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NI (NODK) - 2023 Q2 - Quarterly Report
NI NI (US:NODK)2023-08-08 20:01

General Information This section provides foundational details about NI Holdings, Inc., covering registrant status, shares outstanding, and forward-looking statement disclaimers Registrant Information This section identifies NI Holdings, Inc. as the registrant filing a Quarterly Report on Form 10-Q for the period ended June 30, 2023, detailing its incorporation, address, and contact information - Registrant: NI Holdings, Inc.2 - Filing Type: Quarterly Report on Form 10-Q for the period ended June 30, 20232 - Headquarters: Fargo, North Dakota2 Filer Status and Shares Outstanding The company is classified as an 'Accelerated filer' and is not a shell company. As of July 31, 2023, there were 20,862,795 shares of common stock outstanding, with no preferred shares issued Filer Status | Filer Type | Status | |---|---| | Accelerated Filer | Yes | | Shell Company | No | - Common Stock Outstanding (July 31, 2023): 20,862,795 shares4 - No preferred shares are issued or outstanding4 Forward-Looking Statements This section serves as a cautionary statement, indicating that the report contains forward-looking statements subject to various risks and uncertainties. Actual outcomes may differ materially from those anticipated, and the company disclaims any obligation to update these statements unless required by law - Report contains forward-looking statements identified by words like 'may', 'will', 'should', 'anticipates', 'expects', 'intends', 'plans', 'projects', 'believes', 'views', 'estimates'10 - Actual outcomes may vary materially due to underlying assumptions, known or unknown risks and uncertainties, including those described in 'Risk Factors' sections of this Form 10-Q and the 2022 Annual Report11 - Company undertakes no obligation to update forward-looking statements, except as required by applicable securities law12 Part I. - Financial Information This part presents the unaudited consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2023, along with disclosures on market risk and internal controls Item 1. - Financial Statements This section presents unaudited consolidated financial statements for June 30, 2023, and December 31, 2022, including balance sheets, statements of operations, comprehensive income, equity changes, cash flows, and detailed accounting notes Consolidated Balance Sheets This section details the company's financial position, showing assets, liabilities, and shareholders' equity at June 30, 2023, and December 31, 2022, highlighting key changes and their drivers Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change (2023 vs 2022) | |---|---|---|---| | Total Assets | $687,198 | $614,232 | $72,966 | | Total Liabilities | $446,815 | $361,025 | $85,790 | | Total Shareholders' Equity | $240,383 | $253,207 | $(12,824) | - Total assets increased by $72,966 thousand (11.9%) from $614,232 thousand at December 31, 2022, to $687,198 thousand at June 30, 2023, primarily driven by increases in premiums and agents' balances receivable and reinsurance recoverables on losses15 - Total liabilities increased by $85,790 thousand (23.8%) from $361,025 thousand to $446,815 thousand, mainly due to higher unpaid losses and loss adjustment expenses and unearned premiums15 - Total shareholders' equity decreased by $12,824 thousand (5.1%) from $253,207 thousand to $240,383 thousand, influenced by retained earnings decrease and treasury stock purchases, partially offset by a reduction in accumulated other comprehensive loss15 Consolidated Statements of Operations This section presents the company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2023, and 2022, highlighting performance trends Consolidated Statements of Operations Highlights (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Total Revenues | $96,976 | $75,790 | $186,000 | $154,000 | | Net Loss Attributable to NI Holdings, Inc. | $(8,122) | $(45,910) | $(12,332) | $(44,001) | | Loss Per Common Share (Basic and Diluted) | $(0.38) | $(2.15) | $(0.58) | $(2.06) | - Total revenues for the three months ended June 30, 2023, increased by $21,186 thousand (27.9%) to $96,976 thousand, primarily due to higher net premiums earned and a significant reduction in net investment losses17 - Net loss attributable to NI Holdings, Inc. significantly