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Item 1A. Risk Factors

2023-03-08 compared with 2022-03-09 · 466 added, 266 removed, 24 unchanged (97% of the section changed)

An investment in the Company’s common shares involves certain risks.

The following is a discussion of material risks and uncertainties that may affect the Company’s business, financial condition, and future results.

An investment in the Company’s common

shares involves certain risks.

The following is a discussion of material risks and uncertainties that may affect the Company’s business,

financial condition, and future results.

Insurance Risks

Catastrophic or other significant natural or man-made losses may negatively affect our financial condition and operating results.

As a property and casualty insurer, we are subject to claims from catastrophes or other natural perils that may have a significant negative impact on our operating and financial results.

Catastrophic or other significant natural

or man-made losses may negatively affect our financial condition and operating results.

As a property and casualty insurer, we are subject

to claims from catastrophes or other natural perils that may have a significant negative impact on our operating and financial results.

We have experienced catastrophe losses and can be expected to experience catastrophe losses in the future.

Catastrophe losses can be caused by various events, including snow storms, ice storms, freezing temperatures, tropical storms and hurricanes, earthquakes, tornadoes, wind, hail, fires, and other natural or man-made disasters.

In addition, longer-term natural catastrophe trends may be changing, and new types of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow.

The frequency, number, and severity of these losses are unpredictable.

The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event.

Our ability to effectively manage catastrophe risk is dependent, in part, on the reliance of various catastrophe models, which may produce unreliable output as a result of inaccurate or incomplete data, along with the inherent uncertainty of future frequency and severity of losses.

The impact of changing climate conditions on the overall insurance industry may also materially affect the availability and cost of reinsurance to us.

In addition, these changes could impact the creditworthiness of issuers of securities in which the Company invests, subjecting our investment portfolio to increased credit and interest rate risk, with the potential for reduced investment returns and/or material realized or unrealized losses.

Despite our continued geographic expansion, we write a significant amount of business in North Dakota.

As a result, adverse developments from severe weather events in North Dakota would have a greater effect on our financial condition and results of operations than if our business was less geographically concentrated.

Catastrophe losses can be caused

by various events, including snow storms, ice storms, freezing temperatures, tropical storms and hurricanes, earthquakes, tornadoes, wind,

hail, fires, and other natural or man-made disasters.

In addition, longer-term natural catastrophe trends may be changing, and new types

of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events linked

to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels,

rain, hail and snow.

Climate change may also impact insurability by impairing our ability to identify and quantify potential hazards that

will result in losses and offer our customers products at an affordable price.

The frequency, number, and severity of these losses are

unpredictable.

The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected

by the event and the severity of the event.

Our ability to effectively manage catastrophe risk is dependent, in part, on the reliance

of various catastrophe models, which may produce unreliable output as a result of inaccurate or incomplete data, along with the inherent

uncertainty of future frequency and severity of losses.

The impact of changing climate conditions on the overall insurance industry may

also materially affect the availability and cost of reinsurance to us.

Our investment portfolio is also subject to the effects of climate

change as economic shifts alter the return dynamic of long-term investments and reduce valuations.

Despite our continued geographic expansion, we

write a significant amount of business in North Dakota.

As a result, adverse developments from severe weather events in North Dakota would

have a greater effect on our financial condition and results of operations than if our business was less geographically concentrated.

The incidence and severity of such events are inherently unpredictable.

We attempt to reduce our exposure to catastrophe losses through a disciplined underwriting and risk management approach that emphasizes long-term profitability over short-term gains in premiums or market share, continued geographical diversification of our operations, and the use of reinsurance.

However, there can be no guarantee that our underwriting and risk management efforts will be successful in mitigating our exposure to catastrophe losses or the impact of such losses when they occur.

In addition, while we maintain reinsurance coverage with a catastrophe excess of loss program, such coverage may be insufficient to cover our losses.

Our reinsurance coverage includes a catastrophe excess of loss program, which in 2021 limited our catastrophe exposure to $10 million retention per event, with $117 million of reinsurance coverage placed in excess of this retention.

In 2022, our catastrophe exposure was increased to $15 million retention per event, with $125 million of reinsurance coverage placed in excess of this retention.

If we are not able to effectively mitigate our exposure to catastrophe losses, whether through our underwriting process or reinsurance coverage, in the event of such losses our business and results of operations could be adversely affected.

For additional information, see Part II, Item 8, Note 2 “Summary of Significant Accounting Policies”

and Note 7 “Reinsurance.”

Changes in the legal, regulatory, and economic environments in which we operate could materially impact our financial results, including our loss reserves, operating expenses, and investment portfolio.

We maintain reserves to cover estimated unpaid losses and expenses necessary to settle claims.

The reserves for losses and loss adjustment expenses (“LAE”) that we have established are estimates of amounts needed to pay reported and unreported claims and related expenses, based on facts and circumstances known to us at the time we established the reserves.

We attempt to reduce our exposure to catastrophe

losses through a disciplined underwriting and risk management approach that emphasizes long-term profitability over short-term gains in

premiums or market share, continued geographical diversification of our operations, and the use of reinsurance.

However, there can be

no guarantee that our underwriting and risk management efforts will be successful in mitigating our exposure to catastrophe losses or

the impact of such losses when they occur.

In addition, while we maintain reinsurance coverage with a catastrophe excess of loss program,

such coverage may be insufficient to cover our losses.

Our reinsurance coverage includes a catastrophe excess of loss program, which in

2022 limited our catastrophe exposure to $15 million retention per event, with $125 million of reinsurance coverage placed in excess of

this retention.

In 2023, our catastrophe exposure was increased to $20 million retention per event, with $133 million of reinsurance coverage

placed in excess of this retention.

If we are not able to effectively mitigate our exposure to catastrophe losses, whether through our

underwriting process or reinsurance coverage, in the event of such losses our business and results of operations could be adversely affected.

For additional information, see Part II, Item

8, Note 3 “Summary of Significant Accounting Policies” and Note 7 “Reinsurance.”

If actual losses exceed our loss and loss

adjustment expense reserves or if changes in the estimated level of loss and loss adjustment expense reserves are necessary as a result

of changes in the legal, regulatory, and economic environments in which we operate, our financial results could be materially and adversely

We maintain reserves to cover estimated unpaid losses and expenses necessary

to settle claims.

The reserves for losses and loss adjustment expenses that we have established are estimates of amounts needed to pay

reported and unreported claims and related expenses, based on facts and circumstances known to us at the time we established the reserves.

Reserves are actuarially projected based on historical claims information, industry statistics, anticipated trends, and other factors.

The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables.

While we believe that our reserves for unpaid losses and LAE are appropriate, to the extent that such reserves prove to be inadequate or excessive in the future, we would adjust them and recognize the change in earnings in the period the reserves are adjusted.

There can be no assurance that the estimates of such liabilities will not change in the future and any such adjustment could have a material impact on our financial condition and results of operations.

For additional information, see Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Losses and Loss Adjustment Expenses”, and Part II, Item 8, Note 9 “Unpaid Losses and Loss Adjustment Expenses.”

