| Item 7. | 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 consolidated financial
statements alone. The discussion should be read in conjunction with the consolidated financial statements and the notes thereto included
in Part II, Item 8, “Financial Statements and Supplementary Data.” Some of the information contained in this discussion and
analysis or set forth elsewhere in this 2022 Annual Report constitutes forward-looking information that involves risks and uncertainties.
Please see “Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” 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.
Our Management’s Discussion and Analysis
of Financial Condition and Results of Operations included in this document generally discusses 2022 and 2021 items and year-to-year comparisons
between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this document
can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 9, 2022.
All dollar amounts, except per share amounts,
are in thousands.
Results of Operations
Our consolidated financial statements are prepared on the basis
of accounting principles generally accepted in the United States of America (“GAAP”). Management evaluates our operations
by monitoring key measures of growth and profitability, which may include the disclosure of certain non-GAAP financial measures. Our results
of operations are influenced by numerous factors affecting the U.S. property and casualty insurance industry including competition, weather,
catastrophic events, innovation and emerging technologies, changes in regulations, inflation, general economic conditions, judicial trends,
fluctuations in interest rates, and other changes in the financial markets.
Our premium levels and underwriting results have been, and will
continue to be, influenced by market conditions. Pricing in the property and casualty insurance industry historically has been cyclical.
During a soft market cycle, price competition is more significant than during a hard market cycle and makes it difficult to attract and
retain properly priced business. During a hard market cycle, it is more likely that insurers will be able to increase their rates or profit
margins. A hard market typically has a positive effect on premium growth. The markets that we serve are diversified, which requires us
to regularly monitor our performance and competitive position by line of business and geographic market to determine appropriate rate
actions.
Premiums in the multi-peril crop insurance business are primarily
influenced by the types of crops planted, number of acres insured, and commodity prices because the rates are established by the RMA rather
than individual insurance carriers. The expected experience of this business for the calendar year may also significantly affect the reported
net earned premiums and losses due to the risk-sharing arrangement with the federal government. Multi-peril crop insurance premiums are
generally written in the second quarter, and earned ratably over the period of risk, which generally extends into the fourth quarter.
Premiums in the crop hail insurance business are also generally written in the second quarter and earned ratably until the end of the
third quarter.
Premiums in our other lines of business are written and earned throughout
the year based on their coverage periods. Losses on this business are also incurred throughout the year but are usually more frequent
and/or severe during periods of elevated weather-related activity.
Property Claims Service (“PCS”), a division of the Insurance
Services Office, maintains industry loss data related to catastrophe loss events. PCS defines a catastrophe as an event that causes damage
of $25 million or more in insured property losses and affects a significant number of insureds. When reporting on our losses from catastrophe
events, we may include losses from those events that were defined as a catastrophe by PCS or those events which may include losses that
we believe are, or will be, material to our operations, either in amount or in number of claims made. The frequency and severity of catastrophic
losses we experience in any year may significantly affect our results of operations and financial position. In analyzing the underwriting
performance of our property and casualty insurance business, we evaluate performance both including and excluding catastrophe losses.
Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements.
For more information on the Company’s results of operations
by segment, see Part II, Item 8, Note 20 “Segment Information”.
Years ended December 31, 2022, 2021, and 2020
The consolidated net loss for the Company was $53,775 for the year
ended December 31, 2022, compared to net income of $8,332 for the year ended December 31, 2021, and $41,344 for the year ended December
31, 2020.
The major components of our revenues and net income (loss) for the
three periods are shown below:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Revenues: | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 328,290 | | |
$ | 299,589 | | |
$ | 283,661 | |
Fee and other income | |
| 1,453 | | |
| 1,775 | | |
| 1,801 | |
Net investment income | |
| 7,820 | | |
| 7,131 | | |
| 7,271 | |
Net investment gains (losses) | |
| (13,126 | ) | |
| 15,479 | | |
| 13,624 | |
Total revenues | |
$ | 324,437 | | |
$ | 323,974 | | |
$ | 306,357 | |
| |
| | | |
| | | |
| | |
Components of net income (loss): | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 328,290 | | |
$ | 299,589 | | |
$ | 283,661 | |
Losses and loss adjustment expenses | |
| 294,432 | | |
| 216,379 | | |
| 168,473 | |
Amortization of deferred policy acquisition costs and other underwriting and general expenses | |
| 99,034 | | |
| 96,289 | | |
| 85,068 | |
Underwriting gain (loss) | |
| (65,176 | ) | |
| (13,079 | ) | |
| 30,120 | |
| |
| | | |
| | | |
| | |
Fee and other income | |
| 1,453 | | |
| 1,775 | | |
| 1,801 | |
Net investment income | |
| 7,820 | | |
| 7,131 | | |
| 7,271 | |
Net investment gains (losses) | |
| (13,126 | ) | |
| 15,479 | | |
| 13,624 | |
Income (loss) before income taxes | |
| (69,029 | ) | |
| 11,306 | | |
| 52,816 | |
Income tax expense (benefit) | |
| (15,254 | ) | |
| 2,974 | | |
| 11,472 | |
Net income (loss) | |
$ | (53,775 | ) | |
$ | 8,332 | | |
$ | 41,344 | |
Net Premiums Earned
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Net premiums earned: | |
| | | |
| | | |
| | |
Direct premium | |
$ | 368,886 | | |
$ | 333,254 | | |
$ | 301,061 | |
Assumed premium | |
| 6,550 | | |
| 8,035 | | |
| 6,459 | |
Ceded premium | |
| (47,146 | ) | |
| (41,700 | ) | |
| (23,859 | ) |
Total net premiums earned | |
$ | 328,290 | | |
$ | 299,589 | | |
$ | 283,661 | |
Net premiums earned for the year ended December 31, 2022 increased
$28,701, or 9.6%, to $328,290, compared to $299,589 for the year ended December 31, 2021.
Net premiums earned for the year ended December 31, 2021 increased
$15,928, or 5.6%, to $299,589, compared to $283,661 for the year ended December 31, 2020.
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Net premiums earned: | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | 77,605 | | |
$ | 72,533 | | |
$ | 72,009 | |
Non-standard auto | |
| 66,911 | | |
| 58,585 | | |
| 53,737 | |
Home and farm | |
| 78,381 | | |
| 73,792 | | |
| 74,879 | |
Crop | |
| 34,721 | | |
| 26,848 | | |
| 35,718 | |
Commercial | |
| 61,431 | | |
| 57,285 | | |
| 38,288 | |
All other | |
| 9,241 | | |
| 10,546 | | |
| 9,030 | |
Total net premiums earned | |
$ | 328,290 | | |
$ | 299,589 | | |
$ | 283,661 | |
Below are comments regarding significant changes in net premiums
earned, by business segment:
Private passenger auto – Net premiums earned for 2022
increased $5,072, or 7.0%, from 2021. Results were driven by rate increases in North Dakota, South Dakota, and Nebraska.
Non-standard auto – Net premiums earned for 2022 increased
$8,326, or 14.2%, from 2021. Results were driven by new business growth, increased retention, and rate increases in the Chicago market
where our non-standard auto business is concentrated.
Home and farm – Net premiums earned for 2022 increased
$4,589, or 6.2%, from 2021. Results were driven by increased insured property values, which were primarily the result of using higher
inflationary factors, along with rate increases.
Crop – Net premiums earned for 2022 increased $7,873,
or 29.3%, from 2021. Results were driven by the impact of higher commodity prices on our multi-peril crop insurance direct written premiums.
In addition, earned premiums increased as a result of ceding significantly less multi-peril crop insurance business into the Assigned
Risk fund of the SRA in 2022 compared to the prior year.
Commercial – Net premiums earned for 2022 increased
$4,146, or 7.2%, from 2021. Results were driven by increased insured values which were primarily the result of higher inflationary factors
as well as continued growth in rate and new business premiums.
All other – Net premiums earned for 2022 decreased
$1,305, or 12.4%, from 2021. Results were driven by the Company’s decision to non-renew its participation in an assumed domestic
and international reinsurance pool of business as of January 1, 2022.
Losses and Loss Adjustment Expenses
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Net losses and loss adjustment expenses: | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
$ | 333,397 | | |
$ | 280,998 | | |
$ | 185,370 | |
Assumed losses and loss adjustment expenses | |
| 2,369 | | |
| 6,899 | | |
| 3,308 | |
Ceded losses and loss adjustment expenses | |
| (41,334 | ) | |
| (71,518 | ) | |
| (20,205 | ) |
Total net losses and loss adjustment expenses | |
$ | 294,432 | | |
$ | 216,379 | | |
$ | 168,473 | |
The Company’s net losses and loss adjustment expenses for
the year ended December 31, 2022 increased $78,053, or 36.1%, to $294,432, compared to $216,379 for the year ended December 31, 2021.
The Company’s net losses and loss adjustment expenses for
the year ended December 31, 2021 increased $47,906, or 28.4%, to $216,379, compared to $168,473 for the year ended December 31, 2020.
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Net losses and loss adjustment expenses: | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | 65,420 | | |
$ | 59,721 | | |
$ | 45,511 | |
Non-standard auto | |
| 39,400 | | |
| 34,453 | | |
| 30,347 | |
Home and farm | |
| 107,823 | | |
| 52,145 | | |
| 36,745 | |
Crop | |
| 19,418 | | |
| 27,831 | | |
| 31,379 | |
Commercial | |
| 57,216 | | |
| 34,779 | | |
| 20,430 | |
All other | |
| 5,155 | | |
| 7,450 | | |
| 4,061 | |
Total net losses and loss adjustment expenses | |
$ | 294,432 | | |
$ | 216,379 | | |
$ | 168,473 | |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Loss and loss adjustment expenses ratio: | |
| | | |
| | | |
| | |
Private passenger auto | |
| 84.3% | | |
| 82.3% | | |
| 63.2% | |
Non-standard auto | |
| 58.9% | | |
| 58.8% | | |
| 56.5% | |
Home and farm | |
| 137.6% | | |
| 70.7% | | |
| 49.1% | |
Crop | |
| 55.9% | | |
| 103.7% | | |
| 87.9% | |
Commercial | |
| 93.1% | | |
| 60.7% | | |
| 53.4% | |
All other | |
| 55.8% | | |
| 70.6% | | |
| 45.0% | |
Total loss and loss adjustment expenses ratio | |
| 89.7% | | |
| 72.2% | | |
| 59.4% | |
Below are comments regarding significant changes in net losses and
loss adjustment expenses, and the net loss and loss adjustment expenses ratios, by business segment:
Private passenger auto – The net loss and loss adjustment
expenses ratio increased 2.0 percentage points in 2022 compared to 2021. This increase was driven by elevated loss costs due to continued
high levels of inflation and increased weather-related comprehensive losses in Nebraska and South Dakota. We have addressed this increased
frequency and severity through recent aggressive underwriting actions and rate increases.
Non-standard auto – The net loss and loss adjustment
expenses ratio increased 0.1 percentage points in 2022 compared to 2021. Loss and loss adjustment expenses were once again impacted by
elevated loss costs due to continued high levels of inflation partially offset by successful implementation of various strategic initiatives
in 2022 as well as rate increases taken throughout the year.
Home and farm – The net loss and loss adjustment expenses
ratio increased 66.9 percentage points in 2022 compared to 2021. This increase was driven by catastrophe losses in Nebraska, South Dakota,
and North Dakota that occurred during second and third quarters of 2022. Catastrophe losses, net of reinsurance, for the segment accounted
for 72.1 percentage points of the net loss and loss adjustment expense ratio for the year ended December 31, 2022, compared to 9.9 percentage
points for the same period for 2021. We have addressed the increased loss and loss adjustment expenses ratio through recent aggressive
underwriting actions and rate increases.
Crop – The net loss and loss adjustment expenses ratio
decreased 47.8 percentage points in 2022 compared to 2021. This improvement was due to more favorable crop growing conditions in 2022
in comparison to the extreme drought conditions faced in 2021.
Commercial – The net loss and loss adjustment expenses
ratio increased 32.4 percentage points in 2022 compared to 2021. This increase was driven by increased frequency and severity of fire
losses as well as increased liability claims in our commercial multi-peril line of business. In addition, our results were impacted by
freezing claims from winter storm Elliott. Our North Dakota commercial business also experienced elevated weather-related losses which
contributed to this increase.
All other – The net loss and loss adjustment expenses
ratio decreased 14.8 percentage points in 2022 compared to 2021. The decrease was driven by the Company’s decision to non-renew
its participation in an assumed domestic and international reinsurance pool of business as of January 1, 2022. The loss and loss adjustment
expense ratio was also impacted by favorable prior year development in our assumed domestic and international reinsurance pool of business.
Underwriting and General Expenses and Expense Ratio
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Underwriting and general expenses: | |
| | | |
| | | |
| | |
Amortization of deferred policy acquisition costs | |
$ | 66,803 | | |
$ | 64,574 | | |
$ | 51,472 | |
Other underwriting and general expenses | |
| 32,231 | | |
| 31,715 | | |
| 33,596 | |
Total underwriting and general expenses | |
| 99,034 | | |
| 96,289 | | |
| 85,068 | |
| |
| | | |
| | | |
| | |
Expense ratio | |
| 30.2% | | |
| 32.1% | | |
| 30.0% | |
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 decreased 1.9 percentage
points in the year ended December 31, 2022, compared to the same period in 2021. This decrease was driven by the impact of the significantly
higher multi-peril crop insurance net premiums earned during 2022 in our crop segment, which operates at a significantly lower expense
ratio relative to our other segments. The overall expense ratio increased 2.1 percentage points in the year ended December 31, 2021, compared
to the same period in 2020.
Underwriting Gain (Loss) and Combined Ratio
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Underwriting gain (loss): | |
| | | |
| | | |
| | |
Private passenger auto | |
$ | (9,416 | ) | |
$ | (7,704 | ) | |
$ | 6,512 | |
Non-standard auto | |
| 622 | | |
| 1,362 | | |
| 2,651 | |
Home and farm | |
| (52,512 | ) | |
| (475 | ) | |
| 17,260 | |
Crop | |
| 12,294 | | |
| (9,195 | ) | |
| (468 | ) |
Commercial | |
| (17,958 | ) | |
| 2,506 | | |
| 1,500 | |
All other | |
| 1,794 | | |
| 427 | | |
| 2,665 | |
Total underwriting gain (loss) | |
$ | (65,176 | ) | |
$ | (13,079 | ) | |
$ | 30,120 | |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Combined ratio: | |
| | | |
| | | |
| | |
Private passenger auto | |
| 112.1% | | |
| 110.6% | | |
| 91.0% | |
Non-standard auto | |
| 99.1% | | |
| 97.7% | | |
| 95.1% | |
Home and farm | |
| 167.0% | | |
| 100.7% | | |
| 77.0% | |
Crop | |
| 64.6% | | |
| 134.3% | | |
| 101.4% | |
Commercial | |
| 129.2% | | |
| 95.6% | | |
| 96.1% | |
All other | |
| 80.6% | | |
| 95.9% | | |
| 70.5% | |
Total combined ratio | |
| 119.9% | | |
| 104.3% | | |
| 89.4% | |
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 loss increased $52,097, or 398.3%, for the
year ended December 31, 2022, compared to the same period in 2021. These results were driven by the factors discussed in the Losses and
Loss Adjustment Expenses section above.
The overall combined ratio increased 15.6 percentage points in the
year ended December 31, 2022, compared to the same period in 2021. These results were driven by the factors discussed in the Losses and
Loss Adjustment Expenses section above.
Fee and Other Income
The Company had fee and other income of $1,453 for the year ended
December 31, 2022, compared to $1,775 for the year ended December 31, 2021, and $1,801 for the year ended December 31, 2020. Fee income
attributable to the non-standard auto segment decreased to $831 for the year ended December 31, 2022, from $1,280 for the year ended
December 31, 2021, due to a reduction in policies that generate fee income.
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:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Average cash and invested assets | |
$ | 455,366 | | |
$ | 502,375 | | |
$ | 449,148 | |
Net investment income | |
$ | 7,820 | | |
$ | 7,131 | | |
$ | 7,271 | |
| |
| | | |
| | | |
| | |
Gross return on average cash and invested assets | |
| 2.5% | | |
| 2.1% | | |
| 2.3% | |
Net return on average cash and invested assets | |
| 1.7% | | |
| 1.4% | | |
| 1.6% | |
Net investment income increased $689 for the year ended December
31, 2022, compared to the year ended December 31, 2021. This increase was primarily driven by an increase in the fixed income portfolio
average book value (measured at cost or amortized cost), the rising interest rate environment, as well as a higher allocation of invested
assets to private placement securities and high dividend yield equities. Net investment income decreased $140 for the year ended December
31, 2021, compared to the year ended December 31, 2020.
The Company’s gross and net return on average cash and invested
assets increased year-over-year, driven by a decrease in average cash and invested assets (measured at fair value) as a result of unfavorable
market conditions for both fixed income and equity securities as well as higher net investment income.
Net Investment Gains (Losses)
Net investment gains (losses) consisted of the following:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Gross realized gains | |
$ | 7,195 | | |
$ | 18,130 | | |
$ | 9,740 | |
Gross realized losses, excluding credit impairment losses | |
| (5,271 | ) | |
| (362 | ) | |
| (1,969 | ) |
Net realized gains | |
| 1,924 | | |
| 17,768 | | |
| 7,771 | |
Change in net unrealized gain on equity securities | |
| (15,050 | ) | |
| (2,289 | ) | |
| 5,853 | |
Net investment gains (losses) | |
$ | (13,126 | ) | |
$ | 15,479 | | |
$ | 13,624 | |
The Company had net realized gains of $1,924 for the year ended
December 31, 2022, compared to $17,768 for the year ended December 31, 2021, and $7,771 for the year ended December 31, 2020. The Company
reported no credit impairment losses during any of the periods presented.
The Company experienced a decrease in net unrealized gains on equity
securities of $15,050 during the year ended December 31, 2022, driven by changes in fair value attributable to unfavorable equity markets.
In addition, the Company’s sales activity (and resulting gains and losses) impacts the level and direction of the change in the
net unrealized gain or loss of its equity securities portfolio. The Company had net realized gains on the sale of equity securities of
$2,075, $17,118, and $6,868 during the years ended December 31, 2022, 2021, and 2020, respectively.
The Company’s fixed income securities are classified as available
for sale because it will, from time to time, execute sales of securities that are not impaired to meet liquidity needs or for other strategic
purposes, in accordance with our investment policy. The fixed income portfolio experienced an unfavorable change in net unrealized gains/losses
of $46,362 during the year ended December 31, 2022, compared to a decrease in net unrealized gains of $9,796 during the year ended December
31, 2021. The changes were primarily the result of rising interest rates in the U.S. 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. The
fixed income portfolio experienced an increase in net unrealized gains of $9,264 during the year ended December 31, 2020.
Income (Loss) before Income Taxes
For the year ended December 31, 2022, the Company had pre-tax loss
of $69,029, compared to pre-tax income of $11,306 and $52,816 for the years ended December 31, 2021 and 2020, respectively. The decrease
in pre-tax income was largely attributable to the significant catastrophe losses in Nebraska, South Dakota, and North Dakota, along with
the change in net investment gains/losses that was driven by the impact of unfavorable equity markets during 2022.
Income Tax Expense (Benefit)
The Company recorded income tax benefit of $15,254 for the year
ended December 31, 2022, compared to income tax expense of $2,974 and $11,472 for the years ended December 31, 2021 and 2020, respectively.
Our effective tax rate for 2022 was 22.1% compared to an effective tax rate of 26.3% and 21.7% for 2021 and 2020, respectively. A portion
of the effective tax rate is due to state income taxes, which drove the higher effective tax rate in 2021. The valuation allowance against
certain deferred income tax assets was $694 as of December 31, 2022 compared to $1,008 as of December 31, 2021.
Net Income (Loss)
For the year ended December 31, 2022, the Company had a net loss
before non-controlling interest of $53,775, compared to income of $8,332 and $41,344 for the years ended December 31, 2021 and 2020, respectively.
The decrease was largely attributable to the significant catastrophe losses in Nebraska, South Dakota, and North Dakota, along with the
change in net investment gains/losses that was driven by the impact of unfavorable equity markets during 2022.
Return on Average Equity
For the year ended December 31, 2022, the Company had annualized
return on average equity, after non-controlling interest, of (17.9)%, compared to annualized return on average equity, after non-controlling
interest, of 2.4% and 12.4% for the years ended December 31, 2021 and 2020, respectively.
Average equity is calculated as the average between beginning and
ending shareholders’ equity, excluding non-controlling interest, for the period.
Principal Revenue Items
The Company derives its revenue primarily from net premiums earned,
net investment income, and net investment gains (losses).