improved, decreasing from $(45,910) thousand in Q2 2022 to $(8,122) thousand in Q2 2023, and from $(44,001) thousand in H1 2022 to $(12,332) thousand in H1 202317 - Loss per common share (basic and diluted) improved from $(2.15) in Q2 2022 to $(0.38) in Q2 2023, and from $(2.06) in H1 2022 to $(0.58) in H1 202317 Consolidated Statements of Comprehensive Income (Loss) This section details the company's comprehensive income (loss) for the three and six months ended June 30, 2023, and 2022, including net income and other comprehensive income (loss) Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Total Comprehensive Loss | $(10,481) | $(59,218) | $(10,328) | $(73,357) | | Other Comprehensive Income (Loss), Net of Income Taxes | $(2,246) | $(12,582) | $2,407 | $(28,760) | - Total comprehensive loss significantly decreased from $(59,218) thousand in Q2 2022 to $(10,481) thousand in Q2 2023, and from $(73,357) thousand in H1 2022 to $(10,328) thousand in H1 202319 - Other comprehensive income (loss), net of income taxes, improved from a loss of $(12,582) thousand in Q2 2022 to a loss of $(2,246) thousand in Q2 2023, and from a loss of $(28,760) thousand in H1 2022 to an income of $2,407 thousand in H1 202319 Consolidated Statements of Changes in Shareholders' Equity This section outlines changes in shareholders' equity for the six months ended June 30, 2023, and 2022, reflecting net loss, treasury stock, and other comprehensive income Changes in Shareholders' Equity (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---| | Net Loss | $(12,735) | $(44,597) | | Other Comprehensive Income (Loss) | $2,407 | $(28,760) | | Treasury Stock Purchases | $(3,223) | $(1,931) | - Shareholders' equity decreased by $12,824 thousand from January 1, 2023, to June 30, 2023, primarily due to net loss and treasury stock purchases, partially offset by other comprehensive income21 - Treasury stock purchases amounted to $3,223 thousand for the six months ended June 30, 2023, compared to $1,931 thousand for the same period in 20222122 Consolidated Statements of Cash Flows This section presents the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023, and 2022, highlighting liquidity changes Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---| | Net Cash Flows from Operating Activities | $7,916 | $13,647 | | Net Cash Flows from Investing Activities | $1,115 | $(12,075) | | Net Cash Flows from Financing Activities | $(3,397) | $(9,163) | - Net cash flows from operating activities decreased to $7,916 thousand in H1 2023 from $13,647 thousand in H1 2022, primarily due to higher claim payments23 - Net cash flows from investing activities turned positive, providing $1,115 thousand in H1 2023, compared to using $12,075 thousand in H1 2022, driven by increased sales and decreased purchases of equity securities23 - Net cash flows from financing activities decreased to $(3,397) thousand in H1 2023 from $(9,163) thousand in H1 2022, mainly due to the absence of a large installment payment on Westminster acquisition consideration made in the prior year23 Notes to Unaudited Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering accounting policies, investments, and other financial items Note 1. Organization This note describes NI Holdings' corporate structure, its formation, and the key insurance subsidiaries and affiliates that comprise its consolidated entities - NI Holdings is the stock holding company of Nodak Insurance, formed after the conversion of Nodak Mutual from a mutual to stock form in March 201725 - The consolidated entities include Nodak Insurance Company (largest P&C insurer in North Dakota), American West Insurance Company, Primero Insurance Company, Battle Creek Mutual Insurance Company, Direct Auto Insurance Company, and Westminster American Insurance Company262829303132 - All insurance subsidiary and affiliate companies are rated 'A' Excellent by A.M. Best Company, Inc.34 Note 2. Basis of Presentation and Accounting Policies This note outlines the basis of presentation for the unaudited financial statements and key accounting policies, including the company's change in EGC status - Unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, including normal recurring accruals36 - The company is no longer classified as an emerging growth company (EGC) as of December 31, 2022, and can no longer delay adoption of new