NI Holdings, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Amounts are in thousands of dollars unless otherwise stated. NI Holdings is a property and casualty insurer operating across personal auto, home and farm, crop, and commercial lines.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Net premiums earned | $63,135 | $58,772 |
| Total revenue | $70,799 | $46,186 |
| Underwriting gain | $5,008 | $8,191 |
| Net income (loss) attributable to NI Holdings | $9,669 | $(3,587) |
| Diluted earnings (loss) per share | $0.45 | $(0.16) |
| Net cash from operating activities | $10,794 | $3,616 |
| Cash and investments (March 31, 2021) | $495,465 | $494,363 at Dec. 31, 2020 |
| Total assets / shareholders’ equity | $621,385 / $352,590 | $617,603 / $348,872 at Dec. 31, 2020 |
- Revenue and earnings improved sharply year over year, primarily because investment results swung to a $5,811 net capital gain from a $14,919 loss in Q1 2020. The 2021 gain included $3,902 of realized gains and a $1,909 increase in unrealized equity gains.
- Underwriting weakened: the consolidated combined ratio rose to 92.1% from 86.1%, while the loss and LAE ratio increased to 58.4% from 51.8%. The expense ratio was 33.6%, versus 34.3%.
- Net premiums earned grew 7.4%; direct premiums written increased to $72,420 from $62,972, led by Westminster commercial growth. Commercial net premiums earned rose to $12,338 from $7,853.
- Results varied by line. Commercial’s combined ratio deteriorated to 121.7% from 97.3%; private passenger auto rose to 100.7% from 92.1%. Non-standard auto improved to 69.5% from 84.7%, and home and farm was 75.9% versus 64.8%. Crop results are not meaningfully assessed by first-quarter combined ratio given limited seasonal earned premiums.
- Investment income declined to $1,536 from $1,971, reflecting lower reinvestment yields and cash temporarily held during implementation of the intercompany pooling arrangement. Gross investment yield was 2.0%, versus 2.7%.
- Operating cash flow was positive, but investing activities used $51,439, largely as cash was invested in longer-term securities. Cash and cash equivalents fell to $52,683 from $101,077 at year-end.
- Unpaid losses and LAE were $111,522, up from $105,750; unearned premiums were $123,458, up from $119,363. The company reported $2,523 of net unfavorable prior-year loss development, versus $510 in Q1 2020.
Liquidity, debt, and capital
The company reported no drawn borrowings under Nodak Insurance’s $5,000 line of credit, which was scheduled to expire January 30, 2022. The balance sheet included $12,720 payable for the Westminster acquisition, down from $19,287 after the first $6,667 installment was paid in Q1. Management said operations and the liquid investment portfolio, together with remaining IPO proceeds, were expected to fund operations. Insurance-subsidiary dividends are subject to regulatory restrictions; Nodak Insurance had approximately $21,628 available for 2021 dividends without prior approval. The company repurchased 32,326 shares for $596 during the quarter.
Outlook, commentary, and risks
- No quantified earnings or revenue guidance was provided. Management anticipated strong commercial premium growth for the rest of 2021, while non-standard auto growth was described as less predictable.
- Management cited a hardening commercial multi-peril market, but continued intense competition in private passenger and non-standard auto. Pandemic-related effects remained a concern, particularly economic weakness in the Las Vegas area affecting non-standard auto growth.
- Management noted elevated commercial fire and winter-weather slip-and-fall claims in Q1, and more normal home and farm losses after a favorable winter in 2020. The 2021 crop segment included unfavorable development related primarily to a moisture-index component of the federal crop program.
- Key uncertainties include loss-reserve adequacy and claims inflation, severe weather, reinsurance availability and collectability, investment-market and interest-rate movements, regulatory rate approvals, competition, and continuing pandemic-related economic effects. The company reported no material change to risk factors from its 2020 Form 10-K and no litigation considered material based on information available.
- Fixed-income unrealized gains declined during the quarter as yields rose; equity unrealized gains increased. The company reported no other-than-temporary investment impairments. It also reported no material change in market-risk disclosures and stated disclosure controls were effective.
Important facts for investors to verify
- How much of the earnings rebound reflects investment-market gains versus recurring underwriting and investment income.
- Whether commercial claims and prior-year adverse reserve development persist, and how reserve estimates respond to inflation or changing claim severity.
- Whether commercial premium growth can continue while restoring segment underwriting profitability, and whether non-standard auto growth remains constrained.
- Cash needs for the remaining Westminster consideration, the level of cash held versus invested, and the effect of insurance-dividend restrictions on parent-company liquidity.
- The sensitivity of reported earnings and equity to equity-market volatility and changes in fixed-income yields.