NI Holdings Inc NODK
May 19, 2021 - 5:15pm EST by
2021 2022
Price: 18.92 EPS 0 0
Shares Out. (in M): 21 P/E 0 0
Market Cap (in $M): 404 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT 0 0

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  • Insurance
  • mutual holding company
  • Property and Casualty


NI Holdings (NODK) is a conservatively capitalized insurer (less than 1.0x premium to surplus ratio) with a solid underwriting track record (14-year average combined ratio of 93.6%) and unique MHC structure (holding nearly 60% of the shares) that obscures the true value of the company. I estimate the stock is conservatively worth at least $26.50/share (compared to the current price of $19.15) and perhaps much more with multiple possible catalysts on the horizon. The company has been buying back stock (856,499 shares in the last year, 9% of the non-MHC-held float) which should benefit remaining shareholders.
The investment case for NODK is a simple one: the stock trades for about 73% of my estimate of true book value (post-conversion). In the coming years, the MHC will likely convert to full stock ownership, at which point the company should trade up to book value or higher. In time, NODK will likely be acquired at a premium . In the intervening years, the company will continue to grow equity value at a mid to high-single-digit rate while buying back stock, making acquisitions, and paying dividends with excess capital and profits. I believe a mid-teen or better return in the stock with minimal risk is reasonable at the current price.
Average daily volume is about 13,500 shares (about $250,000 at $19/share), too thin for most large-scale institutional managers but highly liquid compared to some other stocks we own. We should be able to buy tens of thousands of shares without much trouble should we want to.
Company Description
Nodak Insurance (a subsidiary of NODK) was founded in 1946 to offer property and casualty (P&C) insurance (mainly home and farm) to members of the North Dakota Farm Bureau Federation (NDFB). Over the decades, the company has added complementary lines of business, acquired new ones, and expanded into new states. Today, NODK is a niche insurer operating in six reportable segments: private passenger auto (25% of net premiums earned), non-standard auto (19%), home and farm (26%), crop (13%), commercial (13%), and other (3%). Below is a breakdown of net premiums earned and underwriting profits by segment in 2020:

USD thousands

Net premiums earned

Underwriting profit

Private passenger auto



Non-standard auto



Home and farm















Of course, any single year’s results matter little in insurance (and 2020 was exceptionally profitable due to reduced driving and relatively mild weather in North Dakota). Below is historical data (as available2) showing loss, expense, and combined ratios from 2007 to 2020.