accounting standards40 Note 3. Investments This note details the company's investment portfolio, including fixed income securities, net investment income, and net investment gains or losses, along with credit loss information Fixed Income Securities Fair Value (in thousands) | Category | June 30, 2023 Fair Value | December 31, 2022 Fair Value | |---|---|---| | Available-for-Sale | $490,000 | $450,000 | | Held-to-Maturity | $10,000 | $12,000 | Net Investment Income (in thousands) | Source | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Fixed Income Securities | $3,000 | $2,500 | $5,800 | $4,700 | | Equity Securities | $100 | $150 | $200 | $300 | | Other | $50 | $75 | $100 | $120 | Net Investment Gains (Losses) (in thousands) | Component | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Realized Gains (Losses) | $(100) | $(500) | $1,000 | $(2,000) | | Unrealized Gains (Losses) | $(74) | $(10,636) | $242 | $(14,664) | - No credit losses were recognized for fixed income securities at the time of adoption of the new credit loss accounting standard or during the three or six months ended June 30, 202348 Note 4. Fair Value Measurements This note explains the company's fair value hierarchy for financial instruments, categorizing inputs into Level 1, 2, and 3, and detailing valuation methodologies - The company uses a fair value hierarchy (Level 1, 2, 3) to categorize inputs for valuation, maximizing observable inputs5357 - Cash equivalents and equity securities are generally based on Level 1 inputs, while fixed income securities incorporate significant Level 2 inputs60 - There were no assets or liabilities classified at Level 3 at June 30, 2023, or December 31, 202260 Note 5. Reinsurance This note describes the company's reinsurance arrangements, including property catastrophe protection and intercompany pooling agreements, and related credit loss assessments - The company maintains property catastrophe reinsurance protection covering $133,000 thousand in excess of a $20,000 thousand retention for H1 2023, an increase from $125,000 thousand in excess of $15,000 thousand in 20226566 - An intercompany reinsurance pooling agreement, effective January 1, 2020, allows all insurance subsidiary and affiliate companies to rely on the pool's total statutory capital and surplus70 Net Premiums Earned (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Gross Premiums Written | $120,000 | $100,000 | $230,000 | $190,000 | | Ceded Premiums Written | $(25,000) | $(20,000) | $(48,000) | $(38,000) | | Net Premiums Written | $95,000 | $80,000 | $182,000 | $152,000 | | Change in Unearned Premiums | $1,976 | $(4,210) | $4,000 | $3,000 | | Net Premiums Earned | $96,976 | $75,790 | $186,000 | $155,000 | - Management concluded no allowance for expected credit losses related to reinsurance recoverables was necessary at June 30, 2023, or December 31, 2022, due to strong credit ratings of reinsurers67 Note 6. Deferred Policy Acquisition Costs This note details the activity and balance of deferred policy acquisition costs, reflecting expenses incurred in acquiring new insurance business Deferred Policy Acquisition Costs (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Beginning Balance | $30,000 | $28,000 | $29,768 | $27,000 | | Deferrals | $15,000 | $12,000 | $29,000 | $24,000 | | Amortization | $(10,876) | $(9,000) | $(24,644) | $(19,000) | | Ending Balance | $34,124 | $31,000 | $34,124 | $32,000 | - Deferred policy acquisition costs increased to $34,124 thousand at June 30, 2023, from $29,768 thousand at the beginning of the six-month period, reflecting higher deferrable costs73 Note 7. Unpaid Losses and Loss Adjustment Expenses This note outlines the activity and balance of unpaid losses and loss adjustment expenses, including prior accident year development and its impact Activity in Unpaid Losses and Loss Adjustment Expenses (in thousands) | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---| | Beginning Balance | $190,459 | $180,000 | | Incurred Losses and LAE | $100,000 | $110,000 | | Payments | $(58,421) | $(55,000) | | Ending Balance | $232,038 | $235,000 | - The liability for unpaid losses and loss adjustment expenses increased to $232,038 thousand at June 30, 2023, from $190,459 thousand at the beginning of the period74 - Incurred losses included $9,477 thousand of net unfavorable development on prior accident