Q2 2024 Hippo Holdings Inc Earnings Call

August 8, 2024

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Ada: Ladies and gentlemen, welcome to the Hippo Holdings second quarter 2024 earnings call. My name is Ada, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing the star followed by one on your telephone keypad. I will now hand you over to Mark Olson to begin. Please go ahead.

Ada: Ladies and gentlemen, welcome to the Hippo Holdings second quarter 2024 earnings call. My name is Ada and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star followed by one on your telephone keypad. I will now hand you over to Mark Olson to begin. Please go ahead.

Mark Olson: Thank you, operator. Good morning, and thank you for joining Hippo's 2024 second quarter earnings call. Earlier today, Hippo issued a shareholder letter announcing its Q2 results, which is available at investors.hippo.com. Leading today's discussion will be Hippo President and Chief Executive Officer Rick McCathron and Chief Financial Officer Stewart Ellis. Following management's prepared remarks, we'll open up the call to questions.

Mark Olson: Thank you, operator. Good morning and thank you for joining HIPPO's 2024 second quarter earnings call. Earlier today, HIPPO issued a shareholder letter announcing its Q2 results, which is available at investors.hippo.com.

Speaker Change: Leading today's discussion will be HIPAA President and Chief Executive Officer Rick McCathron and Chief Financial Officer Stewart Ellis. Following management's prepared remarks, we will open up the call to questions.

Mark Olson: Before we begin, we'd like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of this presentation. Forward-looking statements include, but are not limited to, Hippo's 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 differ materially from historical results and or from our forecast, including those set forth in Hippo's Form 10-Q filed today and our Form 10-K filed earlier this year.

Speaker: Before we begin, we'd like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that is based on management's current expectations as of the date of this presentation. Forward-looking statements include, but are not limited to, Hippo's 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 differ materially from historical results and or from our forecast, including those set forth in Hippo's Form 10-Q filed today and our Form 10-K filed earlier this year.

Speaker Change: Before we begin, we'd like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that are based on management's current expectations as of the date of this presentation.

Mark Olson: For more information, please refer to the risks and uncertainties and other factors discussed in Hippo's SEC filings, in particular the section entitled Risk Factors in our Form 10-Qs and Form 10-K. All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in Hippo's SEC filings. Do not place undue reliance on forward-looking statements, as HIPPO is under no obligation and expressly disclaims any responsibility for updating, offering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Speaker Change: Forward-looking statements include, but are not limited to, Hippo's expectations or predictions of financial and business performance and conditions, and competitive and industry outlook.

Speaker Change: Forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from historical results and or from our forecast, including those set forth in Hippo's Form 10-Q filed today and our Form 10-K filed earlier this year.

Speaker: For more information, please refer to the risks and uncertainties and other factors discussed in Hippo's SEC filings, in particular the section entitled Risk Factors in our Form 10-Qs and Form 10-K. All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in Hippo's SEC filings. Do not place undue reliance on forward-looking statements, as HIPPO is under no obligation and expressly disclaims any responsibility for updating, offering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Speaker Change: For more information, please refer to the risks and uncertainties and other factors discussed in Hippo's SEC filings in particular in the section entitled Risk Factors in our Form 10-Q s and Form 10-K .

Speaker Change: All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in Hippo's SEC filings.

Speaker Change: Do not place undue reliance on forward-looking statements as HIPPO is under no obligation and expressly disclaims any responsibility for updating, offering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Mark Olson: 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 full reconciliation to GAAP can be found in the second quarter 2024 shareholder letter, which has been furnished to the SEC and is available on our website. And with that, I'll turn the call over to Rick McCathron, our President and CEO.

Speaker: 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 full reconciliation to GAAP can be found in the second quarter 2024 shareholder letter, which has been furnished to the SEC and is available on our website. And with that, I'll turn the call over to Rick McCathron, our President and CEO. Thank you, Mark.

Speaker Change: During this conference call, we will also refer to non-GAAP financial measures, such as total generated premium and adjusted EBITDA.

Rick McCathron: Our GAAP results and description of our non-GAAP financial measures with full reconciliation to GAAP can be found in the second quarter 2024 shareholder letter, which has been furnished to the SEC and is available on our website. And with that, I'll turn the call over to Rick McCathron, our President and CEO .

Rick McCathron: Thank you, Mark, and good morning, everyone. We have added to the momentum we created over the past year and delivered an improved second quarter in 2024. Our plan to reduce the volatility in our homeowners program passed its first meaningful test as we delivered a substantial year-over-year reduction in catastrophic losses, despite the broader industry suffering another quarter of elevated severe weather. Beyond this, we continue to leverage our proprietary technology to further improve the efficiency of our operations, resulting in increased customer lifetime value and lower customer acquisition costs.

Rick McCathron: Thank you, Mark, and good morning, everyone. We have added to the momentum we created over the past year and delivered an improved second quarter of 2024.

Rick McCathron: Our plan to reduce the volatility in our homeowners program passed its first meaningful test as we delivered a substantial year-over-year reduction in catastrophic losses, despite the broader industry suffering another quarter of elevated severe weather.

Rick McCathron: Beyond this, we continue to leverage our proprietary technology to further improve the efficiency of our operations, resulting in increased customer lifetime value and lower customer acquisition costs.

Rick McCathron: In parallel with these efforts, we delivered another quarter of strong top-line growth and doubled down on our new homes channel, where we are improving access to insurance for consumers purchasing new homes with some of the country's largest home builders. The second quarter presented the best opportunity yet for Hippo to showcase the benefits from the work we have been doing to reduce our business exposure to wind and hail events. Compared to the second quarter of last year, and excluding the positive benefits from favorable reserve development, we improved our PCS cat weather loss ratio by 83 percentage points and reduced our weather-related loss dollars by 73 percent.

Rick McCathron: In parallel with these efforts, we delivered another quarter of strong, top-line growth and doubled down on our new homes channel, where we are improving access to insurance for consumers purchasing new homes with some of the country's largest home builders.

Speaker Change: The second quarter presented the best opportunity yet for Hippo to showcase the benefits from the work we have been doing to reduce our business exposure to wind and hail event.

Rick McCathron: Compared to the second quarter of last year and excluding the positive benefits from favorable reserve development, we improved our PCS cat weather loss ratio by 83 percentage points and reduced our weather-related loss dollars by 73%.

Rick McCathron: This improvement was enabled by our technology, which has been fundamental to our team's ability to plan and rapidly execute the needed changes to our program. The impact of these changes will continue to show through our results over the next three quarters. We believe we are fast approaching the time when losses from severe convective storms will no longer be the primary driver of our bottom line financial results. In my last letter, I talked about the role our agency plays in finding a policy for every customer, whether or not we are the carrier.

Rick McCathron: This improvement was enabled by our technology, which has been fundamental to our team's ability to plan and rapidly execute the needed changes to our program.

Rick McCathron: The impact of these changes will continue to earn through our results over the next three quarters.

Rick McCathron: We believe we are fast approaching the time when losses from severe convective storms will no longer be the primary driver of our bottom line financial results.

Speaker Change: In my last letter, I talked about the role our agency plays in finding a policy for every customer, whether or not we are the carrier.

Rick McCathron: The ability to place customers with other carriers as an agency has allowed us to maintain high retention rates and to drive continued total generated premium growth while focusing on managing our exposure to high-cat geography. Our agency also significantly contributes to improved customer satisfaction and our premium growth through personalized cross-selling opportunities of complementary products offered by other carriers like Earthquake, Flood, Auto, Umbrella, and more. Beyond the benefits to our customers, there are also significant benefits to our productivity and cost structure.

Speaker Change: The ability to place customers with other carriers as an agency has allowed us to maintain high retention rates and to drive continued total-generated premium growth while focusing on managing our exposure to high-CAT geographies.

Rick McCathron: Our agency also significantly contributes to improved customer satisfaction in our premium growth through personalized cross-selling opportunities of complementary products offered by other carriers like Earthquake, Flood, Auto, Umbrella, and more.

Speaker Change: Beyond the benefits to our customers, there are also significant benefits to our productivity and cost structure.

