What changed in Hippo Holdings Inc.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of Hippo Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+442 added−521 removedSource: 10-K (2024-03-06) vs 10-K (2023-03-02)
Top changes in Hippo Holdings Inc.'s 2023 10-K
442 paragraphs added · 521 removed · 301 edited across 7 sections
- Item 7. Management's Discussion & Analysis+164 / −168 · 99 edited
- Item 1A. Risk Factors+188 / −192 · 162 edited
- Item 1. Business+71 / −147 · 29 edited
- Item 3. Legal Proceedings+12 / −8 · 6 edited
- Item 5. Market for Registrant's Common Equity+4 / −3 · 2 edited
Item 1. Business
Business — how the company describes what it does
29 edited+42 added−118 removed31 unchanged
Item 1. Business
Business — how the company describes what it does
29 edited+42 added−118 removed31 unchanged
2022 filing
2023 filing
Biggest changeThese include the registration of the Hippo name as a trademark in Algeria, Armenia, Australia, Bhutan, Bosnia & Herzegovina, Cambodia, Columbia, the European Union, Georgia, Iceland, India, Indonesia, Israel, Japan, Kazakhstan, Laos, Liechtenstein, Monaco, Mongolia, Montenegro, New Zealand, Norway, Philippines, Republic of Korea, Republic of Moldova, Russian Federation, San Marino, Serbia, Singapore, Switzerland, Turkmenistan, Ukraine, United Kingdom, United States of America and Vietnam.
Biggest changeHippo’s name is also registered as a trademark in Algeria, Armenia, Australia, Bhutan, Bosnia & Herzegovina, Cambodia, Columbia, the European Union, Georgia, Iceland, India, Indonesia, Israel, Japan, Kazakhstan, Laos, Liechtenstein, Monaco, Mongolia, Montenegro, New Zealand, Norway, Philippines, Republic of Korea, Republic of Moldova, Russian Federation, San Marino, Serbia, Singapore, Switzerland, Turkmenistan, Ukraine, United Kingdom, United States of America and Vietnam. 13 The expansion of our business has required us to protect our trademarks, domain names, and patents and, to the extent that we expand our business into new geographic areas, we may be required to protect our trademarks, domain names, patents and other intellectual property in an increasing number of jurisdictions, a process that is expensive and sometimes requires litigation.
These laws, regulations and orders have a substantial impact on our business and relate to a wide variety of matters including insurer solvency and statutory surplus sufficiency, reserve adequacy, insurance company licensing, examination, investigation, agent and adjuster licensing, agent and broker compensation, policy forms, rates, and rules, the nature and amount of investments, claims practices, trade practices, participation in shared markets and guaranty funds, transaction with affiliates, the payment of dividends, underwriting standards, withdrawal from business, statutory accounting methods, data privacy and data security regulation, corporate governance, internal and external risk management, moratoriums (including of lawful actions), and other matters.
These laws, regulations and orders have a substantial impact on our business and relate to a wide variety of matters including insurer solvency and statutory surplus sufficiency, reserve adequacy, insurance company licensing, examination, investigation, agent and adjuster licensing, agent and broker compensation, policy forms, rates, and rules, the nature and amount of investments, claims practices, trade practices, participation in shared markets and guaranty funds, transaction with affiliates, the 11 payment of dividends, underwriting standards, withdrawal from business, statutory accounting methods, data privacy and data security regulation, corporate governance, internal and external risk management, moratoriums (including of lawful actions), and other matters.
For additional information, see “ Risk Factors — Risks Related to Our Business — Failure to protect or enforce our intellectual property rights could harm our business, results of operations, and financial condition ” and “— Claims by others that we infringed their proprietary technology or other intellectual property rights could result in litigation which is expensive to support, and if resolved adversely, could harm our business .” 22 Available Information Our internet website address is www.hippo.com.
For additional information, see “ Risk Factors — Risks Related to Our Business — Failure to protect or enforce our intellectual property rights could harm our business, results of operations, and financial condition ” and “— Claims by others that we infringed their proprietary technology or other intellectual property rights could result in litigation which is expensive to support, and if resolved adversely, could harm our business .” Available Information Our internet website address is www.hippo.com.
Our Company In August 2021, Hippo Enterprises Inc., a Delaware corporation (“Old Hippo”), and Reinvent Technology Partners Z, a Cayman Islands exempted company and special purpose acquisition company (“RTPZ”), completed a merger and other transactions pursuant to which a subsidiary of RTPZ was merged with and into Old Hippo and Old Hippo survived as a wholly owned subsidiary of RTPZ (collectively, we refer to these transactions as the “Business Combination”).
BUSINESS Our Company In August 2021, Hippo Enterprises Inc., a Delaware corporation (“Old Hippo”), and Reinvent Technology Partners Z, a Cayman Islands exempted company and special purpose acquisition company (“RTPZ”), completed a merger and other transactions pursuant to which a subsidiary of RTPZ was merged with and into Old Hippo and Old Hippo survived as a wholly owned subsidiary of RTPZ (collectively, we refer to these transactions as the “Business Combination”).
The laws of these other jurisdictions contain similar limitations on the payment of dividends by insurance companies that are domiciled in that state, and such laws may be more restrictive than Illinois and Texas. 21 In addition, the NAIC has recently developed a group capital calculation covering all entities of the insurance company group for use in solvency monitoring activities.
The laws of these other jurisdictions contain similar limitations on the payment of dividends by insurance companies that are domiciled in that state, and such laws may be more restrictive than Illinois and Texas. In addition, the NAIC has recently developed a group capital calculation covering all entities of the insurance company group for use in solvency monitoring activities.