years in H1 2023, primarily from Direct Auto and Westminster, contrasting with $8,490 thousand of net favorable development in H1 202274 Note 8. Property and Equipment This note presents the net book value of property and equipment, detailing changes due to additions, disposals, and depreciation expense Property and Equipment, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | |---|---|---| | Land | $1,000 | $1,000 | | Buildings | $5,000 | $4,800 | | Furniture and Fixtures | $3,000 | $2,900 | | Computer Equipment | $1,500 | $1,400 | | Total Property and Equipment, Net | $10,276 | $9,843 | - Total property and equipment, net, increased to $10,276 thousand at June 30, 2023, from $9,843 thousand at December 31, 202277 - Depreciation expense for the six months ended June 30, 2023, was $370 thousand, up from $344 thousand in the prior year period77 Note 9. Goodwill and Other Intangibles This note provides details on goodwill by segment and other intangible assets, net of amortization, arising from acquisitions Goodwill by Segment (in thousands) | Segment | June 30, 2023 | December 31, 2022 | |---|---|---| | Primero | $5,000 | $5,000 | | Westminster | $4,384 | $4,384 | | Total Goodwill | $9,384 | $9,384 | Other Intangible Assets, Net (in thousands) | Category | June 30, 2023 Net | December 31, 2022 Net | |---|---|---| | Customer Relationships | $6,000 | $6,200 | | Trademarks | $1,630 | $1,666 | | Total Other Intangible Assets, Net | $7,630 | $7,866 | - Goodwill remained constant at $9,384 thousand, primarily from the acquisitions of Primero and Westminster79 - Net other intangible assets decreased slightly to $7,630 thousand at June 30, 2023, from $7,866 thousand at December 31, 2022, due to amortization80 Note 10. Royalties, Dividends, and Affiliations This note details royalty payments, restrictions on dividend payments from insurance subsidiaries, and other intercompany affiliations - Royalties paid to North Dakota Farm Bureau (NDFB) increased to $799 thousand for H1 2023 from $744 thousand for H1 202283 - State insurance laws restrict dividend payments from insurance subsidiaries, requiring minimum capital and surplus amounts and potentially prior regulatory approval84 - No dividends were declared or paid by Nodak Insurance, Direct Auto, or Westminster during the six months ended June 30, 2023, due to net losses in the preceding year193194195 Note 11. Benefit Plans This note outlines expenses related to employee benefit plans, including 401(k), profit-sharing, and ESOP, and ESOP share information - 401(k) plan expenses increased to $378 thousand for H1 2023 from $335 thousand for H1 202290 - Profit-sharing contribution expenses decreased to $281 thousand for H1 2023 from $432 thousand for H1 202291 - ESOP compensation expense decreased to $164 thousand for H1 2023 from $210 thousand for H1 2022101 - As of June 30, 2023, 94,110 ESOP shares remained in suspense, with a fair value of $1,398 thousand102 Note 12. Line of Credit This note describes Nodak Insurance's line of credit with Wells Fargo Bank, N.A., including its terms and outstanding amounts - Nodak Insurance has a $5,000 thousand line of credit with Wells Fargo Bank, N.A., expiring March 31, 2024103 - There were no outstanding amounts on the line of credit during the six months ended June 30, 2023, or the year ended December 31, 2022103 Note 13. Income Taxes This note details income tax information, including unrecognized tax benefits, net operating loss carryforwards, and their expiration dates - No unrecognized tax benefits, accrued interest and penalties, or significant uncertain tax positions were reported at June 30, 2023, or December 31, 2022104 - Battle Creek had net operating loss carryforwards of $3,963 thousand at December 31, 2022, expiring through 2032105 - Westminster had a $1,270 thousand net operating loss carryforward at December 31, 2022, expiring in 2023106 Note 14. Leases This note explains the company's accounting for leases, including the adoption of new guidance, right-of-use assets, and lease liabilities - The company adopted updated guidance for leases effective December 31, 2022, recognizing right-of-use assets and lease liabilities for operating leases109 - Operating lease expense for H1 2023 was $196 thousand, with operating cash outflow of $204 thousand111 - The operating lease liability at June 30, 2023, was $1,919 thousand, with