Gross and net premiums written
Gross premiums written is equal to direct premiums
written and assumed premiums before the effect of ceded reinsurance. Gross premiums written are recognized upon sale of new insurance
contracts or renewal of existing contracts. Net premiums written is equal to gross premiums written less premiums ceded to reinsurers.
Premiums earned
Premiums earned is the earned portion of net premiums written. Gross
premiums written include all premiums recorded by an insurance company during a specified policy period. Insurance premiums on property
and casualty policies are recognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies
or, in the case of crop insurance, over the period of risk to the Company. At the end of each accounting period, the portion of the premiums
that is not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the remaining term of the
policy or period of risk. The Company’s property and casualty policies, other than some of our auto lines and the non-standard auto
policies, typically have a term of twelve months.
Due to the nature of the crop planting and harvesting cycle and
the deadlines for filing and processing claims under the federal crop insurance program, insurance premiums for multi-peril crop insurance
are recognized and earned during the period of risk, which usually begins in spring and ends with harvest in the fall. Under the federal
crop insurance program, farmers must purchase crop insurance with respect to spring planted crops by March 15. By July 15, the farmer
must report the number of acres planted in each crop. On September 1, the insurer bills the farmer for the insurance premium, which is
due and payable by the farmer by October 1. If the farmer does not pay the premium by such date, the insurer will charge interest at a
rate of 15% because the insurer is required to pay the farmer’s portion of the premium to the FCIC by November 15, regardless of
whether the farmer pays the premium to the insurer. Except for claims occurring in the spring (primarily for prevented planting and required
replanting claims), claims are required to be filed with the FCIC by December 15. A different cycle exists for crops planted in the fall,
such as winter wheat, but the vast majority of crop insurance written by the Company covers crops planted in the spring.
Net investment income and net investment
gains (losses)
The Company invests its excess cash in fixed income and equity securities.
Investment income includes interest and dividends earned on invested assets, and is reported net of investment-related expenses. Net investment
gains (losses) are reported separately from net investment income. The Company recognizes realized gains when investments are sold for
an amount greater than their cost or
amortized cost (in the case of fixed income securities) and realized losses when investments are
sold for an amount less than their cost or amortized cost or when credit impairments are recorded, as applicable. The Company recognizes
changes in unrealized gains and losses of equity securities in net income as part of net investment gains (losses). These gains and losses
may be significant given the fair market value of the equity portfolio and the inherent volatility in equity markets. The changes in unrealized
gains and losses on fixed income securities are recorded in other comprehensive income (loss), net of income taxes. Therefore, these changes
have no impact on net income but do impact shareholders’ equity.
The portfolio of investments for NI Holdings and its insurance
subsidiaries is managed by Conning, Inc. and Disciplined Growth Investors. These investment managers have discretion to buy and sell
securities in accordance with the investment policy approved by our Board of Directors.
Principal Expense Items
The Company’s expenses consist primarily of losses and loss
adjustment expenses, amortization of deferred policy acquisition costs, other underwriting and general expenses, and income taxes.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses represent the largest expense
item and include (1) claim payments made, (2) estimates for future claim payments and changes in those estimates from prior periods, and
(3) costs associated with investigating, defending, and adjusting claims, including legal fees.
Amortization of deferred policy acquisition costs and other underwriting
and general expenses
Expenses incurred to underwrite risks are referred to as policy
acquisition costs. Policy acquisition costs consist of commission expenses, state premium taxes, and certain other underwriting expenses
that vary with and are primarily related to the writing and acquisition of new and renewal business. These policy acquisition costs are
deferred and amortized over the effective period of the related insurance policies. Other underwriting and general expenses consist of
salaries, professional fees, office supplies, depreciation, and all other operating expenses not otherwise classified separately.
Income taxes
Current income taxes represent amounts paid to
the federal government and certain states whose payment is based upon net income (subject to regulatory adjustments) generated by the
Company. As noted above, it does not include state premium taxes that are based purely on the collection of policyholder premiums.
We use the asset and liability method of accounting
for deferred income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying
amounts and the income tax bases of its assets and liabilities. A valuation allowance is provided when it is more likely than not that
some portion of the deferred income tax asset will not be realized. The effect of a change in tax rates is recognized in the period of
the enactment date. Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability,
excluding amounts attributed to accumulated other comprehensive income.
Critical Accounting Policies
General
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. The Company
is required to make estimates and assumptions in certain circumstances that affect amounts reported in its 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 and that reported results of operations would not be materially adversely affected
by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. We believe the following
policies are the most sensitive to estimates and judgments.
Unpaid Losses and Loss Adjustment Expenses
How reserves are established
With respect to its traditional property and casualty insurance
products, the Company maintains reserves for the payment of claims (indemnity losses) and expenses related to adjusting those claims (loss
adjustment expenses). The Company’s liability for unpaid losses and loss adjustment expenses consists of (1) case reserves, which
are reserves for claims that have been reported to the Company, and (2) IBNR, which are reserves for claims that have been incurred but
have not yet been reported and for the future development of reported claims. As some claims may not be reported for several years, the
liability for unpaid losses and loss adjustment expenses includes significant estimates for IBNR.
Loss adjustment expenses consist of two components – allocated
loss adjustment expenses and unallocated loss adjustment expenses. Allocated loss adjustment expenses are defense and cost containment
expenses, including legal fees, court costs, and investigation fees, which are linked to the settlement of specific individual claims
or losses. Unallocated loss adjustment expenses are expenses that generally cannot be associated with a specific claim, including internal
costs such as salaries and other overhead costs, and also represent estimates of future costs to administer claims.
When a claim is reported to one of the insurance companies, its
claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated.
The amount of the loss reserve for the reported claim is based primarily upon an evaluation of coverage, liability, damages suffered,
and any other information considered pertinent to estimating the exposure presented by the claim. Each claim is contested or settled individually
based upon its merits, and some property and casualty claims may take years to resolve, especially in situations where legal action may
be involved. Case reserves are reviewed on a regular basis and are updated as new information becomes available.
When a catastrophe occurs, which in the Company’s case usually
involves the weather perils of wind and hail, we utilize mapping technology through geographic coding of its property risks to overlay
the path of the storm. This enables the Company to establish estimated damage amounts based on the wind speed and size of the hail for
case or per claim loss amounts. This process allows us to determine within a reasonable time (5 – 7 days) an estimated number of
claims and estimated losses from the storm. If we estimate the damages to be in excess of the retained catastrophe amount, reinsurers
are notified immediately of a potential loss so that the Company can quickly recover reinsurance payments once the retention is exceeded.
The Company estimates multi-peril crop insurance losses on a quarterly
basis based upon historical loss patterns, current crop conditions, current weather patterns, and input from crop loss adjusters. These
estimates have proven to be reasonably accurate indicators of the Company’s anticipated losses for this line of business.
The Company’s actuaries assist with the estimation of the
liability for unpaid losses and loss adjustment expenses. The actuaries prepare estimates by first deriving an actuarially based estimate
of the ultimate cost of total losses and loss adjustment expenses incurred as of the financial statement date based on established actuarial
methods as described below. We then reduce the estimated ultimate loss and loss adjustment expenses by loss and loss adjustment expenses
payments and case reserves carried as of the financial statement date. The actuarially determined estimate is based upon indications from
one of the following actuarial methodologies, weighted averages of the methods, and judgment. The specific method used to estimate the
ultimate losses varies depending on the judgment of the actuaries as to what is the most appropriate for the property and casualty business.
Management reviews these estimates and supplements the actuarial analysis with information not fully incorporated into the actuarially
based estimate, such as changes in the external business environment and internal company processes. Management may adjust the actuarial
estimates based on this supplemental information in order to arrive at the amount recorded in the consolidated financial statements.
The Company determines its ultimate liability for unpaid losses
and loss adjustment expenses by using the following actuarial methodologies:
Bornhuetter-Ferguson Method — The Bornhuetter-Ferguson
Method is a blended method that explicitly considers both actual loss development to date and expected future loss emergence. This method
is applied on both a paid loss basis and an incurred loss basis. This method uses selected loss development patterns to calculate the
expected percentage of losses unpaid (or unreported). The expected future loss component of the method is calculated by multiplying earned
premium for the given exposure period by a selected a priori (i.e. deductive) loss ratio. The resulting dollars are then multiplied by
the expected percentage of unpaid (or unreported) losses described above. This provides an estimate of future paid (or reported) losses
that is then added to actual paid (or incurred) loss data to produce the estimated ultimate loss.
Paid and Case Incurred Loss Development Method —
The Paid and Case Incurred Loss Development Method utilizes ratios of cumulative paid or case incurred losses or loss adjustment expenses
at each age of development as a percent of the preceding development age. Selected ratios are then multiplied together to produce a set
of loss development factors which when applied to the
most current data value, by accident year, develop the estimated ultimate losses
or loss adjustment expenses. Ultimate losses or loss adjustment expenses are then selected for each accident year from the various methods
employed.
Ratio of Paid Allocated Loss Adjustment Expenses to Paid Loss
Method — The Ratio of Paid Allocated Loss Adjustment Expenses to Paid Loss Method utilizes the ratio of paid allocated loss
adjustment expenses to paid losses and is similar to the Paid and Case Incurred Loss Development Method described above, except that the
data projected are the ratios of paid allocated loss adjustment expenses to paid losses. The projected ultimate ratio is then multiplied
by the selected ultimate losses, by accident year, to yield the ultimate allocated loss adjustment expenses. Allocated loss adjustment
expenses reserves are calculated by subtracting paid losses from ultimate allocated loss adjustment expenses.
The process of estimating loss reserves involves a high degree of
judgment and is subject to a number of variables. These variables can be affected by both internal and external events, such as changes
in claims handling procedures, inflation, legal trends, increases in the state-dictated minimum liability limits in the recent cases of
nonstandard auto insurance, weather, and legislative changes, among others. The impact of many of these items on ultimate costs for losses
and loss adjustment expenses is difficult to estimate. Loss reserve estimation is also affected by the volume of claims, the potential
severity of individual claims, the determination of occurrence date for a claim, and reporting lags (the time between the occurrence of
the policyholder event and when it is actually reported to the insurer). Informed judgment is applied throughout the process, including
the application of various individual experiences and expertise to multiple sets of data and analyses. We continually refine our estimates
of unpaid losses and loss adjustment expenses in a regular ongoing process as historical loss experience develops, and additional claims
are reported and settled. We consider all significant facts and circumstances known at the time the liabilities for unpaid losses and
loss adjustment expenses are established.
There is an inherent amount of uncertainty in the establishment
of liabilities for unpaid losses and loss adjustment expenses. This uncertainty is greatest in the current and most recent accident years
due to the more recent nature of the claims being reported and relatively small percentage of these claims that have been reported, investigated,
and adjusted by the Company’s claims staff. Therefore, the reserves carried in these more recent accident years are generally more
conservative than those carried for older accident years. As the Company has the opportunity to investigate and adjust the reported claims,
both the case and IBNR reserves are adjusted to more closely reflect the ultimate expected loss.
Other factors that may have an impact on the Company’s case
and IBNR reserves include, but are not limited to, those described below.
Changes in liability law and public attitudes regarding damage
awards
Laws governing liability claims and judicial interpretations thereof
can change over time, which can expand the scope of coverage anticipated by insurers when initially establishing reserves for claims.
In addition, public attitudes regarding damage awards can result in judges and juries granting higher recoveries for damages than expected
by claims personnel when reserves are established. In addition, these changes can result in both increased claim frequency and severity
as both plaintiffs and their legal counsel perceive the opportunity for higher damage awards. Reserves established for claims that occurred
in prior years would not have anticipated these legal changes and, therefore, could prove to be inadequate for the ultimate losses paid
by the Company, causing the Company to experience adverse development and higher loss payments in future years.
Change in claims handling and/or setting case reserves
Changes in Company personnel and/or the approach to how claims are
reported, adjusted, and reserved may affect the reserves established by the Company. As discussed above, the setting of IBNR reserves
is not an exact science and involves the expert judgment of an actuary. One actuary’s reserve opinion may differ slightly from another
actuary’s opinion. This is the primary reason why the IBNR reserve estimate is customarily reported as a range by a company’s
actuary, which provides a company with an acceptable range to use in establishing its best estimate for IBNR reserves.
Economic inflation
A sudden and extreme increase in the economic inflation rate could
have a significant impact on the Company’s case and IBNR reserves. When establishing case reserves, claims personnel generally establish
an amount that in their opinion will provide a conservative amount to settle the loss. If the time to settle the claim extends over a
period of years, which is possible but unlikely as the Company usually settles claims in less than 50 days on average, the initial reserve
may not anticipate an economic inflation rate that is significantly higher than the current inflation rate. This can also apply to IBNR
reserves. Should the economic inflation rate increase significantly, the Company may not anticipate the need to adjust the IBNR reserves
accordingly, which could lead to the Company being deficient in its IBNR reserves.
Increases or decreases in claim severity for reasons other than
inflation
Factors exist that can drive the cost to settle claims for reasons
other than standard inflation. For example, demand surge caused by a significant catastrophe, such as a hurricane, has an impact on not
only the availability and cost of building materials such as roofing and other materials, but also the availability and cost of labor.
Numerous other factors could also cause claim severity to increase beyond what the Company’s historic reserves would reflect. In
addition, unexpected increases in labor, healthcare, or building material costs and other factors may cause fluctuations in the ultimate
development of the case reserves.
Actual settlement experience different from historical data trends
When establishing IBNR reserves, the Company’s actuaries consider
many of the factors discussed above. One of the more important factors that is considered when setting reserves is the past or historical
claim settlement experience. Our actuaries consider factors such as the number of files entering litigation, payment patterns, length
of time it takes Company claims personnel to settle the claims, and average payment amounts when estimating reserve amounts. Should future
settlement patterns change due to the legal environment, Company claims handling philosophy, or personnel, it may have an impact on the
future claims payments, which could cause existing reserves to either be redundant (excessive) or deficient (below) compared to the actual
loss amount.
Change in Reporting Lag
As discussed above, the Company and its actuaries utilize historical
patterns to provide an accurate estimate of what will take place in the future. Should we experience an unexpected delay in reporting
time (claims are slower to be reported than in the past), we may underestimate the anticipated number of future claims, which could cause
the ultimate loss we may experience to be underestimated. A lag in reporting may be caused by changes in how claims are reported, the
types or lines of business the Company writes, the Company’s distribution system, and the geographic area where the Company chooses
to insure risk.
Due to the inherent uncertainty underlying loss reserve estimates,
final resolution of the estimated liability for unpaid losses and loss adjustment expenses may be higher or lower than the related loss
reserves at the reporting date. Therefore, actual paid losses, as claims are settled in the future, may be materially higher or lower
in amount than current loss reserves. The Company reflects adjustments to the liability for unpaid losses and loss adjustment expenses
in the results of operations during the period in which the estimates are changed.
Investments
The Company’s fixed income securities and equity securities
are classified as available-for-sale and carried at estimated fair value as determined by management based upon quoted market prices or
a recognized independent pricing service at the reporting date for those or similar investments. Changes in unrealized investment gains
or losses on the fixed income securities, net of applicable income taxes, are reflected directly in shareholders’ equity as a component
of other comprehensive income (loss) and, accordingly, have no effect on net income (loss). Changes in unrealized investments gains or
losses on equity securities are reported in net income (loss). Investment income from fixed income securities is recognized when earned,
and realized investment gains (losses) are recognized when investments are sold, the fair value of equity securities change, or credit
impairments are recognized.
For additional information on the Company’s
investments, see Part II, Item 8, Note 5 “Investments” and Note 6 “Fair Value Measurements”.
Deferred Policy Acquisition Costs and
Value of Business Acquired
Certain direct policy acquisition costs consisting of commissions,
state premium taxes, and other direct underwriting expenses that vary with and are primarily related to the production of business are
deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned.
As in the case of previous acquisitions, no deferred policy acquisition
costs (“DAC”) were recorded in the acquisition of Westminster in accordance with purchase accounting guidance. Rather, a separate
intangible asset representing the value of business acquired (“VOBA”) was valued at $4,750 and established at the closing
date. This VOBA intangible asset was amortized into expense as the acquired unearned premiums were reported into income, in the same way
as DAC, and was fully amortized at December 31, 2020. Policy acquisition costs relating to new business written by Westminster were deferred
following the closing date. The release of the VOBA asset and the establishment of new DAC generally offset each other over the twelve
months following the acquisition of Westminster.
At December 31, 2022 and 2021, deferred policy
acquisition costs and the related liability for unearned premiums were as follows:
| |
December 31, | |
| |
2022 | | |
2021 | |
Deferred policy acquisition costs | |
$ | 29,768 | | |
$ | 24,947 | |
Liability for unearned premiums | |
| 148,513 | | |
| 127,789 | |
There were no VOBA intangible assets remaining
at December 31, 2022 or 2021.
The method followed in computing DAC limits the
amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income,
losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates,
the most significant of which is expected losses and loss adjustment expenses, may require adjustments to DAC. If the estimation of net
realizable value indicates that DAC are not recoverable, they would be written off or a premium deficiency reserve would be established.
Income Taxes
Current income taxes represent amounts paid to
the federal government and certain states whose payment is based upon net income (subject to regulatory adjustments) generated by the
Company. The Company uses the asset and liability method of accounting for deferred income taxes. Deferred income taxes arise from the
recognition of temporary differences between financial statement carrying amounts and the income tax bases of our assets and liabilities.
A valuation allowance is established when it is more likely than not that some portion of the deferred income tax asset will not be realized.
Total income taxes reflect both current income taxes and the change in the net deferred income tax asset or liability, excluding amounts
attributed to accumulated other comprehensive income.
The Company had gross deferred income tax assets
of $17,900 at December 31, 2022, and $10,070 at December 31, 2021, arising primarily from unearned premiums, loss reserve discounting,
net unrealized investment losses, and net operating loss carryforwards. A valuation allowance is required to be established for any portion
of the deferred income tax asset for which the Company believes it is more likely than not that it will not be realized. A valuation allowance
of $694 and $1,008 was maintained at December 31, 2022, and December 31, 2021, respectively.
The Company had gross deferred income tax liabilities of $8,201
at December 31, 2022, and $14,568 at December 31, 2021, arising primarily from deferred policy acquisition costs, net unrealized investment
gains, and other intangible assets.
The Company exercises significant judgment in
evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments require us to make
projections of future taxable income. The judgments and estimates we make in determining its deferred income tax assets, which are inherently
subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income
may require the Company to record a valuation allowance against its deferred income tax assets.
As of December 31, 2022, the Company had no material
unrecognized income tax benefits or accrued interest and penalties. Federal income tax returns for the years 2019 through 2021 are open
for examination.
Changing Climate Conditions
Longer-term natural catastrophe trends may be changing, and new
types of catastrophe losses may be developing due to climate change, a phenomenon that has been associated with extreme weather events
linked to rising temperatures, and includes effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea
levels, rain, hail, and snow. The frequency, number, and severity of these losses are unpredictable. The extent of losses from a catastrophe
is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Our ability
to effectively manage catastrophe risk is dependent, in part, on our reliance on various catastrophe models, which may produce unreliable
output as a result of inaccurate or incomplete data, along with the inherent uncertainty of future frequency and severity of losses. The
impact of changing climate conditions on the overall insurance industry may also materially affect the availability and cost of reinsurance
to us. In addition, these changes could impact the creditworthiness of issuers of securities in which the Company invests, subjecting
our investment portfolio to increased credit and interest rate risk, with the potential for reduced investment returns and/or material
realized or unrealized losses.
Liquidity and Capital Resources
The Company generates sufficient funds from its operations and maintains
a high degree of liquidity in its investment portfolio to meet the demands of claim settlements and operating expenses. The primary sources
of funds are premium collections, investment earnings, and fixed income maturities. In 2017, we raised $93,145 in net proceeds from our
IPO, which we planned to use for strategic acquisitions.
In 2018, we used $17,000 for the acquisition of Direct Auto, which
was paid at closing. 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.
We currently anticipate that cash generated from our operations
and available from our investment portfolio, along with the remaining IPO net proceeds, will be sufficient to fund our operations.
The Company’s philosophy is to provide sufficient cash flows
from operations to meet its obligations in order to minimize the forced sales of investments. The Company maintains a portion of its investment
portfolio in relatively short-term and highly liquid assets to ensure the availability of funds.
The changes in cash and cash equivalents for the
years ended December 31, 2022, 2021, and 2020 were as follows:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Net cash flows from operating activities | |
$ | (30,388 | ) | |
$ | 29,168 | | |
$ | 51,010 | |
Net cash flows from investing activities | |
| 25,048 | | |
| (48,151 | ) | |
| 200 | |
Net cash flows from financing activities | |
| (18,281 | ) | |
| (11,471 | ) | |
| (12,265 | ) |
Net increase (decrease) in cash and cash equivalents | |
$ | (23,621 | ) | |
$ | (30,454 | ) | |
$ | 38,945 | |
For the year ended December 31, 2022, net cash used by operating
activities totaled $30,388 compared to $29,168 net cash provided by operating activities a year ago. This decrease was primarily driven
by higher claim payments related to catastrophe losses during the current year and higher levels of premiums and agents’ balances
receivable and federal income tax recoverable.
