Q4 2022 Hippo Holdings Inc Earnings Call

Speaker 1: for today's call.

Speaker 1: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Cliff Golan, investor relations. Please go ahead.

Speaker 2: Thank you, operator. Good afternoon, everybody, and thank you for joining KIPO's fourth quarter earnings conference call. Earlier, KIPO issued a shareholder letter announcing its results, which is available at investors.kipo.com.

Speaker 2: Leading today's discussions will be HIPPO's Chief Executive Officer and President Rick McCathran and Chief Financial Officer Stuart Ellis. In the following Manage and Prepare remarks, we will open up the call to questions.

Speaker 2: Before we begin, I'd like to remind you that our discussion will continue predictions, expectations for looking statements and other information about our business that are based on management's current expectations as of the day of this presentation. For looking statements include that are not limited to, give those expectations or predictions of financial and business performance and conditions in competitive and industry outlook.

Speaker 2: Forward-looking statements are subject to risk, uncertainties, and other factors that could cause our actual results to differ materially from historical results and or from our forecasts, including those set forth in HIPAA's 8k filed today. For more information, please refer to the risks, uncertainties, and other factors discussed in HIPAA's SAC filings, in particular in these sections entitled risk factors. All cautionary statements are applicable to any forward-looking statement.

Speaker 2: we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in HIPAA's SEC filings. Do not place undue reliance on forward-looking statements, as HIPAA is under no obligation and expressly disclaims any responsibility for updating, altering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Speaker 2: During this conference call, we will also refer to non- GAAP financial measures, such as total generator premium and adjusted EBITDA. Our GAP results in the description of our non- GAAP financial measures with a full reconciliation to GAP can be found in the fourth quarter 2002 Sherwoodal Letter, which has been furnished to the SEC and available on our website.

Speaker 2: And with that, I'll turn the call over to Rick McCaffer, our president and CEO . Good afternoon, everyone. HIPPO was founded in 2015 with a bold vision to fundamentally improve the homeowner's insurance experience by partnering with customers, helping them better maintain and protect their homes.

Speaker 2: It takes a long time to build a profitable insurance company. Building a recognized consumer brand, developing best-in-class underwriting, and bringing enough customers together while bringing out the volatility of a policy portfolio. None of this happens overnight.

Speaker 2: The 10 largest homeowners insurance carriers in the US, on average, are over 100 years old and they firmly have the advantages of time on their side. We believe the incumbent players have become complacent.

Speaker 2: rapid technological change, and the explosion of data and analytics capabilities over the past decade have not only made it possible for a company like HIPPO to exist, but also to build a superior customer experience and a national footprint far faster than any legacy carrier could have imagined.

Speaker 2: Consumers have come to expect high standards of service, and HIPPO is well positioned to deliver. With HIPPO's foundation firmly in place, 2022 was a year of rapid progress, advancing other aspects of our company. Success in this endeavor comes down to two simple things.

Speaker 2: First, make the experience of being a HIPPO customer the best around, so our customers will partner with us over the long term. When unfortunate things happen, we think modern protection is the best protection, innovations in loss prevention and claims handling can put HIPPO at the forefront of customer care.

Speaker 2: Second, make the rest of our company as strong as our foundation. By using our technology to rapidly improve our ability to deliver on the fundamentals of insurance.

Speaker 2: We are now marching towards profitability ahead of schedule and creating a financial future that is built to last. Here are some of the highlights of what we developed for our customers and partners as we look back on the last 12 months.

Speaker 2: We launch our Book of Pro pilot in Texas, which enables HIPPO customers to use the HIPPO app and order home repair services to a curated network of providers.

Speaker 2: We're wrapping up cross-selling of non-hippon products, both home and aisle, as a third party agency.

Speaker 2: Allow our customers to satisfy all of their insurance needs with HIPO. We've added new builders to our builder network, and we recently launched HIPO's Builders Insurance Agency for small, regional builders, making HIPO's new builder policy and experience available to a much larger group.

Speaker 2: of prospective homeowners. We've also met and exceeded our KPI targets for the year, including 62 percentage points of gross loss ratio improvement in 2022 versus full year of 2021, improved our targeted marketing.

Speaker 2: Over 75% of new customers fall within our generation better target market. Added geographic diversification, we're now in 40 states covering over 90% of the population.

Speaker 2: We've improved our claims experience through the use of aerial imagery to rapidly assess damage after catastrophes.

