NI Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless noted. NI Holdings is a property-and-casualty insurance holding company operating across auto, home and farm, crop, and commercial lines. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net premiums earned | $69.6 | $63.1 |
| Total revenue | $66.1 | $70.8 |
| Underwriting gain | $6.1 | $5.0 |
| Combined ratio | 91.3% | 92.1% |
| Net investment gains (losses) | $(5.5) | $5.8 |
| Net income | $2.0 | $9.8 |
| Net income attributable to NI Holdings | $1.9 | $9.7 |
| Diluted earnings per share | $0.09 | $0.45 |
| Operating cash flow | $3.8 | $10.8 |
Premium growth was 10.2%, while underwriting gain rose 20.9% and the combined ratio improved 0.8 percentage points. Nevertheless, total revenue and earnings fell as investment results shifted from gains to losses, principally reflecting unfavorable equity markets. Net investment income increased to $1.7 million from $1.5 million.
Fixed-income unrealized losses reduced other comprehensive income by $16.2 million after tax, largely as interest rates rose. At March 31, fixed-income securities had a $353.1 million fair value against $367.3 million amortized cost. The company recorded no other-than-temporary investment impairments in the quarter.
Financial position and liquidity
- Total assets were $624.1 million, down from $651.8 million at December 31, 2021. Shareholders’ equity was $332.3 million, down from $347.4 million, with the decline reflecting investment-related other comprehensive losses.
- Cash and investments totaled $483.7 million, including $53.9 million of cash and cash equivalents. Cash and investments were $515.0 million at year-end.
- Net cash decreased $16.7 million during the quarter. Investing activities used $12.3 million and financing activities used $8.2 million. Financing outflows included a $6.7 million installment on the Westminster acquisition consideration and $1.0 million of share repurchases.
- The company reported no outstanding balance on Nodak Insurance’s $5.0 million line of credit; it expires May 31, 2023. No other parent-company debt balance is clearly presented. Battle Creek has a $3.0 million note payable, eliminated in consolidation.
- The remaining Westminster acquisition payment was expected in December 2022. Management said operating cash, the investment portfolio, and remaining IPO proceeds were expected to be sufficient to fund operations.
Material changes, outlook, and risks
- Premiums increased across private passenger auto, non-standard auto, home and farm, and commercial insurance. Commercial premiums rose 15.0%; home and farm premiums rose 10.1%. The company elected not to renew its participation in assumed domestic and international reinsurance pools beginning January 1, 2022; reported pool results may appear with a one-to-three-month lag.
- Auto loss experience weakened: the private passenger auto loss ratio rose to 78.5% from 70.0%, and the non-standard auto ratio rose to 59.1% from 36.2%. Management cited severe winter weather, uninsured/underinsured motorist claims, inflation-driven severity, and increased driving, and said rate and underwriting actions were underway.
- Prior-year loss development was favorable by $2.0 million, primarily attributable to Battle Creek, versus $2.5 million of unfavorable development in Q1 2021.
- Management provided no numerical earnings or premium guidance. It noted that results for this interim quarter are not necessarily indicative of full-year results. Risks include claims inflation, severe weather and climate conditions, equity and interest-rate movements, reinsurance collectability, competition, and regulatory limits on insurance-subsidiary dividends.
- Insurance subsidiaries’ dividends are subject to statutory restrictions. Amounts stated as available in 2022 without prior approval were approximately $21.5 million from Nodak Insurance, $3.8 million from Direct Auto, and $2.5 million from Westminster; no dividends were declared or paid in Q1.
- The company reported ordinary-course litigation that it did not consider material, and no material change in its previously disclosed risk-factor assessment. Management said disclosure controls were effective; it continued control improvements ahead of its first internal-control audit for the year ending December 31, 2022.
Important facts for investors to verify
- Whether announced auto pricing and underwriting actions offset loss-frequency and inflation-driven severity increases.
- How equity-market movements and higher rates affect investment income, realized results, and accumulated investment losses.
- Whether underwriting profitability is sustained across segments, especially private passenger auto, non-standard auto, and commercial lines.
- The final amount and timing of the remaining Westminster consideration payment and the company’s liquidity after payment.
- Actual reinsurance-pool runoff and reporting-lag effects, as well as catastrophe exposure and recoverables.
- Dividend capacity under regulatory restrictions and progress toward the required 2022 internal-control audit.