Hippo Holdings Inc.HIPONYSE
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Operator: Hello, everyone. Thank you for attending today's Hippo Third Quarter 2025 Earnings Call. My name is Ken, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Charles Sebaski, Investor Relations of Hippo to begin. Please go ahead.
Charles Sebaski: Thank you, operator. Good morning and thank you for joining Hippo's Third Quarter 2025 Earnings Call. Earlier today, Hippo issued an earnings release announcing its third quarter 2025 results and a financial results presentation, which will be webcast during today's call, both of which are available at investors.hippo.com. Leading today's discussion will be Hippo President and Chief Executive Officer, Rick McCathron; and Chief Financial Officer, Guy Zeltser. Following management's prepared remarks, we will open the call for questions. 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. 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 actual results to differ materially from historical results and/or our forecast, including set forth in Hippo's Form 10-Q filed today. For more information, please refer to the risks, uncertainties and other factors discussed in Hippo's 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, and we make whenever they may 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. During this conference call, we will also refer to non-GAAP financial measures such as adjusted net income and adjusted EBITDA. Our GAAP results and descriptions of our non-GAAP financial measures with full reconciliation to GAAP can be found in our third quarter 2025 earnings release, which has been furnished with the SEC and available on our website. And with that, I'd like to turn the call over to Rick McCathron, our President and CEO.
Richard McCathron: Thank you, Chuck, and good morning, everyone. Thank you for joining us. This was a very strong quarter for Hippo. We maintained our momentum from last quarter and delivered another set of impressive results, achieving adjusted net income of $18 million while growing our gross written premium by 33% year-over-year. These results underscore the strength of our model and our continued ability to generate meaningful incremental improvements across the core drivers of our business. As we shared at our June Investor Day, Hippo is doubling down on what we do best, building a technology-native insurance platform that drives profitable growth across both our owned and partner MGAs. This quarter, we are introducing a new way of looking at our business, one that aligns our reporting with a new unified way of managing our business. We now manage the business and allocate resources as a single carrier platform that underwrites a broad spectrum of insurance products across homeowners, renters, commercial multi-peril and casualty lines. Our continued evolution aligns squarely with the 3 strategic pillars that guide our business with the goal of positioning Hippo for continued profitable growth over the long-term. First, strategic diversification. We continue to broaden our premium base across both personal and commercial lines, building a more balanced and resilient portfolio. Second, unlocking market growth. Our programs deliver a differentiated technology-driven customer experience that sets Hippo apart and expands our reach into attractive markets. Third, optimize risk management. We are leveraging our diversified portfolio and deep risk management capabilities to continuously optimize performance across market cycles. And this quarter, we continued to execute on all 3. Investors can now better see not only where we are going, but just as importantly, the risks we are retaining within each line of business. We continue to rebalance and diversify our portfolio, supported this quarter by 6 new programs who joined our platform, bringing our total up to 36. These programs further diversify our premium base across commercial and casualty lines, and our new reporting format should better showcase the progress we're making in this area. During the quarter, we also focused on integrating our new homes product and infrastructure with Baldwin's industry-leading Westwood Insurance agency, which will triple our access to annual new home closings, fueling both premium growth and additional geographic diversification. I'm pleased to share that we bound our first new policies with Westwood last month, and it's worth noting that there is typically a 3- to 6-month lag between quote and bind in this channel as quotes are frequently made preconstruction, so we expect volume from this partnership to accelerate in the coming months. While unlocking market growth opportunity remains central to our strategy, we do not pursue growth at the expense of underwriting discipline. This quarter, our underwriting results improved significantly, highlighting Hippo's potential as we continue to scale. For example, on a gross written premium basis, commercial multi-peril and casualty grew by $80 million, more than offsetting the slight decline in E&S homeowners. This reflects our underwriting discipline, maintaining pricing standards amid increased competition in homeowners, while optimizing our portfolio by increasing participation in lines that align more closely with our underwriting