4 unchanged sentences
Stock Performance Graph
−Removed: The following graph sets forth the cumulative total shareholder return (stock price increase plus dividends) on our common stock from March 16, 2017 (the date of the IPO of our common stock) through December 31, 2020, along with the corresponding returns for the Russell 2000 Index (as the broad stock market index) and the SNL US Insurance P&C Index (as the published industry index).
+Added: The following graph shows the cumulative total shareholder return (stock price increase plus dividends) on our common stock from March 16, 2017 (the first date that shares of our common stock were available for trading) through December 31, 2021, along with the corresponding returns for the Russell 2000 Index (as the broad stock market index) and the Dow Jones US P&C Insurance Index (as the published industry index).
The graph assumes that the value of the investment in the common stock and each index was $100 on March 16, 2017 and that all dividends were reinvested.
4 unchanged sentences
In determining whether to declare or pay any dividends, whether regular or special, the Board of Directors will take into account our financial condition and results of operations, income tax considerations, capital requirements, industry standards, and economic conditions.
−Removed: The regulatory restrictions that affect the payment of dividends by Nodak Insurance, Direct Auto, and Westminster to us as discussed below will also be considered.
We cannot guarantee that we will pay dividends or that, if paid, we will not reduce or eliminate dividends in the future.
1 unchanged sentence
Because Nodak Mutual Group has no current plans to utilize any cash dividends that it may receive from us, we anticipate that it will waive its right to receive substantially all of the dividends that are paid to it by us or immediately return substantially all of such funds to us as an equity contribution.
−Removed: Because the Board of Directors of Nodak Mutual Group includes persons who are not members of our Board of Directors, we cannot provide any assurance, however, that they will take such action with respect to every cash dividend that we may declare.
+Added: However, because the Board of Directors of Nodak Mutual Group includes persons who are not members of our Board of Directors, we cannot provide any assurance that they will take such action with respect to any cash dividend that we may declare.
If we are unable to obtain a commitment from the Board of Directors of Nodak Mutual Group that it will waive its right to receive any cash dividend that we intend to declare or that it will return the funds from such dividend to the Company as an equity contribution, our Board of Directors may decide not to declare a cash dividend.
We are not currently subject to regulatory restrictions on the payment of dividends to our shareholders.
−Removed: Our ability to pay dividends, however, may depend, in part, upon our receipt of dividends from our directly-owned subsidiaries because we initially will have no source of income other than earnings from the investment of the net proceeds from our IPO that we retain.
−Removed: North Dakota law limits the amount of dividends and other distributions that Nodak Insurance may pay to us.
−Removed: Illinois law limits the amount of dividends and other distributions that Direct Auto may pay to us.
−Removed: Maryland law limits the amount of dividends and other distributions that Westminster may pay to us.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: As of December 31, 2020, the amount available for payment of dividends by Nodak Insurance to us in 2021 without the prior approval of the North Dakota Insurance Department is $21,628.
−Removed: We cannot assure you that the North Dakota Insurance Department would approve the declaration or payment by Nodak Insurance of any dividends to us in excess of such amount.
−Removed: Illinois law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without prior approval of, the Illinois Department of Insurance.
−Removed: 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).
−Removed: As of December 31, 2020, the amount available for payment of dividends from Direct Auto to us in 2021 without the prior approval of the Illinois Department of Insurance is $3,582.
−Removed: Prior to its payment of any dividend, Direct Auto will be required to provide notice of the dividend to the Illinois Department of Insurance.
−Removed: We cannot assure you that the Illinois Department of Insurance would approve the declaration or payment by Direct Auto of any dividends to us in excess of such amount.
−Removed: We have the ability to receive dividends from Westminster only after all of Westminster’s obligations and regulatory requirements with the Maryland Insurance Administration have been satisfied.
−Removed: In general, under Maryland law an insurer may pay dividends after providing notice to the Maryland Insurance Commissioner within five business days after declaration of the dividend or at least 10 days prior to payment of the dividend.
−Removed: However, Maryland law imposes additional limitations on “extraordinary dividends”.
−Removed: Maryland law defines an extraordinary dividend as a dividend that, when combined with the value of other dividends made in the preceding 12 months, exceeds the lesser of (i) 10% of the insurer’s surplus as regards policyholders as of the preceding December 31, or (ii) the insurer’s net investment income not including (a) realized capital gains for the 12-month period ending December 31 of the preceding year and (b) pro rata distributions of any class of the insurer’s own securities.
−Removed: An insurer may not pay an extraordinary dividend unless the insurer provides notice of the declaration to the Maryland Insurance Commissioner at least 30 days before the declaration is made and the Maryland Insurance Commissioner has approved or not disapproved the declaration within 30 days.
−Removed: As of December 31, 2020, the amount available for payment of dividends by Westminster to us in 2021 without the prior approval of the Maryland Insurance Commissioner is $505.
−Removed: We cannot assure you that the Maryland Insurance Commissioner would approve the declaration or payment by Westminster of any dividends to us in excess of such amount.
−Removed: See “Item 1.
−Removed: Business —
−Removed: Regulation”.
−Removed: Even if we receive any dividends from Nodak Insurance, Direct Auto, or Westminster, we may not declare any dividends to our shareholders because of our working capital requirements.
+Added: However, any future dividends may be restricted to those received from our insurance subsidiaries, as our income is limited to earnings from the invested capital remaining from our initial IPO.
+Added: North Dakota law limits the amount of dividends and other distributions that Nodak Insurance, Direct Auto, and Westminster may pay to us.
+Added: For information regarding the regulatory restrictions on dividends our insurance subsidiaries can pay, refer to 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”.
+Added: Even if we receive dividends from Nodak Insurance, Direct Auto, or Westminster, we may not declare any dividends to our shareholders due to working capital requirements.
We are not subject to regulatory restrictions on the payment of dividends to shareholders, but we are subject to the requirements of the North Dakota Business Corporation Act.
−Removed: This law generally permits dividends or distributions to be paid as long as, after making the dividend or distribution, we will be able to pay our debts in the ordinary course of business and our total assets will exceed our total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of holders of stock with senior liquidation rights if we were to be dissolved at the time the dividend or distribution is paid.
+Added: This law generally permits dividends or distributions to be paid, to the extent we still have the ability to pay our debts in the ordinary course of business after making the dividend or distribution payments.
+Added: This law requires our total assets to exceed our total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of holders of stock with senior liquidation rights if we were to be dissolved at the time the dividend or distribution is paid.
Unregistered Securities
1 unchanged sentence
Use of Proceeds from Initial Public Offering
−Removed: On January 17, 2017, the SEC declared effective our registration statement on Form S-1 registering our common stock.
+Added: 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.
4 unchanged sentences
The Company paid $20,000 from the net proceeds from the IPO at time of closing.
−Removed: The Company will pay 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.
−Removed: The Company anticipates using net proceeds from the IPO to satisfy these obligations.
+Added: 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.
+Added: The first two installments were paid in January 2021 and January 2022.
+Added: The Company anticipates using the net proceeds from the IPO to satisfy this obligation in December 2022.
From time to time, the Company may also repurchase its own stock.
1 unchanged sentence
To date, the Company has used net proceeds from the IPO to fund these buyback programs.
−Removed: See “Issuer Stock Purchases”
+Added: For more information, see Part II, Item 5, “Issuer Stock Purchases”.
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.
7 unchanged sentences
On May 4, 2020, our Board of Directors approved an additional authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock.
−Removed: During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this new authorization.
+Added: During the year ended December 31, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this authorization.
+Added: During the nine months ended September 30, 2021, we repurchased an additional 144,110 shares of our common stock for $2,762 to close out this authorization.
+Added: On August 11, 2021, our Board of Directors approved an additional authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock.
+Added: During the six months ended December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this new authorization.
In total during the year ended December 31, 2021, we completed the repurchase of 225,205 shares of our common stock for $4,316.
−Removed: The repurchases made in the three months ended December 31, 2020 are described below.
+Added: The repurchases made in the three months ended December 31, 2021 are shown below:
Period in 2021
15 unchanged sentences
December 1 –
−Removed: Shares purchased pursuant to the May 4, 2020 publicly announced share repurchase authorization of up to approximately $10,000 of the Company’s outstanding common stock.
−Removed: Selected Financial Data
−Removed: You should read the selected financial data set forth below in conjunction with our historical Consolidated Financial Statements and related notes and with “Item 7.
−Removed: Management’s Discussion and Analysis of Financial Condition and Results of Operations”
−Removed: included elsewhere in this Annual Report on Form 10-K.
−Removed: NI Holdings evaluates its operations by monitoring certain key measures of growth and profitability.
−Removed: In addition to measures recognized under accounting principles generally accepted in the United States of America (“GAAP”), NI Holdings utilizes certain non-GAAP financial measures that it believes are valuable in managing its business and for providing comparisons to its peers.
−Removed: These historical results are not necessarily indicative of future results, and the results for any interim period are not necessarily indicative of the results that may be expected for a full year.
−Removed: NI Holdings, Inc.
−Removed: Five-Year Summary of Selected Financial Data
−Removed: Year Ended December 31,
−Removed: Direct premiums written
−Removed: Net premiums written
−Removed: Net premiums earned
−Removed: Fee and other income
−Removed: Net investment income
−Removed: Net capital gain on investments
−Removed: Total revenue
−Removed: Components of net income:
−Removed: Net premiums earned
−Removed: Losses and loss adjustment expenses
−Removed: Amortization of deferred policy acquisition costs and other underwriting and general expenses
−Removed: Underwriting gain (loss)
−Removed: Fee and other income
−Removed: Net investment income
−Removed: Net capital gain on investments
−Removed: Income before income taxes
−Removed: Earnings per common share:
−Removed: Weighted average shares outstanding used in basic per share calculations
−Removed: Dilutive securities
−Removed: Weighted average shares used in diluted per share calculations
−Removed: Cash and investments
−Removed: Premiums and agents’
−Removed: balances receivable
−Removed: Deferred policy acquisition costs
−Removed: Unpaid losses and loss adjustment expenses
−Removed: Unearned premiums
−Removed: Other liabilities
−Removed: Total liabilities
−Removed: Total liabilities and equity
−Removed: Per share data:
−Removed: Total book value per basic share
−Removed: Effective August 31, 2018, the Company acquired Direct Auto Insurance Company.
−Removed: Effective January 1, 2020, the Company acquired Westminster American Insurance Company.
−Removed: See Note 4 to the Company’s Consolidated Financial Statements, included elsewhere in this Form 10-K.
+Added: Shares purchased pursuant to the August 11, 2021 publicly announced share repurchase authorization of up to approximately $5,000 of the Company’s outstanding common stock.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
−Removed: The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Consolidated Financial Statements alone.
−Removed: The discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in “Item 8.
−Removed: Financial Statements and Supplementary Data.”
+Added: 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 Consolidated Financial Statements alone.
+Added: The discussion should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data.”
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K constitutes forward-looking information that involves risks and uncertainties.
−Removed: Please see “Forward-Looking Information”
−Removed: and “Item 1A.
−Removed: Risk Factors”
−Removed: for more information.
−Removed: You should review “Risk Factors”
+Added: Please see “Forward-Looking Statements”
+Added: and Part I, Item 1A, “Risk Factors”
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.
+Added: Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020.
+Added: Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this document can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
+Added: in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on March 10, 2021.
All dollar amounts, except per share amounts, are in thousands.
−Removed: 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.
−Removed: The conversion was consummated on March 13, 2017.
−Removed: 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.
−Removed: Nodak Insurance then became a wholly-owned stock subsidiary of NI Holdings.
−Removed: Prior to completion of the conversion, NI Holdings conducted no business and had no assets or liabilities.
−Removed: As a result of the conversion, NI Holdings became the holding company for Nodak Insurance and its existing subsidiaries.
−Removed: These consolidated financial statements of NI Holdings include the financial position and results of operations of NI Holdings and seven other entities:
−Removed: Nodak Insurance –
−Removed: a wholly-owned subsidiary of NI Holdings;  
−Removed: Nodak Agency –
−Removed: a wholly-owned subsidiary of Nodak Insurance;  
−Removed: American West –
−Removed: a wholly-owned subsidiary of Nodak Insurance;  
−Removed: Primero –
−Removed: an indirect wholly-owned subsidiary of Nodak Insurance;  
−Removed: Battle Creek –
−Removed: an affiliated company of Nodak Insurance;  
−Removed: Direct Auto –
−Removed: a wholly-owned subsidiary of NI Holdings;
−Removed: and  
−Removed: Westminster –
−Removed: a wholly-owned subsidiary of NI Holdings.  
−Removed: Battle Creek is managed by Nodak Insurance under the terms of a surplus note issued by Battle Creek to Nodak Insurance.
