NI Holdings, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-37973 NI HOLDINGS, INC. (Exact name of registrant as specified in its charter) North Dakota 81-2683619 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1101 First Avenue North Fargo , North Dakota 58102 (Address of principal executive offices) (Zip Code) (701) 298-4200 Registrant’s telephone number, including area code Not applicable Former name, former address, and former fiscal year, if changed since last report Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share NODK Nasdaq Capital Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes No ☐ Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☒ The number of shares of Registrant’s common stock outstanding on April 30, 2023 was 21,027,401 . No preferred shares are issued or outstanding. i TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS 1 Part I. - FINANCIAL INFORMATION 3 Item 1. - Financial Statements 3 Consolidated Balance Sheets – March 31, 2023 (Unaudited) and December 31, 2022 3 Consolidated Statements of Operations (Unaudited) – Three Months Ended March 31, 2023 and 2022 4 Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Three Months Ended March 31, 2023 and 2022 5 Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three Months Ended March 31, 2023 and 2022 6 Consolidated Statements of Cash Flows (Unaudited) – Three Months Ended March 31, 2023 and 2022 7 Notes to Unaudited Consolidated Financial Statements 8 Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations 30 Item 3. - Quantitative and Qualitative Disclosures about Market Risk 37 Item 4. - Controls and Procedures 37 Part II. - OTHER INFORMATION 38 Item 1. - Legal Proceedings 38 Item 1A. - Risk Factors 38 Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 39 Item 3. - Defaults upon Senior Securities 40 Item 4. - Mine Safety Disclosures 40 Item 5. - Other Information 40 Item 6. - Exhibits 40 Signatures 41 ii Table of Contents CERTAIN IMPORTANT INFORMATION Unless the context otherwise requires, as used in this Quarterly Report on Form 10-Q (“Form 10-Q”): ● “NI Holdings”, “the Company”, “we”, “us”, and “our” refer to NI Holdings, Inc., together with Nodak Insurance Company and its subsidiaries and its affiliate (Battle Creek Mutual Insurance Company), Direct Auto Insurance Company (acquired August 31, 2018), and Westminster American Insurance Company (acquired January 1, 2020), for periods discussed after completion of the conversion, and for periods discussed prior to completion of the conversion refer to Nodak Mutual Insurance Company and all of its subsidiaries and Battle Creek Mutual Insurance Company; ● the “conversion” refers to the series of transactions consummated on March 13, 2017 by which Nodak Mutual Insurance Company converted from a mutual insurance company to a stock insurance company, as Nodak Insurance Company, and became a wholly-owned subsidiary of NI Holdings, an intermediate stock holding company formed on the date of conversion; ● “Nodak Mutual Group” refers to Nodak Mutual Group, Inc., which is the majority shareholder of NI Holdings; ● “Nodak Mutual” refers to Nodak Mutual Insurance Company, the predecessor company to Nodak Insurance Company prior to the conversion; ● “Nodak Insurance” refers to Nodak Insurance Company or Nodak Mutual Insurance Company interchangeably; ● “members” refers to the policyholders of Nodak Insurance, who are the named insureds under insurance policies issued by Nodak Insurance; ● “Battle Creek” refers to Battle Creek Mutual Insurance Company. 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; ● “Direct Auto” refers to Direct Auto Insurance Company. On August 31, 2018, NI Holdings completed the acquisition of 100% of the common stock of Direct Auto from the private shareholders of Direct Auto. Direct Auto became a consolidated subsidiary of NI Holdings on this date. Direct Auto is a property and casualty insurance company specializing in non-standard automobile insurance in the state of Illinois; ● “American West” refers to American West Insurance Company. American West is a wholly-owned subsidiary of Nodak Insurance; ● “Primero” refers to Primero Insurance Company. Primero is an indirect, wholly-owned subsidiary of Nodak Insurance; ● “Westminster” refers to Westminster American Insurance Company. On January 1, 2020, NI Holdings completed the acquisition of 100% of the common stock of Westminster from the private shareholder of Westminster, and Westminster became a consolidated subsidiary of NI Holdings. Westminster is a property and casualty insurance company specializing in commercial multi-peril insurance in the Mid-Atlantic states; and ● “Nodak Agency” refers to Nodak Agency, Inc. Nodak Agency is a wholly-owned subsidiary of Nodak Insurance. 1 Table of Contents FORWARD-LOOKING STATEMENTS This report contains, and management may make, certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-looking statements. Words such as “may”, “will”, “should”, “likely”, “anticipates”, “expects”, “intends”, “plans”, “projects”, “believes”, “views”, “estimates”, and similar expressions are used to identify these forward-looking statements. These statements include, among other things, the Company’s statements about: ● our anticipated operating and financial performance, business plans, and prospects; ● strategic reviews, capital allocation objectives, dividends, and share repurchases; ● plans for and prospects of acquisitions, dispositions, and other business development activities, and our ability to successfully capitalize on these opportunities; ● the impact of a future pandemic and related economic conditions, including the potential impact on the Company's investments; ● our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our agent network; ● cyclical changes in the insurance industry, competition, and innovation and emerging technologies; ● expectations for impact of or changes to existing or new government regulations or laws; ● our ability to anticipate and respond to macroeconomic, geopolitical, health and industry trends, pandemics, acts of war, and other large-scale crises; ● developments in general economic conditions, domestic and global financial markets, interest rate, unemployment, or inflation, that could affect the performance of our insurance operations and/or investment portfolio; and ● our ability to effectively manage future growth, including additional necessary capital, systems, and personnel. Given their nature, we cannot assure that any outcome expressed in these or other forward-looking statements will be realized in whole or in part. Actual outcomes may vary materially from past results and those anticipated, estimated, implied, or projected. These forward-looking statements may be affected by underlying assumptions that may prove inaccurate or incomplete, or by known or unknown risks and uncertainties, including those described in Part II, Item 1A, “Risk Factors” of this Form 10-Q and in the Part I, Item 1A, “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”). The occurrence of any of the risks identified in the Part I, Item 1A, “Risk Factors” section of the 2022 Annual Report, or other risks currently unknown, could have a material adverse effect on our business, financial condition or results of operations, or we may be required to increase our accruals for contingencies. It is not possible to predict or identify all such factors. Consequently, you should not consider such discussion to be a complete discussion of all potential risks or uncertainties. Therefore, you are cautioned not to unduly rely on forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities law. You are advised, however, to consult any further disclosures we make on related subjects. 2 Table of Contents PART I. - FINANCIAL INFORMATION Item 1. - Financial Statements NI Holdings, Inc. Consolidated Balance Sheets (dollar amounts in thousands, except par value) March 31, 2023 December 31, 2022 (Unaudited) Assets: Cash and cash equivalents $ 61,285 $ 47,002 Fixed income securities, at fair value (net of allowance for expected credit losses of $ 0 at March 31, 2023, and $ 0 at December 31, 2022) 316,865 303,324 Equity securities, at fair value 26,336 52,393 Other investments 2,005 2,005 Total cash and investments 406,491 404,724 Premiums and agents' balances receivable (net of allowance for expected credit losses of $ 445 at March 31, 2023, and $ 425 at December 31, 2022) 64,502 62,173 Deferred policy acquisition costs 31,350 29,768 Reinsurance premiums receivable 3,768 1,647 Reinsurance recoverables on losses (net of allowance for expected credit losses of $ 0 at March 31, 2023, and $ 0 at December 31, 2022) 45,642 37,575 Income tax recoverable 11,997 13,964 Accrued investment income 2,354 2,456 Property and equipment, net 9,918 9,843 Deferred income taxes 10,510 9,005 Receivable from Federal Crop Insurance Corporation 14,034 15,462 Goodwill and other intangibles 17,132 17,250 Other assets 10,286 10,365 Total assets $ 627,984 $ 614,232 Liabilities: Unpaid losses and loss adjustment expenses $ 204,790 $ 190,459 Unearned premiums 153,467 148,513 Accrued expenses and other liabilities 16,656 22,053 Total liabilities 374,913 361,025 Shareholders’ equity: Common stock, $ 0.01 par value, authorized: 25,000,000 shares; issued: 23,000,000 shares; and outstanding: 2023 – 21,062,355 shares, 2022 – 21,076,255 shares 230 230 Additional paid-in capital 95,568 95,671 Unearned employee stock ownership plan shares ( 941 ) ( 941 ) Retained earnings 209,710 214,121 Accumulated other comprehensive loss, net of income taxes ( 24,848 ) ( 29,286 ) Treasury stock, at cost, 2023 – 1,843,535 shares, 2022 – 1,829,635 shares ( 28,803 ) ( 28,818 ) Non-controlling interest 2,155 2,230 Total shareholders’ equity 253,071 253,207 Total liabilities and shareholders’ equity $ 627,984 $ 614,232 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents NI Holdings, Inc. Consolidated Statements of Operations (Unaudited) (dollar amounts in thousands, except per share data) Three Months Ended March 31, 2023 2022 Revenues: Net premiums earned $ 77,627 $ 69,587 Fee and other income 274 428 Net investment income 2,239 1,653 Net investment gains (losses) 1,416 ( 5,528 ) Total revenues 81,556 66,140 Expenses: Losses and loss adjustment expenses 58,825 40,129 Amortization of deferred policy acquisition costs 18,588 15,623 Other underwriting and general expenses 9,656 7,781 Total expenses 87,069 63,533 Income (loss) before income taxes ( 5,513 ) 2,607 Income tax expense (benefit) ( 1,013 ) 568 Net income (loss) ( 4,500 ) 2,039 Net income (loss) attributable to non-controlling interest ( 290 ) 130 Net income (loss) attributable to NI Holdings, Inc. $ ( 4,210 ) $ 1,909 Earnings (loss) per common share: Basic $ ( 0.20 ) $ 0.09 Diluted $ ( 0.20 ) $ 0.09 Share data: Weighted average common shares outstanding used in basic per common share calculations 21,368,956 21,372,753 Plus: Dilutive securities — 239,161 Weighted average common shares used in diluted per common share calculations 21,368,956 21,611,914 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents NI Holdings, Inc. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (dollar amounts in thousands) Three Months Ended March 31, 2023 Three Months Ended March 31, 2022 Attributable to NI Holdings, Inc. Attributable to Non- Controlling Interest Total Attributable to NI Holdings, Inc. Attributable to Non- Controlling Interest Total Net income (loss) $ ( 4,210 ) $ ( 290 ) $ ( 4,500 ) $ 1,909 $ 130 $ 2,039 Other comprehensive income (loss), before income taxes: Holding gains (losses) on investments 5,444 278 5,722 ( 20,197 ) ( 697 ) ( 20,894 ) Reclassification adjustment for net realized losses (gains) included in net income (loss) 299 — 299 ( 43 ) — ( 43 ) Other comprehensive income (loss), before income taxes 5,743 278 6,021 ( 20,240 ) ( 697 ) ( 20,937 ) Income tax benefit (expense) related to items of other comprehensive income (loss) ( 1,305 ) ( 63 ) ( 1,368 ) 4,601 158 4,759 Other comprehensive income (loss), net of income taxes 4,438 215 4,653 ( 15,639 ) ( 539 ) ( 16,178 ) Comprehensive income (loss) $ 228 $ ( 75 ) $ 153 $ ( 13,730 ) $ ( 409 ) $ ( 14,139 ) The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents NI Holdings, Inc. Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (dollar amounts in thousands) Three Months Ended March 31, 2023 Common Stock Additional Paid-in Capital Unearned Employee Stock Ownership Plan Shares Retained Earnings Accumulated Other Comprehensive Income (Loss), Net of Income Taxes Treasury Stock Non-Controlling Interest Total Shareholders’ Equity Balance, January 1, 2023 $ 230 $ 95,671 $ ( 941 ) $ 214,121 $ ( 29,286 ) $ ( 28,818 ) $ 2,230 $ 253,207 Net income (loss) — — — ( 4,210 ) — — ( 290 ) ( 4,500 ) Other comprehensive income (loss), net of income taxes — — — — 4,438 — 215 4,653 Purchase of treasury stock — — — — — ( 621 ) — ( 621 ) Share-based compensation — 505 — — — — — 505 Issuance of vested award shares — ( 608 ) — ( 201 ) — 636 — ( 173 ) Balance, March 31, 2023 $ 230 $ 95,568 $ ( 941 ) $ 209,710 $ ( 24,848 ) $ ( 28,803 ) $ 2,155 $ 253,071 Three Months Ended March 31, 2022 Common Stock Additional Paid-in Capital Unearned Employee Stock Ownership Plan Shares Retained Earnings Accumulated Other Comprehensive Income (Loss), Net of Income Taxes Treasury Stock Non-Controlling Interest Total Shareholders’ Equity Balance, January 1, 2022 $ 230 $ 98,166 $ ( 1,184 ) $ 267,207 $ 5,237 $ ( 26,452 ) $ 4,209 $ 347,413 Net income (loss) — — — 1,909 — — 130 2,039 Other comprehensive income (loss), net of income taxes — — — — ( 15,639 ) — ( 539 ) ( 16,178 ) Purchase of treasury stock — — — — — ( 997 ) — ( 997 ) Share-based compensation — 565 — — — — — 565 Issuance of vested award shares — ( 2,214 ) — 26 — 1,624 — ( 564 ) Balance, March 31, 2022 $ 230 $ 96,517 $ ( 1,184 ) $ 269,142 $ ( 10,402 ) $ ( 25,825 ) $ 3,800 $ 332,278 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents NI Holdings, Inc. Consolidated Statements of Cash Flows (Unaudited) (dollar amounts in thousands) Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net income (loss) $ ( 4,500 ) $ 2,039 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Net investment losses (gains) ( 1,416 ) 5,528 Deferred income tax benefit ( 2,874 ) ( 1,360 ) Depreciation of property and equipment 182 168 Amortization of intangibles 118 118 Share-based compensation 505 565 Amortization of deferred policy acquisition costs 18,588 15,623 Deferral of policy acquisition costs ( 20,170 ) ( 16,948 ) Net amortization of premiums and discounts on investments 290 470 Gain on sale of property and equipment ( 21 ) ( 160 ) Changes in operating assets and liabilities: Premiums and agents’ balances receivable ( 2,329 ) ( 3,428 ) Reinsurance premiums receivable / payable ( 2,121 ) ( 989 ) Reinsurance recoverables on losses ( 8,067 ) 1,838 Income tax recoverable / payable 1,967 1,927 Accrued investment income 102 167 Federal Crop Insurance Corporation receivable / payable 1,428 2,097 Other assets 79 ( 123 ) Unpaid losses and loss adjustment expenses 14,331 ( 5,968 ) Unearned premiums 4,954 2,486 Accrued expenses and other liabilities ( 5,397 ) ( 201 ) Net cash flows from operating activities ( 4,351 ) 3,849 Cash flows from investing activities: Proceeds from maturities and sales of fixed income securities 11,380 14,966 Proceeds from sales of equity securities 30,389 4,383 Purchases of fixed income securities ( 19,486 ) ( 24,761 ) Purchases of equity securities ( 2,618 ) ( 6,943 ) Purchases of property and equipment ( 293 ) ( 571 ) Proceeds from sales of property and equipment 56 624 Net cash flows from investing activities 19,428 ( 12,302 ) Cash flows from financing activities: Purchases of treasury stock ( 621 ) ( 997 ) Installment payment on Westminster consideration payable — ( 6,667 ) Issuance of vested award shares ( 173 ) ( 564 ) Net cash flows from financing activities ( 794 ) ( 8,228 ) Net increase (decrease) in cash and cash equivalents 14,283 ( 16,681 ) Cash and cash equivalents at beginning of period 47,002 70,623 Cash and cash equivalents at end of period $ 61,285 $ 53,942 Federal and state income taxes paid $ — $ — The accompanying notes are an integral part of these consolidated financial statements. 7 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 1. Organization NI Holdings is a North Dakota business corporation that is the stock holding company of Nodak Insurance and became such in connection with the conversion of Nodak Mutual from a mutual to stock form of organization and the creation of a mutual holding company. The conversion was consummated on March 13, 2017. Immediately following the conversion, all of the outstanding shares of common stock of Nodak Insurance were issued to Nodak Mutual Group, which then contributed the shares to NI Holdings in exchange for 55 % of the outstanding shares of common stock of NI Holdings. 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 and its existing subsidiaries. These unaudited consolidated financial statements include the financial position and results of operations of NI Holdings and the following 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 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 (“U.S.”). 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. Tri-State, Ltd. is an inactive shell corporation 100 % owned by Nodak Insurance. Primero is a property and casualty insurance company writing non-standard automobile coverage in the states of Nevada, Arizona, North Dakota, and South Dakota. Primero was acquired by Nodak Insurance in 2014. 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. 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 or loss 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. Westminster American Insurance Company Westminster is a property and casualty insurance company licensed in 18 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, 8 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and the District of Columbia. Westminster was acquired by NI Holdings on January 1, 2020, via a stock purchase agreement. 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 A.M. Best Company, Inc. (“AM Best”). The same executive management team provides oversight and strategic direction for the entire organization. Nodak Insurance provides common product oversight, pricing practices, and underwriting standards, as well as underwriting and claims administration, to itself, American West, and Battle Creek. Primero, Direct Auto, and Westminster personnel manage the day-to-day operations of their respective companies. 2. Basis of Presentation and Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All material intercompany transactions and balances have been eliminated. These financial statements should be read in conjunction with the financial statements and notes thereto included in our 2022 Annual Report. The Consolidated Balance Sheet at December 31, 2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. The preparation of the interim unaudited consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim unaudited consolidated financial statements and the reported amounts of revenues, claims, and expenses during the reporting period. Actual results could differ from those estimates. Operating results for the interim period ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ended December 31, 2023. Our 2022 Annual Report describes the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition, and liquidity. The accounting policies and estimation processes described in the 2022 Annual Report were consistently applied to the unaudited consolidated financial statements as of and for the three months ended March 31, 2023 and 2022. Recent Accounting Pronouncements Prior to December 31, 2022, we were classified as an emerging growth company (“EGC”) and elected to use the extended transition period for complying with certain new or revised financial accounting standards from the Financial Accounting Standards Board (“FASB”) pursuant to Section 13(a) of the Exchange Act. However, beginning on December 31, 2022, we are no longer an EGC and will no longer have the ability to delay adoption of these new or revised accounting standards, or to take advantage of reduced corporate governance disclosures. Adopted For information regarding accounting pronouncements that the Company adopted during the periods presented, see Item II, Part 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report. 9 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 3. Investments The amortized cost and estimated fair value of fixed income securities as of March 31, 2023, and December 31, 2022, were as follows: March 31, 2023 Cost or Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed income securities: U.S. Government and agencies $ 10,272 $ — $ — $ ( 809 ) $ 9,463 Obligations of states and political subdivisions 57,833 — 92 ( 5,007 ) 52,918 Corporate securities 138,302 — 148 ( 13,324 ) 125,126 Residential mortgage-backed securities 57,624 — 198 ( 5,286 ) 52,536 Commercial mortgage-backed securities 30,938 — — ( 4,537 ) 26,401 Asset-backed securities 50,781 — 14 ( 4,436 ) 46,359 Redeemable preferred stocks 4,747 — — ( 685 ) 4,062 Total fixed income securities $ 350,497 $ — $ 452 $ ( 34,084 ) $ 316,865 December 31, 2022 Cost or Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Fixed income securities: U.S. Government and agencies $ 11,174 $ — $ 1 $ ( 1,008 ) $ 10,167 Obligations of states and political subdivisions 60,342 — 38 ( 6,454 ) 53,926 Corporate securities 136,837 — 109 ( 15,787 ) 121,159 Residential mortgage-backed securities 53,254 — 85 ( 5,846 ) 47,493 Commercial mortgage-backed securities 30,837 — — ( 4,702 ) 26,135 Asset-backed securities 45,786 — — ( 5,061 ) 40,725 Redeemable preferred stocks 4,747 — — ( 1,028 ) 3,719 Total fixed income securities $ 342,977 $ — $ 233 $ ( 39,886 ) $ 303,324 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 may have the right to call or prepay these securities. March 31, 2023 Amortized Cost Fair Value Due to mature: One year or less $ 9,932 $ 9,788 After one year through five years 84,213 79,721 After five years through ten years 74,106 65,903 After ten years 38,156 32,095 Mortgage / asset-backed securities 139,343 125,296 Redeemable preferred stocks 4,747 4,062 Total fixed income securities $ 350,497 $ 316,865 December 31, 2022 Amortized Cost Fair Value Due to mature: One year or less $ 10,130 $ 9,971 After one year through five years 81,879 77,031 After five years through ten years 76,648 65,966 After ten years 39,696 32,284 Mortgage / asset-backed securities 129,877 114,353 Redeemable preferred stocks 4,747 3,719 Total fixed income securities $ 342,977 $ 303,324 10 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Fixed income securities with a fair value of $ 5,994 at March 31, 2023, and $ 6,613 at December 31, 2022, were deposited with various state regulatory agencies as required by law. 