It is possible that, among other things, past or future steps taken by the federal government and the Federal Reserve to stimulate the U.S.

economy, including actions taken in response to COVID-19 such as fiscal and monetary policy measures, and tax reform, could lead to higher inflation than we had anticipated, which generally leads to increased loss costs and other operating expenses.

However, our relatively high concentration in short tail lines of business limits the potential impact of this exposure and allows us to price for those increases on a timely basis.

Potential higher interest rates oftentimes correlated to inflation could reduce the carrying value of our fixed maturity and short-term investments, negatively impacting the Company's book value in the short-term.

Over the long-term, however, higher interest rates would provide an incremental benefit to our net investment income over time as excess cash and proceeds of maturing bonds are reinvested at higher rates.

We manage our exposure to interest rate increases by monitoring the duration within our investment portfolio and maintaining maturities that minimize any forced sales within the portfolio.

However, even with such monitoring efforts, we may be forced to sell securities at a loss, which would adversely affect our results of operations.

Any downgrade in our A.M.

Best Company, Inc.

rating could affect our ability to write new business or renew our existing business, which would lead to a decrease in revenue and net income.

Third-party rating agencies, such as AM Best, periodically assess and rate the claims-paying ability of insurers based on criteria established by the rating agencies.

Ratings assigned by AM Best are an important factor influencing the competitive position of insurance companies.

AM Best ratings, which are reviewed at least annually, represent independent opinions of financial strength and ability to meet obligations to policyholders and are not directed toward the protection of investors.

Therefore, our AM Best rating should not be relied upon as a basis for an investment decision to purchase our common stock.

All of the Company’s insurance subsidiaries hold a financial strength rating of “A”

(Excellent) by AM Best, the third highest rating out of 15 rating classifications.

While we believe that

our reserves for unpaid losses and loss adjustment expenses are appropriate, to the extent that such reserves prove to be inadequate or

excessive in the future, we would adjust them and recognize the change in earnings in the period the reserves are adjusted.

be no assurance that the estimates of such liabilities will not change in the future and any such adjustment could have a material impact

on our financial condition and results of operations.

For additional information, see Part II, Item 7, “Management’s Discussion

and Analysis of Financial Condition and Results of Operations”, “Losses and Loss Adjustment Expenses”, and Part II,

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

It is possible that, among other things, past or future steps taken by

the federal government and the Federal Reserve to manage the U.S.

economy, including fiscal and monetary policy measures, could lead to

higher than anticipated levels of inflation, which generally leads to increased loss costs and other operating expenses.

relatively high concentration in short tail lines of business limits the potential impact of this exposure long-term and allows us to

price for those increases in future policy periods.

Any downgrade in our financial strength rating

could affect our ability to write new business or renew our existing business, which would lead to a decrease in revenue and net income.

Third-party rating agencies, such as AM Best,

periodically assess and rate the claims-paying ability of insurers based on criteria established by the rating agencies.

Ratings assigned

by AM Best are an important factor influencing the competitive position of insurance companies.

AM Best ratings, which are reviewed at

least annually, represent independent opinions of financial strength and ability to meet obligations to policyholders and are not directed

toward the protection of investors.

Therefore, our AM Best rating should not be relied upon as a basis for an investment decision to purchase

our common stock.

All of the Company’s insurance subsidiaries

hold a financial strength rating of “A” (Excellent) by AM Best, the third highest rating out of 15 rating classifications.

Our most recent rating by AM Best was issued on April 14, 2022.

Financial strength ratings are used by agents, customers, lenders, and other insurance carriers as a means of assessing the financial strength and quality of insurance companies.

If our financial position deteriorates, we may not maintain our favorable financial strength rating from AM Best.

A downgrade of our rating could severely limit or prevent us from writing desirable business or from renewing our existing business.

In addition, a downgrade could negatively affect our ability to implement our strategy because it could cause our current or potential agents to choose other more highly rated competitors or reduce our ability to obtain reinsurance.

For additional information, see Part I, Item 1, “Business”

and “Financial Strength.”

Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry, competition, and innovation and emerging technologies.

The property and casualty insurance industry has historically been characterized by soft markets (periods of relatively high levels of price competition, less restrictive underwriting practices, and generally low premium rates) followed by hard markets (periods of capital shortages resulting in a lack of insurance availability, relatively low levels of price competition, more selective underwriting of risks, and relatively high premium rates).

During soft markets, we may lose business to other carriers offering competitive insurance at lower rates.

We may also choose to reduce our premiums or limit premium increases leading to a reduction in profit margins and revenues.

Our industry is also influenced by general economic conditions, which could reduce overall premium volume for us and our competitors.

Additionally, the industry could be impacted by changes in customer preferences, including customer demand for direct distribution channels, point-of-sale, or other non-traditional distribution channels.

Consolidation within the industry also could influence future growth and profit potential.

We monitor the competitive marketplace on both a geographic and line of business basis.

The private passenger marketplace continues to be a very competitive and challenging pricing environment.

Rates for private passenger auto are competitive across the country.

The non-standard auto market also remains competitive with more companies seeking to grow this line of business.

The commercial property market has experienced significant hardening in recent years, allowing us to demand more premium while being more selective on individual risks.

If we do not effectively respond to changes in market conditions, the Company may be adversely affected.

Innovation and emerging technologies are greatly impacting the insurance industry.

If we are unable to keep pace with the technological changes that our competitors implement, we may not be able to attract and maintain customers, adequately price risks, or operate as efficiently as our competitors.

In addition, emerging technologies in the automotive industry such as autonomous vehicles, driver-assistance and accident-avoidance features, sensor technology, and other forms of automation may reduce the future need for, or decrease the future pricing of, our auto insurance products.

Our success depends primarily on our ability to underwrite risks effectively and price our insurance products appropriately.

The nature of the insurance business is such that pricing must be determined before the underlying costs are fully known.

This requires significant reliance on estimates and assumptions in setting prices.

If we fail to appropriately price the risks we insure or if our claims experience is more frequent or severe than our underlying risk assumptions, our profitability may be negatively affected.

If we overestimate the risks we are exposed to, we may overprice our products, and new business growth and retention of existing business may be adversely affected.

The ability to effectively underwrite risks and price products appropriately is subject to a number and uncertainties, including:

availability of sufficient reliable data and our ability to properly analyze available data;  

market and competitive conditions;  

regulatory or legislative changes;  

Financial strength ratings are used by agents, customers, lenders, and

other insurance carriers as a means of assessing the financial strength and quality of insurance companies.

If our financial position

deteriorates, we may not maintain our favorable financial strength rating from AM Best.

A downgrade of our rating could severely limit

or prevent us from writing desirable business or from renewing our existing business.

In addition, a downgrade could negatively affect

our ability to implement our strategy because it could cause our current or potential agents to choose other more highly rated competitors

or reduce our ability to obtain reinsurance.

For additional information, see Part I, Item 1, “Business” and “Financial

Our results may fluctuate as a result of

many factors, including cyclical changes in the insurance industry, competition, and innovation and emerging technologies.