−Removed: Nodak Agency is an inactive shell corporation.
−Removed: 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.
−Removed: Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state of Illinois.
−Removed: Direct Auto remains headquartered in Chicago, Illinois and continues to be led by its president and other key management in place at the time of the acquisition.
−Removed: The results of Direct Auto are included as part of the Company’s non-standard auto business segment following the closing date.
−Removed: 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.
−Removed: Westminster is a property and casualty insurance company specializing in 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.
−Removed: Westminster remains headquartered in Owings Mills, Maryland and continues to be led by its president and other key management in place at the time of the acquisition.
−Removed: The results of Westminster are included as part of the Company’s commercial business segment following the closing date.
−Removed: Nodak Insurance offers property and casualty insurance, crop hail, and multi-peril crop insurance to members of the North Dakota Farm Bureau through captive agents in North Dakota.
−Removed: American West and Battle Creek offer similar insurance coverage through independent agents in South Dakota and Minnesota, and Nebraska, respectively.
−Removed: Primero offers limited nonstandard auto insurance coverage in Arizona, Nevada, North Dakota, and South Dakota.
−Removed: Direct Auto offers limited nonstandard auto insurance coverage in Illinois.
−Removed: Westminster offers commercial multi-peril insurance in the Mid-Atlantic region of the United States.
−Removed: All of the Company’s insurance subsidiary and affiliate companies are rated “A”
−Removed: Excellent by A.M.
−Removed: Best, which is the third highest out of a possible 15 ratings.
Marketplace Conditions and Trends
−Removed: Beginning in March 2020 and continuing throughout the year, the global pandemic caused by COVID-19 and related economic conditions impacted the Company’s results of operations.
−Removed: Decreased economic activity limited revenue growth in our personal lines of business.
−Removed: This was partially offset by reduced loss frequency in our private passenger and non-standard auto segments, primarily during the middle of the year.
−Removed: The continued impact of COVID-19 and related risks, including from shelter-in-place orders, unemployment, and the financial market volatility, could continue to adversely impact our results, including premiums written and investment income.
−Removed: The property and casualty insurance industry is affected by recurring industry cycles known as “hard”
−Removed: and “soft”
−Removed: A soft cycle is characterized by intense competition resulting in lower pricing in order to compete for business.
−Removed: A hard market, generally considered a beneficial industry trend, is characterized by reduced competition that results in higher pricing.
−Removed: We monitor the marketplace both on a regional and line of business basis.
−Removed: The private passenger marketplace continues to be a very competitive and challenging pricing environment, due to improved results and increased competitive pressure in the market.
−Removed: Rates for private passenger auto remain competitive across the country.
−Removed: The non-standard auto market also remains competitive with companies seeking to grow this line of business.
−Removed: Two large acquisitions took place in the non-standard auto segment during the third quarter, indicating that others in the marketplace are recognizing profitable opportunities associated with this segment.
−Removed: As opposed to most personal lines, the commercial multi-peril market in which we participate continued to harden, with accelerating positive rate changes in both liability and especially property during 2020.
+Added: The private passenger auto marketplace was impacted by increased loss severity throughout the year, as driving habits and miles driven returned to pre-pandemic levels.
+Added: Loss severity trends also continued to increase due to numerous factors, including the impacts that supply chain issues, inflation, and technological advancements have had on the automobile market.
+Added: As a result, elevated loss experience was common across much of the industry during 2021.
+Added: The non-standard auto market also remains competitive with many companies seeking growth in this line as a result of the challenging private passenger auto market and the opportunity to cross-sell additional insurance products, such as homeowners or renters insurance, to the growing non-standard auto market.
+Added: As opposed to most personal lines, the commercial multi-peril market continued to benefit from significant positive rate changes throughout 2021.
Unlike property and casualty insurance, the total crop insurance premiums written each year vary mainly based on prevailing commodity prices for the type of crops planted, because the aggregate number of acres planted usually does not vary much from year to year.
−Removed: Because the premiums that are charged for crop insurance are established by the RMA, which is a division of the United States Department of Agriculture, and the policy forms and terms are also established by the RMA, insurers do not compete on price or policy terms and conditions.
+Added: Because the premiums that are charged for crop insurance are established by the RMA, and the policy forms and terms are also established by the RMA, insurers do not compete on price or policy terms and conditions.
Moreover, because participation in other federal farm programs by a farmer is conditioned upon participation in the federal crop insurance program, most commercial farmers obtain crop insurance on their plantings each year.
+Added: Changing Climate Conditions
+Added: Longer-term natural catastrophe trends may be changing, and new types of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail, and snow.
+Added: The frequency, number, and severity of these losses are unpredictable.
+Added: The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event.
+Added: Our ability to effectively manage catastrophe risk is dependent, in part, on the reliance of various catastrophe models, which may produce unreliable output as a result of inaccurate or incomplete data, along with the inherent uncertainty of future frequency and severity of losses.
+Added: The impact of changing climate conditions on the overall insurance industry may also materially affect the availability and cost of reinsurance to us.
+Added: In addition, these changes could impact the creditworthiness of issuers of securities in which the Company invests, subjecting our investment portfolio to increased credit and interest rate risk, with the potential for reduced investment returns and/or material realized or unrealized losses.
Principal Revenue Items
3 unchanged sentences
Gross premiums written are recognized upon sale of new insurance contracts or renewal of existing contracts.
−Removed: Net premiums written is equal to gross premiums written less premiums ceded or paid to reinsurers (ceded premiums written).
+Added: Net premiums written is equal to gross premiums written less premiums ceded to reinsurers.
Premiums earned
3 unchanged sentences
At the end of each accounting period, the portion of the premiums that is not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the remaining term of the policy or period of risk.
−Removed: NI Holdings’
−Removed: property and casualty policies, other than some of our auto lines and the non-standard auto policies, typically have a term of twelve months.
−Removed: For example, for an annual policy that is written on July 1, 2020, one-half of the premiums would be earned in 2020 and the other half would be earned in 2021.
+Added: The Company’s property and casualty policies, other than some of our auto lines and the non-standard auto policies, typically have a term of twelve months.
Due to the nature of the crop planting and harvesting cycle and the deadlines for filing and processing claims under the federal crop insurance program, insurance premiums for crop insurance are recognized and earned during the period of risk, which usually begins in spring and ends with harvest in the fall.
5 unchanged sentences
Except for claims occurring in the spring (primarily for prevented planting and required replanting claims), claims are required to be filed with the FCIC by December 15.
−Removed: A different cycle exists for crops planted in the fall, such as winter wheat, but the vast majority of crop insurance written by NI Holdings covers crops planted in the spring.
+Added: A different cycle exists for crops planted in the fall, such as winter wheat, but the vast majority of crop insurance written by the Company covers crops planted in the spring.
Net investment income and net capital gain (loss) on investments
−Removed: NI Holdings invests its surplus and the funds supporting its insurance liabilities (including unearned premiums, and unpaid loss and loss adjustment expenses) in cash, cash equivalents, equity securities, and fixed income securities.
+Added: The Company invests its excess cash in fixed income and equity securities.
Investment income includes interest and dividends earned on invested assets, and is reported net of investment-related expenses.
Net capital gains and losses on investments are reported separately from net investment income.
−Removed: NI Holdings recognizes realized capital gains when investments are sold for an amount greater than their cost or amortized cost (in the case of fixed income securities) and recognizes realized capital losses when investments are written down as a result of an other-than-temporary impairment or sold for an amount less than their cost or amortized cost, as applicable.
−Removed: 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 included in net income as a part of net capital gains and losses on investments.
−Removed: These gains and losses may be significant given the size of the equity securities holdings and the inherent volatility in equity securities prices.
−Removed: Prior to 2019, the changes in unrealized gains and losses pertaining to such investments were recorded in other comprehensive income.
−Removed: The changes in unrealized gains and losses on fixed income securities continue to be recorded in other comprehensive income, net of income taxes.
−Removed: The new accounting treatment has no effect on total shareholders’
−Removed: NI Holdings’
−Removed: portfolio of investments is managed by Conning, Inc., Disciplined Growth Investors, and CIBC Personal Wealth Management.
+Added: The Company recognizes realized capital gains when investments are sold for an amount greater than their cost or amortized cost (in the case of fixed income securities) and realized capital losses when investments are written down as a result of an other-than-temporary impairment or are sold for an amount less than their cost or amortized cost, as applicable.
+Added: The Company recognizes changes in unrealized gains and losses of equity securities in net income as part of net capital gains and losses on investments.
+Added: These gains and losses may be significant given the fair market value of the equity portfolio and the inherent volatility in equity markets.
+Added: The changes in unrealized gains and losses on fixed income securities are recorded in other comprehensive income (loss), net of income taxes.
+Added: Therefore, these change have no impact on net income, but do impact shareholders’
+Added: The portfolio of investments for NI Holdings and its insurance subsidiaries is managed by Conning, Inc.
+Added: and Disciplined Growth Investors.
These investment managers have discretion to buy and sell securities in accordance with the investment policy approved by our Board of Directors.
Principal Expense Items
−Removed: NI Holdings’
−Removed: expenses consist primarily of losses and LAE, amortization of deferred policy acquisition costs, other underwriting and general expenses, and income taxes.
+Added: The Company’s expenses consist primarily of losses and LAE, amortization of deferred policy acquisition costs, other underwriting and general expenses, and income taxes.
Losses and Loss Adjustment Expenses
7 unchanged sentences
As noted above, it does not include state premium taxes that are based purely on the collection of policyholder premiums.
−Removed: NI Holdings uses the asset and liability method of accounting for deferred income taxes.
+Added: We use the asset and liability method of accounting for deferred income taxes.
Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the income tax bases of its assets and liabilities.
2 unchanged sentences
Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability, excluding amounts attributed to accumulated other comprehensive income.
−Removed: Non-GAAP Financial Measures
−Removed: NI Holdings evaluates its insurance operations in the way it believes will be most meaningful and representative of its business results.
−Removed: Some of these measurements are “non-GAAP financial measures”
−Removed: under Securities and Exchange Commission rules and regulations.
−Removed: GAAP is the acronym for “accounting principles generally accepted in the United States of America”.
−Removed: The non-GAAP financial measures that NI Holdings presents may not be compatible to similarly-named measures reported by other companies.
−Removed: The non-GAAP financial measures described in this section are used widely in the property and casualty insurance industry, and are the expense ratio, loss and LAE ratio, combined ratio, written premiums, ratio of net written premiums to statutory surplus, underwriting gain, and return on average equity.
−Removed: NI Holdings measures growth by monitoring changes in gross premiums written and net premiums written.
−Removed: The Company measures underwriting profitability by examining its loss and LAE ratio, expense ratio, and combined ratio.
−Removed: It also measures profitability by evaluating underwriting gain (loss), net income (loss), and return on average equity.
−Removed: Loss and LAE ratio
−Removed: The loss and LAE ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned.
−Removed: NI Holdings measures the loss and LAE ratio on an accident year and calendar year loss basis to measure underwriting profitability.
−Removed: An accident year loss ratio measures losses and LAE for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year.
−Removed: A calendar year loss ratio measures losses and LAE for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage of premiums earned during that year.
−Removed: Expense ratio
−Removed: The expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other underwriting and general expenses (attributable to insurance operations) to premiums earned, and measures our operational efficiency in producing, underwriting, and administering the Company’s insurance business.
−Removed: Combined ratio
−Removed: The Company’s combined ratio is the ratio (expressed as a percentage) of the sum of losses and LAE incurred and expenses to premiums earned, and measures its overall underwriting profit.
−Removed: Generally, if the combined ratio is below 100%, NI Holdings is making an underwriting profit.
−Removed: If the combined ratio is above 100%, it is not profitable without investment income and may not be profitable if investment income is insufficient.
−Removed: Premiums written
−Removed: Premiums written represent a measure of business volume most relevant on an annual basis for the Company’s business model.
−Removed: This measure includes the amount of premium purchased by policyholders as of the policy’s effective date, whereas premiums earned as presented in the Consolidated Statement of Operations matches the amount of premium to the period of risk for those insurance policies.
−Removed: The Company’s insurance policies are sold with a variety of effective periods, including annual, semi-annual, and monthly.
−Removed: Net premiums written to statutory surplus ratio
−Removed: The net premiums written to statutory surplus ratio represents the ratio of net premiums written to statutory surplus.
−Removed: This ratio is designed to measure the ability of the Company to absorb above-average losses and the Company’s financial strength.
−Removed: In general, a low premium to surplus ratio is considered a sign of financial strength because the Company has an adequate provision for adverse development of loss reserves within the Company’s current book of business and provides a capacity to write more business.
−Removed: Statutory surplus is determined using accounting principles prescribed or permitted by the insurance subsidiaries’
−Removed: state of domicile and differs from GAAP equity.