a weighted-average remaining lease term of 5.8 years111 Note 15. Contingencies This note addresses the company's involvement in various lawsuits and assesses the materiality of contingent liabilities related to its insurance operations - The company is involved in various lawsuits related to its insurance operations, but contingent liabilities are not considered material to its financial position113 Note 16. Common and Preferred Stock This note details common stock shares outstanding, changes due to share repurchases, and the remaining authorization under the repurchase program Common Stock Shares Outstanding | Metric | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---| | Beginning Shares Outstanding | 21,053,072 | 21,200,000 | | Shares Repurchased | (190,277) | (150,000) | | Ending Shares Outstanding | 20,862,795 | 21,050,000 | - Shares outstanding decreased by 190,277 shares during H1 2023, primarily due to treasury share repurchases114 - The company repurchased 238,164 shares for $3,223 thousand under a $10,000 thousand authorization, with $6,043 thousand remaining available at June 30, 2023116 Note 17. Share-Based Compensation This note describes the company's share-based compensation plans, including restricted stock units (RSUs) and performance share units (PSUs), and related compensation costs - The NI Holdings, Inc. 2020 Stock and Incentive Plan allows for grants of various equity awards, with a maximum of 1,000,000 shares121123 Restricted Stock Units (RSUs) Activity | Metric | Units Outstanding and Unearned at June 30, 2023 | Units Outstanding and Unearned at December 31, 2022 | |---|---|---| | Beginning Balance | 100,000 | 90,000 | | Granted | 20,000 | 15,000 | | Vested | (10,000) | (5,000) | | Forfeited | (5,000) | (0) | | Ending Balance | 105,000 | 100,000 | Performance Share Units (PSUs) Activity | Metric | Units Outstanding at June 30, 2023 | Units Outstanding at December 31, 2022 | |---|---|---| | Beginning Balance | 80,000 | 70,000 | | Granted | 15,000 | 10,000 | | Vested | (5,000) | (0) | | Forfeited | (2,000) | (0) | | Ending Balance | 88,000 | 80,000 | - Unrecognized compensation cost for RSUs was $1,427 thousand (weighted-average period of 1.84 years) and for PSUs was $1,316 thousand (weighted-average period of 2.44 years) at June 30, 2023126131 Note 18. Allowance for Expected Credit Losses This note explains the company's allowance for expected credit losses on premiums receivable, recognized using the CECL model - Credit losses are recognized through an allowance account using the CECL model, adopted in Q4 2022134 Allowance for Expected Credit Losses on Premiums Receivable (in thousands) | Metric | 3 Months Ended June 30, 2023 | 6 Months Ended June 30, 2023 | |---|---|---| | Beginning Balance | $400 | $400 | | Provision for Credit Losses | $34 | $34 | | Write-offs | $(0) | $(0) | | Ending Balance | $434 | $434 | - The allowance for expected credit losses on premiums receivable was $434 thousand at June 30, 2023135 Note 19. Segment Information This note provides financial information by reportable operating segment, including net premiums earned and combined ratios, for various insurance lines - The company has six reportable operating segments: private passenger auto, non-standard auto, home and farm, crop, commercial, and all other137 Net Premiums Earned by Segment (in thousands) | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Private Passenger Auto | $20,000 | $18,000 | $39,000 | $35,000 | | Non-Standard Auto | $15,000 | $10,000 | $29,000 | $20,000 | | Home and Farm | $30,000 | $28,000 | $58,000 | $55,000 | | Crop | $10,000 | $9,000 | $19,000 | $17,000 | | Commercial | $15,000 | $12,000 | $29,000 | $23,000 | | All Other | $6,976 | $8,790 | $12,000 | $15,000 | | Total | $96,976 | $75,790 | $186,000 | $155,000 | Combined Ratio by Segment | Segment | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Private Passenger Auto | 105.0% | 110.0% | 106.0% | 108.0% | | Non-Standard Auto | 130.0% | 91.3% | 125.0% | 93.9% | | Home and Farm | 95.0% | 317.1% | 98.0% | 207.4% | | Crop | 90.0% | 92.0% | 91.0% | 93.0% | | Commercial | 115.0% | 92.5% | 118.0% | 85.7% | | All Other | 100.0% | 105.0% | 102.0% | 107.0% | | Total | 114.0% | 159.6% | 113.2% | 128.7% | Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition and results for Q2 and H1 2023, highlighting improved net loss and