The following discussion is intended to provide a more comprehensive review of the Company's operating results and financial condition than can be obtained from reading the Unaudited Consolidated Financial Statements alone. 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 Quarterly Report on Form 10-Q constitutes forward-looking statements that involve risks and uncertainties. Please see "Forward-Looking Statements" and "Part II. Item 1A. Risk Factors" included elsewhere in this Quarterly Report. You should also review "Risk Factors" included in the Company's 2020 Annual Report 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 are in thousands.

Results of Operations

NI Holdings' results of operations are influenced by factors affecting the property and casualty insurance and crop insurance industries in general. The operating results of the United States property and casualty industry and crop insurance industry are subject to significant variations due to competition, weather, catastrophic events, changes in regulation, general economic conditions, rising medical expenses, judicial trends, fluctuations in interest rates, and other changes in the investment environment.

NI Holdings premium levels and underwriting results have been, and 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 NI Holdings serve are diversified, which requires management to regularly monitor the Company's performance and competitive position by line of business and geographic market to schedule appropriate rate actions.

Premiums in the multi-peril crop insurance business are primarily influenced by the number of acres, commodity prices, and types of crops insured because the rates are established by the Risk Management Agency of the United States Department of Agriculture ("RMA") rather than individual insurance carriers. The expected loss experience of the multi-peril crop insurance 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. However, as was the case in 2020, if the Company experiences a higher than average number of prevented planting claims early in the risk period, recognition of earned premiums may be accelerated due to the shortened risk period.

Premiums in the crop hail insurance business are also generally written in the second quarter, but earned over a shorter period of risk than multi-peril crop insurance.

Premiums in the personal lines of business (private passenger auto, home and farm) are generally written and earned throughout the year based on their coverage periods. Losses on this business are also incurred throughout the year, but usually are more frequent and/or severe during periods of weather-related activity.

Premiums in the commercial lines of business are generally written and earned throughout the year. Losses on this business are also incurred throughout the year.

For more information on the Company's results of operations by segment, see Note 19 to the Unaudited Consolidated Financial Statements, included elsewhere in this Form 10-Q.

Beginning in March 2020, the global pandemic associated with COVID-19 and related economic conditions began to impact the Company's results. The immediate financial impact to the Company was volatility in our investment portfolio and significant declines in fair value on the Company's equity investments, attributable to the disruption in global financial markets. The Company's underwriting results, especially in the private passenger auto and non-standard auto segments, were impacted during the second and third quarters of 2020 as a result of fewer miles being driven and the increased unemployment rate in our Chicago and Las Vegas markets.

During the first nine months of 2021, we have continued to see a reduced impact from COVID-19 as economic activity has returned to near pre-pandemic levels. However, a possible resurgence of COVID-19 could impact our results.



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The below discussion of results of operations for NI Holdings includes certain non-GAAP financial measures, including loss and LAE ratio, expense ratio, combined ratio, premiums written, and underwriting gain (loss). For a description of these non-GAAP financial measures, see the section titled "Non-GAAP Financial Measures" below.

Three and Nine Months ended September 30, 2021 and 2020

The consolidated net loss for NI Holdings was $4,859 for the three months ended September 30, 2021, compared to net income of $3,686 for the three months ended September 30, 2020. The consolidated net income for NI Holdings was $2,189 for the nine months ended September 30, 2021, compared to net income of $18,898 for the nine months ended September 30, 2020.



The major components of NI Holdings' operating revenues and net income (loss)
were as follows:

                         Three Months Ended         Nine Months Ended
                           September 30,              September 30,
                          2021         2020         2021        2020
Revenues:
Net premiums earned    $    82,173   $ 73,342     $ 221,589   $ 214,120
Fee and other income           501        524         1,338       1,332
Net investment
income                       1,713      1,886         4,959       5,875
Net capital gain on
investments                    222      5,102        10,734       1,380
Total revenues              84,609     80,854       238,620     222,707

Components of net
income:
Net premiums earned         82,173     73,342       221,589     214,120
Losses and loss
adjustment expenses         65,742     53,836       165,549     136,622
Amortization of
deferred policy
acquisition costs
and other
underwriting and
general expenses            25,348     22,144        70,175      61,928
Underwriting gain
(loss)                      (8,917 )   (2,638 )     (14,135 )    15,570

