Q2 2025 Hippo Holdings Inc Earnings Call

Hi.

Hello everyone and a warm, welcome to the hippo Q2 2025 earnings call.

My name is Emily and I'll be coordinating your call today.

After the presentation, you will have the opportunity to ask any questions, which you can do. So, by pressing star, followed by the number 1 on your telephone keypad.

I would now like to turn the call over to Mark Olson. Director of corporate Communications to begin.

Please go ahead.

Thank you, operator.

Good morning, and thank you for joining hippos. 2025 second quarter earnings call.

Earlier today, Above issued a shareholder letter announcing its Q2 2025 results, which is available at investors.com.

Leading today's discussion will be Hippo President and Chief Executive Officer, Richard McCathron, and Chief Financial Officer, Guy Zeltser. Following management's prepared remarks, we will open up the call for questions.

before we begin, we'd like to remind you that our discussion will contain predictions expectations for looking statements and other information about our business that are based on Management's current expectations as of the date of this presentation,

But we're looking statements include but are not limited to if those expectations or predictions of Financial and business performance and conditions and competitive and Industry Outlook.

But we're looking statements are subject to risks uncertainties and other factors that could cause our actual results to differ materially from our historical results and or from our forecasts including those set forth in hippos form 10q filed today

For more information, please refer to the risks uncertainties and other factors discussed in hippos. SEC. Filings in particular in the section, entitled risk factors in our form, 10 Q.

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 hippos. 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.

During this conference call, we will also refer to non-gaap financial measures such as adjusted. Net income and adjusted evida

Our Gap results and description of our non-gaap financial measures with a full reconciliation to gaps. Can be found in the second quarter of 2025 shareholder letter, which has been furnished to the SEC and is available on our website.

Thank you, Mark. Good morning, everyone. Thank you for joining us.

The second quarter marked a pivotal milestone for hippo. The proud moment that reflects the dedication hard work and steady progress. We've made over the past, several quarters.

We unveiled our exciting long-term strategic plan at our investor day in New York City and announced a new transformative partnership that will accelerate our strategy.

This quarter, underscores our ability to deliver significant incremental improvements across the core drivers of value in our business.

The Strategic plan we presented to investors and analysts is designed to deliver Superior Returns on Capital and Is Anchored in 3, powerful pillars.

Strategic diversification.

We are actively diversifying our premium base across, both personal and Commercial lines. While also broadening our reach across the insurance value Chain by leveraging hippos. Hybrid hunting carrier,

Unlocking market growth.

We are poised to capitalize on the robust, long-term growth trajectory within the home insurance market. You are owned managing General Agency, Hippo Home Insurance.

This program offers a differentiated technology-driven. Customer experience that sets us apart.

Optimize risk management.

We're leveraging our diverse portfolio and risk management capabilities to intelligently optimize our business across Market Cycles.

This involves iteratively adjusting pricing coverages and the degree in nature of risk participation across different lines of business to maximize returns.

The Strategic partnership. And now at our investor day with the balding group is set to supercharge the momentum across all 3 of our strategic goals.

Program, premium growth and diversification.

Hippos, hybrid fronting carrier will build upon its decade-long support of Baldwin's MSI, renters, and MSI homeowners program.

Extending capacity to a broader spectrum of Baldwin's NGA programs.

This move is set to accelerate premium growth and enable faster diversification across lines of business.

Triple E Market access.

We're now distributing our newly built homeowners products through Baldwin's industry-leading Westwood Insurance Agency, which partners with 20 of the top 25 home builders in the U.S.

Collaboration significantly, expands our reach tripling, access to new home, closings and fueling both premium growth and Geographic diversification.

Strengthening financial position.

We closed a deal to transfer our home builder assets to the Baldwin group for 100 million and Q3

the additional Capital will directly fuel. Our long-term strategy of building a well-balanced portfolio of insurance risks to delivers, a superior return on Capital,

Beyond these significant corporate developments. Our internal teams remain laser focused on operational efficiency.

Execution and excellence throughout the quarter.

We welcome 2 key MGA Partners to our platform.

Further diversifying our premium within commercial and Casualty lines.

While also expanding additional lines of business with current partners.

as we mentioned during the investor day, our risk participation when launching new programs is low, as we gain more experience with each program, we'll consider increasing our risk participation, if doing so, enhances our return on equity,

Crucially while expanding our Top Line. Remains core to our strategy. We did not compromise on underwriting profitability. Thanks to earlier underwriting and rate actions. Along with improved claims operations we achieved a Consolidated net loss ratio of 47% in Q2 supported by favorable, Reserve developments across multiple lines of business.

