NI Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. NI Holdings is a U.S. property-and-casualty insurer with personal auto, home and farm, crop, and commercial operations. Unless noted, dollar amounts are in millions; financial statements are unaudited.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net premiums earned | $82.2 | $73.3 | $221.6 | $214.1 |
| Total revenue | $84.6 | $80.9 | $238.6 | $222.7 |
| Underwriting gain (loss) | $(8.9) | $(2.6) | $(14.1) | $15.6 |
| Consolidated net income (loss) | $(4.9) | $3.7 | $2.2 | $18.9 |
| Net income (loss) attributable to NI Holdings | $(4.7) | $3.7 | $2.3 | $18.8 |
| Basic earnings (loss) per share | $(0.22) | $0.17 | $0.11 | $0.86 |
| Combined ratio | 110.9% | 103.6% | 106.4% | 92.7% |
- Underwriting and margins: The combined ratio exceeded 100% in both 2021 periods, indicating an underwriting loss. For nine months, the loss ratio rose to 74.7% from 63.8%; the expense ratio increased to 31.7% from 28.9%.
- Investment results: Net investment income was $1.7 million in Q3 and $5.0 million year to date, down from $1.9 million and $5.9 million, respectively. Net capital gains were $0.2 million in Q3 and $10.7 million year to date, compared with $5.1 million and $1.4 million in 2020. Year-to-date realized gains, particularly on equities, partly offset weaker underwriting.
- Cash flow: Operating cash flow was $9.5 million for nine months, versus $30.9 million a year earlier. Investing activities used $52.5 million, while financing activities used $10.4 million. Cash and cash equivalents fell $53.3 million to $47.7 million.
- Balance sheet and liquidity: At September 30, total assets were $696.5 million, liabilities $352.5 million, and shareholders’ equity $344.0 million. Cash and investments totaled $495.7 million. Unpaid losses and loss-adjustment expenses were $179.6 million gross, with $42.7 million of reinsurance recoverables. The company reported no outstanding borrowings on its $5.0 million line of credit; $12.9 million remained payable for the Westminster acquisition.
- Debt and capital returns: The filing reports no material debt outstanding apart from ordinary obligations, including the Westminster consideration payable. The company repurchased $3.2 million of shares during the first nine months and authorized a further $5.0 million repurchase program in August 2021.
Material changes and management commentary
- Net premiums earned increased 12.0% in Q3 and 3.5% year to date. Commercial premiums grew 52.6% year to date, mainly from Westminster; non-standard auto grew 7.3%. Crop premiums fell 36.8% year to date, largely due to higher ceded premiums and losses associated with drought conditions.
- Underwriting results weakened substantially. Management cited severe drought-related multi-peril crop losses, above-average weather losses in North Dakota, South Dakota, and Nebraska, and a return toward normal auto claim frequency as driving activity recovered from pandemic restrictions. Private passenger auto also experienced increased uninsured/underinsured motorist claims.
- Westminster commercial operations and Direct Auto contributed growth and generally favorable performance, although Westminster had elevated fire losses earlier in the year and Primero faced higher non-standard auto loss frequency and severity.
- Prior-year loss development was favorable by $6.9 million for the first nine months, versus $4.3 million in 2020, primarily from non-standard auto and, to a lesser extent, private passenger auto and home and farm.
- Net investment income declined as lower reinvestment rates and portfolio turnover reduced fixed-income yields. The fixed-income portfolio book yield fell to 2.45% from 2.72% a year earlier.
Outlook, risks, and contingencies
- The filing provides no specific earnings, premium, or combined-ratio guidance. Management said operating results for the interim period are not necessarily indicative of full-year results and expects cash from operations and the investment portfolio, together with available IPO proceeds, to support operations.
- Key risks include catastrophe and weather losses, crop-program and federal reinsurance changes, loss-reserve estimation, rate adequacy and competitive pricing, reinsurance availability and collectability, investment-market and interest-rate changes, regulation, litigation, cybersecurity, and renewed pandemic effects.
- Insurance-subsidiary dividends are subject to regulatory limits. No dividends were paid by Nodak Insurance, Direct Auto, or Westminster during the first nine months of 2021. The company reported no material litigation contingencies and no significant off-balance-sheet arrangements.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter. The company was preparing for its first required internal-control audit for the year ending December 31, 2022.
Important facts for investors to verify
- Whether the elevated crop, weather-related, and auto losses persist, and how the associated reinsurance recoveries develop.
- Whether premium growth and pricing can restore underwriting profitability, particularly in private passenger auto and home and farm.
- The extent to which reported earnings depend on realized investment gains, and the effect of market movements on the investment portfolio and equity.
- Cash-flow trends, claims payments, reinsurance recoverables, and the remaining Westminster acquisition installments.
- Regulatory constraints on subsidiary dividends and the implications of the company’s share-repurchase authorization for liquidity and capital.