NI Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2025

The following discussion is intended to provide a more comprehensive review of our operating results and financial condition than can be obtained from reading the unaudited consolidated financial statements alone. Unless otherwise noted, the information in the following discussion is being presented for our continuing operations. This discussion should be read in conjunction with the unaudited consolidated financial statements and the notes thereto included in Part I, Item 1, “Financial Statements.” Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking Statements” included elsewhere in this Form 10-Q. Part I, Item 1A, “Risk Factors” included in our 2024 Annual Report and Part II, Item 1A “Risk Factors” included in this Form 10-Q, should also be reviewed for a discussion of important factors that could cause actual results to differ materially from the results described, or implied by, the forward-looking statements contained herein.

All dollar amounts included in Item 2 herein, except per share data, are in thousands.

Financial Highlights

2025 Second Quarter Consolidated Results of Operations

• Net loss of $12,051, or ($0.57) per share basic and ($0.57) per share diluted
• Net premiums earned of $73,005
• Net investment income of $3,146
• Net unfavorable prior year reserve development of $9,820
• Underwriting loss of $18,376
• Combined ratio of 125.1%
• Operating cash flows of $16,289

2025 Second Quarter Consolidated Financial Condition

• Total cash and investments of $406,097
• Total assets of $620,051
• Unpaid losses and loss adjustment expenses of $203,530
• Total liabilities of $376,728
• Shareholders’ equity of $243,323

Results of Continuing Operations

Our consolidated net loss from continuing operations was $12,051 for the three months ended June 30, 2025, compared to net loss from continuing operations of $7,478 for the three months ended June 30, 2024. Our consolidated net loss from continuing operations was $5,591 for the six months ended June 30, 2025, compared to net loss from continuing operations of $543 for the six months ended June 30, 2024.

The major components of our revenues and net loss are shown below:

Net Premiums Earned

Net premiums earned for the three months ended June 30, 2025, decreased $12,164, or 14.3%, compared to the three months ended June 30, 2024. Net premiums earned for the six months ended June 30, 2025, decreased 14,551, or 9.4%, compared to the six months ended June 30, 2024.

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Below are comments regarding significant changes in net premiums earned by business segment:

Private Passenger Auto – Net premiums earned for the second quarter of 2025 increased $452, or 2.0%, compared to the same period in 2024. Net premiums earned for the first six months of 2025 increased $1,008, or 2.3% from the first six months of 2024. Results were driven by new business growth in North Dakota as well as significant rate increases in South Dakota and Nebraska, partially offset by lower new business and retention levels in South Dakota and Nebraska as a result of underwriting actions taken.

Non-Standard Auto – Net premiums earned for the second quarter of 2025 decreased $12,238, or 45.8%, compared to the same period in 2024. Net premiums earned for the first six months of 2025 decreased $18,973, or 36.7% from the first six months of 2024. These decreases were driven by strategic decisions to exit Nevada and significantly reduce written premium in the Chicago market in recent periods to improve profitability. We anticipate further continued reductions in net earned premiums as a result of these decisions.

Home and Farm – Net premiums earned for the second quarter of 2025 decreased $613, or 2.8%, compared to the same period in 2024. Net premiums earned for the first six months of 2025 increased $1,692, or 3.9% from the first six months of 2024. Results were driven by new business growth in North Dakota, rate increases, and increased insured property values, partially offset by lower retention rates and new business levels in Nebraska as a result of underwriting actions taken to improve profitability. In addition, net premiums earned for the second quarter of 2025 were impacted by the recognition of higher ceded premiums earned as a result of a significant catastrophe event in North Dakota during the second quarter of 2025.

Crop – Net premiums earned for the second quarter of 2025, decreased $267, or 2.4%, compared to the same period in 2024. Net premiums earned for the first six months of 2025 increased $906, or 9.6% from the first six months of 2024. The decrease in the second quarter of 2025 was driven by lower commodity prices compared to the prior year. Net premiums earned for the first quarter of any year are typically the result of prior crop year premium adjustments that correspond to the current year settlement of prior crop year claims. The year-to-date increase was driven by the recognition of more favorable premium adjustments in the first quarter of 2025 compared to the first quarter of 2024.

All Other – Net premiums earned for the second quarter of 2025, increased $502, or 16.4%, compared to the same period in 2024. Net premiums earned for the first six months of 2025 increased $816, or 13.6%, from the first six months of 2024. Results were driven by rate increases for the North Dakota commercial lines of business.

