Q3 2021 Hippo Holdings Inc Earnings Call
[noise] welcome and thank you for attending the HIPAA third quarter of 2021 earnings conference call all lines will be needed during the presentation portion of it all with an opportunity for questions and answers at the end I would now like to pass the call friends over to your host the Himbo management.
Thank you you May proceed.
Thank you up later good afternoon, everybody and thank you for joining a kibbutz third quarter 2021, earning Costco earlier.
Earlier today Hippo issued a shareholder letter announcing its third quarter results, which is also available at <unk> Dot <unk> Dot com.
Leading to today's discussion will be deposed Chief Executive officer, It's off one president written the Catherine and Chief Financial Officer do what else. Following managers prepared remarks, we will open up the call to questions.
Before we begin I'd like to remind you that our discussion will contain predictions expectations forward looking statements and other information about a business that is based on management current expectations as of the date of the presentation.
Forward looking statements include but are not limited to expect.
Expectations or predictions of financial and business performance and conditions and competitive and industry outlook.
Forward looking statements are subject to risks uncertainties and other factors that could cause our actual results to different materially from historical results <unk> from our forecast, including those set forth and depose form 8-K file today.
For more information please refer to the risks uncertainties and other factors disgusted get both SEC filings.
All cautionary statements that we make during this call are applicable to any forward looking statements, we make wherever they appear.
You should carefully consider the risks and uncertainties and other factors discussed and people just a SEC filings do not place undue reliance on forward looking statements as HIPAA was under no obligation is expressly disclaims any responsibility for updating altering or otherwise revising a forward looking statements whether as a result of new information future events or otherwise.
Yep as required by law.
Additionally, during this conference call. We will also refer to non-GAAP financial measures such as total generated premium and adjusted EBITDA, Our GAAP results and description of our non-GAAP financial measures with a full reconciliation to get can be found in the third quarter 2021 shareholder letter, which has been furnished to the SEC and available on our website.
With that I'll turn the call over to a soft one co patterns C O a pickle.
Thank you please.
Q3, with an incredibly strong quota for people.
These dogs demonstrates exciting progress India is about business does metal's most.
We delivered little Busskohl improved the loss ratio and made a number of investments, which will strengthen I'll foundation for the future.
Total generated premium go 94% you want your.
Premium retention increased to 89% and customer satisfaction remained amongst the best in the industry.
We have now more convinced any of the important thing with our customers to actively protect their home and prevent losses is setting a new standard for the industry and he's positioning people for long term success.
I'll only channel distributions thought the <unk> continues to deliver.
In addition to stronger results in I'll direct independent agent and build a China I'm excited to report that we launched a major new partnerships with national Orlando Pennymac, giving us they'll put you need me to also quotes to millions of additional homeowners.
Reflecting a strong performance in Q3, and our expectations of continued momentum in queue for.
We are raising a full year guidance, let's put them generated premium from 562 $570 million, we showed last quarter to $600 million to $605 million now.
We also deliver and improved loss ratio during the quarter coming in at 128%. This is 155% a year ago.
While we are pleased with the <unk>, we still have a lot of work to do to reach a long term targets.
In a moment, Rick would talk about al wheel, using a proprietary technology to learn and implement change at an accelerated pace to continue all momentum in this area.
Another advantage that we now have is a world class insurance leadership team.
In recent months, we have welcomed nearly those pulvar actuarial underwriting and reached function and announced the future addition of a new leader of our claims organization.
This team brings many decades of experience, that's leading insurance companies and sees the power and technology platform that we've built to deliver bet that insurance results for people.
I am personally excited by this rapid population of bogus will making under these new lead us It would take time for the changes will making to work the way into all the fourth of the results.
But the early signs are positive and I am more confident than ever because we will deliver.
In an unpredictable environment impacted by Pandemics climate change and inflation, we believed that the tech driven operating agility allows us to act more quickly and decisively than our competitors and puts us in a better position to win in the long term.
Thank you and I will pass it over this joy Oh CFO to discuss on Q3 results in more detail.
And yourself.
All set our third quarter results highlight the ongoing strong demand from customers for our products and services are improving loss ratio and early indications that we are seeing the benefits of operating leverage as we grew up.
Total generated premium or T. G. P was up 94% year over year 162 million in Q3 pro forma for the acquisition of Spinnaker T. G. P was up 51% year over year.
Additions to our book of business or new total generated premium or up 66% year over year to 75 million, which is an acceleration from 53% last quarter.
We also continue to geographically diversify led by growth in Colorado in New Jersey, 63% of New HIPAA homeowners premium in the corner came from states outside of Texas, and California up from 55% last quarter.
As our business grows nationally we are continuing to develop a much more balanced portfolio of geographic exposure, which should help reduce the volatility of our loss ratio overtime.
