Executive Summary / Key Takeaways

• Hippo is executing a strategic transformation, shifting towards a more diversified, less volatile business model focused on technology-enabled home protection and Insurance-as-a-Service (IAS).
• Recent financial results, particularly Q4 2024's positive adjusted EBITDA and underlying Q1 2025 performance (excluding wildfire impacts), demonstrate tangible progress in improving loss ratios and operational efficiency.
• Key drivers of improvement include significant de-risking of the Hippo Home Insurance Program (HHIP) portfolio, strategic growth in the less volatile IAS segment, and enhanced operating leverage through technology and cost controls.
• The company is guiding towards achieving net profit by Q4 2025 and reaching an annual revenue run rate exceeding $500 million by year-end, underpinned by continued loss ratio improvement and controlled fixed expenses.
• Hippo leverages proprietary technology for differentiated risk assessment, operational efficiency (agent productivity, conversion, cross-sell), and customer experience, positioning it uniquely against both traditional and insurtech competitors, although it faces challenges related to scale and profitability compared to larger incumbents.

Setting the Scene: A New Foundation for Home Protection

Hippo Holdings Inc. (NYSE: HIPO) is an insurance holding company operating in the dynamic property and casualty sector, primarily focused on homeowners insurance. Unlike traditional insurers, Hippo has strategically positioned itself as a technology-first company aiming to redefine home protection through proactive risk management and a diversified business model. The company's journey has involved key acquisitions, notably North American Advantage Insurance Services, LLC in 2019 to expand operations, and more significantly, Spinnaker Insurance Company around 2020. The Spinnaker acquisition provided HIPO with a crucial risk-bearing entity and laid the groundwork for its Insurance-as-a-Service (IAS) segment, complementing its direct-to-consumer Hippo Home Insurance Program (HHIP) and its Services segment (agency and First Connect platform).

This structure allows HIPO to pursue multiple revenue streams and manage risk across different parts of the insurance value chain. The Services segment generates fee and commission income without assuming underwriting risk, leveraging partnerships with home builders and independent agencies. The IAS segment, powered by Spinnaker's licenses and capital (rated A- Excellent by A.M. Best), supports third-party MGAs and allows HIPO to earn fee-based revenue and participate in underwriting profit with limited risk retention via reinsurance. The HHIP segment represents the core Hippo-branded homeowners insurance, where the company retains risk selectively, focusing on areas where its loss prevention strategies are most effective.

Over the past couple of years, HIPO has undergone a significant transformation, marked by a strategic pivot initiated around its September 2022 Investor Day. The company committed to achieving positive adjusted EBITDA by the end of 2024 and substantial revenue growth. This period saw aggressive actions to streamline operations, reduce costs, and critically, de-risk the HHIP portfolio. This internal effort, dubbed "project volatility," focused on implementing rate increases, adjusting coverage terms (including deductibles), and reducing exposure in catastrophe-prone areas. While these actions initially impacted HHIP's Total Generated Premium (TGP), they were deemed necessary to improve underwriting results and reduce weather-related volatility. The successful execution of these initiatives has become central to the investment narrative, demonstrating the company's ability to adapt and improve its fundamental business performance.

Technological Foundation and Differentiation

At the heart of Hippo's strategy is its proprietary technology platform, which serves as a key differentiator in the competitive insurance landscape. This technology is not merely a digital interface; it is deeply integrated into the company's operations, influencing everything from risk assessment and underwriting to customer experience and claims processing.

Hippo leverages data and advanced analytics to gain a more granular understanding of property risk. This technological capability allows for more accurate pricing and underwriting decisions compared to traditional methods. While specific quantitative metrics on the superiority of its risk modeling compared to competitors are not detailed, the company's ability to implement rapid, data-driven adjustments to its portfolio (like the "project volatility" initiatives) suggests a level of technological agility that enables quicker strategic execution.

