Hippo Holdings Inc. Q2 FY2025 earnings call

• Strategic pillars: strategic diversification (diversifying premium base across personal and commercial lines), optimize risk management (leveraging portfolio and risk capabilities), and partnership with Baldwin Group (accelerating strategy with premium growth and market access expansion).
• HHIP progress: Mixed trends in HHIP with new homes channel growth offset by cat exposure reduction, but Baldwin partnership to triple new homes closings.
• Operational efficiency: Fixed expenses decreased 16% year-over-year while revenue grew 31%, leading to first positive net income from operating activities and improved operating leverage.

Gross written premium grew 16% year-over-year to $299 million in Q2 2025, up from $258 million in Q2 2024. This growth was driven by hybrid fronting programs, with existing programs contributing $24 million in organic growth and new programs adding $23 million. Revenue grew 31% to $117 million, up from $90 million in Q2 2024, driven by gross earned premium growth and increased premium retention. The consolidated net loss ratio improved to 47% in Q2, supported by favorable reserve developments. For HHIP, there was a 9% year-over-year reduction in gross written premium due to cat exposure changes in existing homes, but the Baldwin partnership is expected to expand the new homes channel.

• Raised full-year 2025 gross written premium guidance from $1.05 billion - $1.1 billion to $1.07 billion - $1.1 billion.
• Revenue guidance for full year 2025 is between $460 million and $465 million, with sale of homebuilder assets reducing Q3 and Q4 revenue.
• Consolidated net loss ratio guidance improved from 72% - 74% to 67% - 69%.
• Net income guidance raised from $65 million - $69 million loss to $35 million - $39 million net income.
• Adjusted net income guidance raised from $10 million - $14 million loss to $4 million loss to breakeven.

• Forward-looking statements subject to risks, uncertainties, and factors from SEC filings that could cause actual results to differ from forecasts, including those in the Risk Factors section of Form 10-Q.

Q: If we look at the guide for '25 and you touched on it a bit, but could we talk about some of the upside optionality or limitations here? Are you waiting on any more rate approvals for the HHIP product before starting to write more on either the new home programs or the existing? And should we think of the second quarter as perhaps the final quarter of retrenchment in HHIP?

A: A couple of different things. Taking a half a step back, I don't think any effectively managed insurance organization in this environment is ever done taking rate actions. Costs continue to go up. And I think if you stay ahead of the curve, you're consistently taking much smaller rate increases than we've done in the past, but going forward. I think the substantial rate increases to really remediate our portfolio are done. Not all of those premiums have worked themselves into the P&L yet. So I would say the majority of the work is done. Still, there's some tailwind upside benefit, but we will continue to take rate as our expected loss ratios start to deteriorate. So our goal, of course, is to stay in a sweet spot range of profitability. So those will continue, but not nearly to the degree that they've done -- that we've done so in the past.

Q: Just continuing with that line of questioning, do you disclose the -- your per event limit if you had a large cat in the third quarter of any nature across your book? Is there -- do you have a per event limit that you disclose? And just could you just walk us through like how your reinsurance is structured for that?

A: Yes. We don't disclose that specifically, Randy, but let me just give you a little bit of information the way that we think about reinsurance. So for all intents and purposes on the HHIP program, for any regular or attritional losses, we have very little quota share. We take almost all of that net. We do then buy layers of XOL above that to protect from sort of earnings type events. And then we also buy corporate cat not only over the HHIP portfolio, but also all of the portfolios in which we take property exposure within Spinnaker. So we believe we have ample reinsurance protection to see us through any of these individual events. Also as a reminder, each of the programs we support, they have their own reinsurance treaties and towers, typically quota share with some XOL if it's property exposed and then, of course, that overarching corporate cat that we have. And we only take a fraction of the underlying exposure on most programs. So we don't have a lot of exposure related to that, and we think we've got good solid reinsurance support in the event of any large loss.

Q: It's [Tina] on for Tony. My first question is on operating leverage. You mentioned that fixed income -- fixed expenses declined 16% this quarter. Just curious, as you scale towards the $2 billion gross written premium, at what revenue level do you anticipate needing significant fixed cost investments? And how will you maintain this operating leverage momentum going forward?

A: Yes. As we're approaching our Investor Day, our 3-year plan that will take us to more than $2 billion of premium and more than $125 million of adjusted net income. What we guided there is that in order for that to happen, we need to grow the written premium over the horizon by a bit more than 20%. And what we also said is that we expect the operating leverage to grow slower than that at around 8%. So as you mentioned, we don't expect the fixed expense to continue to go down. It will start to go up, but the entirety of the operating leverage is what's going to allow us to grow them significantly slower and to boost more profit into the bottom line. Over the last 2.5 years, we've made tremendous progress on operational efficiency within the organization across all aspects of our business. Although we've made tremendous progress, I don't think we've made all the progress. I think we have an inherently scalable platform that will allow us to continue to add premium disproportionately to the amount of expense that go along with it. We don't talk a lot about what we're doing in the AI front, but there are operational efficiency measures that we have deployed that we believe will continue to help that trend of increasing premiums and revenues without commensurate increases in fixed expenses. So we think we've made good progress, but we don't think we've made all of the progress as a percentage of premiums and revenues. The last thing I would add is when we think about the broader portfolio that we have and the scalability of the fronting carrier that we have, this is what is allowing us to continue adding programs. And we just mentioned this quarter that $23 million of gross written premium came from new launch programs. And usually, when we launch these programs, we don't need to add significant fixed expense. And this -- and we expect that to continue. It's part of what makes the platform very scalable.

Q: My second question is on the MGA partnership. In your letter, you mentioned you guys added 2 MGA partners with commercial and casualty lines. Just curious on what specific criteria drives your MGA partner selection? And how do you evaluate the risk return profile of new program versus existing?

A: Yes. Thank you for the question. I appreciate the question. I think it's important as we talk about what differentiates our Spinnaker platform from other avenues in which an entity might be able to take inherent underwriting risk. So typically, when we engage with a new MGA, it's a fully fronted deal. We typically do not take much, if any, underwriting risk. And as that program matures and as we have the data to support our conviction that this is a well-managed, well-run program, we then start participating in risk as that program starts to mature. So we never really feel compelled to participate in risk unless we have strong conviction in a particular program's operating and underwriting capabilities. We also want to make sure that we have a portfolio in which the various product lines work together to reduce volatility in any particular product line or particular event. So adding more casualty to our portfolio creates ballast against the high property that we currently have in the portfolio. And that's the efforts of our fronting team to make sure that we are going out and we are plugging holes in that desired portfolio with operators and MGAs that we believe will produce positive underwriting results. Then they prove that over time and then we start participating in risk. So we're well positioned to pick and choose our level of risk participation based on our view of quality. The last thing I'll say in this area is we have also sent programs into runoff, ones that do not meet our threshold, whether we take risk or don't take risk, we send ones into runoff that we believe will not produce a favorable gross loss ratio, not just a net loss ratio for our participation. So we're highly disciplined in this area. We have more than 10 years of history doing this as Spinnaker, and we're going to continue to leverage that on a go-forward basis.