Losses and Loss Adjustment Expenses

Our net losses and loss adjustment expenses for the three months ended June 30, 2025, decreased $2,751, or 4.0%, compared to the three months ended June 30, 2024. Our net losses and loss adjustment expenses for the six months ended June 30, 2025, decreased $4,370, or 4.0%, compared to the six months ended June 30, 2024.

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Below are comments regarding significant changes in the net losses and loss adjustment expenses, and the net loss and loss adjustment expense ratios, by business segment:

Private Passenger Auto – The net loss and loss adjustment expense ratio decreased 28.9 percentage points and 10.3 percentage points in the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024. These decreases in the current year were driven by improved loss severity on physical damage claims.

Non-Standard Auto – The net loss and loss adjustment expense ratio increased 44.0 percentage points and 25.9 percentage points in the three- and six-month periods ended June 30, 2025, respectively, compared to the same period in 2024. These increases were driven by higher unfavorable prior year development on liability loss reserves in the current year periods compared to the same periods in 2024.

Home and Farm – The net loss and loss adjustment expense ratio increased 26.2 percentage points and 2.8 percentage points in the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024. These increases in net loss and loss adjustment expense ratios were driven by losses from a significant catastrophe event in North Dakota during the second quarter of 2025 that exceeded the Company’s $20,000 retention as well as the related ceded premiums earned. Although the results for the six-month period ended June 30, 2024, were impacted by elevated non-catastrophe weather losses in North Dakota and Nebraska, there were no catastrophes during that period. Catastrophe losses, net of reinsurance, for the Home and Farm segment accounted for 94.7 and 45.1 percentage points of the net loss and loss adjustment expense ratio for the three- and six-month periods ended June 30, 2025, respectively, and did not have a negative impact for the same periods in 2024.

Crop – The net loss and loss adjustment expense ratio increased 12.5 percentage points and 16.1 percentage points in the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024. These increases were driven by less favorable crop growing conditions compared to the prior year.

All Other – The net loss and loss adjustment expense ratio decreased 9.5 percentage points and 9.6 percentage points in the three- and six-month period ended June 30, 2025, compared to the same period in 2024. These decreases were driven by favorable loss development related to the continued run-off of our participation in an assumed domestic and international reinsurance pool of business.

Underwriting and General Expenses and Expense Ratio

The expense ratio is calculated by dividing other underwriting and general expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company’s operational efficiency in producing, underwriting, and administering its insurance business. The overall expense ratio increased 1.6 percentage points and 1.3 percentage points in the three-and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024. The decrease in the amortization of deferred policy acquisition costs is due to lower deferrable costs resulting from the strategic reduction in premium for the Non-Standard Auto segment, which generally pays higher agent commissions than our other segments. Other underwriting and general expenses are generally consistent year-over-year.

Underwriting Gain (Loss) and Combined Ratio

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 $6,668 for the three-month period ended June 30, 2025, compared to the same period in 2024. The total underwriting loss increased $7,074 for the six-month period ended June 30, 2025, compared to the same period in 2024. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses as well as the Underwriting and General Expenses and Expense Ratio sections above.

The overall combined ratio increased 11.4 percentage points in the three-month period ended June 30, 2025, compared to the same period in 2024. The overall combined ratio increased 5.5 percentage points in the six-month period ended June 30, 2025, compared to the same period in 2024. These results were driven by the factors discussed in the Loss and Loss Adjustment Expenses as well as the Underwriting and General Expenses and Expense Ratio sections above.

Fee and Other Income

We had fee and other income of $316 and $546 for the three and six months ended June 30, 2025, respectively, compared to $695 and $1,099 for the three and six months ended June 30, 2024, respectively. These decreases were driven by strategic reductions in the premiums that generate fee income and write-offs of uncollectable premiums receivable during the second quarter of 2025.

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 for continuing operations:

Net investment income increased $623 for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. Net investment income increased $706 for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. These increases were primarily driven by the higher interest rate environment which resulted in higher reinvestment rates in our fixed income portfolio.

Gross and net return on average cash and invested assets increased year-over-year, primarily driven by the favorable interest rate environment that resulted in higher net investment income on an increased average fixed income securities balance (measured at fair value), partially offset by lower interest rates in the current year periods for cash and cash equivalents. The increase in average cash and invested assets was driven by changes in the fair value of fixed income securities due to the interest rate environment as well as positive operating cash flows during the first six months of 2025.