Rick McCathron: In the second quarter, we realized a 60% year-over-year increase in agent productivity, a 17% year-over-year increase in our lead conversion rate, and a 23% year-over-year increase in our cross-sell rate, allowing us to grow our top line while driving additional operating levels. All of the efforts we have focused on this past year are now bearing fruit. Our business now has inherently less exposure to wind and hail, and is growing more quickly because we are better meeting our customers' needs and operating in a more efficient and cost-effective manner.

Speaker Change: In the second quarter, we realized a 60% year-over-year increase in agent productivity.

Speaker Change: a 17% year-over-year increase.

Speaker Change: and our lead conversion rate and a 23% year-over-year increase in our cross-sell rate, allowing us to grow our top line while driving additional operating leverage.

Speaker Change: All of the efforts we have focused on this past year are now bearing fruit. Our business now has inherently less exposure to wind and hail, is growing more quickly because we are better meeting our customers' needs, and is operating in a more efficient and cost-effective manner.

Rick McCathron: We remain confident that we can achieve our long-stated goal of positive adjusted EBITDA by the end of this year. I could not be prouder of the work our team accomplished this past quarter and look forward to sharing more of the benefits of their work with you in future quarters. Now, I'd like to turn the call over to our Chief Financial Officer, Stewart Ellis, to walk through the highlights of our Q2 2024 financial results, as well as our expectations for the future.

Speaker Change: We remain confident that we can achieve our long-stated goal of positive adjusted EBITDA by the end of this year.

Speaker Change: I could not be prouder of the work our team has accomplished this past quarter, and look forward to sharing more of the benefits of their work with you in future quarters.

Stewart Ellis: Now, I'd like to turn the call over to our Chief Financial Officer, Stewart Ellis, to walk through the highlights of our Q2 2024 financial results, as well as our expectations for the future.

Stewart Ellis: Thanks, Rick, and good morning, everyone. The second quarter of 2024 was a critical inflection point for HIPPO. Not only did we extend our track record of consistent year-over-year improvement in our core metrics, but we also cleared what was arguably our biggest hurdle to achieving the bottom-line guidance we issued at the beginning of the year, seasonal weather exposure associated with wind and hail in the Midwest. As I walk through the key lines of RP&L, I'll explain how the drivers of these results give us continued confidence in our path to positive adjusted EBITDA.

Stewart Ellis: Thanks Rick, and good morning everyone. The second quarter of 2024 was a critical inflection point for HIPPO. Not only did we extend our track record of consistent year-over-year improvement in our core metrics, but we also cleared what was arguably our biggest hurdle to achieving the bottom-line guidance we issued at the beginning of the year, seasonal weather exposure associated with wind and hail in the Midwest. As I walk through the key lines of our P&L, I'll explain how the drivers of these results give us continued confidence in our path to positive adjusted EBITDA. I'll also walk through why we are comfortable raising our top-line guidance and maintaining our bottom-line guidance despite higher-than-expected wind and hail losses during the quarter.

Stewart Ellis: Thanks Rick, and good morning everyone. The second quarter of 2024 was a critical inflection point for Hippo.

Speaker Change: Not only did we extend our track record of consistent year-over-year improvement in our core metrics, we also cleared what was arguably our biggest hurdle to achieving the bottom-line guidance we issued at the beginning of the year, seasonal weather exposure associated with wind and hail in the Midwest.

Stewart Ellis: As I walk through the key lines of RP&L, I'll explain how the drivers of these results give us continued confidence in our path to positive adjusted EBITDA.

Stewart Ellis: I'll also walk through why we are comfortable raising our top-line guidance and maintaining our bottom-line guidance despite higher-than-expected wind and hail losses during the quarter. In Q2, TGP grew 20% year over year to $380 million, driven by continued strength in our services and insurance as a service segment. Growth and placements of policies for customers with third-party carriers led to a 38% increase in our services business. And growth of existing programs helped our insurance as a service TGP grow by 23%, bringing the collective premium from these two segments to 83% of our total TGP, up from 73% a year ago.

Stewart Ellis: I'll also walk through why we are comfortable raising our top-line guidance and maintaining our bottom-line guidance, despite higher-than-expected wind and hail losses during the quarter.

Stewart Ellis: In Q2, TGP grew 20% year over year to $380 million, driven by continued strength in our services and insurance as a service segments. Growth in placements of policies for customers with third-party carriers led to a 38% increase in our services business. And growth of existing programs helped our insurance as a service TGP grow by 23%, bringing the collective premium from these two segments to 83% of our total TGP, up from 73% a year ago.

Stewart Ellis: In Q2, TGP grew 20% year-over-year to $380 million, driven by continued strength in our services and insurance-as-a-service segments.

Stewart Ellis: Growth in placements of policies for customers with third-party carriers led to a 38% increase in our services TGP.

Stewart Ellis: And growth of existing programs helped our insurance as a services TGP to grow by 23%, bringing the collective premium from these two segments to 83% of our total TGP, up from 73% a year ago.

Stewart Ellis: This growth more than offsets the 27% year-over-year reduction in TGP from our HHIP segment, the result of managing our exposure to high-cat geography. As we look to the second half of the year, we expect year over year TGP growth to accelerate relative to the levels achieved in Q1 and Q2, as we complete the cap exposure management at HHIP, and the growth in our new homes channel is no longer offset by reductions in other areas of our portfolio.

Stewart Ellis: This growth more than offsets the 27% year-over-year reduction in TGP from our HHIC segment, the result of managing our exposure to high-cat geography. As we look to the second half of the year, we expect year-over-year TGP growth to accelerate relative to the levels achieved in Q1 and Q2, as we complete the cap exposure management at HHIP, and the growth in our new homes channel is no longer offset by reductions in other areas of our portfolio. Revenue growth in Q2 again outpaced TGP growth, increasing 88% year-over-year to $90 million, up from $48 million in Q2 2023.

Stewart Ellis: This growth more than offsets the 27% year-over-year reduction in TGP from our HHIC segment, the result of managing our exposure to HICAT geographies.

Stewart Ellis: As we look to the second half of the year, we expect year-over-year TGP growth to accelerate relative to the levels achieved in Q1 and Q2.

Stewart Ellis: as we complete the cat exposure management at HHIP and the growth in our new homes channel is no longer offset by reductions in other areas of our portfolio.

Stewart Ellis: Revenue growth in Q2, again outpaced TGP growth, increasing 88% year-over-year to $90 million, up from $48 million in Q2 2023.

Stewart Ellis: Much like last quarter, the higher retention of TGP at HHIP and the volume increases in both the insurance for the service and services segments were the primary drivers of growth. As we have discussed previously, our increase in confidence in both the magnitude and the predictability of our loss ratio has enabled us to retain a greater share of the premium we write on our own balance sheet. As a result of this higher premium retention, net earned premium as a percentage of gross earned premium in our HHIP business rose to 64% in Q2, up from 14% a year ago.

Stewart Ellis: Much like last quarter, the higher retention of TGP at HHIP and the volume increases at the insurance as a service and services segments were the primary drivers of the growth.

Speaker Change: As we have discussed previously, our increasing confidence in both the magnitude and the predictability of our loss ratio has enabled us to retain a greater share of the premium we write on our own balance sheet.

Stewart Ellis: As a result of this higher premium retention, net earned premium as a percentage of gross earned premium in our HHIP business rose to 64% in Q2, up from 14% a year ago.

Stewart Ellis: Insurance as a service revenue growth was driven mostly by premium growth from existing programs, augmented by slightly higher risk retention with some of the programs. In our services segment, revenue grew more slowly than TGP due to the continued mix shift from our agency, where we earn commissions on a gross basis, to our First Connect platform, where we take a percentage of the gross commissions paid by carriers to our agency customers and recognize revenue on a net basis.

Stewart Ellis: Insurance as a service revenue growth was driven mostly by the premium growth from existing programs, augmented by slightly higher risk retention with some of the programs.

Stewart Ellis: In our services segment, revenue grew more slowly than TGP due to the continued mix shift from our agency.

Stewart Ellis: where we earn commissions on a gross basis, to our First Connect platform, where we take a percentage of the gross commissions paid by carriers to our agency customers and recognize revenue on a net basis.

