s/ Mazars USA LLP
Fort Washington, PA
March 15, 2024
112
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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 15, 2024
/s/ Michael J. Alexander
Michael J. Alexander
President and Chief Executive Officer
(Principal Executive Officer)
113
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Seth C. Daggett, 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)
(b)
(c)
(d)
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;
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;
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
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)
(b)
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
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 15, 2024
/s/ Seth C. Daggett
Seth C. Daggett
Chief Financial Officer
(Principal Financial Officer)
114
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, 2023, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), we, Michael J. Alexander, President and Chief Executive Officer, and Seth C.
Daggett, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to our knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
March 15, 2024
March 15, 2024
/s/ Michael J. Alexander
Michael J. Alexander
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Seth C. Daggett
Seth C. Daggett
Chief Financial Officer
(Principal Financial Officer)
115
NI HOLDINGS, INC.
INCENTIVE COMPENSATION RECOVERY POLICY
ADOPTED: December 1, 2023
Exhibit 97
1. Introduction.
The Board of Directors (the “Board”) of NI Holdings, Inc. (the “Company”) believes that it is in the best interests of the Company and its shareholders to
create and maintain a culture that emphasizes integrity and accountability and that reinforces the Company's compensation philosophy. The Board has
therefore adopted this policy which provides for the recovery of certain executive incentive compensation in the event of an accounting restatement
resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”), and/or certain types of
misconduct. This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”).
2. Administration.
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee, in which case references herein to the
Board shall be deemed references to the Compensation Committee. Any determinations made by the Board shall be final and binding on all affected
individuals.
3. Covered Executives.
Unless and until the Board determines otherwise, for purposes of this Policy, the term “Covered Executive” means a current and former employee who is
or was identified by the Company as an “Officer” pursuant to Securities & Exchange Commission Rule 16a-1(f), issued pursuant to the Exchange Act and
the listing standards of the national securities exchange on which the Company's securities are listed.
4. Recovery: Accounting Restatement.
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with
any financial reporting requirement under the securities laws (including any required accounting restatement to correct an error in previously issued
financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected
in the current period or left uncorrected in the current period) (an “Accounting Restatement”), the Company will recover reasonably promptly any excess
Incentive Compensation received on or after the Effective Date by any Covered Executive (i) after beginning service as a Covered Executive; (ii) who
served as an Covered Executive at any time during the performance period for the Incentive Compensation; (iii) while the Company has a class of
securities listed on a national securities exchange or a national securities association; and (iv) during the three (3) completed fiscal years immediately
preceding the date on which the Company is required to prepare an Accounting Restatement. If the Company has changed its fiscal year-end during the
three-year look-back period, the Company will recover any excess Incentive Compensation received during the transition period occurring during, or
immediately following, that three-year period in addition to any excess Incentive Compensation received during the three-year look-back period (i.e., a
total of four periods). The “date on which the Company is required to prepare an Accounting Restatement” is the earlier to occur: (i) the date that the
Board, applicable Board committee, or officers authorized to take action if Board action is not required, concludes, or reasonably should have concluded,
that the Company is required to prepare the Accounting Restatement or (ii) the date a court, regulator, or other legally authorized body directs the Company
to prepare the Accounting Restatement, in each case regardless of if or when the restated financial statements are filed. Incentive Compensation is deemed
“received” in the Company’s fiscal period during which the financial reporting measure specified in the Incentive Compensation award is attained, even if
the payment or grant of the Incentive Compensation occurs after the end of that period. The determination of the time when the Company is “required” to
prepare an Accounting Restatement shall be made in accordance with applicable SEC and exchange rules and regulations.
(a)
Definition of Incentive Compensation.
116
For purposes of this Policy, Incentive Compensation means any compensation that is granted, earned, or vested based wholly or in part
upon the attainment of a financial reporting measure, including, for example, bonuses or awards under the Company’s short and long-
term incentive plans, grants and awards under the Company’s equity incentive plans, and contributions under the Company’s deferred
compensation plans or other employee benefit plans. For avoidance of doubt, Incentive Compensation includes compensation that is
deferred (either mandatorily or voluntarily) under the Company’s qualified and non-qualified deferred compensation plans, as well as any
matching amounts and earnings thereon. Incentive Compensation does not include awards which are granted, earned, and vested without
regard to attainment of financial reporting measures.
(b)
Financial Reporting Measures.
Financial reporting measures are those that are determined and presented in accordance with the accounting principles used in preparing
the Company’s financial statements (including non-GAAP financial measures) or any measures derived wholly or in part from such
financial measures. For the avoidance of doubt, financial reporting measures include stock price and total shareholder return. A measure
need not be presented within the financial statements or included in a filing with the SEC to constitute a financial reporting measure for
purposes of this Policy.