Net Investment Gains (Losses)

Net investment gains (losses) consisted of the following:

We had net realized gains of $107 and $433 for the three and six months ended June 30, 2025, respectively, compared to net realized gains of $9 and losses of $82 for the three and six months ended June 30, 2024, respectively. The elevated net realized gains in the six months ended June 30, 2025, were driven by sales of equity securities that were executed as part of the strategic management of our investment portfolio. No credit impairment losses were reported during any of the periods presented.

We experienced a decrease of $517 and an increase of $26 in net unrealized gains on equity securities during the three and six months ended June 30, 2025, respectively. We experienced a decrease in net unrealized gains on equity securities of $589 and an increase of $958 during the three and six months ended June 30, 2024, respectively. These results were driven by the impact of changes in fair value attributable to overall favorable or unfavorable equity markets during those periods.

Our fixed income securities are classified as available for sale because we will, from time to time, execute sales of securities that are not impaired, consistent with our investment goals and policies. The fixed income portion of the portfolio experienced net unrealized gains of $1,469 and $4,782 during the three and six months ended June 30, 2025, respectively, compared to net unrealized losses of $923 and $2,730 during the three and six months ended June 30, 2024, respectively. The changes were primarily the result of changes in U.S. interest rates. The change in the fair value of fixed income securities is not reflected in net income; rather it is reflected as a separate component (net of income taxes) of other comprehensive income.

Income (Loss) before Income Taxes

For the three months ended June 30, 2025, we had a pre-tax loss of $15,324 compared to a pre-tax loss of $9,070 for the three months ended June 30, 2024. The year-over-year change was largely attributable to the catastrophe losses for Home and Farm in North Dakota and unfavorable prior year loss reserve development for Non-Standard Auto, partially offset by improved loss experience for Private Passenger Auto and higher net investment income.

For the six months ended June 30, 2025, we had a pre-tax loss of $7,575 compared to pre-tax loss of $237 for the six months ended June 30, 2024. The year-over-year change was largely attributable to the catastrophe losses for Home and Farm in North Dakota and unfavorable prior year loss reserve development for Non-Standard Auto, partially offset by improved loss experience for Private Passenger Auto and higher net investment income.

Income Tax Expense (Benefit)

We recorded an income tax benefit of $3,273 for the three months ended June 30, 2025, compared to an income tax benefit of $1,592 for the three months ended June 30, 2024. Our effective tax rate for the second quarter of 2025 was 21.4% compared to an effective tax rate of 17.6% for the second quarter of 2024.

We recorded an income tax benefit of $1,984 for the six months ended June 30, 2025, compared to income tax expense of $306 for the six months ended June 30, 2024. Our effective tax rate for the first six months of 2025 was 26.2% compared to an effective tax rate of (129.1)% for the first six months of 2024. The effective tax rate for the first six months of 2025 and 2024 were impacted by changes in our valuation allowances against deferred income tax assets.

Net Income (Loss)

For the three months ended June 30, 2025, we had a net loss of $12,051 compared to net loss of $7,478 for the three months ended June 30, 2024. The year-over-year change was largely attributable to the catastrophe losses for Home and Farm in North Dakota and unfavorable prior year loss reserve development for Non-Standard Auto, partially offset by improved loss experience for Private Passenger Auto and higher net investment income.

For the six months ended June 30, 2025, we had a net loss of $5,591 compared to net loss of $543 for the six months ended June 30, 2024. The year-over-year change was largely attributable to the catastrophe losses for Home and Farm in North Dakota and unfavorable prior year loss reserve development for Non-Standard Auto, partially offset by improved loss experience for Private Passenger Auto and higher net investment income.

Return on Average Equity

For the three months ended June 30, 2025, we had annualized return on average equity of (19.4)% compared to (12.8)% for the three months ended June 30, 2024.

For the six months ended June 30, 2025, we had annualized return on average equity of (4.6)% compared to (0.5)% for the six months ended June 30, 2024.

Average equity is calculated as the average between beginning and ending equity for the period.

Critical Accounting Policies

The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in the unaudited consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions, industry trends, and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to these estimates and assumptions or that reported results of operations will not be materially and adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Our critical accounting policies are more fully described in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” presented in our 2024 Annual Report. There have been no changes in our critical accounting policies from December 31, 2024.