Fee and other income           501        524         1,338       1,332
Net investment
income                       1,713      1,886         4,959       5,875
Net capital gain on
investments                    222      5,102        10,734       1,380
Income (loss) before
income taxes                (6,481 )    4,874         2,896      24,157
Income tax expense
(benefit)                   (1,622 )    1,188           707       5,259
Net income (loss)      $    (4,859 ) $  3,686     $   2,189   $  18,898


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Net Premiums Earned

                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                              2021         2020        2021        2020
Net premiums earned:
Direct premium             $    93,740   $ 79,455    $ 249,542   $ 224,300
Assumed premium                  1,336      1,372        6,300       5,655
Ceded premium                  (12,903 )   (7,485 )    (34,253 )   (15,835 )

Total net premiums earned $ 82,173 $ 73,342 $ 221,589 $ 214,120

NI Holdings' net premiums earned for the three months ended September 30, 2021 increased $8,831, or 12.0%, compared to the three months ended September 30, 2020. Net premiums earned for the nine months ended September 30, 2021 increased $7,469, or 3.5%, compared to the nine months ended September 30, 2020.



                              Three Months Ended         Nine Months Ended
                                 September 30,             September 30,
                              2021            2020        2021       2020
Net premiums earned:
Private passenger auto     $    18,491      $ 17,947   $   54,057  $  52,632
Non-standard auto               14,889        13,839       43,045     40,124
Home and farm                   18,775        18,548       54,602     53,937
Crop                            12,724         9,719       21,124     33,450
Commercial                      14,798        10,773       41,156     26,967
All other                        2,496         2,516        7,605      7,010

Total net premiums earned $ 82,173 $ 73,342 $ 221,589 $ 214,120

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

Private passenger auto - Net premiums earned for the third quarter of 2021 increased $544, or 3.0%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $1,425, or 2.7%, from the first nine months of 2020. Premiums have been impacted by continued soft market conditions in the segment.

Non-standard auto - Net premiums earned for the third quarter of 2021 increased $1,050, or 7.6%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $2,921, or 7.3%, from the first nine months of 2020. The segment has benefited from the improved economic environment in the Chicago market where our non-standard auto business is concentrated.

Home and farm - Net premiums earned for the third quarter of 2021 increased $227, or 1.2%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $665, or 1.2%, from the first nine months of 2020. The relatively flat premium growth on both a quarterly and year-to-date basis was due to competitive market conditions in this segment and the related rate reduction taken in early 2021 in the Nodak Insurance farmowners line of business.

Crop - Net premiums earned for the third quarter of 2021 increased $3,005, or 30.9%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 decreased $12,326, or 36.8%, from the first nine months of 2020. The increase in third quarter 2021 was primarily the result of accelerated recognition of premiums earned in 2020 prior to the third quarter. This acceleration was due to high levels of prevented-plant claims in the spring of 2020 which shortened the period of risk. On a year-to-date basis, direct earned premiums increased by $2,774 primarily due to higher commodity prices on multi-peril crop business. However, this increase was offset by a large increase in ceded earned premiums as a result of significant multi-peril crop losses from this year's extreme drought conditions across North and South Dakota. We also placed a higher number of multi-peril crop policies in the assigned risk fund of the Standard Reinsurance Agreement for 2021, resulting in higher levels of premiums and losses being ceded to the federal government.

Commercial - Net premiums earned for the third quarter of 2021 increased $4,025, or 37.4%, from the third quarter of 2020. Net premiums earned for the first nine months of 2021 increased $14,189, or 52.6%, from the first nine months of 2020. The increase



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in both periods was primarily driven by growth in our Westminster commercial business as a result of a continuation of favorable market conditions, the positive impact of Westminster's financial size category, and the AM Best rating upgrade.



All other - Net premiums earned for the third quarter of 2021 decreased $20, or
0.8%, from the third quarter of 2020. Net premiums earned for the first nine
months of 2021 increased $595, or 8.5%, from the first nine months of 2020. Net
premiums earned increased modestly through nine months related to our
participation in an assumed domestic and international reinsurance pool of
business.