Operationally, technology drives significant efficiency gains. In Q2 2024, the company reported a 60% year-over-year increase in agent productivity, a 17% increase in lead conversion rate, and a 23% increase in cross-sell rate, directly attributing these improvements to investments in technology. This indicates that the platform streamlines workflows, enhances sales effectiveness, and improves the ability to deepen customer relationships by offering additional products. The technology also supports faster policy issuance and potentially quicker claims resolution, contributing to a better customer experience.

Furthermore, technology underpins HIPO's focus on proactive home protection. While specific quantifiable benefits of these services (e.g., percentage reduction in claims frequency due to smart home devices) are not provided, the strategic intent is clear: to reduce the likelihood and severity of losses, which in turn should improve loss ratios over time.

The "so what" for investors is that this technology is intended to build a competitive moat. By enabling more accurate risk selection, driving operational efficiencies, and potentially lowering long-term loss costs through proactive measures, technology supports higher margins and a more sustainable business model. It allows HIPO to differentiate itself beyond price, offering a value proposition centered on modern, efficient, and proactive home insurance. While larger competitors like Progressive (PGR) and Allstate (ALL) also invest heavily in technology, HIPO's focus on a home-centric ecosystem and its agility as a newer player aim to carve out a distinct market position.

Competitive Landscape

The U.S. property and casualty insurance market is highly competitive, featuring a mix of large, established players and newer, technology-focused entrants. HIPO competes directly with major insurers like Progressive, Allstate, and The Travelers Companies, Inc. (TRV), particularly in the homeowners insurance space. It also competes with other insurtech companies such as Lemonade, Inc. (LMND).

Established insurers like Progressive and Allstate possess significant advantages in terms of scale, brand recognition, and vast distribution networks. Progressive, a dominant player in auto insurance with a growing presence in home, leverages advanced data analytics for pricing and efficiency. Allstate, another major traditional insurer, focuses on omnichannel distribution and partnerships. These incumbents generally exhibit stronger financial performance, with higher gross, operating, and net margins, robust ROIC and ROE, and more consistent cash flow generation compared to HIPO. For instance, Progressive's operating margins are typically 10-15%, while Allstate's are 5-10%, contrasting with HIPO's recent operating loss. Their scale also often translates to lower operating costs per policy.

The Travelers Companies, Inc. is another significant competitor with established market share and financial stability, though its digital adoption may be slower than insurtechs. Lemonade, Inc. , like HIPO, is an insurtech emphasizing AI and speed, but with a broader product focus. While Lemonade, Inc. shows high revenue growth, its profitability is weak, similar to HIPO's current state, though HIPO's home specialization offers a potential differentiator.

HIPO's competitive positioning relies heavily on its technology and differentiated approach. Its digital platform offers greater efficiency in policy customization and potentially faster processing and claims handling compared to traditional models like The Travelers Companies, Inc.'s. The focus on the new homes channel, partnering directly with builders, provides a unique distribution advantage that larger, more traditional players may not replicate as easily. In the IAS segment, Spinnaker's A- rating and platform quality attract MGAs, providing a differentiated service within the fronting space.

However, HIPO faces significant disadvantages related to scale and financial strength compared to incumbents. Its higher R&D costs and lower volume contribute to higher operating costs per unit, impacting margins. While HIPO's revenue growth has been strong (114% YoY in Q1 2024, 30% YoY in Q1 2025), its profitability metrics lag far behind established players. This financial gap could limit its ability to compete on price or invest as heavily as larger rivals. Indirect competitors, including tech firms offering home security or maintenance solutions, could also erode the need for certain insurance coverages, impacting the market for all insurers, including HIPO.

Barriers to entry, such as regulatory licenses and significant capital requirements, favor established players and provide a degree of protection for existing insurers like HIPO against entirely new entrants, but they do not prevent competition from well-capitalized incumbents expanding into HIPO's niche or other insurtechs with different strategies.