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 are shown below. Investments with unrealized losses are categorized with a duration of greater than 12 months when all positions of a security have continually been in a loss position for at least 12 months. March 31, 2023 Less than 12 Months Greater than 12 months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fixed income securities: U.S. Government and agencies $ 2,817 $ ( 147 ) $ 6,646 $ ( 662 ) $ 9,463 $ ( 809 ) Obligations of states and political subdivisions 11,468 ( 521 ) 35,619 ( 4,486 ) 47,087 ( 5,007 ) Corporate securities 31,765 ( 1,385 ) 85,610 ( 11,939 ) 117,375 ( 13,324 ) Residential mortgage-backed securities 6,539 ( 192 ) 31,272 ( 5,094 ) 37,811 ( 5,286 ) Commercial mortgage-backed securities 5,347 ( 270 ) 20,346 ( 4,267 ) 25,693 ( 4,537 ) Asset-backed securities 8,204 ( 129 ) 32,642 ( 4,307 ) 40,846 ( 4,436 ) Redeemable preferred stocks 3,299 ( 448 ) 763 ( 237 ) 4,062 ( 685 ) Total fixed income securities $ 69,439 $ ( 3,092 ) $ 212,898 $ ( 30,992 ) $ 282,337 $ ( 34,084 ) December 31, 2022 Less than 12 Months Greater than 12 months Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fixed income securities: U.S. Government and agencies $ 7,078 $ ( 537 ) $ 2,587 $ ( 471 ) $ 9,665 $ ( 1,008 ) Obligations of states and political subdivisions 40,213 ( 3,554 ) 9,045 ( 2,900 ) 49,258 ( 6,454 ) Corporate securities 76,645 ( 7,944 ) 39,683 ( 7,843 ) 116,328 ( 15,787 ) Residential mortgage-backed securities 21,017 ( 1,805 ) 18,519 ( 4,041 ) 39,536 ( 5,846 ) Commercial mortgage-backed securities 18,932 ( 2,674 ) 7,204 ( 2,028 ) 26,136 ( 4,702 ) Asset-backed securities 18,904 ( 1,522 ) 21,809 ( 3,539 ) 40,713 ( 5,061 ) Redeemable preferred stocks 3,015 ( 732 ) 705 ( 296 ) 3,720 ( 1,028 ) Total fixed income securities $ 185,804 $ ( 18,768 ) $ 99,552 $ ( 21,118 ) $ 285,356 $ ( 39,886 ) We, along with our investment advisors, frequently review our investment portfolio for declines in fair value that could be indicative of credit losses. Beginning on December 31, 2022, credit losses are recognized through an allowance account. We consider a number of factors when determining if an allowance for credit losses is necessary, including payment and default history, credit spreads, credit ratings and rating actions, and probability of default. We determine the credit loss component of fixed maturity investments by utilizing discounted cash flow modeling to determine the present value of the security and comparing the present value with the amortized cost of the security. We did not recognize any credit losses for fixed income securities at the time of adoption of the new credit loss accounting standard, or during the three months ended March 31, 2023. Therefore, there was no beginning or ending balance of credit losses for the quarter, or activity during the year ended December 31, 2022. See Item II, Part 8, Note 3 “Summary of Significant Accounting Policies” section of the 2022 Annual Report for additional information. 11 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Net investment income consisted of the following: Three Months Ended March 31, 2023 2022 Fixed income securities $ 2,630 $ 2,161 Equity securities 320 329 Real estate 150 166 Cash and cash equivalents 52 2 Total gross investment income 3,152 2,658 Investment expenses 913 1,005 Net investment income $ 2,239 $ 1,653 Net investment gains (losses) consisted of the following: Three Months Ended March 31, 2023 2022 Gross realized gains: Fixed income securities $ — $ 46 Equity securities 12,731 1,073 Total gross realized gains 12,731 1,119 Gross realized losses, excluding credit impairment losses: Fixed income securities ( 299 ) ( 3 ) Equity securities ( 846 ) ( 178 ) Total gross realized losses, excluding credit impairment losses ( 1,145 ) ( 181 ) Net realized gains 11,586 938 Change in net unrealized gains on equity securities ( 10,170 ) ( 6,466 ) Net investment gains (losses) $ 1,416 $ ( 5,528 ) 12 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 4. Fair Value Measurements 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: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 : 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 2 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. Level 3: 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, 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 limitations in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts which could have been 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 consolidated 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. 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 3 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. 13 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 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 three-month period ended March 31, 2023, or the year ended December 31, 2022. 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 1 inputs, which use the market-approach valuation technique. The valuation of our fixed income securities generally incorporates significant Level 2 inputs using the market and income approach techniques. We may assign a lower level to inputs typically considered to be Level 2 based on our assessment of liquidity and relative level of uncertainty surrounding inputs. There were no assets or liabilities classified at Level 3 at March 31, 2023, or December 31, 2022. The following tables set forth our assets which are measured on a recurring basis by the level within the fair value hierarchy in which fair value measurements fall: March 31, 2023 Total Level 1 Level 2 Level 3 Fixed income securities: U.S. Government and agencies $ 9,463 $ — $ 9,463 $ — Obligations of states and political subdivisions 52,918 — 52,918 — Corporate securities 125,126 — 125,126 — Residential mortgage-backed securities 52,536 — 52,536 — Commercial mortgage-backed securities 26,401 — 26,401 — Asset-backed securities 46,359 — 46,359 — Redeemable preferred stock 4,062 — 4,062 — Total fixed income securities 316,865 — 316,865 — Equity securities: Common stock 24,481 24,481 — — Non-redeemable preferred stock 1,855 1,855 — — Total equity securities 26,336 26,336 — — Cash equivalents 43,987 43,987 — — Total assets at fair value $ 387,188 $ 70,323 $ 316,865 $ — 14 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) December 31, 2022 Total Level 1 Level 2 Level 3 Fixed income securities: U.S. Government and agencies $ 10,167 $ — $ 10,167 $ — Obligations of states and political subdivisions 53,926 — 53,926 — Corporate securities 121,159 — 121,159 — Residential mortgage-backed securities 47,493 — 47,493 — Commercial mortgage-backed securities 26,135 — 26,135 — Asset-backed securities 40,725 — 40,725 — Redeemable preferred stock 3,719 — 3,719 — Total fixed income securities 303,324 — 303,324 — Equity securities: Common stock 50,699 50,699 — — Non-redeemable preferred stock 1,694 1,694 — — Total equity securities 52,393 52,393 — — Cash equivalents 27,255 27,255 — — Total assets at fair value $ 382,972 $ 79,648 $ 303,324 $ — There were no liabilities measured at fair value on a recurring basis at March 31, 2023, or December 31, 2022. 5. Reinsurance The Company’s consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The primary purpose of these agreements is to protect the Company, at a cost, from losses in excess of the amount it is prepared to accept and to protect the Company’s capital. Our ceded reinsurance is placed either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts placed on substantial individual risks. These contracts do not relieve the Company from its obligations to policyholders. During the three-month period ended March 31, 2023, the Company maintained property catastrophe reinsurance protection covering $ 133,000 in excess of a $ 20,000 retention. Additionally, per risk excess of loss treaties provided coverage of $ 4,000 in excess of $ 1,000 for property risks and $ 11,000 in excess of $ 1,000 for casualty risks, with facultative contracts in place to provide coverage up to $ 20,000 in excess of $ 5,000 per property. Aggregate stop loss reinsurance agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100 % net loss ratio providing 50 points of cover. The multi-peril crop aggregate attached at a 105 % net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-peril crop reinsurance was provided through the Federal Crop Insurance Corporation (“FCIC”). During the year ended December 31, 2022, the Company maintained property catastrophe reinsurance protection covering $ 125,000 in excess of a $ 15,000 retention. Additionally, per risk excess of loss treaties provided coverage of $ 4,000 in excess of $ 1,000 for property risks and $ 11,000 in excess of $ 1,000 for casualty risks, with facultative contracts in place to provide coverage up to $ 20,000 in excess of $ 5,000 per property. Aggregate stop loss reinsurance agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100 % net loss ratio providing 50 points of cover. The multi-peril crop aggregate attached at a 105 % net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-peril crop reinsurance was provided through the FCIC. The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers. Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using a new credit loss model (current expected credit losses or “CECL”). See the Part II, Item 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report for additional information. Credit loss estimates are made based on periodic evaluation of balances due from reinsurers, changes in reinsurer credit standing, judgments regarding reinsurers’ solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions, and the 15 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) state of reinsurer relations in general. Collection risk is mitigated by entering into reinsurance arrangements only with reinsurers that have strong credit ratings and statutory surplus above certain levels. At March 31, 2023, and December 31, 2022, management has concluded that it is not necessary to record an allowance for expected credit losses related to reinsurance recoverables. All of our significant reinsurance partners are rated “A-” (Excellent) or better by AM Best, and there is no history of write-offs. A reconciliation of direct to net premiums on both a written and an earned basis is as follows: Three Months Ended March 31, 2023 Premiums Written Premiums Earned Direct premium $ 90,556 $ 85,474 Assumed premium 399 576 Ceded premium ( 8,459 ) ( 8,423 ) Net premiums $ 82,496 $ 77,627 Three Months Ended March 31, 2022 Premiums Written Premiums Earned Direct premium $ 75,533 $ 73,399 Assumed premium 1,861 1,861 Ceded premium ( 5,660 ) ( 5,673 ) Net premiums $ 71,734 $ 69,587 A reconciliation of direct to net losses and loss adjustment expenses is as follows: Three Months Ended March 31, 2023 2022 Direct losses and loss adjustment expenses $ 70,861 $ 45,495 Assumed losses and loss adjustment expenses 90 10 Ceded losses and loss adjustment expenses ( 12,126 ) ( 5,376 ) Net losses and loss adjustment expenses $ 58,825 $ 40,129 If 100 % of our ceded reinsurance was cancelled as of March 31, 2023, or December 31, 2022, no ceded commissions would need to be returned to the reinsurers. Reinsurance contracts are typically effective from January 1 through December 31 each year. 6. Deferred Policy Acquisition Costs 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: Three Months Ended March 31, 2023 2022 Balance, beginning of period $ 29,768 $ 24,947 Deferral of policy acquisition costs 20,170 16,948 Amortization of deferred policy acquisition costs ( 18,588 ) ( 15,623 ) Balance, end of period $ 31,350 $ 26,272 16 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 7. Unpaid Losses and Loss Adjustment Expenses Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows: Three Months Ended March 31, 2023 2022 Balance, beginning of period: Liability for unpaid losses and loss adjustment expenses $ 190,459 $ 139,662 Reinsurance recoverables on losses 37,575 21,200 Net balance, beginning of period 152,884 118,462 Incurred related to: Current year 48,854 42,116 Prior years 9,971 ( 1,987 ) Total incurred 58,825 40,129 Paid related to: Current year 14,528 13,512 Prior years 38,033 30,747 Total paid 52,561 44,259 Balance, end of period: Liability for unpaid losses and loss adjustment expenses 204,790 133,694 Reinsurance recoverables on losses 45,642 19,362 Net balance, end of period $ 159,148 $ 114,332 During the three months ended March 31, 2023, the Company’s incurred reported losses and loss adjustment expenses included $ 9,971 of net unfavorable development on prior accident years, primarily attributable to Direct Auto and Westminster. During the three months ended March 31, 2022, the Company’s incurred reported losses and loss adjustment expenses included $ 1,987 of net favorable development on prior accident years, primarily attributable to Battle Creek. Changes in unpaid losses and loss adjustment expense reserves 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. 8. Property and Equipment Property and equipment consisted of the following: March 31, 2023 December 31, 2022 Estimated Useful Life Cost: Land $ 1,403 $ 1,403 indefinite Building and improvements 14,340 14,271 10 – 43 years Electronic data processing equipment 1,396 1,310 5 – 7 years Furniture and fixtures 2,919 2,919 5 – 7 years Automobiles 1,330 1,310 2 – 3 years Gross cost 21,388 21,213 Accumulated depreciation ( 11,470 ) ( 11,370 ) Total property and equipment, net $ 9,918 $ 9,843 Depreciation expense was $ 182 and $ 168 for the three months ended March 31, 2023 and 2022, respectively. 17 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 9. Goodwill and Other Intangibles Goodwill The following table presents the carrying amount of the Company’s goodwill by segment: March 31, 2023 December 31, 2022 Non-standard auto from acquisition of Primero $ 2,628 $ 2,628 Commercial from acquisition of Westminster 6,756 6,756 Total $ 9,384 $ 9,384 Other Intangible Assets The following table presents the carrying amount of the Company’s other intangible assets: March 31, 2023 Gross Carrying Amount Accumulated Amortization Net Subject to amortization: Trade names $ 748 $ 390 $ 358 Distribution network 6,700 1,210 5,490 Total subject to amortization 7,448 1,600 5,848 Not subject to amortization: State insurance licenses 1,900 — 1,900 Total $ 9,348 $ 1,600 $ 7,748 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Subject to amortization: Trade names $ 748 $ 365 $ 383 Distribution network 6,700 1,117 5,583 Total subject to amortization 7,448 1,482 5,966 Not subject to amortization: State insurance license 1,900 — 1,900 Total $ 9,348 $ 1,482 $ 7,866 Amortization expense was $ 118 and $ 118 for the three months ended March 31, 2023 and 2022, respectively. Other intangible assets that have finite lives, including trade names and distribution networks, are amortized over their useful lives. As of March 31, 2023, the estimated amortization of other intangible assets with finite lives for each of the five years in the period ending December 31, 2027, and thereafter is as follows: Year ending December 31, 2023 (nine months remaining) $ 337 2024 422 2025 422 2026 422 2027 422 Thereafter 3,823 Total other intangible assets with finite lives $ 5,848 18 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 10. Related Party Transactions Intercompany Reinsurance Pooling Arrangement Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement. 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. 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 AM Best on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category. For the three months ended March 31, 2023, and the year ended December 31, 2022, the pooling share percentages by insurance company were: Pool Percentage Nodak Insurance Company 66.0 % American West Insurance Company 7.0 % Primero Insurance Company 3.0 % Battle Creek Mutual Insurance Company 2.0 % Direct Auto Insurance Company 13.0 % Westminster American Insurance Company 9.0 % Total 100.0 % North Dakota Farm Bureau Nodak Insurance was organized by the North Dakota Farm Bureau (“NDFB”) to provide insurance protection for its members. We have a royalty agreement with the NDFB that recognizes the use of their trademark and provides royalties to the NDFB based on the premiums written on Nodak Insurance’s policies. Royalties paid to the NDFB were $ 357 and $ 339 during the three months ended March 31, 2023 and 2022, respectively. Royalty amounts payable of $ 140 and $ 119 were accrued as a liability to the NDFB at March 31, 2023, and December 31, 2022, respectively. Dividends State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. 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 requirements that may further affect their ability to pay dividends. Our insurance subsidiaries statutory capital and surplus at December 31, 2022, exceeded the amount of statutory capital and surplus necessary to satisfy risk-based capital requirements by a significant margin. For information regarding the availability of subsidiaries to pay dividends to NI Holdings during 2023, see Item II, Part 8, Note 12 “Related Party Transactions” section of the 2022 Annual Report. 19 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Battle Creek Mutual Insurance Company 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: March 31, 2023 December 31, 2022 Assets: Cash and cash equivalents $ 3,559 $ 5,008 Investments 14,001 13,350 Premiums and agents’ balances receivable 5,197 5,422 Deferred policy acquisition costs 627 595 Reinsurance recoverables on losses (2) 10,440 12,597 Accrued investment income 68 59 Income tax recoverable — 225 Deferred income taxes 735 780 Property and equipment 316 319 Other assets 56 52 Total assets $ 34,999 $ 38,407 Liabilities: Unpaid losses and loss adjustment expenses $ 6,331 $ 6,453 Unearned premiums 3,056 2,959 Notes payable (1) 3,000 3,000 Pooling payable (1) 7,225 8,337 Reinsurance losses payable (2) 12,952 13,125 Accrued expenses and other liabilities 280 2,303 Total liabilities 32,844 36,177 Equity: Non-controlling interest 2,155 2,230 Total equity 2,155 2,230 Total liabilities and equity $ 34,999 $ 38,407 (1) Amount fully eliminated in consolidation. (2) Amount partly eliminated in consolidation. Three Months Ended March 31, 2023 2022 Revenues: Net premiums earned $ 1,553 $ 1,392 Fee and other income (expense) 10 ( 5 ) Net investment income 67 13 Total revenues 1,630 1,400 Expenses: Losses and loss adjustment expenses 1,177 803 Amortization of deferred policy acquisition costs 372 312 Other underwriting and general expenses 163 117 Total expenses 1,712 1,232 Income (loss) before income taxes ( 82 ) 168 Income tax expense 208 38 Net income (loss) $ ( 290 ) $ 130 20 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 11. Benefit 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. American West and Battle Creek have no employees. The Company reported expenses related to the 401(k) plans totaling $ 189 and $ 148 during the three months ended March 31, 2023 and 2022, respectively. 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 $ 249 and $ 190 during the three months ended March 31, 2023 and 2022, 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 over the key executives’ allowable 401(k) contribution. The plan also allows employee-directed deferral of key executive’s compensation or incentive payments. The Company reported expenses related to this plan totaling $ 22 and $ 104 during the three months ended March 31, 2023 and 2022, respectively. In connection with our initial public offering (“IPO”) in March 2017, the Company established its 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 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 IPO, 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. 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. 21 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) It is anticipated that the only assets held by the ESOP will be shares of the Company’s common stock. Participants in the ESOP cannot direct the investment of any assets allocated to their accounts. The ESOP participants are employees of Nodak Insurance. The employees of Primero, Direct Auto, and Westminster do not participate in the ESOP. 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 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 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 IPO. 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 $ 82 and $ 109 during the three months ended March 31, 2023 and 2022, respectively, related to the ESOP. Through March 31, 2023, and December 31, 2022, the Company had released and allocated 145,890 ESOP shares to participants, with a remainder of 94,110 ESOP shares in suspense at March 31, 2023 and December 31, 2022. Using the Company’s quarter-end market price of $ 13.00 per share, the fair value of the unearned ESOP shares was $ 1,223 at March 31, 2023. 12. Line of Credit Nodak Insurance has a $ 5,000 line of credit with Wells Fargo Bank, N.A. The terms of the line of credit include a floating interest rate of the bank’s Prime Rate with a floor rate of 3.25 %. There were no outstanding amounts during the three months ended March 31, 2023, or the year ended December 31, 2022. This line of credit is scheduled to expire on March 31, 2024 . 