Speaker 2: We had TGP growth of 33% in 2022 over 2021.

Speaker 2: We successfully placed our 2023 re-insurance program with improved terms and conditions.

Speaker 3: And finally, we're getting ahead of costs.

Speaker 3: as Q4 saw a flattening of fixed operating expenses.

Speaker 3: We have a lot going on at HIPPO, but as we look out for 2023, there are a few key areas of focus for our company. First, we want to make sure that all of our customers have a superior HIPPO experience.

Speaker 3: whether they buy a HIPAA home insurance policy or one of our third-party offerings through our agency. Second, our HIPAA home insurance net loss ratio, which has already shown much progress, will show much more as the actions that we've already taken work their way into the results.

Speaker 3: Third, we are investing in HIPAA Home Care Business, which we believe will become a key differentiator of our customer experience in the years to come.

Speaker 3: As I begin my first full calendar year at HIPOC EO, I could not be more excited about our vision and the execution we achieved in 2022, turning that vision into reality.

Speaker 3: The most exciting part is that for both our customers and our shareholders, the best is yet to come.

Speaker 3: Thank you for your support and for joining us on this journey. I will now turn it over to Stuart to share a few more details on our financial performance.

Speaker 2: Thank you, Rick. In the fourth quarter, PIPA took another step forward along our path to profitability, with an adjusted EBITDA loss of $47.3 million, improving upon our Q3 2022 results.

Speaker 2: Our growth rates remain strong, and we're beginning to achieve the positive operating leverage that will drive our long-term profitable growth. PGP growth accelerated in Q4 rising to an increase of 44% over the prior year quarter to 234 million, bringing our full year 2022 to 811 million.

Speaker 2: in line with our original 2022 guidance. Demand for our products and services remains strong, and customer retention has continued to improve, with blended premium retention across both HIPAA policies and agency customers coming in at 92% in the quarter, up from 90% in Q3 and 89% in Q2.

Speaker 2: We saw growth throughout our 40 states as we began to build a presence in the Northeast and Mid-Atlantic. We've recently been more cautious about growth in our historically largest markets, but in the quarter we saw higher growth in Texas as our footprint in the state becomes more

Speaker 2: In our services business lines, where our economics are predominantly fees and commission income, TGP was driven by strong fiscal year-end home sales in our thriving builders business, which is seasonally typical for Q4.

Speaker 2: We recently announced the launch of HIPPO Builder Insurance Agency designed for smaller, regional home builders.

Speaker 2: We're taking the embedded product of our fastest growing, most profitable distribution channel and expanding it to include small builders nationwide. Our technology allows us to begin quoting a new partner's leads in as little as two weeks without the builder needing to invest significant resources.

Speaker 3: With builders outside of the top 10 responsible for over half of homes built in the US,

Speaker 2: We see this as a material long-term opportunity. Another part of our services business to keep an eye on is First Connect Insurance Services, our rapidly growing digital platform designed to support independent agents by providing access to the nation's top carriers across numerous lines of business.

Speaker 2: This agent-centric platform provides access to over 60 carriers and a variety of products that include home, auto, cyber, small business, life, specialty lines, and more. The recently launched Carrier Store helps agents discover additional carriers and products that can be bundled to increase sales.

Speaker 2: Thank you for Berkshire Hathaway's by Burke was added to the Carrier Stores Ropster of Insurance Providers. Seneca's program business added 84 million of non-HIPAAHP in the fourth quarter, up from 38 million in the prior year quarter.

Speaker 2: At Spinnaker, we provide other managing general agents access to our balance sheets and insurance licenses in exchange for fronting fees and often a small percentage of the underwriting result on the premium that they produce.

Speaker 2: In 2022, we brought several new programs online, offsetting lower volume from programs that we put into runoff earlier in the year, which boosted our TGP.

Speaker 2: In the HIPO Home Insurance Program where our economics are driven by underwriting performance, TGP growth was in the mid-team. Over the course of 2022, we've executed significant re-underwriting actions, including new pricing matrices and claim handling improvements.

Speaker 2: In what continues to be a challenging economic environment with higher and more volatile inflation rates, we continue to be proactive about re-thracking and re-underwriting action, which are expected to drive significant growth and net loss ratio improvement over the course of 2023. Our revenue in the quarter was 35.8 million, up 11% over the prior year quarter, bringing full year results to $119.7 million.