Financial Performance: A Story of Transformation

Hippo's recent financial performance reflects a company in the midst of a significant strategic transformation. The most notable achievement was reaching positive adjusted EBITDA in Q4 2024, a key milestone targeted at the 2022 Investor Day. This result, $8.5 million in Q4 2024, marked a $31 million improvement year-over-year and demonstrated the impact of strategic actions on the bottom line.

Q1 2025 results, however, highlighted the inherent volatility of the insurance business, particularly in catastrophe-prone areas. The Los Angeles wildfires resulted in approximately $45 million in expenses relative to the event, significantly impacting Q1 2025 financial metrics. The net loss attributable to Hippo widened to $47.7 million, compared to $35.7 million in Q1 2024, and the adjusted EBITDA loss increased to $41.1 million from $19.8 million.

Crucially, management emphasized that excluding the impact of the LA wildfires, the underlying Q1 2025 net loss would have improved by $33 million year-over-year, and adjusted EBITDA would have improved by $24 million year-over-year. This underlying improvement underscores that the positive trends observed in late 2024 continued into 2025, masked only by the specific catastrophe event.

Revenue growth remains strong. Total revenue increased 30% year-over-year in Q1 2025 to $110.3 million, following a 114% increase in Q1 2024 and a 58% increase in Q4 2024. This growth is primarily driven by the IAS segment, which saw revenue jump 91% year-over-year in Q1 2025 due to increased premium retention and performance of existing programs, and the HHIP segment, where revenue grew 12% due to improved reinsurance structures leading to higher net earned premium retention (85% of gross earned premium in Q1 2025 vs 58% a year ago).

Loss ratios, while impacted by the LA fires in Q1 2025 (HHIP gross loss ratio of 121%, net loss ratio of 133%), show underlying improvement. The HHIP non-PCS loss ratio improved to 53% in Q1 2025 from 59% a year ago, reflecting the benefits of pricing and underwriting actions taken in 2024. The significant improvement in the HHIP gross loss ratio seen in 2024 (nearly 30 percentage points improvement for the full year, and a 20 percentage point improvement in the non-PCS loss ratio in Q4 2024 to under 45%) is expected to continue earning into the book.

Operating expenses demonstrate increasing leverage. GAAP Sales & Marketing, Technology & Development, and General & Administrative expenses collectively declined $7 million (18%) year-over-year in Q1 2025, falling from 48% to 30% of revenue. This follows a >$13 million absolute dollar reduction (24%) in Q1 2024 compared to Q1 2023, while revenue grew significantly. This indicates that cost reduction and efficiency initiatives are taking hold, allowing the company to grow the top line while controlling fixed costs.

Liquidity remains a focus. Q1 2025 ending cash and investments decreased by $42 million to $528 million, primarily due to LA fires loss payments and seasonal working capital. However, the company is bolstering its capital position, having signed an agreement in April 2025 to issue a $50 million surplus note for Spinnaker (pending regulatory approval). This is intended to support Spinnaker's growth and capital needs without equity dilution. The company views its existing capital and borrowing capacity as sufficient for current needs and growth initiatives.

Strategic Execution and Operational Details

Hippo's recent performance is a direct result of focused strategic execution across its segments. The "project volatility" initiative within HHIP has been a major undertaking. By Q1 2025, efforts to reduce written premium from existing homes in cat-prone areas were reported as "largely complete." This transformation involved significant rate increases (33% YoY on a written basis in Q1 2024) and structural coverage changes, leading to an estimated 43% lower direct losses from a March 2024 hailstorm compared to if it occurred in March 2023. Wind and hail exposure was reduced by approximately 80% compared to mid-2023 levels. The completion of these actions is expected to remove the mix shift headwind that previously masked attritional loss ratio improvements and allow underlying growth, particularly in the new homes channel, to drive HHIP TGP growth again by Q4 2024.

