NI Holdings, Inc 10-Q for FY2023 Q3
NI Holdings, Inc. (NODK)
About this 10-Q
NI Holdings, Inc filed this 10-Q on November 7, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $92.75M
- up 4.0% from $89.18M a year earlier
- Net income
- $231K
- compared with a net loss of $9.99M a year earlier
- Diluted EPS
- $0.01
- compared with -$0.47 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) | |
| ||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Not applicable
Former name, former address, and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. ☒
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |
| Non-accelerated filer | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No
The number of shares of Registrant’s common stock outstanding
on October 31, 2023 was
i
TABLE OF CONTENTS
ii
CERTAIN IMPORTANT INFORMATION
Unless the context otherwise requires, as used in this Quarterly Report on Form 10-Q (“Form 10-Q"):
| ● | “NI Holdings”, “the Company”, “we”, “us”, and “our” refer to NI Holdings, Inc., together with Nodak Insurance Company and its subsidiaries and its affiliate (Battle Creek Mutual Insurance Company), Direct Auto Insurance Company (acquired August 31, 2018), and Westminster American Insurance Company (acquired January 1, 2020), for periods discussed after completion of the conversion, and for periods discussed prior to completion of the conversion refer to Nodak Mutual Insurance Company and all of its subsidiaries and Battle Creek Mutual Insurance Company; |
| ● | the “conversion” refers to the series of transactions consummated on March 13, 2017, by which Nodak Mutual Insurance Company converted from a mutual insurance company to a stock insurance company, as Nodak Insurance Company, and became a wholly-owned subsidiary of NI Holdings, an intermediate stock holding company formed on the date of conversion; |
| ● | “Nodak Mutual Group” refers to Nodak Mutual Group, Inc., which is the majority shareholder of NI Holdings; |
| ● | “Nodak Mutual” refers to Nodak Mutual Insurance Company, the predecessor company to Nodak Insurance Company prior to the conversion; |
| ● | “Nodak Insurance” refers to Nodak Insurance Company or Nodak Mutual Insurance Company interchangeably; |
| ● | “members” refers to the policyholders of Nodak Insurance, who are the named insureds under insurance policies issued by Nodak Insurance; |
| ● | “Battle Creek” refers to Battle Creek Mutual Insurance Company. Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle Creek. Battle Creek is controlled by Nodak Insurance via a surplus note. The terms of the surplus note allow Nodak Insurance to appoint two-thirds of the Battle Creek Board of Directors; |
| ● | “Direct Auto” refers to Direct Auto Insurance Company. On August 31, 2018, NI Holdings completed the acquisition of 100% of the common stock of Direct Auto from the private shareholders of Direct Auto. Direct Auto became a consolidated subsidiary of NI Holdings on this date. Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state of Illinois; |
| ● | “American West” refers to American West Insurance Company. American West is a wholly-owned subsidiary of Nodak Insurance; |
| ● | “Primero” refers to Primero Insurance Company. Primero is an indirect, wholly-owned subsidiary of Nodak Insurance; |
| ● | “Westminster” refers to Westminster American Insurance Company. On January 1, 2020, NI Holdings completed the acquisition of 100% of the common stock of Westminster from the private shareholder of Westminster, and Westminster became a consolidated subsidiary of NI Holdings. Westminster is a property and casualty insurance company specializing in commercial multi-peril insurance in the Mid-Atlantic states; and |
| ● | “Nodak Agency” refers to Nodak Agency, Inc. Nodak Agency is a wholly-owned subsidiary of Nodak Insurance. |
1
FORWARD-LOOKING STATEMENTS
This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may”, “will”, “should”, “likely”, “anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”, “views”, “estimates”, and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company’s statements about:
| ● | our anticipated operating and financial performance, business plans, and prospects; |
| ● | strategic reviews, capital allocation objectives, dividends, and share repurchases; |
| ● | plans for and prospects of acquisitions, dispositions, and other business development activities, and our ability to successfully capitalize on these opportunities; |
| ● | the impact of a future pandemic and related economic conditions, including the potential impact on the Company's investments; |
| ● | our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our agent network; |
| ● | cyclical changes in the insurance industry, competition, and innovation and emerging technologies; |
| ● | expectations for impact of or changes to existing or new government regulations or laws; |
| ● | our ability to anticipate and respond to macroeconomic, geopolitical, health and industry trends, pandemics, acts of war, and other large-scale crises; |
| ● | developments in general economic conditions, domestic and global financial markets, interest rates, unemployment, or inflation, that could affect the performance of our insurance operations and/or investment portfolio; and |
| ● | our ability to effectively manage future growth, including additional necessary capital, systems, and personnel. |
Given their nature, we cannot assure that any outcome expressed in these or other forward-looking statements will be realized in whole or in part. Actual outcomes may vary materially from past results and those anticipated, estimated, implied, or projected. These forward-looking statements may be affected by underlying assumptions that may prove inaccurate or incomplete, or by known or unknown risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” of this Form 10-Q and in the Part I, Item 1A, “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”). The occurrence of any of the risks identified in the Part I, Item 1A, “Risk Factors” section of the 2022 Annual Report, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies. It is not possible to predict or identify all such factors. Consequently, you should not consider such discussion to be a complete discussion of all potential risks or uncertainties.
Therefore, you are cautioned not to unduly rely on forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities law. You are advised, however, to consult any further disclosures we make on related subjects.
2
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
NI Holdings, Inc.
Consolidated Balance Sheets
(dollar amounts in thousands, except par value)
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Fixed income securities, at fair value (net of allowance for expected credit losses of $ | ||||||||
| Equity securities, at fair value | ||||||||
| Other investments | ||||||||
| Total cash and investments | ||||||||
| Premiums and agents' balances receivable (net of allowance for expected credit losses of $ | ||||||||
| Deferred policy acquisition costs | ||||||||
| Reinsurance premiums receivable | ||||||||
| Reinsurance recoverables on losses (net of allowance for expected credit losses of $ | ||||||||
| Income tax recoverable | ||||||||
| Accrued investment income | ||||||||
| Property and equipment, net | ||||||||
| Deferred income taxes | ||||||||
| Receivable from Federal Crop Insurance Corporation | ||||||||
| Goodwill and other intangibles | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | $ | ||||||
| Unearned premiums | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Shareholders’ equity: | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Unearned employee stock ownership plan shares | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net of income taxes | ( | ) | ( | ) | ||||
| Treasury stock, at cost, 2023 – | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
NI Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
(dollar amounts in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net premiums earned | $ | $ | $ | $ | ||||||||||||
| Fee and other income | ||||||||||||||||
| Net investment income | ||||||||||||||||
| Net investment gains (losses) | ( | ) | ( | ) | ( | ) | ||||||||||
| Total revenues | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Losses and loss adjustment expenses | ||||||||||||||||
| Amortization of deferred policy acquisition costs | ||||||||||||||||
| Other underwriting and general expenses | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) attributable to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) attributable to NI Holdings, Inc. | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Income (loss) per common share: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Diluted | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Share data: | ||||||||||||||||
| Weighted average common shares outstanding used in basic per common share calculations | ||||||||||||||||
| Plus: Dilutive securities | ||||||||||||||||
| Weighted average common shares used in diluted per common share calculations | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
NI Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(dollar amounts in thousands)
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| Attributable to NI Holdings, Inc. | Attributable to Non- Controlling Interest | Total | Attributable to NI Holdings, Inc. | Attributable to Non- Controlling Interest | Total | |||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||
| Other comprehensive loss, before income taxes: | ||||||||||||||||||||||||
| Holding losses on investments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net realized losses included in net loss | ||||||||||||||||||||||||
| Other comprehensive loss, before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax benefit related to items of other comprehensive loss | ||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||||||||||
| Attributable to NI Holdings, Inc. | Attributable to Non- Controlling Interest | Total | Attributable to NI Holdings, Inc. | Attributable to Non- Controlling Interest | Total | |||||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| Other comprehensive loss, before income taxes: | ||||||||||||||||||||||||
| Holding losses on investments | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Reclassification adjustment for net realized losses included in net loss | ||||||||||||||||||||||||
| Other comprehensive loss, before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Income tax benefit related to items of other comprehensive loss | ||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
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NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar amounts in thousands)
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Unearned Employee Stock Ownership Plan Shares | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Income Taxes | Treasury Stock | Non-Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Balance, July 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Issuance of vested award shares | — | |||||||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Unearned Employee Stock Ownership Plan Shares | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Income Taxes | Treasury Stock | Non-Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Balance, January 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | ( | ) | |||||||||||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||||||
| Issuance of vested award shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)
(dollar amounts in thousands)
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Unearned Employee Stock Ownership Plan Shares | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Income Taxes | Treasury Stock | Non-Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Balance, July 1, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Issuance of vested award shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Unearned Employee Stock Ownership Plan Shares | Retained Earnings | Accumulated Other Comprehensive Income (Loss), Net of Income Taxes | Treasury Stock | Non-Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||
| Balance, January 1, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Other comprehensive loss, net of income taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||||||
| Issuance of vested award shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
NI Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(dollar amounts in thousands)
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Net investment losses (gains) | ( | ) | ||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangibles | ||||||||
| Share-based compensation | ||||||||
| Amortization of deferred policy acquisition costs | ||||||||
| Deferral of policy acquisition costs | ( | ) | ( | ) | ||||
| Net amortization of premiums and discounts on investments | ||||||||
| Gain on sale of property and equipment | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Premiums and agents’ balances receivable | ( | ) | ( | ) | ||||
| Reinsurance premiums receivable / payable | ||||||||
| Reinsurance recoverables on losses | ( | ) | ( | ) | ||||
| Income tax recoverable / payable | ( | ) | ||||||
| Accrued investment income | ( | ) | ||||||
| Federal Crop Insurance Corporation receivable / payable | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Unpaid losses and loss adjustment expenses | ||||||||
| Unearned premiums | ||||||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Net cash flows from operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Proceeds from maturities and sales of fixed income securities | ||||||||
| Proceeds from sales of equity securities | ||||||||
| Purchases of fixed income securities | ( | ) | ( | ) | ||||
| Purchases of equity securities | ( | ) | ( | ) | ||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sales of property and equipment | ||||||||
| Net cash flows from investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Purchases of treasury stock | ( | ) | ( | ) | ||||
| Installment payment on Westminster consideration payable | ( | ) | ||||||
| Issuance of vested award shares | ( | ) | ( | ) | ||||
| Net cash flows from financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Federal and state income taxes paid | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Unaudited Consolidated Financial Statements
8
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 1. | Organization |
NI Holdings is a North Dakota business corporation
that is the stock holding company of Nodak Insurance and became such in connection with the conversion of Nodak Mutual from a mutual to
stock form of organization and the creation of a mutual holding company. The conversion was consummated on March 13, 2017. Immediately
following the conversion, all of the outstanding shares of common stock of Nodak Insurance were issued to Nodak Mutual Group, which then
contributed the shares to NI Holdings in exchange for
These unaudited consolidated financial statements include the financial position and results of operations of NI Holdings and the following other entities:
Nodak Insurance Company
Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota, offering private passenger auto, homeowners, farmowners, commercial multi-peril, crop hail, and Federal multi-peril crop insurance coverages through its captive agents in the state.