−Removed: Underwriting gain (loss)
−Removed: Underwriting gain (loss) measures the pre-tax profitability of insurance operations.
−Removed: It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned.
−Removed: Each of these items is presented as a caption in NI Holdings’
−Removed: Consolidated Statements of Operations.
−Removed: Net income (loss) and return on average equity
−Removed: NI Holdings uses net income (loss) to measure its profit and uses return on average equity to measure its effectiveness in utilizing equity to generate net income.
−Removed: In determining return on average equity for a given year, net income (loss) is divided by the average of the beginning and ending equity attributable to NI Holdings for that year.
Critical Accounting Policies
−Removed: 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.
−Removed: NI Holdings is required to make estimates and assumptions in certain circumstances that affect amounts reported in its Consolidated Financial Statements and related footnotes.
−Removed: NI Holdings evaluates these estimates and assumptions on an ongoing basis based on historical developments, market conditions, industry trends, and other information that it believes to be reasonable under the circumstances.
+Added: The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) requires both the use of estimates and judgment relative to the application of appropriate accounting policies.
+Added: The Company is required to make estimates and assumptions in certain circumstances that affect amounts reported in its Consolidated Financial Statements and related footnotes.
+Added: 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 and that reported results of operations would not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time.
−Removed: NI Holdings believes the following policies are the most sensitive to estimates and judgments.
+Added: We believe the following policies are the most sensitive to estimates and judgments.
Unpaid Losses and Loss Adjustment Expenses
1 unchanged sentence
With respect to its traditional property and casualty insurance products, the Company maintains reserves for the payment of claims (indemnity losses) and expenses related to adjusting those claims (LAE).
−Removed: The Company’s liability for unpaid losses and LAE
−Removed: consists of (1) case reserves, which are reserves for claims that have been reported to it, and (2) reserves for claims that have been incurred but have not yet been reported and for the future development of case reserves.
+Added: The Company’s liability for unpaid losses and LAE consists of (1) case reserves, which are reserves for claims that have been reported to it, and (2) IBNR, which are reserves for claims that have been incurred but have not yet been reported and for the future development of case reserves.
LAE consist of two components –
2 unchanged sentences
ULAE are expenses that generally cannot be associated with a specific claim, including internal costs such as salaries and other overhead costs, and also represent estimates of future costs to administer claims.
−Removed: When a claim is reported to NI Holdings, its claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated.
+Added: When a claim is reported to one of the insurance companies, its claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated.
The amount of the loss reserve for the reported claim is based primarily upon an evaluation of coverage, liability, damages suffered, and any other information considered pertinent to estimating the exposure presented by the claim.
1 unchanged sentence
Case reserves are reviewed on a regular basis and are updated as new information becomes available.
−Removed: When a catastrophe occurs, which in the Company’s case usually involves the weather perils of wind and hail, NI Holdings utilizes mapping technology through geographic coding of its property risks to overlay the path of the storm.
+Added: When a catastrophe occurs, which in the Company’s case usually involves the weather perils of wind and hail, we utilize mapping technology through geographic coding of its property risks to overlay the path of the storm.
This enables the Company to establish estimated damage amounts based on the wind speed and size of the hail for case or per claim loss amounts.
−Removed: This process allows the Company to determine within a reasonable time (5 –
+Added: This process allows us to determine within a reasonable time (5 –
7 days) an estimated number of claims and estimated losses from the storm.
−Removed: If the Company estimates the damages to be in excess of its retained catastrophe amount, reinsurers are notified immediately of a potential loss so that the Company can quickly recover reinsurance payments once the retention is exceeded.
−Removed: In addition to case reserves, NI Holdings maintains estimates of reserves for losses and LAE incurred but not reported.
+Added: If we estimate the damages to be in excess of the retained catastrophe amount, reinsurers are notified immediately of a potential loss so that the Company can quickly recover reinsurance payments once the retention is exceeded.
+Added: In addition to case reserves, the Company maintains estimates of reserves for losses and LAE incurred but not reported.
These reserves include estimates for the future development of case reserves.
3 unchanged sentences
These estimates have proven to be reasonably accurate indicators of the Company’s anticipated losses for this line of business.
−Removed: NI Holdings utilizes an independent actuary to assist with the estimation of its liability for unpaid losses and LAE.
+Added: We utilize an independent actuary to assist with the estimation of the liability for unpaid losses and LAE.
This actuary prepares estimates by first deriving an actuarially based estimate of the ultimate cost of total losses and LAE incurred as of the financial statement date based on established actuarial methods as described below.
−Removed: The Company then reduces the estimated ultimate loss and LAE by loss and LAE payments and case reserves carried as of the financial statement date.
+Added: We then reduce the estimated ultimate loss and LAE by loss and LAE payments and case reserves carried as of the financial statement date.
The actuarially determined estimate is based upon indications from one of the following actuarial methodologies or uses a weighted average of these results.
The specific method used to estimate the ultimate losses varies depending on the judgment of the actuary as to what is the most appropriate method for the property and casualty business.
−Removed: The Company’s management reviews these estimates and supplements the actuarial analysis with information not fully incorporated into the actuarially based estimate, such as changes in the external business environment and internal company processes.
−Removed: NI Holdings may adjust the actuarial estimates based on this supplemental information in order to arrive at the amount recorded in the Consolidated Financial Statements.
−Removed: NI Holdings determines its ultimate liability for unpaid losses and LAE by using the following actuarial methodologies:
+Added: Management reviews these estimates and supplements the actuarial analysis with information not fully incorporated into the actuarially based estimate, such as changes in the external business environment and internal company processes.
+Added: We may adjust the actuarial estimates based on this supplemental information in order to arrive at the amount recorded in the Consolidated Financial Statements.
+Added: The Company determines its ultimate liability for unpaid losses and LAE by using the following actuarial methodologies:
Bornhuetter-Ferguson Method —
−Removed: The Bornhuetter-Ferguson Method is a blended method that explicitly takes into account both actual loss development to date and expected future loss emergence.
+Added: The Bornhuetter-Ferguson Method is a blended method that explicitly considers both actual loss development to date and expected future loss emergence.
This method is applied on both a paid loss basis and an incurred loss basis.
9 unchanged sentences
Ratio of Paid ALAE to Paid Loss Method —
−Removed: The Ratio of Paid ALAE to Paid Loss Method utilizes the ratio of paid ALAE to paid losses and is similar to the Paid and Case Incurred Method described above, except that the data projected are the ratios of paid ALAE to paid losses.
+Added: The Ratio of Paid ALAE to Paid Loss Method utilizes the ratio of paid ALAE to paid losses and is similar to the Paid and Case Incurred Loss Development Method described above, except that the data projected are the ratios of paid ALAE to paid losses.
The projected ultimate ratio is then multiplied by the selected ultimate losses, by accident year, to yield the ultimate ALAE.
1 unchanged sentence
The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables.
−Removed: These variables can be affected by both internal and external events, such as changes in claims handling procedures, inflation, legal trends, increases in the state-dictated minimum liability limits in the recent case of nonstandard auto insurance, and legislative changes, among others.
+Added: These variables can be affected by both internal and external events, such as changes in claims handling procedures, inflation, legal trends, increases in the state-dictated minimum liability limits in the recent cases of nonstandard auto insurance, and legislative changes, among others.
The impact of many of these items on ultimate costs for losses and loss adjustment expenses is difficult to estimate.
1 unchanged sentence
Informed judgment is applied throughout the process, including the application of various individual experiences and expertise to multiple sets of data and analyses.
−Removed: NI Holdings continually refines its estimates of unpaid losses and LAE in a regular ongoing process as historical loss experience develops and additional claims are reported and settled.
−Removed: NI Holdings considers all significant facts and circumstances known at the time the liabilities for unpaid losses and LAE are established.
+Added: We continually refine our estimates of unpaid losses and LAE in a regular ongoing process as historical loss experience develops, and additional claims are reported and settled.
+Added: We consider all significant facts and circumstances known at the time the liabilities for unpaid losses and LAE are established.
There is an inherent amount of uncertainty in the establishment of liabilities for unpaid losses and LAE.
17 unchanged sentences
When establishing case reserves, claims personnel generally establish an amount that in their opinion will provide a conservative amount to settle the loss.
−Removed: If the time to settle the claim extends over a period of years, the initial reserve may not anticipate an economic inflation rate that is significantly higher than the current inflation rate.
+Added: If the time to settle the claim extends over a period of years, which is possible but unlikely as the Company usually settles claims in less than 50 days on average, the initial reserve may not anticipate an economic inflation rate that is significantly higher than the current inflation rate.
This can also apply to IBNR reserves.
5 unchanged sentences
In addition, unexpected increases in the labor costs and healthcare costs that underlie insured risks, changes in costs of building materials, or changes in commodity prices for insured crops may cause fluctuations in the ultimate development of the case reserves.
−Removed: During 2018, the state of Nevada mandated the incorporation of higher minimum liabilities for nonstandard auto insurance policies written in the state.
−Removed: Similar mandates became effective in July 2020 in the state of Arizona.
−Removed: While it is certain that these actions increase the average claim cost experienced in the state, the actual amount is subject to judgement until further claim experience is obtained.
Actual settlement experience different from historical data trends
11 unchanged sentences
The Company reflects adjustments to the liability for unpaid losses and LAE in the results of operations during the period in which the estimates are changed.
−Removed: Actuarial Loss Reserves
NI Holdings’
−Removed: liabilities for unpaid losses and LAE are summarized below:
−Removed: Case reserves
−Removed: IBNR reserves
−Removed: Liability for unpaid losses and LAE
−Removed: Reinsurance recoverables on losses
−Removed: Net unpaid losses and LAE
−Removed: The following tables provides case and IBNR reserves for unpaid losses and LAE by segment.
−Removed: December 31, 2020
−Removed: Case Reserves
−Removed: IBNR Reserves
−Removed: Total Reserves
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Liability for unpaid losses and LAE
−Removed: Reinsurance recoverables on losses
−Removed: Net unpaid losses and LAE
−Removed: December 31, 2019
−Removed: Case Reserves
−Removed: IBNR Reserves
−Removed: Total Reserves
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Liability for unpaid losses and LAE
−Removed: Reinsurance recoverables on losses
−Removed: Net unpaid losses and LAE
−Removed: December 31, 2018
−Removed: Case Reserves
−Removed: IBNR Reserves
−Removed: Total Reserves
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Liability for unpaid losses and LAE
−Removed: Reinsurance recoverables on losses
−Removed: Net unpaid losses and LAE
−Removed: Sensitivity of Major Assumptions Underlying the Liabilities for Unpaid Losses and Loss Adjustment Expenses
−Removed: Management has identified the impact on earnings of various factors used in establishing loss reserves so that users of the Company’s financial statements can better understand how development on prior years’
−Removed: reserves might affect the Company’s results of operations.
−Removed: Total Reserves
−Removed: As of December 31, 2020, the impact of a 1% change in our estimate for unpaid losses and LAE, net of reinsurance recoverables, on our net income, after federal income taxes of 21%, would be approximately $767.
−Removed: Inflation is not explicitly selected in the loss reserve analysis.
−Removed: However, historical inflation is embedded in the estimated loss development factors.
−Removed: The following table displays the impact on net income, after federal income taxes of 21%, resulting from various changes from the inflation factor implicitly embedded in the estimated payment pattern as of December 31, 2020.
−Removed: A change in inflation may or may not fully affect loss payments in the future because some of the underlying expenses have already been paid.
−Removed: The table below assumes that any change in inflation will be fully reflected in future loss payments.
−Removed: This variance in future IBNR emergence could occur in one year or over multiple years, depending when the change is recognized.
−Removed: Change in Inflation
−Removed: Impact on After-Tax Earnings
−Removed: Inflation includes actual inflation as well as social inflation that includes future emergence of new classes of losses or types of losses, change in judicial awards, and any other changes beyond assumed levels that affect the cost of claims.
−Removed: Case Reserves
−Removed: When a claim is reported, claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated.
−Removed: It is possible that the level of adequacy in the case reserve may differ from historical levels and/or the claims reporting pattern may change.
−Removed: The following table displays the impact on net income, after federal income taxes of 21%, which results from various changes to the level of case reserves as of December 31, 2020.
−Removed: This variance in future IBNR emergence could occur in one year or over multiple years, depending when the change is recognized.
−Removed: Change in Case Reserves
−Removed: Impact on After-Tax Earnings
−Removed: NI Holdings’
fixed income securities and equity securities are classified as available-for-sale and carried at estimated fair value as determined by management based upon quoted market prices or a recognized pricing service at the reporting date for those or similar investments.
