What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-09 compared with 2021-03-10 · 329 added, 397 removed, 1035 unchanged (41% of the section changed)

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/s/ Mazars USA LLP

We have served as the Company’s auditor since February 2016.

We have served as the Company’s auditor since 2016.

Fort Washington, Pennsylvania

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Reinsurance recoverables on losses

Income tax recoverable

Accrued investment income

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Income tax payable

Deferred income taxes, net

Deferred income taxes

Payable to Federal Crop Insurance Corporation

Westminster consideration payable

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Attributable to

Non-Controlling

Non-Controlling Interest

Net income (loss)

Other comprehensive loss, before income taxes:

Holding losses on investments

Reclassification adjustment for net realized capital gain included in net income

Other comprehensive loss, before income taxes

Income tax benefit related to items of other comprehensive loss

Other comprehensive loss, net of income taxes

Comprehensive income (loss)

Attributable to

NI Holdings, Inc.

Attributable to

Non-Controlling

Other comprehensive income, before income taxes:

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Comprehensive income

Attributable to

NI Holdings, Inc.

Attributable to

Non-Controlling Interest

Other comprehensive loss, before income taxes:

Holding losses on investments

Reclassification adjustment for net realized capital gain included in net income

Other comprehensive loss, before income taxes

Income tax benefit related to items of other comprehensive income

Other comprehensive loss, net of income taxes

Comprehensive income

The accompanying notes are an integral part of these consolidated financial statements.

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Shareholders’

January 1, 2018

Other comprehensive loss, net of income taxes

Balance, January 1, 2019

Cumulative effect of change in accounting for equity securities

Other comprehensive income, net of income taxes

Share-based compensation

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Balance, December 31, 2019

Cumulative effect of change in accounting for equity securities

Other comprehensive income, net of income taxes

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Distribution of employee stock ownership plan shares

December 31, 2019

Balance, December 31, 2020

Net income (loss)

Other comprehensive income, net of income taxes

Other comprehensive loss, net of income taxes

Share-based compensation

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Distribution of employee stock ownership plan shares

December 31, 2020

Balance, December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements.

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Adjustments to reconcile net income to net cash flows from operating activities:

Gain on acquisition of Direct Auto Insurance Company

Net capital gain on investments

Deferred income tax expense (benefit)

Deferred income tax (benefit) expense

Depreciation of property and equipment

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Net amortization of premiums and discounts on investments

Loss (gain) on sale of property and equipment

Loss on sale of property and equipment

Changes in operating assets and liabilities:

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balances receivable

Reinsurance premiums payable

Reinsurance premiums receivable / payable

Reinsurance recoverables on losses

Accrued investment income

Receivable from Federal Crop Insurance Corporation

Income tax recoverable / payable

Accrued investment income

Federal Crop Insurance Corporation receivable / payable

Unpaid losses and loss adjustment expenses

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Purchases of property and equipment

Acquisition of Direct Auto Insurance Company (cash consideration paid net of cash and cash equivalents acquired)

Acquisition of Westminster American Insurance Company (cash consideration paid net of cash and cash equivalents acquired)

Proceeds from sale of other investments and other

Net cash flows from investing activities

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Purchases of treasury stock

Installment payment on Westminster consideration payable

Issuance of restricted stock awards

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Present value of installment payable issued in connection with acquisition of Westminster American Insurance Company

Income taxes paid

Federal and state income taxes paid

The accompanying notes are an integral part of these consolidated financial statements.

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(dollar amounts in thousands)

NI Holdings, Inc.

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

The conversion was consummated on March 13, 2017.

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

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

NI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance and became such in connection with the conversion of Nodak Mutual from a mutual to stock form of organization and the creation of a mutual holding company.

The conversion was completed on March 13, 2017.

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

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

Prior to completion of the conversion, NI Holdings conducted no business and had no assets or liabilities.

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

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

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

Nodak Insurance Company (“Nodak Insurance”, formerly Nodak Mutual Insurance Company prior to the conversion);  

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

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

Nodak Insurance Company

Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota, offering private passenger auto, homeowners, farmowners, commercial multi-peril, crop hail, and Federal multi-peril crop insurance coverages through its captive agents in the state.

Nodak Agency, Inc.

(“Nodak Agency”);  

American West Insurance Company (“American West”);  

Primero Insurance Company (“Primero”);  

Battle Creek Mutual Insurance Company (“Battle Creek”, an affiliated company with Nodak Insurance);

and  

Direct Auto Insurance Company (“Direct Auto”);

and  

Westminster American Insurance Company (Westminster).  

Nodak Insurance is the largest domestic property and casualty insurance company in North Dakota.

Nodak Insurance was incorporated on April 15, 1946 under the laws of North Dakota, and benefits from a strong marketing affiliation with the North Dakota Farm Bureau (“NDFB”).

Nodak Insurance specializes in providing private passenger auto, homeowners, farmowners, commercial, crop hail, and Federal multi-peril crop insurance coverages.

Nodak Agency, a wholly-owned subsidiary of Nodak Insurance, is an inactive shell corporation.

American West, a wholly-owned subsidiary of Nodak Insurance, is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the United States.

Nodak Agency is an inactive shell corporation.

American West Insurance Company

American West is a property and casualty insurance company licensed in eight states in the Midwest and Western regions of the United States.

American West began writing policies in 2002 and primarily writes personal auto, homeowners, and farm coverages in South Dakota.

American West also writes personal auto coverage in North Dakota, as well as crop hail and Federal multi-peril crop insurance coverages in Minnesota and South Dakota.

Primero Insurance Company

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

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

Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle Creek.

Battle Creek is controlled by Nodak Insurance via a surplus note.

The terms of the surplus note allow Nodak Insurance to appoint two-thirds of the Battle Creek Board of Directors.

Battle Creek Mutual Insurance Company

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

Direct Auto, a wholly-owned subsidiary of NI Holdings, is a property and casualty company licensed in Illinois.

Battle Creek became affiliated with Nodak Insurance in 2011, and Nodak Insurance provides underwriting, claims management, policy administration, and other administrative services to Battle Creek.

Because we have concluded that we control Battle Creek, we consolidate the financial statements of Battle Creek, and Battle Creek’s policyholders’

interest in Battle Creek is reflected as a non-controlling interest in shareholders’

equity in our Consolidated Balance Sheets and its net income or loss is excluded from net income attributed to NI Holdings in our Consolidated Statements of Operations.

Direct Auto Insurance Company

Direct Auto is a property and casualty insurance company licensed in Illinois.

Direct Auto began writing non-standard automobile coverage in 2007, and was acquired by NI Holdings on August 31, 2018 via a stock purchase agreement.

The financial results of Direct Auto have been included in the Consolidated Financial Statements herein since August 31, 2018.

Westminster, a wholly-owned subsidiary of NI Holdings, is a property and casualty insurance company licensed in seventeen states and the District of Columbia.

Westminster is headquartered in Owings Mills, Maryland and underwrites multi-peril commercial insurance in the states of Delaware, Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia.

Westminster American Insurance Company

Westminster is a property and casualty insurance company licensed in seventeen states and the District of Columbia.

Westminster is headquartered in Owings Mills, Maryland and underwrites commercial multi-peril insurance in the states of Delaware, Georgia, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Virginia, West Virginia, and the District of Columbia.

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

The financial results of Westminster have been included in the Consolidated Financial Statements herein since January 1, 2020.

Nodak Insurance markets and distributes its policies through its captive agents, while all other companies utilize the independent agent distribution channel.

Additionally, all of the Company’s insurance subsidiary and affiliate companies are rated “A”

Excellent by AM Best.

The same executive management team provides oversight and strategic direction for the entire organization.

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Primero, Direct Auto, and Westminster personnel manage the day-to-day operations of their respective companies.

