NI Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. NI Holdings is a U.S. property and casualty insurance holding company with personal auto, home and farm, crop, and commercial insurance operations. Dollar amounts below are in thousands unless otherwise stated.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net premiums earned | $84,496 | $76,281 | $154,083 | $139,416 |
| Total revenue | $75,790 | $83,212 | $141,930 | $154,011 |
| Underwriting loss | $(50,345) | $(10,226) | $(44,291) | $(5,218) |
| Net income (loss), consolidated | $(46,636) | $(2,734) | $(44,597) | $7,048 |
| Net income (loss) attributable to NI Holdings | $(45,910) | $(2,644) | $(44,001) | $7,025 |
| Diluted EPS | $(2.15) | $(0.12) | $(2.06) | $0.32 |
| Combined ratio | 159.6% | 113.4% | 128.7% | 103.7% |
- Premium growth reflected gains in all major lines, especially crop, where six-month net premiums earned rose 46.2%. Management cited higher commodity prices and less multi-peril crop business ceded to the Assigned Risk fund. Home and farm and commercial growth also reflected inflation-driven increases in insured values, pricing, and new business.
- Net losses and loss adjustment expenses increased 72.6% in Q2 and 49.0% for the first half. Home and farm was the largest pressure: its Q2 loss ratio reached 309.9%, primarily from catastrophe losses in Nebraska and South Dakota. Commercial results were also affected by fire and severe-weather losses.
- For the six months, the loss ratio was 96.5%, versus 71.6% a year earlier. The 2022 combined ratio of 128.7% indicates underwriting losses; the prior-year period’s ratio was 103.7%.
- Net investment income increased to $2,015 for Q2 and $3,668 for six months. Equity-market declines drove net investment losses of $11,136 for Q2 and $16,664 for six months, versus gains in the comparable 2021 periods.
Cash flow, balance sheet, and liquidity
- At June 30, 2022, cash and cash equivalents were $63,032; total cash and investments were $464,558, down from $514,969 at year-end 2021. Total assets were $681,589 and shareholders’ equity was $272,611, compared with $347,413 at year-end. The equity decline included net losses and $27,719 of other comprehensive losses attributable to NI Holdings, primarily reflecting investment valuation declines.
- Six-month operating cash flow was $13,647, compared with $21,708 in 2021. Investing activities used $12,075, while financing activities used $9,163. Cash decreased $7,591 to $63,032.
- Total liabilities were $408,978, including unpaid losses and loss adjustment expenses of $182,876 and unearned premiums of $173,725. Westminster consideration payable was $6,454. No amounts were drawn on the $5,000 line of credit; it is scheduled to expire May 31, 2023.
- Management said operating cash flow, the investment portfolio, and remaining IPO proceeds were expected to be sufficient to fund operations. The final Westminster acquisition installment was expected to be paid in December 2022. Insurance-subsidiary dividends are subject to regulatory limits; no dividends were paid in the first half.
Material changes, outlook, and risks
- The deterioration in earnings versus 2021 chiefly reflects catastrophe claims and unfavorable equity-market valuation changes. Catastrophe losses in home and farm contributed 211.6 percentage points to that segment’s Q2 loss ratio. Despite the severe losses, the filing says no Q2 2022 weather event exceeded the company’s $15,000 retained catastrophe threshold; reinsurance coverage was available above that retention.
- Management cited elevated auto loss severity from inflation and weather, and said it was responding with underwriting actions and planned rate increases. It also said continued rate increases would be needed in non-standard auto to address inflation-related severity.
- Prior-year loss development was favorable by $8,490 for the first six months of 2022, primarily in Direct Auto, Battle Creek, and American West. The filing reports no other-than-temporary investment impairments in the period.
- No formal earnings or financial guidance is provided. The company cautions that interim results are not necessarily indicative of full-year results. Risks highlighted include catastrophe and climate-related losses, inflation, interest-rate and equity-market movements, reinsurance collectability, regulatory limits on subsidiary dividends, and litigation. Management states that pending litigation is not currently considered material, while noting outcomes remain uncertain.
- The company reported effective disclosure controls as of June 30, 2022, and no material quarterly change in internal control over financial reporting. It planned for its first Section 404 internal-control audit for the year ending December 31, 2022.
Key facts investors should verify
- Whether catastrophe claims and inflation-driven severity persist, and whether planned rate increases and underwriting actions improve segment loss and combined ratios.
- The development and adequacy of loss reserves, including the durability of favorable prior-year development and the remaining reinsurance recoverables.
- Investment portfolio performance and the effect of further interest-rate or equity-market changes on earnings, accumulated other comprehensive income, and capital.
- Cash generation, the December 2022 Westminster payment, and the availability of subsidiary dividends under insurance-regulatory restrictions.
- Use of the remaining share-repurchase authorization and the effect of repurchases on liquidity and capital.