NI Holdings, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. Unless noted, dollar amounts are in thousands. The filing is an annual report, not a standalone fourth-quarter filing; it includes unaudited quarterly results.
Business context and reporting period
NI Holdings is a property and casualty insurer with businesses in private passenger auto, non-standard auto, home and farm, crop, and other insurance. Its operations are concentrated in the Upper Midwest; North Dakota generated 55.3% of 2019 direct premiums written. 2019 results include Direct Auto for the full year, compared with only the period after its August 2018 acquisition in the prior year.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Direct premiums written | $262,145 | $225,223 |
| Net premiums earned | $246,438 | $195,720 |
| Total revenue | $270,779 | $212,370 |
| Underwriting gain | $9,470 | $22,515 |
| Net income | $26,500 | $31,244 |
| Net income attributable to NI Holdings | $26,401 | $31,081 |
| Diluted earnings per share | $1.19 | $1.39 |
| Operating cash flow | $25,665 | $20,955 |
- Net premiums earned grew 25.9%; direct premiums written grew 16.4%. Direct Auto added $43,873 in direct premiums earned during 2019.
- The loss and loss adjustment expense ratio rose to 68.9% from 60.8%; the expense ratio improved to 27.3% from 27.7%. The combined ratio increased to 96.2% from 88.5%, still below 100% and therefore indicating an underwriting profit overall.
- Losses and LAE increased 42.5% to $169,710. Crop’s loss ratio increased to 84.4% from 41.5%; private passenger auto rose to 77.5% from 71.3%. Home and farm improved to 64.1% from 66.0%, and non-standard auto rose to 57.2% from 51.3%.
- Net investment income was $7,433, up from $6,180. Net capital gains on investments were $14,783, including $11,537 of unrealized equity gains recognized in earnings under a new accounting treatment. Pre-tax income was $33,811, down from $39,165.
- At year-end, total assets were $508,159, cash and investments were $419,923, liabilities were $198,356, and equity was $309,803. Cash and cash equivalents were $62,132. Net cash decreased $6,818 during the year.
- The filing reports no outstanding borrowings under Nodak Insurance’s $5,000 line of credit. Battle Creek has a $3,000 surplus note, but it is eliminated in consolidation. The filing does not identify material external debt at the holding-company level.
Material changes versus the prior comparable period
- Net income attributable to NI Holdings declined to $26,401 from $31,081 despite substantial premium growth. Weaker crop and auto loss experience and the absence of the $4,578 bargain-purchase gain recorded on Direct Auto in 2018 were partly offset by a much larger investment gain.
- 2019 included $6,509 of favorable prior-year reserve development, compared with $589 in 2018. Year-end gross unpaid losses and LAE rose to $93,250 from $87,121; net reserves were $89,205 after reinsurance recoverables.
- Accounting changes effective in 2019 moved unrealized equity-security gains and losses into net income rather than other comprehensive income, increasing reported earnings volatility. The transition reclassified $8,184 after tax within equity and did not change total equity.
- Cash and investments rose from $374,371 to $419,923, while total equity increased 12.4%. The reported year-end investment portfolio had $29,137 of net unrealized gains, compared with $8,034 a year earlier.
Outlook, management commentary, risks, contingencies, and unusual items
- Management describes private passenger and non-standard auto markets as competitive, with challenging pricing and underwriting conditions. It emphasizes disciplined pricing and underwriting, organic growth, and acquisitions; the filing gives no specific earnings or premium guidance.
- Management cited wet spring and fall conditions in North Dakota, delayed crop harvests, and substantial multi-peril crop claims still open at year-end. In Nevada, increased minimum auto liability limits raised Primero’s claim costs; rate increases affected new-business production in the second half of 2019.
- On January 1, 2020, the Company acquired Westminster American for approximately $40,000, subject to adjustments: $20,000 paid at closing and the balance scheduled in installments over three years. It also agreed to a $5,000 retention bonus for Westminster American’s president, payable over five years. This acquisition is not included in 2019 results.
- Key risks include catastrophe and weather concentration, crop-program changes, adequacy of loss reserves, pricing and competition, reinsurance availability and collectability, investment-market volatility, acquisitions and integration, regulation, and cyber and operational risks. A 1% change in the estimate of net unpaid losses and LAE would affect after-tax net income by approximately $705, according to the filing’s sensitivity analysis.
- Capital strength was reported as well above regulatory intervention thresholds; insurance subsidiaries had statutory capital and surplus 12 to 15 times authorized control level. Nodak Insurance’s 2020 ordinary-dividend capacity without prior regulatory approval was $18,984; Direct Auto’s was $6,881. No subsidiary dividends were paid in 2019. The Board had not established a regular shareholder dividend policy.
- The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the Company was not required to obtain an auditor opinion on internal-control effectiveness. Litigation in the ordinary course was not considered material by management.
Important facts for investors to verify
- Whether 2019’s higher crop losses, open claims, and increased loss ratio lead to further reserve development or persist into subsequent periods.
- How much of 2019 earnings came from recurring underwriting and investment income versus equity-market gains newly recorded in net income.
- Whether auto pricing actions, especially in Primero, restore underwriting profitability without materially constraining premium growth.
- Westminster American’s post-acquisition performance, integration costs, retention-bonus obligations, and remaining purchase payments.
- Liquidity available at the holding company after acquisition commitments, given statutory limits on subsidiary dividends and the absence of dividends paid in 2019.
- Fourth-quarter reported net income attributable to NI Holdings was $17,129, following a third-quarter loss of $6,979; verify the quarter-to-quarter drivers, including investment-market movements and claims.