What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-09 compared with 2021-03-10 · 214 added, 472 removed, 268 unchanged (72% of the section changed)

All dollar amounts, except per share amounts, are in thousands.

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 55% of the outstanding shares of common stock of NI Holdings.

NI Holdings, Inc.

(“NI Holdings”, “the Company”, “we”, “us”, and “our”) is a North Dakota business corporation that is the stock holding company of Nodak Insurance Company and became such in connection with the conversion of Nodak Mutual Insurance Company (“Nodak Mutual”) from a mutual to stock form of organization and the creation of a mutual holding company.

The conversion was completed on March 13, 2017.

Immediately following the conversion, all of the outstanding shares of common stock of Nodak Insurance Company (“Nodak Insurance”, the successor to Nodak Mutual Insurance Company) were issued to Nodak Mutual Group, which then contributed the shares to NI Holdings in exchange for 55% of the outstanding shares of common stock of NI Holdings.

Nodak Insurance then became a wholly-owned stock subsidiary of NI Holdings.

1 unchanged sentence

As a result of the conversion, NI Holdings became the holding company for Nodak Insurance and its existing subsidiaries.

Nodak Insurance was formed in 1946 to offer property and casualty insurance to members of the North Dakota Farm Bureau Federation (“North Dakota Farm Bureau”).

Nodak Insurance’s bylaws provide that a person must be a member and remain a member of the North Dakota Farm Bureau in order to become and remain a policyholder of Nodak Insurance.

Nodak Insurance’s bylaws also require that four members of the Board of Directors of Nodak Insurance must be members of the North Dakota Farm Bureau.

Similarly, one-third of the members of the Board of Directors of Nodak Mutual Group must be persons designated by the North Dakota Farm Bureau.

The North Dakota Farm Bureau has granted Nodak Insurance a nonexclusive, nontransferable license to use the name “Farm Bureau”

and the “FB”

logo and associated trademarks to market Nodak Insurance products, including insurance products.

Nodak Insurance has held this license since the insurance company’s inception in 1946, and the current version of the license agreement has been in place since 2002.

The current license agreement between the North Dakota Farm Bureau and Nodak Insurance renewed on October 1, 2020, with an expiration date of September 30, 2021.

The agreement has historically been renewed annually by a vote of the Nodak Insurance Board of Directors.

Under the current license agreement, Nodak Insurance is required to pay to the North Dakota Farm Bureau an annual royalty payment equal to 1.3% of Nodak Insurance’s written premiums (excluding multi-peril crop insurance premiums), subject to a minimum annual payment of $900 and a maximum annual payment of $1,370.

The maximum royalty payment is adjusted annually based upon the June index month for the Consumer Price Index.

Nodak Insurance’s subsidiaries include American West and Primero.

Battle Creek is an affiliate of Nodak Insurance.

On August 31, 2018, NI Holdings completed the acquisition of 100% of the common stock of Direct Auto from private shareholders and Direct Auto became a consolidated subsidiary of the Company.

The results of Direct Auto are included as part of the Company’s non-standard auto business segment following the closing date.

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 the Company.

The results of Westminster are included as part of the Company’s commercial business segment following the closing date.

All insurance subsidiaries of NI Holdings are rated “A”

Best, which is the third highest out of a possible 15 ratings.

The consolidated financial statements of NI Holdings presented herein include the financial position and results of operations of NI Holdings, Direct Auto (after the acquisition date of August 31, 2018), Westminster (after the acquisition date of January 1, 2020), and Nodak Insurance, including Nodak Insurance’s subsidiaries American West and Primero, and its affiliate Battle Creek.

Each of the six insurance companies is subject to examination and comprehensive regulation by the insurance department of its state of domicile.

Concurrent with the conversion, on March 13, 2017, the Company completed an initial public offering (“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 the underwriting discounts and offering expenses.

The newly issued shares of NI Holdings were available for public trading on March 16, 2017.

These Consolidated Financial Statements include the financial position and results of operations of NI Holdings and seven other entities:

Nodak Insurance –

a wholly-owned subsidiary of NI Holdings;  

Nodak Agency, Inc.

(“Nodak Agency”) –

a wholly-owned subsidiary of Nodak Insurance;  

American West Insurance Company (“American West”) –

a wholly-owned subsidiary of Nodak Insurance;  

Primero Insurance Company (“Primero”) –

an indirect wholly-owned subsidiary of Nodak Insurance;  

Battle Creek Mutual Insurance Company (“Battle Creek”) –

an affiliated company of Nodak Insurance;  

Direct Auto Insurance Company (“Direct Auto”) –

a wholly-owned subsidiary of NI Holdings;

and  

Westminster American Insurance Company (“Westminster”) –

a wholly-owned subsidiary of NI Holdings.  

A chart of the corporate structure as of December 31, 2021, and a more complete description of each of the NI Holdings subsidiaries, is included below.

5 unchanged sentences

Nodak Insurance Company

Westminster American Insurance Company

Westminster American

Insurance Company

Nodak Agency, Inc.

3 unchanged sentences

Tri-State, Ltd

Primero Insurance Company

The following tables provide selected amounts from the Company’s consolidated statements of operations and balance sheets.

Additional information is presented throughout this Annual Report on Form 10-K.

Year Ended December 31,

Direct premiums written

Net premiums earned

Net income after non-controlling interest

As of December 31,

Primero Insurance

The executive offices of NI Holdings and Nodak Insurance are located at 1101 First Avenue North, Fargo, North Dakota 58102, and the main office phone number is 701-298-4200.

1 unchanged sentence

website address is www.niholdingsinc.com .

The Company makes available, free of charge on its website, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after it electronically files such material with, or furnish it to, the U.S.

Securities and Exchange Commission (“SEC”).

Information contained on such website is not incorporated by reference into this Annual Report on Form 10-K, and such information should not be considered to be part of this Annual Report on Form 10-K.

Subsidiary and Affiliate Companies

Intercompany Reinsurance Pooling Arrangement

5 unchanged sentences

As a result, they are evaluated by A.M.

Best on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category.

In connection with the pooling arrangement, the quota share reinsurance agreement between Battle Creek and Nodak Insurance was cancelled.

As a result, the Company’s consolidated financial position and results of operations are impacted by the portion of Battle Creek’s underwriting results that are allocated to the policyholders of Battle Creek rather than the shareholders of NI Holdings.

For the year ended December 31, 2020, the pooling share percentages by insurance company subsidiary were:

Best Company, Inc.

(“AM Best”) on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category.

In connection with the pooling arrangement, the quota share reinsurance agreement that had been in place since 2011 between Battle Creek and Nodak Insurance was cancelled.

As a result, a portion of the Company’s underwriting results are now allocated to the policyholders of Battle Creek rather than the shareholders of NI Holdings.

For the years ended December 31, 2021 and 2020, the pooling share percentages by insurance company were:

Pool Percentage

5 unchanged sentences

Westminster American Insurance Company

Insurance Subsidiary and Affiliate Companies

Nodak Insurance Company (“Nodak Insurance”)

Nodak Insurance writes private passenger automobile, farmowners, homeowners, multi-peril crop, crop hail, and commercial property and liability policies in North Dakota.

Only members of the North Dakota Farm Bureau can purchase insurance coverage from Nodak Insurance.

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 Insurance was formed in 1946 to offer property and casualty insurance to members of the North Dakota Farm Bureau (“NDFB”), and benefits from a strong marketing affiliation with that organization.

Nodak Insurance’s bylaws provide that a person must be a member and remain a member of the NDFB in order to become and remain a policyholder of Nodak Insurance.

Nodak Insurance’s bylaws also require that four members of the Board of Directors of Nodak Insurance must be members of the NDFB.

Similarly, one-third of the members of the Board of Directors of Nodak Mutual Group must be persons designated by the NDFB.

The NDFB has granted Nodak Insurance a nonexclusive, nontransferable license to use the name “Farm Bureau”

and the “FB”

logo and associated trademarks to market Nodak Insurance products, including insurance products.