For the year ended December 31, 2022, net cash provided by investing
activities totaled $25,048 compared to $48,151 net cash used by investing activities a year ago. This decrease in cash used was attributable
to the significant catastrophe losses in Nebraska and South Dakota, which resulted in more sales of securities to pay losses and less
available cash for investment purchases. The decrease was also attributable to the Company investing a higher level of excess cash during
the first quarter of 2021.
For the year ended December 31, 2022, net cash used by financing
activities totaled $18,281 compared to $11,471 a year ago. This increase in cash used was primarily attributable to the Company making
two installment payments for the Westminster purchase during 2022 for $13,333 compared to one installment payment in 2021 for $6,667.
For the year ended December 31, 2021, net cash provided by operating
activities totaled $29,168 compared to $51,010 in the year prior. The decrease in net cash provided by operating activities was primarily
driven by higher claim payments related to a return to average loss frequency in the private passenger auto segment while pandemic-related
restrictions were removed as well as above average weather-related losses and a catastrophe event in the home and farm segment. The higher
claim payments were partially offset by increased premium receipts due to premium growth.
For the year ended December 31, 2021, net cash used by investing
activities totaled $48,151 compared to net cash provided by investing activities of $200 in the year prior. In 2021, the Company invested
excess cash generated from operations and the implementation of the intercompany reinsurance pooling agreement into longer term investments.
For the year ended December 31, 2021, net cash used by financing
activities totaled $11,471 compared to $12,265 in the year prior. The Company paid the first installment of $6,667 of the additional consideration
for Westminster during the first quarter of 2021. The Company repurchased shares of its own common stock for $4,316 during 2021 compared
to $12,234 during 2020.
As a standalone entity, and outside of the net proceeds from the
IPO, the Company’s principal source of long-term liquidity will be dividend payments from its directly-owned subsidiaries.
Nodak Insurance is restricted by the insurance laws of North Dakota
as to the amount of liquid 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 the Company’s surplus as regards policyholders as of the preceding
December 31, or (ii) the Company’s statutory net income for the preceding calendar year (excluding realized investment 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. The Nodak Insurance Board of Directors declared and paid dividends of $3,000 and
$6,000 to NI Holdings during the years ended December 31, 2022 and 2020, respectively. No dividends were declared or paid by Nodak Insurance
during the year ended December 31, 2021.
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 as of December 31, 2022. No dividends were declared or paid by Direct Auto during the years ended December 31, 2022, 2021,
or 2020.
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 as of December 31, 2022. No dividends were declared or paid by Westminster during the years ended December 31, 2022, 2021
or 2020.
Contractual Obligations
The primary contractual obligations of the Company
include gross loss and loss adjustment expenses payments, consideration due relating to the acquisition of Westminster, and operating
lease obligations.
The Company’s unpaid losses and loss adjustment
expenses were $190,459 as of December 31, 2022. Historical payment experience indicates that approximately 49% of this amount will be
paid during 2023 and another 35% will be paid over the subsequent two years. The actual timing and amounts of these payments in the future
may vary.
Westminster was acquired on January 1, 2020,
for a purchase price of $40,000, subject to certain adjustments. The Company paid $20,000 from the net proceeds from the IPO at time
of closing, with another $20,000 payable in three equal installments. We paid the first two installments on the first two anniversaries
of the closing, in January 2021 and January 2022, and paid the final installment in December 2022.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements,
see Part II, Item 8, Note 2 “Recent Accounting Pronouncements”.
| Item 8. | Financial Statements and Supplementary Data |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and
Shareholders of NI Holdings, Inc.
Opinions on the Consolidated Financial Statements
and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NI Holdings,
Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2022, and 2021, and the related consolidated statements
of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2022, and the related notes and the schedule listed in Item 15(a)(2) (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and 2021, and
the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity
with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated
Framework (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible
for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements
and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements
included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal
Control over Financial Reporting
A company’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is
a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and
(2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in
any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of Losses and Loss Adjustment
Expenses Reserves
Critical Audit Matter Description
On December 31, 2022, the Company’s
liability for unpaid losses and loss adjustment expenses was approximately $190 million. As described in Note 3 and 9, the
Company’s property and casualty insurance loss and loss expenses reserves (referred to as “losses and loss expenses
reserves”), are determined by the Company using actuarial methods, models, assumptions, and judgment to estimate the reserves
required to pay for and settle all outstanding insured claims as of the financial statement date. There is significant uncertainty
inherent in determining management’s best estimate of the losses and loss expenses reserves, requiring the use of informed
actuarially based estimates and management’s judgment. The actuarial estimate of losses and loss expenses reserves is subject
to review and adjustment by Company management.
Losses and loss expenses are inherently uncertain
as to timing and amount and the recorded losses and loss expense reserves may vary materially from the actual ultimate cost of claims.
Given the subjectivity in estimating ultimate losses and loss expenses, due to uncertainties concerning the future emergence of losses
and loss expenses, inflation trends, and the judicial environment, among other factors, auditing losses and loss expenses reserves involved
an especially high degree of auditor judgment, including the need to involve an actuarial specialist.
How the Critical Matter Was Addressed in the
Audit
We obtained an understanding, evaluated the design,
and tested the operating effectiveness of certain internal controls over the Company’s reserving process for losses and loss adjustment
expenses reserves.
To test the Company’s estimate of losses
and loss adjustment expenses reserves, our audit procedures included among others:
| ● | With the assistance of the actuarial specialist,
we used the Company’s claims data and other inputs, to develop a range of independent estimates for the losses and loss expenses
reserves. We used these independent estimates to assess the reasonableness of the Company’s reserves by comparing our estimates
to the Company’s recorded losses and loss expenses reserves. |
| ● | We tested the underlying data that served as
the basis for the actuarial analysis, including historical claims data, to test the reasonableness of key inputs to the actuarial estimate. |
| ● | We compared the Company’s prior years estimates
of expected incurred losses to actual experience during the current year to identify potential bias in the determination of losses and
loss expenses reserves. |
/s/ Mazars USA LLP
We have serves as the Company’s auditor since
2016.
Fort Washington, Pennsylvania
March 8, 2023
NI Holdings, Inc.
Consolidated Balance Sheets
December 31, 2022 and 2021
(dollar amounts in thousands, except par value)
| |
2022 | | |
2021 | |
Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 47,002 | | |
$ | 70,623 | |
Fixed income securities, at fair value (net of allowance for expected credit losses of $0 at December 31, 2022) | |
| 303,324 | | |
| 364,651 | |
Equity securities, at fair value | |
| 52,393 | | |
| 77,690 | |
Other investments | |
| 2,005 | | |
| 2,005 | |
Total cash and investments | |
| 404,724 | | |
| 514,969 | |
| |
| | | |
| | |
Premiums and agents' balances receivable (net of allowance for expected credit losses of $425 at December 31, 2022) | |
| 62,173 | | |
| 51,452 | |
Deferred policy acquisition costs | |
| 29,768 | | |
| 24,947 | |
Reinsurance premiums receivable | |
| 1,647 | | |
| — | |
Reinsurance recoverables on losses (net of allowance for expected credit losses of $0 at December 31, 2022) | |
| 37,575 | | |
| 21,200 | |
Income tax recoverable | |
| 13,964 | | |
| 364 | |
Accrued investment income | |
| 2,456 | | |
| 2,524 | |
Property and equipment, net | |
| 9,843 | | |
| 9,869 | |
Deferred income taxes | |
| 9,005 | | |
| — | |
Receivable from Federal Crop Insurance Corporation | |
| 15,462 | | |
| — | |
Goodwill and other intangibles | |
| 17,250 | | |
| 17,722 | |
Other assets | |
| 10,365 | | |
| 8,735 | |
Total assets | |
$ | 614,232 | | |
$ | 651,782 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Unpaid losses and loss adjustment expenses | |
$ | 190,459 | | |
$ | 139,662 | |
Unearned premiums | |
| 148,513 | | |
| 127,789 | |
Reinsurance premiums payable | |
| — | | |
| 326 | |
Deferred income taxes | |
| — | | |
| 5,506 | |
Payable to Federal Crop Insurance Corporation | |
| — | | |
| 4,962 | |
Westminster consideration payable | |
| — | | |
| 13,020 | |
Accrued expenses and other liabilities | |
| 22,053 | | |
| 13,104 | |
Total liabilities | |
| 361,025 | | |
| 304,369 | |
| |
| | | |
| | |
| |
| | | |
| | |
Shareholders’ equity: | |
| | | |
| | |
Common stock, $0.01 par value, authorized 25,000,000 shares, issued: 23,000,000 shares; and outstanding: 2022 – 21,076,255 shares, 2021 – 21,219,808 shares | |
| 230 | | |
| 230 | |
Additional paid-in capital | |
| 95,671 | | |
| 98,166 | |
Unearned employee stock ownership plan shares | |
| (941 | ) | |
| (1,184 | ) |
Retained earnings | |
| 214,121 | | |
| 267,207 | |
Accumulated other comprehensive income (loss), net of income taxes | |
| (29,286 | ) | |
| 5,237 | |
Treasury stock, at cost, 2022 – 1,829,635 shares, 2021 – 1,661,767 shares | |
| (28,818 | ) | |
| (26,452 | ) |
Non-controlling interest | |
| 2,230 | | |
| 4,209 | |
Total shareholders’ equity | |
| 253,207 | | |
| 347,413 | |
| |
| | | |
| | |
Total liabilities and shareholders’ equity | |
$ | 614,232 | | |
$ | 651,782 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2022, 2021, and 2020
(dollar amounts in thousands, except per share data)
| |
2022 | | |
2021 | | |
2020 | |
Revenues: | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 328,290 | | |
$ | 299,589 | | |
$ | 283,661 | |
Fee and other income | |
| 1,453 | | |
| 1,775 | | |
| 1,801 | |
Net investment income | |
| 7,820 | | |
| 7,131 | | |
| 7,271 | |
Net investment gains (losses) | |
| (13,126 | ) | |
| 15,479 | | |
| 13,624 | |
Total revenues | |
| 324,437 | | |
| 323,974 | | |
| 306,357 | |
| |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | |
Losses and loss adjustment expenses | |
| 294,432 | | |
| 216,379 | | |
| 168,473 | |
Amortization of deferred policy acquisition costs | |
| 66,803 | | |
| 64,574 | | |
| 51,472 | |
Other underwriting and general expenses | |
| 32,231 | | |
| 31,715 | | |
| 33,596 | |
Total expenses | |
| 393,466 | | |
| 312,668 | | |
| 253,541 | |
| |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
| (69,029 | ) | |
| 11,306 | | |
| 52,816 | |
Income tax expense (benefit) | |
| (15,254 | ) | |
| 2,974 | | |
| 11,472 | |
Net income (loss) | |
| (53,775 | ) | |
| 8,332 | | |
| 41,344 | |
Net income (loss) attributable to non-controlling interest | |
| (679 | ) | |
| (84 | ) | |
| 955 | |
Net income (loss) attributable to NI Holdings, Inc. | |
$ | (53,096 | ) | |
$ | 8,416 | | |
$ | 40,389 | |
| |
| | | |
| | | |
| | |
Earnings (loss) per common share: | |
| | | |
| | | |
| | |
Basic | |
$ | (2.49 | ) | |
$ | 0.39 | | |
$ | 1.86 | |
Diluted | |
$ | (2.49 | ) | |
$ | 0.39 | | |
$ | 1.84 | |
| |
| | | |
| | | |
| | |
Share data: | |
| | | |
| | | |
| | |
Weighted average common shares outstanding used in basic per common share calculations | |
| 21,333,389 | | |
| 21,424,060 | | |
| 21,772,475 | |
Plus: Dilutive securities | |
| — | | |
| 232,366 | | |
| 169,995 | |
Weighted average common shares used in diluted per common share calculations | |
| 21,333,389 | | |
| 21,656,426 | | |
| 21,942,470 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Comprehensive Income
(Loss)
Years Ended December 31, 2022, 2021, and 2020
(dollar amounts in thousands)
| |
2022 | |
| |
Attributable to NI Holdings, Inc. | | |
Attributable to Non-Controlling
Interest | | |
Total | |
Net income (loss) | |
$ | (53,096 | ) | |
$ | (679 | ) | |
$ | (53,775 | ) |
Other comprehensive income (loss), before income taxes: | |
| | | |
| | | |
| | |
Holding gains (losses) on investments | |
| (44,810 | ) | |
| (1,703 | ) | |
| (46,513 | ) |
Reclassification adjustment for net realized losses (gains) included in net income (loss) | |
| 131 | | |
| 20 | | |
| 151 | |
Other comprehensive income (loss), before income taxes | |
| (44,679 | ) | |
| (1,683 | ) | |
| (46,362 | ) |
Income tax benefit (expense) related to items of other comprehensive income (loss) | |
| 10,156 | | |
| 383 | | |
| 10,539 | |
Other comprehensive income (loss), net of income taxes | |
| (34,523 | ) | |
| (1,300 | ) | |
| (35,823 | ) |
Comprehensive income (loss) | |
$ | (87,619 | ) | |
$ | (1,979 | ) | |
$ | (89,598 | ) |
| |
2021 | |
| |
Attributable to NI Holdings, Inc. | | |
Attributable to Non-Controlling
Interest | | |
Total | |
Net income (loss) | |
$ | 8,416 | | |
$ | (84 | ) | |
$ | 8,332 | |
Other comprehensive income (loss), before income taxes: | |
| | | |
| | | |
| | |
Holding gains (losses) on investments | |
| (8,827 | ) | |
| (319 | ) | |
| (9,146 | ) |
Reclassification adjustment for net realized losses (gains) included in net income (loss) | |
| (648 | ) | |
| (2 | ) | |
| (650 | ) |
Other comprehensive income (loss), before income taxes | |
| (9,475 | ) | |
| (321 | ) | |
| (9,796 | ) |
Income tax benefit (expense) related to items of other comprehensive income (loss) | |
| 1,872 | | |
| 69 | | |
| 1,941 | |
Other comprehensive income (loss), net of income taxes | |
| (7,603 | ) | |
| (252 | ) | |
| (7,855 | ) |
Comprehensive income (loss) | |
$ | 813 | | |
$ | (336 | ) | |
$ | 477 | |
| |
2020 | |
| |
Attributable to NI Holdings, Inc. | | |
Attributable to Non-Controlling Interest | | |
Total | |
Net income (loss) | |
$ | 40,389 | | |
$ | 955 | | |
$ | 41,344 | |
Other comprehensive income (loss), before income taxes: | |
| | | |
| | | |
| | |
Holding gains (losses) on investments | |
| 10,051 | | |
| 116 | | |
| 10,167 | |
Reclassification adjustment for net realized losses (gains) included in net income (loss) | |
| (902 | ) | |
| (1 | ) | |
| (903 | ) |
Other comprehensive income (loss), before income taxes | |
| 9,149 | | |
| 115 | | |
| 9,264 | |
Income tax benefit (expense) related to items of other comprehensive income (loss) | |
| (1,921 | ) | |
| (24 | ) | |
| (1,945 | ) |
Other comprehensive income (loss), net of income taxes | |
| 7,228 | | |
| 91 | | |
| 7,319 | |
Comprehensive income (loss) | |
$ | 47,617 | | |
$ | 1,046 | | |
$ | 48,663 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Changes in Shareholders’
Equity
Years Ended December 31, 2022, 2021, and 2020
(dollar amounts in thousands)
| |
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, 2020 | |
$ | 230 | | |
$ | 95,961 | | |
$ | (1,671 | ) | |
$ | 218,480 | | |
$ | 5,612 | | |
$ | (12,308 | ) | |
$ | 3,499 | | |
$ | 309,803 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| 40,389 | | |
| — | | |
| — | | |
| 955 | | |
| 41,344 | |
Other comprehensive income (loss), net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7,228 | | |
| — | | |
| 91 | | |
| 7,319 | |
Share-based compensation | |
| — | | |
| 2,297 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,297 | |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (12,234 | ) | |
| — | | |
| (12,234 | ) |
Issuance of vested award shares | |
| — | | |
| (477 | ) | |
| — | | |
| (128 | ) | |
| — | | |
| 574 | | |
| — | | |
| (31 | ) |
Distribution of employee stock ownership plan shares | |
| — | | |
| 130 | | |
| 244 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 374 | |
Balance, December 31, 2020 | |
| 230 | | |
| 97,911 | | |
| (1,427 | ) | |
| 258,741 | | |
| 12,840 | | |
| (23,968 | ) | |
| 4,545 | | |
| 348,872 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| 8,416 | | |
| — | | |
| — | | |
| (84 | ) | |
| 8,332 | |
Other comprehensive income (loss), net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (7,603 | ) | |
| — | | |
| (252 | ) | |
| (7,855 | ) |
Share-based compensation | |
| — | | |
| 2,408 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,408 | |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,316 | ) | |
| — | | |
| (4,316 | ) |
Issuance of vested award shares | |
| — | | |
| (2,370 | ) | |
| — | | |
| 50 | | |
| — | | |
| 1,832 | | |
| — | | |
| (488 | ) |
Distribution of employee stock ownership plan shares | |
| — | | |
| 217 | | |
| 243 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 460 | |
Balance, December 31, 2021 | |
| 230 | | |
| 98,166 | | |
| (1,184 | ) | |
| 267,207 | | |
| 5,237 | | |
| (26,452 | ) | |
| 4,209 | | |
| 347,413 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net income (loss) | |
| — | | |
| — | | |
| — | | |
| (53,096 | ) | |
| — | | |
| — | | |
| (679 | ) | |
| (53,775 | ) |
Other comprehensive income (loss), net of income taxes | |
| — | | |
| — | | |
| — | | |
| — | | |
| (34,523 | ) | |
| — | | |
| (1,300 | ) | |
| (35,823 | ) |
Share-based compensation | |
| — | | |
| (40 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (40 | ) |
Purchase of treasury stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4,180 | ) | |
| — | | |
| (4,180 | ) |
Issuance of vested award shares | |
| — | | |
| (2,592 | ) | |
| — | | |
| 10 | | |
| — | | |
| 1,814 | | |
| — | | |
| (768 | ) |
Distribution of employee stock ownership plan shares | |
| — | | |
| 137 | | |
| 243 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 380 | |
Balance, December 31, 2022 | |
$ | 230 | | |
$ | 95,671 | | |
$ | (941 | ) | |
$ | 214,121 | | |
$ | (29,286 | ) | |
$ | (28,818 | ) | |
$ | 2,230 | | |
$ | 253,207 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2022, 2021, and 2020
(dollar amounts in thousands)
| |
2022 | | |
2021 | | |
2020 | |
Cash flows from operating activities: | |
| | | |
| | | |
| | |
Net income (loss) | |
$ | (53,775 | ) | |
$ | 8,332 | | |
$ | 41,344 | |
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |
| | | |
| | | |
| | |
Net investment losses (gains) | |
| 13,126 | | |
| (15,479 | ) | |
| (13,624 | ) |
Deferred income tax expense (benefit) | |
| (3,972 | ) | |
| (1,310 | ) | |
| 638 | |
Depreciation of property and equipment | |
| 708 | | |
| 694 | | |
| 709 | |
Amortization of intangibles | |
| 472 | | |
| 472 | | |
| 5,224 | |
Distribution of employee stock ownership plan shares | |
| 380 | | |
| 460 | | |
| 373 | |
Share-based compensation | |
| (40 | ) | |
| 2,408 | | |
| 2,297 | |
Amortization of deferred policy acquisition costs | |
| 66,803 | | |
| 64,574 | | |
| 51,472 | |
Deferral of policy acquisition costs | |
| (71,624 | ) | |
| (65,553 | ) | |
| (60,041 | ) |
Net amortization of premiums and discounts on investments | |
| 1,590 | | |
| 2,080 | | |
| 1,460 | |
Loss (gain) on sale of property and equipment | |
| (186 | ) | |
| 31 | | |
| 6 | |
Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
| (10,721 | ) | |
| (2,929 | ) | |
| (3,325 | ) |
Reinsurance premiums receivable / payable | |
| (1,973 | ) | |
| 419 | | |
| (828 | ) |
Reinsurance recoverables on losses | |
| (16,375 | ) | |
| (12,490 | ) | |
| (3,902 | ) |
Income tax recoverable / payable | |
| (13,600 | ) | |
| (1,118 | ) | |
| (753 | ) |
Accrued investment income | |
| 68 | | |
| (383 | ) | |
| 17 | |
Federal Crop Insurance Corporation receivable / payable | |
| (20,424 | ) | |
| 11,608 | | |
| 7,584 | |
Other assets | |
| 9 | | |
| (3,669 | ) | |
| 186 | |
Unpaid losses and loss adjustment expenses | |
| 50,797 | | |
| 33,912 | | |
| 3,932 | |
Unearned premiums | |
| 20,724 | | |
| 8,426 | | |
| 13,476 | |
Accrued expenses and other liabilities | |
| 7,625 | | |
| (1,317 | ) | |
| 4,765 | |
Net cash flows from operating activities | |
| (30,388 | ) | |
| 29,168 | | |
| 51,010 | |
| |
| | | |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | | |
| | |
Proceeds from maturities and sales of fixed income securities | |
| 77,965 | | |
| 73,015 | | |
| 87,874 | |
Proceeds from sales of equity securities | |
| 26,204 | | |
| 44,600 | | |
| 27,718 | |
Purchases of fixed income securities | |
| (64,742 | ) | |
| (128,480 | ) | |
| (91,559 | ) |
Purchases of equity securities | |
| (13,884 | ) | |
| (37,491 | ) | |
| (22,312 | ) |
Purchases of property and equipment | |
| (1,162 | ) | |
| (739 | ) | |
| (616 | ) |
Proceeds from sales of property and equipment | |
| 667 | | |
| 43 | | |
| 73 | |
Acquisition of Westminster American Insurance Company (cash consideration paid net of cash and cash equivalents acquired) | |
| — | | |
| — | | |
| (703 | ) |
Proceeds from sale of other investments and other | |
| — | | |
| 901 | | |
| (275 | ) |
Net cash flows from investing activities | |
| 25,048 | | |
| (48,151 | ) | |
| 200 | |
| |
| | | |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | | |
| | |
Purchases of treasury stock | |
| (4,180 | ) | |
| (4,316 | ) | |
| (12,234 | ) |
Installment payment on Westminster consideration payable | |
| (13,333 | ) | |
| (6,667 | ) | |
| — | |
Issuance of vested award shares | |
| (768 | ) | |
| (488 | ) | |
| (31 | ) |
Net cash flows from financing activities | |
| (18,281 | ) | |
| (11,471 | ) | |
| (12,265 | ) |
| |
| | | |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (23,621 | ) | |
| (30,454 | ) | |
| 38,945 | |
| |
| | | |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 70,623 | | |
| 101,077 | | |
| 62,132 | |
| |
| | | |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 47,002 | | |
$ | 70,623 | | |
$ | 101,077 | |
| |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | |
Non-cash item: Present value of installment payable issued in connection with acquisition of Westminster American Insurance Company | |
$ | — | | |
$ | — | | |
$ | 18,787 | |
| |
| | | |
| | | |
| | |
Federal and state income taxes paid | |
$ | 2,360 | | |
$ | 5,402 | | |
$ | 11,586 | |
The accompanying notes are an integral part of these consolidated financial
statements.