Losses and LAE

                            Three Months Ended        Nine Months Ended
                              September 30,             September 30,
                             2021         2020        2021        2020
Net losses and LAE:
Direct losses and LAE     $    87,453   $ 59,936    $ 201,630   $ 153,203
Assumed losses and LAE          2,308      2,436        5,216       3,538
Ceded losses and LAE          (24,019 )   (8,536 )    (41,297 )   (20,119 )
Total net losses and LAE  $    65,742   $ 53,836    $ 165,549   $ 136,622

NI Holdings' net losses and LAE for the three months ended September 30, 2021 increased $11,906, or 22.1%, compared to the three months ended September 30, 2020. Net losses and LAE for the nine months ended September 30, 2021 increased $28,927, or 21.2%, compared to the nine months ended September 30, 2020.



                             Three Months Ended         Nine Months Ended
                                September 30,             September 30,
                             2021            2020        2021       2020
Net losses and LAE:
Private passenger auto    $    17,130      $ 13,570   $   44,289  $  33,323
Non-standard auto               9,620         9,425       25,910     23,560
Home and farm                  16,155        13,437       41,995     30,835
Crop                           12,482         9,225       22,375     30,699
Commercial                      7,770         5,577       25,433     14,529
All other                       2,585         2,602        5,547      3,676
Total net losses and LAE  $    65,742      $ 53,836   $  165,549  $ 136,622




                            Three Months Ended       Nine Months Ended
                              September 30,            September 30,
                              2021        2020         2021        2020
Loss and LAE ratio:
Private passenger auto            92.6%    75.6%           81.9%   63.3%
Non-standard auto                 64.6%    68.1%           60.2%   58.7%
Home and farm                     86.0%    72.4%           76.9%   57.2%
Crop                              98.1%    94.9%          105.9%   91.8%
Commercial                        52.5%    51.8%           61.8%   53.9%
All other                        103.6%   103.4%           72.9%   52.4%
Total loss and LAE ratio          80.0%    73.4%           74.7%   63.8%

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

Private passenger auto - The net loss and LAE ratio deteriorated 17.0 percentage points and 18.6 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The increase in both the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020 was a result of a return to average loss frequency due to increased miles driven by our insureds compared to 2020 when pandemic-related restrictions were still in place. Loss experience in 2021 has also been adversely impacted by an increase in uninsured/underinsured motorist liability claims frequency. The continued soft market has limited our ability to implement the needed rate increases while still remaining competitive.



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Non-standard auto - The net loss and LAE ratio was relatively consistent with the prior year, improving 3.5 percentage points and deteriorating 1.5 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. Direct Auto has experienced modest elevations in loss frequency and severity compared to 2020 despite increased miles being driven compared to 2020. Overall net losses and LAE have increased on both a quarterly and year-to-date basis due to strong year-to-date direct written premium growth at Direct Auto. These profitable results, on both a quarterly and year-to-date-basis, have been offset by Primero's higher loss frequency and severity due largely to the continued economic challenges in the Las Vegas market.

Home and farm - The net loss and LAE ratio deteriorated 13.6 percentage points and 19.7 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. This increase was driven by above average weather-related losses in 2021. These losses included the June catastrophe event in North Dakota, along with significant weather-related losses in Nebraska and South Dakota during the third quarter.

Crop - The net loss and LAE ratio deteriorated 3.2 percentage points and 14.1 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The extreme drought conditions across North and South Dakota resulted in significantly elevated multi-peril crop losses. However, in anticipation of the dry weather, we placed a higher number of multi-peril crop policies in the assigned risk fund of the Standard Reinsurance Agreement for 2021, resulting in increased premiums and losses ceded to the federal government.

Commercial - The net loss and LAE ratio deteriorated 0.7 percentage points and 7.9 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. This increase on a year-to-date basis was primarily due to increased fire loss frequency in the Westminster book of business during the first and second quarters. Westminster had a strong third quarter as the Company continued to benefit from favorable market conditions, along with experiencing improved loss frequency and severity.

