Hippo Holdings Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Hippo operates insurance, insurance-services and agency businesses, including its Hippo-branded homeowners program. Comparisons below are with the corresponding 2022 periods unless noted.
Financial performance and key metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $47.7 million | $28.7 million | $87.5 million | $53.2 million |
| Net loss attributable to Hippo | $107.8 million | $73.5 million | $177.7 million | $141.1 million |
| Adjusted EBITDA loss (non-GAAP) | $87.7 million | $55.8 million | $139.9 million | $104.3 million |
| Net earned premium | $22.3 million | $11.2 million | $36.1 million | $20.2 million |
| Net loss ratio | 344% | 261% | 317% | 256% |
| Gross loss ratio | 107% | 78% | 93% | 77% |
| Total Generated Premium (non-GAAP operating metric) | $317.6 million | $204.1 million | $562.6 million | $357.8 million |
Q2 revenue growth reflected higher earned premiums and commissions, alongside net investment income of $5.4 million versus $1.1 million. Loss and loss adjustment expenses rose to $76.7 million from $29.2 million, principally because of catastrophe and other weather losses and reinsurance loss-participation features. Q2 loss per share was $4.61, compared with $3.25.
For the first half, operating cash flow was negative $45.0 million, versus negative $88.4 million in 2022. Investing activities provided $48.8 million, primarily reflecting investment maturities and sales, partly offset by investment purchases and the office-building acquisition. Financing activities used $9.9 million. Cash, cash equivalents and restricted cash totaled $238.4 million at June 30; available-for-sale fixed maturities and short-term investments totaled $364.4 million.
Total assets were $1.681 billion and total liabilities were $1.234 billion at June 30, 2023. Stockholders’ equity was $447.0 million. The filing reports no outstanding borrowings under its $23.2 million Federal Home Loan Bank capacity; it does not present a conventional debt balance as a key measure. Insurance reserves, unearned premiums and reinsurance obligations are significant liabilities.
Material changes and segment performance
- Total Generated Premium increased 56% in Q2 and 57% for the first half. Management attributed growth mainly to Insurance-as-a-Service programs, channel expansion, retention and planned rate increases.
- Insurance-as-a-Service reported Q2 adjusted operating income of $4.7 million, versus a $0.8 million loss a year earlier; first-half income was $7.9 million, versus $1.8 million.
- The Hippo Home Insurance Program reported Q2 adjusted operating loss of $82.2 million, compared with $46.8 million; first-half loss was $126.2 million, compared with $86.5 million. Services reported adjusted operating losses of $9.6 million for Q2 and $20.6 million for the first half.
- Technology and development expense declined 21% year over year in both Q2 and the first half. General and administrative expense increased 18% in Q2 and 19% for the first half, in part due to stock-based compensation.
- Net loss widened despite substantial revenue growth. The company’s Q2 net loss ratio of 344% reflects net losses far above net earned premium; management also highlighted that the homeowners-program gross loss ratio was 178%.
Outlook, management commentary and risks
- The filing provides no quantified company-wide revenue, earnings or cash-flow guidance. Management’s stated goal is a homeowners program that consistently produces underwriting profit.
- Management said it expects an additional $13 million to $15 million of loss-participation impact over the remainder of 2023 related to Q2 catastrophe losses. It plans to reduce wind and hail exposure through higher deductibles, selective non-renewals in high-risk areas and rate increases on catastrophe-exposed properties.
- Hippo secured catastrophe excess-of-loss protection through June 2026, and its captive entered an industry-loss warranty arrangement. Management says catastrophe protection is designed so the probability of a single event exceeding purchased protection is no more than 0.4% (a stated 1-in-250-year return period); the most severe events can still exceed coverage.
- Reinsurance remains a key exposure: loss-participation provisions may increase retained losses, and the insurance subsidiaries remain responsible to policyholders if reinsurers fail to pay. At June 30, the provision for loss-participation features was $101.0 million, recorded as a reduction of reinsurance recoverables.
- Liquidity is supported by cash and invested assets, but the company continues to use cash in operations and says it may need additional debt or equity funding if internal sources are insufficient; availability and terms are not assured. Investment fair values included $6.6 million of unrealized losses, which management attributed to interest rates rather than issuer credit deterioration.
- Hippo purchased an Austin office building in April for which $30.5 million was capitalized to building and land. It also authorized a $50 million share-repurchase program and repurchased $1.8 million of shares in the first half; $48.2 million remained available at June 30.
- A civil action involving the company and its co-founder includes allegations including fraud, insider trading and conversion. Hippo denies the claims; the case is in discovery, the prior trial date was removed and no new date had been set. The company says it does not believe pending litigation is likely to have a material adverse effect, while noting litigation can still entail costs and management distraction.
- Management identified exposure to severe weather and catastrophe losses, pricing and underwriting accuracy, customer retention and acquisition, regulation, reinsurance availability and cost, and the ability to fund future operations as relevant risks. It reported disclosure controls effective and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether catastrophe claims and loss-participation effects, including the stated $13 million–$15 million expected remainder-of-year impact, develop as management anticipated.
- Whether rate increases, deductibles and selective non-renewals improve the homeowners-program loss ratio without materially weakening premium growth or retention.
- The quality and collectability of reinsurance recoverables, the effect of reinsurance costs on net earned premium, and the adequacy of loss reserves.
- The company’s operating cash use, available liquidity and any future financing needs, alongside continued losses and stock-based compensation.
- Progress toward underwriting profitability and the performance of Insurance-as-a-Service relative to the loss-making homeowners and Services segments.
- Developments in the pending litigation and any material changes to catastrophe exposure, reinsurance coverage or regulatory conditions.