appetite. As part of our updated disclosures, we are now reporting both our net loss ratio and our combined ratio, both of which improved meaningfully year-over-year. Our net loss ratio improved by 25 percentage points year-over-year to 48% and our net combined ratio improved 28 percentage points year-over-year to 100%. While we benefited from lower cat loss activity this quarter, we also saw continued improvement in both our expense ratio and the attritional loss ratio. This progress reflects our disciplined approach to risk, including underwriting and rate actions, diversification as well as the benefit of scale and expense efficiency, all of which continue to strengthen our foundation for sustainable profitability. Collectively, these results and our focus on operational excellence continue to make Hippo an attractive home for world-class talent. I'm proud to highlight several important additions to our leadership team this quarter. Robin Gordon joined us as our Chief Data Officer, bringing deep expertise that will help us manage our portfolio holistically. Robin's appointment underscores Hippo's position as a technology-native platform, leveraging advanced data and analytics to sharpen risk management, expand and diversify our portfolio and deliver superior customer experience. We also welcomed 2 new members of our Board of Directors, Laura Hay and Susan Holliday, both accomplished leaders with distinguished careers in insurance. Having the right insurance talent across the organization is critical to any organization's success over the long-term, and these additions will further strengthen Hippo's capabilities, culture and resiliency. Q3 was yet another clear demonstration of the strength of our platform, the caliber of our team and the momentum we're carrying into the future. I'm immensely proud of all we've accomplished and look forward to building on this trajectory as we move towards 2026 and beyond. Now I'd like to turn the call over to our Chief Financial Officer, Guy Zeltser, to walk through the highlights of our third quarter 2025 financial results and our expectations for the remainder of 2025.
Guy Zeltser: Thanks, Rick, and good morning, everyone. As Rick mentioned, this quarter, we updated our reporting structure to align with how we're now managing the business. We have transitioned to reporting consolidated P&L in a way that emphasizes gross and net premium by line of business. And as part of this change, we have eliminated segment reporting. We have also begun reporting consolidated expense and combined ratios and as discussed previously, changed our core profitability metric from adjusted EBITDA to adjusted net income. To help analysts and investors model our business, we have also prepared a supplemental financial package that provides the details of the past 6 quarters under the new reporting structure and made this available on our Investor Relations website. In the third quarter, we once again delivered top line premium growth while maintaining underwriting profitability and gained meaningful operating leverage as premium growth continued to outpace fixed expense growth. Q3 gross written premium grew 33% year-over-year to $311 million, up from $234 million in Q3 of last year. Growth in the third quarter was driven by strong performance across most of our lines of business, more than offsetting a small contraction in homeowners as we continue to prioritize underwriting discipline over premium growth in that line of business. This mix shift demonstrates early progress towards our strategic goal of diversifying the portfolio beyond historical concentration in homeowners. I'll highlight a few more details of this diversification. Casualty increased to 25% of gross written premium, up from 14% last year. Commercial multi-peril increased to 21% of gross written premium, up from 13% last year. And homeowners, which was 47% of gross written premium in Q3 of last year, decreased to 32% this quarter. On a net basis, renters increased to 22% of net written premium, up from 10% last year. Commercial multi-peril increased to 12% of net written premium, up from 3% last year, and homeowners, which was 86% of net written premium in Q3 of last year, decreased to 64% this quarter, fantastic progress and more to come. Speaking of net written premium, this key metric was up 30% year-over-year to $118 million, up from $91 million in Q3 of last year. Net written premium was 38% of gross written premium, a slight reduction from 39% in Q3 of last year. Our net written premium growth was driven by continued strength in our renters line of business, which increased by $18 million or 203% year-over-year. This growth was primarily the result of a higher premium retention, which rose from 16% a year ago to 45% this quarter, supported by the renters program's long track record and a loss ratio in the low 30s. In Q3, revenue grew 26% year-over-year to $121 million, up from $96 million in Q3 of last year. The increase was driven by net earned premium growth of 41% to $100 million, up from $71 million in Q3 of last year. The net earned premium growth more than offset the $5 million reduction in commissions following the sales of First Connect in the homebuilder distribution network over the last year. Q3 consolidated net loss ratio improved 25 