13. Income Taxes At March 31, 2023, and December 31, 2022, we had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No interest and penalties were recognized during the three-month period ended March 31, 2023, or the year ended December 31, 2022. At March 31, 2023, and December 31, 2022, the Company, other than Battle Creek and Westminster, had no income tax related carryforwards for net operating losses, alternative minimum tax credits, or capital losses. Battle Creek, which files its income tax returns on a stand-alone basis, had net operating loss carryforwards of $ 3,963 at December 31, 2022. These net operating loss carryforwards expire through 2032. Westminster, which became part of the Company’s consolidated federal income tax return beginning in 2020, had a $ 1,270 net operating loss carryforward at December 31, 2022. This net operating loss carryforward expires in 2023. As of March 31, 2023, federal income tax years 2019 through 2021 remain open for examination. 22 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 14. Leases 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. Effective for the year ended December 31, 2022, the Company adopted the updated guidance for leases. This guidance was adopted in the fourth quarter of 2022, and accordingly, the expense amounts for the period ended March 31, 2023, are not comparable to the period ended March 31, 2022. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements” in the 2022 Annual Report for additional information. Under the new guidance, lease expense for these operating leases is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities, respectively, in the Consolidated Balance Sheet at the origination of the lease. The Company currently does not have leases that include options to purchase or provisions that would automatically transfer ownership of the leased property to the Company. The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and directs the use of identified property or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property and equipment. Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the floating interest rate on our Line of Credit with Wells Fargo Bank, N.A. at the lease commencement date, as rates are not implicitly stated in most leases. Additional information regarding the Company’s operating leases are as follows: As of and For the Three Months Ended March 31, 2023 2022 Operating lease expense $ 98 $ 68 Other information on operating leases: Operating cash outflow from operating leases 101 68 Right-of-use assets obtained in exchange for new lease liabilities — — Weighted average discount rate 3.25 % 3.25 % Weighted average remaining lease term in years 6.1 years 6.8 years The following table presents the contractual maturities of the Company’s operating leases for each of the five years in the period ending December 31, 2027, and thereafter, reconciled to the Company’s operating lease liability at March 31, 2023: Year ending December 31, 2023 (nine months remaining) $ 262 2024 321 2025 286 2026 291 2027 296 Thereafter 479 Total undiscounted lease payments 1,935 Less: present value adjustment 179 Operating lease liability at March 31, 2023 $ 1,756 15. Contingencies We have been named as a defendant in various lawsuits relating to our insurance operations. Contingent liabilities arising from litigation, income taxes, and other matters are not considered to be material to our financial position. 23 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 16. Common and Preferred Stock Common Stock Changes in the number of common stock shares outstanding were as follows: Three Months Ended March 31, 2023 2022 Shares outstanding, beginning of period 21,076,255 21,219,808 Treasury shares repurchased through stock repurchase authorization ( 46,099 ) ( 54,872 ) Issuance of treasury shares for vesting of restricted stock units 32,199 90,704 Shares outstanding, end of period 21,062,355 21,255,640 The changes in the number of common shares outstanding excludes certain non-forfeitable stock award shares that are included in the weighted average common shares outstanding used in basic earnings per common share calculations. In addition, the net loss per diluted common share for the three-month period ended March 31, 2023, excluded the weighted average effects of 61,290 shares of stock awards, since the impacts of these potential shares of common stock were anti-dilutive. On August 11, 2021, our Board of Directors approved an 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. During the year ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $ 3,446 to close out this authorization. Of these amounts, 54,872 shares were repurchased for $ 997 during the three months ended March 31, 2022. On May 9, 2022, our Board of Directors approved an authorization for the repurchase of up to approximately $ 10,000 of the Company’s outstanding common stock. During the year ended December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $ 734 under this authorization. During the three months ended March 31, 2023, we completed the repurchase of 46,099 shares of our common stock for $ 621 . At March 31, 2023, $ 8,645 remains outstanding under this authorization. The cost of this treasury stock is a reduction of shareholders’ equity within our Consolidated Balance Sheets. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax (“AMT”) based on adjusted financial statement income and imposes a 1 % excise tax on corporate stock repurchases. The effective date of these provisions was January 1, 2023. The Company is not currently subject to the AMT based on our reported GAAP earnings for the past three years. For periods subsequent to the effective date of the IRA, the cost of treasury stock acquired, less the fair market value of any stock issued, will include the 1 % excise tax imposed by the IRA. Preferred Stock The Company’s Articles of Incorporation provide authority to issue up to five million shares of preferred stock. No preferred shares are issued or outstanding. 17. Share-Based Compensation At its 2020 Annual Shareholders’ Meeting, the NI Holdings, Inc. 2020 Stock and Incentive Plan (the “Plan”) was approved by shareholders. 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”). Awards made under the Plan are based upon, among other things, a participant’s level of responsibility and performance within the Company. The total aggregate number of shares of common stock that may be issued under the Plan shall not exceed 1,000,000 shares, subject to adjustments as provided in the Plan. No eligible participant may be granted any awards for more than 100,000 shares in the aggregate 24 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) in any calendar year, subject to adjustment in accordance with the Plan. The aggregate amount payable pursuant to all performance awards denominated in cash to any eligible person in any calendar year is limited to $ 1,000 in value. Directors who are not also employees of the Company may not be granted awards denominated in shares that exceed $ 150 in any calendar year. Restricted Stock Units The Compensation Committee has awarded RSUs to non-employee directors and select executives. RSUs are promises to issue actual shares of common stock at the end of a vesting period. The RSUs granted to executives under the Plan were based on salary and vest 20 % per year over a five-year period, while RSUs granted to non-employee directors vest 100 % on the date of the next annual meeting of shareholders following the grant date. Dividend equivalents on RSUs are accrued during the vesting period and paid in cash at the end of the vesting period, but are subject to forfeiture until the underlying shares become vested. Participants do not have voting rights with respect to RSUs. The Company recognizes stock-based compensation costs for RSUs based on the grant date fair value. The compensation costs are normally expensed over the vesting periods to each vesting date; however, the cost of RSUs granted to executives are expensed immediately if the executive has met certain retirement criteria and the RSUs become non-forfeitable. Estimated forfeitures are included in the determination of compensation costs. No forfeitures are currently estimated. A summary of the Company’s outstanding and unearned RSUs is presented below: RSUs Weighted-Average Grant-Date Fair Value Per Share Units outstanding and unearned at January 1, 2022 108,380 $ 16.86 RSUs granted during 2022 59,600 17.61 RSUs earned during 2022 ( 52,620 ) 17.39 Units outstanding and unearned at December 31, 2022 115,360 17.00 RSUs granted during 2023 58,400 13.85 RSUs earned during 2023 ( 35,180 ) 16.22 Units outstanding and unearned at March 31, 2023 138,580 15.87 The following table shows the impact of RSU activity to the Company’s financial results: Three Months Ended March 31, 2023 2022 RSU compensation expense $ 302 $ 273 Income tax benefit ( 69 ) ( 62 ) RSU compensation expense, net of income taxes $ 233 $ 211 At March 31, 2023, there was $ 1,322 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 2.22 years. Performance Share Units The Compensation Committee has awarded PSUs to select executives. PSUs are promises to issue actual shares of common stock at the end of a vesting period, if certain performance conditions are met. The PSUs granted to employees under the Plan were based on salary and include a three-year book value cumulative growth target with threshold and stretch goals. They will vest on the third anniversary of the grant date, subject to the participant’s continuous employment through the vesting date and the level of performance achieved. Dividend equivalents on PSUs are accrued and paid in cash at the end of the performance period in accordance with the level of performance achieved, but are subject to forfeiture until the underlying shares become vested. Participants do not have voting rights with respect to PSUs. The Company recognizes stock-based compensation costs for PSUs based on the grant date fair value over the performance period of the awards. Estimated forfeitures are included in the determination of compensation costs. The current cost estimates represent the Company’s forecasted performance against cumulative growth targets. 