NI Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 2022, 2021, and 2020
(dollar amounts in thousands)
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 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 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, 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 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. |
Recent Accounting Pronouncements |
Prior to December 31, 2022, we were classified as an 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
Premium Amortization on Callable Fixed Income Securities
In January 2020, the Company adopted amended guidance from
the FASB that shortened the amortization period of premiums on certain fixed income securities held at a premium to the earliest call
date rather than through the maturity date of the callable security. The adoption of this guidance did not materially impact the Company’s
financial position, results of operations, or cash flows.
Fair Value Measurement of Assets and Liabilities
In March 2020, the Company adopted modified disclosure
requirements from the FASB relating to the fair value of assets and liabilities. The modifications primarily related to Level 3 fair value
measurements. The Company does not currently carry any Level 3 assets or liabilities. As a result, there was no impact to the Company’s
financial statement disclosures.
Leases
Effective for the year ended December 31, 2022, the Company
adopted the updated guidance for leases and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings
for the year of adoption, if necessary. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue
to be presented in the consolidated financial statements in accordance with previous lease accounting guidance. The Company also elected
to apply all practical expedients applicable to the Company in the updated guidance for transition for leases in effect at adoption, including
using hindsight to determine the lease term of existing leases, the option to not reassess whether an existing contract is a lease or
contains a lease, and whether the lease is an operating or finance lease. The adoption of the updated guidance resulted in the Company
recognizing a right-of-use asset of $1,637 as part of other assets, a lease liability of $1,837 as part of other liabilities, and an elimination
of the $200 deferred rent liability in the Consolidated Balance Sheet. The cumulative effect adjustment to the opening balance of retained
earnings was zero. The adoption of the updated guidance did not affect the Company’s results of operations or cash flows.
Measurement of Credit Losses on Financial Instruments
In December 2022, the Company adopted amended guidance from
the FASB that applies a new credit loss model (current expected credit losses or “CECL”) for determining credit-related impairments
for financial instruments measured at amortized cost and requires an entity to estimate the credit losses expected over the life of an
exposure or pool of exposures. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance
account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented
on the Consolidated Balance Sheet at the amount expected to be collected. The updated guidance also amends the previous other-than-temporary
impairment model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses
through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and
its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination
of whether a credit loss exists.
The Company adopted the updated guidance for the year ended
December 31, 2022. The adoption of this guidance resulted in an allowance of expected credit losses of $425 for premiums and agents' balances
receivable. Based on the results of the receivable
analyses and management’s review of our
available-for-sale fixed income securities, it was determined that no allowance was required for reinsurance recoverables or available-for-sale
fixed income securities at this time.
Income Taxes – Simplifying the Accounting for Income
Taxes
In December 2022, the Company adopted amended guidance
from the FASB relating to accounting for income taxes. The modifications primarily remove or amend several exceptions contained in existing
guidance to simplify income tax matters. The adoption of this guidance did not materially impact the Company’s financial position,
results of operations, or cash flows.
3. |
Summary of Significant Accounting Policies |
Basis of Consolidation:
Our consolidated financial statements, which we
have prepared in accordance with GAAP, include our accounts and those of our wholly-owned subsidiaries, as well as Battle Creek, an entity
we control via a surplus note agreement. We have eliminated all significant intercompany accounts and transactions in consolidation.
Use of Estimates:
In preparing our consolidated financial statements,
management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet,
and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
We make estimates and assumptions that can have
a significant effect on amounts and disclosures we report in our consolidated financial statements. The most significant estimates relate
to our reserves for unpaid losses and loss adjustment expenses, earned premiums for crop insurance, valuation of investments, determination
of credit impairments, valuation allowances for deferred income tax assets, deferred policy acquisition costs, and the valuations used
to establish intangible assets acquired related to business combinations. While we believe our estimates are appropriate, the ultimate
amounts may differ from the estimates provided. We regularly review our methods for making these estimates as well as the continued appropriateness
of the estimated amounts, and we reflect any adjustment we consider necessary in our current results of operations.
Variable-Interest Entities:
Any company deemed to be a variable interest entity
(“VIE”) is required to be consolidated by the primary beneficiary of the VIE.
We assess our investments in other entities at
inception to determine if any meet the qualifications of a VIE. We consider an investment in another company to be a VIE if: (a) the total
equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support,
(b) the characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other
rights, the obligation to absorb expected losses of the entity, or the right to receive the expected residual returns of the entity),
or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or
the rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve
or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events, we would
reassess our initial determination of whether the investment is a VIE.
We evaluate whether we are the primary beneficiary
of each VIE and we consolidate the VIE if we have both (1) the power to direct the economically significant activities of the entity
and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity. We consider the contractual agreements
that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights, and board
representation of the respective parties in determining whether we qualify as the primary beneficiary. Our assessment of whether we are
the primary beneficiary of a VIE is performed at least annually.
We control Battle Creek via a surplus note which
provides us with the ability to appoint two-thirds of the Board of Directors of Battle Creek. Under the quota share reinsurance agreement
that existed through December 31, 2019, Battle Creek’s operating results included only net investment income, bad debt expense,
and income taxes. Effective January 1, 2020, the Company implemented an intercompany pooling reinsurance agreement, and Battle Creek’s
operating results now include its participation in the underwriting results of the pool (2% during 2022, 2021, and 2020). For more information,
see Part II, Item 8, Note 12 “Related Party Transactions”. Because we have concluded that we control Battle Creek, we consolidate
the financial statements of Battle Creek, and Battle Creek’s policyholders’ interest in Battle Creek is reflected as a non-controlling
interest in shareholders’ equity in our Consolidated Balance Sheet and its net income or loss is excluded from net income or loss
attributed to NI Holdings in our Consolidated Statement of Operations.
Cash and Cash Equivalents:
Cash and cash equivalents include certain investments
in highly liquid debt instruments with original maturities of three months or less. Cost approximates fair value for these short-term
investments.
Investments:
The Company’s fixed income securities and equity securities
are classified as available-for-sale and carried at estimated fair value as determined by management based upon quoted market prices or
a recognized independent pricing service at the reporting date for those or similar investments. Changes in unrealized investment gains
or losses on the fixed income securities, net of applicable income taxes, are reflected directly in shareholders’ equity as a component
of other comprehensive income (loss) and, accordingly, have no effect on net income (loss). Changes in unrealized investments gains or
losses on equity securities are reported in net income (loss). Investment income from fixed income securities is recognized when earned,
and realized investment gains (losses) are recognized when investments are sold, the fair value of equity securities change, or credit
impairments are recognized.
Fair values are based on quoted market prices or independent pricing
services, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Amortization of premium and accretion of discount are computed using the effective interest method. Net investment income includes interest
and dividend income together with amortization of purchase premiums and discounts, and is net of investment management and custody fees.
Realized gains and losses on investments are determined using the specific identification method and are included in net investment gains
(losses), along with the change in unrealized gains and losses on equity securities. Other invested assets that do not have observable
inputs and little or no market activity are carried on a cost basis, which approximates fair value. The carrying value of these other
invested assets was $2,005 at December 31, 2022 and 2021.
Beginning on December 31, 2022, credit losses are recognized through
an allowance account. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements” for additional information. We, along
with our investment advisors, frequently review our investment portfolio for declines in fair value that could be indicative of credit
losses. The available-for-sale impairment model requires an estimate of expected credit losses only when the fair value of the available-for-sale
fixed income security is below its amortized cost basis. The Company considers 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. The Company determines the credit loss component of fixed income securities 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. If the amortized cost is greater
than the present value of the expected cash flows, the difference is considered a credit loss and recognized as an impairment loss in
net realized investment gains (losses). Credit impairments are recognized as an allowance on the Consolidated Balance Sheet with a corresponding
adjustment to earnings.
For fixed income securities that the Company does not intend to
sell or for which it is more likely than not that the Company would not be required to sell before an anticipated recovery in value, the
Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss
component in net realized investment gains (losses). The impairment related to all other factors (non-credit factors) is reported in other
comprehensive income. The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit
loss, the cost basis is not adjusted.
For fixed income securities the Company intends to sell or for which
it is more likely than not that the Company will be required to sell before an anticipated recovery in value, the full amount of the impairment
is included in net investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the impairment
recognized in net investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value.
The Company reports investment income accrued
separately from fixed maturity investments, available for sale, and has elected not to measure an allowance for credit losses for investment
income accrued. Investment income accrued is written off through net realized investment gains (losses) at the time the issuer of the
bond defaults or is expected to default on payments.
For more information on investment valuation measurements, see Part
II, Item 8, Note 6 “Fair Value Measurements”.
Revenue Recognition:
We record premiums written at policy inception and recognize them
as revenue on a pro rata basis over the policy term or, in the case of crop insurance, over the period of risk. The portion of premiums
that could be earned in the future is deferred and reported as unearned premiums. When policies lapse, the Company reverses the unearned
portion of the written premium and removes the applicable unearned premium. Policy-related fee income is recognized when collected.
The period of risk for our crop insurance program, which is comprised
of primarily spring-planted crops, typically runs from April 1 (the approximate time when farmers can begin to work their fields) through
December 15 (last date claims can be made for the most recent planting season).
Premiums and Agents’ Balances
Receivable:
Premiums and agents’ balances receivable include both direct
and agent billed premiums as well as crop notes receivable related to the multi-peril crop and crop hail insurance.
Accounts billed directly to the policyholder are provided grace
payment and cancellation notice periods per state insurance regulations.
Direct Auto also provides for agency billing for a portion of their
agents. Accounts billed to agents are due within 60 days of the statement date. The agent is responsible for all past due balances. As
part of its agent appointment, Direct Auto requires a personal guarantee for all balances due to Direct Auto from the principal of the
contracted agency.
Beginning on December 31, 2022, the premium and agents’ receivable
balances are reported net of an allowance for expected credit losses. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements”
for additional information. We recognized $425 of credit losses for these receivables at the time of adoption of CECL. Therefore, there
was no beginning balance of credit losses as of January 1, 2022, and all activity was the result of adoption. As a result of the transition
from the previous accounting treatment, we did not record a cumulative effect adjustment to retained earnings at the time of adoption.
Given the nature of these receivables, the Company has elected to use a loss-rate method to determine the expected credit losses. The
allowance is based upon the Company’s ongoing review of amounts outstanding and write-offs. Management may also evaluate current
economic conditions and reasonable/supportable forecasts to adjust this calculation as deemed necessary.
Policy Acquisition Costs:
We defer our policy acquisition costs, consisting
primarily of commissions, premium taxes, and certain other underwriting costs, reduced by ceding commissions, which vary with and relate
directly to the production of business. We amortize these deferred policy acquisition costs over the period in which we earn the premiums.
The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable
value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other
costs we expect to incur as we earn the premium.
Property and Equipment:
We report property and equipment at cost less
accumulated depreciation. Depreciation is computed using the straight-line method based upon estimated useful lives of the assets.
Losses and Loss Adjustment Expenses:
Liabilities for unpaid losses and loss adjustment expenses are estimates
at a given point in time of the amounts we expect to pay with respect to policyholder claims based on facts and circumstances then known.
At the time of establishing our estimates, we recognize that our ultimate liability for losses and loss adjustment expenses may differ
from these estimates. We base our estimates of liabilities for unpaid losses and loss adjustment expenses on assumptions as to future
loss trends, expected claims severity, judicial theories of liability, and other factors. During the loss adjustment period, we may learn
additional facts regarding certain claims, and, consequently, it often becomes necessary for us to refine and adjust our estimates of
the liability. We reflect any adjustments to our liabilities for unpaid losses and loss adjustment expenses in our operating results in
the period in which we determine the need for a change in the estimates.
We maintain liabilities for unpaid losses and loss adjustment expenses
with respect to both reported and unreported claims. We establish these liabilities for the purpose of covering the ultimate costs of
settling all losses, including investigation and litigation costs. We base the amount of our liability for reported losses primarily upon
a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim, and the insurance policy
provisions relating to the type of loss our policyholder incurred. We determine the amount of our liability for unreported losses and
loss adjustment expenses on the basis of historical information by line of insurance. Inflation is not explicitly selected in the loss
reserve analysis. However, historical inflation is embedded in the estimated loss development factors. We closely monitor our liabilities
and update them periodically using new information on reported claims and a variety of statistical techniques. We do not discount our
liabilities for unpaid losses and loss adjustment expenses.
Reserve estimates can change over time because of unexpected changes
in assumptions related to our external environment and, to a lesser extent, assumptions as to our internal operations. Assumptions related
to our external environment include the potential impact of significant changes in tort law and the legal environment which may impact
liability exposure, the trends in judicial interpretations of insurance coverage and policy provisions, and the rate of loss cost inflation.
Internal assumptions include consistency in the recording of premium and loss data, consistency in the recording of claims, payment and
case reserving methodologies, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the
quality and characteristics of business written within a given line of business, and consistency in reinsurance coverage and collectability
of reinsured losses, among other items. To the extent we determine that underlying factors impacting our assumptions have changed, we
attempt to make appropriate adjustments for such changes in our reserves. Accordingly, our ultimate liability for unpaid losses and loss
adjustment expenses will likely differ from the amount recorded.
Income Taxes:
With the exception of Battle Creek, which files a stand-alone federal
income tax return, we file a consolidated federal income tax return which includes NI Holdings and its wholly-owned subsidiaries.
Insurance companies typically pay state premium taxes rather than
state income taxes. However, Direct Auto is subject to state income taxes in the state of Illinois, in addition to state premium taxes.
Additionally, NI Holdings, on a stand-alone basis, pays state income taxes to the state of North Dakota for income or losses generated
as a separate financial entity. State premium taxes are included as a part of amortization of deferred policy acquisition costs. State
income taxes are reported along with federal income taxes as income tax expense (benefit).
The Company did not have any material uncertain tax positions as
of December 31, 2022 and 2021. The Company’s policy is to recognize tax-related interest and penalties accrued related to unrecognized
benefits as a component of income tax expense. The Company did not recognize any tax-related interest and penalties, nor did it have any
tax-related interest or penalties accrued as of December 31, 2022 and 2021.
We account for deferred income taxes using the asset and liability
method. The objective of the asset and liability method is to establish deferred income tax assets and liabilities for the temporary differences
between the financial reporting basis and the income tax basis of our assets and liabilities at enacted tax rates expected to be in effect
when we realize or settle such amounts.
We re-measure existing deferred income tax assets (including loss
carryforwards) and liabilities when a change in tax rate occurs, and record an offset for the net amount of the change as a component
of income tax expense from continuing operations in the period of enactment. We also record any change to a previously recorded valuation
allowance as a result of re-measuring existing temporary differences and loss carryforwards as a component of income tax expense from
continuing operations.
The Company has elected to reclassify any tax effects stranded in
accumulated other comprehensive income as a result of a change in income tax rates to retained earnings.
Earnings Per Share:
Earnings per share are computed by dividing net income available
to common shareholders for the period by the weighted average number of common shares outstanding for the same period. Unearned shares
related to the Company’s ESOP are not considered outstanding until they are released and allocated to plan participants. Unearned
shares related to the Company’s Restricted Stock Units (“RSUs”) and Performance Share Units (“PSUs”) are
not considered outstanding until they are earned by award participants. See Part II, Item 8, Note 13 “Benefit Plans” and Note
19 “Share-Based Compensation”.
Credit Risk:
Our primary investment objective is to earn competitive
returns by investing in a diversified portfolio of securities. Our portfolio of fixed income securities and, to a lesser extent, short-term
investments, is subject to credit risk. We define this risk as the potential loss in fair value resulting from adverse changes in the
borrower’s ability to repay the debt. We manage this risk by performing an analysis of prospective investments and through regular
reviews of our portfolio by our management team and investment advisors. We also limit the amount of our total investment portfolio that
we invest in any one security.
Property and liability insurance coverages are
marketed through captive agents in North Dakota and through independent insurance agencies located throughout all other operating areas.
All business, except for the majority of Direct Auto’s business, is billed directly to the policyholders.
We maintain cash balances primarily at one bank,
which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250. During the normal course of business,
balances are maintained above the FDIC insurance limit. The Company maintains short-term investment balances in investment grade money
market accounts that are insured by the Securities Investor Protection Corporation (“SIPC”) up to $500. On occasion, balances
for these accounts are maintained in excess of the SIPC insurance limit.
Reinsurance:
The Company limits the maximum net loss that can
arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risks to reinsurers, either
on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts placed on substantial individual
risks. Ceded reinsurance is treated as the risk and liability of the assuming companies.
The ceding of insurance does not legally discharge
us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its obligation.
Amounts recoverable from reinsurers are estimated
in a manner consistent with the associated claim liability. Beginning on December 31, 2022, credit losses are recognized through an allowance
account developed using the CECL model. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements” for additional information.
The allowance is based upon the Company’s ongoing review of amounts outstanding, length of collection periods, changes in reinsurer
credit standing, disputes, applicable coverage defenses and other relevant factors. 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.
Goodwill and Other Intangibles:
Goodwill represents the excess of the purchase price over the underlying
fair value of acquired entities. When completing acquisitions, we seek to identify separately identifiable intangible assets that we have
acquired. We assess goodwill and other intangibles with an indefinite useful life for impairment annually. We also assess goodwill and
other intangibles for impairment upon the occurrence of certain events. In making our assessment, we consider a number of factors including
operating results, business plans, economic projections, anticipated future cash flows, and current market data. Inherent uncertainties
exist with respect to these factors and to our judgment in applying them when we make our assessment. Impairment of goodwill and other
intangibles could result from changes in economic and operating conditions in future periods. We did not record any impairments of goodwill
or other intangibles during the years ended December 31, 2022, 2021, or 2020.