Stewart Ellis: As we have discussed previously, our increase in confidence in both the magnitude and the predictability of our loss ratio has enabled us to retain a greater share of the premium we write on our own balance sheet. As we look to the second half of the year, we expect revenue to continue to grow faster than TGP as we complete the transition from our old quota share reinsurance structure to our current XOL structure and benefit from the ability to retain more of the written premium for HIPPO.

Stewart Ellis: As we look to the second half of the year, we expect revenue to continue to grow faster than TGP as we complete the transition from our old quota share reinsurance structure to our current XOL structure and benefit from the ability to retain more of the written premium for HIPPO. Our Q2 WA3 show results for HHIP were a significant win for the business. Despite a difficult weather quarter for the homeowners insurance industry and slightly higher than expected losses from wind and hail, we demonstrated the effectiveness of the measures we have been taking to manage our exposure to these perils.

Stewart Ellis: Our Q2 WA3HO results for HHIP were a significant win for the business.

Stewart Ellis: Despite a difficult weather quarter for the homeowners insurance industry and slightly higher than expected losses from wind and hail, we demonstrated the effectiveness of the measures we have been taking to manage our exposure to these perils.

Speaker Change: despite a difficult weather quarter for the homeowners insurance industry and slightly higher than expected losses from windand tail we demonstrated the effectiveness of the measures we have been taking to manage our exposure to these perillss

Stewart Ellis: Because of the actions we've taken and excluding the benefits of favorable prior year development, we saw our HHIP-PCS-CAT loss ratio improve by 83 percentage points year-over-year to 39% by this time next year when the underwriting changes have had a chance to work their way through our full portfolio. Looking ahead to the second half of 2024, we expect PCS cap weather losses of HHIP to decline significantly off their seasonal peak in QQ, which is consistent with the guidance we shared earlier this year.

Stewart Ellis: Because of the actions we've taken and excluding the benefits of favorable prior year development, we saw our HHIP-PCS-CAT loss ratio improve by 83 percentage points year-over-year to 39%. On a gross basis, this represents approximately $30 million of PCS losses in the quarter. Up to $12 million from Q1 this year, but down $80 million from Q2 of last year, when the underwriting changes have had a chance to work their way through our full portfolio, severe convective storms should be a less significant driver of our bottom line financial results.

Speaker Change: Because of the actions we've taken and excluding the benefits of favorable prior year development, we saw our HHIP-PCS-CAT loss ratio improve by 83 percentage points year-over-year to 39%.

Speaker Change: On a gross basis, this represented approximately $30 million of PCS losses in the quarter, up $12 million from Q1 this year, but down $80 million from Q2 of last year.

Stewart Ellis: By this time next year when the underwriting changes have had a chance to work their way through our full portfolio.

Stewart Ellis: Severe convective storms should be a less significant driver of our bottom line financial results.

Stewart Ellis: Looking ahead to the second half of 2024, we expect PCF-CAT weather losses of H-H-I-T to decline significantly off their seasonal peak in Q2, which is consistent with the guidance we shared earlier this year. Beyond the weather, we also saw continued improvement in our HHIP non-PCS loss ratio. Again, excluding the benefits of favorable prior year development, this ratio improved by three percentage points year-over-year to 60 percent, despite temporary mixed-shift driven pressure on this number due to the reduction of policies in high-catch geography, which because a greater portion of their premium is for expected cat losses, have a lower non-weather loss ratio.

Stewart Ellis: Looking ahead to the second half of 2024, we expect PCS cap weather losses of HHIP to decline significantly off their seasonal peak in Q2, which is consistent with the guidance we shared earlier this year.

Stewart Ellis: Beyond the weather, we also saw continued improvement in our HHIP non-PCS loss ratio, which, because a greater portion of their premium is for expected cat losses, has a lower non-weather loss ratio. While we expect to hold fixed expenses at roughly this level for the rest of the year, we do not expect this to have a negative impact on our growth. Quarter over quarter, our adjusted EBITDA loss widened by $5 million, driven by a $12 million quarterly over quarterly seasonal increase in gross PCS cat losses at HHIP, offset by improvements in other areas of the business.

Stewart Ellis: Beyond the weather, we also saw continued improvement in our HHIP non-PCS loss ratio.

Stewart Ellis: again excluding the benefits of favorable prior year development this ratio improved by three percentage points year-over-year to sixty percent despite temporary mix shift driven pressure on this number due to the reduction of policies in high cast geographies

Speaker Change: which, because a greater portion of their premium is for expected cat losses, have a lower non-weather loss ratio.

Stewart Ellis: As we complete the HICAP exposure reductions in the second half of the year, we expect the benefits from rate action in prior quarters to become more dominant and to drive a material improvement in this metric. A combination of year-over-year improvements in both weather and non-weather loss ratios, as I just mentioned, drove a substantial improvement in our total HHIP gross loss ratio, which improved by 86 percentage points to 99% from 185% in Q2 of last year.

Speaker Change: as we complete the high- cat exposure reductions in the second half of the year we expect the benefits from rate action in prior quarters to become more dominant and to drive the material improvement in this metric

Speaker Change: A combination of year-over-year improvements in both weather and non-weather loss ratios I just mentioned.

Speaker Change: drove a substantial improvement in our total HHIP gross loss ratio, which improved by 86 percentage points to 99% from 185% in Q2 of last year.

Stewart Ellis: This portfolio level improvement, combined with the improvements to our reinsurance structure, drove an even larger improvement in our HHIP net loss ratio, which came in at 113% during the quarter, an improvement of 475 percentage points versus Q2 of last year.

Speaker Change: This portfolio-level improvement, combined with the improvements to our reinsurance structure, drove an even larger improvement in our HHIP net loss ratio, which came in at 113% during the quarter, an improvement of 475 percentage points versus Q2 of last year.

Stewart Ellis: Moving further down the P&L, as we discussed last quarter, the full scope of the benefits from last year's efforts to streamline our cost structure were realized in Q1. We continued our discipline in these areas in Q2, holding our fixed expenses flat quarter over quarter as our top line continued to grow. While we expect to hold fixed expenses at roughly this level for the rest of the year, we do not expect this to have a negative impact on our growth.

Speaker Change: Moving further down the P&L, as we discussed last quarter, the full scope of the benefits from last year's efforts to streamline our cost structure were realized in Q1.

Speaker Change: We continued our discipline in these areas in Q2, holding our fixed expenses flat quarter over quarter as our top line continued to grow.

Speaker Change: While we expect to hold fixed expenses at roughly this level for the rest of the year, we do not expect this to have a negative impact on our growth.

Stewart Ellis: As Rick mentioned earlier, we've made investments in technology that have helped our agents become more productive and that have significantly improved our conversion and cross-sell rates. The cumulative benefits of these changes have enabled us to continue to grow while reducing sales and marketing dollars spent by 41% year over year. Relative to Q2 of last year, our gap sales and marketing, technology and development, and general and administrative expenses collectively declined by $16 million, a year over year decrease of 28%.

Speaker Change: As Rick mentioned earlier, we've made investments in technology that have helped our agents become more productive and that have significantly improved our conversion and cross-sell rates.

Rick McCathron: The cumulative benefits of these changes have enabled us to continue to grow while reducing sales and marketing dollars spent by 41% year over year.

Speaker Change: relative to q two of last year our gaap sales and marketing technology and development and general and administrative expenses collectively declined by sixteen million dollars a year-over-year decrease of twenty-eight percent

Stewart Ellis: When combined with the increases in our revenue over the same period, these costs fell by 74 percentage points of revenue, shrinking from 120% of revenue in Q2 2023 to 46% of revenue this past quarter. We expect to continue to hold these costs at these levels in the second half of the year while our revenue continues to grow. And as I'll discuss in a moment, this is one of the factors that will help us converge to positive adjusted EBITDA in Q4.

Speaker Change: When combined with the increases in our revenue over the same period, these costs fell by 74 percentage points of revenue, shrinking from 120% of revenue in Q2 2023 to 46% of revenue this past quarter.

Speaker Change: We expect to continue to hold these costs at these levels in the second half of the year while our revenue continues to grow, and as I'll discuss in a moment, this is one of the factors that will help us converge to positive adjusted EBITDA in Q4.