Speaker 2: In line with our guidance, looking ahead, we expect very strong 2023 revenue growth above 40% as our new Reinsurance Treaty will lead to retention of higher net premiums earned.

Speaker 2: Our Q4 gross loss ratio of 42% was the best in our company's history since going public. Favorable reserve releases from prior accident years benefited the gross loss ratio by 10 points. We are also reporting two points that benefit from PCF-defined cat losses in the quarter because Q4's cat losses is 13 points.

Speaker 2: which we largely do to Winter Storm Elliott were more than offset by current year favorable development from our initial loft pick from Q3 Hurricane Ian, which happened in the final days at Q3. For the full year, our gross loss ratio improved 62 percentage points year-over-year to 76% from 138% in 2021. And we expect ongoing underlying improvement in 2023.

Speaker 2: We've taken many actions to drive better loss ratio results, including reprising, re-underwriting, more focused marketing on our target generation better customers, growth of our builder channel, increased geographic balance, and improving our claims' processes.

Speaker 2: As we continue to grow our TGP and revenue, we're also beginning to achieve positive operating leverage as our expense line items flatten or decline year-over-year. We're expecting this improvement to accelerate over the next 18 to 24 months. Our sales and marketing costs were 28.1 million in the quarter, up from 25.5 million in the prior year.

Speaker 2: But outside of increased stock-based compensation, our marketing spend has declined. Looking ahead, our marketing will be more focused on our targeted demographics and desired geographies, while also reaping the benefits of our embedded partnerships and the word-of-mouth reward strong customer service.

Speaker 2: Our technology and development costs were 11.5 million, down from 14.8 million, reflecting the right size and decisions to be made in Q3.

Speaker 2: to invest aggressively in our development team in Warsaw, Poland.

Speaker 2: Our GNA expenses were 17.8 million, down from 19 million in the prior year quarter, as we begin to see the bottom line impact of our increased emphasis on cost control.

Speaker 2: Understricted cash and investments at December 31, 2022 were 640 million.

Speaker 2: While we remain highly conservative in our asset allocation, we're beginning to see the benefits of our shift into short duration, highly rated securities.

Speaker 2: In-depth income contributed 5 million in the quarter, plus from less than 1 million in the prior year quarter and 2.5 million in Q3 of 2022. At year end, Spenicres Policy Holder Circlus was 165 million, plus from 132 million.

Speaker 2: at the end of Q3, driven largely by a $30 million contribution from HIPAA holdings to support future growth. Net loss attributable to HIPAA during the quarter was $63.1 million or $2.74 per share, compared to a loss of $60.7 million or $2.72 per share in the prior year quarter.

Speaker 2: On an adjusted EBITDA basis, our net loss was $47.3 million versus $46 million in the prior year quarter. As we turn our attention to the future, I would like to summarize our high-level guidance for full year 2023. We expect consolidated TGP to grow to nearly $1 billion. We expect our revenue will grow by over 40 percent.

Speaker 2: We expect our adjusted EBITDA loss will be 147 million. We also reiterate our expectation that we will be adjusted EBITDA positive by year end I'll close by pointing out that we have posted a supplemental analyst package on our website, which has more detailed information and our outlook for the individual business lines that we'll be reporting under in 2023.

Speaker 1: your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Matt. Nick, he is on Keysight.ogenic.story and the tweet message is oriented right.

Speaker 3: Carlotti with JMP, please proceed. Hey, thanks, afternoon. I was hoping you could comment on the new re-insurance program that you put an outfit out you put in place to start the year. You know, just one is a dawner to you and look to put some more pieces to it in place across the year. I know it's a dynamic re-insurance environment.

Speaker 3: And two, just to be able to go through what we should expect in terms of financial impacts. If I'm understanding it correct, it feels like the net loss ratio should start to come down to approach the gross loss ratio as it earns its way in. Maybe I'm misunderstanding that, but is that accurate?

Speaker 3: Yeah, hey Matt, thanks for the question. I'll go ahead and start with the beginning part and then Stuart can jump in with some more specifics. First of all though, I do want to introduce to the group, Kristana Hugh, a Christler Chief Underwriting Officer. He's been with us now for nearly two years and Christen and his team have been instrumental in the significant loss ratio improvement.

Speaker 3: evaluating the participation, they do a tremendous amount of forward-looking calculations, taking all the actions that we've already put into place and bringing everything to current rate level. And I think that's where you saw sort of the bullish nature that they had on our program.

