Executive Summary / Key Takeaways

• Strategic Reorientation: NI Holdings is undergoing a significant strategic transformation, divesting its unprofitable Westminster commercial segment in 2024 and aggressively exiting underperforming non-standard auto lines across multiple states in 2024 and 2025. This pivot aims to enhance underwriting profitability and reduce volatility by focusing on core, more stable segments.
• Mixed Financial Performance Amidst Transition: For the nine months ended September 30, 2025, the company reported a net loss of $7.257 million, an increase from $3.248 million in the prior year, primarily due to catastrophe losses in Home and Farm and unfavorable prior year reserve development in Non-Standard Auto, partially offset by improved Private Passenger Auto performance and higher net investment income.
• Investment Income as a Stabilizer: A favorable interest rate environment has significantly boosted net investment income, which increased by $935 thousand for the nine months ended September 30, 2025, providing a crucial offset to underwriting losses during this transitional period.
• Capital Deployment and Liquidity: NI Holdings maintains a strong liquidity position and has demonstrated a commitment to shareholder returns through share repurchase authorizations, including a new $5 million plan approved in August 2025. Dividend capacity from subsidiaries is subject to regulatory limits.
• Competitive Landscape and Outlook: While facing intense competition from larger, technologically advanced insurers, NI Holdings leverages its regional expertise and niche product offerings. The outlook anticipates further reductions in net earned premiums over the next twelve months as the non-standard auto run-off continues, with a strategic focus on improving operational efficiency and underwriting discipline in its remaining segments.

A Regional Insurer's Strategic Evolution

NI Holdings, Inc. (NASDAQ:NODK) operates as a regional property and casualty insurer, deeply rooted in the Midwest, with a history tracing back to 1946 when Nodak Insurance Company was founded by the North Dakota Farm Bureau. This foundational relationship continues to shape its business, providing insurance protection for NDFB members. The company's evolution saw a significant structural shift in 2017 with the Nodak conversion, transforming Nodak Mutual Insurance Company into a stock company and a wholly-owned subsidiary of NI Holdings. This history underscores a commitment to its regional markets and specialized insurance needs, particularly in agricultural communities.

The company's overarching strategy is currently defined by a decisive pivot away from underperforming segments to concentrate on its more stable and profitable core lines. This strategic reorientation is a direct response to challenging underwriting results in certain areas and aims to enhance overall financial stability and shareholder value. In an industry characterized by cyclical changes, intense competition, and the increasing impact of climate-related events, NI Holdings is actively reshaping its portfolio to better align with its strengths.

The property and casualty insurance industry is dynamic, influenced by broad market drivers such as interest rate fluctuations, which directly impact investment income, and the increasing frequency and severity of catastrophe events. Technological advancements, particularly in data analytics and digital customer engagement, are also reshaping competitive dynamics. While specific details on NI Holdings' proprietary technological differentiators are not extensively detailed in public filings, the company is actively pursuing modernization initiatives. The appointment of Doug Duncan as Senior Vice President and Chief Information Officer in May 2025 signals a strategic intent to lead technology strategy and oversee modernization efforts to support business growth. These initiatives are crucial for enhancing operational efficiency, improving risk assessment capabilities, and streamlining customer interactions, which are vital for maintaining competitiveness against larger, more technologically advanced rivals. The strategic goal is to leverage technology to improve underwriting precision and claims processing, thereby contributing to better financial performance and a stronger competitive moat.

Strategic Portfolio Reshaping and Operational Impact

NI Holdings has undertaken a significant restructuring of its insurance portfolio. A major step was the sale of Westminster American Insurance Company on June 30, 2024, which represented the majority of its Commercial segment. This divestiture was a strategic shift with a major effect on operations and financial results, leading to Westminster being reported as discontinued operations. This move allows NI Holdings to streamline its focus and reallocate capital to its continuing, more strategically aligned operations.

Further demonstrating its commitment to profitability, NI Holdings made strategic decisions in 2024 and the third quarter of 2025 to cease writing new non-standard auto business and non-renew existing policies for Primero (in Nevada, Arizona, and South Dakota) and Direct Auto (in Illinois). These actions are anticipated to lead to further reductions in net earned premiums over the next twelve months as the company runs off these non-standard auto operations. This aggressive exit from unprofitable lines is a clear signal of management's intent to improve underwriting performance and reduce volatility, even if it means short-term declines in premium volume.