−Removed: Changes in unrealized investment gains or losses on the fixed income securities, and on equity securities through December 31, 2018, net of applicable income taxes, are reflected directly in shareholders’
+Added: Changes in unrealized investment gains or losses on the fixed income securities, net of applicable income taxes, are reflected directly in shareholders’
equity as a component of other comprehensive income (loss) and, accordingly, have no effect on net income (loss).
−Removed: Effective January 1, 2019, changes in unrealized investments gains or losses on equity securities began to be reported in net income (loss), rather than as a component of other comprehensive income (loss).
−Removed: Investment income is recognized when earned, and realized capital gains and losses on investments are recognized when investments are sold, or an other-than-temporary impairment is recognized.
−Removed: NI Holdings evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis.
−Removed: For periods beginning January 1, 2019, this evaluation includes only fixed income securities, whereas prior to this time, it included both fixed income and equity securities.
−Removed: NI Holdings assesses whether OTTI is present when the fair value of a security is less than its amortized cost.
−Removed: OTTI is considered to have occurred with respect to fixed income securities if (1) an entity intends to sell the security, (2) it is more likely than not an entity will be required to sell the security before recovery of its amortized cost basis, or (3) the present value of the expected cash flows is not sufficient to recover the entire amortized cost basis.
−Removed: When assessing whether the cost or amortized cost basis of the security will be recovered, the Company compares the present value of the expected cash flows likely to be collected, based on an evaluation of all available information relevant to the collectability of the security, to the cost or amortized cost basis of the security.
−Removed: The shortfall of the present value of the cash flows expected to be collected in relation to the cost of amortized cost basis is referred to as the “credit loss”.
−Removed: If there is a credit loss, the impairment is considered to be other-than-temporary.
−Removed: If NI Holdings identifies that an OTTI loss has occurred, it then determines whether it intends to sell the security, or if it is more likely than not that the Company will be required to sell the security prior to recovering the cost or amortized cost basis less any current-period credit losses.
−Removed: If NI Holdings determines that it does not intend to sell, and it is not more likely than not that it will be required to sell the security, the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the OTTI loss will be recognized in other comprehensive income (loss), net of income taxes.
−Removed: If NI Holdings determines that it intends to sell the security, or that it is more likely than not that it will be required to sell the security prior to recovering its cost or amortized cost basis less any current-period credit losses, the full amount of the OTTI will be recognized in earnings.
−Removed: Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates that generally translate, respectively, into decreases and increases in fair values of fixed income securities.
−Removed: The fair values of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market conditions.
−Removed: For the year ended December 31, 2020, NI Holdings’
−Removed: investment portfolio experienced an increase in net unrealized gains of $15,117.
−Removed: December 31, 2020
−Removed: December 31, 2019
−Removed: Fixed income securities:
−Removed: Gross unrealized gains
−Removed: Gross unrealized losses
−Removed: Net fixed income securities unrealized gains
−Removed: Equity securities:
−Removed: Gross unrealized gains
−Removed: Gross unrealized losses
−Removed: Net equity securities unrealized gains
−Removed: Net unrealized gains
−Removed: The fixed income portion of the portfolio experienced an increase in net unrealized gains of $9,264 during the year ended December 31, 2020.
−Removed: The net increase is reflected directly in shareholders’
−Removed: equity as a component of accumulated other comprehensive income.
−Removed: After the immediate economic impacts of the COVID-19 pandemic in the first half of the year, capital markets staged a strong rally during the second half of 2020, aided by significant fiscal and monetary support from world central banks to help the global economy.
−Removed: In the United States, the benchmark S&P 500 index rebounded to finish with a gain of 16.3% for the year, or a total return of about 18%, including dividends.
−Removed: Despite rising slightly from the second quarter, U.S.
−Removed: 10-year Treasury rates remained extremely depressed given the negative impact on economic growth from the current public health crisis and announcements from the U.S.
−Removed: Federal Reserve on its intention to maintain a near-zero interest rate policy for the foreseeable future.
−Removed: During the fourth quarter of 2020, vaccine rollout and an agreement on the next round of fiscal stimulus helped renew the risk-on sentiment, which led to new highs in equities, tighter spreads, and a steeper Treasury curve.
−Removed: While the next wave of the COVID-19 virus is prompting further restrictions in some areas of the United States and globally, market participants are looking forward, expecting that continued accommodative monetary policy combined with fiscal support will bolster the economic recovery that is well underway.
−Removed: The strong recovery in the financial markets led to a substantial increase in the Company’s net unrealized gains from equity securities for the year ended December 31, 2020.
−Removed: The net increase of $5,853 is included in net capital gain on investments on the Company’s Consolidated Statements of Operations for the year ended December 31, 2020.
−Removed: NI Holdings has evaluated each security and taken into account the severity and duration of any impairment, the current rating on the security (if any), and the outlook for the issuer according to independent analysts.
−Removed: The Company’s fixed income portfolio is managed by Conning Asset Management, who specializes in the management of insurance company investment portfolios and participates in this evaluation.
−Removed: For the years ended December 31, 2020 and 2019, NI Holdings did not recognize any OTTIs of its investment securities.
−Removed: For the year ended December 31, 2018, NI Holdings recognized $382 of OTTIs of its investment securities.
−Removed: Adverse investment market conditions, in addition to poor operating results of underlying investments, could result in impairment charges in the future.
−Removed: For more information on the Company’s investments, see Note 6 to the Consolidated Financial Statements, included elsewhere in this Form 10-K.
−Removed: Fair Value Measurements
−Removed: NI Holdings uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures.
−Removed: Investment securities available for sale are recorded at fair value on a recurring basis.
−Removed: Additionally, from time to time, NI Holdings may be required to record at fair value other assets on a nonrecurring basis.
−Removed: These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.
−Removed: 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.
−Removed: The three levels of the fair value hierarchy are as follows:
−Removed: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
−Removed: 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.
−Removed: Level II includes fixed income securities with quoted prices that are traded less frequently than exchange traded instruments.
−Removed: 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’
−Removed: relationship to other benchmark quoted prices.
−Removed: 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).
−Removed: NI Holdings 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.
−Removed: 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.
−Removed: Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the estimates of NI Holdings or other third-parties, and are often calculated based on the characteristics of the asset, the economic and competitive environment, and other such factors.
−Removed: Management uses its best judgment in estimating the fair value of the Company’s financial instruments;
−Removed: however, there are inherent weaknesses in any estimation technique.
−Removed: Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts which NI Holdings could have realized in a sale transaction on the dates indicated.
−Removed: 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 financial statements subsequent to those respective dates.
−Removed: 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.
−Removed: 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.
−Removed: NI Holdings uses quoted values and other data provided by an independent pricing service in its process for determining fair values of its investments.
−Removed: 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.
−Removed: This pricing service provides NI Holdings with one quote per instrument.
−Removed: For fixed income securities that have quoted prices in active markets, market quotations are provided.
−Removed: 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.
−Removed: 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.
−Removed: Additionally, the independent pricing service uses an option-adjusted spread model to develop prepayment and interest rate scenarios.
−Removed: The pricing service did not use broker quotes in determining fair values for any of the Company’s investments at December 31, 2020, 2019, or 2018.
−Removed: Should the independent pricing service be unable to provide a fair value estimate, NI Holdings 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.
−Removed: In instances where only one broker-dealer provides a fair value for a fixed income security, NI Holdings would use that estimate.
−Removed: In instances where NI Holdings would be able to obtain fair value estimates from more than one broker-dealer, the Company would review the range of estimates and select the most appropriate value based on the facts and circumstances.
−Removed: Should neither the independent pricing service nor a broker-dealer provide a fair value estimate, NI Holdings would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs.
−Removed: Accordingly, NI Holdings classifies such a security as a Level III investment.
−Removed: The fair value estimates of NI Holdings’
−Removed: 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.
−Removed: Management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures.
−Removed: Management reviews all securities to identify recent downgrades, significant changes in pricing, and pricing anomalies on individual securities relative to other similar securities.
−Removed: This will include looking for relative consistency across securities in common sectors, durations, and credit ratings.
−Removed: This review will also include all fixed income securities rated lower than “A”
−Removed: by Moody’s or Standard & Poor’s.
−Removed: 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 pricing service.
−Removed: In its review, management did not identify any such discrepancies, and no adjustments were made to the estimates provided by the pricing service, for the years ended December 31, 2020, 2019, or 2018.
−Removed: The classification within the fair value hierarchy is then confirmed based on the final conclusions from the pricing review.
−Removed: For more information on the Company’s fair value measurements, see Note 7 to the Consolidated Financial Statements, included elsewhere in this Form 10-K.
+Added: Changes in unrealized investments gains or losses on equity securities are reported in net income (loss).
+Added: Investment income is recognized when earned, and realized capital gains and losses on investments are recognized when investments are sold, or other-than-temporary impairments are recognized.
+Added: For additional information on the Company’s investments, see Part II, Item 8, Note 5 “Investments”
+Added: and Note 6 “Fair Value Measurements”.
Deferred Policy Acquisition Costs and Value of Business Acquired
2 unchanged sentences
Rather, a separate intangible asset representing the value of business acquired (“VOBA”) was valued at $4,750 and established at the closing date.
−Removed: This VOBA intangible asset was amortized into expense as the acquired unearned premiums were reported into income, in the same way as DAC, and is fully amortized at December 31, 2020.
+Added: This VOBA intangible asset was amortized into expense as the acquired unearned premiums were reported into income, in the same way as DAC, and was fully amortized at December 31, 2020.
Policy acquisition costs relating to new business written by Westminster were deferred following the closing date.
The release of the VOBA asset and the establishment of new DAC generally offset each other over the twelve months following the acquisition of Westminster.
−Removed: At December 31, 2020 and 2019, deferred policy acquisition costs, the VOBA intangible asset, and the related liability for unearned premiums were as follows:
+Added: At December 31, 2021 and 2020, deferred policy acquisition costs and the related liability for unearned premiums were as follows:
Deferred policy acquisition costs
Liability for unearned premiums
+Added: There were no VOBA intangible assets remaining at December 31, 2021 or 2020.
The method followed in computing DAC limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and LAE, and certain other costs expected to be incurred as the premium is earned.
2 unchanged sentences
Current income taxes represent amounts paid to the federal government and certain states whose payment is based upon net income (subject to regulatory adjustments) generated by the Company.
−Removed: NI Holdings uses the asset and liability method of accounting for deferred income taxes.
+Added: The Company uses the asset and liability method of accounting for deferred income taxes.
Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the income tax bases of our assets and liabilities.
1 unchanged sentence
Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability, excluding amounts attributed to accumulated other comprehensive income.
−Removed: NI Holdings had gross deferred income tax assets of $8,603 at December 31, 2020 and $6,294 at December 31, 2019, arising primarily from unearned premiums, loss reserve discounting, and net operating loss carryforwards.
+Added: The Company had gross deferred income tax assets of $10,070 at December 31, 2021 and $8,603 at December 31, 2020, arising primarily from unearned premiums, loss reserve discounting, and net operating loss carryforwards.
A valuation allowance is required to be established for any portion of the deferred income tax asset for which the Company believes it is more likely than not that it will not be realized.
A valuation allowance of $1,008 and $931 was maintained at December 31, 2021 and December 31, 2020, respectively.
−Removed: NI Holdings had gross deferred income tax liabilities of $16,429 at December 31, 2020 and $10,290 at December 31, 2019, arising primarily from deferred policy acquisition costs, net unrealized capital gains on investments, and other intangible assets.
−Removed: NI Holdings exercises significant judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets.
−Removed: These judgments require NI Holdings to make projections of future taxable income.
−Removed: The judgments and estimates the Company makes in determining its deferred income tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change.
+Added: The Company had gross deferred income tax liabilities of $14,568 at December 31, 2021 and $16,429 at December 31, 2020, arising primarily from deferred policy acquisition costs, net unrealized capital gains on investments, and other intangible assets.
+Added: The Company exercises significant judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets.
+Added: These judgments require us to make projections of future taxable income.
+Added: The judgments and estimates we make in determining its deferred income tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change.
Any reduction in estimated future taxable income may require the Company to record a valuation allowance against its deferred income tax assets.
−Removed: As of December 31, 2020, NI Holdings had no material unrecognized tax benefits or accrued interest and penalties.
+Added: As of December 31, 2021, the Company had no material unrecognized income tax benefits or accrued interest and penalties.
Federal income tax returns for the years 2018 through 2020 are open for examination.
Results of Operations
−Removed: NI Holdings’
−Removed: results of operations are influenced by factors affecting the property and casualty insurance and crop insurance industries in general.
−Removed: The operating results of the United States property and casualty industry and crop insurance industry are subject to significant variations due to competition, weather, catastrophic events, regulation changes, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest rates, and other changes in the investment environment.