The insurance companies share a combined business plan to achieve market penetration and underwriting profitability objectives.

Distinctions within the products of the insurance companies generally relate to the states in which the risk is located and specific risk profiles targeted within similar classes of business.

Summary of Significant Accounting Policies

Basis of Consolidation :

Our Consolidated Financial Statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity we control via contract.

Our Consolidated Financial Statements, which we have prepared in accordance with GAAP, include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity we control via a surplus note agreement.

We have eliminated all significant inter-company accounts and transactions in consolidation.

The terms “we”, “us”, “our”, or “the Company”

as used herein refer to the consolidated entity.

Summary of Significant Accounting Policies

Use of Estimates :

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While we believe our estimates are appropriate, the ultimate amounts may differ from the estimates provided.

We regularly review our methods for making these estimates as well as the continuing appropriateness of the estimated amounts, and we reflect any adjustment we consider necessary in our current results of operations.

We regularly review our methods for making these estimates as well as the continued appropriateness of the estimated amounts, and we reflect any adjustment we consider necessary in our current results of operations.

Variable-Interest Entities :

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Our assessment of whether we are the primary beneficiary of a VIE is performed at least annually.

We control Battle Creek via a surplus note which provides us with ability to appoint two-thirds of the Board of Directors of Battle Creek.

We control Battle Creek via a surplus note which provides us with the ability to appoint two-thirds of the Board of Directors of Battle Creek.

Under the quota share reinsurance agreement that existed through December 31, 2019, Battle Creek’s operating results included only net investment income, bad debt expense, and income taxes.

Effective January 1, 2020, the Company implemented an intercompany pooling reinsurance agreement, and Battle Creek’s operating results now include their participation in the underwriting results of the pool (2% during 2020).

Effective January 1, 2020, the Company implemented an intercompany pooling reinsurance agreement, and Battle Creek’s operating results now include its participation in the underwriting results of the pool (2% during 2021 and 2020).

For more information, see Part II, Item 8, Note 12 “Related Party Transactions”.

Because we have concluded that we control Battle Creek, we consolidate the financial statements of Battle Creek, and Battle Creek’s policyholders’

interest in Battle Creek is reflected as a non-controlling interest in shareholders’

equity in our Consolidated Balance Sheet.

equity in our Consolidated Balance Sheet and its net income or loss is excluded from net income or loss attributed to NI Holdings in our Consolidated Statement of Operations.

Cash and Cash Equivalents :

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Investments :

We have categorized our investment portfolio as “available-for-sale”

and have reported the portfolio at fair value.

Unrealized gains and losses on fixed income securities, and on equity securities prior to January 1, 2019, net of income taxes, are reported in accumulated other comprehensive income.

Effective January 1, 2019, in accordance with a change in accounting principle, changes in unrealized gains and losses on equity securities began to be reported as a component of net capital gain on investments in our operating results.

Fair values are based on quoted market prices or dealer quotes, if available.

The Company’s 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 independent pricing service at the reporting date for those or similar investments.

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).

Changes in unrealized investments gains or losses on equity securities are reported in net income (loss).

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.

Fair values are based on quoted market prices or independent pricing services, if available.

If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

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Net investment income includes interest and dividend income together with amortization of purchase premiums and discounts, and is net of investment management and custody fees.

Realized gains and losses on investments are determined using the specific identification method and are included in net capital gain on investments, along with the change in unrealized gains and losses on equity securities after January 1, 2019.

We review our investments each quarter to determine whether a decline in fair value below the amortized cost basis is other than temporary.

Accordingly, we assess whether we intend to sell or it is more likely than not that we will be required to sell a security before recovery of its amortized cost basis.

For fixed income securities that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors.

The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s effective yield.

The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and, therefore, is not required to be recognized as losses in the Consolidated Statement of Operations, but is recognized in other comprehensive income.

We classify each fair value measurement at the appropriate level in the fair value hierarchy.

The hierarchy gives the highest priority to unadjusted quoted market price in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements).

An asset’s or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation.

Level I –

Quoted price in active markets for identical assets and liabilities.

Level II –

Quoted prices in markets that are not active or inputs that are observable either directly or indirectly.

Level II inputs include quoted prices for similar assets or liabilities other than quoted in prices in Level I, quoted prices in markets that are not active, or other inputs that are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III –

Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

Unobservable inputs reflect the reporting entity’s own assumptions that market participants would use in pricing the asset or liability.

Level III assets and liabilities include financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

We frequently review our investment portfolio for declines in fair value.

Our process for identifying declines in the fair value of investments that are other-than-temporary involves consideration of several factors.

These factors include (i) the time period in which there has been a significant decline in value, (ii) an analysis of the liquidity, business prospects, and overall financial condition of the issuer, (iii) the significance of the decline, and (iv) our intent and ability to hold the investment for a sufficient period of time for the value to recover.

When our analysis of the above factors results in the conclusion that declines in fair values are other-than-temporary, the credit loss component of the impairment is reflected in net income (loss) as a realized capital loss on investment if the Company does not intend to sell the security, and the remaining portion of the other-than-temporary loss is recognized in other comprehensive income (loss), net of income taxes.

If the Company intends to sell the security, or determines 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 other-than-temporary loss is recognized in net income (loss).

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.

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.

For more information on investment valuation measurements, see Part II, Item 8, Note 6 “Fair Value Measurements”.

Fair Value of Other Financial Instruments :

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The carrying value of these other invested assets was $ 2,005 at December 31, 2021 and $ 2,924 at December 31, 2020.

Reclassifications of Segment Information:

Effective in the first quarter of 2020, the Company’s results began to be reported in our Consolidated Financial Statements in the following five primary operating segments –

private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, and commercial insurance.

A sixth “all other”

segment captures all other insurance business, including our assumed reinsurance lines of business.

Commercial insurance was previously reported within the all other segment.

All prior periods presented have been reclassified to conform to this presentation.

Revenue Recognition :

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The period of risk for our crop insurance program, which comprise primarily spring-planted crops, typically runs from April 1 (the approximate time when farmers can begin to work their fields) through December 15 (last date claims can be made for the most recent planting season).

The crop insurance program provides indemnification for acreage that cannot be planted because of flood, drought, or other natural disaster (known as “prevented planting”).

In cases where a valid prevented planting claim is made by an insured, the Company assumes that the risk period has ended as there will be no additional coverage under the policy, and the Company will immediately recognize the remaining unearned premium.

The crop insurance program provides indemnification for acreage that cannot be planted because of excess moisture (known as “prevented planting”).

In these situations, recognition of the remaining unearned premium may be accelerated if it is determined that the risk period has ended when these types of claims are filed.

The Company uses the direct write-off method for recognizing bad debts.

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Liabilities for unpaid losses and loss adjustment expenses are estimates at a given point in time of the amounts we expect to pay with respect to policyholder claims based on facts and circumstances then known.

At the time of establishing our estimates, we recognize that our ultimate liability for losses and loss adjustment expenses will exceed or be less than such estimates.

At the time of establishing our estimates, we recognize that our ultimate liability for losses and loss adjustment expenses may differ from these estimates.

We base our estimates of liabilities for unpaid losses and loss adjustment expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability, and other factors.

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Reserve estimates can change over time because of unexpected changes in assumptions related to our external environment and, to a lesser extent, assumptions as to our internal operations.

Assumptions related to our external environment include the absence of significant changes in tort law and the legal environment which may impact liability exposure, the trends in judicial interpretations of insurance coverage and policy provisions, and the rate of loss cost inflation.

Assumptions related to our external environment include the potential impact of significant changes in tort law and the legal environment which may impact liability exposure, the trends in judicial interpretations of insurance coverage and policy provisions, and the rate of loss cost inflation.

Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodologies, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business, and consistency in reinsurance coverage and collectability of reinsured losses, among other items.

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With the exception of Battle Creek, which files a stand-alone federal income tax return, we currently file a consolidated federal income tax return which includes NI Holdings and its wholly-owned subsidiaries.

Direct Auto and Westminster became part of the consolidated federal income tax return as of their acquisition dates.

Insurance companies typically pay state premium taxes rather than state income taxes.

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Additionally, NI Holdings, on a stand-alone basis, pays state income taxes to the state of North Dakota for income or losses generated as a separate financial entity.

While state premium taxes are included as a part of amortization of deferred policy acquisition costs, state income taxes are combined with federal income taxes within the financial reporting category labeled income taxes.

State premium taxes are included as a part of amortization of deferred policy acquisition costs.

State income taxes are reported along with federal income taxes as income tax expense (benefit).

The Company did not have any material uncertain tax positions.

The Company’s policy is to recognize tax-related interest and penalties accrued related to unrecognized benefits as a component of income tax expense (benefit).

The Company’s policy is to recognize tax-related interest and penalties accrued related to unrecognized benefits as a component of income tax expense.

The Company did not recognize any tax-related interest and penalties, nor did it have any tax-related interest or penalties accrued as of December 31, 2021 and 2020.

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The Company has elected to reclassify any tax effects stranded in accumulated other comprehensive income as a result of a change in income tax rates to retained earnings.

Earnings Per Share:

Earnings per share are computed by dividing net income available to common shareholders for the period by the weighted average number of common shares outstanding for the same period.

Unearned shares related to the Company’s ESOP are not considered outstanding until they are released and allocated to plan participants.

Unearned shares related to the Company’s Restricted Stock Units (“RSUs”) and Performance Share Units (“PSUs”) are not considered outstanding until they are earned by award participants.

See Part II, Item 8, Note 13 “Benefit Plans”

and Note 19 “Share Based Compensation”.

Credit Risk :

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Goodwill represents the excess of the purchase price over the underlying fair value of acquired entities.

When completing acquisitions, we seek also to identify separately identifiable intangible assets that we have acquired.

When completing acquisitions, we seek to identify separately identifiable intangible assets that we have acquired.

We assess goodwill and other intangibles with an indefinite useful life for impairment annually.

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The goodwill that arose from this transaction is included in the basis of the net assets acquired and is not deductible for income tax purposes.

Intangible assets arising from the acquisition of Direct Auto in 2018 represent the estimated fair values of certain intangible assets, including a favorable lease contract, a state insurance license, the value of the Direct Auto trade name, and the value of business acquired (“VOBA”).

The state insurance license asset has an indefinite life, while the favorable lease contract, Direct Auto trade name, and VOBA assets will be amortized over eighteen months, five years, and twelve months, respectively, from the August 31, 2018 acquisition/valuation date.

The state insurance license asset has an indefinite life, while the Direct Auto trade name is being amortized over five years from the August 31, 2018 acquisition/valuation date.

The favorable lease contract and VOBA assets have been fully amortized.

Goodwill arising from the acquisition of Westminster in January 2020 represents the excess of the purchase price over the fair value of the net assets acquired.

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Other intangible assets arising from the acquisition of Westminster represent the estimated fair values of certain intangible assets, including state insurance licenses, the value of Westminster’s distribution network, the value of the Westminster trade name, and the VOBA.

The state insurance license asset has an indefinite life, while the distribution networks asset, Westminster trade name, and VOBA assets will be amortized over twenty years, ten years, and twelve months, respectively, from the January 1, 2020 acquisition/valuation date.

Direct Auto Insurance Company:

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

Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state of Illinois.

The Company realized a $ 4,578 gain on the purchase of Direct Auto due to the use of applicable purchase accounting guidance (known as a “bargain purchase”).

Direct Auto remains headquartered in Chicago, Illinois and continues to be led by its president (who was also one of the principal shareholders) and other key management in place at the time of the acquisition.

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

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which is the closing date for the Direct Auto transaction.

During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date.

The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the measurement period exceed one year from the acquisition date.

The Company did not make any adjustments during this period.

We assigned fair values to the acquired intangibles consisting of favorable lease contract, state insurance license, Direct Auto trade name, and VOBA of $ 20 , $ 100 , $ 248 , and $ 5,134 , respectively.

The state insurance license has an indefinite life, while the other intangibles will be amortized over useful lives of up to five years .

During the year ended December 31, 2018, the acquired Direct Auto business contributed revenues of $ 14,178 , and net income of $ 2,979 , to the Company.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2018:

Net income attributable to NI Holdings, Inc.

Basic earnings per common share attributable to NI Holdings, Inc.

The Company did not reflect any material, nonrecurring pro forma adjustments directly attributable to the business combination to the above pro forma revenue and earnings.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Direct Auto’s operations to reflect the deferral and amortization of policy acquisition costs and the additional amortization that would have been charged assuming the fair value adjustments to intangibles had been applied from January 1, 2018, with the related income tax effects.

In 2018, the Company incurred $ 118 of acquisition-related costs.

These expenses did not impact the pro forma amounts presented above.

The Company paid $17,000 in cash consideration to the private shareholders of Direct Auto.

The acquisition of Direct Auto did not include any contingent consideration.

The following table summarizes the consideration transferred to acquire Direct Auto and the amounts of identified assets acquired and liabilities assumed at the acquisition date:

Fair Value of Consideration:

Total cash consideration transferred

Fair Value of Identifiable Assets Acquired and Liabilities Assumed:

Identifiable net assets:

Cash and cash equivalents

Fixed income securities

Equity securities

Premiums and agents'

balances receivable

Accrued investment income

Property and equipment

Favorable lease contract (included in goodwill and other intangibles)

License (included in goodwill and other intangibles)

Trade name (included in goodwill and other intangibles)

Value of business acquired (included in goodwill and other intangibles)

Unpaid losses and loss adjustment expenses

Unearned premiums

Federal income tax payable

Deferred income taxes, net

Accrued expenses and other liabilities

Total identifiable net assets

Gain on bargain purchase

The fair value of the assets acquired includes premiums and agents’

balances receivable of $5,849.

This is the gross amount due from policyholders and agents, none of which is anticipated to be uncollectible.

The Company did not acquire any other material class of receivable as a result of the acquisition of Direct Auto.

The gain realized on bargain purchase of $ 4,578 from the Direct Auto acquisition is included in fee and other income in the Company’s Consolidated Statements of Operations for the year ended December 31, 2018.

Westminster American Insurance Company:

The state insurance license asset has an indefinite life, while the distribution networks asset and Westminster trade name are being amortized over twenty years and ten years, respectively, from the January 1, 2020 acquisition/valuation date.

The VOBA asset has been fully amortized.

Acquisition of Westminster American Insurance Company

On January 1, 2020, the Company 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.

Westminster is a property and casualty insurance company specializing in multi-peril commercial insurance in nine states and the District of Columbia.

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.

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

Westminster is 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.

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

We account for business acquisitions in accordance with the acquisition method of accounting, which requires that most assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which is the closing date for the Westminster transaction.

The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the measurement period exceed one year from the acquisition date.

The measurement period for the Westminster acquisition ended December 31, 2020.

The following unaudited pro forma summary presents consolidated information of the Company as if the business combination had occurred on January 1, 2019:

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Basic earnings per common share attributable to NI Holdings, Inc.

The Company did not reflect any material, nonrecurring pro forma adjustments directly attributable to the business combination in the above pro forma revenue and earnings.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Westminster to reflect the deferral and amortization of policy acquisition costs and the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from January 1, 2019, with the related income tax effects.