The property and casualty insurance industry has

historically been characterized by soft markets (periods of relatively high levels of price competition, less restrictive underwriting

practices, and generally low premium rates) followed by hard markets (periods of capital shortages resulting in a lack of insurance availability,

relatively low levels of price competition, more selective underwriting of risks, and relatively high premium rates).

During soft markets,

we may lose business to other carriers offering competitive insurance at lower rates.

We may also choose to reduce our premiums or limit

premium increases leading to a reduction in profit margins and revenues.

Our industry is also influenced by general economic conditions,

which could reduce overall premium volume for us and our competitors.

Additionally, the industry could be impacted by changes in customer

preferences, including customer demand for direct, point-of-sale, or other non-traditional distribution channels.

Consolidation within

the industry could also influence future growth and profit potential.

Innovation and emerging technologies continue

to greatly impact the insurance industry.

If we are unable to keep pace with the technological changes that our competitors implement,

we may not be able to attract and retain customers, adequately price risks, or operate as efficiently as our competitors.

emerging technologies in the automotive industry such as autonomous vehicles, driver-assistance and accident-avoidance features, sensor

technology, and other forms of automation may reduce the future need for, or decrease the future pricing of, our auto insurance products.

Our success depends primarily on our ability

to underwrite risks effectively and price our insurance products appropriately.

The nature of the insurance business is such

that pricing must be determined before the underlying costs are fully known.

This requires significant reliance on estimates and assumptions

used in pricing our policies.

If we fail to appropriately price the risks we insure or if our claims experience is more frequent or severe

than our underlying risk assumptions, our profitability may be negatively affected.

If we overestimate the risks we are exposed to, we

may overprice our products, and new business growth and retention of existing business may be adversely affected.

The ability to effectively

underwrite risks and price products appropriately is subject to a number of uncertainties, including:

● availability of sufficient reliable data and our ability to properly analyze available data;

● market and competitive conditions;

● regulatory or legislative changes;

● selection and application of appropriate pricing techniques;

and  

adverse changes in claims experience, such as distracted driving or a more aggressive tort environment.  

Under the federal crop insurance program, each insurer is required to accept every application for multi-peril crop insurance that they receive, and the premiums and the policy terms are set by the RMA, which is the federal government agency administering the federal crop insurance program.

Accordingly, no policy underwriting is necessary in connection with our multi-peril crop insurance line of business.

Unlike the multi-peril crop business, we have the ability to underwrite and price crop hail insurance.

● adverse changes in claims experience, such as distracted driving or a more aggressive tort environment.

Under the federal crop insurance program, each

insurer is required to accept every application for multi-peril crop insurance that they receive, and the premiums and the policy terms

are set by the RMA, which is the federal government agency administering the federal crop insurance program.

Accordingly, no policy underwriting

is necessary in connection with our multi-peril crop insurance line of business.

Unlike the multi-peril crop business, we have the ability

to underwrite and price crop hail insurance.

We rely on AFBIS to underwrite our crop hail insurance line of business.

If we believe the policy will expose us to too much risk in a particular geographic area or if we are unwilling to insure the crop, we have the ability to decline to issue the policy.

Our ability to manage our exposure to underwriting risks depends on the availability and cost of reinsurance coverage.

We use reinsurance arrangements to limit and manage the amount of risk we retain, to stabilize underwriting results, and to increase underwriting capacity.

The availability and cost of reinsurance are subject to current market conditions and may vary significantly over time.

Any decrease in the amount of reinsurance maintained will increase our risk of loss.

We may be unable to maintain our desired reinsurance coverage or to obtain other reinsurance coverage in adequate amounts and/or favorable rates.

If we are unable to maintain appropriate reinsurance coverage, it may be difficult for us to manage our underwriting risks and operate our business profitably.

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

If we cannot collect loss recoveries from our reinsurers in accordance with our reinsurance agreements, we may incur additional losses.

Although reinsurance creates a contractual liability for reinsurers to the extent the risk is transferred, it does not eliminate our liability to policyholders because we remain liable as the direct insurer on all reinsured risks.

Our reinsurance program strategically spreads exposure among a group of highly-rated, geographically diverse, and well-capitalized reinsurers.

All of our significant reinsurance partners are rated “A-”

(Excellent) or better by AM Best.

If we believe the

policy will expose us to too much risk in a particular geographic area or if we are unwilling to insure the crop, we have the ability

to decline to issue the policy.

Our ability to manage our exposure to underwriting

risks depends on the availability and cost of reinsurance coverage.

We use reinsurance arrangements to manage the

amount of risk we retain, stabilize underwriting results, and increase underwriting capacity.

The availability and cost of reinsurance

are subject to current market conditions and may vary significantly over time.

Any decrease in the amount of reinsurance maintained will

increase our risk of loss.

We may be unable to maintain our desired reinsurance coverage or to obtain other reinsurance coverage in adequate

amounts and/or favorable rates.

If we are unable to maintain appropriate reinsurance coverage, it may be difficult for us to manage our

underwriting risks and operate our business profitably.

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

If we cannot collect loss recoveries from

our reinsurers in accordance with our reinsurance agreements, we may incur additional losses.

Although reinsurance creates a contractual liability

for reinsurers to the extent the risk is transferred, it does not eliminate our liability to policyholders because we remain liable as

the primary insurer on all reinsured risks.

Our reinsurance program strategically spreads exposure among a group of highly-rated, geographically

diverse, and well-capitalized reinsurers.

All of our significant reinsurance partners are rated “A-” (Excellent) or better

However, we remain subject to credit risk relating to our ability to collect these recoverables.

Our reinsurance recoveries are also subject to the underlying losses meeting the qualifying conditions and specified limits within the respective contracts.

Additionally, we are subject to the risk that reinsurers may dispute their obligations to pay our claims.

Our inability to collect a material recovery from a reinsurer on a timely basis, or at all, could have material adverse effect on our liquidity, operating results, and financial condition.

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

Our reinsurance recoveries

are also subject to the underlying losses meeting the qualifying conditions and specified limits within the respective contracts.

Additionally,

we are subject to the risk that reinsurers may dispute their obligations to pay our claims.

Our inability to collect a material recovery

from a reinsurer on a timely basis, or at all, could have a material adverse effect on our liquidity, operating results, and financial

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

Business and Operational Risks

The impact of COVID-19 or a future pandemic, and related economic conditions, could materially affect our results of operations, financial position, and/or liquidity.

We face risks associated with pandemics, including the impact of reduced economic activity and unemployment, government actions, and capital markets disruption.

These risks are unpredictable and difficult to quantify, and could vary significantly depending on the extent and duration of the pandemic and related economic conditions, along with potentially impacting each of our business segments and geographic markets differently.

Any future federal, state, and local government actions to address the impact of a pandemic may adversely affect us.

Regulatory restrictions or requirements could impact pricing, risk selection, and our rights and obligations with respect to our policies and insureds, including our ability to cancel policies or our right to collect premiums.

It is also possible that changes in economic conditions and steps taken by federal, state, and local governments could require an increase in taxes at the federal, state, and local levels, which would adversely impact our results of operations.

