NI Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022; compared with the corresponding 2021 periods. NI Holdings is a U.S. property and casualty insurer operating across personal auto, home and farm, crop, and commercial lines.
Financial performance and condition
- Q3 revenue: $89.2 million, up 5.4% year over year. Net premiums earned rose 9.0% to $89.5 million; net investment income increased to $2.0 million, while net investment losses were $2.9 million.
- Q3 results: Consolidated net loss was $10.2 million, versus a $4.9 million loss in Q3 2021; loss attributable to NI Holdings was $10.0 million, or $0.47 per share.
- Nine-month results: Revenue was $231.1 million, versus $238.6 million in 2021. Consolidated net loss was $54.8 million, compared with net income of $2.2 million; loss attributable to NI Holdings was $54.0 million, or $2.53 per share.
- Underwriting: Combined ratio was 114.4% for Q3 and 123.5% for the first nine months, compared with 110.8% and 106.4%, respectively, in 2021. Underwriting losses were $12.9 million for Q3 and $57.2 million year to date.
- Cash flow: Operating cash flow was negative $24.7 million for the first nine months, versus positive $9.5 million a year earlier. Investing activities provided $18.6 million; financing activities used $10.3 million. Cash and equivalents declined to $54.3 million from $70.6 million at year-end 2021.
- Balance sheet and liquidity: Total assets were $636.5 million and shareholders’ equity $250.8 million, down from $651.8 million and $347.4 million at December 31, 2021. Cash and investments totaled $408.9 million. The company reported no outstanding borrowings on its $5.0 million line of credit, which expires May 2023. It expected to pay the remaining Westminster acquisition consideration in December 2022.
Material changes and management commentary
- Management attributed the deterioration in earnings primarily to catastrophe losses in Nebraska and South Dakota in Q2 and North Dakota in Q3, including continued adverse development of Q2 events. Home and farm’s nine-month loss ratio rose to 165.5% from 76.9%; catastrophe losses after reinsurance contributed 96.3 percentage points.
- Commercial results were affected by increased fire losses in Westminster’s book and weather-related losses in North Dakota. Inflation-driven loss costs also pressured private passenger and non-standard auto.
- Crop results improved with more favorable growing conditions than in 2021. Premium growth was supported by rate increases, new business, higher insured values, and higher crop commodity prices. Net premiums earned increased 9.9% year to date.
- Equity-market declines produced $19.5 million of net investment losses year to date, including a $21.6 million decline in unrealized equity gains. Fixed-income unrealized losses also increased as interest rates rose; these were recorded in other comprehensive income, not net income. The company reported no other-than-temporary investment impairments.
- Prior-year loss development was favorable by $7.2 million year to date. Management said it was responding to elevated auto loss costs with underwriting actions and rate increases.
Outlook, risks, and other items
- No quantified earnings or premium guidance was provided. Management stated that operating cash and the investment portfolio, together with remaining IPO proceeds, were expected to fund operations for the foreseeable future.
- Management retained reinsurance protection for weather losses above a $15 million retention, with coverage up to $125 million in excess of that amount in 2022. Catastrophe claims and the timing and collectability of reinsurance recoveries remain important variables.
- Insurance-subsidiary dividends are subject to regulatory restrictions. No dividends were declared or paid by Nodak Insurance, Direct Auto, or Westminster during the first nine months of 2022.
- The company disclosed ordinary-course litigation it did not consider material, but noted litigation outcomes are uncertain. It reported no material change to its previously disclosed risk factors and said disclosure controls were effective.
- The company expected to adopt lease, credit-loss, and income-tax accounting standards in Q4 2022 as it loses emerging-growth-company status; it did not expect significant impacts. The Inflation Reduction Act provisions effective in 2023 were also not expected to have a significant impact.
Key facts for investors to verify
- Further development and net reinsurance recoveries for the 2022 catastrophe claims, especially in home and farm.
- Whether rate increases and underwriting actions offset inflation-driven claim severity and improve combined ratios.
- Investment portfolio valuation, unrealized losses, and any further equity-market impact on earnings and shareholders’ equity.
- Cash generation, payment of the remaining Westminster consideration, and the availability of regulated subsidiary dividends.
- Whether the expected liquidity position and accounting-standard adoption impacts remain consistent with management’s statements.