−Removed: NI Holdings premium levels and underwriting results have been, and will continue to be, influenced by market conditions.
+Added: Our results of operations are influenced by factors affecting the property and casualty insurance and crop insurance industries in general.
+Added: The operating results of the United States property and casualty industry and crop insurance industry are subject to significant variations due to competition, weather, catastrophic events, changes in regulations, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest rates, and other changes in the investment environment.
+Added: Our premium levels and underwriting results have been, and will continue to be, influenced by market conditions.
Pricing in the property and casualty insurance industry historically has been cyclical.
2 unchanged sentences
A hard market typically has a positive effect on premium growth.
−Removed: The markets that NI Holdings serve are diversified, which requires management to regularly monitor the Company’s performance and competitive position by line of business and geographic market to schedule appropriate rate actions.
−Removed: Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres and types of crops insured because the pricing is set by the RMA rather than individual insurance carriers.
+Added: The markets that we serve are diversified, which requires management to regularly monitor our performance and competitive position by line of business and geographic market to schedule appropriate rate actions.
+Added: Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres, commodity prices, and types of crops insured because the rates are established by the RMA rather than individual insurance carriers.
The expected experience of this business for the calendar year may also significantly affect the reported net earned premiums and losses due to the risk-sharing arrangement with the federal government.
−Removed: Multi-peril crop insurance premiums are generally written in the second quarter, and earned ratably over the period of risk, which extends into the fourth quarter.
−Removed: However, as was the case in 2020, if the Company experiences a higher than average number of prevented planting claims early in the season, additional earned premiums may be recognized in the second quarter due to the shortened risk period.
+Added: Multi-peril crop insurance premiums are generally written in the second quarter, and earned ratably over the period of risk, which generally extends into the fourth quarter.
+Added: However, as was the case in 2020, if we experience a higher-than-average number of prevented planting claims early in the season, recognition of earned premiums may be accelerated due to a shortened risk period.
Premiums in the crop hail insurance business are also generally written in the second quarter, but earned over a shorter period of risk than multi-peril crop insurance.
−Removed: Premiums in the personal lines of business (private passenger auto and home and farm) are generally written and earned throughout the year.
−Removed: Losses on this business are also incurred throughout the year, but usually are more frequent and/or severe during periods of weather-related activity in the second and third quarters.
−Removed: Premiums in the commercial lines of business are generally written and earned throughout the year.
−Removed: Losses on this business are also incurred throughout the year, but generally are more frequent during the first and second quarters.
−Removed: For more information on the Company’s results of operations by segment, see Note 22 to the Consolidated Financial Statements, included elsewhere in this Form 10-K.
+Added: Premiums in our other lines of business are written and earned throughout the year based on their coverage periods.
+Added: Losses on this business are also incurred throughout the year, but usually are more frequent and/or severe during periods of elevated weather-related activity.
+Added: For more information on the Company’s results of operations by segment, see Part II, Item 8, Note 20 “Segment Information”.
Years ended December 31, 2021, 2020, and 2019
−Removed: The consolidated net income for NI Holdings was $41,344 for the year ended December 31, 2020 compared to $26,500 for the year ended December 31, 2019.
−Removed: The major components of NI Holdings’
−Removed: operating revenues and net income for the two periods were as follows:
+Added: The consolidated net income for the Company was $8,332 for the year ended December 31, 2021, compared to $41,344 for the year ended December 31, 2020 and $26,500 for the year ended December 31, 2019.
+Added: The major components of our operating revenues and net income for the three periods are shown below:
Year Ended December 31,
8 unchanged sentences
Amortization of deferred policy acquisition costs and other underwriting and general expenses
−Removed: Underwriting gain
+Added: Underwriting gain (loss)
Fee and other income
2 unchanged sentences
Income before income taxes
−Removed: Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company’s results.
−Removed: The Company’s underwriting results were impacted by reduced net premiums earned in our non-standard auto segment.
−Removed: The Company also experienced volatility in net unrealized investment gains and losses driven by the impact of changes in fair value on the Company’s equity investments, attributable to the recent disruption in global financial markets.
−Removed: For further discussion regarding the potential impacts of COVID-19 and related economic conditions of the Company, see “Part II –
−Removed: Item 1A –
−Removed: Risk Factors”.
Net Premiums Earned
−Removed: NI Holdings’
+Added: Year Ended December 31,
+Added: Net premiums earned:
+Added: Direct premium
+Added: Assumed premium
+Added: Ceded premium
+Added: Total net premiums earned
Net premiums earned for the year ended December 31, 2021 increased $15,928, or 5.6%, to $299,589, compared to $283,661 for the year ended December 31, 2020.
+Added: Net premiums earned for the year ended December 31, 2020 increased $37,223, or 15.1%, to $283,661, compared to $246,438 for the year ended December 31, 2019.
Year Ended December 31,
4 unchanged sentences
Total net premiums earned
+Added: Below are comments regarding significant changes in net premiums earned, by business segment:
+Added: Private passenger auto –
+Added: Net premiums earned for 2021 increased $524, or 0.7%, from 2020.
+Added: Premiums were impacted by continued soft market conditions in this segment throughout the year.
+Added: Non-standard auto –
+Added: Net premiums earned for 2021 increased $4,848, or 9.0%, from 2020.
+Added: The segment has benefited from the improved economic environment in the Chicago market where our non-standard auto business is concentrated.
+Added: Home and farm –
+Added: Net premiums earned for 2021 decreased $1,087, or 1.5%, from 2020.
+Added: The modest decrease was due to competitive market conditions and the related rate reduction taken in early 2021 in the Nodak Insurance farmowners line of business, and a year-over-year increase in ceded written premiums for this business.
+Added: Crop –
+Added: Net premiums earned for 2021 decreased $8,870, or 24.8%, from 2020.
+Added: Direct earned premiums increased by $3,648 primarily due to higher commodity prices on multi-peril crop business.
+Added: However, this increase was offset by a large increase in ceded earned premiums as a result of significant multi-peril crop losses from this year’s extreme drought conditions across North and South Dakota.
+Added: We also placed a higher number of multi-peril crop policies in the assigned risk fund of the SRA for 2021, resulting in higher levels of premiums and losses being ceded to the federal government.
+Added: Commercial –
+Added: Net premiums earned for 2021 increased $18,997, or 49.6%, from 2020.
+Added: The increase was primarily driven by growth in our Westminster commercial business as a result of a continuation of favorable market conditions, the positive impact of Westminster’s financial size category, and the 2020 AM Best rating upgrade.
+Added: All other –
+Added: Net premiums earned for 2021 increased $1,516, or 16.8%, from 2020.
+Added: Net premiums earned increased related to our participation in an assumed domestic and international reinsurance pool of business.
+Added: As of January 1, 2022, the Company made the decision to non-renew its participation in these pools.
+Added: Losses and Loss Adjustment Expenses
Year Ended December 31,
−Removed: Net premiums earned:
−Removed: Direct premium
−Removed: Assumed premium
−Removed: Ceded premium
−Removed: Total net premiums earned
−Removed: Direct premiums earned for 2020 increased $43,400, or 16.9%, from 2019.
−Removed: The addition of the Westminster commercial business contributed $40,742 in direct premiums earned during 2020.
−Removed: Assumed premiums earned increased slightly, primarily related to the assumed reinsurance business from American Agricultural Insurance Company.
−Removed: Ceded premiums earned increased due to incorporating Westminster into our reinsurance program and increasing our overall reinsurance coverage limits.
−Removed: Our personal lines of business (private passenger auto, home and farm) continued to grow significantly in South Dakota, while premiums in these lines remained relatively flat in North Dakota and Nebraska due to the impact of both COVID-19 and increased competition in our markets.
−Removed: Non-standard auto premiums earned decreased approximately 6% year-over-year due to the impact of COVID-19, reduced policy counts as a result of rate actions taken in Primero’s primary markets which were driven by increased minimum liability limits, and competitive challenges in Direct Auto’s market.
−Removed: Direct premiums for crop business were lower in 2020 compared to 2019, primarily due to lower commodity prices for multi-peril crop and fewer acres insured under the crop hail line of business.
−Removed: Losses and LAE
−Removed: NI Holdings’
−Removed: net losses and LAE for the year ended December 31, 2020 decreased $1,237, or 0.7%, to $168,473 compared to $169,710 for the year ended December 31, 2019, due primarily to improved loss experience in the private passenger auto, non-standard auto, and home and farm segments.
−Removed: This decrease is understated as the prior year’s losses and LAE did not include Westminster.
−Removed: The Company’s loss and LAE ratio decreased significantly.
+Added: Net losses and LAE:
+Added: Direct losses and LAE
+Added: Assumed losses and LAE
+Added: Ceded losses and LAE
+Added: Total net losses and LAE
+Added: Net losses and LAE for the year ended December 31, 2021 increased $47,906, or 28.4%, to $216,379, compared to $168,473 for the year ended December 31, 2020.
+Added: Net losses and LAE for the year ended December 31, 2020 decreased $1,237, or 0.7%, to $168,473, compared to $169,710 for the year ended December 31, 2019.
Year Ended December 31,
10 unchanged sentences
Total loss and LAE ratio
−Removed: Net losses for private passenger auto and non-standard auto decreased in 2020 compared to the prior year, due primarily to improved loss frequency as insureds drove fewer miles, primarily during the second quarter of the year.
−Removed: In home and farm, losses and LAE decreased due primarily to a lower frequency of weather-related losses.
−Removed: During 2019, private passenger auto also experienced significant bodily injury and underinsured losses, as well as higher weather-related losses.
−Removed: For the commercial business, while overall losses increased due to Westminster’s results being added to the segment, the year-over-year loss and LAE ratio improved.
−Removed: The 2019 multi-peril crop insurance business ended the year with less than 50% of the corn in North Dakota harvested and we carried a significant number of open claims into 2020.
−Removed: All of those claims have been settled, but produced unfavorable loss development of $3,831 on a net basis.
−Removed: For the 2020 crop season, a higher than normal number of prevented planting claims were submitted due to fields not harvested from the prior year, resulting in an elevated loss and LAE ratio.
−Removed: During the year ended December 31, 2020, reported losses and LAE included $3,292 of net unfavorable development on prior accident years, compared to $6,509 of net favorable development on prior accident years during the year ended December 31, 2019.
−Removed: Net favorable development is the result of prior years’
−Removed: claims settling for less than originally estimated, while net unfavorable development is the result of prior years’
−Removed: claims settling for more than originally estimated.
−Removed: Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to the reserve is appropriate.
−Removed: The net unfavorable development reported in 2020 is primarily related to the 2019 multi-peril crop business.
+Added: Below are comments regarding significant changes in net losses and LAE, and the net loss and LAE ratios, by business segment:
+Added: Private passenger auto –
+Added: The net loss and LAE ratio deteriorated 19.1 percentage points in 2021 compared to 2020.
+Added: The increase was a result of a return to average loss frequency due to increased miles driven by our insureds compared to 2020 when pandemic-related restrictions were still in place.
+Added: Loss experience in 2021 has also been adversely impacted by an increase in uninsured/underinsured motorist liability claims frequency, as well as increased severity due to inflationary factors.
+Added: We are assessing necessary future rate actions as a result of the increased loss activity.
+Added: Non-standard auto –
+Added: The net loss and LAE ratio deteriorated 2.3 percentage points in 2021 compared to 2020.
+Added: Direct Auto has experienced modest elevations in loss frequency and severity compared to 2020 despite increased miles being driven compared to 2020.
+Added: Overall net losses and LAE increased due to strong year-to-date direct written premium growth at Direct Auto.
+Added: These profitable results have been offset by Primero’s higher loss frequency and severity due largely to the continued economic challenges in the Las Vegas market.
+Added: Home and farm –
+Added: The net loss and LAE ratio deteriorated 21.6 percentage points in 2021 compared to 2020.
+Added: This increase was driven by above average weather-related losses in 2021.
+Added: These losses included a severe weather-related catastrophe event in North Dakota during June, along with additional significant weather-related losses in Nebraska and South Dakota during the second half of the year.
+Added: Crop –
+Added: The net loss and LAE ratio deteriorated 15.8 percentage points in 2021 compared to 2020.
+Added: The extreme drought conditions across North Dakota, South Dakota, and Minnesota resulted in significantly elevated multi-peril crop losses.
+Added: However, in anticipation of the dry weather, we placed a higher number of multi-peril crop policies in the assigned risk fund of the SRA for 2021, resulting in increased premiums and losses ceded to the federal government.
+Added: Commercial –
+Added: The net loss and LAE ratio deteriorated 7.3 percentage points in 2021 compared to 2020.
+Added: This increase was primarily due to increased fire loss frequency in the Westminster book of business during the first and second quarters.