The Company incurred acquisition-related costs of $ 828 during the year ended December 31, 2020, and $ 83 during the year ended December 31, 2019.

These expenses were reclassified to occur in first quarter 2019 in the pro forma amounts presented above.

The Company paid $20,000 in cash consideration to the private shareholder of Westminster as of the closing date, and will pay

an additional $20,000 in three equal annual installments.

The Company did not reflect any material, non-recurring pro forma adjustments directly attributable to the business combination in the above pro forma revenue and earnings.

These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting Westminster’s results to reflect the deferral and amortization of policy acquisition costs and the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from January 1, 2019, with the related income tax effects.

The Company incurred acquisition-related costs of $ 828 and $ 83 during the years ended December 31, 2020 and 2019, respectively.

These expenses were reclassified into first quarter 2019 in the pro forma amounts presented above.

The Company paid $20,000 in cash consideration to the private shareholder of Westminster as of the closing date, and an additional $ 20,000 to be paid in three equal annual installments.

The acquisition of Westminster did not include any contingent consideration other than a provision regarding future changes to federal income tax rates.

The first two installments were paid in January 2021 and January 2022.

The final installment is due to be paid in December 2022.

The following table summarizes the consideration transferred to acquire Westminster and the amounts of identified assets acquired and liabilities assumed at the acquisition date:

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Total identifiable net assets

The fair value of the assets acquired includes premiums and agents’

The fair value of the assets acquired included premiums and agents’

balances receivable of $8,507 and reinsurance recoverables on losses of $763.

These are the gross amounts due from policyholders and reinsurers, respectively, none of which are anticipated to be uncollectible.

The Company did not acquire any other material class of receivable as a result of the acquisition of Westminster.

We have completed our final analysis of the assets and liabilities acquired and assigned fair values to the acquired distribution network, state insurance licenses, Westminster trade name, and VOBA intangible assets of $ 6,700 , $ 1,800 , $ 500 , and $ 4,750 , respectively.

The state insurance license intangible has an indefinite life, while the other intangible assets will be amortized over useful lives of up to twenty years.

These are the gross amounts due from policyholders and reinsurers, respectively, none of which were anticipated to be uncollectible.

The Company did not acquire any other material receivables as a result of the acquisition of Westminster.

The fair values of the acquired distribution network, state insurance licenses, Westminster trade name, and VOBA intangible assets were $6,700, $1,800, $500, and $4,750, respectively.

The state insurance license intangible has an indefinite life, while the other intangible assets are being amortized over their useful lives of up to twenty years .

The goodwill is not deductible for income tax purposes.

Recent Accounting Pronouncements

As an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.

As an EGC, we have elected to use the extended transition period for complying with any new or revised financial accounting standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act.

The following discussion includes effective dates for both public business entities and emerging growth companies, as well as whether specific guidance may be adopted early.

In January 2019, the Company adopted amended guidance from the Financial Accounting Standards Board (“FASB”) that generally requires entities to measure equity securities at fair value and recognize changes in fair value in their results of operations.

In January 2019, the Company adopted amended guidance from the FASB that generally requires entities to measure equity securities at fair value and recognize changes in fair value in their results of operations.

The FASB issued other impairment, disclosure, and presentation improvements related to financial instruments within the guidance.

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An entity may apply the new leases guidance at the beginning of the earliest period presented in the financial statements, or at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The new guidance, which replaces the current lease guidance, is effective for annual and interim reporting periods beginning after December 15, 2018 for public business entities.

The new guidance was effective for annual and interim reporting periods beginning after December 15, 2018 for public business entities.

For private companies and emerging growth companies, this guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted for all entities.

We will adopt this guidance for the year ended December 31, 2022.

We do not expect the adoption of this new guidance to have a significant impact on our financial position, results of operations, or cash flows.

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The cumulative adjustment to retained earnings is not expected to be significant.

In June 2016, the FASB issued a new standard that will require timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The guidance will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to better form their credit loss estimates.

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

In June 2016, the FASB issued a new standard that requires timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

The guidance also requires financial institutions and other organizations to use forward-looking information to better form their credit loss estimates.

Many of the loss estimation techniques applied prior to adoption of this standard are still permitted, although the inputs to those techniques have changed to reflect the full amount of expected credit losses.

Organizations are to continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

Additionally, the guidance requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

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Finally, the guidance amends the accounting for credit losses on available-for-sale fixed income securities and purchased financial assets with credit deterioration.

The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for filers with the Securities and Exchange Commission (“SEC”) excluding smaller reporting companies, and emerging growth companies that did not relinquish private company relief.

For all other entities, this guidance is effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for filers with the SEC excluding smaller reporting companies, and emerging growth companies that did not relinquish private company relief.

For all other entities, this guidance will be effective for annual reporting periods beginning after December 15, 2022 and interim periods within those fiscal years.

Early adoption is permitted for all entities.

We will adopt this guidance for the year ended December 31, 2022, as we will lose our EGC status beginning December 31, 2022.

Based on our evaluation, adoption of this new standard will not have a significant impact on our financial position, results of operations, and cash flows.

In December 2019, the FASB issued amended guidance to simplify the accounting for income taxes.

The amended guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, for public business entities.

For private companies and emerging growth companies, this amended guidance is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted, including adoption in an interim period.

We are evaluating the impact this new guidance will have on our financial position, results of operations, and cash flows.

The amended guidance was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, for public business entities.

For private companies and emerging growth companies, the amended guidance will be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

We will adopt this guidance for the year ended December 31, 2022.

Based on our evaluation, adoption of this new standard will not have a significant impact on our financial position, results of operations, and cash flows.

The amortized cost and estimated fair value of fixed income securities as of December 31, 2021 and 2020 were as follows:

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Asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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Asset-backed securities

Redeemable preferred stocks

Total fixed income securities

The amortized cost and estimated fair value of fixed income securities by contractual maturity are shown below.

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

Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay these securities.

December 31, 2021

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Mortgage / asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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Mortgage / asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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The Company has not pledged any assets to secure any obligations.

The investment category and duration of the Company’s gross unrealized losses on fixed income securities and equity securities were as follows:

The investment category and duration of the Company’s gross unrealized losses on fixed income securities were as follows:

December 31, 2021

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Asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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When our analysis of the above factors results in the conclusion that declines in fair values are other than temporary, the cost of the securities is written down to fair value and the previously unrealized loss is therefore reflected as a realized capital loss on investment.

The Company did not record any OTTI in 2020 or 2019.

The Company recorded OTTI of $382 in the year ended December 31, 2018.

As of December 31, 2020, we held 67 fixed income securities with unrealized losses.

As of December 31, 2019, we held 88 fixed income securities with unrealized losses.

The Company did not record any other-than-temporary impairments in 2021, 2020, or 2019.

In conjunction with our outside investment advisors, we analyzed the credit ratings of the securities as well as the historical monthly amortized cost to fair value ratio of securities in an unrealized loss position.

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Total gross realized losses, excluding other-than-temporary impairment losses

Other-than-temporary impairment losses

Net realized gain on investments

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Fair Value Measurements

We maximize the use of observable inputs in our valuation techniques and apply unobservable inputs only to the extent that observable inputs are unavailable.

The largest class of assets and liabilities carried at fair value by the Company at December 31, 2020 and 2019 were fixed income securities.

Prices provided by independent pricing services and independent broker quotes can vary widely, even for the same security.

Our available-for-sale investments are comprised of a variety of different securities, which are classified into levels based on the valuation technique and inputs used in their valuation.

The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures.

Investment securities available for sale are recorded at fair value on a recurring basis.

Additionally, from time to time, we may be required to record other assets or liabilities at fair value on a nonrecurring basis.

