10-K: NI Holdings Reports 2025 Net Loss Amid Strategic Exits

NI Holdings, Inc. reported a net loss of $10.413 million for 2025, driven by unfavorable prior year reserve development and strategic exits from non-standard auto markets.

Summary

• NI Holdings, Inc. reported a consolidated net loss from continuing operations of $10.413 million, or ($0.50) per share, for the year ended December 31, 2025, a significant decrease from net income of $6.600 million in 2024 and $19.831 million in 2023.
• Net premiums earned decreased by 12.7% to $270.655 million in 2025 from $310.110 million in 2024, primarily due to strategic decisions to exit non-standard auto markets in Nevada, Arizona, South Dakota, and Illinois.
• The company experienced a net unfavorable prior year reserve development of $30.330 million in 2025, mainly from liability loss reserves in the Direct Auto non-standard auto business.
• The combined ratio worsened to 109.9% in 2025, up from 100.7% in 2024 and 97.0% in 2023, indicating an underwriting loss of $26.724 million.
• Net investment income increased to $11.702 million in 2025 from $10.943 million in 2024, benefiting from a favorable interest rate environment.
• Goodwill related to the Primero acquisition was fully impaired in 2024, resulting in a $2.628 million non-cash impairment charge, and the Direct Auto state insurance license was fully impaired in 2025, resulting in a $100,000 non-cash impairment charge.
• Employee turnover increased significantly to 39.5% in 2025, compared to 29.0% in 2024 and 22.7% in 2023, largely attributed to the strategic decision to cease writing non-standard auto coverage.
• The company completed share repurchases of 188,185 shares for $2.517 million in 2025, closing out the May 9, 2022 authorization, with $4.549 million remaining under the August 25, 2025 authorization.
• Battle Creek Insurance Company converted from a mutual to a stock insurance company on January 2, 2024, becoming a wholly-owned subsidiary of Nodak Insurance, and is now fully consolidated.
• Westminster American Insurance Company was sold on June 30, 2024, and its results are reported as discontinued operations.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing negatively due to the reported net loss, significant unfavorable reserve development, and worsening combined ratio, despite some positive investment income trends. The strategic exits, while potentially beneficial long-term, are causing short-term financial strain and high employee turnover.

Positives

• Net investment income increased to $11.702 million in 2025, driven by a favorable interest rate environment and higher average fixed income securities balance.
• All of the company's insurance subsidiaries and affiliate companies maintain an A (Excellent) financial strength rating from A.M. Best, with a stable outlook affirmed on May 20, 2025.
• Private passenger auto net premiums earned increased by 0.8% in 2025, driven by new business growth in North Dakota and significant rate increases in South Dakota and Nebraska.
• Home and farm net premiums earned increased by 3.5% in 2025, due to new business growth, rate increases, and increased insured property values in North Dakota, South Dakota, and Nebraska.
• The company's capital levels for all insurance subsidiary and affiliate companies exceed the authorized control level and have never triggered any regulatory capital levels.
• The company maintains a conservatively managed investment portfolio with high quality, liquid taxable U.S. government, municipal, and corporate bonds, providing adequate funds for insurance obligations.

Negatives

• Reported a consolidated net loss of $10.413 million in 2025, a significant decline from net income in prior years.
• Net premiums earned decreased by 12.7% in 2025, primarily due to strategic decisions to exit non-standard auto markets in Nevada, Arizona, South Dakota, and Illinois.
• Experienced a net unfavorable prior year reserve development of $30.330 million in 2025, mainly from liability loss reserves in the non-standard auto business.
• The combined ratio worsened to 109.9% in 2025, indicating an underwriting loss of $26.724 million.
• Non-standard auto net premiums earned decreased by 47.5% in 2025 due to strategic exits and reductions in written premium.
• The non-standard auto segment's net loss and loss adjustment expenses ratio increased significantly to 135.7% in 2025, driven by higher unfavorable prior year development.
• Goodwill related to Primero was fully impaired in 2024 ($2.628 million charge), and the Direct Auto state insurance license was fully impaired in 2025 ($100,000 charge), reflecting underperformance and strategic changes.
• Employee turnover averaged 39.5% during 2025, up from 29.0% in 2024 and 22.7% in 2023, partly due to strategic business exits.
• Operating cash flows were negative $15.272 million in 2025, compared to positive cash flows in prior years, mainly due to reductions in cash received from discontinued non-standard auto operations.