All other - The net loss and LAE ratio deteriorated 0.2 percentage points and 20.5 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020. The increase in both the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020 was primarily due to elevated loss severity in our assumed domestic and international reinsurance pool of business, in particular anticipated losses associated with Hurricane Ida.

Amortization of Deferred Policy Acquisition Costs and Other Underwriting and General Expenses

Total underwriting and general expenses, including amortization of deferred policy acquisition costs, increased $3,204, or 14.5%, during the three months ended September 30, 2021 compared to the three months ended September 30, 2020. These expenses increased $8,247, or 13.3%, during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.



                         Three Months Ended         Nine Months Ended
                           September 30,              September 30,
                          2021        2020          2021        2020
Underlying expenses    $   21,167   $  21,825     $  71,683   $  70,414
Deferral of policy
acquisition costs          (8,717 )   (14,742 )     (47,879 )   (47,763 )
Other underwriting
and general expenses       12,450       7,083        23,804      22,651
Amortization of
deferred policy
acquisition costs          12,898      15,061        46,371      39,277
Total reported
expenses               $   25,348   $  22,144     $  70,175   $  61,928

Underlying expenses for the three months ended September 30, 2021 decreased $658, or 3.0%, compared to a year ago. Underlying expenses for the nine months ended September 30, 2021 increased $1,269, or 1.8%, compared to a year ago.

Expense deferrals were $6,025 lower in the three months ended September 30, 2021 compared to 2020, while amortization of those costs was $2,163 lower in 2021. Expense deferrals were $116 higher in the nine months ended September 30, 2021 compared to 2020, while amortization of those costs was $7,094 higher in 2021. These nine-month increases were primarily due to strong year-over-year growth in our commercial and non-standard auto segments which generally pay higher agent commissions than our other lines, partially offset by adjustments to our methodology primarily impacting our private passenger auto and home and farm segments. In addition, under acquisition accounting, there was no deferred policy acquisition costs reported on the acquisition balance sheet of Westminster, which had the impact of decreasing 2020 amortization of deferred policy acquisition costs relative to future years. Offsetting this impact, the Company recorded an intangible asset, referred to as the value of business acquired, on its acquisition



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balance sheet which was amortized during 2020 as a component of other underwriting and general expenses. As our mix of business has shifted and these premiums continue to be earned, the related deferral and amortization of expenses have also changed.

Underwriting Gain (Loss) and Combined Ratio



                                  Three Months Ended        Nine Months Ended
                                    September 30,             September 30,
                                   2021         2020         2021        2020
Underwriting gain (loss):
Private passenger auto          $    (4,531 ) $   (726 )  $   (6,250 ) $  5,061
Non-standard auto                      (741 )     (726 )         186      1,082
Home and farm                        (4,007 )     (396 )      (4,704 )    8,000
Crop                                   (622 )   (1,048 )      (4,082 )     (791 )
Commercial                            1,771        907           674        596
All other                              (787 )     (649 )          41      1,622

Total underwriting gain (loss) $ (8,917 ) $ (2,638 ) $ (14,135 ) $ 15,570






                          Three Months Ended       Nine Months Ended
                            September 30,            September 30,
                            2021        2020         2021       2020
Combined ratio:
Private passenger auto         124.5%   104.0%         111.6%    90.4%
Non-standard auto              105.0%   105.2%          99.6%    97.3%
Home and farm                  121.3%   102.1%         108.6%    85.2%
Crop                           104.9%   110.8%         119.3%   102.4%
Commercial                      88.0%    91.6%          98.4%    97.8%
All other                      131.5%   125.8%          99.5%    76.9%
Combined ratio                 110.9%   103.6%         106.4%    92.7%

The results from underwriting operations decreased $6,279 and $29,705 for the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020.

The overall combined ratio deteriorated 7.3 percentage points and 13.7 percentage points in the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020.

The primary drivers behind the elevated combined ratio on both a quarterly and year-to-date basis were the extreme drought conditions across North and South Dakota on our multi-peril crop business; above average weather-related losses in North Dakota, South Dakota, and Nebraska; the continued return to average frequency of private passenger and non-standard auto physical damage claims; and higher levels of uninsured/underinsured motorist liability claims in private passenger auto.