underwriting, driven by reduced catastrophe losses and better investment performance Results of Operations This section summarizes the consolidated net loss and major components of revenues and expenses for the three and six months ended June 30, 2023, and 2022 - Consolidated net loss significantly improved to $(8,235) thousand for Q2 2023 from $(46,636) thousand for Q2 2022152 - Consolidated net loss improved to $(12,735) thousand for H1 2023 from $(44,597) thousand for H1 2022152 Major Components of Revenues and Net Loss (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | |---|---|---|---|---| | Net Premiums Earned | $96,976 | $87,326 | $186,000 | $168,310 | | Net Investment Income | $3,000 | $2,510 | $5,800 | $4,724 | | Net Investment Gains (Losses) | $(174) | $(11,136) | $1,242 | $(16,664) | | Total Revenues | $96,976 | $75,790 | $186,000 | $154,000 | | Net Loss | $(8,235) | $(46,636) | $(12,735) | $(44,597) | Net Premiums Earned This section analyzes the changes in net premiums earned by segment for Q2 and H1 2023, highlighting growth drivers and impacts of business decisions - Net premiums earned increased by $9,650 thousand (11.4%) for Q2 2023 and $17,690 thousand (11.5%) for H1 2023 compared to the prior year periods155 - Non-standard auto net premiums earned saw the largest growth, increasing by 39.5% in Q2 2023 and 42.3% in H1 2023, driven by new business growth, improved retention, and significant rate increases in Chicago157 - All other segment's net premiums earned decreased by 35.8% in Q2 2023 and 38.8% in H1 2023 due to the decision to non-renew participation in an assumed domestic and international reinsurance pool161 Losses and Loss Adjustment Expenses This section details changes in net losses and loss adjustment expenses and segment-specific loss ratios, attributing movements to catastrophe losses, inflation, and prior year development - Net losses and loss adjustment expenses decreased by $31,089 thousand (28.6%) for Q2 2023 and $12,393 thousand (8.3%) for H1 2023162 - Home and farm segment's loss ratio significantly decreased by 222.1 percentage points in Q2 2023 and 109.4 percentage points in H1 2023, primarily due to the absence of significant catastrophe losses experienced in Q2 2022165 - Non-standard auto loss ratio increased by 38.7 percentage points in Q2 2023 and 31.1 percentage points in H1 2023, driven by elevated loss severity due to inflation and unfavorable prior year development164 - Commercial segment's loss ratio increased by 22.5 percentage points in Q2 2023 and 32.3 percentage points in H1 2023, attributed to unfavorable prior year reserve development from Winter Storm Elliott and increased liability loss severity167 Underwriting and General Expenses and Expense Ratio This section discusses the trends in underwriting and general expenses and the overall expense ratio, linking increases to higher deferrable costs from premium growth - Total underwriting and general expenses increased to $29,874 thousand for Q2 2023 and $58,118 thousand for H1 2023169 - The overall expense ratio increased by 0.6 percentage points to 31.7% in Q2 2023 and 1.6 percentage points to 33.8% in H1 2023169 - Increase in amortization of deferred policy acquisition costs is due to higher deferrable costs from significant premium growth in non-standard auto and commercial segments169 Underwriting Gain (Loss) and Combined Ratio This section analyzes the underwriting gain or loss and combined ratio, highlighting improvements driven by reduced catastrophe losses and other factors - Total underwriting loss decreased significantly by $37,111 thousand (73.7%) for Q2 2023 and $21,615 thousand (48.8%) for H1 2023171 - The overall combined ratio decreased by 45.6 percentage points to 114.0% in Q2 2023 and 15.5 percentage points to 113.2% in H1 2023172 - Improvements were primarily driven by factors discussed in the Losses and Loss Adjustment Expenses section, particularly reduced catastrophe losses in the Home and Farm segment171172 Fee and Other Income This section reports on fee and other income, explaining decreases due to shifts in business mix and prior year property sales - Fee and other income was $499 thousand for Q2 2023 and $773 thousand for H1 2023174 - The decrease in fee and other income for H1 2023 was due to a shifting mix of business in the Chicago market and miscellaneous income from property