Nodak Insurance has held this license since the insurance company’s inception in 1946, and the current version of the license agreement has been in place since 2002.

The current license agreement between the NDFB and Nodak Insurance renewed on October 1, 2021, with an expiration date of September 30, 2022.

The agreement has historically been renewed annually by a vote of the Nodak Insurance Board of Directors.

Under the current license agreement, Nodak Insurance is required to pay to the NDFB an annual royalty payment equal to 1.3% of Nodak Insurance’s written premiums (excluding multi-peril crop insurance premiums), subject to a minimum annual payment of $900 and a maximum annual payment of $1,444.

The maximum royalty payment is adjusted annually based upon the June index month for the Consumer Price Index.

As of December 31, 2021, Nodak Insurance distributed its insurance products through 72 exclusive agents appointed by Nodak Insurance.

American West Insurance Company (“American West”)

American West is licensed to write insurance in eight states in the Midwest and Western regions of the United States, and currently issues policies primarily in South Dakota, with a much lower level of writings in Minnesota and North Dakota.

American West currently writes private passenger auto, homeowners, farmowners, multi-peril crop, and crop hail insurance policies.

American West distributes its products through independent agents located in approximately 120 offices.

Battle Creek Mutual Insurance Company (“Battle Creek”)

Battle Creek issues private passenger automobile, homeowners, and farmowners policies in Nebraska.

Battle Creek distributes its policies through independent agents located in approximately 286 offices.

Nodak Agency, Inc.

Nodak Agency is an inactive shell corporation.

Tri-State, Ltd

Tri-State, Ltd 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.

American West began writing policies in 2002 and primarily writes personal 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.

As of December 31, 2021, American West distributed its products through independent agents located in 122 offices.

Primero Insurance Company

Primero is a wholly-owned subsidiary of Tri-State, Ltd.

Tri-State, Ltd.

is an inactive shell corporation 100% owned by Nodak Insurance.

Primero is a property and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota, and South Dakota.

Primero was acquired by Nodak Insurance in 2014.

As of December 31, 2021, Primero distributed its policies through independent agents in 341 contracted agencies in those four states.

Battle Creek Mutual Insurance Company

Battle Creek is a property and casualty insurance company writing personal auto, homeowners, and farm coverages solely in the state of Nebraska.

As of December 31, 2021, Battle Creek distributed its policies through independent agents located in 280 offices.

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.

Effective January 1, 2020, all of our insurance company subsidiaries entered into an intercompany reinsurance pooling agreement.

In conjunction with this agreement, the 100% quota-share reinsurance agreement between Battle Creek and Nodak Insurance was terminated on a cut-off basis as of January 1, 2020.

In conjunction with this agreement, the previous 100% quota-share reinsurance agreement between Battle Creek and Nodak Insurance was terminated on a cut-off basis as of January 1, 2020.

Upon termination, Nodak Insurance transferred to Battle Creek all liabilities related to outstanding loss and loss adjustment expense reserves and all liabilities related to the adjusted unearned premium reserve.

4 unchanged sentences

Pursuant to the affiliation agreement, so long as the surplus note remains outstanding, Nodak Insurance is entitled to appoint two-thirds of the Board of Directors of Battle Creek.

The affiliation agreement can be terminated by mutual written agreement of

Battle Creek and Nodak Insurance or by either party if there is a material breach of the agreement by the other party and such breach is not cured within 15 days after written notice of such breach is given by the terminating party to the other party.

Primero Insurance Company (“Primero”)

Primero primarily writes non-standard automobile insurance in Nevada, Arizona, North Dakota, and South Dakota.

Primero was acquired by Nodak Insurance in 2014.

Primero distributes its policies through independent agents in approximately 335 contracted agencies in those four states.

Direct Auto Insurance Company (“Direct Auto”)

Direct Auto writes non-standard automobile insurance in Illinois.

Direct Auto was acquired by NI Holdings on August 31, 2018.

Direct Auto distributes its policies through independent agents located in approximately 136 offices, concentrated primarily in the Chicago area.

Westminster American Insurance Company (“Westminster”)

Westminster writes commercial multi-peril insurance in Delaware, Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia.

Westminster was acquired by NI Holdings on January 1, 2020.

Westminster distributes its policies through independent agents in approximately 92 contracted agencies in those nine states and the District of Columbia.

The affiliation agreement can be terminated by mutual written agreement of Battle Creek and Nodak Insurance or by either party if there is a material breach of the agreement by the other party and such breach is not cured within 15 days after written notice of such breach is given by the terminating party to the other party.

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.

As of December 31, 2021, Direct Auto distributed its policies through independent agents located in 139 offices, concentrated primarily in the Chicago area.

Westminster American Insurance Company

Westminster is a property and casualty insurance company licensed in seventeen 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, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia.

Westminster was acquired by NI Holdings on January 1, 2020 via a stock purchase agreement.

As of December 31, 2021, Westminster distributed its policies through independent agents in 98 contracted agencies in those nine states and the District of Columbia.

The financial results of Westminster have been included in the Consolidated Financial Statements and the Company’s commercial segment following the acquisition date.

See Part II, Item 8, Note 3 “Acquisition of Westminster American Insurance Company”.

General Information

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 AM Best.

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.

The Consolidated Financial Statements of NI Holdings presented herein include the financial position and results of operations of NI Holdings, Direct Auto, Westminster (after the acquisition date of January 1, 2020), and Nodak Insurance, including Nodak Insurance’s subsidiaries American West and Primero, and its affiliate Battle Creek.

Each of the six insurance companies is subject to examination and comprehensive regulation by the insurance department of its state of domicile.

Market Overview

We market our property and casualty products in the upper Midwest states of North Dakota, South Dakota, Nebraska, and Minnesota.

We market our personal lines products in the upper Midwest states of North Dakota, South Dakota, Nebraska, and Minnesota.

We offer non-standard auto insurance in the states of Nevada, Arizona, North Dakota, South Dakota, and Illinois.

We offer commercial multi-peril insurance in the states of New Jersey, Maryland, Pennsylvania, Virginia, Georgia, North Carolina, Delaware, South Carolina, and West Virginia, North Dakota, South Dakota, and the District of Columbia.

The following chart depicts our direct premiums written during the last two years and our relative market share within each of our states during the year ended December 31, 2019.

The following chart shows our direct premiums written during the last two years and our relative market share within each of our states during the year ended December 31, 2020:

Year Ended December 31, 2021

3 unchanged sentences

Rank in State

New Jersey (1)

Pennsylvania (1)

District of Columbia (1)

North Carolina

District of Columbia

South Carolina

1 unchanged sentence

Total direct premiums written

For comparison purposes, Westminster’s pre-acquisition 2019 Direct Premiums Written are included in the table above.

Market size information is not yet available for the year ended December 31, 2021.

Organic Growth Strategy

We believe we have many opportunities to increase business in our primary markets organically.

Strategies we employ to grow organically include:

continued emphasis on our relationship with the North Dakota Farm Bureau, a key advocacy group for agricultural and rural interests which enjoys a high and favorable profile throughout the state;  

using the cost advantage created by our low expense ratio compared to peers (30.0% expense ratio in 2020 compared to an average expense ratio of our peers of 33.3% in 2019) to selectively expand market share in our primary markets;  

leveraging the improved A.M.

Best financial strength rating and larger financial size category to strategically grow Westminster’s commercial business;  

expansion and enhancement of agency relationships in Nebraska and South Dakota, including the use of technology such as mobile apps, online quoting, and policy issuance initiatives to make it easy for independent agents and insureds to do business with us;  

selective expansion of Primero in its core markets of Nevada and Arizona as well as expansion of the non-standard auto product in our core upper Midwest market area;  

strategic growth in our Direct Auto non-standard auto business;  

We believe we have many opportunities to organically grow our business.

