Item 9A. Controls and Procedures
Item 9A. 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 December 31, 2023. 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 SEC’s rules and forms, 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.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our Chief Executive
Officer and our Chief Financial Officer, our management has reviewed and evaluated the effectiveness of our internal control over financial
reporting based on the framework and criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements.
Based on our evaluation under the COSO Framework,
the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s current internal control over financial
reporting is effective at December 31, 2023, and that our consolidated financial statements we include in this 2023 Annual Report present
fairly, in all material respects, our financial position, results of operations, and cash flows in conformity with accounting principles
generally accepted in the United States of America.
Mazars USA LLP, our independent registered public
accounting firm, has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2023.
This audit report appears in Part II, Item 8 “Financial Statements and Supplementary Data” of this 2023 Annual Report.
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. We continued this initiative during the annual period ending
December 31, 2023, in support of the audit of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley
Act of 2002, which resulted in various enhancements to our internal control over financial reporting.
Item 9B. Other Information
10b5-1 Trading Plans
During the fourth quarter of
2023, none of our directors or executive officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any
“Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408(a)
of Regulation S-K).
Adoption of 2024
Short-Term Cash Incentive Plan
On February 29, 2024, the Company’s
Board of Directors approved the 2024 Short-Term Cash Incentive Plan (the “STIP”). Certain key employees, including employees
who are employed to serve as executive officers, participate in the STIP as determined by the
95
Compensation Committee. The STIP will be
administered by the Compensation Committee as authorized by the Board. Participants are eligible to receive cash bonuses based on the
achievement of certain specified metrics, including based on the Company’s combined ratio, direct written premium growth, and a
measurable goal set by the Chief Executive Officer, depending on the individual participant.
The foregoing summary of the STIP does not
purport to be complete and is subject to, and qualified in its entirety by, the full text of the STIP, which is attached as Exhibit 10.18
to this report and is incorporated by reference herein.
Performance Share Unit Agreement
On February 29, 2024, the Company’s
Board of Directors adopted a form of Adjusted Return on Equity Performance Share Unit Agreement (the “PSU Agreement”) for
PSU awards granted under the 2020 Stock and Incentive Plan. Each PSU Agreement will set forth the maximum number of PSUs to be earned,
assuming achievement of the relevant adjusted return on equity over the measurement period commencing on January 1, 2024 and ending on
December 31, 2026.
Achievement
of the Company’s objectives relating to adjusted return on equity during the measurement period will determine the actual number
of PSUs to be earned. The target number of PSUs will be divided into thirds, with one third assigned to each of the three fiscal years
in the measurement period. The number of PSUs that will be earned for a fiscal year in the measurement period will be determined based
on the Company’s achievement of adjusted return on equity goals for the applicable fiscal year. A PSU earned for a given fiscal
year shall vest if the participant remains in service to the Company through the end of the measurement period (subject to the exceptions
described below). Each PSU earned and vested will be settled in one share of the Company’s common stock. The Compensation Committee
will certify performance following the measurement period no later than March 15, 2027.
If the
participant dies while in service with the Company prior to the last day of the measurement period, then the number of PSUs earned for
completed fiscal years at the time of death, together with one-third of the target number of PSUs for each fiscal year not completed at
the time of death, shall vest and become immediately payable. If the participant’s service with the Company is terminated due to
the participant’s disability, retirement, or involuntary termination due to a position elimination or reorganization (each a “qualifying
termination”), before the last day of the measurement period, the PSUs will remain outstanding until the last day of the measurement
period and the participant will have a fully vested interest in a pro rata number of the earned PSUs as of the last day of the measurement
period. If a change in control occurs after a qualifying termination but prior to the end of the measurement period, the measurement period
shall end upon the change in control, and the participant will have a vested interest in a pro rata number of the earned PSUs as of the
last day of the measurement period (using the target number of PSUs for any fiscal year not completed as of the change in control). If
a change in control occurs while the participant is in service to the Company, the PSUs earned for fiscal years completed as of the change
in control, together with one-third of the target number of PSUs for each fiscal year not completed as of the change in control, will
be earned and converted into time-based RSUs. If such RSUs are assumed in connection with the change in control, then the RSUs will become
fully vested if the participant remains in service with the Company until December 31, 2026, dies while in service, resigns at retirement
age, or terminates their employment due to disability or involuntary termination due to position elimination or reorganization. If the
participant’s service with the Company is involuntarily terminated without cause or if the participant resigns for good reason within
24 months following a change in control but prior to December 31, 2026, any RSUs that remain unvested will vest in full and become non-forfeitable
as of the date of such termination.