Additionally, potential capital markets disruption could lead to our fixed income portfolio being adversely impacted by ratings downgrades, increased bankruptcies, declines in real estate valuations, and/or declines in fixed income yields, along with increased volatility in our equity portfolio.

Competition for potential acquisitions from other property and casualty insurers could increase the price that we will be required to pay in connection with future acquisitions.

Over-capacity in the property and casualty market has led other market participants to seek acquisitions in order to generate revenue growth.

These market conditions may cause significant competition for acquisitions and increase the price for acquisitions.

This competitive market could impede execution of our external growth strategy.

We may not be able to grow our business if we cannot retain and expand our captive and independent agent relationships, provide competitive products for these agents to sell, and/or if consumers seek other distribution methods offered by our competitors.

Our ability to retain existing agents, and to attract new agents, is essential to the continued growth of our business.

Nodak Insurance utilizes captive agents who only sell our Company’s products.

The impact of a future pandemic, and related economic conditions, could

materially affect our results of operations, financial position, and/or liquidity.

We face risks associated with pandemics, including the impact

of reduced economic activity and unemployment, government actions, and capital markets disruption.

These risks are unpredictable and difficult

to quantify, and could vary significantly depending on the extent and duration of the pandemic and related economic conditions, along

with potentially impacting each of our business segments and geographic markets differently.

Any future federal, state, and local government actions to address

the impact of a pandemic may adversely affect us.

Regulatory restrictions or requirements could impact pricing, risk selection, and our

rights and obligations with respect to our policies and insureds, including our ability to cancel policies or our right to collect premiums.

It is also possible that changes in economic conditions and steps taken by federal, state, and local governments could require an increase

in taxes at the federal, state, and local levels, which would adversely impact our results of operations.

Additionally, potential capital

markets disruption could lead to our fixed income portfolio being adversely impacted by ratings downgrades, increased bankruptcies, declines

in real estate valuations, and/or declines in fixed income yields, along with increased volatility in our equity portfolio.

We may not be able to grow our business if

we cannot retain and expand our captive and independent agent relationships, we cannot provide competitive products for these agents to

sell, and/or consumers seek other distribution methods offered by our competitors.

Our ability to retain existing agents, and to

attract new agents, is essential to the continued growth of our business.

Nodak Insurance utilizes captive agents who only sell our Company’s

Outside of North Dakota, we write business through the independent agent distribution model.

If we are not able to offer competitive products and a competitive compensation structure to our captive agents and/or if our independent agents find it easier to do business with our competitors, we may be unable to retain existing business or generate sufficient new business.

While our products are sold through either independent or captive agents, our competitors may sell insurance through other distribution models, including the internet, direct marketing, or other emerging forms of distribution.

To the extent that current and potential policyholders change their insurance shopping preferences, this may have an adverse effect on our ability to grow, our financial position, and our results of operations.

Future acquisitions could disrupt our business and harm our financial condition or results of operations.

As part of our growth strategy, we will continue to evaluate opportunities to acquire other property and casualty insurers.

Any potential future acquisitions involve a number of risks that could materially adversely affect our business and operating results, including:

problems integrating the acquired operations into our existing business;  

operating and underwriting results of the acquired operations not meeting our expectations;  

diversion of management’s time and attention from our existing business;  

higher than anticipated capital requirements;  

difficulties in retaining business relationships with agents and policyholders of the acquired company;  

risks associated with entering markets in which we lack extensive prior experience;  

tax issues associated with acquisitions;  

acquisition-related disputes, including disputes over contingent consideration and escrows;  

If we are not able to offer competitive

products and a competitive compensation structure to our captive agents and/or if our independent agents find it easier to do business

with our competitors, we may be unable to retain existing business or generate sufficient new business.

While our products are sold through either independent

or captive agents, our competitors may sell insurance through other distribution models, including the internet, direct marketing, or

other emerging forms of distribution.

To the extent that current and

potential policyholders change their insurance shopping preferences,

this may have an adverse effect on our ability to grow, financial position, and results of operations.

Future acquisitions could disrupt our business

and harm our financial condition or results of operations.

As part of our growth strategy, we will continue

to evaluate acquisition opportunities.

Any potential future acquisitions involve a number of risks that could materially adversely affect

our business and operating results, including:

● problems integrating the acquired operations into our existing business;

● operating and underwriting results of the acquired operations not meeting our expectations;

● diversion of management’s time and attention from our existing business;

● higher than anticipated capital requirements;

● difficulties in retaining business relationships with agents and policyholders of the acquired company;

● risks associated with entering markets in which we lack extensive prior experience;

● tax issues associated with acquisitions;

● acquisition-related disputes, including disputes over contingent consideration and escrows;

● potential loss of key employees of the acquired company;

and  

potential impairment of related goodwill and intangible assets.  

We could be adversely affected by the loss of our existing management and/or other key employees.

The success of our business is dependent, to a large extent, on our ability to attract and retain key employees, in particular our senior officers and key management of our insurance subsidiaries.

Our business may be adversely affected if labor market conditions make it difficult for us to retain or, if needed, replace our current key officers with individuals having equivalent qualifications and experience at compensation levels competitive for our industry.

There is significant competition from within the property and casualty insurance industry and from businesses outside the industry for those in key management positions, as well as others possessing highly specialized knowledge in areas such as actuarial, accounting, information technology, and data and analytics.

If we are not able to successfully attract, retain, and motivate our employees, our business, financial results, and reputation could be materially and adversely affected.

While we believe we offer competitive compensation arrangements with our key employees, there can be no guarantee that we will be able to retain our key employees.

In addition, our employment and other agreements with our key officers do not include covenants not to compete or non-solicitation provisions because they are unenforceable under North Dakota law.

A failure in our operational systems or infrastructure, or those of our third-party service providers, including operational errors, could disrupt business, damage our reputation, and cause losses.

Our operations rely on the secure processing, storage, and transmission of confidential information, including in our computer systems and networks and those of third-party service providers.

We rely heavily on our operating systems in connection with issuing policies, paying claims, and providing the information we need to conduct our business.

We also rely on the operating systems of AFBIS in connection with various processes with respect to our crop lines of business.

Our business depends on effective information security and systems, and we place significant reliance on the integrity and timeliness of the data our information systems process to run our business.

A breakdown or disruption of any of these systems could materially adversely affect our ability to conduct our business and our results of operations.

We are exposed to many other types of operational risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors, and computer or telecommunications systems malfunctions.

● potential impairment of related goodwill and intangible assets.

We may be unable to attract, retain or effectively

manage the succession of key personnel.

The success of our business is dependent, to a

large extent, on our ability to attract and retain key employees, in particular our senior officers and key management of our insurance

subsidiaries.

Our business may be adversely affected if labor market conditions make it difficult for us to retain or, if needed, replace

our current key officers with individuals having equivalent qualifications and experience at compensation levels competitive for our industry.

While we believe we offer competitive compensation and benefit arrangements, there can be no guarantee that we will be able to retain

our key employees.

There is significant competition from within the property and casualty insurance industry and from businesses outside

the industry for those in key management positions, as well as others possessing highly specialized knowledge in areas such as actuarial,

accounting, information technology, and data and analytics.