Nodak Agency, Inc.
Nodak Agency is an inactive shell corporation.
American West Insurance Company
American West is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the United States (“U.S.”). American West began writing policies in 2002 and primarily writes private passenger auto, homeowners, and farm coverages in South Dakota. American West also writes personal auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages in Minnesota and South Dakota.
Primero Insurance Company
Primero is a wholly-owned subsidiary of Tri-State, Ltd.
Tri-State, Ltd. is an inactive shell corporation
Battle Creek Mutual Insurance Company
Battle Creek is a property and casualty insurance company writing private passenger auto, homeowners, and farm coverages solely in the state of Nebraska. Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle Creek. Because we have concluded that we control Battle Creek, we consolidate the financial statements of Battle Creek, and Battle Creek’s policyholders’ interest in Battle Creek is reflected as a non-controlling interest in shareholders’ equity in our Consolidated Balance Sheets for NI Holdings (“Consolidated Balance Sheets”) and its net income or loss is excluded from net income or loss attributed to NI Holdings in our Consolidated Statements of Operations for NI Holdings (“Consolidated Statements of Operations”).
Direct Auto Insurance Company
Direct Auto is a property and casualty insurance company licensed in Illinois. Direct Auto began writing non-standard automobile coverage in 2007, and was acquired by NI Holdings on August 31, 2018, via a stock purchase agreement.
Westminster American Insurance Company
Westminster is a property and casualty insurance company licensed in 18 states and the District of Columbia. Westminster is headquartered in Owings Mills, Maryland and underwrites commercial multi-peril insurance in the states of Delaware, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020, via a stock purchase agreement.
9
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Nodak Insurance markets and distributes its policies through its captive agents, while all other companies utilize the independent agent distribution channel. Additionally, all of the Company’s insurance subsidiary and affiliate companies are rated “A” Excellent by A.M. Best Company, Inc. (“AM Best”), a global credit rating agency specializing in the insurance industry.
The same executive management team provides oversight and strategic direction for the entire organization. Nodak Insurance provides common product oversight, pricing practices, and underwriting standards, as well as underwriting and claims administration, to itself, American West, and Battle Creek. Primero, Direct Auto, and Westminster personnel manage the day-to-day operations of their respective companies.
| 2. | Basis of Presentation and Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All material intercompany transactions and balances have been eliminated. These financial statements should be read in conjunction with the financial statements and notes thereto included in our 2022 Annual Report.
The Consolidated Balance Sheet at December 31, 2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
The preparation of the interim unaudited consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim unaudited consolidated financial statements and the reported amounts of revenues, claims, and expenses during the reporting period. Actual results could differ from those estimates. Operating results for the interim periods ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ended December 31, 2023.
Our 2022 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition, and liquidity. The accounting policies and estimation processes described in the 2022 Annual Report were consistently applied to the unaudited consolidated financial statements as of and for the nine months ended September 30, 2023 and 2022.
Recent Accounting Pronouncements
Prior to December 31, 2022, we were classified as an emerging growth company (“EGC”) and elected to use the extended transition period for complying with certain new or revised financial accounting standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act. However, beginning on December 31, 2022, we are no longer an EGC and are now unable to delay adoption of these new or revised accounting standards, or to take advantage of reduced corporate governance disclosures.
Adopted
For information regarding accounting pronouncements that the Company adopted during the periods presented, see Item II, Part 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report.
10
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 3. | Investments |
| September 30, 2023 | ||||||||||||||||||||
| Cost or Amortized Cost | Allowance for Expected Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||
| U.S. Government and agencies | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||||||
| Residential mortgage-backed securities | ( | ) | ||||||||||||||||||
| Commercial mortgage-backed securities | ( | ) | ||||||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||||||
| Redeemable preferred stocks | ( | ) | ||||||||||||||||||
| Total fixed income securities | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Cost or Amortized Cost | Allowance for Expected Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||
| U.S. Government and agencies | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Obligations of states and political subdivisions | ( | ) | ||||||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||||||
| Residential mortgage-backed securities | ( | ) | ||||||||||||||||||
| Commercial mortgage-backed securities | ( | ) | ||||||||||||||||||
| Asset-backed securities | ( | ) | ||||||||||||||||||
| Redeemable preferred stocks | ( | ) | ||||||||||||||||||
| Total fixed income securities | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| September 30, 2023 | ||||||||
| Amortized Cost | Fair Value | |||||||
| Due to mature: | ||||||||
| One year or less | $ | $ | ||||||
| After one year through five years | ||||||||
| After five years through ten years | ||||||||
| After ten years | ||||||||
| Mortgage / asset-backed securities | ||||||||
| Redeemable preferred stocks | ||||||||
| Total fixed income securities | $ | $ | ||||||
| December 31, 2022 | ||||||||
| Amortized Cost | Fair Value | |||||||
| Due to mature: | ||||||||
| One year or less | $ | $ | ||||||
| After one year through five years | ||||||||
| After five years through ten years | ||||||||
| After ten years | ||||||||
| Mortgage / asset-backed securities | ||||||||
| Redeemable preferred stocks | ||||||||
| Total fixed income securities | $ | $ | ||||||
11
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Fixed income securities with a fair value of $
| September 30, 2023 | ||||||||||||||||||||||||
| Less than 12 Months | Greater than 12 months | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||
| U.S. Government and agencies | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Corporate securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Residential mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Commercial mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Asset-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Redeemable preferred stocks | ( | ) | ( | ) | ||||||||||||||||||||
| Total fixed income securities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||
| Less than 12 Months | Greater than 12 months | Total | ||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||||||
| Fixed income securities: | ||||||||||||||||||||||||
| U.S. Government and agencies | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
| Obligations of states and political subdivisions | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Corporate securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Residential mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Commercial mortgage-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Asset-backed securities | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Redeemable preferred stocks | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Total fixed income securities | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||
We, along with our investment advisors, frequently review our investment portfolio for declines in fair value that could be indicative of credit losses. Beginning on December 31, 2022, credit losses are recognized through an allowance account. We consider a number of factors when determining if an allowance for credit losses is necessary, including payment and default history, credit spreads, credit ratings and rating actions, and probability of default. We determine the credit loss component of fixed maturity investments by utilizing discounted cash flow modeling to determine the present value of the security and comparing the present value with the amortized cost of the security. We did not recognize any credit losses for fixed income securities at the time of adoption of the new credit loss accounting standard or during the three or nine months ended September 30, 2023. Therefore, there was no beginning or ending balance of credit losses for the three or nine months ended September 30, 2023, or the year ended December 31, 2022. See Item II, Part 8, Note 3 “Summary of Significant Accounting Policies” section of the 2022 Annual Report for additional information.
12
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Fixed income securities | $ | $ | $ | $ | ||||||||||||
| Equity securities | ||||||||||||||||
| Real estate | ||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||
| Total gross investment income | ||||||||||||||||
| Investment expenses | ||||||||||||||||
| Net investment income | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Gross realized gains: | ||||||||||||||||
| Fixed income securities | $ | $ | $ | $ | ||||||||||||
| Equity securities | ||||||||||||||||
| Total gross realized gains | ||||||||||||||||
| Gross realized losses, excluding credit impairment losses: | ||||||||||||||||
| Fixed income securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Equity securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total gross realized losses, excluding credit impairment losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net realized gains | ||||||||||||||||
| Change in net unrealized gains on equity securities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net investment gains (losses) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
13
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 4. | Fair Value Measurements |
The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Investment securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets or liabilities at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets. Accounting guidance on fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy are as follows:
| Level 1: | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | |
| Level 2: | Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 includes fixed income securities with quoted prices that are traded less frequently than exchange traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. | |
| Level 3: | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity). |
The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the estimates of the Company or other third-parties, are often calculated based on the characteristics of the asset, the economic and competitive environment, and other such factors. Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts which could have been realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for purposes of our consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.