These nonrecurring fair value adjustments typically involve application of lower-of-cost-or-market accounting or write-downs of individual assets.

Accounting guidance on fair value measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.

The three levels of the fair value hierarchy are as follows:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level II includes fixed income securities with quoted prices that are traded less frequently than exchange traded instruments.

Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’

relationship to other benchmark quoted prices.

Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

The Company bases its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy.

Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon the estimates of the Company or other third-parties, and are often calculated based on the characteristics of the asset, the economic and competitive environment, and other such factors.

Management uses its best judgment in estimating the fair value of the Company’s financial instruments;

however, there are inherent weaknesses in any estimation technique.

Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts which we could have realized in a sale transaction on the dates indicated.

The estimated fair value amounts have been measured as of their respective period-end and have not been re-evaluated or updated for purposes of our financial statements subsequent to those respective dates.

As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

The Company uses quoted values and other data provided by an independent pricing service in its process for determining fair values of its investments.

The evaluations of such pricing services represent an exit price and a good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale.

This pricing service provides us with one quote per instrument.

For fixed income securities that have quoted prices in active markets, market quotations are provided.

For fixed income securities that do not trade on a daily basis, the independent pricing service prepares estimates of fair value using a wide array of observable inputs including relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.

The observable market inputs that the Company’s independent pricing service utilizes may include (listed in order of priority for use) benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers, and other reference data on markets, industry, and the economy.

Additionally, the independent pricing service uses an option-adjusted spread model to develop prepayment and interest rate scenarios.

The pricing service did not use broker quotes in determining fair values for any of the Company’s investments at December 31, 2021, 2020, or 2019.

Should the independent pricing service be unable to provide a fair value estimate, we would attempt to obtain a non-binding fair value estimate from a number of broker-dealers and would review this estimate in conjunction with a fair value estimate reported by an independent business news service or other sources.

In instances where only one broker-dealer provides a fair value for a fixed income security, we would use that estimate.

In instances where the Company would be able to obtain fair value estimates from more than one broker-dealer, we would review the range of estimates and select the most appropriate value based on the facts and circumstances.

Should neither the independent pricing service nor a broker-dealer provide a fair value estimate, we would develop a fair value estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs.

Accordingly, the Company classifies such a security as a Level III investment.

The fair value estimates of our investments provided by the independent pricing service at each period-end were utilized, among other resources, in reaching a conclusion as to the fair value of its investments.

Management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures.

Management reviews all securities to identify recent downgrades, significant changes in pricing, and pricing anomalies on individual securities relative to other similar securities.

This will include looking for relative consistency across securities in common sectors, durations, and credit ratings.

This review will also include all fixed income securities rated lower than “A”

by Moody’s Investors Service, Inc.

or Standard & Poor’s Financial Services LLC.

If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair value, then it will seek to resolve the discrepancy through discussions with the independent pricing service.

In its review, management did not identify any such discrepancies, and no adjustments were made to the estimates provided by the independent pricing service, for the years ended December 31, 2021, 2020, or 2019.

The classification within the fair value hierarchy is then confirmed based on the final conclusions from the pricing review.

The valuation of cash equivalents and equity securities are generally based on Level I inputs, which use the market-approach valuation technique.

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Asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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Consumer, non-cyclical

Perpetual preferred stocks

Total equity securities

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Asset-backed securities

Redeemable preferred stocks

Total fixed income securities

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Total equity securities

Cash and cash equivalents

Cash equivalents

Total assets at fair value

There were no liabilities measured at fair value on a recurring basis at December 31, 2021 or 2020.

The Company will assume and cede certain premiums and losses to and from various companies and associations under various reinsurance agreements.

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

Reinsurance contracts do not relieve the Company from its obligation to policyholders.

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

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

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

As a group, during the year ended December 31, 2020, the Company retained the first $ 10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $ 97,000 in excess of its $ 10,000 retained risk.

As a group, during the year ended December 31, 2019, the Company retained the first $ 10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $ 78,600 in excess of its $ 10,000 retained risk.

The Company cedes and assumes certain premiums and losses to and from various companies and associations under a variety of reinsurance agreements.

Reinsurance contracts do not relieve the Company from its obligations to policyholders.

During the year ended December 31, 2021, the Company retained the first $ 10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $ 117,000 in excess of its $ 10,000 retained risk.

For 2021, the catastrophe retention amount remains at $ 10,000 while the overall catastrophic reinsurance program limit increased to $ 117,000 in excess of the $ 10,000 retention.

The Company experienced one catastrophe event during 2021 in excess of the retention level, resulting in a reinsurance recovery of $ 5,612 .

During the year ended December 31, 2020, the Company retained the first $ 10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $ 97,000 in excess of its $ 10,000 retained risk.

During the year ended December 31, 2019, the Company retained the first $ 10,000 of weather-related losses from catastrophic events and had reinsurance under various reinsurance agreements up to $ 78,600 in excess of its $ 10,000 retained risk.

The Company did not experience any catastrophe events during 2020 or 2019 which exceeded the retention level.

For 2022, the catastrophe retention amount will increase to $ 15,000 while the overall catastrophic reinsurance program limit increased to $ 125,000 in excess of the $ 15,000 retention.

The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers.

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Collection risk is mitigated from reinsurers by entering into reinsurance arrangements only with reinsurers that have strong credit ratings and statutory surplus above certain levels.

The Company’s reinsurance recoverables on paid and unpaid losses were due from reinsurance companies with A.M.

Best ratings of “A”

The Company’s reinsurance recoverables on paid and unpaid losses were due from reinsurance companies with AM Best ratings of “A”

A reconciliation of direct to net premiums on both a written and an earned basis is as follows:

Year Ended December 31,

Premiums Written

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Ceded premium

Percentage of assumed premium earned to direct premium earned

A reconciliation of direct to net losses and loss adjustment expenses is as follows:

Year Ended December 31,

Direct losses and loss adjustment expenses

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Deferred Policy Acquisition Costs

Activity with regards to our deferred policy acquisition costs was as follows:

Expenses directly related to successfully acquire insurance policies, primarily commissions, premium taxes and underwriting costs, are deferred and amortized over the terms of the policies.

We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate the costs for recoverability.

The table below shows the deferred policy acquisition costs and asset reconciliation:

Year Ended December 31,

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Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

Activity in the liability for unpaid losses and LAE is summarized as follows:

Year Ended December 31,

Balance at beginning of year:

Liability for unpaid losses and loss adjustment expenses

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net balance at beginning of year

Acquired unpaid losses and loss adjustment expenses related to:

Acquired unpaid losses and LAE related to:

Total acquired

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Balance at end of year:

Liability for unpaid losses and loss adjustment expenses

Liability for unpaid losses and LAE

Reinsurance recoverables on losses

Net balance at end of year

During the year ended December 31, 2020, the Company’s 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.

During the year ended December 31, 2021, the Company’s incurred reported losses and LAE included $4,138 of net favorable development on prior accident years, primarily attributable to the Direct Auto non-standard auto business.

During the year ended December 31, 2020, incurred reported losses and LAE included $3,292 of net unfavorable development on prior accident years, primarily attributable to our 2019 multi-peril crop business.

During the year ended December 31, 2019, incurred reported losses and LAE included $6,509 of net favorable development on prior accident years, primarily attributable to the Direct Auto non-standard auto business.

Increases and decreases are generally the result of ongoing analysis of recent loss development trends.

As additional information becomes known regarding individual claims, original estimates are increased or decreased accordingly.

The net unfavorable development reported for the year ended December 31, 2020 was primarily attributable to our 2019 multi-peril crop business.

The following tables present information, organized by our primary operating segments, about incurred and paid claims development as of December 31, 2020, net of reinsurance, as well as cumulative claim frequency and the total of IBNR reserves plus expected development on reported claims.