Stewart Ellis: Turning now to Adjusted EBITDA. In Q2, our Adjusted EBITDA loss came in at $24.9 million, a $62.8 million improvement versus Q2 of 2023. The main driver of the year-over-year improvement in HSDBDA was a 94 percentage point decrease in our HHIP growth-loss ratio, complemented by an improved reinsurance structure, better operating leverage, and continued growth in our businesses that are less susceptible to weather and underwriting volatility, insurance as a service, and services. Quarter over quarter, our adjusted EBITDA loss widened by $5 million, driven by a $12 million quarterly over quarterly seasonal increase in gross PCS cat losses at HHIP, offset by improvements in other areas of the business.

Speaker Change: Turning now to Adjusted EBITDA. In Q2, our Adjusted EBITDA loss came in at $24.9 million.

Speaker Change: A $62.8 million dollar improvement versus Q2 of 2023.

Speaker Change: The main driver of the year-over-year improvement in the Jesse D. Bidot was a 94 percentage point decrease in our HHIP gross loss ratio, complemented by an improved reinsurance structure, better operating leverage, and continued growth in our businesses that are less susceptible to weather and underwriting volatility.

Speaker Change: Insurance as a Service, and Services.

Speaker Change: Quarter-over-quarter, our adjusted EBITDA loss widened by $5 million, driven by a $12 million quarter-over-quarter seasonal increase in gross PCS CAT losses at HHIP, offset by improvements in other areas of the business.

Stewart Ellis: Had our gross PCS cat loss been consistent with the actuarially expected values that form the basis for our initial 2024 guidance, our adjusted EBITDA loss would have stayed flat quarter over quarter, despite the entire industry experiencing seasonally higher weather. I'd now like to update our guidance for the second half of 2024. With the second quarter behind us, we now have a clearer line of sight to Hippo's path to positive adjusted EBITDA, and the trends that we expect to drive that convergence are the same trends that explain why our Q2 adjusted EBITDA loss widened by a far smaller magnitude than the seasonal increase in weather losses.

Speaker Change: Had our gross PCS cat loss has been consistent with the actuarially expected values that form the basis for our initial 2024 guidance, our adjusted EBITDA loss would have stayed flat quarter over quarter, despite the entire industry experiencing seasonally higher weather.

Speaker Change: I'd now like to update our guidance for the second half of 2024.

Stewart Ellis: With the second quarter behind us, we now have a clearer line of sight to Hippo's path to positive adjusted EBITDA, and the trends that we expect to drive that convergence are the same trends that explain why our Q2 adjusted EBITDA loss widened by a far smaller magnitude than the seasonal increase in weather losses. We expect revenue to continue to grow faster than GDP as policies written in 2023 continue to renew on our new reinsurance structure, and we're able to benefit from the full monetization of the risk we are retaining.

Speaker Change: With the second quarter behind us, we now have a clearer line of sight to Hippo's path to positive adjusted EBITDA, and the trends that we expect to drive that convergence are the same trends that explain why our Q2 adjusted EBITDA loss widened by a far smaller magnitude than the seasonal increase in weather losses.

Stewart Ellis: To recap the key drivers of convergence to positive adjusted EBITDA that I mentioned earlier, in the second half of the year, we expect TGP growth to re-accelerate as we complete the adjustments to our exposure in high-capital geographies and as the growth in our new homes channel is no longer offset by reductions in other areas of our portfolio. This will start in Q3, but will be much more meaningful in Q4. We expect revenue to continue to grow faster than KGP, as policies written in 2023 continue to renew on our new re-insurance structure, and we're able to benefit from the full monetization of the risk we are retaining.

Speaker Change: To recap the key drivers of convergence to positive adjusted EBITDA that I mentioned earlier.

Speaker Change: In the second half of the year, we expect TGP growth to re-accelerate as we complete the adjustments to our exposure in high-cap geographies and as the growth in our new homes channel is no longer offset by reductions in other areas of our portfolio.

Speaker Change: This will start in Q3, but will be much more meaningful in Q4.

Speaker Change: We expect revenue to continue to grow faster than TGP as policies written in 2023 continue to renew onto our new reinsurance structure, and we are able to benefit from the full monetization of the risk we are retaining.

Stewart Ellis: We expect PCF cat weather losses to decline significantly off their seasonal peak in Q2, and we expect our non-weather loss ratio to improve significantly as previous rate action gains in and is no longer offset by the mixed shift away from higher volatility, higher premium policies toward lower volatility, lower premium policies. We expect fixed costs to remain roughly in line with Q2 dollar levels, even as our top line continues to grow, aided by significant improvements in our efficiency that have been enabled by our technology platform.

Speaker Change: We expect PCS cat weather losses to decline significantly off their seasonal peak in Q2.

Speaker Change: And we expect our non-weather loss ratio to improve significantly as previous rate action earns in and is no longer offset by the mixed shift away from higher volatility, higher premium policies toward lower volatility, lower premium policies.

Speaker Change: We expect fixed costs to remain roughly in line with Q2 dollar levels even as our top line continues to grow, aided by significant improvements in our efficiency that has been enabled by our technology platform.

Stewart Ellis: And finally, we expect minimum cash and investments, excluding restricted cash, to be more than $450 million when we turn adjusted EBITDA positive in Q4. This should enable our adjusted EBITDA loss to decline from Q2 levels to somewhere between a $9 million and $11 million loss in Q3, before turning positive in Q4, where we expect to generate between $5 and $6 million in positive adjusted EBITDA. And with that, operator, I'd now like to open the floor to questions.

Stewart Ellis: And finally, we expect minimum cash and investments, excluding restricted cash, to be more than $450 million when we turn adjusted EBITDA positive in Q4. The results of these trends, and assuming the expected PCS cat load we provided in our shareholders letter, should enable our adjusted EBITDA loss to decline from Q2 levels to somewhere between a $9 million and $11 million loss in Q3, before turning positive in Q4, where we expect to generate between $5 and $6 million And with that, operator, I'd now like to open the floor to questions.

Speaker Change: And finally, we expect minimum cash and investments, excluding restricted cash, to be more than $450 million when we turn adjusted EBITDA positive in Q4.

Speaker Change: The results of these trends, and assuming the expected PCS cat load we provided in our shareholders letter,

Speaker Change: should enable our adjusted EBITDA loss to decline from Q2 levels to somewhere between a $9,000,000 and $11,000,000 loss in Q3 before turning positive in Q4, where we expect to generate between $5 and $6 million in positive adjusted EBITDA.

Speaker Change: And with that, operator, I'd now like to open the floor to questions.

Ada: Ladies and gentlemen, if you would like to ask questions, please press star followed by one on your telephone keypad now. Our first question is from Yaron Kinar from Jeffries. Please go ahead.

Speaker Change: Ladies and gentlemen, if you would like to ask questions, please press star followed by one on your telephone keypad now. Our first question is from Yaron Kinar from Jefferies. Please go ahead.

Yaron Kinar: Thank you. Good morning, and congratulations on the quarter.

Yaron Kinar: Thank you. Good morning and congrats on the quarter. Rick, I want to start with a comment in your shareholder's letter that I think you also repeated on the call just now, where you attribute the

Speaker Change: PCS, Cat, Weather, Loss Ratio Improvement. First and foremost the technology.

Rick McCathron: Rick, I want to start with a comment in your shareholder's letter that I think you also repeated on the call just now, where you attribute the PCS-CAT weather loss ratio improvement, first and foremost, to technology. And I would have thought it was a lot of blocking and tackling and just pulling out of certain regions, things that you've discussed in the past, but things that aren't necessarily technology-driven. So I'd love to hear maybe a little more about the role technology played in that.

Yaron Kinar: And I would have thought a lot of blocking and tackling and just pulling out of certain regions, things that you've discussed in the past, but things that aren't necessarily technology-driven. So I'd love to hear maybe a little more about the role technology played in this.

Rick McCathron: Yeah, good morning, Yaron. This is Rick.

Rick McCathron: Great clarifying question, and you're right. And to be clear, the blocking and tackling things like the price increases that we put into the market, the coverage changes, which would be, you know, inclusive of deductible changes, exposure management, exposure reduction, and high-concentrated areas. That's the underlining reason for the improvement. When we talk about technological advancements, you've got to keep in mind that this is somewhat dynamic. So when we put higher deductibles in the market, or we put higher rates in the market, you really don't know what percentage of customers are going to actually accept and renew with the higher deductibles or accept the higher rates.