The Company uses quoted values and other data provided by an independent pricing service in its process for determining fair values of its investments. The evaluations of such pricing services represent an exit price and a good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale. This pricing service provides us with one quote per instrument. For fixed income securities that have quoted prices in active markets, market quotations are provided. For fixed income securities that do not trade on a daily basis, the independent pricing service prepares estimates of fair value using a wide array of observable inputs including relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The observable market inputs that the Company’s independent pricing service utilizes may include (listed in order of priority for use) benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, and other reference data on markets, industry, and the economy. Additionally, the independent pricing service uses an option-adjusted spread model to develop prepayment and interest rate scenarios.
Should the independent pricing service be unable to provide a fair value estimate, we would attempt to obtain a non-binding fair value estimate from a number of broker-dealers and would review this estimate in conjunction with a fair value estimate reported by an independent business news service or other sources. In instances where only one broker-dealer provides a fair value for a fixed income security, we would use that estimate. In instances where the Company would be able to obtain fair value estimates from more than one broker-dealer, we would review the range of estimates and select the most appropriate value based on the facts and circumstances. Should neither the independent pricing service nor a broker-dealer provide a fair value estimate, we would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs. Accordingly, the Company classifies such a security as a Level 3 investment.
The fair value estimates of our investments provided by the independent pricing service at each period-end were utilized, among other resources, in reaching a conclusion as to the fair value of its investments.
14
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
Management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures. We also use information from our third-party investment advisors who utilize different independent pricing services to further validate the reasonableness of the valuation of our fixed income portfolio. If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair value, then it will seek to resolve the discrepancy through discussions with the independent pricing service. In its review, management did not identify any such discrepancies and no adjustments were made to the estimates provided by the independent pricing service for the three or nine months ended September 30, 2023, or the year ended December 31, 2022. The classification within the fair value hierarchy is then confirmed based on the final conclusions from the pricing review.
The valuation of money market accounts and equity securities are generally based on Level 1 inputs, which use the market-approach valuation technique. The valuation of certain cash equivalents and our fixed income securities generally incorporates significant Level 2 inputs using the market and income approach techniques. We may assign a lower level to inputs typically considered to be Level 2 based on our assessment of liquidity and relative level of uncertainty surrounding inputs. There were no assets or liabilities classified at Level 3 at September 30, 2023, or December 31, 2022.
| September 30, 2023 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Government and agencies | $ | $ | $ | $ | ||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Corporate securities | ||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Redeemable preferred stock | ||||||||||||||||
| Total fixed income securities | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Common stock | ||||||||||||||||
| Non-redeemable preferred stock | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Money market accounts and cash equivalents | ||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||
15
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| December 31, 2022 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Government and agencies | $ | $ | $ | $ | ||||||||||||
| Obligations of states and political subdivisions | ||||||||||||||||
| Corporate securities | ||||||||||||||||
| Residential mortgage-backed securities | ||||||||||||||||
| Commercial mortgage-backed securities | ||||||||||||||||
| Asset-backed securities | ||||||||||||||||
| Redeemable preferred stock | ||||||||||||||||
| Total fixed income securities | ||||||||||||||||
| Equity securities: | ||||||||||||||||
| Common stock | ||||||||||||||||
| Non-redeemable preferred stock | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Money market accounts and cash equivalents | ||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | ||||||||||||
There were no liabilities measured at fair value on a recurring basis at September 30, 2023, or December 31, 2022.
| 5. | Reinsurance |
External Reinsurance
The Company’s consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The primary purpose of these agreements is to protect the Company, at a cost, from losses in excess of the amount it is prepared to accept and to protect the Company’s capital. Our ceded reinsurance is placed either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts placed on substantial individual risks. These contracts do not relieve the Company from its obligations to policyholders.
During the nine-month period ended September 30, 2023, the
Company maintained property catastrophe reinsurance protection covering $
During the year ended December 31, 2022, the Company maintained
property catastrophe reinsurance protection covering $
The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers. Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using a new credit loss model (current expected credit losses or “CECL”). See the Part II, Item 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report for additional information. Credit loss estimates are made based on periodic evaluation of balances due from reinsurers, changes in reinsurer credit standing, judgments regarding reinsurers’ solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions, and the state of reinsurer relations in general. Collection risk is mitigated by entering into reinsurance arrangements only with reinsurers that have strong financial strength ratings. At September 30, 2023, and December 31, 2022, management has concluded that it is not necessary to record an allowance for expected credit losses related to reinsurance recoverables. All of our significant reinsurance partners are rated “A-” (Excellent) or better by AM Best, and there is no history of write-offs.
16
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | |||||||||||||||
| Premiums Written | Premiums Earned | Premiums Written | Premiums Earned | |||||||||||||
| Direct premium | $ | $ | $ | $ | ||||||||||||
| Assumed premium | ||||||||||||||||
| Ceded premium | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net premiums | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, 2022 | Nine Months Ended September 30, 2022 | |||||||||||||||
| Premiums Written | Premiums Earned | Premiums Written | Premiums Earned | |||||||||||||
| Direct premium | $ | $ | $ | $ | ||||||||||||
| Assumed premium | ||||||||||||||||
| Ceded premium | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net premiums | $ | $ | $ | $ | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Direct losses and loss adjustment expenses | $ | $ | $ | $ | ||||||||||||
| Assumed losses and loss adjustment expenses | ||||||||||||||||
| Ceded losses and loss adjustment expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net losses and loss adjustment expenses | $ | $ | $ | $ | ||||||||||||
If
Intercompany Reinsurance Pooling Arrangement
Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement. Nodak Insurance is the lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak Insurance then retrocedes balances back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool percentages established in the respective pooling agreement. This arrangement allows each insurance company to rely upon the capacity of the pool’s total statutory capital and surplus. As a result, they are evaluated by AM Best on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category.
| Pool Percentage | ||||
| Nodak Insurance Company | ||||
| American West Insurance Company | ||||
| Primero Insurance Company | ||||
| Battle Creek Mutual Insurance Company | ||||
| Direct Auto Insurance Company | ||||
| Westminster American Insurance Company | ||||
| Total | ||||
17
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 6. | Deferred Policy Acquisition Costs |
Expenses directly related to successfully acquired insurance
policies, primarily commissions, premium taxes, and underwriting costs, are deferred and amortized over the terms of the policies.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||
| Deferral of policy acquisition costs | ||||||||||||||||
| Amortization of deferred policy acquisition costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||
| 7. | Unpaid Losses and Loss Adjustment Expenses |
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Balance, beginning of period: | ||||||||
| Liability for unpaid losses and loss adjustment expenses | $ | $ | ||||||
| Reinsurance recoverables on losses | ||||||||
| Net balance, beginning of period | ||||||||
| Incurred related to: | ||||||||
| Current year | ||||||||
| Prior years | ( | ) | ||||||
| Total incurred | ||||||||
| Paid related to: | ||||||||
| Current year | ||||||||
| Prior years | ||||||||
| Total paid | ||||||||
| Balance, end of period: | ||||||||
| Liability for unpaid losses and loss adjustment expenses | ||||||||
| Reinsurance recoverables on losses | ||||||||
| Net balance, end of period | $ | $ | ||||||
During the nine months ended September 30, 2023, the Company’s
incurred reported losses and loss adjustment expenses included $
Changes in unpaid losses and loss adjustment expense reserves are generally the result of ongoing analysis of recent loss development trends. As additional information becomes known regarding individual claims, original estimates are increased or decreased accordingly.
18
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 8. | Property and Equipment |
| September 30, 2023 | December 31, 2022 | Estimated Useful Life | ||||||||
| Cost: | ||||||||||
| Land | $ | $ | indefinite | |||||||
| Building and improvements | ||||||||||
| Electronic data processing equipment | ||||||||||
| Furniture and fixtures | ||||||||||
| Automobiles | ||||||||||
| Gross cost | ||||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||||
| Total property and equipment, net | $ | $ | ||||||||
Depreciation expense was $
19
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 9. | Goodwill and Other Intangibles |
Goodwill
| September 30, 2023 | December 31, 2022 | |||||||
| Non-standard auto from acquisition of Primero | $ | $ | ||||||
| Commercial from acquisition of Westminster | ||||||||
| Total | $ | $ | ||||||
Other Intangible Assets
| September 30, 2023 | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||
| Subject to amortization: | ||||||||||||
| Trade names | $ | $ | $ | |||||||||
| Distribution network | ||||||||||||
| Total subject to amortization | ||||||||||||
| Not subject to amortization: | ||||||||||||
| State insurance licenses | ||||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2022 | Gross Carrying Amount | Accumulated Amortization | Net | |||||||||
| Subject to amortization: | ||||||||||||
| Trade names | $ | $ | $ | |||||||||
| Distribution network | ||||||||||||
| Total subject to amortization | ||||||||||||
| Not subject to amortization: | ||||||||||||
| State insurance licenses | ||||||||||||
| Total | $ | $ | $ | |||||||||
Amortization expense was $
| Year ending December 31, | ||||
| 2023 (three months remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total other intangible assets with finite lives | $ | |||
20
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 10. | Royalties, Dividends, and Affiliations |
North Dakota Farm Bureau
Nodak Insurance was organized by the North Dakota Farm Bureau
(“NDFB”) to provide insurance protection for its members. We have a royalty agreement with the NDFB that recognizes the use
of their trademark and provides royalties to the NDFB based on the premiums written on Nodak Insurance’s policies. Royalties paid
to the NDFB were $
Dividends
State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital requirements that may further affect their ability to pay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2022, exceeded the amount of statutory capital and surplus necessary to satisfy risk-based capital requirements by a significant margin.