The tables on the following pages present information, organized by our primary operating segments, about incurred and paid claims development as of December 31, 2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR reserves plus expected development on reported claims.

The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment.

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The Company considers a claim that does not result in a liability as a claim closed without payment.

The segment information presented in the tables is prior to the effects of the intercompany reinsurance pooling agreement.

The segment information presented in the tables is prior to the effects of the intercompany reinsurance pooling arrangement.

The tables include unaudited information about incurred and paid claims development (a) for the years ended December 31, 2012 through 2015 for the Private Passenger Auto, Primero Non-Standard Auto, Home and Farm, and Crop segments, (b) through 2017 for the Direct Auto Non-Standard Auto information, and (c) through 2019 for the Westminster Commercial information, which we present as supplementary information.

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At December 31, 2021

Plus Expected

Accident Year

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands, except claim

(1) Prior years unaudited

Private Passenger Auto

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

Accident Year

All outstanding liabilities prior to 2012, net of reinsurance

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(1) Prior years unaudited

Non-Standard Auto

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

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At December 31, 2021

Plus Expected

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands,

(1) Prior years unaudited

Auto (Primero)

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

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Non-Standard Auto (Direct Auto)

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31,

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

At December 31, 2021

Accident Year

Total IBNR Plus Expected Development on Reported Claims

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(1) Prior years unaudited

Non-Standard Auto (Direct Auto)

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31,

Accident Year

(Direct Auto)

Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

All outstanding liabilities prior to 2012, net of reinsurance

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(1) Prior years unaudited

Home and Farm

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

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At December 31, 2021

Plus Expected

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands, except claim

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At December 31, 2021

Plus Expected

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands, except claim

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Commercial (Westminster)

Incurred Claims and Allocated Claim Adjustment Expenses,

Net of Reinsurance For the Year Ended December 31,

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

At December 31, 2021

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands, except claim

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At December 31, 2021

Plus Expected

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(in thousands, except claim

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Property and equipment consisted of the following:

10 - 31 years

Building and improvements

Electronic data processing equipment

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Subject to amortization:

Distribution network

Total subject to amortization

Not subject to amortization –

state insurance license

state insurance licenses

Amortization expense was $ 472 , $ 5,224 , and $ 1,711 during the years ended December 31, 2021, 2020 and 2019, respectively.

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Other intangible assets that have finite lives, including trade names and distribution networks, are amortized over their useful lives.

The estimated amortization of other intangible assets with finite lives for the next five years and thereafter is as follows:

As of December 31, 2021, the estimated amortization of other intangible assets with finite lives for the next five years in the period ended December 31, 2026, and thereafter is as follows:

Year ending December 31,

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Nodak Insurance is the lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies.

Nodak Insurance then retrocedes balances back to each company, while retaining its

own share of the pool’s net underwriting results, based on individual pool percentages established in the respective pooling agreement.

Nodak Insurance then retrocedes balances back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool percentages established in the respective pooling agreement.

This arrangement allows each insurance company to rely upon the capacity of the pool’s total statutory capital and surplus.

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

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

As a result, they are evaluated by AM Best on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category.

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

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

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

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

Pool Percentage

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Our insurance subsidiaries statutory capital and surplus at December 31, 2021 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2021 without the prior approval of the North Dakota Insurance Department is $ 21,628 based upon the policyholders’

surplus of Nodak Insurance at December 31, 2020.

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.

The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2022 without the prior approval of the North Dakota Insurance Department is $ 21,493 based upon the surplus of Nodak Insurance at December 31, 2021.

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.

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No dividends were declared or paid by Nodak Insurance during the years ended December 31, 2021 or 2019.

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’

surplus of Direct Auto at December 31, 2020.

Prior to its payment of any dividend, Direct Auto will be required to provide notice of the dividend to the Illinois Department of Insurance.

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.

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.

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

Direct Auto was re-domesticated from Illinois to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance.

The amount available for payment of dividends from Direct Auto to NI Holdings during 2022 without the prior approval of the North Dakota Insurance Department is $ 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.

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

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

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

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

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

No dividends were declared or paid by Westminster during the year ended December 31, 2020.

Westminster was re-domesticated from Maryland to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance.

The amount available for payment of dividends from Westminster to NI Holdings during 2022 without the prior approval of the North Dakota Insurance Department is $ 2,471 based upon the surplus of Westminster at December 31, 2021.

No dividends were declared or paid by Westminster during the years ended December 31, 2021 or 2020.

Battle Creek Mutual Insurance Company

The following tables illustrate the impact of including Battle Creek in our Consolidated Balance Sheets and Statements of Operations prior to intercompany eliminations:

The following tables disclose the standalone balance sheets and statements of operations of Battle Creek, prior to intercompany eliminations, to illustrate the impact of including Battle Creek in our Consolidated Balance Sheets and Statements of Operations:

Cash and cash equivalents

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Accrued investment income

Deferred income tax asset, net

Deferred income taxes

Property and equipment

Unpaid losses and loss adjustment expenses

Unpaid losses and LAE

Unearned premiums

Notes payable (1)

Pooling payable (1)

Reinsurance losses payable (2)

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Total expenses

Income before income taxes

Income (loss) before income taxes

Net income (loss)

Benefit Plans

The Company sponsors a money purchase plan that covers all eligible employees.

Plan costs are funded annually as they are earned.

The Company reported expenses related to the money purchase plan totaling $ 900 , $ 618 , and $ 598 during the years ended December 31, 2020, 2019, and 2018, respectively.

The Company also sponsors a 401(k) plan with an automatic contribution to all eligible employees and a matching contribution for eligible employees of 50 % up to 3 % of eligible compensation.

Primero, Direct Auto, and Westminster also sponsor 401(k) plans.

Nodak Insurance sponsors a 401(k) plan with an automatic and matching contribution for eligible employees at Nodak Insurance, Primero, and Direct Auto.

Westminster also sponsors a separate 401(k) plan.

The Company reported expenses related to the 401(k) plans totaling $ 722 , $ 651 , and $ 516 during the years ended December 31, 2021, 2020, and 2019, respectively.

All fees associated with both plans are deducted from the eligible employee accounts.

Deferred Compensation Plan

The Board of Directors has authorized a non-qualified deferred compensation plan covering key executives of the Company (as designated by the Board of Directors).

Nodak Insurance also contributes an additional elective amount of employee compensation as a profit-sharing contribution for eligible employees that is invested in a portfolio of investments directed by the Company.

The reported expenses related to this profit-sharing contribution were $ 697 , $ 900 , and $ 618 during years ended December 31, 2021, 2020, and 2019 respectively.

All fees associated with the plans are deducted from the eligible employee accounts.

The Company also offers a non-qualified deferred compensation plan to key executives of the Company (as designated by the Board of Directors).

The Company’s policy is to fund the plan by amounts that represent the excess of the maximum contribution allowed by the Employee Retirement Income Security Act (“ERISA”) over the key executives’

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The plan also allows employee-directed deferral of key executive’s compensation or incentive payments.

The Company reported expenses relating to this plan totaling $ 308 , $ 458 , and $ 451 for the years ended December 31, 2020, 2019, and 2018, respectively.

Employee Stock Ownership Plan

The Company has established an Employee Stock Ownership Plan (the “ESOP”).

The ESOP is intended to be an employee stock ownership plan within the meaning of Internal Revenue Code Section 4975(e)(7) and will invest solely in common stock of the Company.

In connection with our initial public offering in March 2017, Nodak Insurance loaned $ 2,400 to the ESOP’s related trust (the “ESOP Trust”).

The ESOP loan will be for a period of ten years and bears interest at the long-term Applicable Federal Rate effective on the closing date of the offering ( 2.79 % annually).