The foregoing summary does not purport to
be complete and is subject to, and qualified in its entirety by, the full text of the PSU Agreement, which is attached as Exhibit 10.17
to this report and is incorporated by reference herein.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
96
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We incorporate the response to this Item 10 by reference
to our proxy statement we will file with the SEC on or about April 10, 2024 relating to our Annual Meeting of Shareholders that we will
hold on May 21, 2024 (our “Proxy Statement”).
We have posted a copy of our Code of Ethics and Business
Conduct on the Governance Highlights page of the Corporate Governance section of our website, www.niholdingsinc.com,
which you can access free of charge. Information contained on the website is not incorporated by reference in, or considered part of,
this 2023 Annual Report. We intend to disclose on our website any amendments to, or waivers from, our Code of Ethics and Business Conduct
that are required to be disclosed by law or NASDAQ Listing Rules.
Item 11. Executive Compensation
We incorporate the response to this Item 11 by reference
to our Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate the response to this Item 12 by reference
to our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We incorporate the response to this Item 13 by reference
to our Proxy Statement.
Item 14. Principal Accountant Fees and Services
We incorporate the response to this Item 14 by reference
to our Proxy Statement.
97
PART IV
Item 15. Exhibits and Financial Statement Schedules
List of Financial Statements and Financial Statement Schedules
(a) The following documents are filed as a part of this report:
(1) Financial Statements and
(2) Financial Statement schedules required to be filed by Item 8 of this report.
Schedule I Condensed financial information
of registrant – NI Holdings, Inc.
All other financial schedules are not required under the
related instructions, as they are inapplicable or the information has been included in the consolidated financial statements, and therefore
have been omitted.
(3) The following exhibits are required by Item 601 of Regulation S-K and are included as part of this Form 10-K:
2.1
Plan of Mutual Property and Casualty Insurance Company Conversion and Minority Offering of Nodak Mutual Insurance Company, dated as of January 21, 2016 (1)
3.1
Articles of Incorporation of NI Holdings, Inc. (1)
3.2
Articles of Amendment to the Articles of Incorporation, dated May 24, 2023. (10)
3.3
Amended and Restated Bylaws of NI Holdings, Inc., dated May 24, 2023. (10)
4.1
Form of certificate evidencing shares of common stock of NI Holdings, Inc. (1)
4.2
Description of Securities Registered Under Section 12 of the Exchange Act (6)
10.1
2017 NI Holdings, Inc. Equity Incentive Plan (4)
10.2
Nodak Mutual Insurance Company Nonqualified Deferred Compensation Plan (1)
10.3#
Employment Agreement dated as of April 28, 2016, between Michael J. Alexander and Nodak Mutual Insurance Company and NI Holdings, Inc. (1)
10.4#
Amended and Restated Employment Agreement dated as of August 8, 2023, between
Seth C. Daggett and Nodak Insurance Company and NI Holdings, Inc. (7)
10.5#
Employment Agreement dated as of April 28, 2016, between Patrick W. Duncan and Nodak Mutual Insurance Company and NI Holdings, Inc. (1)
10.6
Trademark License Agreement dated as of October 1, 2016 between North Dakota Farm Bureau and Nodak Mutual Insurance Company (1)
10.7
Multiple Peril Crop/Livestock Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and Nodak Mutual Insurance Company, American West Insurance Company and Battle Creek Mutual Insurance Company for Crop Year 2016 (1)
10.8
Crop Hail Insurance Full Service Agency Agreement among American Farm Bureau Insurance Services, Inc. and Nodak Mutual Insurance Company, American West Insurance Company and Battle Creek Mutual Insurance Company for Crop Year 2016 (1)
10.9#
Nodak Mutual Insurance Company Cash Incentive Bonus Plan (3)
10.10#
NI Holdings, Inc. Employee Stock Ownership Plan (1)
10.11
Affiliation Agreement dated as of December 30, 2010 between Nodak Mutual Insurance Company and Battle Creek Mutual Insurance Company (2)
10.12
Form of Time-Based Restricted Stock Unit Agreement for Non-Employee Directors (5)
98
10.13
NI Holdings, Inc. 2020 Stock and Incentive Plan (5)
10.14#
Form of Time-Based Restricted Stock Unit Agreement for Executives (8)
10.15#
Form of NI Holdings, Inc. Growth in Book Value Per Share Performance Share Unit Agreement (8)
10.16#
2022 NI Holdings, Inc. Short-Term Incentive Bonus (9)
10.17#*
Form of NI Holdings, Inc. Adjusted Return on Equity Performance Share Unit Agreement
10.18#*
2024 NI Holdings, Inc. Short-Term Incentive Bonus
21.1*
Subsidiaries of NI Holdings, Inc.