Rick McCathron: So we have a living, breathing technological platform that allows us to look at these in real time and iterate on adjustments we need to make to our improvement. And that's where the technology really comes into effect. It's our ability to analyze them in real time, make the adjustments in real time, and put those adjustments into the market. So the technology really accelerates and, I think, is an attributing factor of how quickly we've dramatically improved the loss ratio. So I hope that it helps clarify.

Speaker Change: And put those adjustments into market. So the technology really accelerates and I think as in attributing factor of how quickly we've dramatically improved the loss ratio. So I hope that helps clarify.

Stewart Ellis: Definitely, thank you, and then my second question, and this may be more towards Stewart with the new EBITDA guide that is a bit lower at the midpoint. Can you maybe help us think through the puts and takes again, so better top-line growth is now expected relative to the prior guide. The Operating Leverage that comes with that is also better. So it looks like it's the loss ratio that's really driving that deterioration, and I guess one and two, is that true? And two, assuming it is true, is that mostly backwards-looking, namely the loss ratio in the first half was a bit worse than initially expected, or is it also forward-looking into the second half?

Speaker Change: Definitely thank you.

Stewart Ellis: And then my second question and this maybe more towards Stewart would be.

Stewart Ellis: Thanks, Yaron. It's a good question.

Stewart Ellis: New EBITDA guide that is a bit lower at the midpoint.

Yaron Kinar: Can you maybe help us think through the puts and takes again, so that better top line growth is now expected relative to the prior guide?

Stewart Ellis: Can you maybe help us think through the puts and takes again, so better topline growth now expected relative to the prior guide.

Stewart Ellis: The operating leverage that comes with that is also better.

Speaker Change: It looks like its philosophy ratio thats really driving that deterioration I guess, one is that true and two assuming it is true is that mostly backwards looking namely the loss ratio in the first half was a bit worse than initially expected or is it also forward looking into the second half.

Speaker Change: Yeah.

Stewart Ellis: I'm happy to try to clarify. So I think first, you're absolutely right. Our expectations for both revenue being higher and TGP being higher and OPEX remaining flat are a correct interpretation of what we've said. And our loss ratio expectations for the year are slightly worse, but that's almost entirely a PCS result of the Q2 weather. Q2 was a massive improvement over last year, and I think we can attribute it to all of the reasons that we've talked about already on the call, but also what Rick mentioned. But it was a little bit higher than our expectations.

Ron: Thank you Ron.

Speaker Change: Good question happy to try to clarify.

Speaker Change: So I think first.

Ron: Absolutely right, where our expectations for both revenue being higher than KGB being higher and Opex remaining flat or are a correct interpretation of what we said.

Speaker Change: And our loss ratio expectations for the year are slightly worse, but thats almost entirely a pts.

Speaker Change: Result of the Q2 weather.

Ron: Q2 was a massive improvement over last year and.

Speaker Change: We can attribute it to all of the reasons that we've talked about already on the call, but also what Rick mentioned.

Stewart Ellis: And so when we think about PCS broadly in the financials, I think at the beginning of the year, we guided to around 20% annual PCS load. If you look at the Q2 results and you just maintain kind of our expectations going into the future, you get mostly to where we are today, which is 24% annual PCS load. So most of the difference there is backward looking rather than forward looking. Yeah, at the beginning of the year for non-PCS, we guided to somewhere between 52% and 58% on an annual basis with a midpoint of 55%. Revised guidance there is 55% to 57% on an annual basis with a midpoint of 56%. So it's mostly a PCS-driven thing.

Rick McCathron: But it was a little bit higher than our expectations are and so when we think about tcs.

Speaker Change: Broadly in the financials I think in the beginning of year, we guided to around 20% annual PCF look.

Speaker Change: If you look at the.

Speaker Change: Q2 results and you maintain kind of our our expectations going into the future you get mostly to where we are today, which is a 24% annual Pts was so most of the difference there is backward looking rather than forward looking.

Speaker Change: In.

Speaker Change: Yes in the beginning of the year for non Tcs.

Speaker Change: We guided to around somewhere between 52, and 58% on an annual basis with a midpoint of 55 revised guidance. There is 55% to 57% on an annual basis with a midpoint of 56%. So it's.

Speaker Change: It's mostly a tcs driving thing the thing that gives me greater confidence.

Stewart Ellis: The thing that gives me greater confidence today as we think about the overall EBITDA for the future is that the adjusted EBITDA result in Q2. The loss widened by a smaller amount than it increased relative to Q1. And the factors that are driving that outperformance, I guess, in other areas of the business are the same factors that are driving the convergence to positive adjusted EBITDA in Q4. And I should also probably say that the weather, the PCS loss ratio guidance for the year, the updated guidance includes everything we know today about events that happened in Q4.

Speaker Change: Today, as we think about the the overall EBITDA for the future is that.

Speaker Change: The adjusted EBITDA result.

Yaron Kinar: in Q2.

Speaker Change: In Q2.

Speaker Change: The loss widened by a smaller amount than the weather increased relative to Q1.

Speaker Change: And the factors that are driving that.

Speaker Change: Outperformance I guess in other areas of the business are the same factors that are driving the convergence to positive adjusted EBITDA in Q4.

Speaker Change: And I should also probably say that the weather.

Speaker Change: Tcf loss ratio of guidance for.

Speaker Change: The year the updated guidance includes everything we know today about events that have happened in Q3.

Stewart Ellis: Got it. Thank you. If I could sneak one last one in. If we fast-forwarded to Q25 and just applied the same PCS events that we just saw in the second quarter of 24, and assume that you've completed the pullback from cat-exposed geographies, all else equal, what would you have expected? Or what would you expect the PCS cat loss ratio to be?

Stewart Ellis: Got it. Thank you. If I could sneak one last one in. If we fast-forwarded to 2025 and just applied the same PCS events that we just saw in the second quarter of 24, and assume that you've completed the pullback from cat-exposed geographies, all else equal, what would you have expected? Or what would you expect the PCS cat loss ratio to be?

Speaker Change: Got it thank you.

Speaker Change: If I could sneak one last one in.

Speaker Change: If we fast forwarded to $2 25, and just apply the same PCF events. We just saw a second quarter of 'twenty four.

Speaker Change: And assume that you've completed the kind of a.

Speaker Change: Paul back from Cat exposed geographies.

Speaker Change: All else equal what would you have expected or would you expect the PCF cat loss ratio of <unk>.

Stewart Ellis: Yeah, happy to take that one as well. It's just as a reminder, it's not just exposure management and higher categories. It's also changes to terms and conditions like the deductibles that Richard mentioned. If you were to do a like for like theme weather event, after all of these changes have rolled through our portfolio, we would expect an additional 60% reduction in lost dollars compared to Q2 of this year.

Stewart Ellis: Yeah, happy to take that one as well. It's just as a reminder, it's not just exposure management and higher categories. It's also changes to terms and conditions like the deductibles that Richard mentioned, and so if you were to do a like for like theme weather event, after all of these changes have rolled through our portfolio, we would expect an additional 60% reduction in loss dollars compared to Q2 of this year.

Speaker Change: Yeah happy to take that one as well.

Speaker Change: Just as a reminder, it is not just explore.

Speaker Change: Exposure management and higher cat geographies. It's also changes to terms and conditions are like the deductibles that Rick mentioned.

Speaker Change: If you were to do a like for like same weather events. After all of these changes have rolled through our portfolio. We would expect an additional 60% reduction in lost dollars compared to Q2 of this year.

Yaron Kinar: Great! Thank you so much.

Yaron Kinar: Great. Thank you so much.

Speaker Change: Great. Thank you so much.

Ron: Thanks, Ron.

Ada: The next question is from Tommy Mcjoynt from KBW. Please go ahead.

Tanya <unk>: The next question is from Tanya <unk> from <unk> capital. Please go ahead.

Tommy McJoynt: Hi, good morning. This is Jing Ong for TAMI.

Tommy McJoynt: Hi, good morning. It's being on for Tommy.

Tanya: Hi, good morning.

Speaker Change: Hum.