Goodwill arising from the acquisition of Primero in 2014 represents
the excess of the purchase price over the fair value of the net assets acquired. The purchase price in excess of the fair value of net
assets acquired was negotiated at arms-length with an unrelated party and was based upon the strategic decision by Company management
to expand both the geographic footprint and diversification of business written by the Company. The nature of the business acquired was
such that there were limited intangibles not reflected in the net assets acquired. The purchase price was paid with a combination of cash
and cancellation of obligations owed to the acquired company by the sellers. The goodwill that arose from this transaction is included
in the basis of the net assets acquired and is not deductible for income tax purposes.
Intangible assets arising from the acquisition of Direct Auto in
2018 represent the estimated fair values of certain intangible assets, including a favorable lease contract, a state insurance license,
the value of the Direct Auto trade name, and the VOBA. The state insurance license asset has an indefinite life, while the Direct Auto
trade name is being amortized over five years from the August 31, 2018 acquisition/valuation date. The favorable lease contract and VOBA
assets have been fully amortized.
Goodwill arising from the acquisition of Westminster
in January 2020 represents the excess of the purchase price over the fair value of the net assets acquired. The purchase price in excess
of the fair value of net assets acquired was negotiated at arms-length with an unrelated party and was based upon the strategic decision
by Company management to expand both the geographic footprint and diversification of business written by the Company. Other intangible
assets arising from the acquisition of Westminster represent the estimated fair values of certain intangible assets, including state
insurance licenses, the value of Westminster’s distribution network, the value of the Westminster trade name, and the VOBA. The
state insurance license asset has an indefinite life, while the distribution networks asset and Westminster trade name are being amortized
over twenty years and ten years, respectively, from the January 1, 2020 acquisition/valuation date. The VOBA asset has been fully amortized.
4. |
Acquisition of Westminster American Insurance Company |
On January 1, 2020, the Company completed the acquisition of 100%
of the common stock of Westminster from the private shareholder of Westminster, and Westminster became a consolidated subsidiary of the
Company. Westminster is a property and casualty insurance company specializing in multi-peril commercial insurance in 11 states and the
District of Columbia.
Westminster is headquartered in Owings Mills, Maryland, and continues
to be led by its president and other key management in place at the time of the acquisition. The financial results of Westminster have
been included in the consolidated financial statements and the Company’s commercial business segment following the acquisition close
date.
We account for business acquisitions in accordance with the acquisition
method of accounting, which requires that most assets acquired, liabilities assumed, and contingent consideration be recognized at their
fair values as of the acquisition date, which is the closing date for the Westminster transaction. During the measurement period, adjustments
to provisional purchase price allocations are recognized if new information is obtained about the facts and circumstances that existed
as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The
measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the measurement period
exceed one year from the acquisition date. The measurement period for the Westminster acquisition ended December 31, 2020.
The Company paid $20,000 in cash consideration to the private shareholder
of Westminster as of the closing date, and an additional $20,000 to be paid in three equal annual installments. The acquisition of Westminster
did not include any contingent consideration other than a provision regarding future changes to federal income tax rates. The first two
installments were paid in January 2021 and January 2022, and the final installment was paid in December 2022 with no adjustments from
the originally anticipated amount.
The following table summarizes the consideration transferred to
acquire Westminster and the amounts of identified assets acquired and liabilities assumed at the acquisition date:
Fair Value of Consideration: |
Cash consideration transferred | |
$ | 20,000 | |
Present value of future cash consideration | |
| 18,787 | |
Total cash consideration | |
$ | 38,787 | |
| |
| | |
Fair Value of Identifiable Assets Acquired and Liabilities Assumed: | |
| | |
Identifiable net assets: | |
| | |
Cash and cash equivalents | |
$ | 19,297 | |
Fixed income securities | |
| 12,073 | |
Equity securities | |
| 2,705 | |
Other investments | |
| 735 | |
Premiums and agents' balances receivable | |
| 8,507 | |
Reinsurance recoverables on losses | |
| 763 | |
Accrued investment income | |
| 70 | |
Property and equipment | |
| 2,376 | |
Federal income tax recoverable | |
| 138 | |
State insurance licenses (included in goodwill and other intangibles) | |
| 1,800 | |
Distribution network (included in goodwill and other intangibles) | |
| 6,700 | |
Trade name (included in goodwill and other intangibles) | |
| 500 | |
Value of business acquired (included in goodwill and other intangibles) | |
| 4,750 | |
Other assets | |
| 76 | |
Unpaid losses and loss adjustment expenses | |
| (8,568 | ) |
Unearned premiums | |
| (16,611 | ) |
Deferred income taxes, net | |
| (1,583 | ) |
Reinsurance premiums payable | |
| (565 | ) |
Accrued expenses and other liabilities | |
| (1,132 | ) |
Total identifiable net assets | |
$ | 32,031 | |
| |
| | |
Goodwill | |
$ | 6,756 | |
The fair value of the assets acquired included premiums and agents’
balances receivable of $8,507 and reinsurance recoverables on losses of $763. These were the gross amounts due from policyholders and
reinsurers, respectively, none of which were anticipated to be uncollectible. The Company did not acquire any other material receivables
as a result of the acquisition of Westminster.
The fair values of the acquired distribution
network, state insurance licenses, Westminster trade name, and VOBA intangible assets were $6,700, $1,800, $500, and $4,750, respectively.
The state insurance license intangible has an indefinite life, while the other intangible assets are being amortized over their useful
lives of up to twenty years. The goodwill is not deductible for income tax purposes.
The amortized cost and estimated fair value of
fixed income securities as of December 31, 2022 and 2021, were as follows:
| |
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 | |
| |
December 31, 2021 | |
| |
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 | |
$ | 13,118 | | |
$ | — | | |
$ | 467 | | |
$ | (87 | ) | |
$ | 13,498 | |
Obligations of states and political subdivisions | |
| 84,668 | | |
| — | | |
| 2,979 | | |
| (353 | ) | |
| 87,294 | |
Corporate securities | |
| 144,476 | | |
| — | | |
| 4,214 | | |
| (1,069 | ) | |
| 147,621 | |
Residential mortgage-backed securities | |
| 26,190 | | |
| — | | |
| 266 | | |
| (300 | ) | |
| 26,156 | |
Commercial mortgage-backed securities | |
| 32,878 | | |
| — | | |
| 815 | | |
| (161 | ) | |
| 33,532 | |
Asset-backed securities | |
| 52,604 | | |
| — | | |
| 131 | | |
| (313 | ) | |
| 52,422 | |
Redeemable preferred stocks | |
| 4,008 | | |
| — | | |
| 136 | | |
| (16 | ) | |
| 4,128 | |
Total fixed income securities | |
$ | 357,942 | | |
$ | — | | |
$ | 9,008 | | |
$ | (2,299 | ) | |
$ | 364,651 | |
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.
| |
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 | |
| |
December 31, 2021 | |
| |
Amortized Cost | | |
Fair Value | |
Due to mature: | |
| | | |
| | |
One year or less | |
$ | 14,457 | | |
$ | 14,586 | |
After one year through five years | |
| 82,429 | | |
| 84,760 | |
After five years through ten years | |
| 82,270 | | |
| 84,173 | |
After ten years | |
| 63,106 | | |
| 64,894 | |
Mortgage / asset-backed securities | |
| 111,672 | | |
| 112,110 | |
Redeemable preferred stocks | |
| 4,008 | | |
| 4,128 | |
Total fixed income securities | |
$ | 357,942 | | |
$ | 364,651 | |
Fixed income securities with a fair value of $6,613 at December 31,
2022, and $7,977 at December 31, 2021, 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.
| |
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 | ) |
| |
December 31, 2021 | |
| |
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 | |
$ | 3,125 | | |
$ | (87 | ) | |
$ | — | | |
$ | — | | |
$ | 3,125 | | |
$ | (87 | ) |
Obligations of states and political subdivisions | |
| 19,769 | | |
| (350 | ) | |
| 222 | | |
| (3 | ) | |
| 19,991 | | |
| (353 | ) |
Corporate securities | |
| 46,816 | | |
| (1,015 | ) | |
| 1,895 | | |
| (54 | ) | |
| 48,711 | | |
| (1,069 | ) |
Residential mortgage-backed securities | |
| 17,407 | | |
| (261 | ) | |
| 1,434 | | |
| (39 | ) | |
| 18,841 | | |
| (300 | ) |
Commercial mortgage-backed securities | |
| 11,287 | | |
| (160 | ) | |
| 216 | | |
| (1 | ) | |
| 11,503 | | |
| (161 | ) |
Asset-backed securities | |
| 28,797 | | |
| (308 | ) | |
| 995 | | |
| (5 | ) | |
| 29,792 | | |
| (313 | ) |
Redeemable preferred stocks | |
| 1,493 | | |
| (16 | ) | |
| — | | |
| — | | |
| 1,493 | | |
| (16 | ) |
Total fixed income securities | |
$ | 128,694 | | |
$ | (2,197 | ) | |
$ | 4,762 | | |
$ | (102 | ) | |
$ | 133,456 | | |
$ | (2,299 | ) |
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. The Company considers 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. The Company determines 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. Therefore, there was no beginning balance of credit losses as
of January 1, 2022, or activity during the year ended December 31, 2022. See Item II, Part 8, Note 3 “Summary of Significant Accounting
Policies” for additional information.
Net investment income consisted of the following:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Fixed income securities | |
$ | 9,226 | | |
$ | 8,489 | | |
$ | 8,682 | |
Equity securities | |
| 1,485 | | |
| 1,221 | | |
| 1,220 | |
Real estate | |
| 595 | | |
| 625 | | |
| 587 | |
Cash and cash equivalents | |
| 30 | | |
| 4 | | |
| 30 | |
Total gross investment income | |
| 11,336 | | |
| 10,339 | | |
| 10,519 | |
Investment expenses | |
| 3,516 | | |
| 3,208 | | |
| 3,248 | |
Net investment income | |
$ | 7,820 | | |
$ | 7,131 | | |
$ | 7,271 | |
Net investment gains (losses) consisted of the following:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Gross realized gains: | |
| | | |
| | | |
| | |
Fixed income securities | |
$ | 117 | | |
$ | 677 | | |
$ | 1,035 | |
Equity securities | |
| 7,078 | | |
| 17,453 | | |
| 8,705 | |
Total gross realized gains | |
| 7,195 | | |
| 18,130 | | |
| 9,740 | |
| |
| | | |
| | | |
| | |
Gross realized losses, excluding credit impairment losses: | |
| | | |
| | | |
| | |
Fixed income securities | |
| (268 | ) | |
| (27 | ) | |
| (132 | ) |
Equity securities | |
| (5,003 | ) | |
| (335 | ) | |
| (1,837 | ) |
Total gross realized losses, excluding credit impairment losses | |
| (5,271 | ) | |
| (362 | ) | |
| (1,969 | ) |
| |
| | | |
| | | |
| | |
Net realized gains | |
| 1,924 | | |
| 17,768 | | |
| 7,771 | |
| |
| | | |
| | | |
| | |
Change in net unrealized gain on equity securities | |
| (15,050 | ) | |
| (2,289 | ) | |
| 5,853 | |
Net investment gains (losses) | |
$ | (13,126 | ) | |
$ | 15,479 | | |
$ | 13,624 | |
6. |
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 II includes fixed income securities with quoted prices that are traded less frequently than exchange traded instruments. Valuation techniques include matrix pricing which is a mathematical technique used widely in the industry to value fixed income securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices. |
|
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 weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts
which we could have realized in a sale transaction on the dates indicated. The estimated fair value amounts have been measured as of their
respective period-end and have not been re-evaluated or updated for purposes of our 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.
Management reviews the reasonableness of the pricing
provided by the independent pricing service by employing various analytical procedures. Management reviews all securities to identify
recent downgrades, significant changes in pricing, and pricing anomalies on individual securities relative to other similar securities.
This will include looking for relative consistency across securities in common sectors, durations, and credit ratings. This review will
also include all fixed income securities rated lower than “A” by Moody’s Investors Service, Inc. or Standard & Poor’s
Financial Services LLC. If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair
value, then it will seek to resolve the discrepancy through discussions with the independent pricing service. In its review, management
did not identify any such discrepancies, and no adjustments were made to the estimates provided by the independent pricing service, for
the years ended December 31, 2022, 2021, or 2020. 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 December 31, 2022 or 2021.
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:
| |
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 | | |
$ | — | |
| |
December 31, 2021 | |
| |
Total | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Fixed income securities: | |
| | | |
| | | |
| | | |
| | |
U.S. Government and agencies | |
$ | 13,498 | | |
$ | — | | |
$ | 13,498 | | |
$ | — | |
Obligations of states and political subdivisions | |
| 87,294 | | |
| — | | |
| 87,294 | | |
| — | |
Corporate securities | |
| 147,621 | | |
| — | | |
| 147,621 | | |
| — | |
Residential mortgage-backed securities | |
| 26,156 | | |
| — | | |
| 26,156 | | |
| — | |
Commercial mortgage-backed securities | |
| 33,532 | | |
| — | | |
| 33,532 | | |
| — | |
Asset-backed securities | |
| 52,422 | | |
| — | | |
| 52,422 | | |
| — | |
Redeemable preferred stocks | |
| 4,128 | | |
| — | | |
| 4,128 | | |
| — | |
Total fixed income securities | |
| 364,651 | | |
| — | | |
| 364,651 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Equity securities: | |
| | | |
| | | |
| | | |
| | |
Common stock | |
| 75,143 | | |
| 75,143 | | |
| — | | |
| — | |
Non-redeemable preferred stocks | |
| 2,547 | | |
| 2,547 | | |
| — | | |
| — | |
Total equity securities | |
| 77,690 | | |
| 77,690 | | |
| — | | |
| — | |
| |
| | | |
| | | |
| | | |
| | |
Cash and cash equivalents | |
| 45,741 | | |
| 45,741 | | |
| — | | |
| — | |
Total assets at fair value | |
$ | 488,082 | | |
$ | 123,431 | | |
$ | 364,651 | | |
$ | — | |
There were
no liabilities measured at fair value on a recurring basis at December 31, 2022 or 2021.
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 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 experienced multiple catastrophe events
during 2022 which have resulted in estimated reinsurance recoveries of $5,372 as of December 31, 2022.
During the years ended December 31, 2021 and 2020,
the Company maintained property catastrophe reinsurance protection covering $117,000 and $97,000, respectively, in excess of a $10,000
retention. The remaining significant components of the Company’s reinsurance program were consistent for 2021 and 2020. Per risk
excess of loss treaties provided coverage of $4,300 in excess of $700 for property risks and $11,300 in excess of $700 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 experienced one catastrophe event
during 2021 in excess of the retention level, resulting in a reinsurance recovery of $5,985, and did not experience any catastrophe events
during 2020 which exceeded the retention level.
For 2023, the Company’s catastrophe retention
limit increased to $133,000 in excess of a $20,000 retention, while there were no changes made to limit, retention, or attachment point
in our other reinsurance contracts.
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 the CECL model. See Part II, Item 8, Note 2 “Recent
Accounting Pronouncements” 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 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 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:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
Premiums
Written | | |
Premiums
Earned | | |
Premiums
Written | | |
Premiums
Earned | | |
Premiums
Written | | |
Premiums
Earned | |
Direct premium | |
$ | 389,706 | | |
$ | 368,886 | | |
$ | 342,215 | | |
$ | 333,254 | | |
$ | 314,187 | | |
$ | 301,061 | |
Assumed premium | |
| 6,299 | | |
| 6,550 | | |
| 8,183 | | |
| 8,035 | | |
| 6,590 | | |
| 6,459 | |
Ceded premium | |
| (46,993 | ) | |
| (47,146 | ) | |
| (42,629 | ) | |
| (41,700 | ) | |
| (23,633 | ) | |
| (23,859 | ) |
Net premiums | |
$ | 349,012 | | |
$ | 328,290 | | |
$ | 307,769 | | |
$ | 299,589 | | |
$ | 297,144 | | |
$ | 283,661 | |
A reconciliation of direct to net losses and loss
adjustment expenses is as follows:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Direct losses and loss adjustment expenses | |
$ | 333,397 | | |
$ | 280,998 | | |
$ | 185,370 | |
Assumed losses and loss adjustment expenses | |
| 2,369 | | |
| 6,899 | | |
| 3,308 | |
Ceded losses and loss adjustment expenses | |
| (41,334 | ) | |
| (71,518 | ) | |
| (20,205 | ) |
Net losses and loss adjustment expenses | |
$ | 294,432 | | |
$ | 216,379 | | |
$ | 168,473 | |
If 100% of our ceded reinsurance was cancelled
as of 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.
8. |
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:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Balance, beginning of year | |
$ | 24,947 | | |
$ | 23,968 | | |
$ | 15,399 | |
Deferral of policy acquisition costs | |
| 71,624 | | |
| 65,553 | | |
| 60,041 | |
Amortization of deferred policy acquisition costs | |
| (66,803 | ) | |
| (64,574 | ) | |
| (51,472 | ) |
Balance, end of year | |
$ | 29,768 | | |
$ | 24,947 | | |
$ | 23,968 | |
9. |
Unpaid Losses and Loss Adjustment Expenses |
Activity in the liability for unpaid losses and
loss adjustment expenses is summarized as follows:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Balance, beginning of year: | |
| | | |
| | | |
| | |
Liability for unpaid losses and loss adjustment expenses | |
$ | 139,662 | | |
$ | 105,750 | | |
$ | 93,250 | |
Reinsurance recoverables on losses | |
| 21,200 | | |
| 8,710 | | |
| 4,045 | |
Net balance, beginning of year | |
| 118,462 | | |
| 97,040 | | |
| 89,205 | |
| |
| | | |
| | | |
| | |
Acquired unpaid losses and loss adjustment expenses related to: | |
| | | |
| | | |
| | |
Current year | |
| — | | |
| — | | |
| — | |
Prior years | |
| — | | |
| — | | |
| 8,568 | |
Total acquired | |
| — | | |
| — | | |
| 8,568 | |
| |
| | | |
| | | |
| | |
Incurred related to: | |
| | | |
| | | |
| | |
Current year | |
| 293,283 | | |
| 220,517 | | |
| 165,181 | |
Prior years | |
| 1,149 | | |
| (4,138 | ) | |
| 3,292 | |
Total incurred | |
| 294,432 | | |
| 216,379 | | |
| 168,473 | |
| |
| | | |
| | | |
| | |
Paid related to: | |
| | | |
| | | |
| | |
Current year | |
| 197,250 | | |
| 150,278 | | |
| 116,755 | |
Prior years | |
| 62,760 | | |
| 44,679 | | |
| 52,451 | |
Total paid | |
| 260,010 | | |
| 194,957 | | |
| 169,206 | |
| |
| | | |
| | | |
| | |
Balance, end of year: | |
| | | |
| | | |
| | |
Liability for unpaid losses and loss adjustment expenses | |
| 190,459 | | |
| 139,662 | | |
| 105,750 | |
Reinsurance recoverables on losses | |
| 37,575 | | |
| 21,200 | | |
| 8,710 | |
Net balance, end of year | |
$ | 152,884 | | |
$ | 118,462 | | |
$ | 97,040 | |
During the year ended December 31, 2022, the Company’s
incurred reported losses and loss adjustment expenses included $1,149 of net unfavorable development on prior accident years, primarily
attributable to unfavorable development for the Westminster commercial business partially offset by favorable development for Battle Creek
and Nodak Insurance. During the year ended December 31, 2021, the Company’s incurred reported losses and loss adjustment expenses
included $4,138 of net favorable
development on prior accident years, primarily attributable to the Direct Auto non-standard auto business.
During the year ended December 31, 2020, incurred reported losses and loss adjustment expenses included $3,292 of net unfavorable development
on prior accident years, primarily attributable to our 2019 multi-peril crop business.
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.
The tables on the following pages present information,
organized by our primary operating segments, about incurred and paid claims development as of December 31, 2022, net of reinsurance, as
well as cumulative claim frequency and the total of IBNR reserves plus expected development on reported claims. The cumulative number
of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated
amount for unreported claims. The number of claims is measured by claim event (such as a car accident or storm damage) and an individual
claim event may result in more than one reported claim (such as a car accident with both property and liability damages). The Company
considers a claim that does not result in a liability as a claim closed without payment. The segment information presented in the tables
is prior to the effects of the intercompany reinsurance pooling arrangement.
The tables include unaudited information about
incurred and paid claims development (a) for the years ended December 31, 2013 through 2015 for the Private Passenger Auto, Primero Non-Standard
Auto, Home and Farm, and Crop segments, (b) through 2017 for the Direct Auto Non-Standard Auto information, and (c) through 2019 for
the Westminster Commercial information, which we present as supplementary information.