In addition, our employment and other agreements with our key officers do

not include non-compete covenants or non-solicitation provisions because they are unenforceable under North Dakota law.

If we are not

able to successfully attract, retain, and motivate our employees, our business, financial results, and reputation could be materially

and adversely affected.

A failure in our operational systems or infrastructure,

or those of our third-party service providers, including operational errors, could disrupt business, damage our reputation, and cause

Our operations rely on the secure processing,

storage, and transmission of confidential information, including in our computer systems and networks and those of third-party service

We rely heavily on our operating systems in connection with issuing policies, paying claims, and providing the information

we need to conduct our business.

We also rely on the operating systems of AFBIS in connection with various processes with respect to our

crop lines of business.

Our business depends on effective information security and systems, and we place significant reliance on the integrity

and timeliness of the data our information systems process to support our business.

A breakdown or disruption of any of these systems

could materially adversely affect our ability to conduct our business and our results of operations.

We are exposed to many other types of operational

risk, including the risk of fraud by employees and outsiders, clerical and recordkeeping errors, and computer or telecommunications systems

malfunctions.

Our business depends on our ability to process a large number of increasingly complex transactions.

If any of our operational, accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected.

Similarly, we depend on our employees.

We could be materially adversely affected if one or more of our employees cause a significant operational breakdown or failure, either as a result of human error or intentional sabotage or fraudulent manipulation of our operations or systems.

Cyberattacks, security breaches, or similar events affecting the technologies and systems we rely on to operate our business and to maintain and protect sensitive Company and customer data could disrupt our operations, harm our reputation, and result in material losses.

We have implemented administrative and technical controls, have taken actions to reduce the risk of cyber incidents and to protect our information technology and assets, and will continue to modify such procedures as circumstances warrant and negotiate appropriate terms in our agreements with third-party providers to protect our assets.

However, such measures may be insufficient to prevent unauthorized access, computer viruses, malware or other malicious code or cyber-attack, business compromise attacks, catastrophic events, system failures and disruptions, employee errors or malfeasance, third party (including outsourced service providers) errors or malfeasance, loss of assets, and other events that could have security consequences.

Such an event may result in data loss or loss of assets which could result in significant losses, reputational damage, or other adverse effects on our operations.

In addition, our technologies, systems, and networks may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our insureds’

confidential, proprietary and other information, or otherwise disrupt our or our insureds’

or other third parties’

business operations, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, and the loss of customers.

Although to date we are not aware of any information security breaches or losses relating to cyber-attacks, there can be no assurance that we will not suffer such losses in the future.

Our risk and exposure to these matters remains heightened because of, among other things, the evolving nature and increasing frequency and sophistication of these threats and the outsourcing of some of our business operations.

As a result, cyber-security and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access remain a priority.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

The compromise of personal, confidential, or proprietary information could also subject us to legal liability or regulatory action, including fines, penalties, or intervention, under evolving cyber-security, data protection, and privacy laws and regulations enacted by the U.S.

If any of our operational,

accounting, or other data processing systems fail or have other significant shortcomings, we could be materially adversely affected.

we depend on our employees.

We could be materially adversely affected if one or more of our employees cause a significant operational

breakdown or failure, either as a result of human error or intentional sabotage or fraudulent manipulation of our operations or systems.

Cyberattacks, security breaches, or similar

events affecting the technologies and systems we rely on to operate our business and to maintain and protect sensitive Company and customer

data could disrupt our operations, harm our reputation, and result in material losses.

We have implemented administrative and technical

controls, have taken actions to reduce the risk of cyber incidents and to protect our information technology and assets, and will continue

to modify such procedures as circumstances warrant and negotiate appropriate terms in our agreements with third-party providers to protect

However, such measures may be insufficient to prevent unauthorized access, computer viruses, malware or other malicious code

or cyberattack, business compromise attacks, catastrophic events, system failures and disruptions, employee errors or malfeasance, third-party

(including outsourced service providers) errors or malfeasance, loss of assets, and other events that could have security consequences.

Such an event may result in data loss or loss of assets which could result in significant losses, reputational damage, or other adverse

effects on our operations.

In addition, our technologies, systems, and networks

may become the target of cyberattacks or information security breaches that could result in the unauthorized release, gathering, monitoring,

misuse, loss or destruction of our or our insureds’ confidential, proprietary and other information, or otherwise disrupt our or

our insureds’ or other third-parties’ business operations, which in turn may result in legal claims, regulatory scrutiny and

liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, and the loss of customers.

to date we are not aware of any information security breaches or losses relating to cyberattacks, there can be no assurance that we will

not suffer such losses in the future.

Our risk and exposure to these matters remains heightened because of, among other things, the evolving

nature and increasing frequency and sophistication of these threats and the outsourcing of some of our business operations.

cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems,

computers, software, data, and networks from attack, damage, or unauthorized access remain a priority.

As cyber threats continue to evolve,

we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate

and remediate any information security vulnerabilities.

The compromise of personal, confidential, or proprietary

information could also subject us to legal liability or regulatory action, including fines, penalties, or intervention, under evolving

cybersecurity, data protection, and privacy laws and regulations enacted by the U.S.

federal and state governments.

Such laws and regulations have become increasingly widespread and demanding in recent years and may result in increased compliance costs and risk of regulatory actions or penalties.

Such laws and regulations

have become increasingly widespread and demanding in recent years and may result in increased compliance costs and risk of regulatory

actions or penalties.

If incurred, such regulatory actions or penalties could harm our reputation.

Any such events could have an adverse impact on our business, financial condition or results of operations.

Any such events could have an adverse

impact on our business, financial condition or results of operations.

Regulatory Risks

A portion of our written premiums and net profits are generated from multi-peril crop insurance business, and the loss of such business as a result of a termination of or substantial changes to the Federal crop insurance program could have an adverse effect on our revenues and net income.

In 2021, 2020 and 2019, our direct premiums written generated from the multi-peril crop insurance line of business were 12.0%, 11.5%, and 13.3%, respectively, of total written premiums.

Through the FCIC, the United States government subsidizes insurance companies by assuming an increasingly higher portion of losses incurred by farmers as a result of weather-related and other perils as well as commodity price fluctuations.

The United States government also subsidizes the premium cost to farmers for multi-peril crop yield and revenue insurance.

Without this risk assumption, losses incurred by insurance companies would be higher.

A portion of our written premiums and net

profits are generated from multi-peril crop insurance business, and the loss of such business as a result of a termination of or substantial

changes to the federal crop insurance program could have an adverse effect on our revenues and net income.

In 2022, 2021, and 2020, our direct premiums written

generated from the multi-peril crop insurance line of business were 12.8%, 12.0%, and 11.5%, respectively, of total written premiums.

Through the FCIC, the U.S.

government subsidizes insurance companies by assuming an increasingly higher portion of losses incurred by

farmers as a result of weather-related and other perils as well as commodity price fluctuations.

government also subsidizes the

premium cost to farmers for multi-peril crop yield and revenue insurance.

Without this risk assumption, losses incurred by insurance companies

would be higher.