+Added: Westminster had a strong second half of the year as the Company continued to benefit from favorable market conditions, along with improved loss frequency and severity.
+Added: All other –
+Added: The net loss and LAE ratio deteriorated 25.6 percentage points in 2021 compared to 2020.
+Added: The increase was primarily due to elevated loss severity in our assumed domestic and international reinsurance pool of business, in particular anticipated losses associated with Hurricane Ida.
Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses
−Removed: Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $17,810, or 26.5%, during the year ended December 31, 2020 compared to a year ago.
Year Ended December 31,
4 unchanged sentences
Total reported expenses
−Removed: Underlying expenses were $23,846 higher in the year ended December 31, 2020 compared to a year ago.
−Removed: Westminster contributed $19,163 of underlying expenses to the current year, including $5,172 of other intangibles amortization expense.
−Removed: Policy acquisition costs have increased due to higher written premiums.
−Removed: Compensation expenses have increased year-over-year.
−Removed: The Company also paid $1,129 of membership dues on behalf of its NDFB members in North Dakota during 2020 in response to the COVID-19 pandemic.
−Removed: Deferrals of policy acquisition costs were $11,320 higher in the year ended December 31, 2020 compared to 2019 primarily due to the addition of Westminster.
−Removed: Amortization of those costs also increased consistent with the increase in earned premiums.
−Removed: The expense ratio of 30.0% for the year ended December 31, 2020 was 2.7 percentage points higher than the expense ratio in 2019.
−Removed: This increase in the ratio is reflective of the higher expense ratio of the Westminster business and increased compensation expenses.
+Added: Underlying expenses for the year ended December 31, 2021 decreased $3,632, or 3.9%, compared to the year ended December 31, 2020.
+Added: Underlying expenses for the year ended December 31, 2020 increased $23,846, or 34.2%, compared to the year ended December 31, 2019, primarily due to the acquisition of Westminster.
+Added: Expense deferrals were $5,513 higher in the year ended December 31, 2021 compared to 2020, while amortization of those costs was $13,102 higher in 2021.
+Added: This increase in net expense was primarily due to strong year-over-year growth in our commercial and non-standard auto segments which generally pay higher agent commissions than our other lines, as well as growth in our other segments.
+Added: In addition, under acquisition accounting, there were no deferred policy acquisition costs reported on the acquisition balance sheet of Westminster, which had the impact of decreasing 2020 amortization of deferred policy acquisition costs relative to future years.
+Added: Offsetting this impact, the Company recorded an intangible asset, referred to as the VOBA, on its acquisition balance sheet which was amortized during 2020 as a component of other underwriting and general expenses.
+Added: As our mix of business has shifted and these premiums continue to be earned, the related deferral and amortization of expenses have also changed.
Underwriting Gain (Loss)
−Removed: Underwriting gain (loss) measures the pretax profitability of a company’s insurance business.
−Removed: It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned.
Year Ended December 31,
3 unchanged sentences
Home and farm
−Removed: Total underwriting gain
+Added: Total underwriting gain (loss)
Year Ended December 31,
4 unchanged sentences
Total combined ratio
−Removed: The underwriting profitability of the Company for the year ended December 31, 2020 increased year-over-year.
−Removed: As discussed above, loss experience (as reflected in the loss and LAE ratio) decreased in the private passenger auto, non-standard auto, home and farm, and all other segments.
−Removed: The improvement in the private passenger auto combined ratio reflects elevated loss experience during 2019 and favorable loss experience during 2020.
−Removed: Losses during 2019 were impacted by weather-related losses and significant bodily injury and underinsured liability losses.
−Removed: During 2020, a reduction in miles driven due to the COVID-19 pandemic primarily during the second quarter resulted in decreased claims frequency.
−Removed: Claims frequency has mostly returned to normal levels, although the level of large claims has moderated from a year ago.
−Removed: For the non-standard auto segment, the combined ratio increased slightly year-over-year.
−Removed: The loss and LAE ratio improved as claims frequency for this segment was reduced due to fewer miles driven.
−Removed: However, the expense ratio increased due to Direct Auto, which has a higher expense load than Primero, writing a higher proportion of business in the segment compared to the prior year.
−Removed: The combined ratio for the home and farm segment improved substantially as we experienced a lower number of weather-related events in 2020.
−Removed: The favorable impact from fewer weather-related losses combined with modest rate adjustments resulted in a profitable year.
−Removed: For the commercial segment, the results of Westminster are now combined with the commercial business of Nodak Insurance and American West.
−Removed: The 2019 results reflected high loss experience.
−Removed: During 2020, the addition of Westminster decreased the loss and LAE ratio, although a higher expense load led to a higher combined ratio.
−Removed: Underwriting expenses for Westminster were adversely impacted by amortization of its VOBA intangible asset in 2020.
−Removed: For the crop segment, the combined ratio was elevated due to the high percentage of unharvested corn that remained in the field from the 2019 season.
−Removed: As those fields were harvested, the losses were higher than anticipated, resulting in adverse development.
−Removed: The 2020 multi-peril crop ratio was also elevated due to the large number of prevented planting claims submitted during second quarter.
−Removed: The high combined ratio for multi-peril crop was partially offset by favorable loss experience in our crop hail business.
+Added: Underwriting gain (loss) measures the pre-tax profitability of our insurance operations.
+Added: It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned.
+Added: The combined ratio represents the sum of these losses and expenses as a percentage of net premiums earned, and measures our overall underwriting profit.
+Added: A combined ratio below 100% generally indicates a profitable line of business.
+Added: The results from underwriting operations decreased $43,199 for the year ended December 30, 2021 compared to the year ended December 31, 2020.
+Added: The overall combined ratio deteriorated 15.0 percentage points.
+Added: The primary drivers behind the elevated combined ratio for the year ended December 31, 2021 were the extreme drought conditions across North Dakota, South Dakota, and Minnesota on our multi-peril crop business;
+Added: above average weather-related losses in North Dakota, South Dakota, and Nebraska;
+Added: the return to average frequency, and increased severity due to inflationary factors, of private passenger and non-standard auto physical damage claims;
+Added: and higher levels of uninsured/underinsured motorist liability claims in private passenger auto.
+Added: These elevated losses were partially offset by profitable and strong growth from Direct Auto in the non-standard segment, along with continued profitability and growth from Westminster’s commercial business, particularly during the second half of the year.
Fee and Other Income
−Removed: NI Holdings had fee and other income of $1,801 for the year ended December 31, 2020, compared to $2,125 for the year ended December 31, 2019.
+Added: The Company had fee and other income of $1,775 for the year ended December 31, 2021, compared to $1,801 for the year ended December 31, 2020, and $2,125 for the year ended December 31, 2019.
Fee income attributable to Primero’s non-standard auto business is a key component in measuring its profitability.
−Removed: Fee income on this business decreased to $1,337 for 2020 from $1,638 for 2019, driven by a reduction in policy count.
−Removed: Primero also temporarily waived some of its policy maintenance fees as a response to the COVID-19 pandemic.
+Added: Fee income on this business decreased slightly during 2021 compared to 2020 due to a decreased policy count.
Net Investment Income
−Removed: 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:
+Added: 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:
Year Ended December 31,
5 unchanged sentences
Net return on average cash and invested assets
−Removed: Investment income, net of investment expense, decreased $162 for the year ended December 31, 2020 compared to a year ago.
−Removed: This decrease is partly attributable to lower market yields on the acquired Westminster’s fixed income securities and additional investment expenses from Westminster.
−Removed: The weighted average gross yield on invested assets decreased to 2.3% in 2020 from 2.5% in 2019, driven by lower reinvestment yields on fixed income securities.
−Removed: As of December 31, 2020, our overall book yield for our combined fixed income and equity portfolio was 2.6%.
−Removed: The average duration of our fixed income securities was 3.6 years at December 31, 2020.
−Removed: Net Capital Gain on Investments
−Removed: NI Holdings had realized capital gains on investment of $7,771 for the year ended December 31, 2020, compared to $3,246 a year ago.
−Removed: This increase was driven by the strong recovery in financial markets, along with the liquidation of certain investment holdings to fund intercompany cash transfers needed to establish the new reinsurance pooling arrangement.
−Removed: Effective January 1, 2019, in accordance with a change in accounting principle, market fluctuations on our equity securities began to be reported in the Company’s results of operations.
−Removed: NI Holdings reported a net gain of $5,853 attributed to the change in unrealized appreciation of its equity securities for the year ended December 31, 2020, compared to a net gain of $11,537 for the year ended December 31, 2019.
−Removed: The Company recorded no OTTIs in the years ended December 31, 2020 and 2019.
−Removed: The Company’s fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies.
−Removed: At December 31, 2020, the Company had net unrealized gains on fixed income securities of $16,505 and net unrealized gains on equity securities of $27,749.
−Removed: At December 31, 2019, the Company had net unrealized losses on fixed income securities of $7,241 and net unrealized gains on equity securities of $21,896.
−Removed: The increase in the fair value of our fixed income securities was driven primarily by the U.S.
−Removed: Federal Reserve’s implementation of the unprecedented efforts it announced in March to support the economy, as well as its intention to maintain a near-zero interest rate policy for the foreseeable future.
−Removed: Additionally, the stock market recovery previously noted was the primary driver of the increased unrealized gains in the equity securities portfolio.
−Removed: NI Holdings has evaluated each security in a loss position and taken into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts.
−Removed: NI Holdings will continue to monitor these securities throughout the remainder of the COVID-19 pandemic and economic recovery period.
−Removed: Income before Income Taxes
−Removed: For the year ended December 31, 2020, NI Holdings had pre-tax income of $52,816 compared to $33,811 for the year ended December 31, 2019.
−Removed: The increase in pre-tax results was largely attributable to the significant improvement in loss experience during 2020.
−Removed: NI Holdings recorded income tax expense of $11,472 for the year ended December 31, 2020, compared to $7,311 for the year ended December 31, 2019.
−Removed: A portion of income tax expense relates to state income taxes primarily for the state of Illinois.
−Removed: Our effective tax rate for 2020 was 21.7% compared to an effective tax rate of 21.6% for 2019.
−Removed: The valuation allowance against certain deferred income tax assets was $931 as of December 31, 2020, compared to $594 as of December 31, 2019.
−Removed: For the year ended December 31, 2020, NI Holdings had net income before non-controlling interest of $41,344 compared to $26,500 for 2019.
−Removed: This increase in net income was largely attributable to the significant improvement in loss experience during 2020.
−Removed: Return on Average Equity
−Removed: For the year ended December 31, 2020, NI Holdings had annualized return on average equity, after non-controlling interest, of 12.4% compared to annualized return on average equity, after non-controlling interest, of 9.1% for the year ended December 31, 2019.
−Removed: Average equity is calculated as the average between beginning and ending equity excluding non-controlling interest for the period.
−Removed: Years ended December 31, 2019 and 2018
−Removed: The consolidated net income for NI Holdings was $26,500 for the year ended December 31, 2019 compared to $31,244 for the prior year.
−Removed: The major components of NI Holdings’
−Removed: operating revenues and net income for the two periods were as follows:
−Removed: Year Ended December 31,
−Removed: Net premiums earned
−Removed: Fee and other income
−Removed: Net investment income
−Removed: Net capital gain on investments
−Removed: Total revenues
−Removed: Components of net income:
−Removed: Net premiums earned
−Removed: Losses and loss adjustment expenses
−Removed: Amortization of deferred policy acquisition costs and other underwriting and general expenses
−Removed: Underwriting gain
−Removed: Fee and other income
−Removed: Net investment income
+Added: Investment income, net of investment expense, decreased $140 for the year ended December 31, 2021 compared to the year ended December 31, 2020.
+Added: This decrease was primarily driven by the continued impact of lower reinvestment rates in the fixed income securities portfolio.
+Added: The Company’s net return on average cash and invested assets declined year-over-year, driven by a combination of factors.
+Added: Interest income decreased primarily due to a persistent low reinvestment rate environment, ongoing maturities of existing holdings with higher embedded yields, and significant cash inflows to the investment portfolio from the Company's business operations.
+Added: These decreases were partially offset by an increased allocation to high dividend equities within our equity portfolio, which increased the portfolio’s dividend yield compared to the prior year.
Net Capital Gain on Investments
−Removed: Income before income taxes
−Removed: Net Premiums Earned
−Removed: NI Holdings’
−Removed: net premiums earned for the year ended December 31, 2019 increased 25.9% to $246,438 compared to $195,720 for the year ended December 31, 2018.
−Removed: Year Ended December 31,
−Removed: Net premiums earned:
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Total net premiums earned
−Removed: Year Ended December 31,
−Removed: Net premiums earned:
−Removed: Direct premium
−Removed: Assumed premium
−Removed: Ceded premium
−Removed: Total net premiums earned
−Removed: Direct premiums earned for 2019 increased $38,061, or 17.3%, to $257,661 from $219,600 for 2018.