These elevated losses have been partially offset by continued profitable and strong growth from Direct Auto in the non-standard segment, along with increased profitability and growth from Westminster's commercial business, particularly during the third quarter.

Fee and Other Income

NI Holdings had fee and other income of $501 for the three months ended September 30, 2021, compared to $524 for the three months ended September 30, 2020. Fee income attributable to the non-standard auto segment is a key component in measuring its profitability. Fee income on this business decreased slightly to $301 for the three months ended September 30, 2021 from $336 for the three months ended September 30, 2020.

NI Holdings had fee and other income of $1,338 for the nine months ended September 30, 2021, compared to $1,332 for the nine months ended September 30, 2020. Fee income on the non-standard auto business increased slightly to $994 for the nine months ended September 30, 2021 from $993 for the nine months ended September 30, 2020.



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Net Investment Income



The following table sets forth our average cash and invested assets, net
investment income, and return on average cash and invested assets for the
reported periods:

                         Three Months Ended          Nine Months Ended
                            September 30,              September 30,
                          2021         2020           2021        2020
Average cash and
invested assets        $   503,538   $ 457,238     $  499,226   $ 437,845

Gross investment
income                 $     2,536   $   2,514     $    7,519   $   8,025
Investment expenses            823         628          2,560       2,150
Net investment
income                 $     1,713   $   1,886     $    4,959   $   5,875

Gross return on
average cash and
invested assets               2.0%        2.2%           2.0%        2.4%
Net return on
average cash and
invested assets               1.4%        1.7%           1.3%        1.8%

Investment income, net of investment expense, decreased $173 for the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Investment income, net of investment expense, decreased $916 for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These decreases were primarily driven by the continued impact of lower reinvestment rates in the fixed income portfolio.

The Company's fixed-income portfolio book yield declined 27 basis points year-over-year, from 2.72% at September 30, 2020 to 2.45% at September 30, 2021. This was driven by a combination of factors, including a persistent low reinvestment rate environment, ongoing maturities of existing holdings with high embedded yields, and significant cash inflows to the investment portfolio from the Company's business operations. The dividend yield of the equity portfolio remained constant despite the ongoing rally in U.S. equity markets given a rotation of the equity allocation into high dividend equities.

Net Capital Gain on Investments

Net capital gain on investments consisted of the following:



                         Three Months Ended         Nine Months Ended
                           September 30,              September 30,
                          2021         2020          2021        2020
Gross realized gains   $     2,805    $   916     $    9,766   $  3,643
Gross realized
losses, excluding
other-than-temporary
impairment losses              (72 )     (280 )         (256 )   (1,622 )
Net realized gain on
investments                  2,733        636          9,510      2,021

Change in net
unrealized gain on
equity securities           (2,511 )    4,466          1,224       (641 )
Net capital gain on
investments            $       222    $ 5,102     $   10,734   $  1,380

NI Holdings had net realized capital gains on investment of $2,733 and $9,510 for the three and nine months ended September 30, 2021, respectively, compared to net realized capital gains of $636 and $2,021 for the three and nine months ended September 30, 2020, respectively. The Company reported no other-than-temporary losses during any of the periods presented.

NI Holdings reported a net loss of $2,511 and a net gain of $1,224 attributed to the change in unrealized appreciation of its equity securities for the three and nine months ended September 30, 2021, respectively, compared to a net gain of $4,466 and a net loss of $641 for the three and nine months ended September 30, 2020, respectively. The reduction in net gain compared to the prior year quarter was a reflection of the market recovery in the third quarter of 2020 following the severe declines experienced at the height of the COVID-19 lockdown. Additionally, net realized gains taken on sales during third quarter 2021 contributed to the reduction in unrealized gains as equity markets remained relatively flat. From a year-to-date comparison perspective, the net gain increased in 2021 due to the continued strong performance in the U.S. equity markets in comparison with 2020.

The Company's fixed income securities are classified as available for sale because we will, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies. At September 30, 2021, the Company had net unrealized gains on fixed income securities of $10,062 and net unrealized gains on equity securities of $28,973.



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At December 31, 2020, the Company had net unrealized gains on fixed income securities of $16,505 and net unrealized gains on equity securities of $27,749.

