NI Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. NI Holdings is a U.S. property and casualty insurance holding company with six reportable segments. Unless stated otherwise, amounts below are in millions of dollars.
Financial results and condition
| Metric | Q1 2023 | Q1 2022 or comparison |
|---|---|---|
| Total revenue | $81.6 | $66.1 |
| Net premiums earned | $77.6 | $69.6 |
| Net investment income | $2.2 | $1.7 |
| Net investment gains (losses) | $1.4 | $(5.5) |
| Underwriting gain (loss) | $(9.4) | $6.1 |
| Net income (loss) attributable to NI Holdings | $(4.2); $(0.20) per diluted share | $1.9; $0.09 per diluted share |
| Operating cash flow | $(4.4) | $3.8 |
| Cash and investments at quarter-end | $406.5 | $404.7 at year-end |
| Total assets / liabilities / shareholders’ equity | $628.0 / $374.9 / $253.1 | $614.2 / $361.0 / $253.2 at year-end |
The combined ratio was 112.2%, versus 91.3% a year earlier; the loss and loss adjustment expense ratio was 75.8% versus 57.7%, and the expense ratio was 36.4% versus 33.6%. Annualized return on average equity after non-controlling interest was (6.7%), compared with 2.3%.
Cash increased to $61.3 million from $47.0 million. Investing activities provided $19.4 million, primarily reflecting equity-security sales; financing activities used $0.8 million. The filing reports no outstanding borrowings under Nodak Insurance’s $5.0 million line of credit at March 31, 2023; the line is scheduled to expire March 31, 2024. Consolidated liabilities include insurance reserves and unearned premiums. Battle Creek reports a $3.0 million note payable, which is eliminated in consolidation.
Material changes and drivers
- Net premiums earned grew 11.6%. Non-standard auto rose 45.2%, private passenger auto 4.9%, home and farm 4.1%, and commercial 12.9%. Management cited rate increases, growth and retention in non-standard auto, and higher insured values; underwriting actions weighed on new business or retention in some lines.
- Loss and loss adjustment expenses increased 46.6%, and underwriting results moved from a gain to a loss. Q1 included $10.0 million of unfavorable prior-year reserve development, primarily in Direct Auto and Westminster; Q1 2022 had $2.0 million of favorable development.
- Segment combined ratios deteriorated notably in commercial (151.1% versus 108.2%) and non-standard auto (124.7% versus 101.4%). Management cited Winter Storm Elliott freeze-claim development and greater liability-loss severity in commercial, and inflation-related severity and adverse reserve development in non-standard auto. Heavy Midwest snowfall also increased home and farm losses.
- Net investment income increased to $2.2 million, which management attributed principally to rising interest rates and portfolio allocation. Net investment gains were $1.4 million, compared with a $5.5 million loss a year earlier. Q1 2023 included substantial realized equity gains from a strategic portfolio liquidation, largely offset by the removal of unrealized gains on the securities sold.
- Fixed-income unrealized losses were $34.1 million at March 31, 2023, compared with $39.9 million at year-end 2022. The quarter’s investment-related other comprehensive income was $4.7 million after tax.
Outlook, risks and other disclosures
- The filing provides no specific earnings or premium guidance. Management said it expects operating funds and liquidity in the investment portfolio to meet claims and operating expenses for the foreseeable future, while cautioning that interim results are not necessarily indicative of full-year results.
- Management said it is taking significant rate and underwriting actions in non-standard auto and commercial to improve profitability. Continued inflation, loss severity, weather events, reserve-estimation uncertainty, competition, interest-rate and market movements, and economic conditions are identified risks.
- Dividend capacity is constrained: no amount was available in 2023 for Nodak Insurance, Direct Auto or Westminster to pay dividends to NI Holdings without prior regulatory approval, based on their 2022 results. No dividends were declared or paid in Q1 2023.
- Property catastrophe reinsurance covered $133 million excess of a $20 million retention during the quarter. Reinsurance does not discharge the company’s obligations to policyholders; recoverability depends on reinsurer performance. Management reported no allowance for expected credit losses on reinsurance recoverables.
- The company is party to ordinary-course litigation, which management did not consider material based on currently available information. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether corrective pricing and underwriting actions improve the elevated combined ratios, especially in commercial and non-standard auto.
- Further development of prior-year loss reserves, including Direct Auto and Westminster claims and Winter Storm Elliott-related losses.
- Whether premium growth converts into underwriting profitability after higher claims, acquisition costs and operating expenses.
- The sustainability and cash impact of investment income and gains, distinguishing realized portfolio sales from recurring returns and market-value changes.
- Liquidity and capital flexibility, including operating cash use, restrictions on insurance-subsidiary dividends, and the status of the unused credit line.