Unnamed: My first question is, um, on the PCS loss ratio guidance. So what are you guys based on? Is it based on historical normal year or above average, like the industry forecast is calling for?

Stewart Ellis: My first question is, um, on the PCS loss ratio guidance. So what are you guys based on? Is it based on historical normal year or above average, like the industry forecast is calling for?

Tanya: My first question.

Speaker Change: On the Tcs loss ratio guidance.

Speaker Change: They saw as a base.

Speaker Change: Our historical norms.

Speaker Change: Above average.

Speaker Change: James forecasts are calling for.

Stewart Ellis: Thanks for the question. The updated PCS guidance is based on our actuarial expectations, given the geography and the portfolio that we have, and it's been, you know, adjusted and updated to reflect, as I said a moment ago, everything that we know today about events that have happened so far in Q3.

Speaker Change: Yeah. Thanks for the question.

Speaker Change: The updated DCF guidance is based on our actuarial expectations, given the geography and the portfolio that we have.

Speaker Change: And it's been adjusted and updated to reflect as I said.

Speaker Change: Gonna go.

Speaker Change: Everything that we know today.

Speaker Change: About events that have happened so far in Q3.

Unnamed: Okay, I got it. Thank you.

Stewart Ellis: Okay, got it. Thank you. My second question is on the near-to-gross written premium ratio. Since you guys have a new reinsurance structure now, how should we think about the near-to-gross written premium ratio for different segments?

Speaker Change: Okay got it thank you.

Speaker Change: My second question is on the.

Speaker Change: Net to gross written premium ratio.

Unnamed: My second question is on the near-to-growth written premium ratio. Since you guys have a new reinsurance structure now, how should we think about the near-to-growth written premium ratio for different segments?

Speaker Change: You guys have a new reinsurance structure now.

Speaker Change: So how should we think about the net to gross written premium.

Speaker Change: In ratio.

Speaker Change: For them it doesn't thickness.

Stewart Ellis: Yeah, so happy to take that one. I think, you know, just to rewind a bit, a year or so ago, we were still fairly heavy users of quota share reinsurance, where we were feeding off a proportion of the premium and a proportion of the losses. Those quota share reinsurance contracts had some loss participation features in them that, in hindsight, meant that we were retaining a greater share of the losses than we were the premium.

Speaker Change: Yes happy to.

Speaker Change: Take that one I think.

Speaker Change: Just to rewind a bit a year or so ago.

Speaker Change: We were still fairly heavy users of quota share reinsurance, where we're feeding off.

Speaker Change: A proportion of the premium and a proportion of the losses.

Speaker Change: Those quota share reinsurance treaty had some mass participation features in them.

Speaker Change: That in hindsight meant that we were retaining a greater share of losses than we were in the premium and so coming into 2024, we decided to make a change to our structure and move from a from being a heavy buyer of quota share reinsurance to a more traditional excess of loss structure.

Stewart Ellis: And so coming into 2024, we decided to make a change to our structure and move from being a heavy buyer of quota share reinsurance to a more traditional access to loss structure. That means that we're retaining more of the premium on our balance sheet and getting paid for the risk that we're retaining. We will still use access to loss reinsurance, where we feed off a portion of the premium to protect the tail.

Stewart Ellis: And so coming into 2024, we decided to make a change to our structure and move from being a heavy buyer of quota share reinsurance to a more traditional access to loss structure. That means that we're retaining more of the premium on our balance sheet and getting paid for the risks that we're retaining. We will still use access to loss reinsurance, where we feed off a portion of the premium to protect the tail.

Speaker Change: That means that we're retaining more of the premium on our balance sheet and getting paid for the risk that we're retaining.

Speaker Change: We will still use excess of loss reinsurance, where we seed off a portion of the premium to protect the tail.

Stewart Ellis: But we are, as a result of the actual structure and using less quota share to retain more of the premium, which means our earned premium is going to be growing year over year faster than our TGP as we shift to the new structure. We still have some policies that have not yet renewed in 2024 that we're on the 2023 quota share reinsurance treaty. And so, as those policies renew, not only will we have a greater share of the premium that we'll earn over the next 12 months, but they will also renew in the areas that we've been talking about so far on this call, such as the new deductible structure and the new terms and conditions, which we think will be beneficial for the loss ratio improvement we're expecting going forward. Yeah, the

Stewart Ellis: But we are, as a result of the actual structure and using less quota share to retain more of the premium, which means our earned premium is going to be growing year over year faster than our TGP as we shift to the new structure. We still have some policies that have not yet renewed in 2024 that we're on the 2023 quota share reinsurance treaty. And so as those policies are new, not only will we have a greater share of the premium that we'll earn over the next 12 months, but they will also renew in the areas that we've been talking about so far on this call, such as the new deductible structure and the new terms and conditions, which we think will be beneficial for the loss ratio improvement we're expecting going forward. Yeah, the

Speaker Change: But we are.

Speaker Change: We are able as a result of the <unk> structure and using less quota share to retain more of the opinion, which means our earned premium is going to be growing year over year faster.

Speaker Change: <unk> faster than our PGP as we shift to the new structure, we still have some policies that have not yet renewed in 2024 that were on the 2023 quota share reinsurance treaty and so as those policies renew not only will we have a greater share of the premium that will earn in over the next 12 months, but they will also.

Speaker Change: Renew in the areas that we've been talking about so far in this call onto the new deductible structure and onto the new terms and conditions.

Speaker Change: Think which will be beneficial for the loss ratio improvement, we're expecting going forward.

Rick McCathron: Yeah, DeHong, if I could add one thing, this is Rick. The only reason we were comfortable to shift our reinsurance strategy away from quota share is because of the underlining confidence we have in the loss ratio and portfolio improvement. If we didn't have strong confidence in that, we still likely would have been purchasers of more quota share. But both from an underlying nutritional loss ratio perspective and the work that we are doing on our project volatility, which is the cap management, and deductible change, all of those things gave us the confidence to shift the reins, and that shift is paying off.

Rick McCathron: Yeah, DeHong, if I could add one thing, this is Rick. The only reason we were comfortable to shift our reinsurance strategy away from quota share is because of the underlining confidence we have in the loss ratio and portfolio improvement. If we didn't have strong confidence in that, we still likely would have been purchasers of more quota share. But both from an underlying nutritional loss ratio perspective and the work that we're doing on our project volatility, which is the cap management, and deductible change, all of those things gave us the confidence to shift the reins, and that shift is paying off.

Rick McCathron: If I could add one thing this is Rick.

Rick McCathron: The only reason we were comfortable to shift our reinsurance strategy away from quota share is because of the underlying confidence we have in the loss ratio and portfolio improvement. If we didn't have strong confidence in that we still likely would have been purchasers of more quota share.

Speaker Change: But it's both from an underlying attritional loss ratio perspective, and the work that we're doing on.

Speaker Change: On our.

Speaker Change: Our project volatility, which is the cat management deductible change all of those things gave us the confidence to shift the reintroduction and that shift is paying off.

Unnamed: Got it. That's really helpful. Thank you.

Tommy McJoynt: Got it. That's really helpful. Thank you.

Speaker Change: Got it that's very helpful. Thank you.

Dion: Thanks Dion.

Ada: The next question is from Pablo Singzon from JPMorgan. Please go ahead.

Ada: The next question is from Pablo Cizon from JP Morgan. Please go ahead.

Speaker Change: Next question is from Pablo <unk> from J P. Morgan.

Speaker Change: Please go ahead.

Speaker Change: Okay.

Pablo Cizon: Hi, good morning. Can you please talk about the competitive position of your home-industry products and regions where you're still writing? You know, I presume you want to be metricized out of areas that are not attractive to you, but where you still write, how do your products compare to the competition as far as features are concerned and compensation to the agency?

Pablo Singzon: Hi, good morning. Can you please talk about the competitive position of your homeless products and regions where you're still writing? You know, I presume you want to be metricized out of areas that are not attractive to you, but where you still write, how do your products compare to the competition as far as features are concerned and compensation to agencies are concerned?

Pablo: Hi, good morning.

Speaker Change: Can you just talk about that.

Speaker Change: That acquisition, if you're homeless products in regions, where youre still waiting.

Speaker Change: And you wanted to be next year.