This quarter also powerfully demonstrated with scalability of our platform.

While we grew revenue by more than 30% year-over-year.

By 16% over that same period.

Our improved operating Leverage is a key driver of value. Enabling us to deliver robust Revenue growth while maintaining underwriting discipline and controlling expenses.

Our diligent execution of our strategic, go forward plan. In the second quarter led to a substantial Improvement in profitability year-over-year.

In a critical milestone.

This truly outstanding quarter for Hippo would not have been possible without the extraordinary hard work, focus, and collaborative spirit of the entire team, as well as the unwavering support of our values.

I'm immensely proud of all we achieved in Q2 and eagerly look forward to building on this powerful momentum throughout the rest of 2025 and well into the future.

Now, I'd like to turn the call over to our Chief Financial Officer, Guy Zeltser.

To walk through the highlights of our second quarter Financial results as well as our expectations for the remainder of 202.

Thanks Greg and good morning everyone.

Thank you to. We continue to implement, our long-term strategy demonstrating strong performance across key financial and operational metrics.

Our underwriting discipline remained consistent reporting. Sorry Topline. Premium growth and healthy illustrations.

We also made further progress in expense management, positioning us well to capitalize on the operating leverage inherent in our model as we scale.

But our investor today in New York City, we outlined our 2028 Financial targets. Reinforcing our continents, in the long term trajectory of the business,

These targets include gross return premium, over 2 billion dollars.

Adjusted net income over $125 million.

Adjusted return on Equity over 18%.

These targets, prevent the continued maturation of our business model, and our ability to drive profitable growth over time.

The primary drivers of future adjusted net. Income growth are already visible in our Q2 results.

We are growing Topline premium while maintaining underwriting profitability at expected levels.

And we're gaining meaningful operating leverage as premium growth continues to outpace the growth of fixed expense.

As we outline during our investment. There are 4 key drivers of future gross, written premium growth,

Organic growth from existing hybrid fronting programs.

Addition of new hybrid funding programs.

Scaling, our new homes Channel within 8. It

And expanding nhip beyond the new homes Channel.

In Q2 we made strong progress on most of these growth drivers.

Gross written premium grew 16% year-over-year to 299 million up from 268 million in Q2 of last year.

This growth was driven by our hybrid fronting programs with existing programs contributing 24 million, in organic growth and new programs adding 23 million.

In hrp, we observed a mixed Trend where the growth in our new homes channel was more than offset by the reduction in Cadet soldier from existing homes.

Resulting in a 9% year-over-year, reduction in Gross written premium from xrp.

Looking ahead. There are 2 trends that we expect to bring acap back to gross recommend group.

The Baldwin partnership provides us access to approximately 3 times more new homes closings.

Supporting our continued extension within the new homes Channel.

And second, we prefer to expand the growth Beyond new homes. Selling policies to customers with existing homes through select partners and in the states providing geographical diversification.

In Q2 Revenue grew 31% to 117 million dollars up from 90 million in Q2 of last year.

The increase was driven by gross earned premium growth of 12% to 238 million up from 212 million in Q2 of last year as well as an increase in premium retention, which grew 9% percentage points to 39% up from 30% in Q2 of last year.

The increase in premium retention was driven by 2 main sectors.

1 higher risk retention at hybrid fronting programs where the risk profile and underwriting profit were attracted and 2 achieved away from quarter. Share reinsurance, that is JP.

our premium retention in, Q2 is approaching the long-term target range of between 40 and 45% that we recently shared during our investor day,

As a core part of our strategy, we plan to view opportunistic and respond quickly to market conditions by dialing up or down payment. Retention, Guided by return on equity.

In Q2, our consolidated net loss ratio improved 46 percentage points year-over-year to 47%.

Enhanced claim operations and favorable Reserve developments across multiple lines of business.

Even when we exclude the benefits of the reserve release from fire accident here, our net loss ratio would have been 55%, well below the long-term targets of between 60 and 65%. We shared at our investor day,

the net loss ratio for our hybrid funding programs increased 4 percentage points to 37%

As we nearly doubled net premium from our highly fronting programs compared with Q2 of last year, we continue to demonstrate our ability to not compromise on underwriting discipline while driving significant growth.

The agents have been net loss ratio improved, 58 percentage points year-over-year to 55%.

Driven by improvements in Gross cost ratio. And by prior quarter share reinsurance street is running off resulting in better match between net premiums and losses.

Gross cost ratio of hjp improved 41 percentage points in year-over-year to 44%.