23.1*
Consent of Mazars USA LLP, Fort Washington, PA, PCAOB ID 339
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.
97*
NI Holdings, Inc. Incentive Compensation Recovery Policy, adopted December 1, 2023.
101.INS** Inline 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)
* Filed herewith.
** Inline XBRL (Extensible
Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended, and otherwise is not subject to liability under these sections.
# Management contract or compensatory
plan or arrangement.
(1) Filed as an exhibit to
the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on October 11, 2016, and incorporated
herein by reference.
(2) Filed as an exhibit to
Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on November 14, 2016,
and incorporated herein by reference.
(3) Filed as an exhibit to
Amendment No. 4 to the Company’s Registration Statement on Form S-1 (File No. 333-214057) filed with the SEC on January 12, 2017,
and incorporated herein by reference.
(4) Filed as Exhibit 10.1
to the Company’s Form 8-K (File No. 001-37973) filed with the SEC on September 18, 2017, and incorporated herein by reference.
99
(5) Filed as an exhibit to
the Company’s Form 8-K (File No. 001-37973) filed with the SEC on May 29, 2020, and incorporated herein by reference.
(6) Filed as an exhibit to
the Company’s Form 10-K (File No. 001-37973) filed with the SEC on March 10, 2021, and incorporated herein by reference.
(7) Filed as Exhibit 10.1
to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on August 8, 2023, and incorporated herein by reference.
(8) Filed as an exhibit
to the Company’s Form 10-K (File No. 001-37973) filed with the SEC on March 9, 2022, and incorporated herein by reference.
(9) Filed as an exhibit
to the Company’s Form 10-Q (File No. 001-37973) filed with the SEC on May 6, 2022, and incorporated herein by reference.
(10) Filed as an exhibit to the
Company’s Form 8-K (File No. 001-37973) filed with the SEC on May 25, 2023, and incorporated herein by reference.
Item 16. Form 10-K Summary
None.
100
Schedule I – Condensed financial information of registrant
– NI Holdings, Inc.
Condensed Balance Sheets
December 31,
2023
2022
Assets:
Cash and cash equivalents
$ 308
$ 3,791
Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at December 31, 2023 and $0 at December 31, 2022)
810
1,013
Equity securities, at fair value
13
6,211
Total cash and investments
1,131
11,015
Income tax recoverable
844
946
Accrued investment income
1
2
Investment in wholly-owned subsidiaries
246,360
239,110
Deferred income taxes
427
1,088
Total assets
$ 248,763
$ 252,161
Liabilities:
Accrued expenses and other liabilities
$ 1,122
$ 1,184
Total liabilities
1,122
1,184
Shareholders’ equity
247,641
250,977
Total liabilities and shareholders’ equity
$ 248,763
$ 252,161
101
Condensed Statements of Operations
Year Ended December 31,
2023
2022
2021
Revenues:
Net investment income
$ (122 )
$ 143
$ 396
Net investment gains (losses)
(217 )
(492 )
2,119
Total revenues
(339 )
(349 )
2,515
Expenses:
Other underwriting and general expenses
4,612
3,002
4,543
Total expenses
4,612
3,002
4,543
Income (loss) before income taxes and equity in undistributed net income (loss) of subsidiaries
(4,951 )
(3,351 )
(2,028 )
Income tax expense (benefit)
(111 )
(1,124 )
(156 )
Income (loss) before equity in undistributed net income (loss) of subsidiaries
(4,840 )
(2,227 )
(1,872 )
Equity in undistributed net income (loss) of subsidiaries
(636 )
(50,869 )
10,288
Net income (loss) attributable to NI Holdings, Inc.