Strategies we employ to achieve this growth include:

continued emphasis on our relationship with the NDFB, a key advocacy group for agricultural and rural interests which enjoys a high profile and favorable reputation throughout North Dakota;  

using the cost advantage created by our low expense ratio compared to peers (32.1% expense ratio in 2021 compared to an average expense ratio of our peers of 34.1% in 2020) to selectively expand market share;  

leveraging our AM Best financial strength rating and financial size category to strategically grow Westminster’s commercial business;  

expansion and enhancement of independent agency relationships in Nebraska and South Dakota, including the use of technology such as mobile apps, online quoting, and policy issuance initiatives to make it easy for agents and insureds to do business with us;  

selective expansion of our non-standard auto business in Illinois and our other core upper Midwest markets;  

excellent claims service for all insureds;

and  

selective expansion of our insurance products in states where we currently operate and those states where we hold insurance licenses.  

selective expansion of our insurance products in states where we currently operate, as well as those states where we hold insurance licenses.  

External Growth Strategy

We acquired Direct Auto in 2018 with capital raised through our initial public offering.

The acquisition was the initial step in executing our growth strategy developed at the time of the initial public offering.

Prior to the initial public offering, we successfully acquired Primero in 2014, acquired control of Battle Creek in 2011, and acquired American West in 2001.

We also acquired Westminster in January 2020 with capital raised through this offering.

This acquisition has expanded our commercial insurance business, geographically diversified our spread of insurance risks, and provided additional expense efficiencies.

We acquired Direct Auto in 2018 with capital raised through our IPO.

The acquisition was the initial step in executing our growth strategy developed at the time of the IPO.

We also acquired Westminster in January 2020 with capital raised through our IPO.

This acquisition expanded our commercial insurance business, geographically diversified our spread of insurance risks, and provided additional expense efficiencies.

Prior to the IPO, we successfully acquired Primero in 2014, acquired control of Battle Creek in 2011, and acquired American West in 2001.

Going forward, we plan to consider other strategic investments and acquisitions that can enhance our businesses and achieve appropriate risk-adjusted returns over time.

6 unchanged sentences

and  

relying upon our Enterprise Risk Management framework to identify, quantify, and manage a broad range of risks across the organization.  

We view our capital position to consist of three layers, each of which has a specific size and purpose:

The first layer of capital, which we refer to as “regulatory capital”, is the amount of capital needed to satisfy state insurance regulatory requirements while supporting our growth objectives, and is held by each of our insurance company subsidiaries.  

The second layer of capital we call “contingency capital”.

The first layer of capital, which we refer to as “regulatory capital”, is the amount of capital needed to satisfy state insurance regulatory requirements while supporting our growth objectives.

This capital is held by each of our insurance company subsidiaries.  

The second layer of capital is considered “contingency capital”.

While our regulatory capital is, by definition, a cushion for absorbing financial consequences of adverse events, such as loss reserve development, litigation, weather catastrophes, and investment market corrections, we view that as a base and hold additional capital for even more extreme operating conditions.

This capital is generally also held by each of our insurance company subsidiaries.  

The third layer of capital is classified as “excess capital”, and represents the excess of the sum of the first two layers.

The third layer of capital is classified as “excess capital”

and represents the excess of the sum of the first two layers.

This capital is available for deployment by NI Holdings in conjunction with our excess capital deployment priorities.  

Our excess capital deployment priorities are to (1) invest in existing businesses where we see opportunities for profitable growth, (2) make strategic investments and acquisitions that enhance our businesses and achieve appropriate risk-adjusted returns over time, and (3) return capital to shareholders through share repurchases or shareholder dividends.

Products and Services

Insurance Products by Segment

The Company’s consolidated financial results include our Private Passenger Auto, Non-Standard Auto, Home and Farm, Commercial, Crop, and All Other reporting segments.

Information regarding products and services offered in each segment is included below.

Additionally, revenues, underwriting results, and identifiable assets and liabilities for each segment are shown in Part II, Item 8, Note 20 “Segment Information”.

The financial performance of each segment is discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Private Passenger Auto

12 unchanged sentences

Collectively, crop insurance accounted for $43,540 (12.7%) of direct premiums written by the Company on a consolidated basis during 2021.

Nodak Insurance and Westminster write commercial multi-peril policies.

Nodak Insurance, American West, and Westminster write commercial multi-peril policies.

Collectively, commercial insurance accounted for $69,753 (20.4%) of the direct premiums written by the Company on a consolidated basis during 2021.

In addition to the products described above, Nodak Insurance and American West write excess liability coverages.

Collectively, these other coverages accounted for $4,771 (1.5%) of the direct premiums written by the Company on a consolidated

basis during 2020.

This segment also includes an assumed reinsurance block of business, with $4,693 of assumed premiums written on a consolidated basis during 2020.

Collectively, these other coverages accounted for $5,071 (1.5%) of the direct premiums written by the Company on a consolidated basis during 2021.

This segment also includes an assumed reinsurance book of business, with $6,076 of assumed premiums written on a consolidated basis during 2021.

Crop Insurance

10 unchanged sentences

The Federal Crop Insurance Reform Act of 1994 made participation in the crop insurance program mandatory for farmers to be eligible to participate in other government support programs and provided a minimum level of free catastrophic risk coverage for insured and noninsured crops.

The chart below illustrates the acres insured through the federal multi-peril crop insurance program during the years 2018 through 2020:

Year Ended December 31,

Federal crop acres insured:

Company crop acres insured:

The Company writes a very small amount of multi-peril crop insurance in Nebraska.

American Farm Bureau Insurance Services (“AFBIS”) underwrites all of the multi-peril crop and crop hail insurance policies written by Nodak Insurance, American West, and Battle Creek, as well as several other state Farm Bureau-affiliated insurers.

AFBIS also processes and administers all claims made by policyholders under such policies.

We reimburse AFBIS for its actual loss adjustment expense with respect to the policies issued by us and pay AFBIS a percentage of the premiums we received with respect to such policies.

We reimburse AFBIS for its actual loss adjustment expense with respect to the policies issued by us and pay AFBIS a percentage of the premiums we receive with respect to such policies.

Nodak Insurance is a shareholder of AFBIS, as is each of the other insurers for whom AFBIS provides such services.

AFBIS targets a three percent return on capital and pays all remaining profits to Nodak Insurance and the other shareholders of AFBIS.

Nodak Insurance did not receive any material distributions from AFBIS during the years ended December 31, 2018 through 2020.

Segment Financial Information

See Note 22 to the Consolidated Financial Statements for the Company’s segment disclosures.

AFBIS targets a three percent return on capital and pays all remaining profits to its shareholders.

Nodak Insurance did not receive any material distributions from AFBIS during the years ended December 31, 2021, 2020, or 2019.

Marketing and Distribution

Our marketing philosophy is to sell profitable business in our core states, using a focused, cost-effective distribution system.

Nodak Insurance distributes its insurance products through exclusive agents in North Dakota, while American West, Battle Creek, Primero, Direct Auto, and Westminster rely on independent producers.

We view these independent producers as important partners because they are in a position to recommend either our insurance products or those of a competitor to their customers.

We consider our relationships with these producers to be good.

We review our producers with respect to both premium volume and profitability.

Our exclusive agents in Nodak Insurance are hired and trained by our sales staff in North Dakota, while the independent producers in our other companies are appointed by the underwriting or marketing staff for each respective company.

We hold regular training sessions when we introduce new products or product changes, and we identify specific topics that may help our producers more effectively market our products.

For the year ended December 31, 2020, no individual producer was responsible for more than 5% of the Company’s direct premiums written by our insurance companies.

Producers are compensated through a fixed base commission structure.

Agents receive commission as a percentage of premiums (generally 5% to 40%, with a wide variation by product) as their primary compensation from us.

The Risk Management Agency of the United States Department of Agriculture (“RMA”) establishes the maximum commission that can be paid to producers with respect to crop insurance policies.

