NI Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results; dollar figures below are in millions unless stated otherwise. NI Holdings is a U.S. property and casualty insurance holding company with auto, home and farm, crop, and commercial lines.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $92.7 | $89.2 | $271.3 | $231.1 |
| Net premiums earned | $90.8 | $89.5 | $262.5 | $243.6 |
| Net income (loss), consolidated | $0.3 | $(10.2) | $(12.4) | $(54.8) |
| Net income (loss) attributable to NI Holdings | $0.2 | $(10.0) | $(12.1) | $(54.0) |
| Net investment income | $2.8 | $2.0 | $7.5 | $5.7 |
| Net investment gains (losses) | $(1.2) | $(2.9) | $0.0 | $(19.5) |
| Underwriting gain (loss) | $(1.9) | $(12.9) | $(24.5) | $(57.2) |
| Combined ratio | 102.0% | 114.4% | 109.3% | 123.5% |
The combined ratio improved year over year, but remained above 100% in both periods, indicating underwriting losses overall. Q3 earnings attributable to NI Holdings were $0.01 per share; the nine-month loss was $0.57 per share.
- Cash flow: Operating cash flow was $(3.0) million for the first nine months, versus $(24.7) million in 2022. Investing cash flow was $(2.0) million, compared with $18.6 million provided in the prior-year period; financing cash flow was $(7.5) million. Cash declined to $34.5 million from $47.0 million at year-end 2022.
- Liquidity and capital: Cash and investments totaled $386.5 million, versus $404.7 million at December 31, 2022. Total assets were $657.1 million, liabilities $427.2 million, and shareholders’ equity $229.9 million. The filing reports no outstanding borrowings under Nodak Insurance’s $5 million line of credit, scheduled to expire March 31, 2024. Battle Creek had $3 million of notes payable, eliminated in consolidation.
- Insurance reserves: Unpaid losses and loss adjustment expenses increased to $240.7 million from $190.5 million; reinsurance recoverables on losses rose to $56.8 million from $37.6 million. Nine-month incurred losses included $19.0 million of net unfavorable prior-year reserve development, mainly at Direct Auto and Westminster, versus $7.2 million favorable development in 2022.
Material changes versus the prior period
- Net premiums earned rose 1.4% in Q3 and 7.8% year to date. Non-standard auto premiums grew substantially, while crop premiums declined; management attributed growth in several lines to rate increases, business growth, and higher insured values.
- Net losses and loss adjustment expenses fell 19.5% in Q3 and 12.2% year to date. Management cited lower catastrophe losses than in 2022, improved home-and-farm experience, and lower loss frequency in private passenger auto. The improvement was partly offset by increased non-standard auto and commercial loss ratios.
- Investment income increased, primarily from higher reinvestment yields as interest rates rose. Year-to-date net investment gains were near break-even, compared with substantial losses in 2022; 2023 included realized gains from a strategic equity-portfolio liquidation, substantially offset by reductions in unrealized equity gains.
- Fixed-income securities had $45.8 million of gross unrealized losses at September 30, 2023, versus $39.9 million at year-end 2022. Accumulated other comprehensive loss was $33.7 million, compared with $29.3 million.
- The company repurchased 548,549 shares for $7.3 million during the first nine months; $2.1 million remained under the authorization at September 30. Outstanding shares were 20,575,593 at October 31, 2023.
Outlook, risks, and unusual items
- The filing provides no specific earnings or premium guidance. Management said it expects operating funds and liquidity in the investment portfolio to cover claims and operating expenses for the foreseeable future.
- Management described ongoing rate and underwriting actions in non-standard auto and commercial lines to address elevated losses and challenging conditions. Inflation-related loss severity, weather and catastrophe experience, crop conditions and prices, interest rates, and equity-market volatility remain relevant risks.
- Insurance subsidiaries had no 2023 dividend capacity to NI Holdings without prior regulatory approval, based on statutory losses in 2022. No dividends were paid by Nodak Insurance, Direct Auto, or Westminster in the first nine months of 2023; this may constrain holding-company liquidity.
- The company maintained catastrophe reinsurance protection of $133 million in excess of a $20 million retention during the period. Reinsurance does not relieve the company of obligations to policyholders; management reported no allowance for expected credit losses on reinsurance recoverables.
- Management said litigation contingencies were not material to financial position, and reported no material change in risk factors or market-risk disclosures. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Whether adverse prior-year reserve development and elevated severity in non-standard auto and commercial lines persist, and how loss ratios evolve.
- Whether improved catastrophe and home-and-farm claims experience is sustainable, given weather and crop-related volatility.
- How reinsurance recoverables are collected and whether the increased unpaid-loss balances remain adequately reserved.
- The impact of subsidiary dividend restrictions on holding-company liquidity, particularly alongside negative operating cash flow and continued share repurchases.
- How interest-rate and equity-market movements affect investment income, unrealized losses, and reported equity.