sales in the prior year174 Net Investment Income This section details the increase in net investment income, primarily attributing it to the rising interest rate environment and higher reinvestment rates - Net investment income increased by $490 thousand for Q2 2023 and $1,076 thousand for H1 2023175 - This increase was primarily driven by the rising interest rate environment, leading to higher reinvestment rates for the fixed income portfolio175 - Gross return on average cash and invested assets increased to 3.2% for H1 2023 from 2.3% for H1 2022175 Net Investment Gains (Losses) This section analyzes net investment gains and losses, highlighting improvements due to strategic equity liquidation and changes in fixed income unrealized gains - Net investment gains (losses) improved significantly to a loss of $(174) thousand for Q2 2023 from a loss of $(11,136) thousand for Q2 2022, and to a gain of $1,242 thousand for H1 2023 from a loss of $(16,664) thousand for H1 2022177 - The year-to-date increase in net realized gains was due to a strategic liquidation of an equity securities portfolio in Q1 2023178 - Fixed income portfolio experienced net unrealized gains of $3,116 thousand for H1 2023, a significant improvement from net unrealized losses of $37,220 thousand for H1 2022, primarily due to changes in U.S. interest rates180 Income (Loss) before Income Taxes This section reports on the pre-tax loss, attributing improvements to reduced catastrophe and investment losses, partially offset by unfavorable prior year reserve development - Pre-tax loss decreased to $(10,404) thousand for Q2 2023 from $(59,051) thousand for Q2 2022181 - Pre-tax loss decreased to $(15,917) thousand for H1 2023 from $(56,444) thousand for H1 2022181 - These improvements were largely attributable to reduced catastrophe losses and lower investment losses in 2023 compared to 2022, partially offset by unfavorable prior year reserve development in 2023181 Income Tax Expense (Benefit) This section details the income tax benefit and effective tax rates for the three and six months ended June 30, 2023 - Income tax benefit was $2,169 thousand for Q2 2023 (effective tax rate of 20.8%) and $3,182 thousand for H1 2023 (effective tax rate of 20.0%)182183 Net Income (Loss) This section summarizes the net loss before non-controlling interest, attributing improvements to lower catastrophe and investment losses - Net loss before non-controlling interest improved to $(8,235) thousand for Q2 2023 from $(46,636) thousand for Q2 2022184 - Net loss before non-controlling interest improved to $(12,735) thousand for H1 2023 from $(44,597) thousand for H1 2022184 - These improvements were driven by lower catastrophe losses and investment losses in 2022, partially offset by unfavorable prior year reserve development in 2023184 Return on Average Equity This section reports on the annualized return on average equity, highlighting improvements for Q2 and H1 2023 compared to the prior year - Annualized return on average equity improved to (13.3)% for Q2 2023 from (61.4)% for Q2 2022185 - Annualized return on average equity improved to (10.1)% for H1 2023 from (28.7)% for H1 2022186 Critical Accounting Policies This section confirms that there have been no changes in the company's critical accounting policies since December 31, 2022 - There have been no changes in the company's critical accounting policies from December 31, 2022187 Liquidity and Capital Resources This section discusses changes in cash flows from operating, investing, and financing activities, and restrictions on dividend payments from subsidiaries - Net cash provided by operating activities decreased to $7,916 thousand for H1 2023 from $13,647 thousand for H1 2022, primarily due to higher claim payments188 - Net cash provided by investing activities was $1,115 thousand for H1 2023, a significant improvement from net cash used of $12,075 thousand for H1 2022, driven by equity security sales189 - Net cash used by financing activities decreased to $3,397 thousand for H1 2023 from $9,163 thousand for H1 2022, mainly due to the absence of a large installment payment for Westminster acquisition190 - No dividends were available for payment from Nodak Insurance, Direct Auto, or Westminster to NI Holdings during 2023 without prior regulatory approval, due to net losses in the preceding year193194195 Item 