Nodak Insurance distributes its insurance products through exclusive agents in North Dakota, while American West, Battle Creek, Primero, Direct Auto, and Westminster rely on independent agents.

We view these independent agents as important partners because they are in a position to recommend either our insurance products or those of a competitor to their customers.

We review our agents with respect to both premium volume and profitability.

Our captive agents for Nodak Insurance are hired and trained by our sales staff in North Dakota, while the independent agents for our other companies are appointed by the underwriting or marketing staff for each respective company.

We hold regular training sessions when we introduce new products or product changes, and we identify specific topics that may help our agents more effectively market our products.

For the year ended December 31, 2021, no individual agent was responsible for more than 5% of the Company’s direct premiums written.

Agents are compensated through a fixed base commission structure.

Agents receive commission as a percentage of premiums as their primary compensation from us.

The Risk Management Agency of the United States Department of Agriculture (“RMA”) establishes the maximum commission that can be paid to agents with respect to crop insurance policies.

Battle Creek and American West pay profit sharing commissions to their agencies based on various annual agency premium thresholds and the difference between the agency’s loss ratio and the loss ratio goal established by the insurance company.

2 unchanged sentences

Westminster also pays profit-sharing commissions to its agencies based on annual premium thresholds and profitability.

Our marketing efforts are further supported by our claims philosophy, which is designed to provide prompt and efficient service and claims processing, resulting in a positive experience for producers and policyholders.

We believe that these positive experiences result in higher policyholder retention and new business opportunities when communicated by producers and policyholders to potential customers.

We believe that these positive experiences contribute to achieving higher policyholder retention and new business growth over time.

While we rely on our independent agents for distribution and customer support, underwriting and claim handling responsibilities are retained by us.

1 unchanged sentence

Underwriting, Risk Assessment and Pricing

Our underwriting philosophy is aimed at consistently generating profits through sound risk selection and pricing discipline.

Through our management and underwriting staff, we regularly establish rates and rating classifications for our insureds based on loss and loss adjustment expense (“LAE”) experience we have developed over the years.

We have various rating classifications based on location, type of business, and other risk factors.

We strive to be disciplined in our pricing by pursuing rate increases to maintain or improve our underwriting profitability while still being able to attract and retain customers.

We utilize pricing reviews that we believe will help us price risks more accurately, improve policyholder retention, and support the production of profitable new business.

These pricing reviews involve evaluating our claims experience and loss trends on a periodic basis to identify changes in the frequency and severity of our claims.

We then consider whether our premium rates are adequate relative to the level of underwriting risk as well as the sufficiency of our underwriting guidelines.

The nature of our business requires that we remain sensitive to the marketplace and the pricing strategies of our competitors.

Using the market information as our background, we normally set our prices based on our estimated future costs.

Using the market information as a reference point, we typically set our prices based on our estimated future costs.

From time to time, we may reduce our discounts or apply a premium surcharge to achieve an appropriate return.

2 unchanged sentences

It is our philosophy not to sacrifice profitability for premium growth.

Our competitive strategy in underwriting is to provide very high quality service to our producers and insureds by responding quickly and effectively to information requests and policy submissions.

Our competitive strategy in underwriting is to provide very high-quality service to our agents and insureds by responding quickly and effectively to information requests and policy submissions.

We maintain information on all aspects of our business, which is regularly reviewed to determine both agency and policyholder profitability.

2 unchanged sentences

They are located primarily at our home office in Fargo, North Dakota, as well as our office in Battle Creek, Nebraska, and underwrite coverage issued by Nodak Insurance, American West and Battle Creek.

Primero and Direct Auto each employ 5 underwriters in connection with their non-standard auto insurance business.

Primero and Direct Auto employ 8 underwriters in connection with their non-standard auto insurance businesses.

Westminster has a staff of 12 in the underwriting area consisting of a Vice President, underwriters, and assistant underwriters in connection with its commercial insurance business.

All of our crop insurance is underwritten by AFBIS, as described above.

We strive to be disciplined in our pricing by pursuing rate increases to maintain or improve our underwriting profitability while still being able to attract and retain customers.

We utilize pricing reviews that we believe will help us price risks more accurately, improve account retention, and support the production of profitable new business.

Our pricing reviews involve evaluating

our claims experience and loss trends on a periodic basis to identify changes in the frequency and severity of our claims.

We then consider whether our premium rates are adequate relative to the level of underwriting risk as well as the sufficiency of our underwriting guidelines.

Claims and Litigation Management

Our claims management philosophy involves:

aggressive closure of claims through prompt and thorough investigation of the facts related to the claim;  

equitable settlement of meritorious claims;

and  

vigorous defense of unfounded claims as to coverage, liability, or the amount claimed.  

Our claims team supports our underwriting strategy by working to provide a timely, good faith claims handling response to our policyholders.

Claims excellence is achieved by timely investigation and handling of claims, settlement of meritorious claims for equitable amounts, maintenance of adequate case reserves, and control of claims loss adjustment expenses.

Claims on insurance policies are received directly from the insured or through our producers.

Our claims department supports our producer relationship strategy by working to provide a consistently responsive level of claim service to our policyholders.

Our Nodak Insurance claims staff is comprised of 46 employees with over 856 years of combined experience in processing property and casualty insurance claims.

They are located primarily at our home office in Fargo, North Dakota, but also throughout our coverage areas of North Dakota, South Dakota, and Nebraska.

Primero employs 11 claims personnel and Direct Auto employs 27 claims personnel in connection with the non-standard auto insurance business.

Westminster employs 4 claims personnel in connection with its commercial insurance business.

All claims made under our multi-peril crop and crop hail insurance policies are processed and administered by AFBIS.

Our insurance operations rely on software to provide the information management systems platform that runs our policy underwriting, policy issuance, claims processing, and accounting functions.

These systems permit us to integrate the accounting and reporting functions of all of our insurance operations.

We utilize offsite servers for our information systems with daily backup of data.

We have adopted a disaster recovery plan, and other risk mitigation practices, tailored to meet our needs and geographic location.

Our technology allows most employees with the capability to work remotely while maintaining desired service levels.

We seek to invest continuously in new technology to maximize our business opportunities while protecting our interests and those of our clients.

Enterprise Risk Management

Our Company is subject to significant risks, including the normal risks of a property and casualty insurance company.

These risks are discussed in more detail in the “Item 1A.

Risk Factors”

section of this Form 10-K.

These risks are discussed in more detail in Part I, Item 1A, “Risk Factors”.

We consider an enterprise-wide risk management program to be an integral part of managing our business and a key element in our approach to corporate governance.

6 unchanged sentences

Our cybersecurity strategy employs a variety of tactics to monitor and assess threat levels, remediate our exposures, and enhance our systems and applications security.

The Company collaborates with a third party cybersecurity advisor to provide periodic

assessments and recommendations.

The Company also requires monthly online security training to be completed by employees.

While we have experienced threats to our data and systems, to date, we are not aware of any cyber-security breach.

Reinsurance Ceded

We reinsure a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured.

Insurance policies written by us are reinsured with other insurance companies principally to:

reduce our net liability exposure on individual risks;  

stabilize our underwriting results;

and  

increase our underwriting capacity.  

Reinsurance does not legally discharge us, as the insurance company issuing the policy, from primary liability for the full amount due under the reinsured policies, even though the assuming reinsurer is obligated to reimburse the company issuing the policy to the extent of the coverage ceded.

A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength.

Our reinsurance arrangements are generally renegotiated annually or bi-annually.

For the year ended December 31, 2020, NI Holdings ceded to reinsurers $23,633 of written premiums, compared to $17,120 of written premiums for the year ended December 31, 2019 and $30,394 of written premiums for the year ended December 31, 2018.

Written premiums ceded for 2020 increased year-over-year due to the addition of Westminster’s commercial business.

The higher level of premiums ceded in 2018 was primarily due to additional sharing of multi-peril crop insurance premiums with the federal government as a result of the excellent loss experience in that year.