The company's continuing operations are structured across five reportable segments: Private Passenger Auto, Non-Standard Auto, Home and Farm, Crop, and All Other. Nodak Insurance Company, the largest domestic property and casualty insurer in North Dakota, is the lead company in an intercompany reinsurance pooling agreement, which allows its insurance subsidiaries to rely on the pool's total statutory capital and surplus. This arrangement enhances the group's financial strength and is reflected in their A.M. Best ratings.

Financial Performance Amidst Transition

NI Holdings reported a consolidated net loss from continuing operations of $1.666 million for the three months ended September 30, 2025, an improvement from a $2.705 million net loss in the prior-year quarter. However, for the nine months ended September 30, 2025, the consolidated net loss from continuing operations increased to $7.257 million, compared to a $3.248 million net loss in the same period of 2024. This reflects the complex dynamics of its strategic transition and the impact of external factors.

Net premiums earned for the three months ended September 30, 2025, decreased by 13.60% to $71.905 million, and for the nine months, they decreased by 10.90% to $212.407 million. This decline is largely attributable to the strategic reductions in the Non-Standard Auto segment.

Segmental Performance Highlights:

• Private Passenger Auto: This segment demonstrated resilience, with net premiums earned increasing by 2.6% in Q3 2025 and 2.4% year-to-date, driven by new business growth in North Dakota and significant rate increases in South Dakota and Nebraska. The underwriting gain improved substantially, and the combined ratio decreased to 89.10% for Q3 2025 and 91.10% year-to-date, reflecting improved loss severity and rate adjustments.
• Non-Standard Auto: As expected from the strategic exits, net premiums earned in this segment decreased significantly by 52.8% in Q3 2025 and 41.6% year-to-date. The segment continued to report substantial underwriting losses, and its combined ratio surged to 187.10% in Q3 2025 and 152.30% year-to-date, primarily due to higher unfavorable prior year development on liability loss reserves from increased loss frequency and severity.
• Home and Farm: Net premiums earned saw modest increases, but the segment recorded underwriting losses. The combined ratio was 111.60% for Q3 2025 and 115.70% year-to-date. This was significantly impacted by a catastrophe event in North Dakota during Q2 2025, with related losses exceeding the company's $20 million retention and accounting for 29 percentage points of the net loss and loss adjustment expense ratio for the nine-month period.
• Crop: This segment showed a decrease in Q3 2025 net premiums earned due to lower commodity prices, but a year-to-date increase driven by favorable premium adjustments. It maintained a strong underwriting gain and a favorable combined ratio of 68.30% in Q3 2025 and 80.60% year-to-date.
• All Other: Net premiums earned increased by 16.4% in Q3 2025 and 14.7% year-to-date, driven by rate increases in North Dakota commercial and excess lines. While Q3 saw an underwriting loss due to commercial property losses from the North Dakota catastrophe, the year-to-date underwriting gain improved due to favorable loss development from assumed reinsurance run-off.

Net investment income increased by $229 thousand for Q3 2025 and $935 thousand for the nine months ended September 30, 2025, primarily due to the higher interest rate environment leading to higher reinvestment rates in the fixed income portfolio. This highlights the importance of the investment portfolio as a source of stability. Net realized gains were elevated in the nine months ended September 30, 2025, due to strategic equity security sales, and unrealized gains on equity securities increased due to favorable equity markets.

The overall combined ratio, a key measure of underwriting profitability, decreased by 1.90 percentage points in Q3 2025 to 109.10%, but increased by 3 percentage points year-to-date to 110%. This indicates that while recent quarter performance showed some improvement, the year-to-date figures still reflect the challenges of the ongoing portfolio adjustments and catastrophe events.

Liquidity and Capital Management

NI Holdings maintains a robust liquidity profile, expecting to generate sufficient funds from operations and its highly liquid investment portfolio to meet claim settlements and operating expenses. The primary sources of funds are premium collections, investment earnings, and fixed income maturities.

For the nine months ended September 30, 2025, net cash used by operating activities totaled $28.511 million, a shift from $16.780 million provided in the prior year, mainly due to lower premium collections partially offset by lower loss and loss adjustment payments. Net cash provided by investing activities was $3.621 million, driven by net sales of equity and fixed income securities.

As a holding company, a principal source of long-term liquidity is dividend payments from its subsidiaries. However, these are subject to North Dakota insurance laws, which restrict the amounts Nodak Insurance and Direct Auto may pay without prior approval. For 2025, Nodak Insurance has approximately $8.273 million available for dividends without prior approval, and Direct Auto has approximately $3.146 million.

The company actively manages its capital, as evidenced by its share repurchase authorizations. On August 25, 2025, the Board approved a new authorization for up to approximately $5 million of common stock repurchases, in addition to the $0.9 million remaining from a previous authorization, totaling approximately $6.3 million available for repurchases. This demonstrates a commitment to returning value to shareholders.

