NI Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. NI Holdings is a property and casualty insurer operating across auto, home and farm, crop, and commercial lines. Dollar amounts below are in millions unless otherwise indicated.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net premiums earned | $94.1 | $84.5 | $171.8 | $154.1 |
| Total revenue | $97.0 | $75.8 | $178.5 | $141.9 |
| Net losses and loss adjustment expenses | $77.5 | $108.6 | $136.3 | $148.7 |
| Underwriting loss | $13.2 | $50.3 | $22.7 | $44.3 |
| Net loss | $8.2 | $46.6 | $12.7 | $44.6 |
| Net investment income | $2.5 | $2.0 | $4.7 | $3.7 |
| Combined ratio | 114.0% | 159.6% | 113.2% | 128.7% |
Net loss attributable to NI Holdings shareholders was $8.1 million for Q2 and $12.3 million for the first half; loss per share was $0.38 and $0.58, respectively. The combined ratio remained above 100%, indicating underwriting losses, although it improved year over year. No operating cash flow or profit guidance was provided.
Financial position, cash flow and liquidity
- At June 30, 2023, total assets were $687.2 million, total liabilities $446.8 million, and shareholders’ equity $240.4 million. Equity was down from $253.2 million at year-end 2022.
- Cash and cash equivalents were $52.6 million; total cash and investments were $412.3 million. Fixed-income securities were $333.0 million at fair value and equity securities $24.7 million.
- For the first six months, operating cash flow was $7.9 million, investing cash flow was $1.1 million, and financing cash flow was negative $3.4 million. Cash increased by $5.6 million from year-end.
- The filing reports no outstanding draws on Nodak Insurance’s $5.0 million line of credit; it is scheduled to expire March 31, 2024. No material conventional debt balance is reported at the consolidated level. Operating lease liabilities were $1.9 million.
Material changes and management commentary
- First-half net premiums earned increased 11.5%, with particularly strong non-standard auto growth (42.3%); management cited prior growth, improved retention, and rate increases. Private auto, home/farm, and commercial premiums also grew.
- Lower claims versus the prior-year period substantially reduced underwriting losses. Q2 2022 included significant Nebraska and South Dakota home-and-farm catastrophe losses; 2023 had no home-and-farm catastrophe losses in the first half, and crop loss ratios also improved.
- Loss experience remains uneven. First-half commercial and private passenger auto combined ratios were 148.8% and 116.1%; non-standard auto was 114.9%. Management cited inflation-driven severity, winter weather losses, liability severity, and unfavorable prior-year reserve development, especially in non-standard auto and commercial.
- Prior-year reserves developed unfavorably by $9.5 million in the first half of 2023, primarily at Direct Auto and Westminster; the comparable 2022 period had $8.5 million of favorable development.
- Higher interest rates lifted first-half net investment income. Six-month net investment gains were $1.2 million, including realized gains from a strategic equity portfolio liquidation, partly offset by a decline in unrealized equity gains. Fixed-income fair-value changes are recorded in other comprehensive income; the portfolio had $36.8 million of gross unrealized losses at June 30.
- The company repurchased 238,164 shares for $3.2 million in the first half; $6.0 million remained under its repurchase authorization at June 30. Insurance-subsidiary dividends to the parent were restricted: no amount was available in 2023 without regulatory approval based on the subsidiaries’ 2022 results. No subsidiary dividends were paid in the first half.
Outlook, risks and unusual items
Management said it is taking rate increases and underwriting actions and evaluating further measures to improve profitability, particularly in commercial and auto lines. The filing provides no quantified earnings or premium outlook. Management expects operating funds and the investment portfolio to meet claims and expenses for the foreseeable future, but dependence on subsidiary dividends is constrained by regulatory limits.
Key exposures include claims severity and inflation, weather and catastrophe losses, reserve-estimate uncertainty, reinsurance recoverability, interest-rate and equity-market movements, and restrictions on insurance-subsidiary dividends. Reinsurance protection included $133 million of catastrophe cover above a $20 million retention; significant reinsurers were rated A- or better, and no allowance for reinsurance credit losses was recorded. The company reported ordinary-course litigation that it considered not material and no material change in risk factors. Disclosure controls were assessed as effective; no material internal-control changes were reported.
After quarter-end, on August 8, 2023, the company amended its CFO’s employment agreement, raising annual base salary from $285,000 to $375,000 and establishing a rolling two-year employment period. This may increase severance amounts under specified termination circumstances.
Important facts for investors to verify
- Whether rate increases and underwriting actions can bring combined ratios below 100%, especially in commercial and auto lines.
- Subsequent reserve development, particularly against the $9.5 million first-half unfavorable prior-year development.
- Claims and reinsurance recoverables, including the timing and collectability of the $53.5 million reported as recoverable on losses.
- Investment portfolio sensitivity to interest rates and equity markets, and the implications of $36.8 million in gross unrealized fixed-income losses.
- Subsidiary statutory capital, regulatory dividend approvals, and parent-company liquidity given the absence of 2023 dividends without approval.
- Repurchase pace and remaining authorization, and the cost and severance implications of the amended CFO agreement.