Without the premium subsidy, the number of farmers purchasing multi-peril crop insurance would decline significantly.

Periodically, members of the United States Congress propose to significantly reduce the government’s involvement in the federal crop insurance program in an effort to reduce government spending.

If legislation is adopted to reduce the amount of risk the government assumes, the amount of insurance premium subsidy provided to farmers or otherwise reduce the coverage provided under multi-peril crop insurance policies, losses would increase and purchases of multi-peril crop insurance could experience a significant decline nationwide and in our market area.

Periodically, members of the U.S.

Congress propose to significantly reduce the government’s involvement in the federal crop insurance

program in an effort to reduce government spending.

If legislation is adopted to reduce the amount of risk the government assumes, the

amount of insurance premium subsidy provided to farmers or otherwise reduce the coverage provided under multi-peril crop insurance policies,

losses would increase and purchases of multi-peril crop insurance could experience a significant decline nationwide and in our market

Such changes could have an adverse effect on our revenues and income.

Assessments and premium surcharges for state guaranty funds and other mandatory pooling arrangements may reduce our profitability.

Most states require insurance companies authorized to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded obligations of impaired, insolvent, or failed insurance companies.

These obligations are funded by assessments, which are expected to continue in the future.

State guaranty associations levy assessments, up to prescribed limits, on all insurance companies doing business in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent, or failed insurance companies are engaged.

Accordingly, the assessments levied on us may increase as we increase our written premiums.

For additional information, see Part I, Item 1, “Business”

and “Regulation.”

In addition, as a condition to conducting business in some states, insurance companies are required to participate in residual market programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis.

Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by the participating insurance companies.

Although we price our insurance to account for our potential obligations under these pooling arrangements, we may not be able to accurately estimate our liability for these obligations.

Accordingly, mandatory pooling arrangements may cause a decrease in our profits.

As we write policies in new states that have mandatory pooling arrangements, we will be required to participate in additional pooling arrangements.

Further, the impairment, insolvency, or failure of other insurance companies in these pooling arrangements would likely increase the liability for other members in the pool.

The effect of assessments and premium surcharges or increases in such assessments or surcharges could reduce our profitability in any given period or limit our ability to grow our business.

We are subject to insurance industry laws and regulations, as well as claims and legal proceedings, which if determined unfavorably, could have a material adverse effect on our profitability.

We are subject to extensive supervision and regulation by the states in which we operate.

The failure to comply with these regulations could subject the Company to sanctions and fines, including the cancellation or suspension of our licenses, which could significantly impact our financial condition and results of operations.

State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues, and other matters.

In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations.

Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect our ability to operate our business.

Federal laws and regulations, and the influence of international laws and regulations, may have adverse effects on our business, potentially including a change from a state-based system of regulation to a system of federal regulation, the repeal of the McCarran Ferguson Act, and/or measures under the Dodd-Frank Act that establish the Federal Insurance Office and provide for a determination that a non-bank financial company presents systemic risk and therefore should be subject to heightened supervision by the Federal Reserve Board.

Our businesses are heavily regulated by the

jurisdictions in which we conduct business and changes in regulation, including required participation in pools, premium surcharges, and

higher tax rates, may reduce our profitability and limit our growth.

Most states require insurance companies authorized

to do business in their state to participate in guaranty funds, which require the insurance companies to bear a portion of the unfunded

obligations of impaired, insolvent, or failed insurance companies.

These obligations are funded by assessments, which are expected to

continue in the future.

State guaranty associations levy assessments, up to prescribed limits, on all insurance companies doing business

in the state based on their proportionate share of premiums written in the lines of business in which the impaired, insolvent, or failed

insurance companies are engaged.

Accordingly, the assessments

levied on us may increase as we increase our written premiums.

For additional

information, see Part I, Item 1, “Business” and “Regulation.”

In addition, as a condition to conducting business

in some states, insurance companies are required to participate in residual market programs to provide insurance to those who cannot procure

coverage from an insurance carrier on a negotiated basis.

Insurance companies generally can fulfill their residual market obligations

by, among other things, participating in a reinsurance pool where the results of all policies provided through the pool are shared by

the participating insurance companies.

Although we price our insurance to account for our potential obligations under these pooling arrangements,

we may not be able to accurately estimate our liability for these obligations.

Accordingly, mandatory pooling arrangements may cause a

decrease in our profits.

As we write policies in new states that have mandatory pooling arrangements, we will be required to participate

in additional pooling arrangements.

Further, the impairment, insolvency, or failure of other insurance companies in these pooling arrangements

would likely increase the liability for other members in the pool.

The effect of assessments and premium surcharges

or increases in such assessments or surcharges could reduce our profitability in any given period or limit our ability to grow our business.

In addition, state tax laws that specifically impact the insurance industry, such as premium taxes, or more general tax laws, such as

federal corporate income taxes, could be enacted or changed and could have a material adverse impact on us.

We are subject to insurance industry laws

and regulations, as well as claims and legal proceedings, which if determined unfavorably, could have a material adverse effect on our

profitability.

We are subject to extensive supervision and regulation

by the states in which we operate.

The failure to comply with these regulations could subject the Company to sanctions and fines, including

the cancellation or suspension of our licenses, which could significantly impact our financial condition and results of operations.

insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other

reports relating to financial condition, holding company issues, and other matters.

Additionally, changes in the level of regulation

of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could adversely affect

our ability to operate our business.

Federal laws and regulations, and the influence of international laws and regulations, may have adverse

effects on our business, potentially including a change from a state-based system of regulation to a system of federal regulation, the

repeal of the McCarran Ferguson Act, and/or measures under the Dodd-Frank Act that establish the Federal Insurance Office and provide

for a determination that a non-bank financial company presents systemic risk and therefore should be subject to heightened supervision

by the Federal Reserve Board.

It is not known how this federal office will coordinate and interact with the NAIC and state insurance regulators.

Adoption or implementation of any of these measures may restrict our ability to conduct our insurance business, govern our corporate affairs, or effectively manage our cost of doing business.

We also face a risk of litigation in the ordinary course of operating our businesses including the risk of class action lawsuits.

We may become subject to class actions and individual suits alleging breach of fiduciary or other duties, including our obligations to indemnify directors and officers in connection with certain legal matters.

We are also subject to litigation arising out of our general business activities such as contractual and employment relationships and claims regarding the infringement of the intellectual property of others.

Plaintiffs in class action and other lawsuits against us may seek large or indeterminate amounts of damages, including punitive and treble damages, which may remain unknown for substantial periods of time.

Adoption or implementation of any of these measures may restrict our ability to conduct our insurance business, govern our corporate affairs,

or effectively manage our cost of doing business.

We also face a risk of litigation in the ordinary

course of operating our businesses including the risk of class action lawsuits.

We may become subject to class actions and individual

suits alleging breach of fiduciary or other duties, including our obligations to indemnify directors and officers in connection with

certain legal matters.

We are also subject to litigation arising out of our general business activities such as contractual and employment

relationships and claims regarding the infringement of the intellectual property of others.