(c)
Excess Incentive Compensation: Amount Subject to Recovery.
The amount(s) to be recovered from the Covered Executive will be the amount(s) by which the Covered Executive’s Incentive
Compensation for the relevant period(s) exceeded the amount(s) that would have been received had it been based on the restated
amounts. All amounts shall be computed without regard to taxes paid.
For Incentive Compensation based on financial reporting measures such as stock price or total shareholder return, where the amount of
erroneously awarded compensation is not subject to mathematical recalculation directly from the information in an Accounting
Restatement, the Board will calculate the amount to be reimbursed based on a reasonable estimate of the effect of the Accounting
Restatement on such financial reporting measure upon which the Incentive Compensation was received. The Board will maintain
documentation of that reasonable estimate and provide such documentation to the applicable exchange.
(d)
Method of Recovery.
The Board will determine, in its sole discretion, the method(s) for recovering excess Incentive Compensation hereunder which may
include, without limitation:
(i)
(ii)
(iii)
requiring reimbursement of Incentive Compensation previously paid;
forfeiting any compensation contribution made under the Company’s deferred compensation plans, as well as any matching
amounts and earnings thereon;
offsetting the recovered amount from any compensation or Incentive Compensation that the Covered Executive may earn or be
awarded in the future;
(iv)
taking any other remedial and recovery action permitted by law, as determined by the Board; and
(v)
some combination of the foregoing.
5. No Indemnification or Advance.
Subject to applicable law, the Company shall not indemnify, including by paying or reimbursing for premiums for any insurance policy covering any
potential losses, any Covered Executives against the loss of any erroneously awarded
117
Incentive Compensation, nor shall the Company advance any costs or expenses to any Covered Executives in connection with any action to recover excess
Incentive Compensation.
6. Interpretation.
The Board is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of
this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act and any
applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company's securities
are listed.
7. Effective Date.
The effective date of this Policy is October 2, 2023 (the “Effective Date”). This Policy applies to Incentive Compensation received by a Covered Executive
on or after the Effective Date even if such Incentive Compensation was approved, awarded, granted or paid to the Covered Executive prior to the Effective
Date. In addition, this Policy is intended to be and will be incorporated as an essential term and condition of any Incentive Compensation plan or program
the Company establishes or maintains on or after the Effective Date.
8. Amendment and Termination.
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect changes in regulations
adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act and to comply with any rules or standards adopted by a
national securities exchange on which the Company's securities are listed. The Board may terminate this Policy at any time.
9. Other Recovery Rights.
The Board intends that this Policy will be applied to the fullest extent of the law. Upon receipt of this Policy, each Covered Executive is required to
complete the Receipt and Acknowledgement attached as Schedule A to this Policy. The Board may require that any employment agreement or similar
agreement relating to Incentive Compensation entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require
a Covered Executive to agree to abide by the terms of this Policy. Any right of recovery under this Policy is in addition to, and not in lieu of, any (i) other
remedies or rights of compensation recovery that may be available to the Company pursuant to the terms of any similar policy in any employment
agreement, or similar agreement relating to Incentive Compensation, unless any such agreement expressly prohibits such right of recovery, and (ii) any
other legal remedies available to the Company. The provisions of this Policy are in addition to (and not in lieu of) any rights to repayment the Company
may have under Section 304 of the Sarbanes-Oxley Act of 2002 and other applicable laws.
10. Impracticability.
The Board shall recover any excess Incentive Compensation in accordance with this Policy, except to the extent that certain conditions are met and the
Board has determined that such recovery would be impracticable, all in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the
national securities exchange on which the Company's securities are listed.
11. Successors.
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators, or other legal
representatives.
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Schedule A
INCENTIVE-BASED COMPENSATION CLAWBACK POLICY
RECEIPT AND ACKNOWLEDGEMENT
I, __________________________________________, hereby acknowledge that I have received and read a copy of the Incentive Compensation Recovery
Policy. As a condition of my receipt of any Incentive Compensation as defined in the Policy, I hereby agree to the terms of the Policy. I further agree that if
recovery of excess Incentive Compensation is required pursuant to the Policy, the Company shall, to the fullest extent permitted by governing laws, require
such recovery from me up to the amount by which the Incentive Compensation received by me, and amounts paid or payable pursuant or with respect
thereto, constituted excess Incentive Compensation. If any such reimbursement, reduction, cancelation, forfeiture, repurchase, recoupment, offset against
future grants or awards, and/or other method of recovery does not fully satisfy the amount due, I agree to immediately pay the remaining unpaid balance to
the Company.
Signature
Date
119