Non-PTSS ratio improved by 26 percentage points to 34%, while the PCS loss ratio improved by 14 percentage points to 11%.

Even when excluding the benefits from Reservoir is from prior accident here.

Hhip gross off ratio improved 44 percentage points to 56%.

The Improvement in growth loss ratio was driven by improved rate.

Changes in terms and conditions.

Better underwriting processes and enhanced claims operations.

In Q2, we continue to deliver topline growth while simultaneously reducing our operating expenses, both as a percentage of revenue.

And on an absolute dollar basis.

In Q2 our combined sales and marketing technology and development and general and administrative expenses declined by 6 million dollars compared with the same period last year. Representing a 16% decrease.

When combined with the increase in our Revenue over the same period, these crossed still from 46% of Revenue in Q2 of last year and 30% of Revenue in this quarter.

This reduction reflects ongoing efficiency gains across our operations and signals our ability to scale the business more effectively in future quarters.

Due to net income came in.

At $1 million, a 41 million compared to Q2 of last year.

The drivers of this improvement included topline growth while diversifying the premium base.

Improving Consolidated net loss ratio.

Better operating leverage and lower stock with compensation expense.

Due to a deficit, net income came in at $17 million, a $37 million improvement compared to Q2 of last year.

The same factors that drove the net income Improvement. Also contributed to the increase in adjusted net income, with the exception of stocks, compensation expense, which does not impact adjusted net income.

Due to ending cash and Investments, increased quarter over quarter by 76 million.

To 644 million.

This increase was primarily driven by the 15 million dollar Surplus. Note issuance and seasonal working capital changes including payments received from Ranchers,

On July 1, 2025, we closed on the sale of our home builder distribution network to Westwood Insurance Agency, LLC.

The circumstances of 75 million dollars in upfront, cash.

And 25 million dollars in cash to be paid in the first quarter of 2026.

During the third quarter of fiscal year 2025, we expect to record the game of approximately 90 million dollars in our Consolidated financial statements.

On July 1st 2025. We repurchase approximately 514,000 shares of our common stock beneficially owned by Lennar in a private transaction at a price per share of 208.17 for an aggregate purchase price of 14.5 million, the repurchase of the shares was made under our existing share repurchase program as of July 1st 2025,

After giving effects to the repurchase of the shares, approximately $18 million will remain authorized and available under our share repurchase program.

As we look ahead to the rest of the year. We are raising full year. Guidance for all the key metrics, we highlighted during our investment.

When additional details including quarterly, guidance could be found in our Q2 shareholders letter.

The summary of The Guidance and expected drivers are the photos.

The lower end of our guidance for gross written, premium for full year, 2025 from between 1.05 billion and 1.1 billion to between 1.07.

And 1.1 billion given by strongly performance of new land programs.

Similar to the trend experience in 2024. We expect Q3 and Q4 to record lower growth return Premium versus Q2 on an absolute basis. But to represent an acceleration in year-over-year, growth versus Q2

We expect revenue for 4 year 2025 to come in between 460 million and 465 million.

We expect the setting of The home builder, distribution assets.

To lower Revenue in Q3 and Q4 by approximately 5.5 million and 6.5 million respectively, compared with the guidance provided prior to announcing this transaction.

We are updating guidance for Consolidated net loss ratio for full year 2025.

Improving from between 72 and 74% to between 67 and 69%. Driven by positive loss Trends reflected in our Q2 results.

When neutralizing, the impact of Prior and current accident Reserve changes, in Q2, we expect Consolidated net loss ratio to increase slightly in Q3 due to seasonally higher. Non- PCS losses, followed by an improvement in Q4.

We are raising guidance for net income for 4 year, 2025 from between 65 and 69 million loss to net income, positive of between 35 and 39 million driven by the improved, net loss. Ratio, Trends discuss already as well as the 1 time gain on sales from setting the home builder, distribution assets,

We're also raising guidance for adjusted net income for 40 or 2025 from between 10 and 14 million dollars loss to between 4 million and over loss and break even driven by improved the social trends discussed on this call.

And with that operator, I would now like to open the floor to questions.

Thank you. We will now begin.

A question.

As a reminder, if you would like to ask a question today, please do so. Now by pressing star, followed by the number 1 on your telephone keypad.

If you change your mind or you feel like your question has already been answered. You can press Start followed by 2 to withdraw yourself from the queue.

Our first question today comes from Andrew Anderson with Jeffries.

Andrew, please go ahead.