25 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) A summary of the Company’s outstanding PSUs is presented below: PSUs Weighted-Average Grant-Date Fair Value Per Share Units outstanding at January 1, 2022 190,600 $ 16.06 PSUs granted during 2022 (at target) 61,800 18.10 PSUs earned during 2022 ( 86,684 ) 15.21 Performance adjustment (1) 31,200 15.21 Forfeitures ( 6,916 ) 15.21 Units outstanding at December 31, 2022 190,000 17.00 PSUs granted during 2023 (at target) 87,400 13.85 PSUs earned during 2023 — — Performance adjustment (1) ( 63,600 ) 14.26 Forfeitures — — Units outstanding at March 31, 2023 213,800 16.53 (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: Three Months Ended March 31, 2023 2022 PSU compensation expense $ 138 $ 261 Income tax benefit ( 31 ) ( 59 ) PSU compensation expense, net of income taxes $ 107 $ 202 The cost estimates for PSU grants represent initial target awards until the Company can reasonably forecast the financial performance of each PSU award grant. At the end of the performance period, the Company will reflect a performance adjustment, which may be either an increase or decrease from the initial target awards. The actual number of shares to be issued at the end of the performance period will range from 0 % to 150 % of the initial target awards. At March 31, 2023, there was $ 1,455 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 2.68 years. 26 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) 18. Allowance for Expected Credit Losses Premiums Receivable Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using the new CECL model. This guidance was adopted in the fourth quarter of 2022, and accordingly, there was no allowance for expected credit losses as of March 31, 2022. See the Part II, Item 8, Note 2 “Recent Accounting Pronouncements” section of the 2022 Annual Report for additional information. The following table presents the balances of premiums and agents’ receivable balances, net of the allowance for expected credit losses as of March 31, 2023, and the changes in the allowance for expected credit losses for the three months ended March 31, 2023. As of and For the Three Months Ended March 31, 2023 Premiums Receivable, Net of Allowance for Expected Credit Losses Allowance for Expected Credit Losses Balance, beginning of period $ 62,173 $ 425 Current period charge for expected credit losses 90 Write-offs of uncollectible premiums receivable 70 Balance, end of period $ 64,502 $ 445 19. Segment Information We have six reportable operating segments, which consist of private passenger auto insurance, non-standard auto insurance, home and farm insurance, crop insurance, commercial insurance, and all other (which primarily consists of assumed reinsurance and our excess liability business). We operate only in the U.S., and no single customer or agent provides 10 percent or more of our revenues. The following tables provide available information of these segments for the three-month periods ended March 31, 2023 and 2022. 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 line items in our Unaudited Consolidated Statement of Operations or Unaudited Consolidated Balance Sheet to our operating segments. Those line items include investment income, net investment gains (losses), other income excluding non-standard auto insurance fees, and income tax expense (benefit) within the Unaudited Consolidated Statement of Operations. For the Unaudited Consolidated Balance Sheet, those items include cash and investments, property and equipment, other assets, accrued expenses, income taxes recoverable or payable, and shareholders’ equity. 27 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Three Months Ended March 31, 2023 Private Passenger Auto Non-Standard Auto Home and Farm Crop Commercial All Other Total Direct premiums earned $ 20,541 $ 20,971 $ 22,433 $ ( 10 ) $ 20,230 $ 1,309 $ 85,474 Assumed premiums earned — — — — — 576 576 Ceded premiums earned ( 888 ) ( 92 ) ( 2,442 ) ( 715 ) ( 4,213 ) ( 73 ) ( 8,423 ) Net premiums earned 19,653 20,879 19,991 ( 725 ) 16,017 1,812 77,627 Direct losses and loss adjustment expenses 15,624 17,038 9,523 ( 669 ) 29,322 23 70,861 Assumed losses and loss adjustment expenses — — — — — 90 90 Ceded losses and loss adjustment expenses 1 — ( 804 ) ( 104 ) ( 11,208 ) ( 11 ) ( 12,126 ) Net losses and loss adjustment expenses 15,625 17,038 8,719 ( 773 ) 18,114 102 58,825 Gross margin 4,028 3,841 11,272 48 ( 2,097 ) 1,710 18,802 Underwriting and general expenses 6,418 8,994 6,205 32 6,086 509 28,244 Underwriting gain (loss) ( 2,390 ) ( 5,153 ) 5,067 16 ( 8,183 ) 1,201 ( 9,442 ) Fee and other income 232 274 ( 4,921 ) Net investment income 2,239 Net investment gains (losses) 1,416 Income (loss) before income taxes ( 5,513 ) Income tax expense (benefit) ( 1,013 ) Net income (loss) ( 4,500 ) Net income (loss) attributable to non-controlling interest ( 290 ) Net income (loss) attributable to NI Holdings, Inc. $ ( 4,210 ) Operating Ratios: Loss and loss adjustment expense ratio 79.5 % 81.6 % 43.6 % n/a 113.1 % 5.6 % 75.8 % Expense ratio 32.7 % 43.1 % 31.1 % n/a 38.0 % 28.1 % 36.4 % Combined ratio 112.2 % 124.7 % 74.7 % n/a 151.1 % 33.7 % 112.2 % Balances at March 31, 2023: Premiums and agents’ balances receivable $ 21,743 $ 16,642 $ 8,954 $ 93 $ 16,301 $ 769 $ 64,502 Deferred policy acquisition costs 5,309 10,716 7,279 — 7,616 430 31,350 Reinsurance recoverables on losses 1,280 — 5,845 51 37,669 797 45,642 Receivable from Federal Crop Insurance Corporation — — — 14,034 — — 14,034 Goodwill and other intangibles — 2,748 — — 14,384 — 17,132 Unpaid losses and loss adjustment expenses 27,366 50,876 29,165 421 89,296 7,666 204,790 Unearned premiums 32,378 33,711 44,446 — 39,975 2,957 153,467 28 Table of Contents NI Holdings, Inc. Notes to Consolidated Financial Statements (Unaudited) (dollar amounts in thousands, except per share amounts) Three Months Ended March 31, 2022 Private Passenger Auto Non-Standard Auto Home and Farm Crop Commercial All Other Total Direct premiums earned $ 19,301 $ 14,442 $ 21,179 $ ( 17 ) $ 17,230 $ 1,264 $ 73,399 Assumed premiums earned — — — — — 1,861 1,861 Ceded premiums earned ( 559 ) ( 64 ) ( 1,967 ) 4 ( 3,042 ) ( 45 ) ( 5,673 ) Net premiums earned 18,742 14,378 19,212 ( 13 ) 14,188 3,080 69,587 Direct losses and loss adjustment expenses 14,526 8,491 7,192 ( 103 ) 15,063 326 45,495 Assumed losses and loss adjustment expenses — — — — — 10 10 Ceded losses and loss adjustment expenses 185 — ( 352 ) ( 63 ) ( 5,046 ) ( 100 ) ( 5,376 ) Net losses and loss adjustment expenses 14,711 8,491 6,840 ( 166 ) 10,017 236 40,129 Gross margin 4,031 5,887 12,372 153 4,171 2,844 29,458 Underwriting and general expenses 5,768 6,091 5,973 ( 552 ) 5,336 788 23,404 Underwriting gain (loss) ( 1,737 ) ( 204 ) 6,399 705 ( 1,165 ) 2,056 6,054 Fee and other income 388 428 184 Net investment income 1,653 Net investment gains (losses) ( 5,528 ) Income (loss) before income taxes 2,607 Income tax expense (benefit) 568 Net income (loss) 2,039 Net income (loss) attributable to non-controlling interest 130 Net income (loss) attributable to NI Holdings, Inc. $ 1,909 Operating Ratios: Loss and loss adjustment expense ratio 78.5 % 59.1 % 35.6 % n/a 70.6 % 7.7 % 57.7 % Expense ratio 30.8 % 42.4 % 31.1 % n/a 37.6 % 25.6 % 33.6 % Combined ratio 109.3 % 101.4 % 66.7 % n/a 108.2 % 33.2 % 91.3 % Balances at March 31, 2022: Premiums and agents’ balances receivable $ 19,627 $ 12,098 $ 8,991 $ — $ 13,442 $ 722 $ 54,880 Deferred policy acquisition costs 5,076 7,126 7,246 — 6,392 432 26,272 Reinsurance recoverables on losses 817 — 3,559 75 14,184 727 19,362 Goodwill and other intangibles — 2,798 — — 14,806 — 17,604 Unpaid losses and loss adjustment expenses 26,340 41,948 17,130 421 38,640 9,215 133,694 Unearned premiums 29,573 20,933 42,307 — 34,181 3,281 130,275 Payable to Federal Crop Insurance Corporation — — — 7,059 — — 7,059 29 Table of Contents Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to provide a more comprehensive review of our operating results and financial condition than can be obtained from reading the unaudited consolidated financial statements alone. This discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements.” Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” included elsewhere in this Form 10-Q. Part I, Item 1A, “Risk Factors” included in our 2022 Annual Report should also be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described, or implied by, the forward-looking statements contained herein. All dollar amounts included in Item 2 herein are in thousands. Results of Operations Our consolidated net loss was $4,500 for the three months ended March 31, 2023, compared to net income of $2,039 for the three months ended March 31, 2022. The major components of revenues and net income (loss) are shown below: Three Months Ended March 31, 2023 2022 Revenues: Net premiums earned $ 77,627 $ 69,587 Fee and other income 274 428 Net investment income 2,239 1,653 Net investment gains (losses) 1,416 (5,528 ) Total revenues $ 81,556 $ 66,140 Components of net income (loss): Net premiums earned $ 77,627 $ 69,587 Losses and loss adjustment expenses 58,825 40,129 Amortization of deferred policy acquisition costs and other underwriting and general expenses 28,244 23,404 Underwriting gain (loss) (9,442 ) 6,054 Fee and other income 274 428 Net investment income 2,239 1,653 Net investment gains (losses) 1,416 (5,528 ) Income (loss) before income taxes (5,513 ) 2,607 Income tax expense (benefit) (1,013 ) 568 Net income (loss) $ (4,500 ) $ 2,039 Net Premiums Earned Three Months Ended March 31, 2023 2022 Net premiums earned: Direct premium $ 85,474 $ 73,399 Assumed premium 576 1,861 Ceded premium (8,423 ) (5,673 ) Total net premiums earned $ 77,627 $ 69,587 30 Table of Contents Our net premiums earned for the three months ended March 31, 2023, increased $8,040, or 11.6%, compared to the three months ended March 31, 2022. Three Months Ended March 31, 2023 2022 Net premiums earned: Private passenger auto $ 19,653 $ 18,742 Non-standard auto 20,879 14,378 Home and farm 19,991 19,212 Crop (725 ) (13 ) Commercial 16,017 14,188 All other 1,812 3,080 Total net premiums earned $ 77,627 $ 69,587 Below are comments regarding net premiums earned by business segment: Private passenger auto – Net premiums earned for the three months ended March 31, 2023, increased $911, or 4.9%, compared to the same period in 2022. This increase was driven by significant rate increases in North Dakota, South Dakota, and Nebraska, offset by lower retention levels as a result of underwriting actions taken to improve profitability. Non-standard auto – Net premiums earned for the three months ended March 31, 2023, increased $6,501, or 45.2%, compared to the same period in 2022. This increase was driven by new business growth, increased retention, and significant rate increases in the Chicago market where our non-standard auto business is concentrated. Home and farm – Net premiums earned for the three months ended March 31, 2023, increased $779, or 4.1%, compared to the same period in 2022. This increase was driven by rate increases along with increased insured property values, which were primarily the result of higher inflationary factors. These premium increases were partially offset by lower levels of new business as a result of underwriting actions taken to improve profitability. Crop – Net premiums earned for the first quarter of any year are the result of minor prior crop year premium adjustments which typically occur annually during the first quarter. The majority of crop insurance premiums are generally written in the second quarter and earned ratably over the remainder of the calendar year. Commercial – Net premiums earned for the three months ended March 