Hippo Holdings Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with fiscal 2021. Hippo is a technology-enabled homeowners insurance and home-protection company operating as an MGA, insurance agency, carrier and reinsurer. It reported one operating segment.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $119.7 million | $91.2 million |
| Net loss attributable to Hippo | $(333.4) million | $(371.4) million |
| Adjusted EBITDA loss (non-GAAP) | $(206.4) million | $(172.4) million |
| Operating cash used | $161.5 million | $124.5 million |
| Total Generated Premium (non-GAAP) | $811.1 million | $606.1 million |
| Gross loss ratio | 76% | 138% |
| Net loss ratio | 239% | 217% |
Revenue increased 31%, led by commission income, net, up 45% to $54.3 million, and net earned premium, up 9% to $42.5 million. Net investment income rose to $9.0 million from $0.3 million. Service and fee income declined 4% to $13.9 million.
Net loss narrowed by $38.0 million, but included a $53.5 million goodwill impairment and $1.8 million of restructuring charges. The prior-year result included substantial warrant and convertible-note fair-value expenses and a $47.0 million debt-extinguishment gain, limiting comparability. Adjusted EBITDA loss widened by $34.0 million, reflecting higher loss participation, staffing, acquisition and public-company costs.
The gross loss ratio improved substantially, mainly because 2021 included unusually high catastrophe losses, including Texas winter storm Uri, and 2022 benefited from prior-year reserve releases. The net loss ratio worsened as net losses and LAE rose faster than net earned premium; management attributed the increase primarily to higher reinsurance loss-participation features. Hippo released $11.8 million of net reserves for prior accident years in 2022.
At year-end, cash and cash equivalents were $194.5 million, restricted cash $50.0 million, and investments $445.9 million, totaling $690.4 million of cash, restricted cash and investments. These balances were down from $882.7 million a year earlier. Total assets were $1.57 billion, liabilities $975.4 million and stockholders’ equity $593.5 million. The filing reports no outstanding borrowings under its $25.2 million FHLB borrowing capacity; operating lease liabilities were $28.9 million. Cash used in investing was $405.9 million, primarily reflecting investment purchases. The filing does not provide a clear standalone current-ratio or conventional debt-to-equity measure.
Material changes and business developments
- Total Generated Premium grew 34% to $811.1 million, including gross written premium of $629.9 million and gross placed premium of $181.2 million. The company cited business growth, rate increases, agency and third-party placements, and entry into three additional states.
- Hippo’s homeowners program was approved in 40 states at year-end, up from 37; the company said this covered over 90% of the U.S. population. Texas and California together represented 43.2% of gross written premium.
- Risk retention is increasing: Hippo retained approximately 10% of proportional premium in 2022. For 2023, it expected to retain approximately 40% on its primary homeowners treaty and 53% on builder-channel business before catastrophe protection. Actual retained risk may exceed retained premium because of treaty features.
- Hippo recorded a $53.5 million goodwill impairment in 2022, citing sustained share-price decline and deteriorating macroeconomic conditions; goodwill was zero at year-end.
- A 1-for-25 reverse stock split took effect in September 2022 after an NYSE notice concerning the minimum share-price standard. Management reported effective disclosure controls and internal control over financial reporting at year-end; the external auditor was not required to attest to internal controls.
Outlook, risks and contingencies
The filing provides no specific financial guidance or quantified profitability timetable. Management described plans to grow through existing and new distribution channels, geographic expansion, cross-selling and home-protection services. It expects continued investment in technology, sales and marketing, personnel and public-company compliance. It cautioned that profitability is not assured and that losses may continue.
- Insurance and reinsurance: Catastrophe severity, reserve estimation, pricing adequacy, regulatory limits on rate changes, reinsurance availability and cost, reinsurer collectability, and increased retained risk could materially affect results and capital needs. Net unpaid loss and LAE reserves were $65.0 million; gross reserves were $293.8 million. A 10% change in estimated ultimate losses would affect net reserves by approximately $18.6 million to $22.2 million, per the filing’s sensitivity analysis.
- Liquidity and capital: Cash used in operations increased year over year. Insurance-subsidiary dividends are restricted, and Hippo may need additional capital if operating needs, retained losses or regulatory capital requirements rise. Management expected to use existing funds while revenue and other income remain insufficient to cover expenses and investment needs.
- Other risks: The company cited competition, customer retention and acquisition costs, concentration in Texas and California, severe weather and climate-related uncertainty, inflation, technology and cybersecurity exposure, data privacy and evolving insurance regulation.
- Legal matter: Hippo and its executive chairman are defendants in a California civil action related to alleged promises, a loan and a call option. Fact discovery was underway; trial was scheduled for November 6, 2023. The company said it intended to seek summary judgment and did not believe pending proceedings were likely to have a material adverse effect.
- Unusual subsequent event: On March 1, 2023, the board approved a one-time repricing of certain out-of-the-money employee stock options, subject to continued service; specified C-level options had additional exercise-price conditions.
Key facts for investors to verify
- Whether higher 2023 risk retention and reinsurance terms materially change net losses, capital needs and earnings volatility.
- How much of the improved 2022 gross loss ratio reflects sustainable underwriting performance versus catastrophe comparisons and reserve releases, and why the net loss ratio remained above 200%.
- The pace of operating cash use and whether $690.4 million of cash, restricted cash and investments is sufficient under adverse loss or growth scenarios.
- Whether premium growth converts into improved unit economics and a path to profitability, given the widening adjusted EBITDA loss.
- Developments in the California litigation, regulatory approvals, NYSE listing compliance and the stock-option repricing.