−Removed: The addition of the Direct Auto non-standard auto business contributed $43,873 in direct premiums earned during 2019 compared to $14,516 for the prior year.
−Removed: Assumed premiums earned decreased slightly, primarily related to crop hail business from Rural Mutual.
−Removed: Ceded premiums earned decreased due to less gain-sharing of multi-peril crop premiums to the federal government.
−Removed: Our personal lines of business (private passenger auto, home and farm) continued their strong growth in South Dakota.
−Removed: Our non-standard auto premiums also increased year-over-year due to the acquisition of Direct Auto.
−Removed: Direct premiums for crop business are lower in 2019 compared to 2018 due in part to lower commodity prices, although 2019 net premiums are higher than 2018 net premiums due to more ceding of 2018 premiums under the gain-sharing provisions of the federal crop insurance program based on our more favorable loss ratio for 2018.
−Removed: Losses and LAE
−Removed: NI Holdings’
−Removed: net losses and LAE for the year ended December 31, 2019 increased 42.5% to $169,710 compared to $119,088 for the year ended December 31, 2018.
−Removed: The Company’s loss and LAE ratio increased to 68.9% for 2019, compared to 60.8% for 2018.
−Removed: Year Ended December 31,
−Removed: Loss and LAE ratio:
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Total loss and LAE ratio
−Removed: The Company’s overall loss and LAE experience deteriorated year-over-year, primarily with increases in the loss and LAE ratios in the private passenger auto, non-standard auto, crop, and commercial segments.
−Removed: Net losses for private passenger auto increased in 2019 compared to the prior year, as third quarter weather activity and liability losses each increased compared to a year ago.
−Removed: The loss and LAE ratio for the home and farm segment was at the expected level, with favorable farmowners results offsetting unfavorable homeowners results.
−Removed: Net losses for non-standard auto included a combination of favorable loss experience development in Direct Auto, partially offset by unfavorable loss experience development in Primero.
−Removed: In Primero, the statutory increase in minimum liability limits in the state of Nevada resulted in a higher than anticipated increase in the average paid claim and average loss reserve.
−Removed: This has driven up our loss experience, which we have addressed through rate increases.
−Removed: Unfortunately, these rate increases challenged our ability to write new policies during the second half of 2019, but we feel were necessary to properly price the business following the statutory change in the limits.
−Removed: Our loss experience was above average levels for both our multi-peril crop business and crop hail business for 2019, compared to favorable loss experience during 2018.
−Removed: The wet spring and cool summer across North Dakota resulted in a delay for some crops to mature, while a wet fall delayed the harvest of those crops.
−Removed: A substantial number of multi-peril crop claims remained open at year-end.
−Removed: During 2019, reported losses and LAE included $6,509 of net favorable development on prior accident years, compared to $589 of net favorable development on prior accident years during 2018.
−Removed: Net favorable development is the result of prior years’
−Removed: claims settling for less than originally estimated, while net unfavorable development is the result of prior years’
−Removed: claims settling for more than originally estimated.
−Removed: Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to the reserve is appropriate.
−Removed: Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses
−Removed: Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased 24.3% to $67,258 in the year ended December 31, 2019 compared to $54,117 in 2018.
−Removed: Year Ended December 31,
−Removed: Underlying expenses
−Removed: Deferral of policy acquisition costs
−Removed: Other underwriting and general expenses
−Removed: Amortization of deferred policy acquisition costs
−Removed: Total reported expenses
−Removed: Underlying expenses were $11,667 higher in the year ended December 31, 2019 compared to the prior year.
−Removed: The new Direct Auto subsidiary contributed $16,792 of underlying expenses during 2019, compared to $5,981 for the prior year.
−Removed: Policy acquisition costs have increased due to higher written premiums.
−Removed: Expense deferrals were $12,858 higher in the year ended December 31, 2019 compared to 2018 primarily due to increases in direct premiums written in 2019 and the new Direct Auto business.
−Removed: Amortization of those costs was $14,332 higher in 2019 for the same reasons.
−Removed: The expense ratio of 27.3% for the year ended December 31, 2019 was 0.4 percentage points lower than the expense ratio in 2018.
−Removed: This decrease in the ratio primarily reflects increased net earned premiums as a result of less 2019 ceded premiums associated with the gain-sharing provisions of the multi-peril crop program with the federal government, offset by a full year of the higher commission rates for the Direct Auto non-standard auto business.
−Removed: Underwriting Gain (Loss)
−Removed: Underwriting gain (loss) measures the pretax profitability of a company’s insurance business.
−Removed: It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned.
−Removed: Year Ended December 31,
−Removed: Underwriting gain (loss):
−Removed: Private passenger auto
−Removed: Non-standard auto
−Removed: Home and farm
−Removed: Total underwriting gain
−Removed: The underwriting results of the Company for the year ended December 31, 2019 decreased year-over-year.
−Removed: As discussed above, loss experience (as reflected in the loss and LAE ratio) increased in the private passenger auto, non-standard auto, crop, and commercial segments.
−Removed: Increased weather activity, and a higher frequency and severity of liability losses for the auto lines, resulted in lower 2019 underwriting results in our private passenger auto and commercial businesses.
−Removed: The homeowners’
−Removed: portion of the home and farm segment also experienced increased weather activity, although the underwriting results for the segment as a whole for 2019 were favorable compared to a year ago based on strong results for our farmowners’
−Removed: The non-standard auto results decreased from last year, as the increase in underwriting gain from the new Direct Auto business was offset by the deterioration of the Primero business.
−Removed: The underwriting gain on crop insurance decreased, due to higher loss ratios for the multi-peril crop business and the crop hail line.
−Removed: Fee and Other Income
−Removed: NI Holdings had fee and other income of $2,125 for the year ended December 31, 2019, compared to $6,496 for the year ended December 31, 2018.
−Removed: Fee income attributable to the non-standard auto segment is a key component in measuring its profitability.
−Removed: Fee income on this business increased to $1,638 for 2019 from $1,406 for 2018, due to the addition of Direct Auto.
−Removed: In the third quarter of 2018, the Company recognized a pre-tax gain of $4,578 as part of other income as a result of the purchase accounting afforded the purchase of Direct Auto.
−Removed: Net Investment Income
−Removed: 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:
+Added: Net capital gain on investments consisted of the following:
Year Ended December 31,
−Removed: Average cash and invested assets
−Removed: Gross investment income
−Removed: Investment expenses
−Removed: Net investment income
−Removed: Gross return on average cash and invested assets
−Removed: Net return on average cash and invested assets
−Removed: Investment income, net of investment expense, increased $1,253 for the year ended December 31, 2019 compared to the prior year.
−Removed: This increase is attributable to the increase in invested assets, due primarily to the acquisition of Direct Auto.
−Removed: The weighted average gross yield on invested assets remained steady at 2.5% in 2019 compared to 2018.
−Removed: As of December 31, 2019, our overall book yield for our combined fixed income and equity portfolio was 2.8% and the average duration for our fixed income security portfolio was 3.5 years.
−Removed: The Direct Auto cash and cash equivalents acquired at the date of purchase have now been fully invested in accordance with our investment policy.
+Added: Gross realized gains
+Added: Gross realized losses, excluding other-than-temporary impairment losses
+Added: Net realized gain on investments
+Added: Change in net unrealized gain on equity securities
Net capital gain on investments
−Removed: NI Holdings had realized capital gains on investment of $3,246 for the year ended December 31, 2019, compared to $3,974 the prior year.
−Removed: Effective January 1, 2019, in accordance with a change in accounting principle, market fluctuations on our equity securities are reflected in the Company’s results of operations.
−Removed: NI Holdings reported a net gain of $11,537 attributed to the change in unrealized gain of its equity securities for the year ended December 31, 2019.
−Removed: Prior to January 1, 2019, such unrealized gains and losses were included in other comprehensive income.
−Removed: Pre-tax net unrealized losses on equity securities recorded in other comprehensive income were $8,174 for the year ended December 31, 2018.
−Removed: Although we anticipate a higher level of short-term volatility going forward in our reported results due to similar market fluctuations, we continue to believe that this asset class presents viable investment opportunities.
−Removed: The Company recorded no other-than-temporary impairments in the year ended December 31, 2019, and $382 of other-than-temporary impairments in the year ended December 31, 2018.
−Removed: The Company’s fixed income securities and equity securities are classified as available for sale because it will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies.
−Removed: At December 31, 2019, the Company had net unrealized gains on fixed income securities of $7,241 and net unrealized gains on equity securities of $21,896.
−Removed: At December 31, 2018, the Company had net unrealized losses on fixed income securities of $2,325 and net unrealized gains on equity securities of $10,359.
−Removed: The increase in the fair value of our fixed income securities was driven by a sharp decline in U.S.
−Removed: interest rates over 2019 to result in a strong rally for the fixed income asset class.
−Removed: The increase in the fair value of our equity securities is consistent with the fluctuations in the equity markets in the same period.
−Removed: NI Holdings has evaluated each fixed income security in a loss position and taken into account the severity and duration of the impairment, the current rating on the security (if any), and the outlook for the issuer according to independent analysts.
−Removed: NI Holdings believes that any declines in fair value of individual securities in its existing portfolio are most likely attributable to short-term market trends and there is no evidence that the Company will not recover the entire amortized cost basis.
+Added: The Company had realized capital gains on investment of $17,768 for the year ended December 31, 2021, compared to $7,771 for the year ended December 31, 2020 and $3,246 for the year ended December 31, 2019.
+Added: The Company reported no other-than-temporary losses during any of the periods presented.
+Added: The Company’s equity portfolio experienced a decrease in net unrealized gains of $2,289 during the year ended December 31, 2021.
+Added: The net decrease is included in net capital gain on investments in the Company’s Consolidated Statements of Operations.
+Added: It was primarily driven by $17,118 in net realized gains taken throughout the year, as a result of ongoing portfolio rebalancing as well as a strategic reallocation of equity investment strategies designed to increase exposure to income-oriented equities in order to maintain yield in the portfolio.
+Added: The resulting net appreciation in the equity securities portfolio of $14,289 in 2021 is indicative of a strong rally in U.S.
+Added: equity markets during the year.
+Added: The Company’s fixed income securities are classified as available for sale because it will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies.
+Added: The fixed income portion of the portfolio experienced a decrease in net unrealized gains of $9,796 during the year ended December 31, 2021.
+Added: The decrease was primarily the result of an increase in U.S.
+Added: interest rates, with 5-year and 10-year U.S.
+Added: Treasury yields increasing during the year by 90 basis points and 60 basis points, respectively.
+Added: The rise in rates was partially mitigated by a tightening of credit spreads across fixed-income sectors, given an improvement in capital markets following the volatility affecting invested assets in 2020 due to the impact of the COVID-19 pandemic.
Income before Income Taxes
−Removed: For the year ended December 31, 2019, NI Holdings had pre-tax income of $33,811 compared to $39,165 for the year ended December 31, 2018.
−Removed: The decrease in pre-tax income was largely attributable to increased loss experience in our private passenger auto and crop segments in 2019 and the elimination of the 2018 purchase accounting gain associated with the acquisition of Direct Auto, offset by the net gain attributed to the favorable change in unrealized gain of equity securities.
−Removed: NI Holdings recorded income tax expense of $7,311 for the year ended December 31, 2019, compared to $7,921 for the year ended December 31, 2018.
−Removed: A portion of income tax expense relates to state income taxes primarily for the state of Illinois.
−Removed: Our effective tax rate for 2019 was 21.6% compared to an effective tax rate of 20.2% for 2018.
−Removed: The valuation allowance against certain deferred income tax assets was $594 as of December 31, 2019, compared to $587 as of December 31, 2018.
−Removed: For the year ended December 31, 2019, NI Holdings had net income before non-controlling interest of $26,500 compared to $31,244 for 2018.
−Removed: This decrease in net income was primarily attributable to increased loss experience in our private passenger auto and crop segments in 2019 and the elimination of the 2018 purchase accounting gain associated with the acquisition of Direct Auto, offset by the net gain attributed to the favorable change in unrealized gain of equity securities.
+Added: For the year ended December 31, 2021, the Company had pre-tax income of $11,306, compared to $52,816 and $33,811 for the years ended December 31, 2020 and 2019, respectively.
+Added: The decrease in pre-tax results was largely attributable to the significant increase in loss experience during 2021.
+Added: The Company recorded income tax expense of $2,974 for the year ended December 31, 2021, compared to $11,472 and $7,311 for the years ended December 31, 2020 and 2019, respectively.
