“We are very fortunate we took that disciplined approach.”
Hippo Insurance’s decision to temporarily stop writing new homeowners’ insurance business across the US nearly a year ago received “mixed reactions” from the industry, according to its chief executive.
But in hindsight, Rick McCathron (pictured) said he has no regrets about pushing pause.
“With the benefit of hindsight, we are very fortunate that we took that disciplined approach,” McCathron told Insurance Business. “Because if you compare what has happened to other companies in the second quarter [of 2024], we have shown that the disciplined approach made a considerable difference in our earnings.
“I’m proud that we had the fortitude to make that tough call, and I’m also excited that it was ultimately a blip in time to allow us to continue to grow the business profitably.”
The nationwide pause on new Hippo Home Insurance Program (HHIP) business helped the insurtech weigh the offering’s catastrophe exposure, underwriting, and rates.
Losses from weather events, led by wind and hail, propelled HHIP’s gross loss ratio in HHIP to 178% in Q2 2023. During its Q2 2024 earnings report, Hippo reported a substantial 94 percentage point (pp) improvement year-on-year in the same metric, at 84%.
Additionally, Hippo saw a 96pp improvement in the gross PCS (property and casualty insurance) loss ratio, driven by higher deductibles and reduced exposure to severe weather events.
Net loss attributable to Hippo was down 62% YoY in the quarter to $41 million, while adjusted EBITDA loss fell 72% YoY to $25 million.
McCathron said Hippo’s pricing adjustments and strategic actions are starting to bear fruit, but that rate adequacy remains “an ongoing process.”
“The rate changes and filings we’ve implemented take a full year to fully impact… since they only apply as policies renew. We began this process in October of last year, and it won’t be complete until October of this year,” he said. “With our recent Q2 results covering through June, we still have several months where the effects of these changes will continue to show in our financials.
“Rate adequacy is an ongoing process. We’re constantly monitoring trends in frequency, severity, global weather patterns, and our portfolio. While future adjustments may not be as significant as those we’ve made recently, this is a continuous effort. Our technology gives us a unique advantage to iterate quickly and stay ahead of the curve, so yes, we’ll continue to make adjustments as needed.”
For the second quarter of 2024, Hippo reported an 88% year-on-year (YoY) revenue increase to $90 million, reflecting a favourable shift in the company’s product mix.
This growth was driven by strong performance in its services and Insurance-as-a-Service (IaaS) segments, which together accounted for 83% of the company’s Total Generated Premium (TGP). Consolidated TGP grew by 20% YoY, with Services and IaaS increasing by 38% and 23% YoY, respectively.
McMathron said: “While the industry faced challenges due to severe weather, we were unaffected, which speaks to the hard work and discipline our team has shown since Q2 2023.”
The CEO expressed confidence Hippo will achieve its primary goal of 2024: hitting adjusted EBITDA profitability.
“That work was a meaningful test, and we passed it with flying colors,” McCathron said. “We’re growing faster than we thought, so we just increased guidance on our total generated premium outlook for the remainder of the year.”
As for when its legacy product will be reopened, McCathron answered: “When we are confident that every policy we write has an expected loss ratio that ensures profit.
“We’ve seen significant growth from our new build channel and agency, and we want to be cautious about pricing to ensure sustainability,” he added.
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