$ (5,476 )
$ (53,096 )
$ 8,416
Condensed Statements of Comprehensive Income
Year Ended December 31,
2023
2022
2021
Net income (loss) attributable to NI Holdings, Inc.
$ (5,476 )
$ (53,096 )
$ 8,416
Other comprehensive income (loss), net of income taxes:
Unrealized gain (loss) on investments
15
(165 )
(346 )
Unrealized gain (loss) attributed to subsidiaries
7,887
(34,358 )
(7,257 )
Other comprehensive income (loss), net of income taxes
7,902
(34,523 )
(7,603 )
Comprehensive income (loss)
$ 2,426
$ (87,619 )
$ 813
102
Condensed Statements of Cash Flows
Year Ended December 31,
2023
2022
2021
Cash flows from operating activities:
Net income (loss) attributable to NI Holdings, Inc.
$ (5,476 )
$ (53,096 )
$ 8,416
Adjustments to reconcile net income (loss) attributable to NI Holdings, Inc. to net cash flows from operating activities:
Equity in undistributed net income of subsidiaries
636
50,869
(10,288 )
Other
2,603
359
1,159
Net adjustments
3,239
51,228
(9,129 )
Net cash flows from operating activities
(2,237 )
(1,868 )
(713 )
Cash flows from investing activities:
Proceeds from maturities and sales of fixed income securities
223
9,942
10,103
Proceeds from sales of equity securities
6,863
4,278
7,306
Purchases of fixed income securities
—
—
(808 )
Purchases of equity securities
(882 )
(2,023 )
(4,512 )
Net cash flows from investing activities
6,204
12,197
12,089
Cash flows from financing activities:
Dividend from subsidiaries
—
3,000
—
Purchase of treasury stock
(7,278 )
(4,180 )
(4,316 )
Installment payment on Westminster consideration payable
—
(13,333 )
(6,667 )
Issuance of vested award shares
(172 )
(768 )
(488 )
Net cash flows from financing activities
(7,450 )
(15,281 )
(11,471 )
Net decrease in cash and cash equivalents
(3,483 )
(4,952 )
(95 )
Cash and cash equivalents at beginning of period
3,791
8,743
8,838
Cash and cash equivalents at end of period
$ 308
$ 3,791
$ 8,743
Note A – Basis of Presentation
In the parent-company-only financial statements, the Company’s
investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since inception. The parent-company-only
financial statements should be read in conjunction with the Company’s consolidated financial statements.
Note B – Dividends from Subsidiaries
The Company received no cash dividends from its subsidiaries during
the years ended December 31, 2023 and 2021. A cash dividend of $3,000 was received from Nodak Insurance during the year ended December
31, 2022.
103
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 15, 2024.
NI HOLDINGS, INC.
/s/ Michael J. Alexander
Michael J. Alexander
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 15, 2024, by the following persons on behalf of the registrant and in the capacities indicated.
Signature
Capacity
Date
/s/ Michael J. Alexander
President and Chief Executive Officer ( Principal Executive Officer ), Director
March 15, 2024
Michael J. Alexander
/s/ Seth C. Daggett
Chief Financial Officer ( Principal Financial Officer and Principal Accounting Officer )
March 15, 2024
Seth C. Daggett
/s/ Eric K. Aasmundstad
Director
March 15, 2024
Eric K. Aasmundstad
/s/ William R. Devlin
Director
March 15, 2024
William R. Devlin
/s/ Duaine C. Espegard
Director
March 15, 2024
Duaine C. Espegard
/s/ Cindy L. Launer
Director
March 15, 2024
Cindy L. Launer
/s/ Stephen V. Marlow
Director
March 15, 2024
Stephen V. Marlow
/s/ Prakash Mathew
Director
March 15, 2024
Prakash Mathew
/s/ Jeffrey R. Missling
Director
March 15, 2024
Jeffrey R. Missling
104