The Company purchases reinsurance coverage under excess of loss treaties for both individual casualty and individual property risks.

Prior to 2020, the Company retained $600 of risk on individual casualty risks with coverage of $12,000, and $500 of risk on individual property risks with coverage of $25,000.

Beginning in 2020, the Company retained $700 of risk on both casualty and property risks, with the same $12,000 coverage on casualty risks and $25,000 coverage on property risks.

As a group, Nodak Insurance, American West, Battle Creek, and Westminster collectively retain the first dollars of weather-related losses from catastrophic events and have reinsurance under various reinsurance agreements up to certain levels in excess of the retained risk.

The table below illustrates the Company’s reinsurance coverage during the years 2018 through 2021:

Year Ended December 31,

Weather-Related Losses from Catastrophic Events Retained

Coverage in Excess

The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financial condition.

NI Holdings’

reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected with the help of our reinsurance brokers.

We use many reinsurers, both domestic and international, which helps us to avoid concentration of credit risk associated with our reinsurance.

We also monitor the solvency of reinsurers through regular review of their financial statements and their A.M.

Best ratings.

All of our current reinsurance partners have at least an “A-”

financial strength rating from A.M.

According to A.M.

Best, companies with a financial strength rating of “A-”

or better “have an excellent ability to meet their ongoing obligations to policyholders”.

We have experienced no significant difficulties collecting amounts due from any reinsurers.

Reinsurance for multi-peril crop insurance is provided by the Federal Crop Insurance Corporation (“FCIC”).

Insurers can assign each policy issued to either its “assigned risk”

or “commercial”

The FCIC retains an increasing percentage of underwriting losses at successively higher loss ratios while ceding an increasing percentage of the premium at lower loss ratios.

The commercial fund permits insurers to retain more of the underwriting gains and losses, while the assigned risk fund cedes up to 80% of the risk to the FCIC.

The exact treatment of the commercial fund varies by state groups.

In Group 1, which includes Illinois, Indiana,

Iowa, Minnesota and Nebraska, the FCIC retains a larger share of the underwriting gains and a smaller portion of the underwriting losses when compared to all other states.

Aggregate stop loss reinsurance is also purchased for crop hail and multi-peril insurance.

During the years 2018 through 2020, we purchased fifty percentage points of coverage above a 100% direct loss ratio for crop hail and we purchased forty-five percentage points of coverage for multi-peril crop above a 105% loss ratio after the FCIC reinsurance protection.

This represents the worst loss exposure given the FCIC formula, thereby capping the multi-peril crop loss ratio at 105%.

The following table sets forth the amounts of reinsurance recoverables on losses by company as of December 31, 2020 and the current A.M.

Best rating of each as of February 2, 2021.

Reinsurance Company

Reinsurance Recoverables On Losses

Percentage of Total Recoverable

Allied World Reinsurance Company

Arch Reinsurance Company

Aspen Insurance UK Limited

Axis Insurance Company

Employers Mutual Casualty Company

Everest Reinsurance Company

Federal Crop Insurance Corporation

General Reinsurance Corporation

Hannover Rueck SE

Helvetia Schweizerische

Munich Reinsurance of America

Partner Reinsurance Company Ltd

Renaissance Reinsurance US Inc.

Scor Reinsurance Company

Total reinsurance recoverables on losses

Reinsurance Assumed

Nodak Insurance is required by statute to participate in certain residual market pools.

This participation requires Nodak Insurance to assume business for property exposures that are not insured in the voluntary marketplace.

Nodak Insurance participates in these residual markets pro rata on a market share basis.

Additionally, through American Agriculture Insurance Company (affiliated with the American Farm Bureau Federation), Nodak Insurance participates in both domestic and international property insurance pools.

Annually, Nodak Insurance reviews the available pools and selects the pools in which it will participate.

No multi-peril crop or crop hail insurance policies are included in such pools.

Participation in such pools provides Nodak Insurance with the opportunity to diversify its risk while increasing its annual net premiums earned.

In 2020, 2019 and 2018, Nodak Insurance assumed $4,290, $3,545, and $3,945, respectively, of written premiums from such pools.

Since 2016, Nodak Insurance has assumed 100% of the crop hail premiums and losses from American West and Rural Mutual Insurance Company (a company affiliated with the Wisconsin Farm Bureau Federation).

The business was then pooled annually with Nodak Insurance’s crop hail business and proportionately retroceded back to each participant.

This crop hail pool allows Nodak Insurance and American West to diversify their crop insurance risk across an additional geographic region.

Unpaid Loss and Loss Adjustment Expense

NI Holdings is required by applicable insurance laws and regulations to maintain reserves for unpaid losses and LAE.

The Company collaborates with a third-party cybersecurity advisor to provide periodic penetration tests, system assessments, and recommendations based on industry best practices.

The Company also requires monthly online security training to be completed by all employees.

While we have experienced threats to our data and systems, to date, we have not experienced any known cyber-security breaches.

We cede and assume certain premiums and losses to and from various companies and associations under a variety of reinsurance agreements.

We seek to limit the maximum net loss that can arise from large risks or risks in concentrated areas of exposure through use of these agreements, either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts on substantial individual risks.

Reinsurance contracts do not relieve us from our obligation to policyholders.

Additionally, failure of reinsurers to honor their obligations could result in significant losses to us.

There can be no assurance that reinsurance will continue to be available to us at the same extent, and at the same cost, as it has in the past.

The Company may choose in the future to reevaluate the use of reinsurance to increase or decrease the amounts of risk ceded to reinsurers.

For additional information, see Part II, Item 8, Note 7 “Reinsurance”.

Unpaid Losses and Loss Adjustment Expense

We are required by applicable insurance laws and regulations to maintain reserves for unpaid losses and loss adjustment expenses (“LAE”).

Our liability for unpaid losses and LAE consists of (1) case reserves, which are reserves for claims that have been reported to us, and (2) reserves for claims that have been incurred but not yet been reported and for the future development of case reserves (“IBNR”).

2 unchanged sentences

The liability for unpaid losses and LAE is set based on facts and circumstances then known, estimates of future trends in claims severity, and other variable factors such as inflation and changing judicial theories of liability.

Estimating the ultimate liability for unpaid losses and LAE is an inherently uncertain process.

Therefore, the liability for unpaid losses and LAE does not represent an exact calculation of that liability.

Our reserving policy recognizes this uncertainty by maintaining reserves at a level providing for the possibility of adverse development relative to the estimation process.

When a claim is reported to us, our claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated.

This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of our claims staff.

In estimating the appropriate reserve, our claims staff considers the nature and value of the specific claim, the severity of injury or damage, and the policy provisions relating to the type of loss, to the extent determinable at the time.

In many situations, we use average default case reserve amounts for less costly claims.

Case reserves are adjusted by our claims staff as more information becomes available.

It is our policy to settle each claim as expeditiously as possible.

We maintain IBNR reserves to provide for already incurred claims that have not yet been reported and development on reported claims.

The IBNR reserve is determined by estimating our ultimate net liability for both reported and IBNR claims, and then subtracting the case reserves and paid losses and LAE for reported claims.

Each quarter, NI Holdings computes its estimated ultimate liability using methodologies and procedures that follow appropriate actuarial standards.

However, because the establishment of loss reserves is an inherently uncertain process, we cannot assure you that ultimate losses will not exceed the established loss reserves.

Adjustments in aggregate reserves, if any, are reflected in the operating results of the period during which such adjustments are made.

The following table provides a reconciliation of beginning and ending unpaid losses and LAE reserve balances of NI Holdings for the years ended December 31, 2020, 2019 and 2018.