Risks

• Catastrophic or other significant natural or man-made losses, including those potentially exacerbated by climate change, may negatively affect financial condition and operating results, especially given the concentration of business in North Dakota.
• Actual losses may exceed loss and loss adjustment expense reserves, or changes in legal, regulatory, and economic environments may necessitate reserve adjustments, materially affecting financial results.
• A downgrade in the company's financial strength rating could limit its ability to write new business, renew existing business, or obtain reinsurance, leading to decreased revenue and net income.
• Fluctuations in the insurance industry cycle, intense competition, and the inability to keep pace with innovation and emerging technologies (e.g., artificial intelligence, autonomous vehicles) could adversely affect profitability and market share.
• Failure to effectively underwrite risks and price insurance products appropriately, or claims experience being more frequent or severe than assumptions, could negatively impact profitability.
• Volatility in crop prices and yields due to weather conditions, trade policies (e.g., tariffs), or other events could adversely impact the crop insurance business.
• The ability to manage exposure to underwriting risks depends on the availability and cost of reinsurance coverage, which may not be maintained at desired levels or favorable rates.
• Inability to collect loss recoveries from reinsurers could result in significant additional losses, impacting liquidity and financial condition.
• The impact of a future pandemic and related economic conditions (e.g., reduced economic activity, unemployment, capital markets disruption) could materially affect operations, financial position, and liquidity.
• Inability to retain and expand captive and independent agent relationships, provide competitive products, or adapt to changing consumer distribution preferences could hinder business growth.
• Acquisitions, if pursued, involve risks such as integration problems, failure to meet expectations, diversion of management attention, higher capital requirements, and loss of key employees.
• Access to capital may be limited or unavailable on favorable terms, potentially hindering strategic initiatives and adversely affecting financial condition.
• Inability to attract, retain, or effectively manage the succession of key personnel, especially given competition for specialized talent and the unenforceability of non-compete covenants in North Dakota, could adversely affect the business.
• Failures in operational systems or infrastructure, or those of third-party service providers, including operational errors, could disrupt business, damage reputation, and cause losses.
• Cyberattacks, security breaches, or similar events could disrupt operations, harm reputation, result in material losses, legal claims, regulatory scrutiny, and increased compliance costs.
• Strategic decisions, such as exiting lines of business, may not achieve intended benefits, may be based on incomplete or inaccurate information, or may not be implemented timely, adversely affecting results.
• A portion of net profits from multi-peril crop insurance is dependent on the federal crop insurance program; termination or substantial changes to this program could adversely affect revenues and net income.
• Heavy regulation by states, including required participation in guaranty funds and residual market programs, premium surcharges, and higher tax rates, may reduce profitability and limit growth.
• Exposure to insurance industry laws and regulations, as well as claims and legal proceedings (including class action lawsuits), could result in sanctions, fines, or material adverse effects if determined unfavorably.
• New or changes to existing accounting rules and standards could adversely impact reported results of operations and increase earnings volatility.
• Nodak Mutual Group's majority control of common stock enables voting control over most matters, which may not always align with the best interests of all shareholders.
• As an insurance holding company, the ability to fund operations, execute share repurchases, or meet dividend/debt obligations is dependent on dividends from subsidiaries, which are subject to state regulatory restrictions.
• Statutory provisions and provisions in Articles of Incorporation and Bylaws may discourage takeover attempts, potentially entrenching management.
• The investment portfolio is subject to credit and interest rate risk, and equity risk, leading to potential fluctuations in revenues and financial results, and possible impairments.
• Failure to manage future growth effectively, including capital requirements, systems development, and personnel allocation, could adversely affect business and financial condition.
• Unexpected business interruptions (e.g., natural disasters, power loss, terrorism) involving office buildings, operational systems, vendors, or workforce could adversely affect service levels and business.
• Changes in U.S. trade policy, including tariffs, could increase loss severity, create market uncertainty, and adversely impact business, financial condition, and operating results.

Future Outlook

The company anticipates further reductions in net earned premiums over the next twelve months as a result of the strategic decisions to run off non-standard auto operations in Illinois, Arizona, and South Dakota. The Board of Directors continues to evaluate a potential policy of paying regular cash dividends but has not decided on amounts, frequency, or start date. For 2026, the catastrophe excess of loss program is expected to limit exposure to a $20 million retention per event, with $123 million of reinsurance coverage placed in excess. The company intends to continue to grow its business, which may require additional capital, systems development, and skilled personnel.

Management Comments

• Management believes that their reserves for unpaid losses and loss adjustment expenses are appropriate, but acknowledges that estimates may change in the future.
• Management reviews the reasonableness of investment pricing provided by independent services and did not identify any discrepancies for 2025, 2024, or 2023.
• The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were designed and functioning effectively as of December 31, 2025.
• The Chief Executive Officer and Chief Financial Officer concluded that the company's internal control over financial reporting is effective at December 31, 2025.

Industry Context

StockSavvy.ai notes that NI Holdings' strategic exits from non-standard auto markets reflect a broader industry trend where insurers are re-evaluating unprofitable segments and focusing on core, more stable lines of business. The significant increase in the combined ratio and unfavorable reserve development in non-standard auto highlights the challenges in this segment, which many regional carriers have faced. The continued reliance on the NDFB relationship for crop and farm insurance in North Dakota provides a stable, niche market advantage, contrasting with the competitive pressures in broader auto and home markets. The affirmation of an A.M. Best 'A Excellent' rating with a stable outlook is crucial for maintaining competitive positioning, especially against larger national and regional competitors like Progressive, State Farm, and American Family, who dominate in other states where NI Holdings has smaller market shares. The company's focus on data-driven insights and disciplined underwriting is a standard industry practice to combat cyclicality and rising loss severity.