31, 2023, increased $1,829, or 12.9%, compared to the same period in 2022. This increase was driven by increased insured values which were primarily the result of higher inflationary factors as well as continued increases in rate and new business premiums. All other – Net premiums earned for the three months ended March 31, 2023, decreased $1,268, or 41.2%, compared to the same period in 2022. This decrease was driven by the decision to non-renew our participation in an assumed domestic and international reinsurance pool of business as of January 1, 2022. Losses and Loss Adjustment Expenses Three Months Ended March 31, 2023 2022 Net losses and loss adjustment expenses: Direct losses and loss adjustment expenses $ 70,861 $ 45,495 Assumed losses and loss adjustment expenses 90 10 Ceded losses and loss adjustment expenses (12,126 ) (5,376 ) Total net losses and loss adjustment expenses $ 58,825 $ 40,129 31 Table of Contents Our net losses and loss adjustment expenses for the three months ended March 31, 2023, increased $18,696, or 46.6%, compared to the three months ended March 31, 2022. Three Months Ended March 31, 2023 2022 Net losses and loss adjustment expenses: Private passenger auto $ 15,625 $ 14,711 Non-standard auto 17,038 8,491 Home and farm 8,719 6,840 Crop (773 ) (166 ) Commercial 18,114 10,017 All other 102 236 Total net losses and loss adjustment expenses $ 58,825 $ 40,129 Three Months Ended March 31, 2023 2022 Loss and loss adjustment expense ratio: Private passenger auto 79.5% 78.5% Non-standard auto 81.6% 59.1% Home and farm 43.6% 35.6% Crop n/a n/a Commercial 113.1% 70.6% All other 5.6% 7.7% Total loss and loss adjustment expense ratio 75.8% 57.7% Below are comments regarding significant changes in the net losses and loss adjustment expenses, and the net loss and loss adjustment expense ratios, by business segment: Private passenger auto – The net loss and loss adjustment expense ratio increased 1.0 percentage point in the three-month period ended March 31, 2023, compared to the same period in 2022. Both periods were affected by elevated loss costs due to continued high levels of inflation. Additionally, 2023 was impacted by elevated winter weather-related losses. Non-standard auto – The net loss and loss adjustment expense ratio increased 22.5 percentage points in the three-month period ended March 31, 2023, compared to the same period in 2022. The increase was driven by elevated loss severity as a result of inflationary factors as well as unfavorable prior year development on loss reserves. We continue to take significant rate and underwriting actions as a result of the increased loss activity. Home and farm – The net loss and loss adjustment expense ratio increased 8.0 percentage points in the three-month period ended March 31, 2023, compared to the same period in 2022. This increase was driven by elevated winter weather-related property losses due to heavy snowfall in the Midwest that caused ice dams and roof collapses. Crop – The net losses and loss adjustment expenses during the first quarter of any year are reflective of minor prior crop year adjustments which typically occur annually during the first quarter. Commercial – The net loss and loss adjustment expense ratio increased 42.5 points in the three-month period ended March 31, 2023, compared to the same period in 2022. This higher loss ratio was driven by unfavorable prior year reserve development attributable to freeze claims from Winter Storm Elliott as well as increased severity of liability losses. We are in the process of taking significant rate and underwriting actions to improve the segment’s profitability. All other – The net loss and loss adjustment expense ratio decreased 2.1 percentage points in the three-month period ended March 31, 2023, compared to the same period in 2022. This decrease was driven by improved loss experience in the excess casualty line of business. 32 Table of Contents Underwriting and General Expenses and Expense Ratio Three Months Ended March 31, 2023 2022 Underwriting and general expenses: Amortization of deferred policy acquisition costs $ 18,588 $ 15,623 Other underwriting and general expenses 9,656 7,781 Total underwriting and general expenses 28,244 23,404 Expense ratio 36.4% 33.6% The expense ratio is calculated by dividing other underwriting and general expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company’s operational efficiency in producing, underwriting, and administering its insurance business. The overall expense ratio increased 2.8 percentage points in the three-month period ended March 31, 2023, compared to the same period in 2022. The increase in the amortization of deferred policy acquisition costs is due to higher deferrable costs resulting from significant premium growth in the non-standard auto and commercial segments, which generally pay higher agent commissions than our other segments, compared to the prior year quarter. The primary drivers of the increase in other underwriting and general expenses were the impact of continued high levels of inflation and the favorable impact on the prior year quarter of the runout of the 2021 crop year multi-peril crop insurance business which reduced overall expenses for that period. Underwriting Gain (Loss) and Combined Ratio Three Months Ended March 31, 2023 2022 Underwriting gain (loss): Private passenger auto $ (2,390 ) $ (1,737 ) Non-standard auto (5,153 ) (204 ) Home and farm 5,067 6,399 Crop 16 705 Commercial (8,183 ) (1,165 ) All other 1,201 2,056 Total underwriting gain (loss) $ (9,442 ) $ 6,054 Three Months Ended March 31, 2023 2022 Combined ratio: Private passenger auto 112.2% 109.3% Non-standard auto 124.7% 101.4% Home and farm 74.7% 66.7% Crop n/a n/a Commercial 151.1% 108.2% All other 33.7% 33.2% Combined ratio 112.2% 91.3% Underwriting gain (loss) measures the pre-tax profitability of our insurance operations. It is derived by subtracting losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. The combined ratio represents the sum of these losses and expenses as a percentage of net premiums earned, and measures our overall underwriting profit. The total underwriting gain (loss) changed $15,496 to a loss of $9,442 for the three-month period ended March 31, 2023, from a gain of $6,054 for the three-month period ended March 31, 2022. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses section above. The overall combined ratio increased 20.9 percentage points in the three-month period ended March 31, 2023, compared to the same periods in 2022. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses section above. 33 Table of Contents Fee and Other Income We had fee and other income of $274 for the three months ended March 31, 2023, compared to $428 for the three months ended March 31, 2022. Fee income is largely attributable to the non-standard auto segment and is a key component in measuring its profitability. Fee and other income on this business decreased to $232 for the three months ended March 31, 2023, from $388 for the three months ended March 31, 2022, driven by a shifting mix of business in the Chicago market. Additionally, the higher fee and other income in the prior year was primarily driven by miscellaneous income from the sale of property. Net Investment Income The following table shows our average cash and invested assets, net investment income, and return on average cash and invested assets for the reported periods: Three Months Ended March 31, 2023 2022 Average cash and invested assets $ 405,608 $ 499,385 Net investment income $ 2,239 $ 1,653 Gross return on average cash and invested assets 3.1% 2.1% Net return on average cash and invested assets 2.2% 1.3% Net investment income increased $586 for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. This increase was primarily driven by the rising interest rate environment as well as a higher allocation of invested assets to private placement securities and high dividend yield equities. Gross and net return on average cash and invested assets increased year-over-year, driven by the higher net investment income along with a decrease in average cash and invested assets (measured at fair value). This decrease was driven by unfavorable fixed income and equity market conditions particularly during the middle and later stages of 2022, along with investment sales as a result of elevated weather-related losses in 2022. Net Investment Gains (Losses) Net investment gains (losses) consisted of the following: Three Months Ended March 31, 2023 2022 Gross realized gains $ 12,731 $ 1,119 Gross realized losses, excluding credit impairment losses (1,145 ) (181 ) Net realized gains 11,586 938 Change in net unrealized gains on equity securities (10,170 ) (6,466 ) Net investment gains (losses) $ 1,416 $ (5,528 ) We had net realized gains of $11,586 for the three months ended March 31, 2023, compared to gains of $938 for the three months ended March 31, 2022. The increase in net realized gains was the result of a strategic liquidation of a portfolio of equity securities. The gross realized gains from the sale of these securities were largely offset by the elimination of the unrealized gain position of these securities. No credit impairment losses were reported during any of the periods presented. We experienced a decrease in net unrealized gains on equity securities of $10,170 during the three months ended March 31, 2023, driven by the equity portfolio liquidation noted above offset by the impact of changes in fair value attributable to favorable equity markets during the quarter. We experienced a decrease in net unrealized gains on equity securities of $6,466 during the three months ended March 31, 2022, driven by the impact of changes in fair value attributable to unfavorable equity markets. Our fixed income securities are classified as available for sale because we will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies. The fixed income portion of the portfolio experienced net unrealized gains of $6,021 during the three months ended March 31, 2023, compared to net unrealized losses of $20,937 during the three months ended March 31, 2022. The change was primarily the result of changes in U.S. interest rates. The change in the fair value of fixed income securities is not reflected in net income; rather it is reflected as a separate component (net of income taxes) of other comprehensive income. 