Pablo: Or is there more attractive to you, but what we saw right healthier products compared to the competition as far as concerned in compensation to agents.

Rick McCathron: Yeah, Pablo, great question. This is Rick.

Rick McCathron: Yeah Pablo Great question. This is Rick a couple of different facets to your question. So first I think we've been very clear that as a company. We are only going to right, where we have an expected loss ratio that is positive and where we are avoiding catastrophic aggregation.

Rick McCathron: There are a couple different facets to your question. First, I think we've been very clear that, as a company, we are only going to write where we have an expected loss ratio that is positive, and where we are avoiding catastrophic aggregation concerns. So in those areas where we have opened up, we are confident that we have both a product and tech advantage and a consumer adoption advantage, predominantly in our new home channel. This is something that we've talked about doubling down on.

Speaker Change: <unk> so in those areas, where we have opened up.

Speaker Change: We are confident that we have both a product and tech advantage and a.

Pablo: Consumer adoption advantage predominantly in our.

Pablo: Our new home channel. This is something that we've talked about doubling down on we have deployed new technology in that channel we have additional third party carrier.

Rick McCathron: We've deployed new technology in that channel. We have additional third-party carrier partners in that channel, because remember, the customer comes essentially in a digitized way into our agency, and then we choose what the best solution is for the customer. Sometimes it's the Hippo new home product. Sometimes it's a third-party new home product. So the additional technology has allowed us to better aggregate that business amongst various players. We have new builder partners in that channel as well.

Speaker Change: Partners in that channel because remember the the customer comes essentially in a digitized way into our agency and then we choose what the best solution is for the customer sometimes it's the Hippo new home product, sometimes it's third party new home product. So the additional technology has allowed us to better.

Rick McCathron: So we're very excited, as Stewart mentioned, as we complete our aggregation management and profitability efforts, which is currently a headwind to growth. Generally, that will become a tailwind because we will no longer be eliminating that business, and we will continue to grow in channels where we have a strong expected loss ratio. So I think that's the fundamental answer to your question.

Pablo: Our aggregate that business amongst various players we have new builder partners.

Stuart: In that channel as well so we're very excited as Stuart mentioned as we complete our aggregation management and profitability efforts, which is currently a headwind to growth generally that will become a tailwind because we will no longer be eliminating that business and we will continue.

Stuart: To grow in channels, where we have a strong expected loss ratio. So I think I think that's the fundamental answer to your question.

Rick McCathron: Thanks. And actually, that's a good segue to my next question. I wanted to hear more about the home business segment. You know, how fast is it growing? And what's driving the growth? Is it new partners, or increasing penetration? You know, I think there's a recognition that that segment of homeowners is particularly attractive, right, from a leadership perspective. And I'd just be curious to hear sort of what's going on from your perspective on that Yeah, Pablo, good question.

Pablo Singzon: Thanks. And actually, that's a good segue to my next question. I wanted to hear more about the home business segment. You know, how fast is it growing? And what's driving the growth? Is it new partners, or increasing penetration? You know, I think there's a recognition that that segment of homeowners is particularly attractive, right from a leadership perspective. And I'd just be curious to hear sort of what's going on from your perspective on that Yeah, Pablo, good question.

Speaker Change: Thanks, and actually that's a good segue to my next question I wanted to hear more about.

Pablo: The home business segment.

Speaker Change: How fast is it growing and what's driving the growth of new partners.

Pablo: Sure.

Speaker Change: I think there's a recognition that that segment of homeowners is particularly attractive right from an industry perspective.

Speaker Change: I'm curious to hear sort of what's going on from your perspective in that.

Pablo: Yeah.

Rick McCathron: Yeah, Pablo, good question. At this point, what we're excited to share is really three different facets of how we are doubling down on growing that channel. First, as I mentioned, additional carrier partners that come alongside Hippo's product and offer to customers. Second, we are adding more builders to the platform. And third, our operational metrics continue to improve. So that's the combination of improvement in the opt-in rate for customers wanting to receive a quote, improved attach rate for those customers, and improved unit economics because of the changes that are going through the rating portfolio and the work that we're doing. So we'll have more to share next quarter on this. But at this point, it's a combination of all three factors that has very much given us confidence in growth in that particular area.

Pablo: Yes, Pablo good question at this point, what we are excited to share is really.

Pablo: Three different facets in which we are doubling down in growing that channel first as I mentioned additional carrier partners that come alongside hippos product and offered to customers. Second is we are adding more builders to the platform and third is our operational metrics continue to.

Pablo: To improve so that's the combination of improvement in opt in rate for customers wanting to receive a quote.

Pablo: Improved attach rate for those customers.

Pablo: And improved unit economics, because of the changes that are going through the radian portfolio and the work that we're doing so and we will have more to share next next quarter on this.

Pablo: But at this point, it's a combination of all three factors that have very much.

Pablo: Given us confidence and growth in that particular channel.

Speaker Change: Great. Thank you.

Pablo: Thanks Pablo.

Ada: The next question is from Yaron Kinar from Jeffries. Please go ahead.

Yaron Canaat: The next question is from your own cannot from Jefferies. Please go ahead.

Yaron Kinar: Hi, I'm back with a couple of follow-ups if I could. One, within services, can you provide the portion of TGP coming from First Connect?

Yaron Naymark: Hi, I'm back with a couple of follow ups, if I could one.

Youssef Squali: Within services can you provide the portion of <unk> coming from first connect.

Stewart Ellis: Hey Yaron, it's Stewart. This is not a level of detail that we have previously provided, and we are so happy to take this as a suggestion as we think about our 2025 reporting. When we started, it was not as significant as it is today, so you know it's trending in a direction where, obviously, it makes sense to start thinking about breaking that out, but we'll consider that for next.

Stuart: Hey, Ron its Stuart.

Speaker Change: It's not a level of detail that we have previously provided.

Speaker Change: And and so happy to take this as a suggestion as we think about our 2025 reporting.

Speaker Change: When we started it was not.

Pablo: As significant as it is today, so it's trending in a direction, where obviously it makes sense to start thinking about breaking that out, but but we'll consider that for next year.

Yaron Kinar: And then the other question I had, with the re-acceleration of TGP, is that really coming only from HHIP, or do you also expect services in IAAS TGP to accelerate in the second half of the year?

Speaker Change: Great.

Speaker Change: And then the other question I had with the Reacceleration of T. G. P is that.

Speaker Change: Really coming only from <unk> or do you also expect.

Speaker Change: Services Nia STG, Peter accelerating the second half of the year.

Stewart Ellis: So, services and insurance as a service have been growing quite, quite helpfully, I think, in 2024. I think the bulk of the acceleration that you're going to see comes from, as we talked about the headwind associated with the exposure management that we're doing at HHIP, going away and allowing the underlying growth in the new homes channel to become a more dominant factor in the broader business. That will also benefit the services segment because, as you know, the agency within our business also sells our HIPPO home insurance product.

Stewart Ellis: So, services and insurance as a service have been growing quite, quite helpfully, I think, in 2024. I think the bulk of the acceleration that you're going to see comes from, as we talked about the headwind associated with the exposure management that we're doing at HHIP, going away and allowing the underlying growth in the new homes channel to become a more dominant factor in the broader business. That will also benefit the services segments because, as you know, the agency within our business also sells our Hippo home insurance product.

Speaker Change: So services and insurance as a service have been growing quite quite healthily I think in 2024, I think the bulk of the acceleration that you're going to see it comes from as we talked about the headwind associated with the exposure management that we're doing at Hh IP going away.

Speaker Change: <unk> and allowing the underlying growth in the new homes channel to become a more dominant factor in the broader.

Speaker Change: And the broader business that will also benefit the services segments because.

Speaker Change: You know that the agency with in our within our business also sells our Hippo home insurance product and so the growth of the services segment has been despite the.

Stewart Ellis: And so the growth of the services segment has been despite the exposure management actions at HHIP. Obviously, that gets eliminated in the eliminations when you look at the consolidated results. But I do think it's important to understand that the growth of the services segment has, by itself, been fairly rapid. But the acceleration is due almost entirely, I think, to the kind of winding up of the changes that have been rolling through the portfolio at HHIP for the first couple quarters and will continue through October this year.