For information regarding the availability of subsidiaries to pay dividends to NI Holdings during 2023, see Item II, Part 8, Note 12 “Related Party Transactions” section of the 2022 Annual Report.
Battle Creek Mutual Insurance Company
| September 30, 2023 | December 31, 2022 | |||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Investments | ||||||||
| Premiums and agents’ balances receivable | ||||||||
| Deferred policy acquisition costs | ||||||||
| Reinsurance recoverables on losses (2) | ||||||||
| Accrued investment income | ||||||||
| Income tax recoverable | ||||||||
| Deferred income taxes | ||||||||
| Property and equipment | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Unpaid losses and loss adjustment expenses | $ | $ | ||||||
| Unearned premiums | ||||||||
| Notes payable (1) | ||||||||
| Pooling payable (1) | ||||||||
| Reinsurance losses payable (2) | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Equity: | ||||||||
| Non-controlling interest | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
(1)
(2)
21
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net premiums earned | $ | $ | $ | $ | ||||||||||||
| Fee and other income (expenses) | ( | ) | ( | ) | ||||||||||||
| Net investment income (expense) | ( | ) | ||||||||||||||
| Total revenues | ||||||||||||||||
| Expenses: | ||||||||||||||||
| Losses and loss adjustment expenses | ||||||||||||||||
| Amortization of deferred policy acquisition costs | ||||||||||||||||
| Other underwriting and general expenses | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Income (loss) before income taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 11. | Benefit Plans |
Nodak Insurance sponsors a 401(k) plan with an automatic and
matching contribution for eligible employees at Nodak Insurance, Primero, and Direct Auto. Nodak Insurance also contributes an additional
elective amount of employee compensation as a profit-sharing contribution for its eligible employees. Westminster also sponsors a separate
401(k) plan. American West and Battle Creek have no employees. The Company reported expenses related to these plans totaling $
All fees associated with the plans are deducted from the eligible employee accounts.
The Company also offers a non-qualified deferred compensation
plan to key executives of the Company (as designated by the Board of Directors). The Company’s policy is to fund the plan by amounts
that represent the excess of the maximum contribution allowed by the Employee Retirement Income Security Act over the key executives’
allowable 401(k) contribution. The plan also allows employee-directed deferral of key executives’ compensation or incentive payments.
The Company reported expenses related to this plan totaling $
In connection with our initial public offering (“IPO”) in March 2017, the Company established its Employee Stock Ownership Plan (the “ESOP”). The ESOP is intended to be an employee stock ownership plan within the meaning of Internal Revenue Code Section 4975(e)(7) and invests solely in common stock of the Company.
Upon establishment of the ESOP, Nodak Insurance loaned $
The shares purchased by the ESOP Trust in the offering are held in a suspense account as collateral for the ESOP loan. Nodak Insurance makes semi-annual cash contributions to the ESOP in amounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance. While the ESOP makes two loan payments per year, a pre-determined portion of the shares are released from the suspense account and allocated to participant accounts at the end of the calendar year. This release and allocation occurs on an annual basis over the ten-year term of the ESOP loan. Nodak Insurance has a lien on the shares of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance. If the ESOP is terminated as a result of a change in control of the Company, the ESOP may be required to pay the costs of terminating the plan.
22
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
It is anticipated that the only assets held by the ESOP will be shares of the Company’s common stock. Participants in the ESOP cannot direct the investment of any assets allocated to their accounts. The ESOP participants are employees of Nodak Insurance. The employees of Primero, Direct Auto, and Westminster do not participate in the ESOP.
Each employee of Nodak Insurance automatically becomes a participant in the ESOP if such employee is at least 21 years old, has completed a minimum of one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period. Employees are not permitted to make any contributions to the ESOP. Participants in the ESOP receive annual reports from the Company showing the number of shares of common stock of the Company allocated to the participants’ accounts and the market value of those shares. The shares are allocated to participants based on compensation as provided for in the ESOP.
In connection with the establishment of the ESOP, the Company created
a contra-equity account on the Consolidated Balance Sheet equal to the ESOP’s basis in the shares. The basis of those shares was
set at $
The Company recognized compensation expense related to the ESOP
of $
Through September 30, 2023, and December 31, 2022, the Company had
released and allocated
| 12. | Line of Credit |
Nodak Insurance has a $
| 13. | Income Taxes |
At September 30, 2023, and December 31, 2022, we had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No interest and penalties were recognized during the three- and nine-month periods ended September 30, 2023 or the year ended December 31, 2022.
At September 30, 2023, and December 31, 2022, the Company, other than Battle Creek and Westminster, had no income tax related carryforwards for net operating losses, alternative minimum tax credits, or capital losses.
Battle Creek, which files its income tax returns on a stand-alone
basis, had net operating loss carryforwards of $
Westminster, which became part of the Company’s consolidated
federal income tax return beginning in 2020, had a $
As of September 30, 2023, we are no longer subject to federal tax examination for years prior to 2019.
23
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 14. | Leases |
Primero leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in 2028, and leases a facility in Las Vegas, Nevada on a month-to-month basis. Direct Auto leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029. Nodak Insurance leases a facility in Fargo, North Dakota under a non-cancellable operating lease expiring in 2024.
Effective for the year ended December 31, 2022, the Company adopted the updated guidance for leases. This guidance was adopted in the fourth quarter of 2022, and accordingly, the expense amounts for the periods ended September 30, 2023, are not comparable to the periods ended September 30, 2022. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements” in the 2022 Annual Report for additional information. Under the new guidance, lease expense for these operating leases is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities, respectively, in the Consolidated Balance Sheet at the origination of the lease. We currently do not have leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to the Company.
We determine whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and directs the use of identified property or equipment for a period of time in exchange for consideration. We generally must also have the right to obtain substantially all of the economic benefits from the use of the property and equipment. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present value of lease payments not yet paid, we estimate incremental borrowing rates based on the floating interest rate on our Line of Credit with Wells Fargo Bank, N.A. at the lease commencement date, as rates are not implicitly stated in most leases.
| As of and For the Three Months Ended September 30, | As of and For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Other information on operating leases: | ||||||||||||||||
| Operating cash outflow from operating leases | ||||||||||||||||
| Right-of-use assets obtained in exchange for new lease liabilities | ||||||||||||||||
| Weighted average discount rate | ||||||||||||||||
| Weighted average remaining lease term in years | ||||||||||||||||
| Year ending December 31, | ||||
| 2023 (three months remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | ||||
| Less: present value adjustment | ||||
| Operating lease liability at September 30, 2023 | $ | |||
24
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 15. | Contingencies |
We have been named as a defendant in various lawsuits relating to our insurance operations. Contingent liabilities arising from litigation, income taxes, and other matters are not considered to be material to our financial position.
| 16. | Common and Preferred Stock |
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Shares outstanding, beginning of period | ||||||||
| Treasury shares repurchased through stock repurchase authorization | ( | ) | ( | ) | ||||
| Issuance of treasury shares for vesting of restricted stock units | ||||||||
| Shares outstanding, end of period | ||||||||
The changes in the number of common shares outstanding excludes
certain non-forfeitable stock award shares that are included in the weighted average common shares outstanding used in basic earnings
per common share calculations. The net loss per diluted common share for the nine-month period ended September 30, 2023, excluded the
weighted average effects of
On August 11, 2021, our Board of Directors approved
an authorization for the repurchase of up to approximately $
On May 9, 2022, our Board of Directors approved
an authorization for the repurchase of up to approximately $
The cost of this treasury stock is a reduction of shareholders’ equity within our Consolidated Balance Sheets.
On August 16, 2022, the U.S. government enacted
the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”)
based on adjusted financial statement income and imposes a
Preferred Stock
The Company’s Articles of Incorporation provide authority to issue up to five million shares of preferred stock. No preferred shares are issued or outstanding.
| 17. | Share-Based Compensation |
The NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) is designed to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors, advisors, and non-employee directors capable of assuring the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business, and to afford such persons an opportunity to acquire an ownership interest in the Company, thereby aligning the interests of such persons with the Company’s shareholders.
25
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
The Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalents, and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”). Awards made under the Plan are based upon, among other things, a participant’s level of responsibility and performance within the Company.
The total aggregate number of shares of common
stock that may be issued under the Plan shall not exceed
Restricted Stock Units
The Compensation Committee has awarded RSUs to
non-employee directors and select executives. RSUs are promises to issue actual shares of common stock at the end of a vesting period.
The RSUs granted to executives under the Plan were based on salary and vest
The Company recognizes stock-based compensation costs for RSUs based on the grant date fair value. The compensation costs are normally expensed over the vesting periods to each vesting date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain retirement criteria and the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are currently estimated.
| RSUs | Weighted-Average Grant-Date Fair Value Per Share | |||||||
| Units outstanding and unearned at January 1, 2022 | $ | |||||||
| RSUs granted during 2022 | ||||||||
| RSUs earned during 2022 | ( | ) | ||||||
| Units outstanding and unearned at December 31, 2022 | ||||||||
| RSUs granted during 2023 | ||||||||
| RSUs earned during 2023 | ( | ) | ||||||
| Units outstanding and unearned at September 30, 2023 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| RSU compensation expense | $ | $ | $ | $ | ||||||||||||
| Income tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| RSU compensation expense, net of income taxes | $ | $ | $ | $ | ||||||||||||
At September 30, 2023, there was $
Performance Share Units
The Compensation Committee has awarded PSUs to select executives. PSUs are promises to issue actual shares of common stock at the end of a vesting period if certain performance conditions are met. The PSUs granted to employees under the Plan were based on salary and include a three-year adjusted book value cumulative growth target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid in cash at the end of the performance period in accordance with the level of performance achieved but are subject to forfeiture until the underlying shares become vested. Participants do not have voting rights with respect to PSUs.