Liquidity and Capital Resources

We expect to generate sufficient funds from our operations and maintain a high degree of liquidity in our investment portfolio to meet the demands of claim settlements and operating expenses for the foreseeable future. Our primary sources of funds are premium collections, investment earnings, and fixed income maturities.

We also have a $3,000 line of credit with Wells Fargo Bank, N.A. The terms of the line of credit include a floating interest rate of 2.50% above the daily simple secured overnight financing rate. There were no outstanding amounts during the six months ended June 30, 2025, or the year ended December 31, 2024. This line of credit is scheduled to expire on December 13, 2025.

The change in cash and cash equivalents for continuing and discontinued operations for the six months ended June 30, 2025 and 2024, were as follows:

For the six months ended June 30, 2025, net cash provided by operating activities totaled $16,289 compared to $34,760 a year ago. This change was primarily driven by lower levels of premium collections in the current year, partially offset by lower levels of loss and loss adjustment payments in the current year.

For the six months ended June 30, 2025, net cash used by investing activities totaled $10,246 compared to $3,776 a year ago. This change was primarily attributable to the proceeds from the sale of Westminster and Westminster’s net cash provided by investing activities in the prior year, partially offset by a decrease in net cash outflows for investment activities in the current year.

For the six months ended June 30, 2025, net cash used by financing activities totaled $189 compared to $202 a year ago. This decrease in cash used was attributable to a decrease in the issuance of vested award shares partially offset by an increase in principal repayments for finance leases.

As a holding company, a principal source of long-term liquidity will be dividend payments from our directly-owned subsidiaries.

Nodak Insurance is restricted by the insurance laws of North Dakota as to the amount of dividends or other distributions it may pay to NI Holdings. North Dakota law sets the maximum amount of dividends that may be paid by Nodak Insurance during any twelve-month period after notice to, but without prior approval of, the North Dakota Insurance Department. This amount cannot exceed the lesser of (i) 10% of 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.

The amount available for payment of dividends from Nodak Insurance to NI Holdings during 2025 without the prior approval of the North Dakota Insurance Department is approximately $8,273 as of December 31, 2024. No dividends were declared or paid by Nodak Insurance during the six months ended June 30, 2025, or the year ended December 31, 2024.

The amount available for payment of dividends from Direct Auto to NI Holdings during 2025 without the prior approval of the North Dakota Insurance Department is approximately $3,146 as of December 31, 2024. No dividends were declared or paid by Direct Auto during the six months ended June 30, 2025, or the year ended December 31, 2024.

Prior to the payment of any dividend, we 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.

Westminster was sold on June 30, 2024, and therefore no dividends are available to be paid to NI Holdings subsequent to that date. No dividends were declared or paid by Westminster during the year ended December 31, 2024. See Part I, Item 1, Note 19 “Discontinued Operations” of this Form 10-Q for additional information.

The Company’s assessment of market risk as of June 30, 2025, indicates there have been no material changes in the quantitative and qualitative disclosures from those in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our 2024 Annual Report.

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), and that such material information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosures. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

In the ordinary course of business, we periodically review our system of internal control over financial reporting to identify opportunities to improve our controls and increase efficiency, while ensuring that we maintain an effective internal control environment. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in our assessment of our risk factors from those set forth in Part I, Item 1A, “Risk Factors” in our 2024 Annual Report, except as indicated below:

Trade policies, including tariffs, could adversely impact our financial condition and operating results.

We maintain reserves to cover estimated unpaid losses and expenses necessary to settle claims. The reserves for losses and loss adjustment expenses that we have established are estimates of amounts needed to pay reported and unreported claims and related expenses, based on facts and circumstances known to us at the time we established the reserves. Reserves are actuarially projected based on historical claims information, industry statistics, anticipated trends, and other factors. Changes in U.S. trade policy, including recently announced tariffs, could have a material adverse impact on our business, financial condition, and results of operations. The imposition of new tariffs or increases in existing tariffs on goods imported from other countries could result in increased costs for raw materials, components, or finished goods and adversely impact loss severity. In addition, tariffs or other trade restrictions may lead to continuing uncertainty and volatility in U.S. and global financial and economic conditions and commodity markets, declining consumer confidence, significant inflation, and diminished expectations for the economy. Such conditions could have a material adverse impact on our business, results of operations and cash flows. We are unable to predict the ultimate result and duration of any tariff actions by the U.S. government or countermeasures that may be taken by other nations.