California-based digital home insurer Hippo disclosed its quarterly earnings on Aug. 16, the first time it has done so as a public company. Hippo reported an $84.5 million net loss during Q2 2021, or nearly negative $6 per share. That compares to just under $25 million in net losses for the 2020 second quarter, or negative $2 per share, according to results.
Hippo blames its sizable increase in losses and loss adjustment expenses, in part, on heavy storms in Texas and negative development from winter storm Uri, which created massive losses for Texas property owners among others.
Those higher losses are part of the homeowners insurance game and something Hippo will overcome with more geographical and product diversification, Hippo President Richard McCathron told Carrier Management.
“Homeowners is different than other InsurTech product lines… You are so exposed to weather,” McCathron said.
And because Hippo has been focused geographically in areas such as Texas that have high concentrations of severe weather, the company was dinged in its Q2 results, he noted.
“The volatility we have is a direct correlation to where our risk concentrations are,” McCathron said, adding that Q2 was “a horrible quarter from a volatility perspective for companies with a similar geographic footprint that we [have].”
As Hippo stated in its Q2 2021 shareholder letter, it now derives 81 percent of its new homeowners premium outside of Texas, with the difference coming from the Lone Star state. In the 2019 second quarter, 65 percent of new homeowners premium was written in Texas.
“By growing aggressively in the homeowners space in areas outside where there’s (inclement) weather, it does actually help your loss ratio long term,” McCathron said. “That’s different than other product lines within the insurance space. In areas where you do not have as much weather-exposed geography, [such as] Arizona [and] Ohio, [you’re] not subjected to severe convective storms, not subjected to wildfire, not subjected to hurricanes.”
When Hippo went public in early August through a reverse merger, the company’s stock traded above $10 per share. It now hovers around the $5.50 range, but McCathron said the decline is not a big deal.
“We’re building the next franchise in holistic home protection. So, our view is short-term fluctuations in stock price – especially when a company first comes out – is not something we focus on,” McCathron explained. “We’re the same company that we were a week before we went public – that we are now. We just had our earnings call. We’ve increased our guidance on growth and revenue … and we are very excited on the prospects. If we start looking at stock price – and start worrying about what’s going on with stock price – we’re not going to build the next franchise in home insurance.”
Results in Detail
Hippo reported gains in earned premium and premium in-force year-over-year, as well as new business arrangements designed to fuel broader growth in the months ahead. The company booked $500 million of total generated premium in-force at the end of Q2, which it said is 96 percent higher than the previous year.
“The team at Hippo is very pleased and proud to now be trading as a public company. We will offer Hippo policies across the United States. We will drive growth and focus on bottom-line metrics as we scale,” Hippo Co-Founder and CEO Assaf Wand said in the Hippo shareholder letter. “We will carefully deploy the more than $900 million that we have on our balance sheet to enhance our product offering and our growth, in order to become a leader in this industry.”
Hippo has a long way to go. The company disclosed in its shareholder letter that it currently occupies less than 1 percent of the U.S. home insurance market.
Here are some additional highlights of Hippo’s Q2 results and other company data points:
- Total generated premium hit $158.7 million versus $79 million in the 2020 second quarter.
- At the end of Q2, Hippo had more than $900 million in cash, equivalents and investments on hand, thanks in part to net proceeds from taking the company public earlier in August.
- Total revenue came in just under $21 million for the quarter versus just under $12 million last year.
- Net earned premium hit $10.2 million compared to $2.5 million in the 2020 second quarter.
- The company reported a net loss ratio of 2010 percent for the quarter compared to 132 percent last year. Hippo blamed storms in Texas for the jump.
- Insurance-related expenses, technology and development, sales and marketing, and general/administrative expenses and interest expenses all grew substantially year-over-year as the company scaled up its operations.
- The company employs 603 people as of the end of Q2 versus 278 last year.
- Independent agents and other insurance companies represented 58 percent of Hippo’s new insurance premium during Q2, with 25 percent coming from Hippo’s direct-to-consumer channel. About 17 percent came through partners such as home builders, mortgage servicers, and others in the real estate and home protection business.
- For policies written in 2021, Hippo will retain about 10 percent of the risk associated with its homeowners policies on its own balance sheet, with third-party reinsurance bearing the rest. Hippo will see its share of the risk increase modestly over time, it said.
- Hippo’s products are now available in 37 states. Plans call for increasing penetration “in key states” where the company already operates. At the same time, it hopes to expand to 40 states by the end of 2021.
- The shareholder letter noted some of Hippo’s initial moves at diversification, such as its launch of home inspection insurance and Homeowners Association Insurance – its first commercial product.
- Hippo also doubled its MGA underwriting capacity by signing partnerships with Ally Financial and Incline P&C Group to serve as additional carriers.