Loss & LAE































































NODK has underwrote a profit in 13 of the last 14 years with a high combined ratio of 110.3% in 2011 (due mainly to abnormally harsh weather in the Midwest), low of 85.0% in 2015, and average of 93.6% Excludes fee income which is an important part of the non-standard auto business and has added on average about 0.7% per year to the underwriting margin.
over the 14-year period. Such results are on par with other large, well-known P&C insurers such as Progressive (92.5% average combined ratio over the last decade), Traveler’s (94.8%), Allstate (94.2%), and Chubb (91.2%), although variability in any given year is much higher at NODK given large exposure to North Dakota weather.
NODK writes the majority of its business in North Dakota (46% of direct premiums written in 2020), with further contribution from Illinois (14%), Nebraska (13%), South Dakota (7%), New Jersey (4%), Maryland (3%), Pennsylvania (3%), Nevada (3%), Virginia (2%), Georgia (2%), District of Columbia (1%), Minnesota (1%), North Carolina (1%), Delaware (1%), South Carolina (<1%), Arizona (<1%), and West Virginia (<1%). NODK has ~5.5% market share in North Dakota (4th largest operator in the state) and less than 1% in all other states. NODK is rated “A” by AM Best (third highest rating out of 15).
Private Passenger Auto (PPA)
PPA insurance is written through Nodak Insurance Company (North Dakota), American West Insurance Company (South Dakota), and Battle Creek Mutual Insurance Company (Nebraska). NODK’s PPA track record is mixed.
2020 was the best year on recent record, mainly due to reduced driving during the pandemic and the resulting decline in losses (weather was also more favorable in the Midwest in 2020, leading to fewer accidents and hail damage). The combined ratio has averaged 99.1% since 2015 (100.7% excluding the favorable result of 2020). PPA is NODK’s toughest line of business due to formidable competition from heavyweights like GEICO, Progressive, State Farm, and Allstate. NODK, through its three regional brands, attempts to attract local auto business in combination with home, farm, and crop insurance. I expect the PPA business to continue to produce slim to no underwriting profits in the future given heavy competition from larger peers.
Non-Standard Auto (NSA)
NSA business is written through Primero Insurance Company (primarily in Nevada with small contributions from Arizona, North Dakota, and South Dakota) and Direct Auto Insurance Company (Illinois), both of which target high-risk Spanish-speaking populations. Primero was acquired by NODK in 2014 and Direct Auto in 2018. Underwriting results at Primero have been unsatisfactory, showing a loss in five of the last six years (2020 being the exception). If we add fee and other income, an important element of profitability for the non-standard auto business, Primero has had an underwriting profit in three of the last six years.
Management attributes the poor underwriting results at Primero primarily to inadequate pricing in Nevada, where minimum coverage limits have risen and rates have lagged. Pricing improved in 2020 which, combined with less miles driven during the pandemic, resulted in an underwriting profit even though earned premiums declined 37% as fewer customers renewed their coverage.
Direct Auto, on the other hand, has reported strong underwriting results in recent years, growing premiums at 7% per year from 2015 to 2020 (despite a 16% drawdown in 2020) while earning a profit in each year and posting an average combined ratio below 90% (before fee and other income). Such results are attributed to sound leadership, niche focus, and strong relationships with local agents.
The NSA business competes mainly with other regional carriers in Chicago, Nevada, and Arizona. This segment tends to be less competitive than the PPA business due to the smaller presence of large players; competition comes mainly from weaker local NSA insurers. Such niche dynamics can be seen in underwriting results as NODK’s NSA combined ratio has averaged 95.9% since 2015 and 88.0% since 2018. I expect the NSA segment to continue to produce underwriting profits in the low to mid-90s percentage range (coming mainly from Direct Auto) due to the aforementioned weaker and more
fragmented competition.
Home and Farm (H&F)
NODK writes home and farm insurance through Nodak Insurance Company (North Dakota), American West (South Dakota), and Battle Creek (Nebraska). Home and farm insurance provides coverage for damage to buildings, equipment, and other contents in the event of fire, lightning, wind, hail, and theft. It also provides coverage for liabilities arising from injury on the insured's property. The H&F business dates back to the company’s founding in 1946; it has produced lumpy but satisfactory results over time.
The average combined ratio since 2015 is 96.5%, skewed on both ends by an especially bad 2016 (heavy hail and other inclimate weather) and good 2020 (unusually favorable weather). Nodak has a strong market position in the H&F business due to its longstanding connection with the North Dakota Farm Bureau (NDFB), which originally established Nodak in 1946 to provide P&C insurance to members. To this day, the NDFB markets Nodak as its exclusive insurer of choice to members. In exchange for this promotion/accreditation, the NDFB receives a royalty based on premium volume (amounting to about $1.4 million in 2020). All customers of Nodak Insurance are members of the NDFB.
Nodak also has a network of exclusive agents to sell and service its policies. The situation works well for all involved, as members of the NDFB receive reasonably priced insurance, the NDFB collects a royalty for its low-effort marketing, and Nodak maintains its list of high-quality customers while keeping costs down. As such, I expect NODK’s H&F business to continue to produce attractive underwriting results on average over time.
Competitors in the H&F business include Farmers Union Mutual, North Star Mutual, American Family, and Nationwide Mutual. While these companies may have greater resources and deeper penetration in other markets, none have the same established presence and trust in North Dakota and the closely surrounding Midwest.
NODK provides crop hail and multi-peril crop insurance through Nodak (North Dakota), American West (South Dakota), and Battle Creek (Nebraska). “Crop hail insurance” is a private insurance product that provides protection against losses to farmers’ crops due to hail damage. “Multi-peril crop insurance”, on the other hand, is a federal program that protects against crop yield losses from all types of natural causes including drought, excessive moisture, freeze, and disease. Most crop insurance sold includes a “crop-yield” and “crop-revenue” element, protecting against both reduced land productivity (yield) and a decline in crop prices (revenue).
In 1980, Congress expanded the federal crop insurance program to cover more crops and regions of the country, and it permitted private sector insurers to market and administer federal insurance policies in exchange for the opportunity to earn a profit while bearing a portion of the insurance risk. Congress also authorized a premium subsidy for farmers and ranchers. In combination, these actions led to rapid and widespread adoption of crop insurance (acres insured grew from 26 million in 1980 to 100 million in 1990 and 380 million in 2019).
Federally-run multi-peril crop insurance is a complicated business. Simply stated, the price for multi-peril policies is fixed by the Risk Management Agency (a division of the USDA), and private insurance companies (like NODK) market the product, manage the policies, and share a portion of the risk/reward on a sliding scale. NODK and other private insurers who market and service the policies are reimbursed by the government for a portion of their costs (around 12-13% in NODK’s case).
The Federal Crop Insurance Corporation (FCIC) provides reinsurance for the industry should extreme losses occur. NODK also maintains additional reinsurance on top of the FCIC’s. NODK’s max loss ratio on crop insurance is 105%, a level which has only been reached once since 2003 (in 2011). NODK retains weather-related losses from catastrophic events of $10 million, with reinsurance coverage in excess of retention of $117 million. Due to extensive reinsurance protection, both from the federally-supported FCIC and private third-parties, I believe catastrophic tail risk is minimal.
The government’s expense reimbursement program combined with risk-management reinsurance support has historically made crop insurance a low risk, high return business. A change in government policy, although not predicted, could dampen the attractiveness of this segment and is a risk to consider (although a small one for NODK in my view as further explained below).