Year Ended December 31,

Balance at beginning of year:

Liability for unpaid losses and loss adjustment expenses

Reinsurance recoverables on losses

Net balance at beginning of year

Acquired unpaid losses and loss adjustment expenses related to:

Total acquired

Incurred related to:

Total incurred

Paid related to:

Balance at end of year:

Liability for unpaid losses and loss adjustment expenses

Reinsurance recoverables on losses

Net balance at end of year

The estimation process for determining the liability for unpaid losses and LAE inherently results in adjustments each year for claims incurred (but not paid) in preceding years.

Negative amounts reported for claims incurred related to prior years are a result of claims being settled for amounts less than originally estimated (favorable development).

Positive amounts reported for claims incurred related to prior years are a result of claims being settled for amounts greater than originally estimated (unfavorable or adverse development).

The following table shows the development of NI Holding’s liability for unpaid loss and LAE from 2010 through 2020.

The top line of the table shows the liabilities at the balance sheet date, including losses incurred but not yet reported.

The upper portion of the table shows the cumulative amounts subsequently paid as of successive years with respect to the liability.

The lower portion of the table shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year.

The estimates fluctuate as more information becomes known about the frequency and severity of claims for individual years.

The redundancy (deficiency) exists when the re-estimated liability for each reporting period is less (greater) than the prior liability estimate.

The cumulative redundancy (deficiency) depicted in the table, for any particular calendar year, represents the aggregate change in the initial estimates over all subsequent calendar years.

Gross deficiencies and redundancies may be significantly more or less than net deficiencies and redundancies due to the nature and extent of applicable reinsurance.

As of December 31, 2020

Liability for unpaid loss and LAE, net of reinsurance recoverables

Cumulative amount of liability paid through

One year later

Two years later

Three years later

Four years later

Five years later

Six years later

Seven years later

Eight years later

Nine years later

Ten years later

Liability estimated after

One year later

Two years later

Three years later

Four years later

Five years later

Six years later

Seven years later

Eight years later

Nine years later

Ten years later

Cumulative total redundancy (deficiency)

Gross liability –

end of year

Reinsurance recoverable

Net liability –

end of year

Gross re-estimated liability –

Re-estimated reinsurance recoverables –

Net re-estimated liability - latest

Gross cumulative redundancy (deficiency)

NI Holdings’

investments in fixed income and equity securities are classified as available for sale and are carried at fair value.

Beginning in 2019, in accordance with a change in accounting principle, changes in unrealized gains and losses on the Company’s investments in equity securities are reported in net income as a part of net capital gains and losses on investments.

These gains and losses may be significant given the size of the equity securities holdings and the inherent volatility in equity securities prices.

Prior to 2019, the changes in unrealized gains and losses pertaining to such investments were recorded in other comprehensive income, net of income taxes.

These changes in unrealized gains and losses on fixed income securities continue to be recorded in other comprehensive income, net of income taxes.

The new accounting treatment has no effect on shareholders’

The goal of the Company’s investment activities is to complement and support its overall mission.

As such, the investment portfolio is structured to maximize after-tax investment income and price appreciation while maintaining the portfolio’s target risk profile.

The Company’s overall investment objectives are (i) growth and preservation of capital, (ii) achieving favorable returns on invested assets through investment in high quality income producing assets, and (iii) assuring proper levels of liquidity to fund expected operating needs.

See “Item 7A.

Quantitative and Qualitative Information About Market Risk”

for discussion about specific risks concerning investments.

In addition to any investments prohibited by the insurance laws and regulations of North Dakota and any other applicable states, NI Holdings’

investment policies prohibit the following investments and investing activities:

commodities and futures contracts;  

options (except covered call options);  

non-investment grade debt obligations (determined at time of purchase);  

interest only, principal only, and residual tranche collateralized mortgage obligations;  

foreign currency trading;  

limited partnerships, other than publicly traded master limited partnerships;  

convertible securities;  

venture capital investments;  

investment real estate properties;  

securities lending;  

portfolio leveraging (i.e., margin transactions);

and  

short selling.  

Our liability for unpaid losses and LAE is not discounted.

For additional information, see Part II, Item 7, “Critical Accounting Policies”

and Part II, Item 8, Note 9 “Unpaid Losses and Loss Adjustment Expenses”.

The majority of funds available for investments are deployed in a widely diversified portfolio of high quality, liquid, taxable U.S.

government, tax-exempt, and taxable U.S.

municipal and taxable corporate and U.S.

agency mortgage-backed bonds.

The Company regularly monitors the effective duration of its fixed maturity investments, and the Company’s investment purchases and sales are executed with the objective of having adequate funds available to satisfy its insurance and debt obligations.

Generally, the expected principle and interest payments produced by the Company’s fixed maturity portfolio adequately funds the estimated runoff of the Company’s insurance reserves.

The substantial amount by which the fair value of the fixed maturity portfolio exceeds the value of the net insurance liabilities, as well as the positive cash flow from newly sold policies and the large amount of high-quality liquid bonds, contributes to the Company’s ability to fund claim payments without having to sell illiquid assets or access its credit facilities.

The Company also invests a much smaller percentage of the portfolio in private placement debt offerings and equity securities, which have the potential for higher returns but also involve varying degrees of risk, including less stable rates of return and less liquidity.

The Executive Committee of NI Holdings’

Board of Directors reviews and approves the Company’s investment policy periodically.

The investment portfolio is managed by Conning, Inc., Disciplined Growth Investors, and CIBC Personal Wealth Management.

The following table sets forth information concerning NI Holdings’

Amortized Cost

Fixed income securities:

Government and agencies

Obligations of states and political subdivisions

Corporate securities

Residential mortgage-backed securities

Commercial mortgage-backed securities

Asset-backed securities

Total fixed income securities

Equity securities

The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below as of December 31, 2020.

Actual maturities could differ from contractual maturities because issuers of the securities may have the right to call or prepay certain obligations, which may or may not include call or prepayment penalties.

December 31, 2020

Amortized Cost

Less than one year

One through five years

Five through ten years

Greater than ten years

Mortgage/asset-backed securities

Total fixed income securities

At December 31, 2020, the average maturity of NI Holdings’

fixed income investment portfolio was 4.65 years and the average duration was 3.57 years.

As a result, the fair value of investments may fluctuate significantly in response to changes in interest rates.

In addition, NI Holdings may experience investment losses to the extent our liquidity needs require the disposition of fixed income securities in unfavorable interest rate environments.

NI Holdings uses quoted values and other data provided by independent pricing services as inputs in its process for determining fair values of its investments.

The pricing services cover substantially all of the securities in the portfolio for which publicly quoted values are not available.

The pricing services’

evaluations represent an exit price, which is a good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale.

The pricing is based on observable inputs either directly or indirectly, such as quoted prices in markets that are active, quoted prices for similar securities at the measurement date, or other inputs that are observable.

NI Holdings’

investment managers provide pricing information that they utilize, together with information obtained from independent pricing services, to determine the fair value of our fixed income securities.

After a detailed review of the information obtained from the pricing services at December 31, 2020 and 2019, no adjustment was made to the values provided.

The following table sets forth our average cash and invested assets, net investment income, and return on average cash and invested assets for the reported periods:

Year Ended December 31,

Weighted average cash and invested assets

Gross investment income

Investment expenses

Net investment income

Gross return on average cash and invested assets

Net return on average cash and invested assets

Best rates insurance companies based on factors of concern to policyholders.

The rating evaluates the claims paying ability of a company, and is not a recommendation of the merits of an investment in our common stock, or the common stock of any other insurer.

The investment portfolio is managed by Conning, Inc.

and Disciplined Growth Investors.

For additional information, see Part II, Item 7, “Critical Accounting Policies”

and Part II, Item 8, Note 5 “Investments”.

Financial Strength

Ratings are an important factor in assessing the Company’s competitive position in the insurance industry.

The Company is reviewed regularly by the independent rating agency AM Best, who assigns a financial strength rating to the Company, which reflects its assessment of an insurer’s ability to meet its financial obligations to policyholders.

An insurer’s financial strength rating is one of the primary factors evaluated by those in the market to purchase insurance.