Plaintiffs in class action and other lawsuits

against us may seek large or indeterminate amounts of damages, including punitive and treble damages, which may remain unknown for substantial

periods of time.

Risks Related to Our Common Stock

Additional expenses from new stock-based benefit plans may adversely affect our profitability.

During 2020, our shareholders approved the adoption of our 2020 Stock and Incentive Plan (the “Plan”).

Under the Plan, we may award participants restricted shares of our common stock, options to purchase shares of our common stock, or other forms of awards.

Restricted stock awards will be made at no cost to the participants.

The maximum number of shares of common stock that may be issued is set forth in the Plan.

In addition, as part of our initial public offering in 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.

In addition, any additional compensation expense resulting from the ESOP and the Plan may adversely affect our profitability.

We cannot determine the actual future amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future;

however, we expect them to be material.

We will recognize expenses for our ESOP when shares are committed to be released to participants’

accounts and will recognize expenses for restricted stock awards and stock options over the vesting period of awards made to recipients.

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

and Note 19 “Stock-Based Compensation”

for the actual amount of expenses to date.

Nodak Mutual Group’s majority control of our common stock will enable it to exercise voting control over most matters put to a vote of shareholders.

Nodak Mutual Group owns a majority of our outstanding common stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of shareholders.

Nodak Mutual Group’s majority control

of our common stock will enable it to exercise voting control over most matters put to a vote of shareholders.

Nodak Mutual Group owns a majority of our outstanding

common stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of shareholders.

The votes cast by Nodak Mutual Group may not be in the best interests of all shareholders.

For example, Nodak Mutual Group may exercise its voting control to defeat a shareholder nominee for election to the Board of Directors of NI Holdings.

Moreover, Nodak Mutual Group’s ability to elect the Board of Directors of NI Holdings restricts the ability of the minority shareholders of NI Holdings to effect a change of control of management or engage in certain transactions.

For example, some shareholders may desire a sale or merger transaction, since shareholders typically receive a premium for their shares, or a second-step conversion transaction, since fully converted institutions tend to trade at higher multiples than mutual holding companies.

In addition, certain provisions of our Articles of Incorporation, such as the existence of a classified Board of Directors, the prohibition of cumulative voting for the election of directors, and the prohibition on any person or group acquiring and having the right to vote in excess of 10% of our outstanding stock without the prior approval of the Board of Directors will make removal of the Company’s management difficult.

Our status as an insurance holding company with no direct operations could adversely affect our ability to fund operations, execute future share repurchases, or meet potential future shareholder dividend and/or debt obligations.

We are an insurance holding company.

A significant source of funds available to us for the payment of operating expenses, share repurchases, and potential future dividends to shareholders and/or debt servicing are net proceeds from our initial public offering retained at the holding company, management fees, and dividends from our subsidiaries.

The payment of dividends by Nodak Insurance, Direct Auto, and Westminster to NI Holdings will be restricted by North Dakota’s insurance law.

If we are unable to obtain dividends from our subsidiaries as needed to fund our operations, our business and financial results could be adversely affected.

Statutory provisions and provisions of our Articles of Incorporation and Bylaws may discourage takeover attempts of NI Holdings that shareholders may believe are in their best interests.

We are subject to provisions of North Dakota corporate and insurance law that hinder a change of control.

North Dakota law requires the North Dakota Insurance Department’s prior approval of a change of control of an insurance holding company.

Under North Dakota law, the acquisition of 10% or more of the outstanding voting stock of an insurer or its holding company is presumed to be a change in control.

Approval by the North Dakota Insurance Department may be withheld even if the transaction would be in the shareholders’

best interest if the North Dakota Insurance Department determines that the transaction would be detrimental to policyholders.

Our Articles of Incorporation and Bylaws also contain provisions that may discourage a change in control.

These provisions may serve to entrench management and may discourage a takeover attempt that shareholders may consider to be in their best interest or in which they would receive a substantial premium over the current market price.

These provisions may make it extremely difficult for any one person, entity, or group of affiliated persons or entities to acquire voting control of NI Holdings, with the result that it may be extremely difficult to bring about a change in the Board of Directors or management.

Some of these provisions also may perpetuate present management because of the additional time required to cause a change in the control of the Board of Directors.

Other provisions make it difficult for shareholders owning less than a majority of the voting stock to be able to elect even a single director.

Beginning December 31, 2022, we will face expanded public company reporting requirements as a result of losing EGC status.

We will no longer qualify as an EGC as defined by the JOBS Act as of December 31, 2022.

Effective with the 2022 Annual Report on Form 10-K to be filed in 2023, we will no longer have the ability to take advantage of exemptions from various public company reporting requirements, including (i) exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“SOX”), (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements, and (iii) exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In this Annual Report on Form 10-K, we have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements and executive compensation.

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

We have chosen to “opt in”

to such extended transition period election under Section 107(b).

Therefore, we have elected to delay adoption of certain new or revised accounting standards, and as a result, could choose to not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-EGC companies.

As a result of such election, our financial statements may not be comparable to the financial statements of other public companies.

However, beginning December 31, 2022, we will no longer have the ability to delay adoption of these new or revised accounting standards.

See Part II, Note 8, Note 4 “Recent Accounting Pronouncements”

for more information regarding new or revised accounting standards.

Our adoption of Section 404(b) of SOX will require our external auditor to attest to, and report on, our management’s assessment of internal controls.

A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met.

If our controls are not designed appropriately or operating effectively, it could lead to financial loss, unanticipated risk exposure (including underwriting, credit, and investment risk), errors in financial reporting, litigation, regulatory proceedings, or damage to our reputation.

For example, Nodak Mutual Group may exercise

its voting control to defeat a shareholder nominee for election to the Board of Directors of NI Holdings.

In addition, certain provisions of our Articles

of Incorporation, such as the existence of a classified Board of Directors, the prohibition of cumulative voting for the election of directors,

and the prohibition on any person or group acquiring and having the right to vote in excess of 10% of our outstanding stock without the

prior approval of the Board of Directors will make removal of the Company’s management difficult.

Our status as an insurance holding company

with no direct operations could adversely affect our ability to fund operations, execute future share repurchases, or meet potential future

shareholder dividend and/or debt obligations.

NI Holdings is an insurance holding company that

transacts substantially all of its business through its subsidiaries.

A significant source of funds available to us for the payment of

operating expenses, share repurchases, and potential future dividends to shareholders and/or debt servicing are remaining net proceeds

from our IPO retained at the holding company, management fees, and dividends from our subsidiaries.

The payment of dividends by our subsidiaries

are restricted by North Dakota’s insurance law.

If we are unable to obtain dividends from our subsidiaries as needed to fund our

operations, our business and financial results could be adversely affected.

Statutory provisions and provisions of our

Articles of Incorporation and Bylaws may discourage takeover attempts of NI Holdings that shareholders may believe are in their best interests.

We are subject to provisions of North Dakota corporate

and insurance law that hinder a change of control.

North Dakota law requires the North Dakota Insurance Department’s prior approval

of a change of control of an insurance holding company.

Under North Dakota law, the acquisition of 10% or more of the outstanding voting

stock of an insurer or its holding company is presumed to be a change in control.