percentage points year-over-year to 48%, driven by improvement in both cat and non-cat loss experience. The biggest driver of the year-over-year improvement was the very low level of cat losses during the quarter, which provided a 23 percentage point benefit compared to Q3 of last year. As discussed in previous quarters, we have largely completed our efforts to reduce the wind and had exposure in the portfolio that drove some of the historical volatility, but this quarter's results were even more favorable than our target levels. We also improved our non-cat loss ratio by 2 percentage points year-over-year to 48%, driven by continued rate improvements, refined policy terms and conditions, enhanced underwriting processes and stronger claims operations. Our accident year non-cat loss ratio, which excludes the impact of prior year development, improved by 5 percentage points year-over-year to 48.5%. Following the reporting change this quarter and our intention to manage exposure by line of business holistically, we do not intend to disclose program level performance going forward. However, during this transition period, we are providing an update on Hippo Home Insurance program, our owned MGA. The HHIP net loss ratio improved 29 percentage points year-over-year to 50% this quarter, driven by the same factors that supported improvement in the consolidated net loss ratio. Our Q3 consolidated net expense ratio improved by 3 percentage points year-over-year to 52%. As we scale, we expect the expense ratio to continue to improve, though not necessarily linearly. Together, improvements in our loss and expense ratios resulted in a consolidated combined ratio of 100%, a 28 percentage point improvement versus Q3 of last year. Q3 net income came in at $98 million or $3.77 per diluted share, a $107 million improvement year-over-year. This improvement was driven by $91 million net gain from the sale of the homebuilder distribution network, materially better underwriting performance and continued top-line growth. Q3 adjusted net income came in at $18 million or $0.70 per diluted share, a $19 million improvement year-over-year. The same factors that drove the net income improvement also contributed to the increase in adjusted net income with the exception of the net gain on the sale, which does not impact adjusted net income. Total Hippo shareholders' equity at the end of the quarter was $422 million or $16.64 per share, up 14% from $362 million or $14.56 per share at year-end 2024. The increase was driven primarily by the gain on sale of the homebuilder distribution network, which more than offset first quarter operating losses from the California wildfires and the repurchase of 514,000 shares for approximately $15 million. As we look ahead to the remainder of the year, we are raising our full year 2025 outlook based on this quarter's strong results. For gross written premium, we are raising the midpoint of our full year guidance by $15 million to a range of $1.09 billion to $1.11 billion. This reflects our expectation that growth in new lines of business will continue to more than offset the short-term intentional stabilization in homeowners, which we anticipate will begin to grow again in 2026. For revenue, we are raising full year guidance from a range of $460 million to $465 million to a range of $465 million to $468 million, in line with our premium guidance raise. For our consolidated net loss ratio, we are improving our full year guidance from a range of 67% to 69% to a range of 63% to 64%, driven by the positive loss trends reflected in our Q3 results. For net income, we are raising our full year guidance from a range of $35 million to $39 million to between $53 million and $57 million, driven by the stronger top-line growth, improved net loss ratio trends and continued expense discipline. And finally, for adjusted net income, we are raising guidance from our previous range of a loss of $0 million to $4 million to a new range of a profit of between $10 million and $14 million, also driven by stronger top-line growth, improved net loss ratio trends and continued expense discipline. And with that, operator, I'd now like to open the floor to questions.
Operator: [Operator Instructions] We have our first question from Andrew Andersen from Jefferies.
Andrew Andersen: Just looking at some of the new premium disclosures by line of business and recognizing it's off of a small base, but the casualty growth was pretty sizable. Can you just give us some color on kind of the growth there and what type of business you're writing within casualty?
Richard McCathron: Andrew, thanks for the question. I'll have Guy talk a little bit about the numbers. But one thing to keep in mind, and we've emphasized this before, but I think it's a very important piece of the equation. When we grow premium in any of our fronted lines, we have the option to take risk or to not take risk. Generally speaking, until we have strong comfort and a historical reference point on the profitability of any particular program, we generally opt not to take risk. So even though we've grown that number fairly significantly as a premium line, we take very little risk initially until we gain that trust and confidence in the individual program. Guy, do you want to go over some of the make up?