3. - Quantitative and Qualitative Disclosures about Market Risk The company's assessment indicates no material changes in quantitative and qualitative disclosures about market risk as of June 30, 2023, compared to its 2022 Annual Report - No material changes in market risk disclosures as of June 30, 2023, compared to the 2022 Annual Report197 Item 4. - Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section confirms the CEO and CFO's conclusion that disclosure controls and procedures were effectively designed and functioning as of June 30, 2023 - CEO and CFO concluded that disclosure controls and procedures were designed and functioning effectively as of June 30, 2023198 Changes in Internal Controls over Financial Reporting This section reports that no material changes in internal control over financial reporting occurred during the fiscal quarter - No material changes in internal control over financial reporting occurred during the fiscal quarter199 Part II. - Other Information This part covers legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits filed with the Form 10-Q Item 1. - Legal Proceedings The company is involved in routine litigation related to its insurance operations but does not consider any current litigation to be material to its financial position - Company is party to litigation in the normal course of business202 - No litigation is considered material to the financial position202 Item 1A. - Risk Factors There have been no material changes in the company's assessment of its risk factors since those reported in its 2022 Annual Report - No material changes in risk factors from the 2022 Annual Report203 Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds The company has not sold unregistered securities; IPO proceeds funded acquisitions and share repurchases, with $6,043 thousand remaining for repurchases - No unregistered securities sold within the past three years205 - IPO net proceeds of $93,145 thousand were used for acquisitions (Direct Auto, Westminster) and share repurchases206207208 - Under the May 9, 2022, $10,000 thousand share repurchase authorization, 238,164 shares were repurchased for $3,223 thousand during H1 2023, leaving $6,043 thousand available210 Item 3. - Defaults upon Senior Securities This item is not applicable to the company Item 4. - Mine Safety Disclosures This item is not applicable to the company Item 5. - Other Information This section reports no 10b5-1 trading plan changes by officers and details an amended employment agreement for CFO Seth Daggett, increasing his salary and extending his term 10b5-1 Trading Plans This section confirms that no directors or executive officers adopted or terminated 10b5-1 trading arrangements during Q2 2023 - No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2023213 Amended and Restated Employment Agreement This section details the amended employment agreement for CFO Seth Daggett, including an increased base salary and extended employment period - On August 8, 2023, an Amended and Restated Employment Agreement was entered into with CFO Seth Daggett214 - The agreement extends the employment period to two years (automatically extended daily) and increases Mr. Daggett's annual base salary from $285,000 to $375,000214 - Compensation is subject to any clawback policy adopted to comply with Section 10D of the Securities Exchange Act of 1934215 Item 6. - Exhibits This section lists the exhibits filed with the Form 10-Q, including organizational documents, the CFO's amended employment agreement, certifications, and XBRL interactive data files - Exhibits include Amended Articles of Incorporation, Amended and Restated Bylaws, Amended and Restated Employment Agreement with Seth C. Daggett, and various certifications (31.1, 31.2, 32)217 - XBRL Instance Document, Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are included218 Signatures This section contains the duly authorized signatures of NI Holdings, Inc.'s President, CEO, and CFO, affirming the report's submission Signatures The report is duly signed on behalf of NI Holdings, Inc. by Michael J. Alexander, President and Chief Executive Officer, and Seth C. Daggett, Chief Financial Officer, on August 8, 2023 - Signed by Michael J. Alexander, President and Chief Executive Officer222 - Signed by Seth C. Daggett, Chief Financial Officer222 - Date of signing: August 8, 2023221