Private
Passenger
Auto | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim
counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 29,079 | | |
$ | 27,840 | | |
$ | 27,363 | | |
$ | 27,334 | | |
$ | 26,014 | | |
$ | 26,138 | | |
$ | 26,105 | | |
$ | 26,077 | | |
$ | 26,096 | | |
$ | 26,114 | | |
$ | 1 | | |
| 10,826 | |
2014 | |
| — | | |
| 32,548 | | |
| 31,349 | | |
| 30,427 | | |
| 29,099 | | |
| 29,144 | | |
| 29,298 | | |
| 29,479 | | |
| 29,423 | | |
| 29,409 | | |
| — | | |
| 11,745 | |
2015 | |
| — | | |
| — | | |
| 32,438 | | |
| 31,532 | | |
| 30,461 | | |
| 30,503 | | |
| 30,679 | | |
| 30,455 | | |
| 30,379 | | |
| 30,370 | | |
| 15 | | |
| 11,688 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 40,227 | | |
| 39,260 | | |
| 39,057 | | |
| 39,314 | | |
| 38,535 | | |
| 38,416 | | |
| 38,639 | | |
| 67 | | |
| 14,325 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 40,779 | | |
| 40,199 | | |
| 40,120 | | |
| 40,427 | | |
| 40,488 | | |
| 40,651 | | |
| 143 | | |
| 13,753 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 44,925 | | |
| 43,428 | | |
| 43,641 | | |
| 43,575 | | |
| 44,099 | | |
| 215 | | |
| 14,675 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 53,769 | | |
| 53,328 | | |
| 53,364 | | |
| 53,012 | | |
| 507 | | |
| 16,540 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 46,247 | | |
| 48,519 | | |
| 48,254 | | |
| 823 | | |
| 13,541 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 57,316 | | |
| 59,558 | | |
| 1,074 | | |
| 15,321 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 62,807 | | |
| 4,873 | | |
| 14,526 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 432,913 | | |
| | | |
| | |
(1) Prior years unaudited
Private
Passenger
Auto | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 20,077 | | |
$ | 23,576 | | |
$ | 24,765 | | |
$ | 24,918 | | |
$ | 25,718 | | |
$ | 25,843 | | |
$ | 26,035 | | |
$ | 26,019 | | |
$ | 26,073 | | |
$ | 26,102 | |
2014 | |
| — | | |
| 22,744 | | |
| 25,727 | | |
| 27,076 | | |
| 27,443 | | |
| 28,281 | | |
| 28,765 | | |
| 29,239 | | |
| 29,407 | | |
| 29,409 | |
2015 | |
| — | | |
| — | | |
| 23,401 | | |
| 27,171 | | |
| 28,933 | | |
| 29,598 | | |
| 29,795 | | |
| 30,120 | | |
| 30,355 | | |
| 30,355 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 29,009 | | |
| 35,845 | | |
| 37,307 | | |
| 38,108 | | |
| 37,833 | | |
| 38,173 | | |
| 38,303 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 31,033 | | |
| 37,050 | | |
| 38,331 | | |
| 39,738 | | |
| 40,111 | | |
| 40,294 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 34,358 | | |
| 40,213 | | |
| 41,479 | | |
| 42,820 | | |
| 43,074 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 42,414 | | |
| 48,414 | | |
| 50,370 | | |
| 51,556 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 35,495 | | |
| 42,585 | | |
| 45,670 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 42,326 | | |
| 52,256 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 49,911 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 406,930 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| 16 | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 25,999 | |
(1) Prior years unaudited
Non-
Standard
Auto
(Primero) | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus
Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 11,063 | | |
$ | 10,823 | | |
$ | 10,800 | | |
$ | 10,804 | | |
$ | 10,843 | | |
$ | 10,833 | | |
$ | 10,828 | | |
$ | 10,844 | | |
$ | 10,844 | | |
$ | 10,840 | | |
$ | — | | |
| 2,617 | |
2014 | |
| — | | |
| 7,297 | | |
| 7,619 | | |
| 7,591 | | |
| 7,577 | | |
| 7,612 | | |
| 7,625 | | |
| 7,606 | | |
| 7,606 | | |
| 7,606 | | |
| — | | |
| 1,838 | |
2015 | |
| — | | |
| — | | |
| 9,727 | | |
| 9,806 | | |
| 9,655 | | |
| 9,691 | | |
| 9,641 | | |
| 9,622 | | |
| 9,623 | | |
| 9,623 | | |
| — | | |
| 1,795 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 9,967 | | |
| 10,048 | | |
| 10,054 | | |
| 10,033 | | |
| 10,008 | | |
| 9,976 | | |
| 9,974 | | |
| — | | |
| 1,741 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 8,722 | | |
| 8,654 | | |
| 8,556 | | |
| 8,541 | | |
| 8,543 | | |
| 8,659 | | |
| — | | |
| 1,470 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,445 | | |
| 11,804 | | |
| 11,763 | | |
| 11,766 | | |
| 11,776 | | |
| 3 | | |
| 1,799 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 12,264 | | |
| 11,391 | | |
| 11,236 | | |
| 11,221 | | |
| 15 | | |
| 1,503 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,018 | | |
| 8,824 | | |
| 8,936 | | |
| 33 | | |
| 963 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,073 | | |
| 10,016 | | |
| 104 | | |
| 999 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,905 | | |
| 833 | | |
| 538 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 94,556 | | |
| | | |
| | |
(1) Prior years unaudited
Non-Standard
Auto
(Primero) | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 6,320 | | |
$ | 9,675 | | |
$ | 10,508 | | |
$ | 10,717 | | |
$ | 10,805 | | |
$ | 10,815 | | |
$ | 10,818 | | |
$ | 10,844 | | |
$ | 10,844 | | |
$ | 10,840 | |
2014 | |
| — | | |
| 3,733 | | |
| 6,707 | | |
| 7,423 | | |
| 7,521 | | |
| 7,579 | | |
| 7,605 | | |
| 7,606 | | |
| 7,606 | | |
| 7,606 | |
2015 | |
| — | | |
| — | | |
| 5,335 | | |
| 8,685 | | |
| 9,479 | | |
| 9,557 | | |
| 9,620 | | |
| 9,622 | | |
| 9,623 | | |
| 9,623 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 5,409 | | |
| 8,882 | | |
| 9,790 | | |
| 9,912 | | |
| 9,974 | | |
| 9,976 | | |
| 9,974 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,348 | | |
| 7,660 | | |
| 8,204 | | |
| 8,460 | | |
| 8,506 | | |
| 8,659 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,492 | | |
| 10,536 | | |
| 11,616 | | |
| 11,730 | | |
| 11,766 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,300 | | |
| 10,007 | | |
| 10,971 | | |
| 11,175 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,112 | | |
| 7,645 | | |
| 8,657 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,844 | | |
| 8,946 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,203 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 90,449 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| — | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 4,107 | |
(1) Prior years unaudited
Non-
Standard
Auto (Direct
Auto) | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 (1) | | |
2017 (1) | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus
Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 10,596 | | |
$ | 6,020 | | |
$ | 5,869 | | |
$ | 5,261 | | |
$ | 5,278 | | |
$ | 5,160 | | |
$ | 5,049 | | |
$ | 5,131 | | |
$ | 5,106 | | |
$ | 5,222 | | |
$ | (18 | ) | |
| 3,373 | |
2014 | |
| — | | |
| 14,010 | | |
| 9,068 | | |
| 6,224 | | |
| 8,381 | | |
| 6,745 | | |
| 6,476 | | |
| 6,672 | | |
| 6,524 | | |
| 6,440 | | |
| (47 | ) | |
| 4,776 | |
2015 | |
| — | | |
| — | | |
| 17,917 | | |
| 14,498 | | |
| 13,043 | | |
| 10,538 | | |
| 10,704 | | |
| 10,945 | | |
| 10,576 | | |
| 10,416 | | |
| (136 | ) | |
| 9,057 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 20,547 | | |
| 14,660 | | |
| 13,552 | | |
| 13,956 | | |
| 12,876 | | |
| 12,291 | | |
| 11,973 | | |
| (211 | ) | |
| 11,137 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 23,376 | | |
| 18,621 | | |
| 15,858 | | |
| 14,648 | | |
| 13,678 | | |
| 13,244 | | |
| (239 | ) | |
| 11,720 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 25,791 | | |
| 22,662 | | |
| 21,980 | | |
| 20,541 | | |
| 20,262 | | |
| (61 | ) | |
| 14,917 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 24,932 | | |
| 25,473 | | |
| 24,574 | | |
| 24,879 | | |
| 702 | | |
| 10,918 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 24,036 | | |
| 22,919 | | |
| 23,571 | | |
| (614 | ) | |
| 13,741 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 30,579 | | |
| 30,596 | | |
| (3,149 | ) | |
| 15,804 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 33,609 | | |
| 6,321 | | |
| 9,792 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 180,212 | | |
| | | |
| | |
(1) Prior years unaudited
Non-Standard
Auto (Direct Auto) | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 (1) | | |
2017 (1) | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 1,944 | | |
$ | 3,123 | | |
$ | 3,796 | | |
$ | 4,291 | | |
$ | 4,602 | | |
$ | 4,808 | | |
$ | 4,890 | | |
$ | 4,960 | | |
$ | 5,000 | | |
$ | 5,221 | |
2014 | |
| — | | |
| 2,201 | | |
| 3,573 | | |
| 4,452 | | |
| 5,369 | | |
| 5,781 | | |
| 6,151 | | |
| 6,327 | | |
| 6,364 | | |
| 6,421 | |
2015 | |
| — | | |
| — | | |
| 2,967 | | |
| 5,202 | | |
| 7,057 | | |
| 8,327 | | |
| 9,560 | | |
| 10,057 | | |
| 10,176 | | |
| 10,365 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 3,526 | | |
| 6,272 | | |
| 8,559 | | |
| 10,603 | | |
| 11,058 | | |
| 11,519 | | |
| 11,820 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,385 | | |
| 6,981 | | |
| 10,034 | | |
| 11,366 | | |
| 12,098 | | |
| 12,869 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,034 | | |
| 12,285 | | |
| 15,204 | | |
| 16,759 | | |
| 18,723 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,203 | | |
| 16,214 | | |
| 18,982 | | |
| 21,195 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,965 | | |
| 15,401 | | |
| 18,503 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 13,767 | | |
| 21,209 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 11,766 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 138,092 | |
All outstanding liabilities prior to 82012, net of reinsurance | | |
| 4 | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 42,124 | |
(1) Prior years unaudited
Home and
Farm | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 29,978 | | |
$ | 29,201 | | |
$ | 28,527 | | |
$ | 28,316 | | |
$ | 28,285 | | |
$ | 28,315 | | |
$ | 27,594 | | |
$ | 27,588 | | |
$ | 27,595 | | |
$ | 27,603 | | |
$ | — | | |
| 4,189 | |
2014 | |
| — | | |
| 36,620 | | |
| 35,981 | | |
| 35,769 | | |
| 35,591 | | |
| 35,685 | | |
| 35,534 | | |
| 35,497 | | |
| 35,503 | | |
| 35,504 | | |
| 5 | | |
| 5,243 | |
2015 | |
| — | | |
| — | | |
| 32,740 | | |
| 31,804 | | |
| 31,300 | | |
| 31,577 | | |
| 31,446 | | |
| 31,612 | | |
| 31,600 | | |
| 31,612 | | |
| 2 | | |
| 3,923 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 45,713 | | |
| 44,513 | | |
| 44,945 | | |
| 44,597 | | |
| 44,728 | | |
| 44,745 | | |
| 44,836 | | |
| 18 | | |
| 6,348 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 42,112 | | |
| 41,593 | | |
| 41,882 | | |
| 41,779 | | |
| 41,804 | | |
| 41,637 | | |
| 55 | | |
| 4,943 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 42,486 | | |
| 43,840 | | |
| 43,747 | | |
| 43,682 | | |
| 43,934 | | |
| 62 | | |
| 4,580 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 45,334 | | |
| 45,828 | | |
| 45,471 | | |
| 45,296 | | |
| 246 | | |
| 5,483 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 36,264 | | |
| 35,668 | | |
| 35,003 | | |
| 196 | | |
| 4,264 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 53,079 | | |
| 55,608 | | |
| 317 | | |
| 4,983 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 106,213 | | |
| 7,555 | | |
| 6,102 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 467,246 | | |
| | | |
| | |
(1) Prior
years unaudited
Home and
Farm | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 23,355 | | |
$ | 26,935 | | |
$ | 27,183 | | |
$ | 27,222 | | |
$ | 27,456 | | |
$ | 27,495 | | |
$ | 27,561 | | |
$ | 27,583 | | |
$ | 27,590 | | |
$ | 27,598 | |
2014 | |
| — | | |
| 32,208 | | |
| 35,199 | | |
| 35,218 | | |
| 35,371 | | |
| 35,482 | | |
| 35,482 | | |
| 35,485 | | |
| 35,503 | | |
| 35,502 | |
2015 | |
| — | | |
| — | | |
| 27,204 | | |
| 30,165 | | |
| 30,350 | | |
| 30,573 | | |
| 31,383 | | |
| 31,597 | | |
| 31,597 | | |
| 31,599 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 37,655 | | |
| 44,942 | | |
| 44,270 | | |
| 44,529 | | |
| 44,583 | | |
| 44,650 | | |
| 44,690 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 34,657 | | |
| 38,928 | | |
| 40,441 | | |
| 40,941 | | |
| 41,414 | | |
| 41,504 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 37,880 | | |
| 42,814 | | |
| 43,178 | | |
| 43,549 | | |
| 43,634 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 38,718 | | |
| 43,253 | | |
| 44,119 | | |
| 44,847 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 29,273 | | |
| 33,988 | | |
| 34,243 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 41,096 | | |
| 48,890 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 92,482 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 444,989 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| — | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 22,257 | |
(1) Prior
years unaudited
Crop | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 40,976 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | — | | |
| 2,097 | |
2014 | |
| — | | |
| 22,688 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| — | | |
| 2,268 | |
2015 | |
| — | | |
| — | | |
| 13,813 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| — | | |
| 2,427 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 20,209 | | |
| 19,582 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| — | | |
| 2,806 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 33,734 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | | |
| — | | |
| 2,968 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 12,506 | | |
| 11,730 | | |
| 11,730 | | |
| 11,730 | | |
| 11,730 | | |
| — | | |
| 2,147 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 33,913 | | |
| 37,629 | | |
| 37,629 | | |
| 37,629 | | |
| — | | |
| 3,101 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 28,688 | | |
| 28,759 | | |
| 28,759 | | |
| — | | |
| 2,442 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 28,574 | | |
| 28,144 | | |
| — | | |
| 2,726 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 21,834 | | |
| 314 | | |
| 1,809 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 255,611 | | |
| | | |
| | |
(1) Prior years unaudited
Crop | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 35,511 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | | |
$ | 39,665 | |
2014 | |
| — | | |
| 17,789 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | | |
| 20,333 | |
2015 | |
| — | | |
| — | | |
| 12,866 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | | |
| 13,849 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 16,444 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | | |
| 19,487 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 32,768 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | | |
| 34,181 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,737 | | |
| 11,730 | | |
| 11,730 | | |
| 11,730 | | |
| 11,730 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 26,208 | | |
| 37,629 | | |
| 37,629 | | |
| 37,629 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 27,952 | | |
| 28,759 | | |
| 28,759 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 29,424 | | |
| 28,143 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 20,279 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 254,055 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| — | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 1,556 | |
(1) Prior years unaudited
Commercial
(Westminster) | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 (1) | | |
2017 (1) | | |
2018 (1) | | |
2019 (1) | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus
Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim
counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 2,214 | | |
$ | 1,982 | | |
$ | 2,000 | | |
$ | 1,935 | | |
$ | 2,058 | | |
$ | 2,053 | | |
$ | 2,037 | | |
$ | 2,036 | | |
$ | 2,036 | | |
$ | 2,036 | | |
$ | — | | |
| 138 | |
2014 | |
| — | | |
| 4,385 | | |
| 4,274 | | |
| 4,286 | | |
| 4,428 | | |
| 4,450 | | |
| 4,443 | | |
| 4,445 | | |
| 4,443 | | |
| 4,443 | | |
| — | | |
| 272 | |
2015 | |
| — | | |
| — | | |
| 3,082 | | |
| 3,258 | | |
| 4,019 | | |
| 4,218 | | |
| 4,293 | | |
| 4,238 | | |
| 4,294 | | |
| 4,290 | | |
| — | | |
| 278 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 4,661 | | |
| 5,719 | | |
| 6,200 | | |
| 6,091 | | |
| 6,248 | | |
| 6,354 | | |
| 6,353 | | |
| 7 | | |
| 264 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,552 | | |
| 6,249 | | |
| 6,838 | | |
| 7,347 | | |
| 7,905 | | |
| 7,855 | | |
| 67 | | |
| 320 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 10,358 | | |
| 11,177 | | |
| 12,414 | | |
| 12,769 | | |
| 13,100 | | |
| 588 | | |
| 480 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 11,658 | | |
| 13,051 | | |
| 14,564 | | |
| 15,370 | | |
| 1,401 | | |
| 421 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 14,774 | | |
| 14,063 | | |
| 15,404 | | |
| 1,650 | | |
| 484 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 30,911 | | |
| 35,525 | | |
| 6,707 | | |
| 599 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 45,647 | | |
| 8,267 | | |
| 466 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 150,023 | | |
| | | |
| | |
(1) Prior years unaudited
Commercial
(Westminster) | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 (1) | | |
2017 (1) | | |
2018 (1) | | |
2019 (1) | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 1,494 | | |
$ | 1,727 | | |
$ | 1,829 | | |
$ | 1,889 | | |
$ | 1,949 | | |
$ | 2,035 | | |
$ | 2,036 | | |
$ | 2,036 | | |
$ | 2,036 | | |
$ | 2,036 | |
2014 | |
| — | | |
| 3,330 | | |
| 3,921 | | |
| 4,151 | | |
| 4,269 | | |
| 4,395 | | |
| 4,403 | | |
| 4,410 | | |
| 4,443 | | |
| 4,443 | |
2015 | |
| — | | |
| — | | |
| 2,126 | | |
| 2,794 | | |
| 3,332 | | |
| 3,950 | | |
| 4,206 | | |
| 4,231 | | |
| 4,287 | | |
| 4,290 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 3,172 | | |
| 5,289 | | |
| 5,630 | | |
| 5,693 | | |
| 6,112 | | |
| 6,338 | | |
| 6,346 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,573 | | |
| 4,927 | | |
| 5,865 | | |
| 6,576 | | |
| 7,206 | | |
| 7,512 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,494 | | |
| 9,472 | | |
| 10,591 | | |
| 11,911 | | |
| 12,136 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,294 | | |
| 9,925 | | |
| 11,056 | | |
| 12,993 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 8,146 | | |
| 10,853 | | |
| 12,171 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 16,269 | | |
| 25,105 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 15,817 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 102,849 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| — | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | | |
$ | 47,174 | |
(1) Prior years unaudited
Commercial
(non-
Westminster) | |
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | | |
At December 31, 2022 | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | | |
Total IBNR
Plus
Expected
Development
on Reported
Claims | | |
Cumulative
Number of
Reported
Claims | |
(in thousands, except claim
counts) | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
2013 | |
$ | 2,690 | | |
$ | 2,637 | | |
$ | 2,566 | | |
$ | 2,548 | | |
$ | 2,508 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | — | | |
| 227 | |
2014 | |
| — | | |
| 2,180 | | |
| 1,732 | | |
| 1,694 | | |
| 1,675 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | | |
| — | | |
| 163 | |
2015 | |
| — | | |
| — | | |
| 1,695 | | |
| 1,643 | | |
| 1,637 | | |
| 1,582 | | |
| 1,580 | | |
| 1,580 | | |
| 1,580 | | |
| 1,580 | | |
| — | | |
| 135 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 2,683 | | |
| 2,526 | | |
| 2,515 | | |
| 2,516 | | |
| 2,512 | | |
| 2,512 | | |
| 2,511 | | |
| — | | |
| 288 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,530 | | |
| 2,513 | | |
| 2,510 | | |
| 2,497 | | |
| 2,494 | | |
| 2,494 | | |
| — | | |
| 167 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,652 | | |
| 1,576 | | |
| 1,609 | | |
| 1,555 | | |
| 1,554 | | |
| — | | |
| 147 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,607 | | |
| 2,782 | | |
| 2,777 | | |
| 2,793 | | |
| — | | |
| 191 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,293 | | |
| 2,054 | | |
| 2,371 | | |
| (4 | ) | |
| 132 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,726 | | |
| 2,507 | | |
| (1 | ) | |
| 199 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,536 | | |
| 344 | | |
| 204 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 24,507 | | |
| | | |
| | |
(1) Prior years unaudited
Commercial
(non-
Westminster) | |
Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Year Ended December 31, | |
Accident Year | |
2013 (1) | | |
2014 (1) | | |
2015 (1) | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 | | |
2022 | |
2013 | |
$ | 2,520 | | |
$ | 2,751 | | |
$ | 2,530 | | |
$ | 2,504 | | |
$ | 2,508 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | | |
$ | 2,511 | |
2014 | |
| — | | |
| 1,782 | | |
| 1,925 | | |
| 1,563 | | |
| 1,640 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | | |
| 1,650 | |
2015 | |
| — | | |
| — | | |
| 1,274 | | |
| 1,796 | | |
| 1,818 | | |
| 1,580 | | |
| 1,580 | | |
| 1,580 | | |
| 1,580 | | |
| 1,580 | |
2016 | |
| — | | |
| — | | |
| — | | |
| 1,822 | | |
| 2,806 | | |
| 2,498 | | |
| 2,512 | | |
| 2,512 | | |
| 2,512 | | |
| 2,511 | |
2017 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,530 | | |
| 2,465 | | |
| 2,497 | | |
| 2,497 | | |
| 2,494 | | |
| 2,494 | |
2018 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,049 | | |
| 1,213 | | |
| 1,240 | | |
| 1,554 | | |
| 1,554 | |
2019 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,917 | | |
| 2,712 | | |
| 2,717 | | |
| 2,793 | |
2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,542 | | |
| 1,892 | | |
| 2,362 | |
2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,687 | | |
| 2,345 | |
2022 | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2,846 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total | | |
$ | 22,646 | |
All outstanding liabilities prior to 2012, net of reinsurance | | |
| — | |
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance | |
| | | |
$ | 1,861 | |
(1) Prior
years unaudited
The following table presents a reconciliation
of the net incurred and paid claims development tables to the liability for unpaid losses and loss adjustment expenses in our Consolidated
Balance Sheet:
| |
December 31, 2022 | |
Liabilities for unpaid losses and loss adjustment expenses: | |
| | |
Private passenger auto | |
$ | 27,439 | |
Non-standard auto (Primero) | |
| 4,107 | |
Non-standard auto (Direct Auto) | |
| 42,124 | |
Home and farm | |
| 27,989 | |
Crop | |
| 2,145 | |
Commercial (Westminster) | |
| 76,163 | |
Commercial (non-Westminster) | |
| 1,890 | |
All other | |
| 8,602 | |
Total liabilities for unpaid losses and loss adjustment expenses | |
| 190,459 | |
| |
| | |
Reinsurance recoverables on losses: | |
| | |
Private passenger auto | |
| 1,440 | |
Non-standard auto (Primero) | |
| — | |
Non-standard auto (Direct Auto) | |
| — | |
Home and farm | |
| 5,732 | |
Crop | |
| 589 | |
Commercial (Westminster) | |
| 28,989 | |
Commercial (non-Westminster) | |
| 29 | |
All other | |
| 796 | |
Total reinsurance recoverables on losses | |
| 37,575 | |
| |
| | |
Net liability for unpaid losses and loss adjustment expenses | |
$ | 152,884 | |
| |
| | |
The following table presents required supplementary information
about average historical claims duration as of December 31, 2022:
| |
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance | |
Years | |
1 | | |
2 | | |
3 | | |
4 | | |
5 | | |
6 | | |
7 | | |
8 | | |
9 | | |
10 | |
Private Passenger Auto | |
| 48.4% | | |
| 21.5% | | |
| 12.3% | | |
| 7.2% | | |
| 5.0% | | |
| 2.9% | | |
| 1.4% | | |
| 1.0% | | |
| 0.2% | | |
| 0.1% | |
Non-Standard Auto (Primero) | |
| 77.1% | | |
| 16.7% | | |
| 4.2% | | |
| 1.2% | | |
| 0.6% | | |
| 0.1% | | |
| 0.1% | | |
| — | | |
| — | | |
| — | |
Non-Standard Auto (Direct Auto) | |
| 40.5% | | |
| 24.5% | | |
| 14.6% | | |
| 8.9% | | |
| 5.6% | | |
| 3.4% | | |
| 1.3% | | |
| 0.6% | | |
| 0.4% | | |
| 0.2% | |
Home and Farm | |
| 67.7% | | |
| 14.5% | | |
| 8.8% | | |
| 5.3% | | |
| 2.3% | | |
| 0.8% | | |
| 0.4% | | |
| 0.1% | | |
| 0.1% | | |
| — | |
Crop | |
| 100.0% | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Commercial (Westminster) | |
| 42.7% | | |
| 21.3% | | |
| 16.6% | | |
| 12.0% | | |
| 4.8% | | |
| 1.3% | | |
| 0.5% | | |
| 0.2% | | |
| 0.6% | | |
| — | |
Commercial (non-Westminster) | |
| 79.9% | | |
| 10.8% | | |
| 5.1% | | |
| 2.3% | | |
| 1.3% | | |
| 0.5% | | |
| 0.1% | | |
| — | | |
| — | | |
| — | |
10. |
Property and Equipment |
Property and equipment consisted of the following:
| |
December 31, | | |
|
| |
2022 | | |
2021 | | |
Estimated Useful
Life |
Cost: | |
| | | |
| | | |
|
Land | |
$ | 1,403 | | |
$ | 1,403 | | |
indefinite |
Building and improvements | |
| 14,271 | | |
| 14,193 | | |
10 – 43 years |
Electronic data processing equipment | |
| 1,310 | | |
| 1,518 | | |
5 – 7 years |
Furniture and fixtures | |
| 2,919 | | |
| 2,885 | | |
5 – 7 years |
Automobiles | |
| 1,310 | | |
| 1,228 | | |
2 – 3 years |
Gross cost | |
| 21,213 | | |
| 21,227 | | |
|
| |
| | | |
| | | |
|
Accumulated depreciation | |
| (11,370 | ) | |
| (11,358 | ) | |
|
Total property and equipment, net | |
$ | 9,843 | | |
$ | 9,869 | | |
|
Depreciation expense was $708, $694, and $709
during the years ended December 31, 2022, 2021, and 2020, respectively.