Competitive Landscape and Positioning

NI Holdings operates in a highly competitive U.S. property and casualty insurance market. Its primary direct competitors include large national players such as Progressive Corporation (PGR), Allstate Corporation (ALL), Travelers Companies, Inc. (TRV), and Chubb Limited (CB). While these competitors boast significantly larger scale, broader geographic reach, and often more advanced digital platforms, NI Holdings carves out its niche through a regional focus and specialized product offerings like crop and farm insurance.

NI Holdings' market positioning is characterized by its deep local expertise, particularly in the Midwest. This regional specialization allows for tailored solutions for specific risks, fostering stronger community ties and customer loyalty. For instance, its offerings in farm owners and crop insurance cater to a specific demographic that larger, more generalized insurers might not serve with the same depth of understanding. The company's distribution through captive agents for Nodak Insurance and independent agents for other subsidiaries provides a personalized approach, contrasting with the direct-to-consumer digital strategies often employed by competitors like Progressive.

However, NI Holdings faces challenges in scale and technological adaptability compared to its larger rivals. While the company is investing in technology modernization, competitors like Progressive are known for their rapid innovation in digital tools and data analytics, which can lead to superior operational efficiency and customer engagement. Quantitatively, NI Holdings' latest TTM P/E ratio of 185.45 and Net Profit Margin of 0.50% suggest a less favorable profitability and valuation profile compared to its larger peers, whose P/E ratios are significantly lower (e.g., Progressive at 12.32, Allstate at 6.84, Travelers at 11.01, and Chubb at 12.18). This disparity implies that larger competitors generally achieve higher profitability and are valued more efficiently by the market.

The recent downgrade of AM Best's Long-Term Issuer Credit Ratings for members of Nodak Insurance Group to "a" (Excellent) from "a+" (Excellent) and NI Holdings, Inc. to "bbb" (Good) from "bbb+" (Good) on May 20, 2025, indicates increased scrutiny on the company's financial strength and operational performance. While the Financial Strength Rating of A (Excellent) was affirmed, the downgrade in ICR highlights the competitive pressures and the importance of successful execution of its strategic initiatives to improve underwriting results.

Risks and Outlook

The strategic decisions to exit certain non-standard auto markets, while aimed at improving profitability, carry inherent risks. The anticipated "further reductions in net earned premiums over the next twelve months" will impact revenue generation in the short term. There is also the risk that the intended benefits of these strategic shifts, such as improved underwriting performance and reduced volatility, "may not be realized as expected, or at all." Furthermore, discontinuing a line of business can lead to "short-term declines in premium volume, increased expense ratios, or other unforeseen consequences."

Exposure to catastrophe events remains a significant risk, as demonstrated by the impact on the Home and Farm segment from the North Dakota catastrophe in Q2 2025. Unfavorable prior year reserve development, particularly in the Non-Standard Auto segment, also poses a challenge to profitability. Additionally, broader macroeconomic factors such as trade policies and tariffs could lead to increased costs for raw materials, impacting loss severity, and contribute to inflation, which could adversely affect financial condition and operating results.

Looking ahead, NI Holdings' outlook is centered on the successful execution of its strategic pivot. The company aims to leverage its strengths in core regional markets and capitalize on the favorable interest rate environment for its investment portfolio. The ongoing technology modernization efforts, spearheaded by new leadership appointments, are critical for enhancing operational efficiency and underwriting capabilities. While the run-off of non-standard auto operations will continue to impact premiums, the long-term goal is to emerge as a more focused and profitable insurer with a stronger underwriting foundation.

Conclusion

NI Holdings, Inc. is at a critical juncture, actively transforming its business to shed underperforming assets and concentrate on its profitable core. The strategic divestiture of its commercial segment and the decisive exit from unprofitable non-standard auto lines underscore a clear commitment to enhancing underwriting discipline and financial stability. While recent financial results reflect the challenges of this transition, including net losses and declining premiums, the strength of its investment income, buoyed by higher interest rates, provides a vital buffer.

The company's regional expertise and specialized product offerings, particularly in crop and farm insurance, represent a foundational competitive advantage. However, to thrive in an increasingly competitive and technologically driven industry, the successful implementation of its technology modernization initiatives will be paramount. For investors, the narrative for NI Holdings is one of a regional insurer in strategic transition. The investment thesis hinges on management's ability to execute this pivot effectively, translate improved underwriting into sustained profitability, and leverage its capital deployment strategies, such as share repurchases, to create long-term shareholder value amidst ongoing industry challenges and competitive pressures.