NI Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial figures are converted from thousands to millions unless stated otherwise. NI Holdings is a property and casualty insurer with personal, commercial, crop, and non-standard auto businesses.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net premiums earned | $76.3m | $82.0m | $139.4m | $140.8m |
| Total revenue | $83.2m | $95.7m | $154.0m | $141.9m |
| Net income (loss), consolidated | $(2.7)m | $18.8m | $7.0m | $15.2m |
| Net income (loss) attributable to NI Holdings | $(2.6)m | $18.7m | $7.0m | $15.1m |
| Diluted EPS | $(0.12) | $0.85 | $0.32 | $0.68 |
| Combined ratio | 113.4% | 87.8% | 103.7% | 87.1% |
Q2 underwriting loss was $10.2m, versus a $10.0m gain a year earlier; first-half underwriting loss was $5.2m, versus a $18.2m gain. Net investment income fell to $1.7m in Q2 and $3.2m for the half, reflecting lower reinvestment yields. Net capital gains were $4.7m in Q2 and $10.5m for the half, including realized gains and changes in unrealized equity gains. Q2 pretax loss was $3.3m; first-half pretax income was $9.4m.
Balance sheet, liquidity, and capital
- At June 30, 2021, assets were $708.4m, liabilities $357.5m, and shareholders’ equity $350.9m. Total cash and investments were $511.4m, including cash and cash equivalents of $61.2m.
- First-half operating cash flow was $21.7m, investing cash outflow $52.1m, and financing cash outflow $9.4m. Cash declined $39.9m from year-end 2020. Management said operating cash and the investment portfolio should be sufficient to fund operations.
- Unpaid losses and loss adjustment expenses were $152.3m, up from $105.8m at year-end; unearned premiums were $161.6m, up from $119.4m. These increases reflect business growth and higher losses, particularly in crop insurance.
- The company reported no outstanding borrowings on Nodak Insurance’s $5.0m line of credit, which was scheduled to expire January 30, 2022. Westminster acquisition consideration payable was $12.8m after the first $6.7m installment was paid in Q1.
- NI Holdings repurchased 118,531 shares for approximately $2.3m in the first half. No insurance-subsidiary dividends were paid in the period; distributions are subject to regulatory limits.
Material changes and management commentary
- Direct premiums earned grew 5.6% in Q2 and 7.6% in the first half, led by Westminster commercial and non-standard auto. Net premiums earned fell because of increased ceded premiums and lower crop premiums recognized compared with 2020, when prevented-planting claims accelerated crop premium earning.
- Losses and LAE rose 20.2% in Q2 and 20.6% in the first half. Management cited a return toward normal auto claim frequency after pandemic-related driving declines, higher uninsured/underinsured motorist claims, weather losses, and crop drought exposure. The first half included $2.2m of favorable prior-year reserve development.
- Crop combined ratio was 128.9% in Q2 and 141.2% for the first half. Management anticipated significantly reduced crop yields from extreme drought in North and South Dakota and said direct crop losses could be well above premiums. More business was placed in the federal assigned-risk fund, limiting the company’s net exposure.
- Commercial business benefited from favorable market conditions and improved loss experience. Management expected commercial written-premium growth to remain strong for the rest of 2021; continued non-standard auto growth was described as less predictable.
- COVID-19’s underwriting impact had diminished as economic activity approached pre-pandemic levels, though management warned a resurgence could affect results. Lower fixed-income reinvestment rates remain a drag on investment income.
Risks, contingencies, and other items
Key exposures include catastrophe and drought losses, uncertainty in loss-reserve estimates, inflation and claims severity, reinsurance availability and collectability, investment-market volatility, regulatory limits on subsidiary dividends, and competition. The company retained the first $10m of weather-related catastrophe losses, with reinsurance coverage up to $117m above that retention. Reinsurance does not release the company from its obligations to policyholders. Management reported no material litigation liabilities, no material change in risk factors, and no significant off-balance-sheet arrangements. No formal earnings or full-year financial guidance was provided.
Important facts for investors to verify
- Whether drought-related crop losses and reinsurance recoveries develop as management expects, including the impact on net claims and liquidity.
- Whether rising auto and weather-related claims persist, and how loss reserves and prior-year development change in subsequent periods.
- Whether underwriting performance improves from the first-half combined ratio above 100%, especially in private passenger auto, home and farm, and crop.
- Whether premium growth can offset higher acquisition costs, increased reinsurance costs, and lower investment yields.
- The timing and funding of remaining Westminster consideration payments, subsidiary dividend capacity, and the status of the credit line scheduled to expire in January 2022.