AM Best Downgrades Issuer Credit Ratings of Members of Nodak Insurance Group and NI Holdings, Inc.

AM Best downgraded Nodak Insurance Group's Long-Term Issuer Credit Ratings to 'a' from 'a+' due to volatility in operating results driven by weather-related losses, inflationary pressures, and adverse trends in non-standard auto lines, while affirming the Financial Strength Rating at A. NI Holdings, Inc.'s Long-Term ICR was also downgraded to 'bbb' from 'bbb+'. The rating outlook for both has been revised to stable from negative, reflecting management's efforts to address volatility through rate increases and underwriting revisions, with a focus on core lines of business.

Analysis

AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) for Nodak Insurance Group (Nodak) to 'a' (Excellent) from 'a+' (Excellent), and for its publicly traded holding company, NI Holdings, Inc. (NASDAQ: NODK), to 'bbb' (Good) from 'bbb+' (Good). This action reflects sustained volatility in Nodak's operating results over the most recent five-year period, primarily driven by weather-related losses, inflationary pressures on loss costs, adverse trends in non-standard auto lines, and related prior-year reserve development. Additionally, challenges within its commercial habitational lines, managed through the now-divested Westminster American Insurance Company (sold as of June 30, 2024), contributed to these inconsistent results, evidenced by a peak combined ratio of 118.5% in 2022. Consequently, Nodak's five-year average pre-tax and total returns on revenue and equity have lagged the private passenger standard auto and homeowners industry composite, and its statutory combined ratio has exceeded break-even for four consecutive years. Despite these operating performance issues, Nodak’s balance sheet strength is assessed by AM Best as 'very strong', and its Financial Strength Rating (FSR) of A (Excellent) was affirmed. Significantly, the outlook for both the Long-Term ICRs and the FSR has been revised to stable from negative. This revision acknowledges management's ongoing corrective actions, including sizable rate increases, underwriting revisions, strategic non-renewals in underperforming lines, and a renewed focus on core Midwestern U.S. business. AM Best anticipates these initiatives will favorably impact Nodak's future results, enabling performance consistent with an 'adequate' operating performance assessment. The sentiment surrounding this development is negative, with a specific sentiment score of -0.4 for NODK, reflecting the immediate impact of the credit downgrade.

Key Decisions for Investors

• Investors should closely monitor the impact of Nodak's strategic initiatives, particularly rate increases and underwriting adjustments, on its quarterly operating performance and combined ratio, looking for evidence of stabilization and a return to profitability.
• Consider the stable outlook and affirmed A (Excellent) FSR as mitigating factors to the Long-Term ICR downgrade, which suggest AM Best's view that current management actions are likely to improve future performance and that underlying financial strength remains robust.
• Evaluate NI Holdings, Inc. (NODK) with consideration for the recent divestiture of the underperforming Westminster American Insurance Company, which could streamline operations and reduce future earnings volatility, alongside the potential for improved performance from the core business focus.