The ESOP Trust used the proceeds of the loan to purchase shares in our initial public offering, which results in the ESOP Trust owning approximately 1.0 % of the Company’s authorized shares.

The Company reported expenses related to this plan totaling $ 914 , $ 308 , and $ 458 during the years ended December 31, 2021, 2020, and 2019, respectively.

In connection with our initial public offering in March 2017, the Company established its ESOP.

The ESOP is intended to be an employee stock ownership plan within the meaning of Internal Revenue Code Section 4975(e)(7) and invests solely in common stock of the Company.

Upon establishment of the plan, Nodak Insurance loaned $ 2,400 to the ESOP’s related trust (the “ESOP Trust”).

The ESOP loan was for a period of ten years , bearing interest at the long-term Applicable Federal Rate effective on the closing date of the offering ( 2.79 % annually).

The ESOP Trust used the proceeds of the loan to purchase shares in our initial public offering, which resulted in the ESOP Trust owning approximately 1.0 % of the Company’s authorized shares.

The ESOP has purchased the shares for investment and not for resale.

The shares purchased by the ESOP Trust in the offering are held in a suspense account as collateral for the ESOP loan.

The shares held in the ESOP’s suspense account are not considered outstanding for earnings per share purposes.

Nodak Insurance will make semi-annual cash contributions to the ESOP in amounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance.

While the ESOP makes two loan payments per year, a pre-determined portion of the shares will be released from the suspense account and allocated to participant accounts at the end of the calendar year.

This release and allocation will occur on an annual basis over the ten-year term of the ESOP loan.

Nodak Insurance will have a lien on the shares of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance.

Nodak Insurance makes semi-annual cash contributions to the ESOP in amounts no smaller than the amounts required for the ESOP Trust to make its loan payments to Nodak Insurance.

While the ESOP makes two loan payments per year, a pre-determined portion of the shares are released from the suspense account and allocated to participant accounts at the end of the calendar year.

This release and allocation occurs on an annual basis over the ten-year term of the ESOP loan.

Nodak Insurance has a lien on the shares of common stock of the Company held by the ESOP to secure repayment of the loan from the ESOP to Nodak Insurance.

If the ESOP is terminated as a result of a change in control of the Company, the ESOP may be required to pay the costs of terminating the plan.

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Participants in the ESOP cannot direct the investment of any assets allocated to their accounts.

The initial ESOP participants are employees of Nodak Insurance.

The ESOP participants are employees of Nodak Insurance.

The employees of Primero, Direct Auto, and Westminster do not participate in the ESOP.

American West and Battle Creek have no employees.

Each employee of Nodak Insurance will automatically become a participant in the ESOP if such employee is at least 21 years old, has completed a minimum of one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period.

Each employee of Nodak Insurance automatically becomes a participant in the ESOP if such employee is at least 21 years old, has completed a minimum of one thousand hours of service with Nodak Insurance, and has completed an Eligibility Computation Period.

Employees are not permitted to make any contributions to the ESOP.

Participants in the ESOP will receive annual reports from the Company showing the number of shares of common stock of the Company allocated to the participant’s account and the market value of those shares.

Participants in the ESOP receive annual reports from the Company showing the number of shares of common stock of the Company allocated to the participants’

accounts and the market value of those shares.

The shares are allocated to participants based on compensation as provided for in the ESOP.

In connection with the initial public offering, the Company created a contra-equity account on the Company’s Consolidated Balance Sheet equal to the ESOP’s basis in the shares.

In connection with the establishment of the ESOP, the Company created a contra-equity account on the Consolidated Balance Sheet equal to the ESOP’s basis in the shares.

The basis of those shares was set at $ 10.00 per share as part of the initial public offering.

As shares are released from the ESOP suspense account, the contra-equity account will be credited, which shall reduce the impact of the contra-equity account on the Company’s Consolidated Balance Sheet.

The Company shall record a compensation expense related to the shares released, which compensation expense is equal to the number of shares released from the suspense account multiplied by the average market value of the Company’s stock during the period.

As shares are released from the ESOP suspense account, the contra-equity account is credited, which reduces the impact of the contra-equity account on the Company’s Consolidated Balance Sheet over time.

The Company records compensation expense related to the shares released, equal to the number of shares released from the suspense account multiplied by the average market value of the Company’s stock during the period.

The Company recognized compensation expense of $ 460 , $ 373 , and $ 405 during the years ended December 31, 2021, 2020, and 2019, respectively, related to the ESOP.

Through December 31, 2020, 97,260 ESOP shares had been released and allocated to participants, with the remainder of 142,740 ESOP shares held in suspense at December 31, 2020.

Using the Company’s year-end market price of $ 16.42 , the fair value of the unearned ESOP shares was $ 2,344 at December 31, 2020.

Through December 31, 2021, the Company had released and allocated 121,575 ESOP shares to participants, with a remainder of 118,425 ESOP shares in suspense at December 31, 2021.

Using the Company’s year-end market price of $ 18.91 per share, the fair value of the unearned ESOP shares was $ 2,239 at December 31, 2021.

Line of Credit

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There has been no impact to the Company’s income taxes due to this legislation.

The components of our provision for income tax expense were as follows:

The components of our provision for income tax expense (benefit) were as follows:

Year Ended December 31,

Total federal

Current tax provision

Total current

Deferred tax (benefit) provision

Total provision for income taxes

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Expected provision for federal income taxes at 21%

State income taxes, net of federal impact

Tax-exempt interest

Dividends received deduction

Executive compensation

Compensation-related expenses

Change in valuation allowance

State income taxes, net of federal impact

Total provision for income taxes

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The valuation allowance against certain deferred income tax assets was $ 1,008 , $ 931 , and $ 594 at December 31, 2021, 2020, and 2019, respectively.

The income tax effects of temporary differences that give rise to significant portions of our deferred income tax assets and deferred income tax liabilities at December 31, 2020 and 2019 are as follows:

The income tax effects of temporary differences that give rise to significant portions of our deferred income tax assets and deferred income tax liabilities at December 31, 2021 and 2020 were as follows:

Deferred income tax assets:

Unearned premium

Unpaid losses and loss adjustment expenses

Unpaid losses and LAE

Net operating loss carryovers

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Battle Creek, which files its federal income tax returns on a stand-alone basis, had net operating loss carryovers of $ 3,215 and $ 3,390 at December 31, 2021 and 2020, respectively.

The net operating loss carryforward expires beginning in 2021 through 2030, due to limitations on the use of this net operating loss carryforward.

Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had $ 2,559 of net operating loss carryover at December 31, 2020.

This net operating loss carryforward expires beginning in 2021 through 2023 , due to limitations on the use of this net operating loss carryforward.

The net operating loss carryforward began expiring in 2021 and will continue through 2032 due to limitations on the use of this net operating loss carryforward.

Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had $ 2,122 and $ 2,340 of net operating loss carryover at December 31, 2021 and 2020, respectively.

This net operating loss carryforward expires in 2023 due to limitations on the use of this net operating loss carryforward.

Operating Leases

Our Primero subsidiary leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in 2023.

Our Direct Auto subsidiary leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029.

Our Nodak Insurance subsidiary leases a facility in Fargo, North Dakota under a non-cancellable operating lease expiring in 2024.

Primero leases a facility in Spearfish, South Dakota under a non-cancellable operating lease expiring in 2023 , and leases a facility in Las Vegas, Nevada on a month-to-month basis.

Direct Auto leases a facility in Chicago, Illinois under a non-cancellable operating lease expiring in 2029 .

Nodak Insurance leases a facility in Fargo, North Dakota under a non-cancellable operating lease expiring in 2024 .