Hey thanks. Good morning. If we look at the guide for 25 and and you touched on it a bit, but could we talk about some of the the upside optionality or, or limitations? Here are you waiting on any more rate approvals for the adhi product before, starting to write more on on, either the new home programs, or or the existing, and should we think of the second quarter as perhaps the final quarter of retrenchment in hhip?

Uh, I'll go ahead and take that 1 through good morning. Um, a couple different things, taking a half a step back. I don't think any effectively, managed Insurance organization in this environment is ever done, taking rate actions, uh, costs continue to go up. Um, and I think, uh, if you stay ahead of the Curve Your consistently taking much smaller rate increases than we've done in the past but going forward. Um, I think the substantial rate increases to really remediate our portfolio are done. Um not all of those premiums have worked themselves into the p&l yet. Um, so I would say the majority of the work is done. Um,

Still, there are some Tailwind upside benefits but we will continue to take rate as our, um, expected loss ratios, um, start to deteriorate. So our, our goal, of course, is to stay in a Sweet Spot range of profitability. So those will continue, but not nearly to the degree that they've done, that we've done. So, in the past,

Thanks, and then, um, just on the net loss ratio guide for the second half was kind of unchanged, but could you remind us um, or just help us think about the cat loss ratio component in the second half of the year and and remind us of the southeast wind. Exposures you all have on on the fronting side as well as the ahap side.

Of cats in Q3 and then another 11 or so in Q4 and then we have some. Uh there's also some cat load on the fronting program. So the rigging season is approaching um,

So so yeah, we may not change from that perspective.

Yeah, related. Andrew related to the the question about our exposure to Southeast hurricane. Um, just as a reminder on the hhip program, uh, the only thing we write in Florida as an example are newly constructed homes. Um, that portfolio has gone through, uh, 3 hurricanes and has has performed very well on the fronting side of the business, we do take some exposure, um, with MSI and a few other small commercial providers, but we think that we have amply baked. Our participation in that in our cat load, um, predictability. And so we we feel good about our exposure in that particular area, even going into hurricane season.

Thank you.

Thank you. Our next question comes from Randy Bennett with B Riley.

Randy, please go ahead.

Yeah, thank you. I just continuing with that line of questioning do. Do you disclose the, um, your per event limit on if you had a large cat, um, in the third quarter, um, of any nature across your book is there, do you have a per event limit, um, that you disclose and just could you just walk us through? Like how your reinsurance is, is structured for that?

Yeah, we we don't disclose that specifically Randy, but let me just give you a little bit of a little bit of information, the way that we think about reinsurance. So, um, for all intensive purposes on the hhip program, for any regular or attritional losses, we have very little quarter. Share we take almost all of that net. Um, we do then buy layers of exol above that to protect from, sort of earnings type events. And then we also, uh, Buy corporate cat, not only over the hhip portfolio, but also all of the portfolios in which we take property exposure within spinaker. So we believe we have ample reinsurance protection uh to to see us through any of these individual events. Also, as a reminder, each of the programs we support, they have their own

Loan, reinsurance treaties and Towers typically quotas, share with some xol if it's property exposed and then of course that that overarching corporate cast that we have. And we only take a fraction of the underlying exposure on on most programs. So um, we don't have a lot of exposure related to that and we think we've got good solid reinsurance support in the event of any large, uh, any large loss.

Okay, understood and you, you said, you you're baking in 15% of cat for 32, and 11% for 4 q. Did I hear that correctly?

Well, 1983, 16th, 3, and about 11% before you correct.

Okay, great. And then just a higher level of question. Um, obviously, the, the gross reason was was was pretty good in the quarter, um,

You know, is there, can you just give us kind of an update on?

You know how?

You know homeowners insurance is increasingly expensive in the US your your your more focused on home. Builders you know there's there's a lot of in effect in the homeowner Market. Can you just get us like you know a quick overview of kind of you know, where your buyers are or how you're resonating with distribution um and just kind of how you're fitting into the kind of the overall um kind of fragmented and and higher priced homeowners Market.

I also think we're starting to see more parametric, um, providers pop up to do things like, deductible, bite, down, or deductible buyback, as it relates to, some of these types of things. Um, I think that's going to take time, what we've really focused on at hippo is 2 things 1, where we were exposed in hhip to weather related events. We have significantly decreased our exposure, in those particular areas.