Comparison to Industry Standards

• NI Holdings' A (Excellent) financial strength rating from A.M. Best is the third highest out of 15 classifications, indicating a strong ability to meet policyholder obligations, comparable to well-regarded regional insurers.
• The combined ratio of 109.9% in 2025 is significantly higher than the industry average for profitable property and casualty insurers, which typically aim for a combined ratio below 100%. This indicates an underwriting loss, contrasting with more efficient competitors.
• The substantial unfavorable prior year reserve development of $30.330 million in 2025, particularly in non-standard auto, suggests a more conservative reserving approach or unexpected deterioration in claims experience compared to industry peers who might have more stable reserve development.
• The company's market share in North Dakota (6th overall, 2nd in farmowners) demonstrates a strong regional presence, particularly in agricultural lines, which is a competitive advantage compared to national carriers who may not have such deep local ties.
• In states like Nebraska and South Dakota, the company's small market shares (32nd and 29th respectively) and competition from large national and regional companies (e.g., Farmers Mutual of Nebraska) indicate a need for more aggressive growth or niche specialization to compete effectively.
• The high employee turnover rate of 39.5% in 2025, while partly explained by strategic exits, is considerably higher than typical industry averages for stable insurance companies, which often range from 15-25%, potentially impacting operational efficiency and institutional knowledge.

Management Changes

Corporate Governance

Legal Proceedings

• The company is party to routine litigation incidental to the normal course of business, none of which is considered material based on currently available information.

Related Party Transactions

• Nodak Insurance has a marketing affiliation and royalty agreement with the North Dakota Farm Bureau (NDFB), requiring an annual royalty payment equal to 1.3% of Nodak Insurance's written premiums (excluding multi-peril crop insurance premiums), subject to a minimum of $900,000 and a maximum of $1.717 million.
• Nodak Insurance leases a portion of its headquarters building to the NDFB and to American Farm Bureau Insurance Services (AFBIS).
• American Farm Bureau Insurance Services (AFBIS) underwrites and administers multi-peril crop and crop hail insurance policies for Nodak Insurance, American West, and Battle Creek, with the company reimbursing AFBIS for loss adjustment expenses and paying a percentage of premiums.
• The sale of Westminster American Insurance Company on June 30, 2024, was to Scott Insurance Holdings, LLC, an entity affiliated with John Scott, Sr., the father of Westminster's president, John Scott, Jr.

Stakeholder Impact

• Shareholders are negatively impacted by the net loss and decreased earnings per share, as well as the uncertainty regarding future regular cash dividends.
• Employees are affected by the high turnover rate, particularly those in the non-standard auto segment due to strategic exits, but also benefit from competitive compensation, benefits, and the newly approved 2026 Short-Term Cash Incentive Plan.
• Policyholders may experience changes in product availability due to strategic exits from certain non-standard auto markets, but the company emphasizes excellent claims service and maintains strong financial strength ratings.
• Reinsurers face credit risk from the company, though this is mitigated by the company's practice of partnering with highly-rated reinsurers.
• The North Dakota Farm Bureau (NDFB) continues to receive royalty payments from Nodak Insurance, maintaining a beneficial relationship for both entities.

Next Steps

• Continue to evaluate acquisition opportunities as part of the growth strategy.
• Focus on selective expansion of insurance products in current and licensed states.
• Return capital to shareholders through share repurchases or shareholder dividends, with $4.549 million remaining under the August 25, 2025 authorization.
• The Board of Directors will continue to evaluate a potential policy of paying regular cash dividends.
• Nodak Insurance will be required to provide notice to the North Dakota Insurance Department 30 days prior to an extraordinary dividend and 10 days prior to an ordinary dividend.
• The 2026 Short-Term Cash Incentive Plan (STIP) was approved on February 17, 2026, with participants eligible for cash bonuses based on combined ratio, strategic initiatives, and personal performance.
• The company is currently evaluating the impact of adopting ASU 2024-03 (Disaggregation of Income Statement Expenses) and ASU 2025-06 (Internal-Use Software) on its consolidated financial statements.

Key Dates

Recommendation

The company's 2025 results, marked by a net loss, significant unfavorable reserve development, and a high combined ratio, are concerning. However, these negative results are largely driven by strategic decisions to exit unprofitable non-standard auto segments and address prior year reserve deficiencies, which could be viewed as necessary steps to improve long-term profitability and reduce volatility. The company maintains strong financial strength ratings and a conservatively managed investment portfolio. While the immediate financial performance is poor, the strategic restructuring, if successful, could lead to a healthier business in the future. Therefore, a 'hold' recommendation is appropriate, advising investors to monitor the execution of these strategic changes and the subsequent impact on underwriting performance and profitability before making further investment decisions.

Keywords

Insurance, Property and Casualty, Crop Insurance, Non-Standard Auto Insurance, SEC Filing, 10-K, Financial Results, Underwriting, Reinsurance, Risk Management, Share Repurchase, Goodwill Impairment, North Dakota, Insurance Holding Company, Financial Strength Rating