Speaker 3: I am pleased that we actually achieved improved terms and conditions during a very difficult reinsurance market. And because of all of these things, because of the improvement, we're structurally shifting to an environment where we are going to retain more risk in areas that we can control.

Speaker 3: sort of the day-to-day attritional losses. Yet we're still very much protecting the balance sheet for items that are outside of our control, such as the weather. So that's kind of the structural component. Stuart, do you want to jump in? Sure. Hey, Matt. Happy to add a little bit of color here in terms of the financial impact of the treaty in 2023. As Rick said, we're.

Speaker 2: We're making the structural shift, but also the treaty in 2023 is going to bring the premium that retain more in line with the losses that we retain. Our 2022 treaty had lost participation features that meant for the non-severe weather portion of the rest, we retain about 30% of the exposure, but only retain around 12% of the retain.

Speaker 2: In 2023, those numbers are going to come much closer together. So our underlying exposure in the non-severe weather category is up to around 42 percent, but the premium that we're going to retain is up to 39 percent. So a much larger increase in retained premium than underlying exposure. The way that will work itself in the future is by increasing the number of people that include less than a quarter percent of those people if people once again get relief from an illness or surprise Wow. Thanks to myISTells.

Speaker 2: into our financials is as the policy portfolio transitions from the 2022 treaty onto the 2023 treaty as each policy renews, you'll start to see the economics play out in this.

Speaker 2: in the financials. So when we look, you mentioned the gap between gross and net loss ratio, when in Q1, most of the economics will still be on the 2022 treaty, so we'll still continue to see a high underlying net loss ratio there because of that mismatch between...

Speaker 2: loss retention and premium retention, but by the fourth quarter of 2023, we're expecting it to be much, much closer. So I would say it's probably going to be in the 200 plus percent range in the first quarter, but by the end of 2023, it'll be down below 100 along with the gross loss ratio. Perfect. That's very helpful. Appreciate it.

Speaker 2: disclosure at the segment level if you could sum it up just what is the mix I guess of business either on revenue or earnings that is not subject to this loss ratio volatility and if you could you know sort of describe that in terms of either 2022 or 2023 and then just thinking about longer-term how you see that next shifting

Speaker 2: Yeah, absolutely. Thanks, Tommy, for the question. I think I'll start by just giving a little bit of context.

Speaker 2: Absolutely. Thanks so much for the question. I think I'll start by just giving a little bit of context in terms of how we think about the business.

Speaker 2: So increasingly, we're viewing the HIPPO customer experience, which we view as differentiated in the market, as not limited to people who are covered by HIPPO policy, but also will include people who buy a policy from a third party carrier through HIPPO as an agent. And so if you, and I appreciate you mentioning the...

Speaker 2: Supplemental package where we talk about 2023 guidance. This is all laid out in that package, so I'd encourage everybody to take a look at it. But if you classify the components of our business by business model, they fall into three basic categories. There's recurring fee-based revenue with no underwriting exposure. We're calling that services, and that's about 40% of our expected 2023 total generated premium.

Speaker 2: The second bucket is business that's primarily fee-based revenue that has limited exposure to underwriting results. That's our Spinnaker program business.

Speaker 2: where we support other NGA's by renting our balance sheet to them and exchange for fees. That's about 30% of our expected 2023 total generated premium and the final bucket, which is the Hippo Home Insurance program, where the economics, as we've seen, are primarily based on the underwriting results. That'll be about 30% of our 2023 total generated premium.

Speaker 3: If I could add one more thing, I actually think this helps the procurement of generation better customers. When we actually have options that don't necessarily fit our underwriting appetite or the way we think of customers who truly want a partner to help them protect all aspects of their home.

Speaker 3: We still have the ability to meet their needs and place them with one of our partner carriers that might very well have a different underwriting appetite and a different business model. Now those customers over time, we still can provide HIPAA Home Services to and HIPAA Home Care.

Speaker 3: So it really does create an environment where the ECHIPO experience is a combination of HIPO home-placed policies.

Speaker 3: really does create an environment where the echipo experience is a combination of echipo home-placed policies, third-party policies, including cross-out.

Speaker 3: and the ability to generate more customers that would participate in HIPAA HomeCare. Thanks, and Stu, if you could just clarify, so those figures on a TGP basis, as you think about just kind of the earnings, I guess, contribution mix of those, do those ratios or percentages hold generally true? As we look at 2023, I think the answer to that question is different in 20...