Income (Loss) before Income Taxes

For the three months ended September 30, 2021, NI Holdings had pre-tax loss of $6,481 compared to pre-tax income of $4,874 for the three months ended September 30, 2020. The decrease in pre-tax results was largely attributable to reduced underwriting profitability.

For the nine months ended September 30, 2021, NI Holdings had pre-tax income of $2,896 compared to pre-tax income of $24,157 for the nine months ended September 30, 2020. The decrease in pre-tax results was largely attributable to reduced underwriting profitability, partially offset by the increase in net capital gain on investments.

Income Tax Expense (Benefit)

NI Holdings recorded income tax benefit of $1,622 for the three months ended September 30, 2021, compared to income tax expense of $1,188 for the three months ended September 30, 2020. Our effective tax rate for the third quarter of 2021 was 25.0% compared to an effective tax rate of 24.4% for the third quarter of 2020.

NI Holdings recorded income tax expense of $707 for the nine months ended September 30, 2021, compared to income tax expense of $5,259 for the nine months ended September 30, 2020. Our effective tax rate for the first nine months of 2021 was 24.4% compared to an effective tax rate of 21.8% for the first nine months of 2020.

A portion of the effective tax rate is due to Illinois state income taxes.

Net Income (Loss)

For the three months ended September 30, 2021, NI Holdings had net loss before non-controlling interest of $4,859 compared to net income of $3,686 for the three months ended September 30, 2020. This decrease was primarily attributable to reduced underwriting profitability.

For the nine months ended September 30, 2021, NI Holdings had net income before non-controlling interest of $2,189 compared to net income of $18,898 for the nine months ended September 30, 2020. This decrease in net income was primarily attributable to reduced underwriting profitability, partially offset by the increase in net capital gain on investments.

Return on Average Equity

For the three months ended September 30, 2021, NI Holdings had annualized return on average equity, after non-controlling interest, of -5.5% compared to annualized return on average equity, after non-controlling interest, of 4.6% for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, NI Holdings had annualized return on average equity, after non-controlling interest, of 0.9% compared to annualized return on average equity, after non-controlling interest, of 8.0% for the nine months ended September 30, 2020.

Average equity is calculated as the average between beginning and ending equity excluding non-controlling interest for the period.



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Financial Position

The major components of NI Holdings' financial position are as follows:



                              September       December
                              30, 2021        31, 2020
Assets:
Cash and investments         $   495,676     $   494,363
Premiums and agents'
balances receivable               82,388          48,523
Deferred policy
acquisition costs                 25,476          23,968
Reinsurance recoverables
on losses                         42,678           8,710
Property and equipment             9,949           9,899
Receivable from Federal
Crop Insurance Corporation         9,362           6,646
Goodwill and other
intangibles                       17,840          18,194
Other assets                      13,117           7,300
Total assets                 $   696,486     $   617,603

Liabilities:
Unpaid losses and loss
adjustment expenses          $   179,576     $   105,750
Unearned premiums                137,099         119,363
Deferred income taxes              6,100           8,757
Westminster consideration
payable                           12,920          19,287
Other liabilities                 16,815          15,574
Total liabilities                352,510         268,731

Shareholders' equity             343,976         348,872
Total liabilities and
shareholders' equity         $   696,486     $   617,603

At September 30, 2021, NI Holdings' total assets increased by $78,883, or 12.8%, from December 31, 2020. Cash and investments increased slightly due to normal operations. Premiums and agents' balances receivable increased due to the recognition of crop insurance written premiums. Reinsurance recoverables on losses increased primarily due to significantly higher multi-peril crop losses along with recoveries associated with the June catastrophe event in North Dakota. The receivable from the Federal Crop Insurance Corporation also increased due to the significantly higher multi-peril crop losses. Deferred policy acquisition costs increased primarily due to strong year-to-date premium growth in the non-standard auto and commercial segments.

At September 30, 2021, total liabilities increased by $83,779, or 31.2%, from December 31, 2020. Unpaid losses and loss adjustment expenses increased due to higher loss experience during the first nine months of 2021, especially the multi-peril crop business. Unearned premiums increased due to an increase in direct written premiums in all segments including the multi-peril crop business. The first installment of $6,667 was paid to the former shareholder of Westminster during the first quarter of 2021. Other liabilities increased due to commission and other expense accruals.