+Added: Our effective tax rate for 2021 was 26.3% compared to an effective tax rate of 21.7% and 21.6% for 2020 and 2019, respectively.
+Added: A portion of the effective tax rate is due to Illinois state income taxes, which led to the increased effective tax rate in 2021 given the higher proportion of these taxes relative to the Company’s overall income tax expense in comparison with 2020 and 2019.
+Added: The valuation against certain deferred income tax assets was $1,008 as of December 31, 2021 compared to $931 as of December 31, 2020.
+Added: For the year ended December 31, 2021, net income before non-controlling interest was $8,332, compared to $41,344 and $26,500 for the years ended December 31, 2020 and 2019, respectively.
+Added: This decrease in net income was largely attributable to the significant increase in loss experience during 2021.
Return on Average Equity
−Removed: For the year ended December 31, 2019, NI Holdings had annualized return on average equity, after non-controlling interest, of 9.1% compared to annualized return on average equity, after non-controlling interest, of 11.8% for the year ended December 31, 2018.
−Removed: Average equity is calculated as the average between beginning and ending equity excluding non-controlling interest for the period.
−Removed: Financial Position
−Removed: The major components of NI Holdings’
−Removed: financial position are as follows:
−Removed: December 31, 2020
−Removed: December 31, 2019
−Removed: Cash and investments
−Removed: Premiums and agents’
−Removed: balances receivable
−Removed: Deferred policy acquisition costs
−Removed: Receivable from Federal Crop Insurance Corporation
−Removed: Property and equipment
−Removed: Goodwill and other intangibles
−Removed: Unpaid losses and loss adjustment expenses
−Removed: Unearned premiums
−Removed: Other liabilities
−Removed: Total liabilities
−Removed: Shareholders’
−Removed: Total liabilities and equity
−Removed: At December 31, 2020, NI Holdings’
−Removed: total assets increased $109,444, or 21.5%, from December 31, 2019.
−Removed: Cash and investments increased due to positive earnings in the business, unrealized appreciation in equity securities, and the acquired Westminster assets.
−Removed: Premiums and agents’
−Removed: balances receivable also increased due to the acquired Westminster receivables.
−Removed: Deferred policy acquisition costs increased due partly to the Westminster commercial business and growth in other segments.
−Removed: The receivable from the FCIC decreased due to a partial collection of past year amounts, partially offset by 2020 activity.
−Removed: Goodwill and other intangibles recognized in the Westminster acquisition was $20,506, less amortization expense during 2020.
−Removed: Other assets increased as a result of higher reinsurance recoverables from the Westminster commercial business.
−Removed: At December 31, 2020, total liabilities increased $70,375, or 35.5%, from December 31, 2019.
−Removed: Unpaid losses and loss adjustment expenses increased due primarily to Westminster liabilities.
−Removed: Unearned premiums increased due to Westminster acquired amounts of $16,611 and additional growth in Westminster.
−Removed: Total equity increased by $39,069, or 12.6%, during the year ended December 31, 2020.
−Removed: The increase in equity primarily reflects consolidated net income of $41,344 for the year and other comprehensive income of $7,319, due to higher fair values within our fixed income securities portfolio, partially offset by share repurchases of $12,234.
+Added: For the year ended December 31, 2021, the Company had annualized return on average equity, after non-controlling interest, of 2.4%, compared to annualized return on average equity, after non-controlling interest, of 12.4% and 9.1% for the years ended December 31, 2020 and 2019, respectively.
+Added: Average equity is calculated as the average between beginning and ending shareholders’
+Added: equity excluding non-controlling interest for the period.
Liquidity and Capital Resources
−Removed: NI Holdings generates sufficient funds from its operations and maintains a high degree of liquidity in its investment portfolio to meet the demands of claim settlements and operating expenses.
+Added: The Company generates sufficient funds from its operations and maintains a high degree of liquidity in its investment portfolio to meet the demands of claim settlements and operating expenses.
The primary sources of funds are premium collections, investment earnings, and maturing investments.
3 unchanged sentences
We paid $20,000 at the time of closing.
−Removed: We will pay 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.
+Added: 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.
+Added: The first two installments were paid in January 2021 and January 2022.
+Added: The Company anticipates using the net proceeds from the IPO to satisfy this obligation in December 2022.
We currently anticipate that cash generated from our operations and available from our investment portfolio, along with the remaining IPO net proceeds, will be sufficient to fund our operations.
8 unchanged sentences
For the year ended December 31, 2021, net cash provided by operating activities totaled $29,168 compared to $51,010 a year ago.
−Removed: The consolidated net income of $41,344 for the year ended December 31, 2020 compared to consolidated net income of $26,500 for the same period a year ago.
+Added: Consolidated net income of $8,332 for the year ended December 31, 2021 compared to consolidated net income of $41,344 for the same period a year ago.
+Added: The decrease in consolidated net income, along with changes in reinsurance recoverables on losses, other assets, and unearned premiums, were offset by changes to the FCIC receivable/payable and unpaid losses and LAE.
+Added: For the year ended December 31, 2021, net cash used by investing activities totaled $48,151 compared to $200 net cash provided by investing activities a year ago.
+Added: In 2021, the Company invested excess cash generated from operations and the implementation of the intercompany reinsurance pooling agreement into longer term investments.
+Added: For the year ended December 31, 2021, net cash used by financing activities totaled $11,471 compared to $12,265 a year ago.
+Added: The Company paid the first installment of $6,667 of the additional consideration for Westminster during the first quarter of 2021.
+Added: The Company repurchased shares of its own common stock for $4,316 during 2021, compared to $12,234 during 2020.
+Added: For the year ended December 31, 2020, net cash provided by operating activities totaled $51,010 compared to $25,665 for the year ended December 31, 2019.
+Added: The consolidated net income of $41,344 for the year ended December 31, 2020 compared to consolidated net income of $26,500 for the year ended December 31, 2019.
The increase in cash flows from operating activities also reflected differences in the activity between the Company and the FCIC during 2020 and 2019, growth in unearned premiums due to increasing sales of the Westminster commercial business, and lower levels of loss and loss adjustment expenses.
During 2019, unrealized gains on investments were offset by increases in unpaid losses and LAE and unearned premiums to serve as the primary reconciling items between net income and net cash flows from operating activities.
−Removed: For the year ended December 31, 2020, net cash provided by investing activities totaled $200 compared to $30,458 used by investing activities a year ago.
−Removed: In 2020, the initial cash installment payment for Westminster was $703 more than the cash and cash equivalents received in the acquisition.
+Added: For the year ended December 31, 2020, net cash provided by investing activities totaled $200 compared to $30,458 used by investing activities for the year ended December 31, 2019.
+Added: In 2020, the initial cash payment made at the time of the Westminster acquisition was $703 more than the cash and cash equivalents received in the acquisition.
During 2020, the sales and maturities of securities approximated the purchase of new securities.
2 unchanged sentences
The prior year reflects the impact of investing excess cash generated from operations into longer term investments, partially offset by sales and maturities of fixed income securities.
−Removed: For the year ended December 31, 2020, net cash used by financing activities totaled $12,265 compared to $2,025 a year ago.
+Added: For the year ended December 31, 2020, net cash used by financing activities totaled $12,265 compared to $2,025 for the year ended December 31, 2019.
The Company repurchased shares of its own common stock for $12,234 and $2,006 during 2020 and 2019, respectively.
−Removed: As a standalone entity, and outside of the net proceeds from the IPO, NI Holdings’
−Removed: principal source of long-term liquidity will be dividend payments from its directly-owned subsidiaries.
−Removed: 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.
+Added: As a standalone entity, and outside of the net proceeds from the IPO, the Company’s principal source of long-term liquidity will be dividend payments from its directly-owned subsidiaries.
+Added: Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of liquid 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.
3 unchanged sentences
and are subject to the approval of the North Dakota Insurance Department.
−Removed: The amount available for payment of dividends from Nodak Insurance to us during 2021 without the prior approval of the North Dakota Insurance Department is approximately $21,628 based upon the policyholders’
−Removed: surplus of Nodak Insurance at December 31, 2020.
−Removed: Prior to its payment of any extraordinary dividend, Nodak Insurance will be required to provide notice of the dividend to the North Dakota Insurance Department.
+Added: The amount available for payment of dividends from Nodak Insurance to us during 2022 without the prior approval of the North Dakota Insurance Department is approximately $21,493 based upon the surplus of Nodak Insurance at December 31, 2021.
+Added: 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.
3 unchanged sentences
No dividends were declared or paid by Nodak Insurance during the years ended December 31, 2021 or 2019.
−Removed: Direct Auto is restricted by the insurance laws of Illinois as to the amount of dividends or other distributions it may pay to NI Holdings.
−Removed: Illinois law sets the maximum amount of dividends that may be paid by Direct Auto during any twelve-month period after notice to, but without prior approval of, the Illinois Department of Insurance.
−Removed: 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).
−Removed: Dividends in excess of this amount are considered “extraordinary”
−Removed: and are subject to the approval of the Illinois Department of Insurance.
−Removed: The amount available for payment of dividends from Direct Auto to NI Holdings during 2021 without the prior approval of the Illinois Department of Insurance is $3,582 based upon the policyholders’
−Removed: surplus of Direct Auto at December 31, 2020.
−Removed: Prior to its payment of any dividend, Direct Auto will be required to provide notice of the dividend to the Illinois Department of Insurance.
−Removed: This notice must be provided to the Illinois Department of Insurance 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.
−Removed: The Illinois Department of Insurance has the power to limit or prohibit dividend payments if Direct Auto is in violation of any law or regulation.
−Removed: These restrictions or any subsequently imposed restrictions may affect our future liquidity.
+Added: Direct Auto re-domesticated from Illinois to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance.
+Added: The amount available for payment of dividends from Direct Auto to us during 2022 without the prior approval of the North Dakota Insurance Department is approximately $3,796 based upon the surplus of Direct Auto at December 31, 2021.
No dividends were declared or paid by Direct Auto during the years ended December 31, 2021, 2020, or 2019.
−Removed: 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.
−Removed: Prior to its payment of any dividend, Westminster will be required to provide notice of the dividend to the Maryland Insurance Administration.
−Removed: 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.
−Removed: The Maryland Insurance Administration has the power to limit or prohibit dividend payments if Westminster is in violation of any law or regulation.
−Removed: These restrictions or any subsequently imposed restrictions may affect our future liquidity.
−Removed: No dividends were declared or paid by Westminster during the year ended December 31, 2020.
−Removed: Contractual Obligations Table
−Removed: The following table summarizes, as of December 31, 2020, NI Holdings’
−Removed: future payments and estimated claims and claims related payments.
−Removed: Payments Due by Period
+Added: Westminster re-domesticated from Maryland to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance.
+Added: The amount available for payment of dividends from Westminster to us during 2022 without the prior approval of the North Dakota Insurance Department is approximately $2,471 based upon the surplus of Westminster at December 31, 2021.
+Added: No dividends were declared or paid by Westminster during the years ended December 31, 2021 or 2020.
Contractual Obligations
−Removed: Estimated gross loss & LAE payments
−Removed: Acquisition of Westminster
−Removed: Operating lease obligations
−Removed: The timing of the amounts of the gross loss and LAE payments is an estimate based on historical experience and the expectations of future payment patterns.
−Removed: The actual timing and amounts of these payments in the future may vary from the amounts stated above.
+Added: The primary contractual obligations of the Company include gross loss and LAE payments, consideration due relating to the acquisition of Westminster, and operating lease obligations.
+Added: The Company’s unpaid losses and LAE were $139,662 as of December 31, 2021.
+Added: Historical payment experience indicates that approximately 57% of this amount will be paid during 2022 and another 30% will be paid over the subsequent two years.
+Added: The actual timing and amounts of these payments in the future may vary.
Westminster was acquired on January 1, 2020 for a purchase price of $40,000, subject to certain adjustments.
The Company paid $20,000 from the net proceeds from the IPO at time of closing, with another $20,000 payable in three equal installments.
−Removed: The Company paid the first installment on the first anniversary of the closing.
−Removed: The Company will pay the remaining two installments, plus or minus any adjustments, on the second anniversary of the closing and on the first business day of the month preceding the third anniversary of the closing.
−Removed: Off-Balance Sheet Arrangements
−Removed: NI Holdings has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital reserves.
+Added: We paid the first two installments on the first two anniversaries of the closing, in January 2021 and January 2022.
+Added: We will pay the final installment, plus or minus any adjustments, in December 2022.
Recent Accounting Pronouncements
−Removed: For a discussion of recent accounting pronouncements, see Note 5 to the Consolidated Financial Statements, included elsewhere in this Form 10-K.
+Added: For a discussion of recent accounting pronouncements, see Part II, Item 8, Note 4 “Recent Accounting Pronouncements”.
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.