−Removed: Quantitative and Qualitative Information About Market Risk
+Added: Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk that a company will incur losses due to adverse changes in the fair value of financial instruments.
−Removed: NI Holdings has exposure to three principal types of market risk through its investment activities:
+Added: The Company has exposure to three principal types of market risk through its investment activities:
interest rate risk, credit risk, and equity risk.
−Removed: NI Holdings’
−Removed: primary market risk exposure is to changes in interest rates.
−Removed: NI Holdings has not entered, and does not plan to enter, into any derivative financial instruments for hedging, trading, or speculative purposes.
+Added: Our primary market risk exposure is to changes in interest rates.
+Added: We have not entered, and do not plan to enter, into any derivative financial instruments for hedging, trading, or speculative purposes.
Interest Rate Risk
Interest rate risk is the risk that a company will incur economic losses due to adverse changes in interest rates.
−Removed: NI Holdings’
−Removed: exposure to interest rate changes primarily results from its significant holdings of fixed income securities.
+Added: Our exposure to interest rate changes primarily results from our significant holdings of fixed income securities.
Fluctuations in interest rates have a direct impact on the fair value of these securities.
−Removed: The portfolio duration of the fixed income securities in NI Holdings’
−Removed: investment portfolio at December 31, 2020 was 3.57 years.
−Removed: The Company’s fixed income securities include U.S.
−Removed: government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates.
−Removed: NI Holdings carries these investments as available for sale.
−Removed: This allows the Company to manage its exposure to risks associated with interest rate fluctuations through active review of its investment portfolio by its management and Board of Directors and consultation with our outside investment manager.
−Removed: Fluctuations in near-term interest rates could have an impact on NI Holdings’
−Removed: results of operations and cash flows.
−Removed: Certain of these securities may have call features.
+Added: The portfolio duration of the fixed income securities in the Company’s investment portfolio at December 31, 2021 was 4.35 years.
+Added: These fixed income securities include U.S.
+Added: government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates, and are carried as available for sale.
+Added: We manage the exposure to risks associated with interest rate fluctuations through active management and Board of Directors review of the portfolio and consultation with our outside investment manager.
+Added: Potential higher interest rates oftentimes correlated to inflation would also reduce the carrying value of our fixed maturity and short-term investments, negatively impacting the Company’s book value in the short-term.
+Added: Over the long-term, however, higher interest rates would provide an incremental benefit to our net investment income over time as excess cash and proceeds of maturing bonds are reinvested at higher rates.
+Added: We manage our exposure to interest rate increases by monitoring the duration within our investment portfolio and maintaining maturities that minimize any forced sales within the portfolio.
+Added: Additionally, we hold certain fixed income securities that have call features.
In a declining interest rate environment, these securities may be called by their issuer and replaced with securities bearing lower interest rates.
−Removed: If NI Holdings is required to sell these securities in a rising interest rate environment, it may recognize investment losses.
−Removed: As a general matter, NI Holdings attempts to match the durations of its assets with the durations of its liabilities.
−Removed: The Company’s investment objectives include maintaining adequate liquidity to meet its operational needs, optimizing its after-tax investment income, and its after-tax total return, all of which are subject to NI Holdings’
−Removed: tolerance for risk.
−Removed: The table below shows the interest rate sensitivity of NI Holdings’
−Removed: fixed income securities measured in terms of fair value (which is equal to the carrying value for all of its investment securities that are subject to interest rate changes) at December 31, 2020 and 2019:
+Added: If we are required to sell fixed income securities in a rising interest rate environment, the Company may recognize investment losses.
+Added: As a general matter, we attempt to match the durations of assets with liabilities.
+Added: The Company’s investment objectives include maintaining adequate liquidity to meet its operational needs, optimizing its after-tax investment income, and its after-tax total return, all of which are subject to management’s tolerance for risk.
+Added: The table below shows the interest rate sensitivity of the Company’s fixed income securities measured in terms of fair value (which is equal to the carrying value for all of its investment securities that are subject to interest rate changes) at December 31, 2021 and 2020:
As of December 31, 2021
9 unchanged sentences
200 basis point decrease
−Removed: The interest rate exposure of the Company’s portfolio increased slightly this year compared to last year.
−Removed: The increase in interest rate exposure was driven by several factors, including a decrease in portfolio cash balances and an increase in the allocation within our portfolio to taxable sectors which historically have higher interest rate sensitivity relative to tax-exempt municipals.
−Removed: Further increases in the portfolio’s interest rate exposure are expected as we gradually shift to a higher long-term duration target.
−Removed: Pandemic-related effects did not have a material impact on the portfolio’s interest rate exposure.
+Added: The interest rate exposure of the Company’s portfolio increased this year compared to last year, as measured by the increased duration of our portfolio.
+Added: The increase in interest rate exposure was intended to better align the Company’s portfolio with the long-term asset/liability matching target derived from periodic financial modeling of the Company’s business and liabilities.
+Added: Significant further increases in the portfolio’s interest rate exposure are not expected, aside from normal ongoing fluctuations due to changes in the capital market and interest rate environment.
Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer.
−Removed: NI Holdings addresses this risk by investing primarily in fixed income securities that are rated at least investment grade by Moody’s or an equivalent rating quality.
−Removed: NI Holdings also independently, and through its outside investment manager, monitors the financial condition of all of the issuers of fixed income securities in the portfolio.
+Added: We address this risk by investing primarily in fixed income securities that are rated at least investment grade by Moody’s or an equivalent rating quality.
+Added: We also independently, and through our outside investment manager, monitor the financial condition of all of the issuers of fixed income securities in the portfolio.
To limit its exposure to risk, the Company employs diversification rules that limit the credit exposure to any single issuer or asset class.
−Removed: Equity price risk is the risk that NI Holdings will incur economic losses due to adverse changes in equity prices.
−Removed: Impact of Inflation
−Removed: Inflation increases consumers’
−Removed: needs for property and casualty insurance due to the increase in the value of the property insured and any potential liability exposure.
−Removed: Inflation also increases claims incurred by property and casualty insurers as property repairs, replacements, and medical expenses increase.
−Removed: These cost increases reduce profit margins to the extent that rate increases are not implemented on an adequate and timely basis.
−Removed: NI Holdings establishes insurance premiums levels before the amount of losses and LAE, or the extent to which inflation may affect these expenses, are known.
−Removed: Therefore, NI Holdings attempts to anticipate the potential impact of inflation when establishing rates.
−Removed: Although inflation has slowed in recent years, it is still a factor in our economy.
−Removed: In the auto insurance industry, the increasing cost of technology in today’s newer vehicles has increased the repair costs after accidents and also increased the proportion of vehicles considered totaled due to the high cost of repair parts.
−Removed: The private passenger auto insurance industry, including NI Holdings, has experienced upward pressure on loss and LAE ratios as premium levels attempt to maintain pace with this inflation.
+Added: Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices.
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.