Speaker 2: largely, largely underway.

Speaker 2: which is still very confident that we're on the right track there. But in 2023, the services business, we expect that to lose money. But...

Speaker 2: That's a good idea for us from an economic standpoint because the underlying business there is profitable and so most of the losses are going to be coming from growth oriented expenses. The insurance of the service program business is actually expected to be profitable in 2023 and the bulk of the losses for the overall HIPO consolidated business is going to come from the HIPO insurance program. Brower says, noT reliefBOD apply for daily tä?? Iégyy, in return, it will next year. Iégyy, in return, it will next year.

Speaker 2: Those we feel very confident are shrinking over time as the loss ratio

Speaker 2: So we can talk, there's more detail in the supplemental package that we released today on the guidance there, but yeah, today is not the same as what I expect a long-term contribution to be, because I think long-term each of these businesses are going to be profitable.

Speaker 3: Great, that's helpful. Thank you. Thank you, Mr. McJoyne. The next question is from the line of Yara and Kenar with Jeffries. Please proceed. Thank you, that's a new and this is Andrew on for your own. Can you help us think about how the company views its radatic with CNN and pricing needs for 23? 4.

Speaker 4: Andrew, I think this is a great question for Chris to take. So Chris, do you want to answer that for Andrew? Great. Thanks Andrew for your question. Yeah, the rate plan that we have set forth in 2022 and 23 is our organization's top priority. We're continuing to improve the overall rate level but also improve our ability to align our rate level. We're continuing to improve our ability to align our rate level.

Speaker 4: to risk so we can price risks appropriately in marketplace. The majority of the efforts that we need to achieve are our goal of the 65 loss ratio ultimately has been put in place in our underway. In 2022 we already achieved about 20% written rate increase. We made 64 findings.

Speaker 4: in 28 states. The benefit of those rate increases are, I've started to earn in and we'll continue to impact 2022, 2023 and 2024 going forward.

Speaker 4: In 2023, we'll take increases in the high teens, so we'll do pretty much the same thing that we accomplished in 2022, and we'll make 73 filings in 31 states. We've already taken significant ground in executing that strategy, with 85% of the filings necessary to achieve that, about having already been submitted.

Speaker 4: We'll take increases in the high teens, so we'll do pretty much the same thing that we accomplished in 2022. And we'll make 73 filings in 31 states. We've already taken significant ground in executing that strategy with 85% of the filings necessary to achieve that, about having already been submitted to departments of insurance.

Speaker 4: These five-ings will also significantly impact 2023, but we'll continue to see the compound and effect of the last two years of rate earning in through 2024 and see that impact, significantly the loss ratio and the loss results that we see going forward. Andrew, I think this explanation is very much aligned with my opening comments related to reinsurance and the bullish nature that the reinsurers have because the reinsurers forecast out all of these actions already taken, take everything up to current rate level, take both exposure and rate changes into account and identify what both our medium and long-term loss ratios go forward.

Speaker 4: going to be. So we're really pleased at the activity that the Underwriting and Actuarial team have already done for 2023. Great. That's very helpful. Thanks. And as we think about ongoing underlying improvement here.

Speaker 4: Is the correct comp the 66% and 22 relative to the 67 and 21? So, you know, just given the rate actions over the last year and perhaps into 23 as well. Should we think about the pace of that improvement accelerating? Not totally following your question. Yeah, if you look at these 60s. Sure, as we think about the 66% gross loss ratio.

Speaker 4: excluding CAD and PID, I was about 100 basis points year-of-year improvement from 67% and 21. Just given the pace of rate filings, should we expect a stronger improvement in underlying loss ratio in 23?

Speaker 4: Yeah, that's a really good question. Yes, as you continue to, as these rate actions continue to work themselves into the portfolio, rate actions that we've taken generally do help the underlining loss ratio pretty significantly. This is why we have great confidence that we're going to achieve our goals of cash flow positivity by...

Speaker 4: By the end of 2024 we are very much on track and feel very good about what we presented during our investor day that we're going to get there. I'd also love to just add a little bit of color to that question. I think what you're seeing...

Speaker 2: We're very much on track and feel very good about what we presented during our investor day that we're going to get there. I'd also love to just add a little bit of color to that question. I think what you're seeing in the results.