Premium retention remains strong and continued to edge upwards, reaching 89% in the quarter are high retention rates are a driver of top line growth and because last frequency declines with customer H, a benefit to improving loss ratio overtime.
Ah revenue was up 64% year over year to 21 million driven by the growth in total generated premium.
As we highlighted last quarter geographic concentration and homeowners insurance can result in higher loss ratio volatility.
While our concentration in North Texas worked against US in the first half of 2021, two days storage bad weather it benefited up in Q3 <unk>.
The industry was hit hard by the devastation of Hurricane Ida This border, but we managed to improve our gross loss ratio, 128% down from 155% last year.
Prior period reserves remain stable with minor favorable development digging deeper into the components of loss ratio catastrophic weather losses contributed 50 percentage points of loss ratio in Q3 versus 75 percentage points a year ago.
Our underlying attritional loss ratio was 63% of five percentage point improvement from a year ago.
Rick we'll talk more in a moment about the specific actions, we have taken and will continue to take to bring the loss ratio down to a long term targets.
As I mentioned earlier, we are starting to see the benefits of operating leverage as we scale with the major components of our operating expenses growing more slowly than our total generated premium.
So if a marketing increased to 27% year over year to $22.4 million and continue to generate more dollars of new T. G. P for each dollar of sales and marketing we spend.
This trend is giving us increased confidence that our message is resonating with potential customers and as a result, we expect to invest more aggressively in 2022 to build a differentiated and nationally recognized brand and home protection.
Technology and development increased 46% year over year to 8.3 million as we continue to invest in our platform by integrating new data sources, improving our underwriting model onboarding, new partnerships expanding into new state and launching new products.
General and administrative expenses decreased 17% to 13.4 million with the increased cost of operating as a public company being more than offset by reductions year over year in stock based compensation.
Our net loss attributable to Hippo for the quarter was 39 million or eight cents per share compared to a net loss of 38.6 million or 44 cents per share in the prior year quarter.
We ended the quarter, well capitalized with cash and cash equivalents and investments of $850 million.
Looking forward, we remain confident in our ability to execute our growth strategy and believe we will exceed the forecast to be shared with you previously does the soft mentioned earlier, we are increasing our full year guidance. Your total generated premium from a range of $560 million to $570 million to 600 to 605 nine.
I'd now like to turn it over to Rick Katherine our president to talk more about the rapid operational progress, we're making on the insurance side of our business.
Thank you Stewart.
We continue to leverage our technology to improve and rapidly iterate in all aspects of our operations from generating new business to underwriting too servicing customers and handling claims.
Specific to loss ratio, we've made several enhancements to promote better results.
We are beginning to leverage our new tear your relationships as we implement multicarrier strategy.
Ally filings to have been made in 14 states in incline have been made in Massachusetts, and North Carolina.
These will allow us.
More flexibility and matching the right price to the right customer risk.
We incorporated five new data sources during the quarter and added 50, new variables to our datasets, which we expect to introduce in queue for.
We have adjusted rates up and down including a recently approved 24% increase in California.
We have also enhanced our home inspection process.
In addition, triple continues to diversify its portfolio geographically.
This will address some of the volatility scene and results over the past two years.
Access to restrict new business and portions of California, and Texas are two largest states have been combined with growth and other strategic space.
These states generating this diversifying grows were chosen based on the health of the marketplace and our perception of our ability to adequately price and select business in the state.
We expect this change and geographic footprint will also help to improve our attritional loss results.
There are a lot of actions being taken here and I want to be clear our operating model was design for this kind of continuous improvement and quick execution.
As a soft said, we're living in an unpredictable world and we have an operating model built to adapt.
And now let me turn it back over to US all for some final words.
Thanks, Rick and thanks to everyone for joining he was earning call today.
Q3 results are just beginning to move that we have the price strategy, the fry team and resources to execute them <unk>.
We are on the path to transform dismissive market.
We believe <unk> is the future of home insurance with that we'd be happy to take your questions.
We will now begin the question and answer session. If you would like to ask a question. Please press star followed by one.
Any reason you would like to turn me into your question. Please press Star I Wanna. Thank you again to ask a question Crestar one as a reminder, if you use a little speaker. Please remember to pick up your handset before asking a question we won't pause here briefly to all questions to generate in queue.
The first question comes from the lineup on that comment even JMP security will proceed.
Hey, Thanks, good afternoon.
Comment starting with a <unk> good afternoon, Uhm I thought I'd start with a a premiums question uhm.
We're gonna be opening commentary as well as like I found a letter.
That new premium growth.
That's really accelerated from prior quarters, and I was hoping you could peel back the onion, they're a little bit and maybe give you some color on what you view as the real your drivers of that new business growth.
Yeah. Thanks, Thanks, Matt for the question with the store it I'll I'll take it and then others can join an.
