NI Holdings, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. NI Holdings is a property-and-casualty insurer, including crop, personal auto, non-standard auto and commercial lines. Westminster was acquired January 1, 2020; its results are included for 2020 but not in 2019 reported results. Unless noted, amounts below are in millions of dollars.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Direct premiums written | $314.2 | $262.1 |
| Net premiums earned | $283.7 | $246.4 |
| Total revenue | $306.4 | $270.8 |
| Net income attributable to NI Holdings | $40.4 | $26.4 |
| Diluted earnings per share | $1.84 | $1.19 |
| Combined ratio | 89.4% | 96.2% |
| Cash and investments at year-end | $494.4 | $419.9 |
| Total assets / shareholders’ equity | $617.6 / $348.9 | $508.2 / $309.8 |
Net premiums earned rose 15.1%; reported direct premiums written rose about 19.9%. Westminster contributed $40.7 of direct premiums earned. The 2020 combined ratio was below 100%, indicating an underwriting gain; underwriting gain was $30.1 versus $9.5 in 2019. The loss and LAE ratio improved to 59.4% from 68.9%, while the expense ratio increased to 30.0% from 27.3%.
Operating cash flow was $51.0, up from $25.7. Cash and cash equivalents were $101.1 at year-end. Total liabilities were $268.7, including $105.8 of unpaid losses and LAE, $119.4 of unearned premiums and $19.3 payable for the Westminster acquisition. No amounts were drawn on the $5.0 line of credit. Net investment income was $7.3, down from $7.4; net capital gains on investments were $13.6, including $5.9 of unrealized equity-security gains recognized in earnings. Return on average equity after non-controlling interest was 12.4%, versus 9.1%.
Material changes and unusual items
- Westminster expanded commercial insurance and geographic reach. Its acquisition price was $40.0, with $20.0 paid at closing and the balance payable in installments; $19.3 remained payable at year-end.
- The six insurance companies implemented an intercompany reinsurance pooling arrangement, retroactive to January 1, 2020. Nodak Insurance leads the pool; Westminster held a 9% share and Direct Auto 13%.
- Prior-year reserve development was unfavorable by $3.3 in 2020, compared with favorable development of $6.5 in 2019, primarily reflecting settlement of 2019 multi-peril crop claims.
- Share repurchases totaled $12.2 for 856,499 shares. Equity increased 12.6%, partly offset by these repurchases.
- Investment results and reported earnings include equity-security fair-value changes under accounting adopted in 2019; market fluctuations can add volatility.
Outlook, commentary and risks
Management expects economic recovery and renewed travel to support future premium growth, but said COVID-19 could continue to pressure premium volumes. It anticipated additional pressure in non-standard auto premiums in 2021. Management described personal auto markets as highly competitive and commercial insurance as a hardening market, with positive rate changes. No quantitative earnings or premium guidance was provided.
Key risks include catastrophe and weather concentration (45.7% of 2020 direct premiums written were in North Dakota), crop-program changes and crop losses, reserve-estimation uncertainty and inflation, reinsurance availability and collectability, competitive pricing, investment-market and interest-rate risk, and COVID-19-related economic effects. Dividends from insurance subsidiaries are regulated; amounts available in 2021 without prior approval were $21.6 from Nodak Insurance, $3.6 from Direct Auto and $0.5 from Westminster. The company said litigation in the ordinary course was not considered material. All insurance subsidiaries had an A.M. Best “A” rating with a stable outlook.
The auditor issued an unqualified opinion on the consolidated financial statements. The company reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to opine on internal control effectiveness.
Investor verification priorities
- Assess how much of the earnings increase reflects improved underwriting versus investment gains, and the sustainability of the 89.4% combined ratio.
- Review the Westminster acquisition’s contribution, integration costs, remaining installment payments and commercial loss development.
- Examine crop and other reserve adequacy, especially the 2020 unfavorable prior-year development and elevated crop loss ratio.
- Evaluate COVID-19’s continuing effect on non-standard auto premiums and claim frequency, alongside market competition and rate actions.
- Monitor catastrophe exposure, reinsurance protection and subsidiary dividend capacity; consider the potential volatility of investment values and equity gains.