26
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
The Company recognizes stock-based compensation costs for PSUs based on the grant date fair value over the performance period of the awards. Estimated forfeitures are included in the determination of compensation costs. The current cost estimates represent the Company’s forecasted performance against cumulative growth targets.
| PSUs | Weighted-Average Grant-Date Fair Value Per Share | |||||||
| Units outstanding at January 1, 2022 | $ | |||||||
| PSUs granted during 2022 (at target) | ||||||||
| PSUs earned during 2022 | ( | ) | ||||||
| Performance adjustment (1) | ||||||||
| Forfeitures | ( | ) | ||||||
| Units outstanding at December 31, 2022 | ||||||||
| PSUs granted during 2023 (at target) | ||||||||
| PSUs earned during 2023 | ||||||||
| Performance adjustment (1) | ( | ) | ||||||
| Forfeitures | ||||||||
| Units outstanding at September 30, 2023 | ||||||||
(1)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| PSU compensation expense (benefit) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income tax expense (benefit) | ( | ) | ( | ) | ||||||||||||
| PSU compensation expense, net of income taxes | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The cost estimates for PSU grants represent initial
target awards until we can reasonably forecast the financial performance of each PSU award grant. At the end of the performance period,
we will reflect a performance adjustment, which may be either an increase or decrease from the initial target awards. The actual number
of shares to be issued at the end of the performance period will range from
At September 30, 2023, there was $
27
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 18. | Allowance for Expected Credit Losses |
Premiums Receivable
Beginning on December 31, 2022, credit losses
are recognized through an allowance account developed using the new CECL model. This guidance was adopted in the fourth quarter of 2022,
and accordingly, there was no allowance for expected credit losses as of September 30, 2022. See the Part II, Item 8, Note 2 “Recent
Accounting Pronouncements” section of the 2022 Annual Report for additional information.
| As of and For the Three Months Ended September 30, 2023 | ||||||||
| Premiums and Agents’ Balances Receivable, Net of Allowance for Expected Credit Losses | Allowance for Expected Credit Losses | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Current period charge for expected credit losses | ||||||||
| Write-offs of uncollectible premiums receivable | ||||||||
| Balance, end of period | $ | $ | ||||||
As of and For the Nine Months Ended September 30, 2023 | ||||||||
| Premiums and Agents’ Balances Receivable, Net of Allowance for Expected Credit Losses | Allowance for Expected Credit Losses | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Current period charge for expected credit losses | ||||||||
| Write-offs of uncollectible premiums receivable | ||||||||
| Balance, end of period | $ | $ | ||||||
28
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| 19. | Segment Information |
We have six reportable operating segments, which
consist of private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, commercial insurance,
and all other (which primarily consists of assumed reinsurance and our excess liability business). We operate only in the U.S., and no
single customer or agent provides
For purposes of evaluating profitability of the non-standard auto segment, we combine the policy fees paid by the insured with the underwriting gain or loss as its primary measure. As a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in the tables below. The remaining fee and other income amounts are not allocated to any segment.
We do not assign or allocate all line items in our Unaudited Consolidated Statement of Operations or Unaudited Consolidated Balance Sheet to our operating segments. Those line items include net investment income, net investment gains (losses), fee and other income excluding non-standard auto, and income tax expense (benefit) within the Unaudited Consolidated Statement of Operations. For the Unaudited Consolidated Balance Sheet, those items include cash and investments, property and equipment, other assets, accrued expenses and other liabilities, income taxes recoverable or payable, and shareholders’ equity.
29
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Private Passenger Auto | Non-Standard Auto | Home and Farm | Crop | Commercial | All Other | Total | ||||||||||||||||||||||
| Direct premiums earned | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Assumed premiums earned | ||||||||||||||||||||||||||||
| Ceded premiums earned | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net premiums earned | ||||||||||||||||||||||||||||
| Direct losses and loss adjustment expenses | ( | ) | ||||||||||||||||||||||||||
| Assumed losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Ceded losses and loss adjustment expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||||
| Underwriting and general expenses | ||||||||||||||||||||||||||||
| Underwriting gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Fee and other income | ||||||||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||||
| Net investment losses | ( | ) | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||||
| Income tax benefit | ( | ) | ||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Net income attributable to non-controlling interest | ||||||||||||||||||||||||||||
| Net income attributable to NI Holdings, Inc. | $ | |||||||||||||||||||||||||||
| Operating Ratios: | ||||||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | ||||||||||||||||||||||||||||
| Expense ratio | ||||||||||||||||||||||||||||
| Combined ratio | ||||||||||||||||||||||||||||
| Balances at September 30, 2023: | ||||||||||||||||||||||||||||
| Premiums and agents’ balances receivable | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Deferred policy acquisition costs | ||||||||||||||||||||||||||||
| Reinsurance recoverables on losses | ||||||||||||||||||||||||||||
| Receivable from Federal Crop Insurance Corporation | ||||||||||||||||||||||||||||
| Goodwill and other intangibles | ||||||||||||||||||||||||||||
| Unpaid losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Unearned premiums | ||||||||||||||||||||||||||||
30
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||
| Private Passenger Auto | Non-Standard Auto | Home and Farm | Crop | Commercial | All Other | Total | ||||||||||||||||||||||
| Direct premiums earned | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Assumed premiums earned | ||||||||||||||||||||||||||||
| Ceded premiums earned | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net premiums earned | ||||||||||||||||||||||||||||
| Direct losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Assumed losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Ceded losses and loss adjustment expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||||||||||||||||||
| Underwriting and general expenses | ||||||||||||||||||||||||||||
| Underwriting gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Fee and other income | ||||||||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||||
| Net investment losses | ( | ) | ||||||||||||||||||||||||||
| Loss before income taxes | ( | ) | ||||||||||||||||||||||||||
| Income tax benefit | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to NI Holdings, Inc. | $ | ( | ) | |||||||||||||||||||||||||
| Operating Ratios: | ||||||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | ||||||||||||||||||||||||||||
| Expense ratio | ||||||||||||||||||||||||||||
| Combined ratio | ||||||||||||||||||||||||||||
| Balances at September 30, 2022: | ||||||||||||||||||||||||||||
| Premiums and agents’ balances receivable | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Deferred policy acquisition costs | ||||||||||||||||||||||||||||
| Reinsurance recoverables on losses | ||||||||||||||||||||||||||||
| Goodwill and other intangibles | ||||||||||||||||||||||||||||
| Unpaid losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Unearned premiums | ||||||||||||||||||||||||||||
| Payable to Federal Crop Insurance Corporation | ||||||||||||||||||||||||||||
31
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Nine Months Ended September 30, 2023 | ||||||||||||||||||||||||||||
| Private Passenger Auto | Non-Standard Auto | Home and Farm | Crop | Commercial | All Other | Total | ||||||||||||||||||||||
| Direct premiums earned | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Assumed premiums earned | ||||||||||||||||||||||||||||
| Ceded premiums earned | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net premiums earned | ||||||||||||||||||||||||||||
| Direct losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Assumed losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Ceded losses and loss adjustment expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||||
| Underwriting and general expenses | ||||||||||||||||||||||||||||
| Underwriting gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Fee and other income | ||||||||||||||||||||||||||||
| ( | ) | |||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||||
| Net investment gains | ||||||||||||||||||||||||||||
| Loss before income taxes | ( | ) | ||||||||||||||||||||||||||
| Income tax benefit | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to NI Holdings, Inc. | $ | ( | ) | |||||||||||||||||||||||||
| Operating Ratios: | ||||||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | ||||||||||||||||||||||||||||
| Expense ratio | ||||||||||||||||||||||||||||
| Combined ratio | ||||||||||||||||||||||||||||
32
NI Holdings, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(dollar amounts in thousands, except per share amounts)
| Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||
| Private Passenger Auto | Non-Standard Auto | Home and Farm | Crop | Commercial | All Other | Total | ||||||||||||||||||||||
| Direct premiums earned | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Assumed premiums earned | ||||||||||||||||||||||||||||
| Ceded premiums earned | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net premiums earned | ||||||||||||||||||||||||||||
| Direct losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Assumed losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Ceded losses and loss adjustment expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net losses and loss adjustment expenses | ||||||||||||||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||||||||||||||
| Underwriting and general expenses | ||||||||||||||||||||||||||||
| Underwriting gain (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Fee and other income | ||||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||||
| Net investment losses | ( | ) | ||||||||||||||||||||||||||
| Loss before income taxes | ( | ) | ||||||||||||||||||||||||||
| Income tax benefit | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to non-controlling interest | ( | ) | ||||||||||||||||||||||||||
| Net loss attributable to NI Holdings, Inc. | $ | ( | ) | |||||||||||||||||||||||||
| Operating Ratios: | ||||||||||||||||||||||||||||
| Loss and loss adjustment expense ratio | ||||||||||||||||||||||||||||
| Expense ratio | ||||||||||||||||||||||||||||
| Combined ratio | ||||||||||||||||||||||||||||
33
Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to provide a more comprehensive review of our operating results and financial condition than can be obtained from reading the unaudited consolidated financial statements alone. This discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements.” Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” included elsewhere in this Form 10-Q. Part I, Item 1A, “Risk Factors” included in our 2022 Annual Report should also be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described, or implied by, the forward-looking statements contained herein.