34 Table of Contents Income (Loss) before Income Taxes For the three months ended March 31, 2023, we had a pre-tax loss of $5,513 compared to pre-tax income of $2,607 for the three months ended March 31, 2022. This change was largely attributable to unfavorable prior year loss development in the non-standard auto and commercial segments, partially offset by significantly higher 2023 net investment gains. Income Tax Expense (Benefit) We recorded an income tax benefit of $1,013 for the three months ended March 31, 2023, compared to income tax expense of $568 for the three months ended March 31, 2022. Our effective tax rate for the first quarter of 2023 was 18.4% compared to an effective tax rate of 21.8% for the first quarter of 2022. The first quarter 2023 effective tax rate was impacted by the true-up of a prior year tax accrual. Net Income (Loss) For the three months ended March 31, 2023, we had a net loss before non-controlling interest of $4,500 compared to net income of $2,039 for the three months ended March 31, 2022. This change was largely attributable to unfavorable prior year loss development in the non-standard auto and commercial segments, partially offset by significantly higher 2023 net investment gains. Return on Average Equity For the three months ended March 31, 2023, we had annualized return on average equity, after non-controlling interest, of (6.7%) compared to annualized return on average equity, after non-controlling interest, of 2.3% for the three months ended March 31, 2022. Average equity is calculated as the average between beginning and ending equity, excluding non-controlling interest, for the period. Critical Accounting Policies The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in the unaudited consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions, industry trends, and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to these estimates and assumptions or that reported results of operations will not be materially and adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Our critical accounting policies are more fully described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” presented in our 2022 Annual Report. There have been no changes in our critical accounting policies from December 31, 2022. Liquidity and Capital Resources We expect to generate sufficient funds from our operations and maintain a high degree of liquidity in our investment portfolio to meet the demands of claim settlements and operating expenses for the foreseeable future. The primary sources of funds are premium collections, investment earnings, fixed income maturities, and the remaining proceeds from our 2017 IPO. The change in cash and cash equivalents for the three months ended March 31, 2023 and 2022 were as follows: Three Months Ended March 31, 2023 2022 Net cash flows from operating activities $ (4,351 ) $ 3,849 Net cash flows from investing activities 19,428 (12,302 ) Net cash flows from financing activities (794 ) (8,228 ) Net increase (decrease) in cash and cash equivalents $ 14,283 $ (16,681 ) For the three months ended March 31, 2023, net cash used by operating activities totaled $4,351 compared to net cash provided of $3,849 a year ago. This change was primarily driven by higher levels of loss and loss adjustment payments as well as payments for accrued expenses and other liabilities. For the three months ended March 31, 2023, net cash provided by investing activities totaled $19,428 compared to net cash used of $12,302 a year ago. This change was attributable to an increase in the sales of equity securities in the current year quarter compared to the prior year quarter for which some of the proceeds have not been reinvested as of March 31, 2023. 35 Table of Contents For the three months ended March 31, 2023, net cash used by financing activities totaled $794 compared to $8,228 a year ago. This decrease in cash used was attributable to an installment payment of $6,667 on the Westminster consideration payable during the first quarter of 2022. As a standalone entity, and outside of the net proceeds from the IPO, our principal source of long-term liquidity will be dividend payments from our directly-owned subsidiaries. Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of dividends or other distributions it may pay to NI Holdings. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of surplus as regards policyholders as of the preceding December 31, or (ii) the statutory net income for the preceding calendar year (excluding realized capital gains), less any prior dividends paid during such twelve-month period. In addition, any insurance company other than a life insurance company may carry forward net income from the preceding two calendar years, not including realized investment gains, less any dividends actually paid during those two calendar years. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the North Dakota Insurance Department. There is no amount available for payment of dividends from Nodak Insurance to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the net loss of Nodak Insurance as of December 31, 2022. 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. The North Dakota Insurance Department has the power to limit or prohibit dividend payments if an insurance company 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 Nodak Insurance during the three months ended March 31, 2023. The Nodak Insurance Board of Directors declared and Nodak Insurance paid dividends of $3,000 to NI Holdings during the year ended December 31, 2022. Direct Auto re-domesticated from Illinois to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from Direct Auto to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the net loss of Direct Auto for the year ended December 31, 2022. No dividends were declared or paid by Direct Auto during the three months ended March 31, 2023, or the year ended December 31, 2022. Westminster re-domesticated from Maryland to North Dakota during 2021, and is now subject to the same dividend restrictions as Nodak Insurance. There is no amount available for payment of dividends from Westminster to NI Holdings during 2023 without the prior approval of the North Dakota Insurance Department based upon the net loss of Westminster for the year ended December 31, 2022. No dividends were declared or paid by Westminster during the three months ended March 31, 2023, or the year ended December 31, 2022. 36 Table of Contents Item 3. - Quantitative and Qualitative Disclosures about Market Risk The Company’s assessment of market risk as of March 31, 2023, indicates there have been no material changes in the quantitative and qualitative disclosures from those in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Annual Report. Item 4. - Controls and Procedures Evaluation of Disclosure Controls and Procedures The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such material information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Changes in Internal Control over Financial Reporting In the ordinary course of business, we periodically review our system of internal control over financial reporting to identify opportunities to improve our controls and increase efficiency, while ensuring that we maintain an effective internal control environment. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 37 Table of Contents Part II. - OTHER INFORMATION Item 1. - Legal Proceedings We are party to litigation in the normal course of business. Based upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not be materially adversely affected by any litigation. Item 1A. - Risk Factors There have been no material changes in our assessment of our risk factors from those set forth in Part I, Item 1A, “Risk Factors” in our 2022 Annual Report. 38 Table of Contents Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds All dollar amounts included in Item 2 herein, except per share data, are in thousands. The Company has not sold any unregistered securities within the past three years. On January 17, 2017, our registration statement on Form S-1 registering our common stock was declared effective by the SEC. On March 13, 2017, the Company completed the IPO of 10,350,000 shares of common stock at a price of $10.00 per share. The Company received net proceeds of $93,145 from the offering, after deducting underwriting discounts and offering expenses. Direct Auto was acquired on August 31, 2018 with $17,000 of the net proceeds from the IPO. On January 1, 2020, we acquired Westminster for $40,000. We paid $20,000 at the time of closing. The terms of the acquisition agreement included payment of the remaining $20,000, subject to certain adjustments, in three equal installments on each of the first and second anniversaries of the closing, and on the first business day of the month preceding the third anniversary of the closing. The first two installments were paid in January 2021 and January 2022, and the final installment was paid in December 2022 with no adjustments from the originally anticipated amount. The Company used net proceeds from the IPO to satisfy these obligations. From time to time, the Company may also repurchase its own stock. To date, the Company has used the net proceeds from the IPO to fund these share repurchases. The cost of treasury stock acquired, less the fair market value of any stock issued, will include the 1% excise tax imposed by the IRA. There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on January 17, 2017. On August 11, 2021, our Board of Directors approved an authorization for the repurchase of up to approximately $5,000 of the Company’s outstanding common stock. During the year ended December 31, 2021, we completed the repurchase of 81,095 shares of our common stock for $1,554 under this authorization. During the year ended December 31, 2022, we completed the repurchase of 214,937 shares of our common stock for $3,446 to close out this authorization. On May 9, 2022, our Board of Directors approved an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. During the year ended December 31, 2022, we completed the repurchase of 54,223 shares of our common stock for $734 under this authorization. During the three months ended March 31, 2023, we repurchased an additional 46,099 shares of our common stock for $621. At March 31, 2023, $8,645 remains outstanding under this authorization. Share repurchase activity during the three months ended March 31, 2023, is presented below: Period in 2023 Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2) (in thousands) January 1 – 31, 2023 11,784 $ 13.60 11,784 $ 9,105 February 1 – 28, 2023 9,519 13.89 9,519 8,972 March 1 – 31, 2023 24,796 13.23 24,796 8,645 Total 46,099 $ 13.46 46,099 $ 8,645 (1) Shares purchased pursuant to the May 9, 2022, publicly announced share repurchase authorization of up to approximately $10,000 of the Company’s outstanding common stock. (2) Maximum dollar value of shares that may yet be purchased consist of up to approximately $8,645 under the May 9, 2022, publicly announced share repurchase authorization. 39 Table of Contents Item 3. - Defaults upon Senior Securities Not Applicable Item 4. - Mine Safety Disclosures Not Applicable Item 5. - Other Information None Item 6. - Exhibits Exhibit Number Description 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH Inline XBRL Taxonomy Extension Schema Linkbase Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 40 Table of Contents Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 8, 2023. NI HOLDINGS, INC. /s/ Michael J. Alexander Michael J. Alexander President and Chief Executive Officer (Principal Executive Officer) /s/ Seth C. Daggett Seth C. Daggett Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) 41