I'll start by saying, we're excited about what we're seeing in each of our distribution channel a net growth in the quarter was balanced across a range of ways. We go to market.
In Q3, we thought particular strength and the builder and partner channels, which represented over 20% of our new HIPAA homeowners premium for the first time and given the launch of our partnership with Penny Mac, We expect to see continued strength in this area of our business going forward.
Geographically, we also did make progress diversifying our geographic exposure in the quarter, 63% of new Hippos homeowners premium came from outside of <unk>, California, and Texas. So we have states that we've been live in for awhile that are starting to starting to accelerate and growth.
And that 63% was the highest ever level for us up from 55% last quarter. I also think that it doesn't relate directly to new premium, but the overall growth we benefit from increased premium retention that that remains strong and went up in the quarter to 89% which of course it is a <unk>.
<unk> for us because the hierarchy premium retention to smaller the headwind we have to overcome from departing customers.
I want to add a couple of more things. It's a suffield. There's also some some aspects that I would put it under the title Mutualization Hill.
The longer we all in the market and the market matures, usually conversion in <unk> for the mouth and pools with starting to see the value of being in a market for longer and it's very effective for us longer partnerships partnerships.
With a Y also perform better.
New products that we have started to mature as well I think last quarter. We analysis on one of Association and community Association with now alive in eight states. So we're starting to see the benefit of that.
Additionally, we all the technology company and because of that what we do is to basically constant iterations and fine tuning a funnel or data components, all kind of other components and what we're seeing is the longer we are in the market. The mobile you'll find doing any today, thank <unk> informed with improving and that also.
<unk>. So I think it's a it's a combination of all of these things and.
Customers, but the leaning into I'll start the June Florida.
Great. Thank you and then one more if I could.
The theme I think.
Not just ensure tech, but more broadly last quarter and definitely this quarter has been elevated marketing costs and particularly in certain performance channels and kind of lower marketing efficiency Uhm can you comment a little on what you've seen and specifically I'm wondering if given that you produce a good.
Out of your business through some of the partnerships you just talked about.
More traditional agent mean, if if that is shielding you from some of what some others might be seeing better <unk> relying more on direct mechanisms.
Yeah. The security then I think we talked a bit about this phenomenon last quarter Uhm and I'm happy to report that we are still not seeing gets effect and our goodness. In fact, we're seeing improved marketing efficiency overtime and you're generating more dollars a T. G. P. For every dollar we spend on sales and marketing.
I think some of the reasons that we've been less affected maybe than others has to do with our business home insurance is often an advent driven purchase that centers around the actual purchase of a home. So that's one potential reason why and then also I think the way we have historically gone to market hasn't been as reliant on social media as a channel.
It really has not been a significant part of our go to market strategy.
I also think it is it's actually quite difficult to find a homeowner's policy online in a direct way, they're not very many people out there who do that and so I think that that also may influence the amount of.
Money, that's being spent in this channel and so we we have an advantage there I think that I need for now has been persistent I think finally also say that now that we're reaching true nationwide scale. We are planning to launch a national brand campaign next year that we think will.
Further reinforce are differentiated consumer experience and our approach to partnering with our customers want to better protect their homes.
Which as you mentioned along with our Omnichannel strategy Uhm, which we think has been the right choice for us and for our customers from the beginning should help insulate us from from things like this in the future.
Great that makes a lot of sense. Thank you very much for taking my questions and best of luck.
Absolutely Thanks, Matt.
Thank you Mr. Highlighting once again, if you would like to ask you a question. Please press star one.
Our next question will come from the lineup Alex out with Goldman Sachs May proceed.
Hey, good afternoon. Thanks for taking the question I just wanted to maybe dig into the operational changes that were referenced in the letter.
What's more data on some of those actions you are taking I mean.
And maybe how the ally in incline partnerships kind of error intertwined with some of those actions and.
Is there any way for us to think about you know how how quickly that will push her loss ratio towards some of your targeted levels.
Hi, Alex This is Rick I'll I'll happily answer that question from an operational perspective, we've taken quite a bit of action is Stuart mentioned earlier are diversification outside of Texas, and California have certainly taken hold uhm and we're we're doing a better job of managing our non cat.
Underwriting leveraging data and technology as I mentioned, we've got five new data sources that we've integrated this quarter. We have 50, new data variables that we're using also the multicarrier strategy that you mention is certainly, allowing us to accelerate by having multiple underwriting companies multiple price points.
Multiple underwriting guidelines that will allow us to accelerate our right improvement and loss ratio improvement.
Certainly our tech sack also helps off the fact that we have a.
A open architecture Tech stack that enables us to immigrate with multiple carriers and a quick way will help us accelerate the rate of which were doing that as well as you know, we we have a capital light structure and using ally in incline, not only makes us more capital efficient.