A poor rating indicates that there is an increased likelihood that the insurer could become insolvent and therefore not able to fulfill its obligations under the insurance policies it issues.

This rating can also affect an insurer’s level of premium writings, the lines of business it can write, and, for insurers like us that are also public registrants, the market value of its securities.

All of the Company’s insurance subsidiary and affiliate companies are rated “A”

Excellent by A.M.

Best, which is the third highest out of 15 possible ratings, under a group rating due to the intercompany pooling reinsurance agreement.

Best has affirmed a stable financial strength outlook to the group.

In its evaluation of a company, A.M.

Best’s Credit Rating Methodology (“BCRM”) builds on a focus of balance sheet strength, operating performance, the business profile, and enterprise risk management.

More specifically, the components of the BCRM include:

the company’s profitability, leverage, and liquidity;  

its book of business, product and geographic diversity, distribution channels, competition, and market position;  

the quality and appropriateness of its reinsurance program;  

the quality and management of its assets and liabilities;  

the adequacy of its reserves and surplus;  

its capital structure;  

its pricing sophistication and data quality;  

its regulatory, event, and product risks;  

the experience and competence of its management;  

its risk identification, management, appetite, and tolerances;

and  

its governance and risk culture.  

If we are unable to maintain at least an “A-”

rating from A.M.

Best, it may impair our ability to compete effectively.

The property casualty and crop insurance markets are highly competitive.

NI Holdings competes with stock insurance companies, mutual companies, and other underwriting organizations.

Excellent by AM Best, which is the third highest out of 15 possible ratings, under a group rating due to the intercompany pooling reinsurance agreement.

AM Best has affirmed a stable financial strength outlook to the group.

The property casualty and crop insurance markets are competitive.

We compete with stock insurance companies, mutual companies, and other underwriting organizations.

Our largest competitors in North Dakota for private passenger auto and homeowners include Progressive Casualty Insurance Company, State Farm Mutual Insurance Company, American Family Insurance, Allstate Corporation, Farmers Union Mutual Insurance Company, and Auto-Owners Insurance.

In South Dakota and Nebraska, we have small market shares and our competitors are the large national and regional companies as well as Farmers Mutual

In our non-standard auto markets, which are primarily Chicago, Nevada, and Arizona, our primary competitors are regional carriers.

In South Dakota and Nebraska, we have small market shares and our competitors are the large national and regional companies as well as Farmers Mutual of Nebraska.

In our non-standard auto markets, which are primarily Illinois, Nevada, and Arizona, our primary competitors are regional carriers.

Westminster’s primary competition comes from regional carriers including Harford Mutual Insurance Company, Greater New York Mutual, and Millers Capital.

3 unchanged sentences

In Nebraska and South Dakota, we have a small farmowners market share, which is dominated by the large national and regional carriers.

Certain of these competitors have substantially greater financial, technical, and operating resources than we do and may be able to offer lower rates or higher commissions to their producers.

The chart below illustrates the reported premiums written for multi-peril crop insurance through the federal multi-peril crop insurance program during the years 2018 through 2020 (in thousands):

The chart below shows the reported premiums written for multi-peril crop insurance through the federal multi-peril crop insurance program during the years 2019 through 2021:

Year Ended December 31,

1 unchanged sentence

Company multi-peril crop premiums:

The Company also wrote less than $100 in multi-peril crop insurance in Nebraska for each of the last three years.

We also wrote less than $100 in multi-peril crop insurance in Nebraska for each of the last three years.

The principal competitors in our markets for multi-peril crop insurance include Chubb Corporation, QBE Insurance Group, Rural Community Insurance Services, CGB Enterprises, and Great American Insurance Group.

The premium rates for multi-peril crop insurance are established by the Risk Management Agency (“RMA”), an agency of the United States Department of Agriculture, and, accordingly, we compete with other insurance companies on factors such as agency relationships, claim service, and market reputation in the crop insurance market.

We believe that our relationship with the North Dakota Farm Bureau and our leading market share are significant factors in maintaining our market share of the crop insurance business in North Dakota.

The premium rates for multi-peril crop insurance are established by the RMA and, accordingly, we compete with other insurance companies on factors such as agency relationships, claim service, and market reputation in the crop insurance market.

We believe that our relationship with the NDFB and our leading market share are significant factors in maintaining our market share of the crop insurance business in North Dakota.

With respect to writing property and casualty insurance, we compete on a number of factors such as pricing, agency relationships, policy support, claim service, and market reputation.

5 unchanged sentences

In general, such regulation is intended for the protection of those who purchase or use insurance products, not the companies that write the policies.

These laws and regulations have a significant impact on our business and relate to a wide variety of matters including accounting methods, agent and

company licensure, claims procedures, corporate governance, examinations, investing practices, policy forms, pricing, trade practices, reserve adequacy, and underwriting standards.

State insurance laws and regulations require our insurance company subsidiaries to file financial statements with state insurance departments everywhere they do business, and the operations of such companies and their respective accounts are subject to examination by those departments at any time.

These laws and regulations have a significant impact on our business and relate to a wide variety of matters including accounting methods, agent and company licensure, claims procedures, corporate governance, examinations, investing practices, policy forms, pricing, trade practices, reserve adequacy, and underwriting standards.

State insurance laws and regulations require our insurance company subsidiaries to file financial statements with state insurance departments everywhere they do business, and they are subject to examination by the departments they are domiciled in at any time.

Our insurance company subsidiaries prepare statutory-basis financial statements in accordance with accounting practices and procedures prescribed or permitted by the state in which they are domiciled.

6 unchanged sentences

The premium rates for multi-peril crop insurance are established by the RMA.

See “Item 1.

Business —

Crop Insurance.”

For additional information, see Part I, Item 1, “Crop Insurance”.

Many jurisdictions have laws and regulations that limit an insurer’s ability to withdraw from a particular market.

4 unchanged sentences

The RMA outlines policy language, establishes premium rates, and develops loss adjustment procedures for insurance programs under the federal crop insurance program.

In addition, through the FCIC, the RMA provides premium subsidies to farmers and sets the commission percentages that can be paid to agents.

In addition, through the Federal Crop Insurance Corporation (“FCIC”), the RMA provides premium subsidies to farmers and sets the commission percentages that can be paid to agents.

All participating insurance carriers are subject to the same Standard Reinsurance Agreement (“SRA”), which outlines items such as reporting requirements and claims handling procedures, proportional and non-proportional reinsurance terms, and the level of administrative and operating reimbursement paid to insurers.

3 unchanged sentences

American Agricultural Insurance Company is the AIP through which we issue multi-peril crop insurance policies and is the holder of the SRA with the FCIC.

Examinations for NI Holdings’

group of insurance companies are conducted every five years by the Departments of Insurance where the insurance companies are domiciled.

Nodak Insurance and American West were last examined by the North Dakota Insurance Department as of December 31, 2016.

Battle Creek was last examined by the Nebraska Insurance Department as of December 31, 2016, and the last examination of Primero by the Nevada Insurance Department was as of December 31, 2016.

Direct Auto was last examined by the Illinois Department of Insurance as of December 31, 2017.

None of these examinations resulted in any adjustments to their financial positions.

Westminster was last examined by the Maryland Insurance Administration as of December 31, 2017.

The examination resulted in an adjustment to their financial position relating to losses and loss adjustment expenses due to deficiencies in the liabilities for unpaid losses and LAE.

Prior to its acquisition by the Company, Westminster strengthened its liabilities for unpaid losses and LAE.

NAIC Risk-Based Capital Requirements

8 unchanged sentences

A company’s “total adjusted capital”

is the sum of statutory capital and surplus and such

other items as the risk-based capital instructions may provide.

is the sum of statutory capital and surplus and such other items as the risk-based capital instructions may provide.

The formula is designed to allow state insurance regulators to identify weakly capitalized companies.

18 unchanged sentences

If four or more of its IRIS ratios fall outside the range deemed acceptable by the NAIC, an insurance company may receive inquiries from individual state insurance departments.