Speaker 2: Despite all the rate action, the question is basically why has the non-PCS core loss ratio only come down just a little bit? And I think what's not easy to see if you don't live this every day in the businesses that we've actually been lowering through geographic diversification, the overall exposure to cat risk in the portfolio. And so if you have a home that's in a state that has very low cat risk, nearly all of the premium is related to the attritional loss. If you have a home that is in a very high cat

Speaker 2: part of the country, and a substantial portion of that premium is paying for that cat risk. So as we bring the overall cat exposure and the portfolio down, you would otherwise expect to see the non-PCS core loss ratio increase because more of the premium would be going to pay for those attritional losses. The fact that we're bringing it down.

Speaker 4: is a function of the rate plan and underwriting improvements that we've made over the past year. Yeah, Andrew, and the last thing that I would say on this topic is really understanding the way we categorize the category of losses. So we have two categories. We have PCS claims and all other. The all other's a combination of attritional and non-PCS weather. So there's still weather in that 62 or 67, whichever particular number you want to refer to, but it's non-PCS weather, if that's helpful.

Speaker 2: Yep, thanks for the answer. You can also have a look at the core loss ratio, just look at Q4. The core non-PCS loss ratio was 54%, so the 66 is an average over the course of the year, but we are seeing a positive trend.

Speaker 2: Yep, thanks for the answer. You can also have a look at the core loss ratio, just look at Q4, the core non-PCS loss ratio was 54%. So the 66 is an average over the course of the year, but we are seeing a positive trend progressively throughout the year.

Speaker 4: Thank you. The next question comes from the line of Alex Gott with Goldman Sachs. Thanks for taking the question. The first thing I have for you guys is just on the updated reinsurance program. Could you help us think through the loss participation that's still remaining? I thought you know...

Speaker 2: supplement this. The loss participation features in the 2023 treaty, they're still there, but we're being paid for taking some of that risk ourselves. So that's what we said earlier about the higher retained premium. In general, the...

Speaker 2: So there's less variability from the corridors and they attach at rates that are more favorable to hip-hop than they did in 2026.

Speaker 2: So at our expected loss ratio, I'm expecting they to be a much smaller percentage of our overall economics in 2023 than they were in 2022.

Speaker 5: Got it. That's helpful. And then, you know, the comments that there's no changes to required capital. Could you help us think through that as well? I mean, there's a part of me that looks at it and says, you know, you're your your retaining.

Speaker 5: So much more, you know, almost 4x more than you were before. And like I get the use to put more tail risk in place, but can you unpack that a little bit more for us?

Speaker 2: help us understand how, I mean it seems too good to be true that you get this much more premium and it doesn't require more capital. Yeah, so I think there's two things going on there. The actual underlying risk retained is not 4x what it was because of the lost participation features in the 2022 treaty. So the risk retention is modestly higher, but not 4x higher even though the retained premium is closer to 4x higher. So this is an economic shift in the way we're thinking about the treaty. But also I think that reflects candidly the substantial improvement in expected loss ratio.

Speaker 4: in 2023, relative to 2022. The other... Yeah, there's one other thing to Alex to keep in mind is as we continue to geographically diversify, the exposure from catastrophes has actually come down. And when you calculate all of the PMLs versus the exposure, we actually look like we have less...

Speaker 4: exposure to weather in particular states or other large events like fire. So the diversification on the geographical exposure has also helped the total exposure to the company. Yeah, and then sorry, the one final point I wanted to make was in 2022,

Speaker 2: we were such heavy buyers of reinsurance that as we looked at the AMBAS BCAR score and we're navigating the maintenance of our AMBAS A- rating, the calculation was actually penalizing us with a credit risk penalty on the reinsurance that we were buying. And so as we actually increased our participation and bought less quota share reinsurance.

Speaker 2: We actually get capital relief from AMBEST in the BECAR model. And so we were paying a heavy penalty in that framework because we were such a heavy utilizer of reinsurance. Now we've sort of found the sweet spot where we're matching up the benefit we get from voice share reinsurance and the exposure that we're taking.

Speaker 2: We can go into more detail on that if you have further questions, but it's a function of both the exposure and the way we're feeding off the risk. John , that's helpful. And then maybe one more quick one for me, a little bit out of left field. How would you think about earthquake exposure, just giving you a little more concentrated in California, it seems like earthquake activities.

Speaker 5: off of bed just in general globally so i'm just trying to think through i get your policies part of cover but they they may cover like the secondary fires that it that causes it anyway for us to think through like how you're in parents program would help out with that kind of a risk yeah i'll like i think uh... i mean clearly your hundred percent right you know quake is uh... quake is not covered but fire following is and fire following would be subject to

Speaker 4: any type of other exposure we have in the portfolio. So we don't think it's a significant exposure for us. Chris, anything you want to add?