All dollar amounts included in Item 2 herein are in thousands.
Results of Operations
Our consolidated net income was $298 for the three months ended September 30, 2023, compared to net loss of $10,169 for the three months ended September 30, 2022. Our consolidated net loss was $12,437 for the nine months ended September 30, 2023, compared to net loss of $54,766 for the nine months ended September 30, 2022.
The major components of revenues and net loss are shown below:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net premiums earned | $ | 90,770 | $ | 89,532 | $ | 262,543 | $ | 243,615 | ||||||||
| Fee and other income | 455 | 476 | 1,228 | 1,319 | ||||||||||||
| Net investment income | 2,751 | 2,035 | 7,495 | 5,703 | ||||||||||||
| Net investment gains (losses) | (1,227 | ) | (2,868 | ) | 15 | (19,532 | ) | |||||||||
| Total revenues | 92,749 | 89,175 | 271,281 | 231,105 | ||||||||||||
| Components of net income: | ||||||||||||||||
| Net premiums earned | 90,770 | 89,532 | 262,543 | 243,615 | ||||||||||||
| Losses and loss adjustment expenses | 63,564 | 78,917 | 199,895 | 227,641 | ||||||||||||
| Amortization of deferred policy acquisition costs and other underwriting and general expenses | 29,057 | 23,501 | 87,175 | 73,151 | ||||||||||||
| Underwriting loss | (1,851 | ) | (12,886 | ) | (24,527 | ) | (57,177 | ) | ||||||||
| Fee and other income | 455 | 476 | 1,228 | 1,319 | ||||||||||||
| Net investment income | 2,751 | 2,035 | 7,495 | 5,703 | ||||||||||||
| Net investment gains (losses) | (1,227 | ) | (2,868 | ) | 15 | (19,532 | ) | |||||||||
| Income (loss) before income taxes | 128 | (13,243 | ) | (15,789 | ) | (69,687 | ) | |||||||||
| Income tax benefit | (170 | ) | (3,074 | ) | (3,352 | ) | (14,921 | ) | ||||||||
| Net income (loss) | $ | 298 | $ | (10,169 | ) | $ | (12,437 | ) | $ | (54,766 | ) | |||||
Net Premiums Earned
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net premiums earned: | ||||||||||||||||
| Direct premium | $ | 104,540 | $ | 102,173 | $ | 296,176 | $ | 269,823 | ||||||||
| Assumed premium | 2,045 | 2,460 | 3,448 | 6,012 | ||||||||||||
| Ceded premium | (15,815 | ) | (15,101 | ) | (37,081 | ) | (32,220 | ) | ||||||||
| Total net premiums earned | $ | 90,770 | $ | 89,532 | $ | 262,543 | $ | 243,615 | ||||||||
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Our net premiums earned for the three months ended September 30, 2023, increased $1,238, or 1.4%, compared to the three months ended September 30, 2022. Net premiums earned for the nine months ended September 30, 2023, increased $18,928, or 7.8%, compared to the nine months ended September 30, 2022.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net premiums earned: | ||||||||||||||||
| Private passenger auto | $ | 21,235 | $ | 19,813 | $ | 61,431 | $ | 57,818 | ||||||||
| Non-standard auto | 21,231 | 17,579 | 63,754 | 47,469 | ||||||||||||
| Home and farm | 21,309 | 19,751 | 61,714 | 58,919 | ||||||||||||
| Crop | 9,746 | 14,566 | 22,358 | 26,848 | ||||||||||||
| Commercial | 15,751 | 15,884 | 48,410 | 45,103 | ||||||||||||
| All other | 1,498 | 1,939 | 4,876 | 7,458 | ||||||||||||
| Total net premiums earned | $ | 90,770 | $ | 89,532 | $ | 262,543 | $ | 243,615 | ||||||||
Below are comments regarding net premiums earned by business segment:
Private passenger auto – Net premiums earned for the third quarter of 2023 increased $1,422, or 7.2%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 increased $3,613, or 6.2% from the first nine months of 2022. Results were driven by significant rate increases in North Dakota, South Dakota, and Nebraska, partially offset by lower new business production as a result of underwriting actions taken to improve profitability.
Non-standard auto – Net premiums earned for the third quarter of 2023 increased $3,652, or 20.8%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 increased $16,285, or 34.3% from the first nine months of 2022. Results were driven by new business growth, improved retention, and significant rate increases in the Chicago market where our non-standard auto business is concentrated.
Home and farm – Net premiums earned for the third quarter of 2023 increased $1,558, or 7.9%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 increased $2,795, or 4.7% from the first nine months of 2022. Results were driven by rate increases along with increased insured property values, which were primarily the result of higher inflationary factors. These premium increases were partially offset by lower levels of new business production as a result of underwriting actions taken to improve profitability.
Crop – Net premiums earned for the third quarter of 2023 decreased $4,820, or 33.1%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 decreased $4,490, or 16.7% from the first nine months of 2022. These decreases were driven by lower commodity prices and lower muti-peril crop insurance rates, combined with fewer acres insured in the current year.
Commercial – Net premiums earned for the third quarter of 2023 decreased $133, or 0.8%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 increased $3,307, or 7.3% from the first nine months of 2022. The current quarter decrease was driven by higher levels of ceded premium. The year-to-date increase was driven by prior period new business growth, increased insured values which were primarily the result of higher inflationary factors, and continued increases in rate, partially offset by higher levels of ceded premium and the impact of underwriting actions taken to improve profitability.
All other – Net premiums earned for the third quarter of 2023 decreased $441, or 22.7%, from the third quarter of 2022. Net premiums earned for the first nine months of 2023 decreased $2,582, or 34.6%, from the first nine months of 2022. These decreases were driven by the decision to non-renew our participation in an assumed domestic and international reinsurance pool of business as of January 1, 2022.
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Losses and Loss Adjustment Expenses
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net losses and loss adjustment expenses: | ||||||||||||||||
| Direct losses and loss adjustment expenses | $ | 71,107 | $ | 94,446 | $ | 237,117 | $ | 250,611 | ||||||||
| Assumed losses and loss adjustment expenses | 725 | 868 | 882 | 2,413 | ||||||||||||
| Ceded losses and loss adjustment expenses | (8,268 | ) | (16,397 | ) | (38,104 | ) | (25,383 | ) | ||||||||
| Total net losses and loss adjustment expenses | $ | 63,564 | $ | 78,917 | $ | 199,895 | $ | 227,641 | ||||||||
Our net losses and loss adjustment expenses for the three months ended September 30, 2023, decreased $15,353, or 19.5%, compared to the three months ended September 30, 2022. Our net losses and loss adjustment expenses for the nine months ended September 30, 2023, decreased $27,746, or 12.2%, compared to the nine months ended September 30, 2022.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net losses and loss adjustment expenses: | ||||||||||||||||
| Private passenger auto | $ | 16,603 | $ | 20,354 | $ | 51,094 | $ | 51,918 | ||||||||
| Non-standard auto | 18,838 | 11,958 | 50,015 | 24,582 | ||||||||||||
| Home and farm | 14,052 | 28,822 | 40,686 | 97,492 | ||||||||||||
| Crop | 3,690 | 6,974 | 11,127 | 17,135 | ||||||||||||
| Commercial | 10,272 | 9,812 | 46,515 | 32,821 | ||||||||||||
| All other | 109 | 997 | 458 | 3,693 | ||||||||||||
| Total net losses and loss adjustment expenses | $ | 63,564 | $ | 78,917 | $ | 199,895 | $ | 227,641 | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Loss and loss adjustment expenses ratio: | ||||||||||||||||
| Private passenger auto | 78.2% | 102.7% | 83.2% | 89.8% | ||||||||||||
| Non-standard auto | 88.7% | 68.0% | 78.5% | 51.8% | ||||||||||||
| Home and farm | 65.9% | 145.9% | 65.9% | 165.5% | ||||||||||||
| Crop | 37.9% | 47.9% | 49.8% | 63.8% | ||||||||||||
| Commercial | 65.2% | 61.8% | 96.1% | 72.8% | ||||||||||||
| All other | 7.3% | 51.4% | 9.4% | 49.5% | ||||||||||||
| Total loss and loss adjustment expenses ratio | 70.0% | 88.1% | 76.1% | 93.5% | ||||||||||||
Below are comments regarding significant changes in the net losses and loss adjustment expenses, and the net loss and loss adjustment expense ratios, by business segment:
Private passenger auto – The net loss and loss adjustment expense ratio decreased 24.5 percentage points and 6.6 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. Both periods were affected by lower loss frequency in the current year, partially offset by elevated loss costs due to continued high levels of inflation during the current year and elevated winter weather-related losses in the first quarter of 2023.
Non-standard auto – The net loss and loss adjustment expense ratio increased 20.7 percentage points and 26.7 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. These increases were driven by elevated loss severity as a result of inflationary factors as well as unfavorable prior year loss reserve development. We continue to take significant rate and underwriting actions as a result of these elevated losses and challenging market conditions.