During each of the years ended December 31, 2020, 2019 and 2018, none of our insurance company subsidiaries produced results outside the acceptable range for more than three of the IRIS tests.

During each of the years ended December 31, 2021, 2020 and 2019, none of our insurance company subsidiaries produced results outside the acceptable range for more than two of the IRIS tests.

Enterprise Risk Assessment

In 2012, the NAIC adopted various changes to its Model Regulations, herein known as the “NAIC Amendments”.

In 2012, the NAIC adopted various changes to its Model Regulations (the “NAIC Amendments”).

The NAIC Amendments, when adopted by the various states, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States.

7 unchanged sentences

This assessment will include the material and relevant risks identified by the insurer associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks.

Although our insurance company subsidiaries are exempt from ORSA because of their size, NI Holdings intends to incorporate those elements of ORSA that it believes constitute “best practices”

Although our insurance company subsidiaries are exempt from ORSA because of their size, we intend to incorporate those elements of ORSA that it believes constitute “best practices”

into its annual internal enterprise risk assessment.

6 unchanged sentences

For the years ended December 31, 2021, 2020 and 2019, we paid only minimal assessments pursuant to state insurance guaranty association laws.

We establish reserves relating to insurance companies that are subject to

insolvency proceedings when it becomes probable that we will be subject to an assessment and the amount of such assessment can be estimated.

We establish reserves relating to insurance companies that are subject to insolvency proceedings when it becomes probable that we will be subject to an assessment and the amount of such assessment can be estimated.

We cannot predict the amount and timing of any future assessments under these laws.

15 unchanged sentences

Several states adopted similar provisions regarding the safeguarding of customer information.

NI Holdings and its subsidiaries have implemented procedures to comply with the GLBA’s related privacy requirements.

In October 2017, the NAIC adopted the Insurance Data Security Model Law (“IDSML”), which would require insurers, insurance producers, and other entities required to be licensed under state insurance laws to develop and maintain a written information security program, conduct risk assessments, oversee the data security practices of third-party service providers, and other related requirements.

We have implemented procedures to comply with the GLBA’s related privacy requirements.

In October 2017, the NAIC adopted the Insurance Data Security Model Law (“IDSML”), which requires insurers, insurance agents, and other entities required to be licensed under state insurance laws to develop and maintain a written information security program, conduct risk assessments, oversee the data security practices of third-party service providers, and other related requirements.

It is not clear whether, and to what extent, legislatures or insurance regulators in the states in which we, or our subsidiaries, operate will enact the IDMSL.

3 unchanged sentences

The Treasury Department’s Office of Foreign Asset Control (“OFAC”) maintains a list of “Specifically Designated Nationals and Blocked Persons”

(“the SDN List”).

(the "SDN List").

The SDN List identifies persons and entities that the government believes are associated with terrorists, rogue nations, or drug traffickers.

2 unchanged sentences

Jumpstart Our Business Startups Act of 2012

We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, such as reduced public company reporting, accounting, and corporate governance requirements.

We currently intend to avail ourselves of the reduced disclosure obligations available under the JOBS Act.

Section 107 of the JOBS Act also provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

We will remain an EGC for up to five years following our initial public offering (“IPO”), or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion, (ii) the date that we become a “large accelerated filer”

as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), which would occur if

the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.07 billion in non-convertible debt during the preceding three year period.

North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance to NI Holdings 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 the insurance company’s surplus as regards policyholders as of the preceding December 31, or (ii) the insurance company’s 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 capital gains, less any dividends actually paid during those two calendar years.

As of December 31, 2020, the amount available for payment of dividends by Nodak Insurance in 2021 without the prior approval of the North Dakota Insurance Department is $21,628.

“Extraordinary dividends”

in excess of the foregoing limitations may only be paid with prior notice to, and approval of, the North Dakota Insurance Department.

Illinois law sets the maximum amount of dividends that may be paid by Direct Auto to NI Holdings during any twelve-month period after notice to, but without prior approval of, the Illinois Department of Insurance.

This amount cannot exceed the greater of (i) 10% of the Company’s surplus as regards policyholders as of the preceding December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized capital gains).

As of December 31, 2020, the amount available for payment of dividends by Direct Auto in 2021 without the prior approval of the Illinois Department of Insurance is $3,582.

Dividends in excess of this amount are considered “extraordinary”

and are subject to the approval of the Illinois Department of Insurance.

The amount available for payment of dividends from Westminster to NI Holdings during 2021 without the prior approval of the Maryland Insurance Administration is $505 based upon the statutory net investment income of Westminster for the year ended December 31, 2020 and the three preceding years.

Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance Administration.

This notice must be provided to the Maryland Insurance Administration within five business days following declaration of any dividend and no less than 30 days prior to the payment of an extraordinary dividend or 10 days prior to the payment of an ordinary dividend.

The Maryland Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation.

These restrictions or any subsequently imposed restrictions may affect our future liquidity.

See “Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities —

Dividend Policy.”

We are an EGC, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, such as reduced public company reporting, accounting, and corporate governance requirements.

However, beginning on December 31, 2022, we will no longer be an EGC and will no longer have the ability to delay adoption of these new or revised accounting standards, or to take advantage of reduced corporate governance disclosures.

As an insurance holding company with no independent operations or source of revenue, our capacity to pay dividends to our shareholders is based on the ability of our insurance company subsidiaries to pay dividends to us.

The ability of our subsidiaries to pay dividends to us is regulated by the laws of their state of domicile.

Under these laws, insurance companies must provide advance informational notice to the domicile state insurance regulatory authority prior to payment of any dividend or distribution to its shareholders.

Prior approval from the state insurance regulatory authority must be obtained before payment of an “extraordinary dividend”

as defined under the state's insurance code.

For additional information, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources”, and Part II, Item 8, Note 21 “Statutory Net Income, Capital and Surplus, and Dividend Restrictions”.

Holding Company Laws

11 unchanged sentences

The Company’s key human capital management objectives are to attract, retain, and develop talent to deliver on the Company’s strategy.

To support these objectives, the Company’s human resources programs are designed to:

recruit and retain

talented individuals;

To support these objectives, the Company’s human resources programs are designed to recruit and retain talented individuals;

provide training and development within the Company and the insurance industry;

2 unchanged sentences

and provide opportunities for community involvement.

We offer comprehensive compensation and benefits packages to our employees including a 401k Plan, employee stock ownership plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, and flexible work arrangements.

We offer comprehensive compensation and benefits packages to our employees including a 401k Plan, Employee Stock Ownership Plan (“ESOP”), healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, and flexible work arrangements.

We also offer stock-based compensation to certain management personnel as a way to attract and retain key talent.

See Notes 14 and 20 to the Consolidated Financial Statements included under Item 8 for further discussion of our benefit plans and stock-based compensation.

In response to the COVID-19 pandemic in March 2020, we pivoted to a remote working environment for substantially all of our employees with a commitment to the safety of our employees, business partners, and the communities we serve.

As appropriate, certain of our offices have opened on an optional and limited basis in accordance with applicable rules and regulations in their respective jurisdictions.

We believe that we have adjusted well to date, benefitting from prior investments in technology, systems, and training, which have enabled us to maintain full, continuous operations through the pandemic.

As of December 31, 2020, NI Holdings and its subsidiaries had 205 total employees.

Employee turnover averaged 17.3% during 2020, with higher than average rates experienced by our Direct Auto employee base located in Chicago.

None of our employees are covered by a collective bargaining agreement, and we believe that our employee relations are good.

For additional information, see Part II, Item 8, Note 13 “Benefit Plans”

and Note 19 “Stock-Based Compensation”

for further discussion of our benefit plans and stock-based compensation.

As of December 31, 2021, NI Holdings and its subsidiaries had 207 total employees, of which 204 were full-time employees.

Employee turnover averaged 14.7% during 2021, compared to 17.3% during 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business