Speaker 4: No, it is covered within the reinsurance progress but it is definitely not a peak driver peril of risk for us and we feel it is managed within our portfolio.

Speaker 6: Got it. Thank you.

Speaker 3: Thank you, Mr. Scott. Our last question is from the line of Pablo Singzon with JP Morgan. Please proceed. Hi. Thanks for taking my questions. The first one I had was just on the opportunity in the home builders market. Can you give a sense of the market concentration there below the top 10?

Speaker 5: I think your reference is half of the market, but is the top 11 to 20 a good chunk of the 50% or is it more of those evenly distributed? And then as a follow-on to that, could you sort of describe your sales organization, how you think about offering your services to the 50% of the market there? Yeah, I think…

Speaker 4: I think something to keep in mind, and this is a question that has come up in the past, which is if there are slowing housing starts, we'll reduce housing starts. How much does that impact our growth in that particular channel? And whether you're top 10, 11 to 20, or what we call long-tailed builders, the more regional or local builders.

Speaker 4: for the purposes of the builder agency that we established, HIPPO is such a small percentage of the total compared to the total that we still believe we're right at early stages of maximizing the sales funnel with those particular builders.

Speaker 4: Even in down into pressed years, there's still over a million housing starts and we are a small percentage of.

Speaker 4: those. So the vast majority of the homes being built are being built by the long-tell builders, not the top ten builders. So it really gives us an opportunity to maximize growth in that particular channel over time. Now when we think about ourselves, we're going to say,

Speaker 4: Our cell's organization, as it relates to home builders, is not a B2C effort for the most part. It generally is working with the builders in creating partnerships in which they believe that the technology that we've built at HIPPO allows for quick real-time quoting on a house that has not even been built yet.

Speaker 4: And that is a significant advantage to what we've built in the Builder Channel. Because if you go to a traditional agency and you're looking to build – or excuse me, to insure a house that hasn't been built yet, what is the address of that house? Is it Lot 7 Section 6? It's very difficult.

Speaker 4: And what we do is we actually get the data files on every model of the builders we partner. And that makes the transaction close quicker. And at the end of the day, that's what everybody wants.

Speaker 4: the consumer wants to get into their new dream house. The builder wants to close the transaction, and we facilitate that in a meaningful way. Thank you. And then my second question was about the first connect business. I'm just here.

Speaker 7: Any contact seek and provide there. When did you set it up and I guess, what do you think it compares as an independent HD platform against alternatives out there? Something of clusters and aggregators. And if you can go through the surf, you know, the revenue model, how you charge, the services provide. But I guess just overall, how you think about that as an alternative versus what's out there for independent HD.

Speaker 4: Yeah, so first of all first connect was an acquisition that we made a few years ago. So it wasn't something that we started from scratch. Now what we have done since our acquisition of First Connect is we've invested HIPPO technology into the infrastructure that First Connect had. So HIPPO has built tools for independent agents.

Speaker 4: and our internal cells people to really accelerate the quote-to-buy and process. And we felt it was appropriate to offer these same types of tools, not just for hippopolices, but for non-hippopolices to the network of independent insurance agents that utilize the first connect platform.

Speaker 4: So it's not just a traditional aggregator. It's an aggregator with significant technology that helps agents streamline the quote to bind flow. And we monetize that through a commission split and other fees that we generate from other services that we...

Speaker 4: we're providing. So we think it's an important platform and it utilizes the technology that we already have.

Speaker 4: So we think it's an important platform and it utilizes the technology that we already have. Thank you.

Speaker 1: Thank you, Mr. Singh-Phan. There are no additional questions waiting at this time, so I will turn the call over to Rick McCathron, CEO for Closing Remarks.

Speaker 4: Thank you. I'm very excited and grateful for all of you joining today. This was a fabulous quarter for HIPPO in a fabulous year. We've made tremendous progress in a very short time frame and we have strong conviction, more conviction than we've ever had.

Speaker 4: that the metrics of the company are driving us towards cash flow positivity while continuing to grow the business. So we're excited to be presenting at next quarter and look forward to sharing the news. Thank you everybody.

Speaker 8: That concludes today's call. Thank you for your participation. You may now disconnect your lines.