Home and farm – The net loss and loss adjustment expense ratio decreased 80.0 percentage points and 99.6 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. These decreases in net loss and loss adjustment expense ratios were driven by the much-improved loss experience as a result of having no catastrophe losses during 2023 compared to 2022, combined with improved non-catastrophe weather losses and the significant underwriting actions we have implemented to address the profitability on these lines of business. Catastrophe losses for the Home and Farm segment accounted for 96.3 percentage points of the net loss and loss adjustment expense ratio for the nine months ended September 30, 2022.
Crop – The net loss and loss adjustment expense ratio decreased 10.0 percentage points and 14.0 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. These decreases were driven by improved crop growing conditions compared to the prior year.
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Commercial – The net loss and loss adjustment expense ratio increased 3.4 percentage points and 23.3 percentage points in the three- and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. These increases were driven by unfavorable prior year reserve development and elevated loss severity, partially offset by higher ceded losses. We continue to take significant rate and underwriting actions and continue to evaluate additional measures to improve the segment’s profitability.
All other – The net loss and loss adjustment expense ratio decreased 44.1 percentage points and 40.1 percentage points in the three-and nine-month periods ended September 30, 2023, respectively, compared to the same period for 2022. These decreases were driven by improved loss experience related to the excess liability lines of business.
Underwriting and General Expenses and Expense Ratio
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Underwriting and general expenses: | ||||||||||||||||
| Amortization of deferred policy acquisition costs | $ | 20,362 | $ | 17,589 | $ | 59,529 | $ | 49,456 | ||||||||
| Other underwriting and general expenses | 8,695 | 5,912 | 27,646 | 23,695 | ||||||||||||
| Total underwriting and general expenses | 29,057 | 23,501 | 87,175 | 73,151 | ||||||||||||
| Expense Ratio | 32.0% | 26.3% | 33.2% | 30.0% | ||||||||||||
The expense ratio is calculated by dividing other underwriting and general expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company’s operational efficiency in producing, underwriting, and administering its insurance business. The overall expense ratio increased 5.7 percentage points and 3.2 percentage points in the three-and nine-month periods ended September 30, 2023, respectively, compared to the same periods in 2022. The increase in both the current quarter and year-to-date amortization of deferred policy acquisition costs was driven by higher deferrable costs resulting from overall premium growth compared to the prior year, including significant growth in the non-standard auto segment which generally pays higher agent commissions than our other segments. The increase in both the current quarter and year-to-date other underwriting and general expenses was due to 2022 expenses being impacted by multi-peril crop insurance final settlements as well as the impact of continued high levels of inflation.
Underwriting Gain (Loss) and Combined Ratio
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Underwriting gain (loss): | ||||||||||||||||
| Private passenger auto | $ | (1,446 | ) | $ | (5,602 | ) | $ | (7,912 | ) | $ | (10,482 | ) | ||||
| Non-standard auto | (6,278 | ) | (778 | ) | (12,610 | ) | 3,530 | |||||||||
| Home and farm | 1,098 | (14,467 | ) | 2,513 | (55,998 | ) | ||||||||||
| Crop | 4,106 | 7,249 | 6,601 | 8,313 | ||||||||||||
| Commercial | (331 | ) | 232 | (16,251 | ) | (4,470 | ) | |||||||||
| All other | 1,000 | 480 | 3,132 | 1,930 | ||||||||||||
| Total underwriting loss | $ | (1,851 | ) | $ | (12,886 | ) | $ | (24,527 | ) | $ | (57,177 | ) | ||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Combined ratio: | ||||||||||||||||
| Private passenger auto | 106.8% | 128.3% | 112.9% | 118.1% | ||||||||||||
| Non-standard auto | 129.5% | 104.4% | 119.8% | 92.6% | ||||||||||||
| Home and farm | 94.8% | 173.2% | 95.9% | 195.1% | ||||||||||||
| Crop | 57.9% | 50.2% | 70.5% | 69.0% | ||||||||||||
| Commercial | 102.1% | 98.6% | 133.6% | 109.9% | ||||||||||||
| All other | 33.3% | 75.2% | 35.8% | 74.1% | ||||||||||||
| Combined ratio | 102.0% | 114.4% | 109.3% | 123.5% | ||||||||||||
Underwriting gain (loss) measures the pre-tax profitability of our insurance operations. It is derived by subtracting losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. The combined ratio represents the sum of these losses and expenses as a percentage of net premiums earned and measures our overall underwriting profit.
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The total underwriting loss decreased $11,035, or 85.6%, for the three-month period ended September 30, 2023, compared to the same period in 2022. The total underwriting loss decreased $32,650, or 57.1%, for the nine-month period ended September 30, 2023, compared to the same period in 2022. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses section above.
The overall combined ratio decreased 12.4 percentage points in the three-month period ended September 30, 2023, compared to the same period in 2022. The overall combined ratio decreased 14.2 percentage points in the nine-month period ended September 30, 2023, compared to the same period in 2022. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses section above.
Fee and Other Income
We had fee and other income of $455 and $1,228 for the three and nine months ended September 30, 2023, respectively, compared to $476 and $1,319 for the three and nine months ended September 30, 2022, respectively. Fee income is largely attributable to the non-standard auto segment and is a key component in measuring its profitability. The decrease in fee and other income for the nine-month period ended September 30, 2023, was driven by a shifting mix of business in the Chicago market as well as miscellaneous income from the sale of property in the first quarter of the prior year.
Net Investment Income
The following table shows our average cash and invested assets, net investment income, and return on average cash and invested assets for the reported periods:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Average cash and invested assets | $ | 399,408 | $ | 436,714 | $ | 402,508 | $ | 468,026 | ||||||||
| Net investment income | $ | 2,751 | $ | 2,035 | $ | 7,495 | $ | 5,703 | ||||||||
| Gross return on average cash and invested assets | 3.6% | 2.6% | 3.3% | 2.4% | ||||||||||||
| Net return on average cash and invested assets | 2.8% | 1.9% | 2.5% | 1.6% | ||||||||||||
Net investment income increased $716 for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. Net investment income increased $1,792 for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. These increases were primarily driven by the rising interest rate environment which resulted in higher reinvestment rates in our fixed income portfolio.
Gross and net return on average cash and invested assets increased year-over-year, driven by the higher net investment income and a higher proportion of the equity portfolio being invested in high dividend yield equities in 2023, along with a decrease in average cash and invested assets (measured at fair value). This decrease in average cash and invested assets was driven by lower fixed income fair values caused by an increasing interest rate environment and challenging equity market conditions particularly during the middle and later stages of 2022, combined with investment sales as a result of an unusually high number of weather-related losses in 2022.
Net Investment Gains (Losses)
Net investment gains (losses) consisted of the following:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Gross realized gains | $ | 722 | $ | 1,286 | $ | 13,810 | $ | 3,606 | ||||||||
| Gross realized losses, excluding credit impairment losses | (191 | ) | (1,203 | ) | (1,812 | ) | (1,558 | ) | ||||||||
| Net realized gains | 531 | 83 | 11,998 | 2,048 | ||||||||||||
| Change in net unrealized gains on equity securities | (1,758 | ) | (2,951 | ) | (11,983 | ) | (21,580 | ) | ||||||||
| Net investment gains (losses) | $ | (1,227 | ) | $ | (2,868 | ) | $ | 15 | $ | (19,532 | ) | |||||
We had net realized gains of $531 and $11,998 for the three and nine months ended September 30, 2023, respectively, compared to net realized gains of $83 and $2,048 for the three and nine months ended September 30, 2022, respectively. The year-to-date increase in net realized gains was primarily the result of a strategic liquidation of a portfolio of equity securities in the first quarter of 2023. The gross realized gains from the sale of these securities were largely offset by the elimination of the unrealized gain position of these securities. No credit impairment losses were reported during any of the periods presented.
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We experienced a decrease in net unrealized gains on equity securities of $1,758 and $11,983 during the three and nine months ended September 30, 2023, respectively, and a decrease in net unrealized gains on equity securities of $2,951 and $21,580 during the three and nine months ended September 30, 2022, respectively. The current period year-to-date change in net unrealized gains on equity securities was driven by the equity portfolio liquidation noted above, additional sales of equity securities during the current quarter, and the impact of changes in fair value attributable to equity market volatility. The prior year decreases were driven by the impact of changes in fair value attributable to unfavorable equity markets.
Our fixed income securities are classified as available for sale because we will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies. The fixed income portion of the portfolio experienced net unrealized losses of $9,183 and net unrealized losses of $6,068 during the three and nine months ended September 30, 2023, respectively, compared to net unrealized losses of $12,727 and $49,947 during the three and nine months ended September 30, 2022, respectively. The changes were primarily the result of changes in U.S. interest rates. The change in the fair value of fixed income securities is not reflected in net income; rather it is reflected as a separate component (net of income taxes) of other comprehensive income.
Income (Loss) before Income Taxes
For the three months ended September 30, 2023, we had a pre-tax income of $128 compared to a pre-tax loss of $13,243 for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we had a pre-tax loss of $15,789 compared to pre-tax loss of $69,687 for the nine months ended September 30, 2022. These year-over-year improvements were largely attributable to the significant catastrophe losses during the second and third quarters of 2022 and significantly higher investment losses during the first nine months of 2022, partially offset by year-to-date unfavorable prior year reserve development during 2023 combined with year-to-date favorable prior year reserve development during 2022.