Guy Zeltser: Yes. So Andrew, this is Guy. In terms of what lines, then it's a combination of -- we have some cyber commercial general liability, which spends across small businesses, real estate investors, construction. As Rick mentioned, and what you can also see with the net written premium disclosure is that the net retention on that is relatively small. We like to start usually with the fully funded. And then as we get some traction, then we like to increase the risk retention over time, especially if we are happy with the underwriting performance.
Andrew Andersen: And then on homeowners, I think you talked about some increased competition on E&S. Are you seeing the admitted market come back to take some share of homeowners or more competition within the E&S world? And can you maybe just remind us like what kind of rate need do you have left in that book? Or is it just kind of the competition is pricing too aggressively right now?
Richard McCathron: Yes. I think there's 2 different components in your question, Andrew. So if I don't answer it, please ask it again. First, where we're seeing softening of the E&S market is predominantly price softening and customers that are going to the admitted market as the admitted market has started to rebound over the last few quarters, and we expect that rebound to continue. From a price adequacy perspective, we actually feel very good that the rate we need, we have in the portfolio, and we do not anticipate other than taking some occasional inflationary trend increases, we do not anticipate any repricing of the book or the portfolio in the foreseeable future.
Operator: We have our next question from Thomas McJoynt from KBW.
Unknown Analyst: This is Jean on for Tommy. My first question is on business mix. So as Hippo diversified away from homeowners, just curious on by 2028, what is the reasonable business mix that you expect?
Richard McCathron: Yes. Thank you for the question. I think it's probably worth sharing a little bit of history on our homeowners line and where we're looking at it on a go-forward basis. So when we went through the portfolio correction over the last couple of years, we intentionally exited portions of the homeowners market that was non-new build, non-new construction. And as we've mentioned in the -- in our presentation that we've actually tripled the size of the funnel for new homes through our Westwood partnership. So the shrinking that you have seen in the homeowners line was an intentional effort to diversify into less cap-prone states and to make sure that we had correct underwriting pricing going forward. On the go-forward basis, we expect to increase the number of writings for new construction. We expect to continue to open our manufactured HHIP homeowners program. And we expect growth within our fronted partners that are also on our carrier platform because when you look at the homeowners numbers, it's a combination of what we do at HHIP and the partnerships that we have with our fronted programs. So we anticipate growth in the homeowners market over the next 3 years. Likewise, we anticipate growth in the entire portfolio over the next 3 years. So I refer back to our Investor Day 3-year pro forma and we anticipate over $2 billion in premium, which is nearly doubling our current premium basis. And I do think that $2 billion will be further diversified, but homeowners will grow in the absolute.
Guy Zeltser: And this is Guy. The one thing I would add on what Rick said is that you can see that we made great progress on both gross and net diversification. You're still seeing the -- there's still some lag. I would say that as we get into 2028, you'll also see more diversification in the net written premium. And if we look closer to how the written premium -- the gross written premium pie looks like [ indiscernible ].
Unknown Analyst: Got it. Very helpful. My second question is on share repurchases. Just curious about kind of forward-looking buybacks intended to be like going forward as a use of capital.
Richard McCathron: Yes. I think the use of capital -- and I'll reiterate what we said during Investor Day. From our perspective, the use of capital will be a combination of continuing to grow our portfolio and the necessary surplus to facilitate that more than $2 billion of premium in 3 years. We've also indicated that we will be opportunistic if there are opportunities for us to acquire entities that will further diversify the portfolio and accelerate that diversification, that is a potential use of additional funds. But we feel very good with our cash position. We feel very good with our with our ratios in terms of the car. And we think we're well positioned not only to grow to the $2-plus billion premium in 3 years, but also to take advantage of things that might help us accelerate that further.
Operator: We currently do not have any questions. [Operator Instructions] We do not have any questions at the end. We will hand over to Rick McCathron, the CEO, for any further remarks. Thank you.
Richard McCathron: Well, first of all, I'd like to thank all of you for joining us this morning. We're very excited about the quarter that we posted, and we believe that this is just the beginning. So thank you again. We look forward to speaking next quarter.
Operator: Thank you. That concludes today's call. Thank you for your participation. You may now disconnect your lines.