But also allows us to accelerate accelerate those actions. So we anticipate writing in our first business on ally in incline in Q1, we've already filed a combination of 16 states an ally in incline and we're excited to to launch those and write our first.
<unk> as I mentioned in Q1.
Thanks, No added just just.
Yeah got sorry. This is stored I'd also say just more generally we're seeing that we talked a little bit about this last quarter, but you know the supply chain issues with COVID-19 and other kind of inflationary aspects of remediation costs in the industry I think our.
Uhm, our proprietary platform that we own and control gives us an ability to react more quickly generally to changing market conditions. So whether it's rate filings, whether it's underwriting guidelines snake I think we feel confident that we are in a strong position to react to what.
The market conditions are in the future and we view that as is really one of the differentiators of the technology platform.
Got it. Thank you maybe just a quick follow up to that I mean, when you. When you think through some of the actions are taken and you mentioned that the California rate increase in the initial comments do you expect to have any impact on retention is there any way for me to think about the way that that trend or any sort of early insights.
Maybe you have on that.
Yeah, I know Alex Good question I think I think we're in an inflationary cycle I think the entire industry is taking right. It's a combination of increased frequency and severity I think weather changes. So I don't think this is something that's isolated to Hippo and I think if you look at Ethanal Dana you're gonna find that most in common carriers are taken.
Right and we're no different.
Got it.
Just in terms of the catastrophe losses I appreciate that this year has been very active.
Every recorded there's been different things that have impacted.
How should we think about that level going forward and just thinking through you are concentrated in some areas that are more cat exposed right now and maybe that that's sort of a more elevated normalised level kind of eventually giving way to.
A more normal cat budget that you'd see it and other companies with Ah Nee.
<unk>, you know distribution any way for us to think through how that'll progress and where it'll be over the near term.
Yeah, I think clearly this has not been a great year for the industry generally because of the cats that you had mentioned I'm in a P. C. S events I think from our perspective.
Sort of a normalised cat load is a very state specific situation as we continue to diversify uhm outside of places like California, and Texas, you'll see a very different shifts and a cat load versus an attritional load overtime I think what's important for us is that we really price.
Each customer based on each state, where we believe we will have an underwriting profit so to us. It's staying ahead of that curve. While we said we have some catch up work to do what we've been doing that with all of the rate filings.
But we are we are certainly improving that and I do think you are noticing that the diversification that Stuart mentioned earlier, 63% are out of those high concentrated areas and that's up from 55% last corner. So you're you're certainly seen that and over time, we want to get too loss ratios in the sixties.
And this is do or even within say for example, the state of Texas. We would also consider what we've been doing over the past couple of quarters to be diversification within the state. So our concentration within Texas has historically been in the North Texas area in near the Dallas Fort Worth area, which is more pale expo.
<unk> <unk>.
Texas is a very very large state and so even though we're continuing to write business in Texas.
That new business that we're bringing into the portfolio is diversifying our cat exposure away from things like hail.
Got it thanks for the responses.
Thanks, Alex.
Thank you Mr. Scott.
If you would like to ask a question today. Please press star one.
The next question comes from the line of Christopher Martin K VW proceed.
Hey, guys congrats on the corner and yeah.
Very positive look on the the total freedom generated.
A quick question on some of the constraints on the supply chain in the home builders space and those partnerships you have.
Have you seen any kind of slowed down and that those channels.
In the recent quarters and how should we think about kind of as you're splitting up your diversification of distribution.
That pieces, it with Lamar et cetera could be a little bit constrained versus what you mean is.
Thought about six months ago.
Hi, Chris this is a stuff.
Sure I've mentioned before that the Bill <unk>.
Is one of our fastest growing category.
What we've seen is yes that although there are several constraints for this industry, but for our partners. What can you do what they've seen his clothes and attach rate is low in.
Partnership with them is deepening we launched in more space I think with a life now in 15 states and selling unique for that which is R. H O. Five for that many people don't know is actually a dedicated insurance for that that was developed a very closely with our partners that you'd have all kinds of features of nuances that caters to the other need and was.
Starting to see more and more adoption with currently working with three out of the top 15 build is and keep on deepening the partnership with the bin though that we have and we are very open to add more and more <unk>. They're very excited about this for that and there's no. There's no stopping it was seen just a tailwind for that.
Great that that makes it a lot of sensitive that they're the deepening of the relationship searches.
What the constraints may be that's all I have for now.
Guys answered everything else previously.
Thank you.
Correct.
Okay Tartan there are no additional questions I need at this time, so I'll pass it back to the hit that management team to provide closing remarks.
Thanks, everybody just wanted to say thank you for coming in today and we're looking forward to talking to you in the next quarter.
Okay concludes to hit by the third quarter of 2021.
Thank you for your participation and enjoy the rest of your day.
Goodbye.
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[laughter].