There were expenses of $ 250 , $ 370 , and $ 316 related to these leases during the years ended December 31, 2021, 2020, and 2019, respectively.

As of December 31, 2020, we have minimum future commitments under non-cancellable leases as follows:

As of December 31, 2021, we have minimum future commitments under non-cancellable leases for the next five years in the period ended December 31, 2026, and thereafter as follows:

Year ending December 31,

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Contingent liabilities arising from litigation, income taxes, and other matters are not considered to be material to our financial position.

Changes in the number of common stock shares outstanding are as follows:

Changes in the number of common stock shares outstanding were as follows:

Year Ended December 31,

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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.

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.

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.

During the nine months ended September 30, 2021, we completed the repurchase of 144,110 shares of our common stock for $ 2,762 to close out this authorization.

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.

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.

The cost of this treasury stock is a reduction of shareholders’

equity within our Consolidated Balance Sheet.

equity within our Consolidated Balance Sheets.

Stock-Based Compensation

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The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining employees, officers, consultants, independent contractors, advisors, and non-employee directors capable of assuring the future success of the Company, to offer such persons incentives to put forth maximum efforts for the success of the Company’s business and to afford such persons an opportunity to acquire an ownership interest in the Company, thereby aligning the interests of such persons with the Company’s shareholders.

The Plan provides for the grant of nonqualified stock options, incentive stock options, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalents, and performance share units (“PSUs”) to employees, officers, consultants, advisors, non-employee directors, and independent contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

The Plan provides for the grant of nonqualified stock options, incentive stock options, RSUs, stock appreciation rights, dividend equivalents, and PSUs to employees, officers, consultants, advisors, non-employee directors, and independent contractors designated by the Compensation Committee of the Board of Directors (the “Compensation Committee”).

Awards made under the Plan are based upon, among other things, a participant’s level of responsibility and performance within the Company.

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No forfeitures are currently estimated.

A summary of the Company’s outstanding restricted stock units is presented below:

A summary of the Company’s outstanding RSUs is presented below:

Weighted-Average

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No forfeitures are currently estimated.

The current cost estimate assumes that the cumulative growth target will be achieved.

The current cost estimate assumes that the cumulative growth targets will be achieved or exceeded.

A summary of the Company’s outstanding PSUs is presented below:

Performance Share

Weighted-Average

Weighted-Average Grant-Date

Units outstanding and unearned at January 1, 2019

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PSUs granted during 2021 (at target)

PSUs earned during 2021

Performance adjustment (1)

Units outstanding and unearned at December 31, 2021

(1) Represents the change in PSUs issued based upon the attainment of performance goals established by the Company.

The following table shows the impact of PSU activity to the Company’s financial results:

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That cost is expected to be recognized over a weighted-average period of 1.74 years.

Earnings Per Share

Earnings per share is computed by dividing net income available to common shareholders for the period by the weighted average number of common shares outstanding for the same period.

The weighted average number of common shares outstanding was 21,772,475 , 22,179,747 , and 22,358,858 for the years ended December 31, 2020, 2019, and 2018, respectively.

Unearned ESOP shares are not considered outstanding until they are released and allocated to plan participants.

Unearned RSU and PSU shares are not considered outstanding until they are earned by award participants.

The following table presents a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for our common stock:

Year Ended December 31,

Basic earnings per common share:

Net income attributable to NI Holdings

Weighted average shares outstanding

Basic earnings per common share

Diluted earnings per common share:

Net income attributable to NI Holdings

Number of shares used in basic computation

Weighted average effect of dilutive securities

RSUs and PSUs

Number of shares used in diluted computation

Diluted earnings per common share

Segment Information

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The following tables provide available information of these segments for the years ended December 31, 2021, 2020, and 2019.

For presentation in these tables, “LAE”

refers to loss adjustment expenses.

The ratios presented in these tables are non-GAAP financial measures under Securities and Exchange Commission rules and regulations.

The non-GAAP ratios may not be comparable to similarly-named measures reported by other companies.

These ratios are used widely in the property and casualty insurance industry.

The loss and LAE ratio equals losses and loss adjustment expenses divided by net premiums earned.

The expense ratio equals amortization of deferred policy acquisition costs and other underwriting and general expenses, divided by net premiums earned.

The combined ratio equals losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and other underwriting and general expenses, divided by net premiums earned.

For purposes of evaluating profitability of the non-standard auto segment, management combines the policy fees paid by the insured with the underwriting gain or loss as its primary measure.

As a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in the tables below.

The remaining fee and other income amounts are not allocated to any segment.

We do not assign or allocate all Consolidated Statement of Operations or Consolidated Balance Sheet line items to our operating segments.

Those line items include investment income, net capital gain on investments, other income excluding non-standard auto insurance fees, and income taxes within the Consolidated Statement of Operations.

For the Consolidated Balance Sheet, those items include cash and investments, property and equipment, other assets, accrued expenses, income taxes recoverable or payable, and shareholders’

Year Ended December 31, 2021

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Income before income taxes

Net income attributable to non-controlling interest

Net loss attributable to non-controlling interest

Net income attributable to NI Holdings, Inc.

Non-GAAP Ratios:

Operating Ratios:

Loss and LAE ratio

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Reinsurance recoverables

Receivable from Federal Crop Insurance Corporation

Goodwill and other intangibles

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Unearned premiums

Payable to Federal Crop Insurance Corporation

Year Ended December 31, 2020

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Net income attributable to NI Holdings, Inc.

Non-GAAP Ratios:

Operating Ratios:

Loss and LAE ratio

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Net income attributable to NI Holdings, Inc.

Non-GAAP Ratios:

Operating Ratios:

Loss and LAE ratio

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Unearned premiums

For purposes of evaluating profitability of the non-standard auto segment, management combines the policy fees paid by the insured with the underwriting gain or loss as its primary measure.

As a result, these fees are allocated to the non-standard auto segment (included in fee and other income) in the above tables.

The remaining fee and other income amounts are not allocated to any segment, including the $ 4,578 gain realized on the bargain purchase of Direct Auto in 2018.

We do not assign or allocate all Consolidated Statement of Operations or Consolidated Balance Sheet line items to our operating segments.

Those line items include investment income, net capital gain on investments, other income excluding non-standard auto insurance fees, and income taxes within the Consolidated Statement of Operations.

For the Consolidated Balance Sheet, those items include cash and investments, property and equipment, other assets, accrued expenses, federal income taxes recoverable or payable, and shareholders’

Beginning in March 2020, the global pandemic associated with novel coronavirus COVID-19 and related economic conditions began to impact the Company’s results.

The Company’s underwriting results for 2020 were impacted by reduced net premiums earned in our non-standard auto segment, which decreased 6 % from 2019.

We anticipate additional pressure on premiums in this segment for 2021.

Conversely, the pandemic favorably impacted loss frequency in our private passenger and non-standard auto segments during the second and third quarters of 2020, due to fewer miles driven by our insureds, resulting in improvements in our loss and LAE ratios.

Statutory Net Income, Capital and Surplus, and Dividend Restrictions

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Statutory unassigned surplus

Statutory net income

Statutory net income (loss)

Statutory capital and surplus

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Statutory unassigned surplus

Statutory net income

Statutory net income (loss)

Statutory capital and surplus

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Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval from their domiciliary insurance regulatory authorities.

Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further affect their ability to pay dividends.

Our insurance subsidiaries are also subject to RBC requirements that may further affect their ability to pay dividends.

Our insurance subsidiaries statutory capital and surplus at December 31, 2021 and 2020 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

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No dividends were paid to Nodak Insurance from either entity during the years ended December 31, 2021, 2020, or 2019.

surplus of Nodak Insurance at December 31, 2020.

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.

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.

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No dividends were declared or paid in the years ended December 31, 2021 or 2019.