11. |
Goodwill and Other Intangibles |
The following table presents the carrying
amount of the Company’s goodwill by segment:
| |
December 31, | |
| |
2022 | | |
2021 | |
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:
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 licenses | |
| 1,900 | | |
| — | | |
| 1,900 | |
Total | |
$ | 9,348 | | |
$ | 1,482 | | |
$ | 7,866 | |
| |
| | | |
| | | |
| | |
December 31, 2021 | |
Gross Carrying
Amount | | |
Accumulated
Amortization | | |
Net | |
Subject to amortization: | |
| | | |
| | | |
| | |
Trade names | |
$ | 748 | | |
$ | 265 | | |
$ | 483 | |
Distribution network | |
| 6,700 | | |
| 745 | | |
| 5,955 | |
Total subject to amortization | |
| 7,448 | | |
| 1,010 | | |
| 6,438 | |
| |
| | | |
| | | |
| | |
Not subject to amortization – state insurance licenses | |
| 1,900 | | |
| — | | |
| 1,900 | |
Total | |
$ | 9,348 | | |
$ | 1,010 | | |
$ | 8,338 | |
| |
| | | |
| | | |
| | |
Amortization expense was $472, $472, and $5,224
during the years ended December 31, 2022, 2021, and 2020, respectively. The VOBA intangible asset of $4,750 acquired in the Westminster
transaction was fully amortized during 2020.
Other intangible assets that have finite lives, including
trade names and distribution networks, are amortized over their useful lives. As of December 31, 2022, the estimated amortization of other
intangible assets with finite lives for the next five years in the period ended December 31, 2027, and thereafter is as follows:
Year ending December 31, | |
Amount | |
2023 | |
$ | 455 | |
2024 | |
| 422 | |
2025 | |
| 422 | |
2026 | |
| 422 | |
2027 | |
| 422 | |
Thereafter | |
| 3,823 | |
Total other intangible assets with finite lives | |
$ | 5,966 | |
12. |
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. This agreement was finalized, approved, and implemented
during the fourth quarter of 2020, retroactive to the January 1 effective date. 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.
In connection with the pooling agreement, the quota share
agreement between Battle Creek and Nodak Insurance was cancelled. As a result, the Company’s consolidated financial position and
results of operations are impacted by the portion of Battle Creek’s underwriting results that are allocated to the policyholders
of Battle Creek rather than the shareholders of NI Holdings. For the years ended December 31, 2022, 2021, and 2020, 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 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 insurance policies. Royalties paid to the
NDFB were $1,453, $1,369, and $1,370 during the years ended December 31, 2022, 2021, and 2020, respectively. Royalty amounts payable of
$119 and $113 were accrued as a liability to the NDFB at December 31, 2022 and 2021, respectively.
During 2020, Nodak Insurance paid $1,129
of membership dues on behalf of its NDFB members in North Dakota in response to the COVID-19 pandemic.
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.
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 for the year ended 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. The Nodak Insurance Board of Directors declared
and paid dividends of $3,000 and $6,000 to NI Holdings during the years ended December 31, 2022 and 2020, respectively. No dividends were
declared or paid by Nodak Insurance during the year ended December 31, 2021.
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 years ended December 31,
2022, 2021, or 2020.
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 years ended December
31, 2021 or 2020.
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:
| |
December 31, | |
| |
2022 | | |
2021 | |
Assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 5,008 | | |
$ | 4,398 | |
Investments | |
| 13,350 | | |
| 10,610 | |
Premiums and agents’ balances receivable | |
| 5,422 | | |
| 5,038 | |
Deferred policy acquisition costs | |
| 595 | | |
| 499 | |
Reinsurance recoverables on losses (2) | |
| 12,597 | | |
| 10,173 | |
Accrued investment income | |
| 59 | | |
| 51 | |
Income tax recoverable | |
| 225 | | |
| — | |
Deferred income taxes | |
| 780 | | |
| 142 | |
Property and equipment | |
| 319 | | |
| 325 | |
Other assets | |
| 52 | | |
| 52 | |
Total assets | |
$ | 38,407 | | |
$ | 31,288 | |
| |
| | | |
| | |
Liabilities: | |
| | | |
| | |
Unpaid losses and loss adjustment expenses | |
$ | 6,453 | | |
$ | 2,937 | |
Unearned premiums | |
| 2,959 | | |
| 2,544 | |
Notes payable (1) | |
| 3,000 | | |
| 3,000 | |
Pooling payable (1) | |
| 8,337 | | |
| 5,580 | |
Reinsurance losses payable (2) | |
| 13,125 | | |
| 12,754 | |
Accrued expenses and other liabilities | |
| 2,303 | | |
| 264 | |
Total liabilities | |
| 36,177 | | |
| 27,079 | |
| |
| | | |
| | |
Equity: | |
| | | |
| | |
Non-controlling interest | |
| 2,230 | | |
| 4,209 | |
Total equity | |
| 2,230 | | |
| 4,209 | |
| |
| | | |
| | |
Total liabilities and equity | |
$ | 38,407 | | |
$ | 31,288 | |
(1) | Amount fully eliminated in consolidation. |
(2) | Amount partly eliminated in consolidation. |
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Revenues: | |
| | | |
| | | |
| | |
Net premiums earned | |
$ | 6,566 | | |
$ | 5,992 | | |
$ | 5,673 | |
Fee and other income (expense) | |
| (30 | ) | |
| (11 | ) | |
| (23 | ) |
Net investment income (loss) | |
| 113 | | |
| 49 | | |
| (3 | ) |
Net investment gains (losses) | |
| (20 | ) | |
| 2 | | |
| 1 | |
Total revenues | |
| 6,629 | | |
| 6,032 | | |
| 5,648 | |
| |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | |
Losses and loss adjustment expenses | |
| 5,889 | | |
| 4,328 | | |
| 3,369 | |
Amortization of deferred policy acquisition costs | |
| 1,336 | | |
| 1,291 | | |
| 1,029 | |
Other underwriting and general expenses | |
| 564 | | |
| 470 | | |
| 77 | |
Total expenses | |
| 7,789 | | |
| 6,089 | | |
| 4,475 | |
| |
| | | |
| | | |
| | |
Income (loss) before income taxes | |
| (1,160 | ) | |
| (57 | ) | |
| 1,173 | |
Income tax expense (benefit) | |
| (481 | ) | |
| 27 | | |
| 218 | |
Net income (loss) | |
$ | (679 | ) | |
$ | (84 | ) | |
$ | 955 | |
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 $693, $722, and $651 during the years ended December 31, 2022, 2021, and 2020, 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 $672, $697, and $900 during years ended
December 31, 2022, 2021, and 2020, respectively.
All fees associated with the plans are deducted
from the eligible employee accounts.
The Company also offers a non-qualified deferred
compensation plan to key executives of the Company (as designated by the Board of Directors). The Company’s policy is to fund the
plan by amounts that represent the excess of the maximum contribution allowed by the Employee Retirement Income Security Act (“ERISA”)
over the key executives’ 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 $325, $914, and $308 during the years
ended December 31, 2022, 2021, and 2020, respectively.
In connection with our initial public offering
in March 2017, the Company established its ESOP. The ESOP is intended to be an employee stock ownership plan within the meaning of Internal
Revenue Code Section 4975(e)(7) and invests solely in common stock of the Company.
Upon establishment of the plan, Nodak Insurance
loaned $2,400 to the ESOP’s related trust (the “ESOP Trust”). The ESOP loan was for a period of ten years, bearing interest
at the long-term Applicable Federal Rate effective on the closing date of the offering (2.79% annually). The ESOP Trust used the proceeds
of the loan to purchase shares in our initial public offering, which resulted in the ESOP Trust owning approximately 1.0% of the Company’s
authorized shares. The ESOP has purchased the shares for investment and not for resale.
The shares purchased by the ESOP Trust in
the offering are held in a suspense account as collateral for the ESOP loan. 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.
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 $380, $460, and $373 during the years ended December 31, 2022, 2021, and 2020, respectively, related to the ESOP.
Through 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 December 31, 2022. Using the
Company’s year-end market price of $13.27 per share, the fair value of the unearned ESOP shares was $1,249 at December 31, 2022.
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 years ended December 31, 2022, 2021, or 2020. This line of credit is scheduled
to expire on May 31, 2023.
The components of our provision for income tax
expense (benefit) were as follows:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Current tax provision | |
| | | |
| | | |
| | |
Federal | |
$ | (11,280 | ) | |
$ | 3,930 | | |
$ | 10,109 | |
State | |
| (2 | ) | |
| 354 | | |
| 725 | |
Total current | |
| (11,282 | ) | |
| 4,284 | | |
| 10,834 | |
Deferred tax (benefit) provision | |
| (3,972 | ) | |
| (1,310 | ) | |
| 638 | |
Total provision for income taxes | |
$ | (15,254 | ) | |
$ | 2,974 | | |
$ | 11,472 | |
The provision for income taxes differs from the
amount that would be computed by applying the statutory federal rate to income before provision for income taxes as a result of the following:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Income (loss) before income taxes | |
$ | (69,029 | ) | |
$ | 11,306 | | |
$ | 52,816 | |
| |
| | | |
| | | |
| | |
Expected provision for federal income taxes at 21% | |
$ | (14,496 | ) | |
$ | 2,374 | | |
$ | 11,091 | |
| |
| | | |
| | | |
| | |
State income taxes, net of federal impact | |
| (2 | ) | |
| 474 | | |
| 570 | |
Tax-exempt interest | |
| (187 | ) | |
| (197 | ) | |
| (209 | ) |
Dividends received deduction | |
| (147 | ) | |
| (122 | ) | |
| (104 | ) |
Compensation-related expenses | |
| 213 | | |
| 326 | | |
| 130 | |
Change in valuation allowance | |
| (314 | ) | |
| 77 | | |
| (17 | ) |
Other | |
| (321 | ) | |
| 42 | | |
| 11 | |
Total provision for income taxes | |
$ | (15,254 | ) | |
$ | 2,974 | | |
$ | 11,472 | |
We re-measure existing deferred income tax assets
(including loss carryforwards) and liabilities when a change in tax rate occurs and record an offset for the net amount of the change
as a component of income tax expense from continuing operations in the period of enactment. We record any change to a previously recorded
valuation allowance as a result of re-measuring existing temporary differences and loss carryforwards as a component of income tax expense
from continuing operations. The valuation allowance against certain deferred income tax assets was $694, $1,008, and $931 at December
31, 2022, 2021, and 2020, respectively.
The income tax effects of temporary differences
that give rise to significant portions of our deferred income tax assets and deferred income tax liabilities at December 31, 2022 and
2021 were as follows:
| |
December 31, | |
| |
2022 | | |
2021 | |
Deferred income tax assets: | |
| | | |
| | |
Unearned premium | |
$ | 6,725 | | |
$ | 5,783 | |
Unpaid losses and loss adjustment expenses | |
| 1,430 | | |
| 1,096 | |
Net unrealized losses on investments | |
| 6,586 | | |
| — | |
Net operating loss carryovers | |
| 1,194 | | |
| 1,224 | |
Other | |
| 1,965 | | |
| 1,967 | |
Total deferred income tax assets | |
| 17,900 | | |
| 10,070 | |
| |
| | | |
| | |
Deferred income tax liabilities: | |
| | | |
| | |
Deferred policy acquisition costs | |
| 6,766 | | |
| 5,670 | |
Net unrealized gains on investments | |
| — | | |
| 7,382 | |
Intangibles | |
| 1,356 | | |
| 1,464 | |
Other | |
| 79 | | |
| 52 | |
Total deferred income tax liabilities | |
| 8,201 | | |
| 14,568 | |
| |
| | | |
| | |
Net deferred income tax asset (liability) | |
| 9,699 | | |
| (4,498 | ) |
| |
| | | |
| | |
Valuation allowance | |
| (694 | ) | |
| (1,008 | ) |
Deferred income tax asset (liability), net | |
$ | 9,005 | | |
$ | (5,506 | ) |
At December 31, 2022 and 2021, 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 years ended December 31, 2022, 2021, or 2020.
At December 31, 2022 and 2021, the Company, other
than Battle Creek and Westminster, had no income tax related carryovers for net operating losses, alternative minimum tax credits, or
capital losses.
Battle Creek, which files its federal income tax
returns on a stand-alone basis, had net operating loss carryovers of $3,963 and $3,215 at December 31, 2022 and 2021, respectively. The
net operating loss carryforward began expiring in 2021 and will continue through 2032.
Westminster, which became part of the Company’s
consolidated federal income tax return beginning in 2020, had $1,270 and $2,122 of net operating loss carryover at December 31, 2022
and 2021, respectively. This net operating loss carryforward expires in 2023.
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. See Part II, Item 8, Note 2 “Recent Accounting Pronouncements” 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.
There were expenses of $391, $250, and $370 related
to these leases during the years ended December 31, 2022, 2021, and 2020, respectively.
Additional information regarding the Company’s
leases are as follows:
| |
Year Ended December 31, 2022 | |
Operating lease cost | |
$ | 391 | |
| |
| | |
Other information on operating leases | |
| | |
Operating cash outflow from operating leases | |
| 340 | |
Right-of-use assets obtained in exchange for new lease liabilities | |
| — | |
Weighted average discount rate | |
| 3.25% | |
Weighted average remaining lease term in years | |
| 6.3 years | |
The following table presents the contractual maturities of the Company’s
lease liabilities:
Year ending December 31, | |
Lease Liability | |
2023 | |
$ | 359 | |
2024 | |
| 321 | |
2025 | |
| 286 | |
2026 | |
| 291 | |
2027 | |
| 296 | |
Thereafter | |
| 479 | |
Total undiscounted lease payments | |
| 2,032 | |
Less: present value adjustment | |
| 195 | |
Operating lease liability at December 31, 2022 | |
$ | 1,837 | |
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.
18. |
Common and Preferred Stock |
Common Stock
Changes in the number of common stock shares outstanding
were as follows:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
Shares outstanding, beginning | |
| 21,219,808 | | |
| 21,318,638 | | |
| 22,119,380 | |
Treasury shares repurchased through stock repurchase authorization | |
| (269,160 | ) | |
| (225,205 | ) | |
| (856,499 | ) |
Issuance of treasury shares for vesting of stock awards | |
| 101,292 | | |
| 102,060 | | |
| 31,442 | |
Issuance of shares related to employee stock ownership plan | |
| 24,315 | | |
| 24,315 | | |
| 24,315 | |
Shares outstanding, ending | |
| 21,076,255 | | |
| 21,219,808 | | |
| 21,318,638 | |
On February 28, 2018, our Board of Directors approved
an authorization for the repurchase of up to approximately $10,000 of the Company’s outstanding common stock. We completed the repurchase
of 191,265 shares of our common stock for $2,966 during 2018, and an additional 116,034 shares for $2,006 during 2019. During the six
months ended June 30, 2020, we completed the repurchase of 402,056 shares of our common stock for $4,996 to close out this authorization.
