NI Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. Amounts below are in millions of dollars unless noted; the filing presents most financial amounts in thousands.
Business context
NI Holdings is a property and casualty insurance holding company. Its business includes personal and non-standard auto, home and farm, crop, and commercial insurance, primarily distributed through captive and independent agents. Insurance subsidiaries share underwriting results under an intercompany reinsurance pool. All insurance subsidiaries and affiliates had an AM Best rating of A (Excellent).
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Net premiums earned | $328.3 | $299.6 |
| Total revenues | $324.4 | $324.0 |
| Underwriting gain (loss) | $(65.2) | $(13.1) |
| Combined ratio | 119.9% | 104.3% |
| Net income (loss) attributable to NI Holdings | $(53.1) | $8.4 |
| Net cash from operating activities | $(30.4) | $29.2 |
| Cash and cash equivalents at year-end | $47.0 | $70.6 |
| Total cash and investments at year-end | $404.7 | $515.0 |
| Total assets / shareholders’ equity at year-end | $614.2 / $253.2 | $651.8 / $347.4 |
Net investment income rose to $7.8 million from $7.1 million, but net investment gains turned into a $13.1 million loss from a $15.5 million gain, mainly reflecting unfavorable equity markets. The fixed-income portfolio had $39.9 million of gross unrealized losses at year-end, compared with $2.3 million in 2021; the filing attributes the decline in fair value primarily to rising interest rates. The fixed-income losses affected other comprehensive income and equity, rather than net income.
The expense ratio improved to 30.2% from 32.1%, but higher claims drove the overall combined ratio above 100%, indicating an underwriting loss. The company reported $190.5 million of unpaid losses and loss adjustment expenses, or $152.9 million net of reinsurance. No material conventional borrowings were reported; a $5.0 million subsidiary line of credit had no outstanding balance and was scheduled to expire May 31, 2023.
Material changes versus 2021
- Net premiums earned grew 9.6%, with growth across auto, home and farm, crop, and commercial lines.
- Net losses and loss adjustment expenses rose 36.1% to $294.4 million. The home and farm loss ratio increased to 137.6% from 70.7%, chiefly due to catastrophe losses; the commercial ratio rose to 93.1% from 60.7%, with increased fire, liability, and winter-storm claims.
- Crop results improved: the crop loss ratio fell to 55.9% from 103.7%, helped by better growing conditions than during the 2021 drought.
- Net cash from operations shifted from positive $29.2 million to negative $30.4 million, driven mainly by catastrophe claim payments and increases in receivables. Year-end cash and investments declined by $110.2 million.
- Shareholders’ equity fell to $253.2 million from $347.4 million, reflecting the net loss and investment-related other comprehensive loss.
Outlook, risks, and unusual items
- The filing provides no quantitative earnings, premium, or underwriting guidance. Management describes ongoing rate increases and underwriting actions in response to inflation and elevated claim frequency and severity, and emphasizes profitable growth and disciplined capital deployment.
- Catastrophe exposure is a key risk. For 2022, the catastrophe program retained $15 million per event and provided $125 million of coverage above the retention. For 2023, the retention increased to $20 million and coverage to $133 million above retention. Recoveries remain subject to policy terms and reinsurer performance.
- Insurance subsidiaries had statutory net losses in 2022, although their statutory capital and surplus remained significantly above risk-based capital requirements. No dividends were available from Nodak Insurance, Direct Auto, or Westminster for payment to NI Holdings in 2023 without prior regulatory approval, creating a potential holding-company liquidity constraint.
- The company recorded a $15.3 million income tax benefit in 2022. It also adopted the current expected credit loss standard, recording a $0.4 million allowance on premiums and agents’ receivables; no allowance was recorded for fixed-income securities or reinsurance recoverables.
- Loss reserve estimation is a significant area of judgment and the auditor identified it as a critical audit matter. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
- Other cited risks include severe weather and geographic concentration in North Dakota, inflation and reserve uncertainty, interest-rate and investment-market volatility, crop-program changes, regulation, reinsurance availability and collectability, cybersecurity, and agent and employee retention. Management reported no known cybersecurity breach. Litigation in the ordinary course was not considered material based on information available.
Important facts for investors to verify
- Whether rate increases and underwriting changes can restore combined ratios below 100%, particularly in home and farm, commercial, and private passenger auto.
- How 2022 catastrophe losses and subsequent reserve development compare with estimates, and whether the 2023 reinsurance program provides adequate protection at its higher retention.
- The development and collectability of the $37.6 million reinsurance recoverable balance and the adequacy of the $190.5 million gross loss reserve.
- How interest rates, equity markets, and unrealized fixed-income losses affect capital, liquidity, and future investment income.
- The subsidiaries’ statutory capital and the regulatory approvals needed for future dividends to the holding company, especially given negative 2022 statutory results.
- The terms and status of the $5.0 million line of credit after its disclosed May 31, 2023 expiration date.