Um and then um, we've also as we've said in our our, our strategic 3 year forecast, our objective is to build a well-balanced portfolio in which homeowners is only a portion, which creates a couple things. It creates more, uh, Revenue predictability and reduced volatility. So, that's the way we look at it, from a consumer perspective, um, Randy answering that question. We generally resonate with customers of either a new homes, um, or B people that want to keep their homes acting looking feeling sounding like a new home. So, proactive preventive Services, provided to our customers to help them, protect that Joy of home ownership and that's the types of customers, we've gone for traditionally and certainly do certainly do now. And I think the entry into new homeowners with new homes,

Transitions nicely as those homes age as the home builder. Warranty starts to expire for them to partner with a provider like hippo that tries to create ongoing value by protecting their home and mitigating exposure. To the use of iot devices through the use of proactive preventative maintenance and other aspects that we that we assist customers on.

Okay. Uh thanks. Thanks for the comments, appreciate it.

You're welcome, man.

Thank you.

Please go ahead, Tommy.

Hi. Um, Christine on for Tommy, thank you for taking my question.

My first question is on operating Leverage.

you mentioned that um, 6 in

Expenses the client 16%. Um, this quarter, just curious as you scale towards the 2 billion goals within premium at what Revenue level do you anticipate needing significant fixed costs investments and how will you maintain this operating leverage momentum going forward?

I'm sorry. You cut out a little bit there. Could you could you repeat the question?

Um, my question is on operating leverage.

So you mentioned like um you fix expenses the client 16%.

Um, so just wonder like if you scale towards the 2 billion gross, written, premium at what level um what Revenue level do? You anticipate leading more?

Fixed cost um Investments. And how will you maintain this opportunity leverage going forward?

Yeah, happy to take this question. This is a guy. Um so as we uh as we refer to in our investor day, our 3 year plans that will take us to more than 2 billion of premium and more than 1225 million of adjusted net income. What we guided there is that in order for that to happen, we need to grow the written premium Over the Horizon, uh, by a bit more than 20%. And what we also said is that the we extract, the operating leverage to grow stores in that, um, at around 8%. So as you mentioned, we don't expect the the fixed expense to continue to go down. Um, it will start to go up but the the entire idea of the operating operating Leverage is the is what going to allow us to grow them significantly slower um and to boost more profit into the bottom line.

Yeah, just a just to add to what guy said, um, over the last 2 and a half years, we've made tremendous progress on operational efficiency within the organization across all, aspects of our business.

We have deployed that we believe will continue to help that trend of increasing premiums and revenues without commensurate increases in fixed expenses. So we think we've made good progress but we don't think we've made all of the progress uh as a percentage of of premiums and revenues.

The last thing I would add is when we think about the broader portfolio that we have as a scalability of the front interior that we have uh this is what is allowing us to continue adding programs and we just mentioned this quarter that 23 million of gross return, premium came from New launch programs. And usually when we launch these programs, we don't need to add significant fixed expense and this and we expect that to continue its part of what makes the platform, very, very scalable.

Got it, thank you. Um, my second question is on the MGA partnership.

New letter, you mentioned. Um, you guys added to MGA partners?

Um, with commercial and Casualty lines.

Just curious. Um, what specific is criteria drive? Your MGA partner selection and how do you evaluate the

321 profile of new program versus existing.

Thank you.

Yes, I thank you for the question. I appreciate the question. I think it's important as we talk about what differentiates our spending per platform from other avenues in which an entity might be able to take inherent underwriting risk.

So typically when we engage with a new MGA, it's a fully fronted deal. We typically do not take much if any underwriting risk and as that program matures and as we have the data to support our conviction, that this is a well-managed well-run program, we then start participating in risk as that program starts to mature. So we never really feel compelled to participate in risk unless we have strong conviction in a particular programs, operating and underwriting capabilities.

We also want to make sure that we have a portfolio in which the various product lines, work together to reduce volatility in any particular product line or particular event. So adding more casualty to our portfolio creates balance against

The high property that we currently have in the portfolio and that's the efforts of our front team team to make sure that we are going out and we are plugging holes in that desired portfolio with operators and mgas that we believe will produce positive underwriting results. Then they proved that over time. And then we start participating in Risk. So we're well positioned to pick and choose our level of risk participation based on our view of quality. The last thing I'll say in this area is we have also sent programs in to runoff ones that do not meet our threshold. Whether we take risk, or don't take risk, we send ones in to runoff that we believe will not produce a favorable gross loss ratio, not just a net loss ratio for our participation. So we're highly disciplined in this area. We have more than 10 years of History doing.

This as Spiner and we're going to continue to leverage that on a go forward basis.

Um, got it. Thank you so much for the color.

You're very welcome.

Thank you. At this time. We have no further questions registered. And so I'll hand back to president and CEO Rick mccathren for closing remarks.

Thank you all for joining us today. This concludes our call and you may now disconnect your lines.