Approval by the North Dakota Insurance Department may

be withheld even if the transaction would be in the shareholders’ best interest if the North Dakota Insurance Department determines

that the transaction would be detrimental to policyholders.

Our Articles of Incorporation and Bylaws also

contain provisions that may discourage a change in control.

These provisions may serve to entrench management and may discourage a takeover

attempt that shareholders may consider to be in their best interest or in which they would receive a substantial premium over the current

market price.

These provisions may make it extremely difficult for any one person, entity, or group of affiliated persons or entities

to acquire voting control of NI Holdings, with the result that it may be extremely difficult to bring about a change in the Board of

Directors or management.

Some of these provisions also may perpetuate present management because of the additional time required to cause

a change in the control of the Board of Directors.

Other provisions make it difficult for shareholders owning less than a majority of

the voting stock to be able to elect even a single director.

General Risks

Our investment portfolio is subject to credit and interest rate risk, and therefore our revenues and financial results may fluctuate with interest rates, investment results, equity market fluctuations, and developments in the capital markets.

The Company relies on the investment income produced by its investment portfolio to contribute to its profitability.

Changes in interest rates and credit quality may result in fluctuations in the income derived from, the valuation of, and in the case of declines in credit quality, payment defaults on our fixed income securities.

Such conditions could give rise to significant realized and unrealized investment losses or the impairment of securities whose decreases in value are deemed other-than-temporary.

We also invest a portion of our assets in equity securities, which are subject to greater volatility in their investment returns than fixed maturity investments.

Unlike fixed income securities, the changes in the fair value of our equity securities are recognized in net income.

General economic conditions and stock market volatility, changes in applicable tax laws, and many other factors beyond our control can adversely affect the value of our non-fixed maturity investments and the realization of net investment income, changes to the unrealized gains or losses, and/or result in realized investment losses.

As a result of these factors, we may realize reduced returns on these investments, incur losses on sales of these investments, and be required to write down the value of these investments, which could reduce our net investment income and result in realized investment losses.

In addition, the changes to the fair value of equity securities that are recognized in net income will result in greater volatility to net income than investments in fixed income securities.

Any significant or long-running negative changes in the fixed income or equity markets could have a material adverse effect on our financial condition, results of operations, or cash flows.

The Company’s investment portfolio is also subject to credit and cash flow risk, including risks associated with its investments in asset-backed and mortgage-backed securities.

Because the Company’s investment portfolio is the largest component of its assets and a multiple of its shareholders’

equity, adverse changes in economic conditions could result in other-than-temporary impairments that are material to our financial condition and operating results.

Such economic changes could arise from overall changes in the financial markets or specific changes to industries, companies, or municipalities in which we maintain investment holdings.

See Part II, Item 7, “Quantitative and Qualitative Disclosures About Market Risk.”

Our investment portfolio is subject to credit

and interest rate risk, and therefore our revenues and financial results may fluctuate with interest rates, investment results, equity

market fluctuations, and developments in the capital markets.

Investment income is an important component of

our net income and overall profitability.

We invest premiums received from policyholders and other available cash to generate investment

income and capital appreciation, while also maintaining sufficient liquidity to pay claims and operating expenses.

Changes in interest

rates and credit quality may result in fluctuations in the income derived from, the valuation of, and in the case of declines in credit

quality, payment defaults on our fixed income securities.

Such conditions could give rise to significant realized and unrealized investment

losses or the impairment of securities.

Potential higher interest rates could reduce the carrying value of our fixed maturity and short-term

investments, negatively impacting the Company’s carrying value in the short-term.

Over the long-term, however, higher interest rates

would provide an incremental benefit to our net investment income as excess cash and the proceeds of maturing bonds are reinvested at

higher rates.

We manage our exposure to interest rate increases by monitoring the duration within our investment portfolio and maintaining

maturities that minimize any forced sales within the portfolio.

However, even with such monitoring efforts, we may be forced to sell securities

at a loss, which would adversely affect our results of operations.

We also invest a portion of our assets in equity

securities, which are subject to greater volatility in their investment returns than fixed maturity investments.

Unlike fixed income securities,

the changes in the fair value of our equity securities are recognized in net income.

General economic conditions, stock market volatility,

changes in tax laws, and many other factors beyond our control can adversely affect the value of these securities and potentially reduce

our net investment income and/or lead to net investment losses.

Any significant or long-running negative changes

in the fixed income or equity markets could have a material adverse effect on our financial condition, results of operations, or cash

The Company’s investment portfolio is also subject to credit and cash flow risk, including risks associated with its investments

in asset-backed and mortgage-backed securities.

Because the Company’s investment portfolio is the largest component of its assets

and a multiple of its shareholders’ equity, adverse changes in economic conditions could result in impairments that are material

to our financial condition and operating results.

Such economic changes could arise from overall changes in the financial markets or specific

changes to industries, companies, or municipalities in which we maintain investment holdings.

See Part II, Item 7A, “Quantitative

and Qualitative Disclosures About Market Risk.”

We may not be able to manage our growth effectively.

We intend to grow our business in the future, which could require additional capital, systems development, and skilled personnel.

However, there are inherent risks associated with this strategy, including the risks of unsuccessfully identifying profitable business opportunities, managing capital requirements, expanding systems and internal controls, maintaining innovative products and technologies, allocating human capital resources, identifying qualified employees and/or agents, and integrating future acquisitions.

The failure to manage our growth effectively could have a material adverse effect on our business, financial condition, and results of operations.

We could be adversely affected by a future unexpected business interruption involving our office buildings, operational systems and infrastructure, key external vendors, and/or workforce.

Our business operations could be substantially interrupted by flooding, snow, ice, wind, and other weather-related incidents, or from fire, pandemics, power loss, telecommunications failures, terrorism, or other such events.

Despite successfully operating in a remote environment during the COVID-19 pandemic, our business continuity plans may not sufficiently remediate all risks associated with another future significant business interruption.

Any damage caused by such a failure or loss may cause interruptions in our business operations that may adversely affect our service levels and business.

We intend to continue to grow our business in

the future, which could require additional capital, systems development, and skilled personnel.

However, there are inherent risks associated

with this strategy, including the risks of unsuccessfully identifying profitable business opportunities, managing capital requirements,

expanding systems and internal controls, maintaining innovative products and technologies, allocating human capital resources, identifying

qualified employees and/or agents, and integrating future acquisitions.

The failure to manage our growth effectively could have a material

adverse effect on our business, financial condition, and results of operations.

We could be adversely affected by a future

unexpected business interruption involving our office buildings, operational systems and infrastructure, key external vendors, and/or

Our business operations could be substantially

interrupted by flooding, snow, ice, wind, and other weather-related incidents, or from fire, pandemics, power loss, telecommunications

failures, terrorism, or other such events.

Our business continuity plans may not sufficiently remediate all risks associated with future

significant business interruptions.

Any damage caused by such a failure or loss may cause interruptions in our business operations that

may adversely affect our service levels and business.

Unresolved Staff Comments

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

What changed 10-K

Item 1A. Risk Factors