NI Holdings, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Unless otherwise noted, financial amounts below are in millions of dollars; per-share amounts are in dollars. NI Holdings is a property and casualty insurer. Westminster, acquired January 1, 2020, is included in results from that date, affecting year-over-year comparisons.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net premiums earned | $82.0 | $65.1 | $140.8 | $115.6 |
| Total revenues | $95.7 | $68.6 | $141.9 | $129.2 |
| Net income attributable to NI Holdings | $18.7 | $2.5 | $15.1 | $16.3 |
| Diluted EPS | $0.85 | $0.11 | $0.68 | $0.73 |
| Net cash from operating activities | Not separately provided for the quarter | $21.8 | $11.0 |
- Q2 underwriting gain was $10.0 million, compared with approximately break-even underwriting in Q2 2019. The reported combined ratio improved to 87.8% from 100.0%. For the first half, underwriting gain was $18.2 million and the combined ratio was 87.1%, versus $7.6 million and 93.5% in 2019. Combined ratios are non-GAAP measures; below 100% indicates an underwriting profit.
- Investment results were a major influence on reported earnings: Q2 net capital gains were $11.2 million, including a $10.8 million unrealized gain on equity securities. For the first half, net capital losses were $3.7 million, including a $5.1 million unrealized loss on equities. Net investment income was $2.0 million for Q2 and $4.0 million for the first half.
- At June 30, total assets were $624.4 million, including $452.0 million of cash and investments; total liabilities were $299.7 million and shareholders’ equity was $324.7 million. Cash and cash equivalents were $67.9 million. These balances increased from year-end 2019, in part because of the Westminster acquisition and seasonal crop premiums.
- The filing reports no outstanding balance on Nodak Insurance’s $5.0 million line of credit. Westminster’s purchase agreement also includes $20.0 million of future installments; their present value, $18.8 million, was recognized in acquisition consideration. This is an acquisition obligation, not a reported drawn credit facility.
Changes versus comparable periods
- Q2 net premiums earned rose 25.9% year over year; first-half premiums rose 21.8%. Westminster contributed $9.0 million of Q2 and $17.3 million of first-half direct premiums earned. Crop premiums also increased following a high volume of prevented-planting claims, while non-standard auto premiums declined.
- Q2 net income increased substantially from a low prior-year quarter, reflecting improved underwriting and the equity-market rebound’s contribution to investment gains. First-half net income fell from 2019, principally because equity investment results swung from a $8.6 million unrealized gain in the prior-year period to a $5.1 million unrealized loss.
- For the first half, lower claim frequency in private passenger and non-standard auto, partly associated with reduced driving during the pandemic, and lower weather-related home and farm losses supported underwriting results. Crop underwriting weakened: the 2020 first-half crop combined ratio was 98.9% versus 75.7% a year earlier. Commercial underwriting also weakened, with a 101.9% combined ratio versus 76.2%, including Westminster’s results and related acquisition accounting costs.
- Operating cash flow increased to $21.8 million from $11.0 million. The company used $9.3 million in investing activities and $6.8 million in financing activities, including $6.8 million of share repurchases. Cash increased by $5.7 million during the six-month period.
Outlook, risks and unusual items
- No numerical earnings or premium guidance was provided. Management said the pandemic’s longer-term effects remain uncertain and could constrain premium growth and investment results; the company expected these pressures could persist through the remainder of 2020.
- COVID-19 reduced policy counts in some segments and driving frequency, while market disruption drove equity investment volatility. Management noted potential regulatory actions affecting coverage, premium refunds, cancellations, and premium collection, as well as potential credit deterioration in corporate and municipal bonds and mortgage-backed securities.
- Crop results reflect unresolved 2019 harvest claims and higher-than-normal 2020 prevented-planting claims. The company reported $3.6 million of unfavorable net development on 2019 crop claims during the first half, partly offset by $2.5 million of net favorable development across prior accident years overall. Loss reserve estimates remain sensitive to claim severity, inflation, legal developments, and reporting patterns.
- Westminster reported a $0.5 million net loss in Q2 and a $0.7 million net loss for the first half. Acquisition-related costs were $0.8 million in the first half. Certain acquired intangible valuations remained provisional; the filing reports no impairment of goodwill or other intangibles.
- Insurance subsidiaries’ ability to pay dividends to the holding company is subject to regulatory limits. Reinsurance reduces catastrophe exposure but does not release the company from its obligations to policyholders; reinsurer collectability and future availability remain risks.
- The company reported no material litigation liabilities or significant off-balance-sheet arrangements. It stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of Q2 earnings and EPS came from volatile unrealized equity gains, and how results change when investment fluctuations are considered.
- Whether improved auto loss frequency persists as driving patterns normalize, and whether non-standard auto policy counts recover.
- Crop claim development, harvest outcomes, and the adequacy of loss reserves, particularly for the 2019 and 2020 crop years.
- Westminster’s underlying commercial underwriting performance, integration progress, and final purchase-price allocation and intangible valuations.
- Liquidity available at the holding-company level after the Westminster installments, share repurchases, and restrictions on insurance-subsidiary dividends.
- Exposure to pandemic-related regulatory changes, investment credit losses, falling reinvestment yields, and further market volatility.