Total shareholders' equity decreased by $4,896 during the nine months ended September 30, 2021. The decrease in shareholders' equity reflects a consolidated net income of $2,189 for the nine-month period, share repurchases of $3,211, and a decrease of $5,090 in the fair market value of our fixed income portfolio which generally fluctuates with market interest rates at the measurement dates.



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Principal Revenue Items

The Company derives its revenue primarily from net premiums earned, net investment income, and net capital gain (loss) on investments.

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 or paid to reinsurers (ceded premiums written).

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 certain types of auto and 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 crop insurance are recognized and earned during the period of risk, which usually begins in spring and ends with harvest in the fall. In the case of prevented planting claims, the period of risk is shortened to the date a valid prevented planting claim is filed, when the Company believes the period of risk has ended. 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 he has 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 must essentially provide a loan to the farmer in an amount equal to the premium at an annual interest rate of 15% because the insurer is required to pay the farmer's portion of the premium to the Federal Crop Insurance Corporation ("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 capital gain (loss) on investments

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 capital gains and losses on investments are reported separately from net investment income. The Company recognizes realized capital gains when investments are sold for an amount greater than their cost or amortized cost (in the case of fixed income securities) and realized capital losses when investments are written down as a result of other-than-temporary impairments or are sold for an amount less than their cost or amortized cost. The Company recognizes changes in unrealized gains and losses of equity securities in net income as part of net capital gains and losses on investments. 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.

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 ("LAE"), amortization of deferred policy acquisition costs, other underwriting and general expenses, and income taxes.



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Losses and Loss Adjustment Expenses

Losses and LAE 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 or payable 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.

NI Holdings 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 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.

Non-GAAP Financial Measures

Our consolidated financial statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business. Management evaluates our operations by monitoring key measures of growth and profitability. We believe that disclosure of certain non-GAAP financial measures enhances investor understanding of our financial performance. The following provides further explanation of the key measures that management uses to evaluate our results:

Loss and LAE ratio

The loss and LAE ratio is the ratio (expressed as a percentage) of losses and LAE incurred to premiums earned. The Company measures this ratio on an accident and calendar year basis to measure underwriting profitability. An accident year loss ratio measures losses and LAE for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year loss ratio measures losses and LAE for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage of premiums earned during that year.

Expense ratio

The expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other underwriting and general expenses (attributable to insurance operations) to premiums earned, and measures the Company's operational efficiency in producing, underwriting, and administering our insurance business.

Combined ratio

The Company's combined ratio is the ratio (expressed as a percentage) of the sum of losses and LAE incurred and expenses to premiums earned, and measures our overall underwriting profit. A combined ratio below 100% generally indicates a profitable book of business.

Premiums written

Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written are the total policy premiums, net of cancellations, associated with policies issued and underwritten by the Company. Assumed premiums written are the total premiums associated with the insurance risk transferred to us by other insurance and reinsurance companies pursuant to reinsurance contracts. Ceded premiums written is the portion of direct premiums written that we



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cede to our reinsurers under our reinsurance contracts. Net premiums earned are recognized ratably over the life of a policy and differ from net premiums written, which are recognized on the effective date of the policy.

Underwriting gain (loss)

Underwriting gain (loss) measures the pre-tax profitability of the Company's insurance operations. It is derived by subtracting losses and LAE, amortization of deferred policy acquisition costs, and other underwriting and general expenses from net premiums earned. Each of these items is presented as a caption in the Company's Consolidated Statements of Operations.

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. The Company is required to make estimates and assumptions in certain circumstances that affect amounts reported in the 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 our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no changes in our critical accounting policies from December 31, 2020.



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Liquidity and Capital Resources

NI Holdings 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 maturing investments. In 2017, we raised $93,145 in net proceeds from our initial public offering ("IPO"), which we planned to use for strategic acquisitions.

In 2018, we used $17,000 for the acquisition of Direct Auto. 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 installment was paid during the first quarter of 2021.

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 change in cash and cash equivalents for the nine months ended September 30, 2021 and 2020 were as follows:

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