The new homes channel is a key strategic focus, showing a 35% year-over-year increase in gross written premium from homebuilder partners in Q1 2025. These homes, built to modern codes, are more resilient and represent a less volatile risk profile. HIPO is actively expanding its network of builder and carrier partners in this channel and enhancing its risk allocation technology.

The IAS segment continues to be a vital source of diversified, less volatile growth. Revenue growth of 91% in Q1 2025 highlights the segment's momentum, driven by increased premium retention and performance of existing programs. Spinnaker's ability to attract and partner with quality MGAs is a testament to its value and provides a strong pipeline for future growth. The planned $50 million surplus note is specifically aimed at supporting this growth, allowing Spinnaker to take on more risk participation in profitable programs.

Operational efficiency gains, enabled by technology, are central to improving the cost structure and driving operating leverage. The reported increases in agent productivity, lead conversion, and cross-sell rates demonstrate the tangible impact of these efforts on the Services segment and overall business efficiency. The shift in reinsurance strategy from heavy quota share to XOL in 2024 reflects increased confidence in the improved underlying loss ratio and allows HIPO to retain a greater share of earned premium, enhancing revenue and profitability potential.

Outlook and Path to Profitability

Hippo's management has provided clear guidance signaling confidence in the company's trajectory towards profitability. The headline target is to achieve net profit by the end of 2025. This is supported by guidance for the full year 2025, including expected revenue between $465 million and $475 million, an adjusted EBITDA loss between $35 million and $39 million, and a net loss between $65 million and $69 million.

Importantly, management highlighted that the Q1 2025 results included a $45 million expense related to the LA wildfires. Without this impact, the company would have been on track for full-year 2025 adjusted EBITDA profitability. The guidance assumes that key financial metrics will continue to improve year-over-year and quarter-over-quarter throughout 2025.

Key assumptions underpinning the guidance include:

• Continued revenue growth driven by higher premium volume and increased premium retention across the risk businesses (HHIP and IAS).
• Ongoing improvement in the HHIP non-PCS loss ratio as the benefits of pricing and underwriting actions implemented in 2024 fully earn into the portfolio.
• The HHIP PCS cat loss ratio following a typical seasonal pattern, peaking in Q2 and trending lower in the latter half of the year.
• Fixed expenses remaining consistent with Q1 2025 dollar levels, leveraging the scalability of the infrastructure and automation investments to drive operating leverage as revenue grows.

By Q4 2025, the company expects to reach an annual run rate of more than $500 million in revenue and be generating net profit. This outlook is based on the culmination of the strategic initiatives: the de-risked HHIP portfolio allowing for profitable growth (especially in the new homes channel), the continued expansion and profitability of the IAS segment, and sustained operational efficiency gains. The planned surplus note for Spinnaker is expected to provide the necessary capital to support this growth trajectory.

Conclusion

Hippo Holdings is executing a deliberate and comprehensive transformation aimed at achieving sustainable profitability in the challenging property and casualty insurance market. The company's strategic pivot, focusing on de-risking the HHIP portfolio, leveraging its technology for operational efficiency and differentiated risk assessment, and growing its less volatile Insurance-as-a-Service segment, is beginning to yield tangible results.

While Q1 2025 results were impacted by significant catastrophe losses, the underlying performance, excluding this event, demonstrates continued improvement in key metrics like loss ratios and operating expenses. The achievement of positive adjusted EBITDA in Q4 2024 was a critical milestone, validating the effectiveness of the actions taken.

The path to profitability, targeting net profit by Q4 2025 and a significant revenue run rate, is underpinned by clear strategic initiatives and operational improvements. The continued earning in of pricing and underwriting actions, coupled with controlled fixed costs and growth in less volatile segments, are expected to drive this convergence. HIPO's technology serves as a foundational element, enabling faster execution, improved efficiency, and a differentiated customer offering, positioning it uniquely against both traditional giants and fellow insurtechs. For investors, the story is one of a company moving past a period of high volatility and investment towards a more stable, profitable, and diversified future, contingent on continued execution and favorable market conditions.