Income Tax Expense (Benefit)
We recorded an income tax benefit of $170 for the three months ended September 30, 2023, compared to an income tax benefit of $3,074 for the three months ended September 30, 2022. Our effective tax rate for the third quarter of 2023 was (132.8)% compared to an effective tax rate of 23.2% for the third quarter of 2022. The elevated 2023 third quarter effective tax rate was driven by the level of net income during the period and small modifications made to the annual effective income tax rate between the second and third quarters of 2023.
We recorded an income tax benefit of $3,352 for the nine months ended September 30, 2023, compared to income tax benefit of $14,921 for the nine months ended September 30, 2022. Our effective tax rate for the first nine months of 2023 was 21.2% compared to an effective tax rate of 21.4% for the first nine months of 2022.
Net Income (Loss)
For the three months ended September 30, 2023, we had net income before non-controlling interest of $298 compared to a net loss of $10,169 for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we had a net loss before non-controlling interest of $12,437 compared to net loss of $54,766 for the nine months ended September 30, 2022. These year-over-year improvements were largely attributable to the significant catastrophe losses during the second and third quarters of 2022 and significantly higher investment losses during the first nine months of 2022, partially offset by year-to-date unfavorable prior year reserve development during 2023 combined with year-to-date favorable prior year reserve development during 2022.
Return on Average Equity
For the three months ended September 30, 2023, we had annualized return on average equity, after non-controlling interest, of 0.4% compared to annualized return on average equity, after non-controlling interest, of (15.4)% for the three months ended September 30, 2022.
For the nine months ended September 30, 2023, we had annualized return on average equity, after non-controlling interest, of (6.7)% compared to annualized return on average equity, after non-controlling interest, of (24.3)% for the nine months ended September 30, 2022.
Average equity is calculated as the average between beginning and ending equity, excluding non-controlling interest, for the period.
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Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in the unaudited consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions, industry trends, and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to these estimates and assumptions or that reported results of operations will not be materially and adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Our critical accounting policies are more fully described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” presented in our 2022 Annual Report. There have been no changes in our critical accounting policies from December 31, 2022.
Liquidity and Capital Resources
We expect to generate sufficient funds from our operations and maintain a high degree of liquidity in our investment portfolio to meet the demands of claim settlements and operating expenses for the foreseeable future. Our primary sources of funds are premium collections, investment earnings, and fixed income maturities.
The change in cash and cash equivalents for the nine months ended September 30, 2023 and 2022, were as follows:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash flows from operating activities | $ | (3,021 | ) | $ | (24,680 | ) | ||
| Net cash flows from investing activities | (2,021 | ) | 18,639 | |||||
| Net cash flows from financing activities | (7,454 | ) | (10,305 | ) | ||||
| Net decrease in cash and cash equivalents | $ | (12,496 | ) | $ | (16,346 | ) | ||
For the nine months ended September 30, 2023, net cash used by operating activities totaled $3,021 compared to $24,680 a year ago. This decrease was primarily driven by lower claim payments during the current period and higher levels of cash received for premiums.
For the nine months ended September 30, 2023, net cash used by investing activities totaled $2,021 compared to net cash provided of $18,639 a year ago. This change was primarily attributable to a decrease in maturities and sales of fixed income securities and an increase in purchases of fixed income securities in the current year compared to the prior year, partially offset by an increase in sales of equity securities and a decrease in purchases of equity securities.
For the nine months ended September 30, 2023, net cash used by financing activities totaled $7,454 compared to $10,305 a year ago. This decrease in cash used was attributable to an installment payment of $6,667 on the Westminster consideration payable during the first quarter of 2022, partially offset by an increase in share repurchases during the first nine months of 2023 compared to the first nine months of 2022.
As a holding company, a principal source of long-term liquidity will be dividend payments from our directly-owned subsidiaries.
40
Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of dividends or other distributions it may pay to NI Holdings. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of surplus as regards policyholders as of the preceding December 31, or (ii) the statutory net income for the preceding calendar year (excluding realized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurance company may carry forward net income from the preceding two calendar years, not including realized investment gains, less any dividends actually paid during those two calendar years. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the North Dakota Insurance Department.
There is no amount available for payment of dividends from Nodak Insurance to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net loss of Nodak Insurance during the year ended December 31, 2022. Prior to its payment of any dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department. This notice must be provided to the North Dakota Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if an insurance company is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity. No dividends were declared or paid by Nodak Insurance during the nine months ended September 30, 2023. The Nodak Insurance Board of Directors declared and Nodak Insurance paid dividends of $3,000 to NI Holdings during the year ended December 31, 2022.
Direct Auto re-domesticated from Illinois to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from Direct Auto to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net loss of Direct Auto during the year ended December 31, 2022. No dividends were declared or paid by Direct Auto during the nine months ended September 30, 2023, or the year ended December 31, 2022.
Westminster re-domesticated from Maryland to North Dakota during 2021 and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from Westminster to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the statutory net loss of Westminster during the year ended December 31, 2022. No dividends were declared or paid by Westminster during the nine months ended September 30, 2023, or the year ended December 31, 2022.
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Item 3. - Quantitative and Qualitative Disclosures about Market Risk
The Company’s assessment of market risk as of September 30, 2023, indicates there have been no material changes in the quantitative and qualitative disclosures from those in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Annual Report.
Item 4. - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such material information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Controls over Financial Reporting
In the ordinary course of business, we periodically review our system of internal control over financial reporting to identify opportunities to improve our controls and increase efficiency, while ensuring that we maintain an effective internal control environment. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Part II. - OTHER INFORMATION
Item 1. - Legal Proceedings
We are party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not be materially adversely affected by any litigation.
Item 1A. - Risk Factors
There have been no material changes in our assessment of our risk factors from those set forth in Part I, Item 1A, “Risk Factors” in our 2022 Annual Report.
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Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
All dollar amounts included in Item 2 herein, except per share data, are in thousands.
The Company has not sold any unregistered securities within the past three years.
On January 17, 2017, our registration statement on Form S-1 registering our common stock was declared effective by the SEC. On March 13, 2017, the Company completed the IPO of 10,350,000 shares of common stock at a price of $10.00 per share. The Company received net proceeds of $93,145 from the offering, after deducting underwriting discounts and offering expenses.
Direct Auto was acquired on August 31, 2018, with $17,000 of the net proceeds from the IPO.
On January 1, 2020, we acquired Westminster for $40,000. We paid $20,000 at the time of closing. The terms of the acquisition agreement included payment of the remaining $20,000, subject to certain adjustments, in three equal installments on each of the first and second anniversaries of the closing, and on the first business day of the month preceding the third anniversary of the closing. The first two installments were paid in January 2021 and January 2022, and the final installment was paid in December 2022 with no adjustments from the originally anticipated amount. The Company used net proceeds from the IPO to satisfy these obligations.
From time to time, the Company may also repurchase its own stock. To date, the Company has used the net proceeds from the IPO to fund these share repurchases.
There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on January 17, 2017.
On August 11, 2021, our Board of Directors approved an authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock. During the year ended December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this authorization. During the year ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this authorization.
On May 9, 2022, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. During the year ended December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this authorization. During the nine months ended September 30, 2023, we repurchased an additional 548,549 shares of our common stock for $7,280, including the applicable excise tax. At September 30, 2023, $2,052 remains available under this authorization.
Share repurchase activity during the three months ended September 30, 2023, is presented below:
| Period in 2023 | Total Number of Shares Purchased | Average Price Paid Per Share (3) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2)(3) (in thousands) | ||||||||||||
| July 1-31, 2023 | 23,183 | $ | 14.14 | 23,183 | $ | 5,715 | ||||||||||
| August 1-31, 2023 | 20,643 | 13.19 | 20,643 | 5,443 | ||||||||||||
| September 1-30, 2023 | 266,559 | 12.72 | 266,559 | 2,052 | ||||||||||||
| Total | 310,385 | $ | 12.86 | 310,385 | $ | 2,052 | ||||||||||
| (1) | Shares purchased pursuant to the May 9, 2022, publicly announced share repurchase authorization of up to approximately $10,000 of the Company’s outstanding common stock. |
| (2) | Maximum dollar value of shares that may yet be purchased consist of up to approximately $2,052 under the May 9, 2022, publicly announced share repurchase authorization. |
| (3) | The Inflation Reduction Act of 2022 imposed a 1% excise tax on the net value of certain share repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable. |
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Item 3. - Defaults upon Senior Securities
Not Applicable
Item 4. - Mine Safety Disclosures
Not Applicable
Item 5. - Other Information
10b5-1 Trading Plans
During the third quarter of
2023,
Item 6. - Exhibits
| (1) | Filed as Exhibit 10.1 to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on August 8, 2023, and incorporated herein by reference. |
45
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 7, 2023.
|
NI HOLDINGS, INC.
| |
| /s/ Michael J. Alexander | |
| Michael J. Alexander | |
|
President and Chief Executive Officer (Principal Executive Officer) | |
| /s/ Seth C. Daggett | |
| Seth C. Daggett | |
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting | |
46
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION
302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael J. Alexander, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of NI Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| November 7, 2023 | /s/ Michael J. Alexander |
| Michael J. Alexander | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
47
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION
302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Seth C. Daggett, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of NI Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| November 7, 2023 | /s/ Seth C. Daggett |
| Seth C. Daggett | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of NI Holdings, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Michael J. Alexander, President and Chief Executive Officer, and Seth C. Daggett, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| November 7, 2023 | /s/ Michael J. Alexander |
| Michael J. Alexander | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| November 7, 2023 | /s/ Seth C. Daggett |
| Seth C. Daggett | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
49