NI Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 9, 2022. Unless otherwise noted, dollar amounts are in millions. NI Holdings is a property-and-casualty insurance holding company with personal auto, non-standard auto, home and farm, crop, and commercial operations. Its insurers participate in an intercompany reinsurance pool. The financial statements were audited, and the auditor issued an unqualified opinion.
Financial results and condition
| Metric | 2021 | 2020 |
|---|---|---|
| Net premiums earned | $299.6 | $283.7 |
| Total revenue | $324.0 | $306.4 |
| Underwriting gain (loss) | ($13.1) | $30.1 |
| Combined ratio | 104.4% | 89.4% |
| Income before income taxes | $11.3 | $52.8 |
| Net income attributable to NI Holdings | $8.4 | $40.4 |
| Diluted earnings per share | $0.39 | $1.84 |
| Net investment income | $7.1 | $7.3 |
| Net capital gains on investments | $15.5 | $13.6 |
Margins and underwriting: The expense ratio was 32.1%, versus 30.0% in 2020; the loss and LAE ratio rose to 72.2% from 59.4%. A combined ratio above 100% indicates an underwriting loss. Crop (134.2%), private passenger auto (110.6%), and home and farm (100.6%) were unprofitable; non-standard auto (97.7%) and commercial (95.6%) remained profitable.
Cash flow and liquidity: Operating cash flow was $29.2, down from $51.0. Investing activities used $48.2, primarily as excess operating cash was invested in longer-term securities; financing activities used $11.5. Cash and cash equivalents were $70.6 at year-end, and total cash and investments were $515.0. Total assets were $651.8, liabilities $304.4, and shareholders’ equity $347.4.
Debt and obligations: The filing reports no outstanding balance on Nodak Insurance’s $5.0 million line of credit, which expires in January 2023. The company had $13.0 million of remaining Westminster acquisition consideration payable, with the final installment due in December 2022. Battle Creek has a $3.0 million surplus note payable to Nodak Insurance; it bears 1% interest, matures in 2040, and payments require Nebraska regulatory approval.
Changes versus 2020
- Net premiums earned grew 5.6%, led by commercial (+49.6%) and non-standard auto (+9.0%). Commercial growth primarily reflected Westminster and favorable market conditions.
- Net income attributable to NI Holdings fell about 79%, while the combined ratio worsened 15 percentage points. Management attributed the decline chiefly to drought-related crop losses, weather losses in the upper Midwest, and higher auto claim frequency and severity as driving returned toward pre-pandemic levels.
- Crop net premiums earned fell 24.8%, despite higher direct earned premiums, as drought-related losses drove substantially higher ceded premiums. The crop combined ratio rose to 134.2% from 101.3%.
- Net favorable prior-year loss development was $4.1 million in 2021, primarily from Direct Auto; 2020 had $3.3 million of net unfavorable development.
- Net investment income edged down, reflecting lower reinvestment yields. Net capital gains increased, but included a $2.3 million decrease in unrealized equity gains.
- NI Holdings repurchased 225,205 shares for $4.3 million in 2021. No regular cash dividend policy or payment was announced; the board continued to evaluate a potential policy.
Outlook, risks and contingencies
The filing provides no formal earnings or revenue guidance. Management said it was assessing potential rate actions in private passenger auto amid increased frequency and inflation-driven claim severity. It described commercial insurance market conditions as favorable, while personal auto remained competitive. Effective January 1, 2022, the company elected not to renew its participation in assumed domestic and international reinsurance pools.
- Catastrophe exposure is a central risk, particularly from weather events and geographic concentration in North Dakota. The 2021 catastrophe program retained the first $10 million per event, with $117 million of coverage above the retention; for 2022, the retention increased to $15 million and coverage above it to $125 million.
- Other material risks include loss-reserve estimation, inflation and interest-rate movements, equity and credit market volatility, reinsurance availability and collectability, competition, regulatory limits on insurer dividends, and cyber or operational disruption.
- The fixed-income portfolio had a 4.35-year duration. A hypothetical 100-basis-point rate increase was estimated to reduce its fair value by $16.1 million at December 31, 2021.
- Management said litigation in the ordinary course was not considered material based on information available, while noting that outcomes remain uncertain. No material litigation contingency was identified in the filing.
- All insurance subsidiaries and affiliates held an A (Excellent) AM Best rating with a stable outlook. Management reported that statutory capital exceeded regulatory requirements by a significant margin.
- The company expected to lose emerging-growth-company status beginning December 31, 2022, leading to expanded reporting requirements, including auditor attestation of internal controls for the applicable annual report. Management assessed disclosure controls and internal control over financial reporting as effective at year-end; the auditor did not provide an internal-control opinion.
Important facts for investors to verify
- Whether auto rate actions and changes in driving-related claim frequency and severity improve personal-auto underwriting results.
- Whether drought and catastrophe experience, ceded premiums, and reinsurance recoveries materially affect crop and property results in subsequent periods.
- Whether the December 2022 Westminster payment is funded as expected and how much holding-company liquidity remains after payment and share repurchases.
- How the 2022 catastrophe retention increase changes net exposure, and whether reinsurance remains available at acceptable cost and terms.
- Whether commercial growth remains profitable and the impact of discontinuing assumed reinsurance pool participation.
- How rising interest rates and market movements affect investment income, portfolio values, and book value; also monitor any future capital returns, which remain subject to board decisions and insurance-subsidiary dividend restrictions.