Stewart Ellis: And so the growth of the services segment has been, despite the exposure management actions at HHIP, obviously that gets eliminated in the eliminations when you look at the consolidated results. But I do think it's important to understand that the growth of the services segment has also, by itself, been fairly rapid. But the acceleration is due almost entirely, I think, to the kind of winding up of the changes that have been rolling through the portfolio at HHIP for the first couple quarters and will continue through October of this year. Yeah.

Speaker Change: Exposure management actions at H H I P. Obviously that gets eliminated in the eliminations and when you look at the consolidated results, but I do think it's important to understand that the growth of the services segment is also by itself has been fairly rapid.

Speaker Change: The acceleration is due to almost entirely I think to the.

Speaker Change: Winding up of the changes that had been rolling through the portfolio at Hh IP for the first couple of quarters and will continue through October of this year.

Stewart Ellis: Yeah, you're

Rick McCathron: Yeah, Yaron, this is Rick. I'd like to add a couple of things to what Stewart said. As I mentioned in the letter, we are also getting far more efficient with things like cross-sell within the services segment. So we anticipate continued improvement in that area, which will do a couple things. One, it will increase TGP because we will be selling more products to each individual customer. And ultimately, it will continue to help drive down LTV to CAC for that same reason. And we expect that to continue to improve as we make a significant effort to improve both technology and operational prowess within the services segment.

Speaker Change: Yes, Ron this is Rick.

Ron: To add a couple of things.

Ron: To what Stuart said as I mentioned in the letter we are also getting far more efficient with things like cross sell within the services segment. So we anticipate continued improvement in that arena, which will do a couple of things one it will increase <unk> increase CGP, because we will be.

Ron: Selling more products to each individual customer.

Ron: And ultimately it will continue to help drive down.

Ron: LTV to CAC for that same reason and we expect that to continue to improve as we are putting significant effort in both technology and operational prowess within the services segment.

Yaron Kinar: Okay. And maybe circling back to Stewart's point around the reacceleration of growth and HHIP also ultimately impacting the services segment, would that also suggest then that the delta within the service segment between TGP growth and revenue growth would start inflecting downwards again because more of the growth potentially would be from the agency business as opposed to First Connect?

Yaron Kinar: Okay. And maybe circling back to Stewart's point around the reacceleration of growth in HHIP also ultimately impacting the services segment, would that also suggest then that the delta within the service segment between TGP growth and revenue growth would start inflecting downwards again because more of the growth potentially would be from the agency business as opposed to first connect?

Ron: Okay.

Speaker Change: And maybe circling back to Stuart's point around.

Speaker Change: Reacceleration of growth in HIV also ultimately impacting the services segment would that also suggest then that the delta within the service segment between <unk> growth and revenue growth.

Speaker Change: Sorry, inflicting downwards again, because more of the growth potentially would be from the agency business as opposed to first connect.

Stewart Ellis: I think when we were, I'm not sure I 100% understood your question. So, if I've misunderstood it, please let me know, and I'm happy to try to take a different angle.

Stewart Ellis: I think when we were I'm not sure I 100% understood your question. So if I've misunderstood it, please let me know, and I'm happy to try to take a different angle. But when we report results within the agency, we tell the agency revenue is the commission that the MGA is paying the agency internally.

Speaker Change: I think when we were I'm not sure I, 100% understood. Your question. So if I've misunderstood. It. Please let me know and I'm happy to try to take a different angle, but.

Speaker Change: When we report results within the agency. The agency revenue is the commission that the MGA is paying the agency internally right.

Stewart Ellis: But when we report results within the agency, we, the agency revenue is the commission that the MGA is paying the agency internally, right, roughly at market rates. Um, and so there. I'm not sure if that was your question, but please let me know if that's not a problem.

Speaker Change: At that roughly at market rates.

Speaker Change: And so.

Ron: I'm not sure if that was your question but.

Ron: Please let me know if that's not right.

Yaron Kinar: So my question is, the revenues that come in from First Connect are a far smaller portion of TGP because you collect a fraction of the commissions, right? You collect a percentage fee on that commission versus the agency fee, which is a gross fee. So my question is, if HHIP is now expected to accelerate growth and some of that is going back into services through commissions, then ultimately, should we expect the delta within the services segments, revenue growth, and TGP growth to come down a bit relative to where it was in the second quarter?

Speaker Change: So my question is the revenues that come in from first connect are far far lower portion of TTP, because you collect a fraction of our commissions right you collect a percentage fee on that commission versus the agency fee, which is a grocery.

Speaker Change: So my question is if <unk> is now expected to accelerate growth and some of that is going back into services through commissions.

Speaker Change: And then ultimately should we expect the delta within.

Speaker Change: The services segment's revenue growth and T. G P growth to come down a bit relative to where it wasn't in the second quarter.

Stewart Ellis: Yeah, I, um...

Yaron Kinar: Yeah, I

Speaker Change: Yeah.

Stewart Ellis: I'll go ahead and jump in on this one, Yaron. So I think your answer is correct. If you think about the TGP share and the revenue share, it's the largest in HHIP, in terms of revenue, because we're the carrier; it's second largest in services, in the agency, because we collect the full commission, and it's the smallest in First Connect because we share a portion of the commission. So as we continue to grow HHIP, the delta between HHIP and services will decrease because we're riding more So I think your observation is correct. Yeah, that said, I'll also add

Speaker Change: Yeah I'll go ahead and jumping on this when you're wrong. So I think your your answer is correct. If you think about.

Speaker Change: The <unk> share in the revenue share.

Speaker Change: Its largest in Hh IP in terms of revenue because we're the we're the carrier.

Speaker Change: Second largest in services and the agency because we collect the full commission and its smallest.

Speaker Change: First connect because we share a portion of the commission. So as we continue to grow Hh IP the delta between <unk> and services will decrease because we're writing more in something that we received more revenue from so I think your.

Stewart Ellis: Yes, it does. Thank you so much. Great.

Stewart Ellis: Yeah, that said, I'll also add, though, that the actual cost structure of revenue in First Connect is lower, meaning it's a higher-margin revenue stream. So, even if the commission or the revenue as a percentage of TGP declines because of a mix shift. The First Connect platform has lower marginal costs as a percentage of revenue. So all of the mix shift, you know, within that segment is accretive to our overall profitability.

Speaker Change: That's correct, yes that said I'll also add though that the.

Stewart Ellis: Yeah, that said, I'll also add, though, that the actual cost structure of revenue in First Connect is lower, meaning it's a higher-margin revenue stream. So, even if the commission on the revenue as a percentage of TGP declines because of a mix shift. The First Connect platform has lower marginal costs as a percentage of revenue. So all of the mix shift, you know, within that segment is accretive to our overall profitability. Great, great point. Does that help, Yaron?

Speaker Change: The actual cost structure of revenue and first connectors lower meaning it's a higher margin revenue stream so even if.

Speaker Change: Yeah.

Speaker Change: Commission revenue as a percentage of TDP declines because of a mix shift.

Speaker Change: The first connect platform has lower marginal costs.

Speaker Change: As a percentage of revenue so all of the mix shift.

Speaker Change: That segment is accretive to our overall profitability.

Speaker Change: Great Great point does that help you on.

Speaker Change: Yes. It does thank you so much.

Speaker Change: Great.

Ada: We currently have no further questions. As a reminder, ladies and gentlemen, if you would like to ask questions, please press start followed by one on your telephone keypad.

Speaker Change: We currently have no further questions as a reminder, ladies and gentlemen, if you would like to ask questions. Please press star followed by one on your telephone keypad now.

Speaker: Well, if there are no further questions, we very much appreciate your attention this morning, and we're looking forward to speaking with you next quarter. Have a great rest of the day.

Speaker Change: Well if there are no further questions. We very much appreciate your attention. This morning and were looking forward to speaking with you next quarter have a great rest of the day.

Operator: This concludes today's call. Thank you for joining us. You may now disconnect your lines.

Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.

Speaker Change: Goodbye.

URL: www.youtube.com.au

Speaker Change: [music].

Speaker Change: Yeah.

Stewart Ellis: Right. That's roughly at market rates. And so there. I'm not sure if that was your question, but please let me know if that's not right. I'm not sure if that's not right.

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