On May 4, 2020, 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, 2020, we completed the repurchase of 454,443 shares of our common stock for $7,238 under this authorization. During the nine
months ended September 30, 2021, we repurchased an additional 144,110 shares of our common stock for $2,762 to close out this authorization.
On August 11, 2021, our Board of Directors approved
an 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.
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.
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 is January
1, 2023. The Company is not expected to be subject to the AMT based on its reported GAAP earnings for the past three years. While we periodically
repurchase our stock, it is expected that any excise tax incurred on corporate stock repurchases will be recognized as part of the cost
basis of the treasury stock acquired and not reported as part of income tax or other expense. Based on our evaluation, the Company does
not expect this legislation to have a significant impact on our financial position, results of operations, and cash flows.
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.
19. |
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 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:
| |
Shares | | |
Weighted-Average
Grant-Date Fair Value Per Share | |
Units outstanding and unearned at January 1, 2020 | |
| 96,540 | | |
$ | 16.47 | |
RSUs granted during 2020 | |
| 66,000 | | |
| 14.27 | |
RSUs earned during 2020 | |
| (46,760 | ) | |
| 16.33 | |
Units outstanding and unearned at December 31, 2020 | |
| 115,780 | | |
| 15.27 | |
| |
| | | |
| | |
RSUs granted during 2021 | |
| 58,700 | | |
| 18.76 | |
RSUs earned during 2021 | |
| (66,100 | ) | |
| 15.77 | |
Units outstanding and unearned at December 31, 2021 | |
| 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 | |
The following table shows the impact of RSU activity
to the Company’s financial results:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
RSU compensation expense | |
$ | 952 | | |
$ | 1,065 | | |
$ | 1,035 | |
Income tax benefit | |
| (216 | ) | |
| (242 | ) | |
| (217 | ) |
RSU compensation expense, net of income taxes | |
$ | 736 | | |
$ | 823 | | |
$ | 818 | |
| |
| | | |
| | | |
| | |
Total grant-date fair value of vested RSUs at end of period | |
$ | 915 | | |
$ | 1,042 | | |
$ | 764 | |
At December 31, 2022, there was $816 of unrecognized
compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.91 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.
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, 2020 | |
| 111,000 | | |
$ | 15.27 | |
PSUs granted during 2020 (at target) | |
| 63,600 | | |
| 14.26 | |
Units outstanding at December 31, 2020 | |
| 174,600 | | |
| 15.15 | |
| |
| | | |
| | |
PSUs granted during 2021 (at target) | |
| 64,600 | | |
| 18.64 | |
PSUs earned during 2021 | |
| (70,363 | ) | |
| 16.25 | |
Performance adjustment (1) | |
| 24,300 | | |
| 16.25 | |
Forfeitures | |
| (2,537 | ) | |
| 16.25 | |
Units outstanding at December 31, 2021 | |
| 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 | |
(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:
| |
Year Ended December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
PSU compensation expense (benefit) | |
$ | (1,022 | ) | |
$ | 1,344 | | |
$ | 1,262 | |
Income tax expense (benefit) | |
| 232 | | |
| (305 | ) | |
| (265 | ) |
PSU compensation expense (benefit), net of income taxes | |
$ | (790 | ) | |
$ | 1,039 | | |
$ | 997 | |
| |
| | | |
| | | |
| | |
Total grant-date fair value of vested PSUs at end of period | |
$ | 1,319 | | |
$ | 1,143 | | |
$ | — | |
The cost estimates for PSU grants represent initial
target awards until the Company can reasonably forecast the financial performance of each PSU award grant. As of December 31, 2022, the
previously recognized compensation expense related to the PSU awards granted during 2020 and 2021 was eliminated due to the Company’s
expectation that the threshold performance goal will not be met, and the compensation expense related to the PSU awards granted during
2022 was decreased to the threshold level due to Company’s expectations that the target goal will likely not be achieved. The actual
number of shares to be issued at the end of each performance period will range from 0% to 150% of the initial target awards.
At December 31, 2022, there was $383 of unrecognized
compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 2.16 years.
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 years ended December 31, 2022, 2021, and 2020.
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 Consolidated Statement of Operations or 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 Consolidated Statement of Operations. For the Consolidated Balance Sheet, those items include cash and investments, property and
equipment, other assets, accrued expenses, income taxes recoverable or payable, and shareholders’ equity.
| |
Year Ended December 31, 2022 | |
| |
Private
Passenger
Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 80,410 | | |
$ | 67,178 | | |
$ | 88,143 | | |
$ | 53,214 | | |
$ | 74,764 | | |
$ | 5,177 | | |
$ | 368,886 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 2,254 | | |
| — | | |
| 4,296 | | |
| 6,550 | |
Ceded premiums earned | |
| (2,805 | ) | |
| (267 | ) | |
| (9,762 | ) | |
| (20,747 | ) | |
| (13,333 | ) | |
| (232 | ) | |
| (47,146 | ) |
Net premiums earned | |
| 77,605 | | |
| 66,911 | | |
| 78,381 | | |
| 34,721 | | |
| 61,431 | | |
| 9,241 | | |
| 328,290 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 66,250 | | |
| 39,400 | | |
| 114,195 | | |
| 27,146 | | |
| 82,817 | | |
| 3,589 | | |
| 333,397 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 634 | | |
| — | | |
| 1,735 | | |
| 2,369 | |
Ceded losses and loss adjustment expenses | |
| (830 | ) | |
| — | | |
| (6,372 | ) | |
| (8,362 | ) | |
| (25,601 | ) | |
| (169 | ) | |
| (41,334 | ) |
Net losses and loss adjustment expenses | |
| 65,420 | | |
| 39,400 | | |
| 107,823 | | |
| 19,418 | | |
| 57,216 | | |
| 5,155 | | |
| 294,432 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 12,185 | | |
| 27,511 | | |
| (29,442 | ) | |
| 15,303 | | |
| 4,215 | | |
| 4,086 | | |
| 33,858 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 21,601 | | |
| 26,889 | | |
| 23,070 | | |
| 3,009 | | |
| 22,173 | | |
| 2,292 | | |
| 99,034 | |
Underwriting gain (loss) | |
| (9,416 | ) | |
| 622 | | |
| (52,512 | ) | |
| 12,294 | | |
| (17,958 | ) | |
| 1,794 | | |
| (65,176 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 831 | | |
| | | |
| | | |
| | | |
| | | |
| 1,453 | |
| |
| | | |
| 1,453 | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 7,820 | |
Net investment gains (losses) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (13,126 | ) |
Income (loss) before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (69,029 | ) |
Income tax expense (benefit) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (15,254 | ) |
Net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (53,775 | ) |
Net income (loss) attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (679 | ) |
Net income (loss) attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (53,096 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expenses ratio | |
| 84.3% | | |
| 58.9% | | |
| 137.6% | | |
| 55.9% | | |
| 93.1% | | |
| 55.8% | | |
| 89.7% | |
Expense ratio | |
| 27.8% | | |
| 40.2% | | |
| 29.4% | | |
| 8.7% | | |
| 36.1% | | |
| 24.8% | | |
| 30.2% | |
Combined ratio | |
| 112.1% | | |
| 99.1% | | |
| 167.0% | | |
| 64.6% | | |
| 129.2% | | |
| 80.6% | | |
| 119.9% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at December 31, 2022: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
$ | 20,669 | | |
$ | 14,884 | | |
$ | 9,388 | | |
$ | 381 | | |
$ | 16,138 | | |
$ | 713 | | |
$ | 62,173 | |
Deferred policy acquisition costs | |
| 5,040 | | |
| 9,378 | | |
| 7,376 | | |
| — | | |
| 7,561 | | |
| 413 | | |
| 29,768 | |
Reinsurance recoverables on losses | |
| 1,440 | | |
| — | | |
| 5,732 | | |
| 589 | | |
| 29,018 | | |
| 796 | | |
| 37,575 | |
Goodwill and other intangibles | |
| — | | |
| 2,761 | | |
| — | | |
| — | | |
| 14,489 | | |
| — | | |
| 17,250 | |
Receivable from Federal Crop Insurance Corporation | |
| — | | |
| — | | |
| — | | |
| 15,462 | | |
| — | | |
| — | | |
| 15,462 | |
Unpaid losses and loss adjustment expenses | |
| 27,439 | | |
| 46,231 | | |
| 27,989 | | |
| 2,145 | | |
| 78,053 | | |
| 8,602 | | |
| 190,459 | |
Unearned premiums | |
| 30,721 | | |
| 29,301 | | |
| 44,957 | | |
| — | | |
| 40,506 | | |
| 3,028 | | |
| 148,513 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Year Ended December 31, 2021 | |
| |
Private
Passenger
Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 76,749 | | |
$ | 58,842 | | |
$ | 84,102 | | |
$ | 43,541 | | |
$ | 65,104 | | |
$ | 4,916 | | |
$ | 333,254 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 2,106 | | |
| — | | |
| 5,929 | | |
| 8,035 | |
Ceded premiums earned | |
| (4,216 | ) | |
| (257 | ) | |
| (10,310 | ) | |
| (18,799 | ) | |
| (7,819 | ) | |
| (299 | ) | |
| (41,700 | ) |
Net premiums earned | |
| 72,533 | | |
| 58,585 | | |
| 73,792 | | |
| 26,848 | | |
| 57,285 | | |
| 10,546 | | |
| 299,589 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 61,358 | | |
| 34,453 | | |
| 59,380 | | |
| 79,177 | | |
| 45,621 | | |
| 1,009 | | |
| 280,998 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| — | | |
| 617 | | |
| — | | |
| 6,282 | | |
| 6,899 | |
Ceded losses and loss adjustment expenses | |
| (1,637 | ) | |
| — | | |
| (7,235 | ) | |
| (51,963 | ) | |
| (10,842 | ) | |
| 159 | | |
| (71,518 | ) |
Net losses and loss adjustment expenses | |
| 59,721 | | |
| 34,453 | | |
| 52,145 | | |
| 27,831 | | |
| 34,779 | | |
| 7,450 | | |
| 216,379 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 12,812 | | |
| 24,132 | | |
| 21,647 | | |
| (983 | ) | |
| 22,506 | | |
| 3,096 | | |
| 83,210 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 20,516 | | |
| 22,770 | | |
| 22,122 | | |
| 8,212 | | |
| 20,000 | | |
| 2,669 | | |
| 96,289 | |
Underwriting gain (loss) | |
| (7,704 | ) | |
| 1,362 | | |
| (475 | ) | |
| (9,195 | ) | |
| 2,506 | | |
| 427 | | |
| (13,079 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 1,280 | | |
| | | |
| | | |
| | | |
| | | |
| 1,775 | |
| |
| | | |
| 2,642 | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 7,131 | |
Net investment gains (losses) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 15,479 | |
Income (loss) before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 11,306 | |
Income tax expense (benefit) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 2,974 | |
Net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 8,332 | |
Net income (loss) attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (84 | ) |
Net income (loss) attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 8,416 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expenses ratio | |
| 82.3% | | |
| 58.8% | | |
| 70.7% | | |
| 103.7% | | |
| 60.7% | | |
| 70.6% | | |
| 72.2% | |
Expense ratio | |
| 28.3% | | |
| 38.9% | | |
| 30.0% | | |
| 30.6% | | |
| 34.9% | | |
| 25.3% | | |
| 32.1% | |
Combined ratio | |
| 110.6% | | |
| 97.7% | | |
| 100.7% | | |
| 134.3% | | |
| 95.6% | | |
| 95.9% | | |
| 104.3% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at December 31, 2021: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
$ | 19,039 | | |
$ | 8,143 | | |
$ | 8,914 | | |
$ | — | | |
$ | 14,687 | | |
$ | 669 | | |
$ | 51,452 | |
Deferred policy acquisition costs | |
| 4,949 | | |
| 5,978 | | |
| 7,271 | | |
| — | | |
| 6,328 | | |
| 421 | | |
| 24,947 | |
Reinsurance recoverables on losses | |
| 1,001 | | |
| — | | |
| 3,467 | | |
| 6,953 | | |
| 8,722 | | |
| 1,057 | | |
| 21,200 | |
Goodwill and other intangibles | |
| — | | |
| 2,810 | | |
| — | | |
| — | | |
| 14,912 | | |
| — | | |
| 17,722 | |
Unpaid losses and loss adjustment expenses | |
| 26,390 | | |
| 43,515 | | |
| 19,161 | | |
| 6,002 | | |
| 32,924 | | |
| 11,670 | | |
| 139,662 | |
Unearned premiums | |
| 28,820 | | |
| 18,679 | | |
| 42,399 | | |
| — | | |
| 34,672 | | |
| 3,219 | | |
| 127,789 | |
Payable to Federal Crop Insurance Corporation | |
| — | | |
| — | | |
| — | | |
| 4,962 | | |
| — | | |
| — | | |
| 4,962 | |
| |
Year Ended December 31, 2020 | |
| |
Private
Passenger
Auto | | |
Non-Standard
Auto | | |
Home and
Farm | | |
Crop | | |
Commercial | | |
All Other | | |
Total | |
Direct premiums earned | |
$ | 74,998 | | |
$ | 53,909 | | |
$ | 82,036 | | |
$ | 39,893 | | |
$ | 45,557 | | |
$ | 4,668 | | |
$ | 301,061 | |
Assumed premiums earned | |
| — | | |
| — | | |
| — | | |
| 1,896 | | |
| — | | |
| 4,563 | | |
| 6,459 | |
Ceded premiums earned | |
| (2,989 | ) | |
| (172 | ) | |
| (7,157 | ) | |
| (6,071 | ) | |
| (7,269 | ) | |
| (201 | ) | |
| (23,859 | ) |
Net premiums earned | |
| 72,009 | | |
| 53,737 | | |
| 74,879 | | |
| 35,718 | | |
| 38,288 | | |
| 9,030 | | |
| 283,661 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct losses and loss adjustment expenses | |
| 45,423 | | |
| 30,347 | | |
| 38,700 | | |
| 36,022 | | |
| 32,620 | | |
| 2,258 | | |
| 185,370 | |
Assumed losses and loss adjustment expenses | |
| — | | |
| — | | |
| (116 | ) | |
| 1,070 | | |
| — | | |
| 2,354 | | |
| 3,308 | |
Ceded losses and loss adjustment expenses | |
| 88 | | |
| — | | |
| (1,839 | ) | |
| (5,713 | ) | |
| (12,190 | ) | |
| (551 | ) | |
| (20,205 | ) |
Net losses and loss adjustment expenses | |
| 45,511 | | |
| 30,347 | | |
| 36,745 | | |
| 31,379 | | |
| 20,430 | | |
| 4,061 | | |
| 168,473 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross margin | |
| 26,498 | | |
| 23,390 | | |
| 38,134 | | |
| 4,339 | | |
| 17,858 | | |
| 4,969 | | |
| 115,188 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriting and general expenses | |
| 19,986 | | |
| 20,739 | | |
| 20,874 | | |
| 4,807 | | |
| 16,358 | | |
| 2,304 | | |
| 85,068 | |
Underwriting gain (loss) | |
| 6,512 | | |
| 2,651 | | |
| 17,260 | | |
| (468 | ) | |
| 1,500 | | |
| 2,665 | | |
| 30,120 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Fee and other income | |
| | | |
| 1,337 | | |
| | | |
| | | |
| | | |
| | | |
| 1,801 | |
| |
| | | |
| 3,988 | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net investment income | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 7,271 | |
Net investment gains (losses) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 13,624 | |
Income (loss) before income taxes | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 52,816 | |
Income tax expense (benefit) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 11,472 | |
Net income (loss) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 41,344 | |
Net income (loss) attributable to non-controlling interest | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 955 | |
Net income (loss) attributable to NI Holdings, Inc. | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | 40,389 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Ratios: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss and loss adjustment expenses ratio | |
| 63.2% | | |
| 56.5% | | |
| 49.1% | | |
| 87.9% | | |
| 53.4% | | |
| 45.0% | | |
| 59.4% | |
Expense ratio | |
| 27.8% | | |
| 38.6% | | |
| 27.9% | | |
| 13.5% | | |
| 42.7% | | |
| 25.5% | | |
| 30.0% | |
Combined ratio | |
| 91.0% | | |
| 95.1% | | |
| 77.0% | | |
| 101.4% | | |
| 96.1% | | |
| 70.5% | | |
| 89.4% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balances at December 31, 2020: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Premiums and agents’ balances receivable | |
$ | 18,540 | | |
$ | 6,543 | | |
$ | 9,072 | | |
$ | — | | |
$ | 13,732 | | |
$ | 636 | | |
$ | 48,523 | |
Deferred policy acquisition costs | |
| 5,461 | | |
| 4,649 | | |
| 7,828 | | |
| — | | |
| 5,588 | | |
| 442 | | |
| 23,968 | |
Reinsurance recoverables | |
| 412 | | |
| — | | |
| 588 | | |
| 121 | | |
| 5,374 | | |
| 2,215 | | |
| 8,710 | |
Receivable from Federal Crop Insurance Corporation | |
| — | | |
| — | | |
| — | | |
| 6,646 | | |
| — | | |
| — | | |
| 6,646 | |
Goodwill and other intangibles | |
| — | | |
| 2,860 | | |
| — | | |
| — | | |
| 15,334 | | |
| — | | |
| 18,194 | |
Unpaid losses and loss adjustment expenses | |
| 20,311 | | |
| 43,336 | | |
| 11,737 | | |
| 771 | | |
| 19,089 | | |
| 10,506 | | |
| 105,750 | |
Unearned premiums | |
| 28,293 | | |
| 16,147 | | |
| 41,301 | | |
| — | | |
| 30,705 | | |
| 2,917 | | |
| 119,363 | |
21. |
Statutory Net Income (Loss), Capital and Surplus, and Dividend Restrictions |
The following table presents selected information,
as filed with insurance regulatory authorities, for our insurance subsidiaries as determined in accordance with accounting practices prescribed
or permitted by such insurance regulatory authorities as of and for the years ended December 31, 2022, 2021, and 2020:
| |
2022 | | |
2021 | | |
2020 | |
Nodak Insurance: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
$ | 175,673 | | |
$ | 221,761 | | |
$ | 216,278 | |
Statutory unassigned surplus | |
| 170,673 | | |
| 216,761 | | |
| 211,278 | |
Statutory net income (loss) | |
| (29,978 | ) | |
| 5,311 | | |
| 24,529 | |
| |
| | | |
| | | |
| | |
American West: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
| 14,957 | | |
| 18,400 | | |
| 18,368 | |
Statutory unassigned surplus | |
| 8,956 | | |
| 12,399 | | |
| 12,367 | |
Statutory net income (loss) | |
| (3,228 | ) | |
| (54 | ) | |
| 2,158 | |
| |
| | | |
| | | |
| | |
Primero: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
| 8,677 | | |
| 10,138 | | |
| 9,818 | |
Statutory unassigned surplus | |
| (582 | ) | |
| 879 | | |
| 559 | |
Statutory net income (loss) | |
| (1,211 | ) | |
| 127 | | |
| 1,023 | |
| |
| | | |
| | | |
| | |
Battle Creek: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
| 5,660 | | |
| 6,821 | | |
| 6,875 | |
Statutory unassigned surplus | |
| 2,660 | | |
| 3,821 | | |
| 3,875 | |
Statutory net income (loss) | |
| (1,189 | ) | |
| (77 | ) | |
| 693 | |
| |
| | | |
| | | |
| | |
Direct Auto: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
| 32,054 | | |
| 37,960 | | |
| 35,819 | |
Statutory unassigned surplus | |
| 29,054 | | |
| 34,960 | | |
| 32,819 | |
Statutory net income (loss) | |
| (6,074 | ) | |
| 6,451 | | |
| 7,898 | |
| |
| | | |
| | | |
| | |
Westminster: | |
| | | |
| | | |
| | |
Statutory capital and surplus | |
| 20,090 | | |
| 24,706 | | |
| 23,592 | |
Statutory unassigned surplus | |
| 15,090 | | |
| 19,706 | | |
| 18,592 | |
Statutory net income (loss) | |
| (3,861 | ) | |
| 1,723 | | |
| 2,719 | |
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 and 2021 exceeded the amount of statutory capital and surplus
necessary to satisfy risk-based capital requirements by a significant margin.
Amounts available for distribution in 2023 to
Nodak Insurance as dividends from its insurance subsidiaries without prior approval of insurance regulatory authorities are $0 from American
West and Primero. No dividends were paid to Nodak Insurance from either entity during the years ended December 31, 2022, 2021, or 2020.
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 for the year ended 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. The Nodak Insurance Board of Directors declared
and paid dividends of $3,000 and $6,000 to NI Holdings during the years ended December 31, 2022 and 2020, respectively. No dividends were
declared or paid by Nodak Insurance during the year ended December 31, 2021.
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 years ended December 31,
2022, 2021, or 2020.
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 years ended December
31, 2022, 2021 or 2020.