If we are unable to protect our trademarks, domain names, copyrights, patents and other intellectual property rights, or prevent third parties from infringing upon them, our business may be adversely affected, perhaps materially.
If we are unable to protect our trademarks, domain names, patents and other intellectual property rights, or prevent third parties from infringing upon them, our business may be adversely affected, perhaps materially.
This system also enables us to deploy Hippo’s proprietary quoting and underwriting engine (via API) across Hippo’s diversified distribution channels and partners to gain market share. 19 We believe our strategy to deliver the first all-in home protection platform is unique and differentiated and that our competitive advantages across smart home, technology, and distribution will make it difficult for competitors — old or new — to emulate our approach.
This system also enables us to deploy Hippo’s proprietary quoting and underwriting engine (via API) across Hippo’s diversified distribution channels and partners to gain market share. 9 We believe our strategy to deliver the first all-in home protection platform is unique and differentiated and that our competitive advantages across smart home, technology, and distribution will make it difficult for competitors — old or new — to emulate our approach.
We rely on a combination of copyright, trademark, patent and other intellectual property laws and confidentiality procedures and contractual provisions such as non-disclosure terms to protect our intellectual property.
We rely on a combination of trademark, patent and other intellectual property laws and confidentiality procedures and contractual provisions such as non-disclosure terms to protect our intellectual property.
In addition, the NAIC adopts and will continue to adopt model laws and regulations that will be adopted by various states. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on Hippo.
In addition, the NAIC adopts and will continue to adopt model laws and regulations that will be adopted by various states. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on us.
Our Values and People As of December 31, 2022, we had a total of 590 employees, of which 558 were located in the United States and 32 located internationally. We engage temporary workers and independent contractors when necessary in connection with a particular project, to meet increases in demand or to fill vacancies while recruiting a permanent employee.
Our Values and People As of December 31, 2023, we had a total of 516 employees, of which 401 were located in the United States and 115 located internationally. We engage temporary workers and independent contractors when necessary in connection with a particular project, to meet increases in demand or to fill vacancies while recruiting a permanent employee.
For example, California recently enacted the California Consumer Privacy Act (“CCPA”), which came into force in 2020. The CCPA and related regulations give California residents expanded rights to access and request deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used and shared.
For example, in California the California Consumer Privacy Act (“CCPA”), which came into force in 2020, gives California residents expanded rights to access and request deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used and shared.
We believe there is significant opportunity in this market, expected to reach nearly $133 billion by 2024 (according to industry data from Conning, Inc) for a digital-first, customer-centric company like Hippo.
We believe there is significant opportunity in this market, expected to reach nearly $142 billion by 2024 (according to industry data from S&P Global) for a digital-first, customer-centric company like Hippo.
The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain personal information. In addition to increasing our compliance costs and potential liability, the CCPA’s restrictions on “sales” of personal information may restrict our use of cookies and similar technologies for advertising purposes.
The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain personal information, including their ability to limit the use of precise geolocation information and other categories of information classified as “sensitive.” In addition to increasing our compliance costs and potential liability, the CCPA’s restrictions on “sales” of personal information may restrict our use of cookies and similar technologies for advertising purposes.
The CCPA allows for the California Attorney General to impose civil penalties for violations, as well as providing a private right of action for certain data breaches. California voters also recently passed the California Privacy Rights Act (“CPRA”), which took effect on January 1, 2023.
The CCPA allows for the California Attorney General to impose civil penalties for violations, and provides a private right of action for certain data breaches. In 2020, California voters also passed the California Privacy Rights Act (“CPRA”), which amended the CCPA and took effect on January 1, 2023.
In addition, we are growing First Connect Insurance Services, a digital platform designed to support independent agents by providing access to the nation's top carriers. The agent-centric platform provides access to over 60 carriers and a variety of products that includes home, auto, cyber, small business, life, specialty lines and more.
First Connect Our First Connect Insurance Services business is a digital platform designed to support independent agents by providing access to some of the nation’s top carriers. The agent-centric platform provides access to carriers and a variety of products that includes home, auto, cyber, small business, life, specialty lines and more.
The NAIC has been examining the use of artificial intelligence in the insurance industry, such as the sources of some of the data Hippo uses in marketing and underwriting its products.
Additionally, the NAIC has been examining the use of artificial intelligence in the insurance industry, such as the sources of some of the data we use in marketing and underwriting our products.
Insurance Regulation Hippo is subject to extensive regulation, primarily at the state level. These laws are generally intended to protect the interests of purchasers or users of insurance (which regulators refer to as policyholders), rather than the holders of securities we issue.
These laws are generally intended to protect the interests of purchasers or users of insurance (which regulators refer to as policyholders), rather than the holders of securities we issue.
Spinnaker is, and any insurance companies that we would form in the future would be, part of an insurance holding company system and as such is subject to regulation in the jurisdictions in which these insurance subsidiaries are domiciled.
The EO signals that federal regulation of AI may be forthcoming, which would potentially impose additional regulatory burden on us. Spinnaker is, and any insurance companies that we would form in the future would be, part of an insurance holding company system and as such is subject to regulation in the jurisdictions in which these insurance subsidiaries are domiciled.
And with the agent population shrinking (according to McKinsey & Company research), incumbents may find it harder to access new customers who increasingly choose digital, direct-to-consumer channels.
And with the agent population shrinking (according to McKinsey & Company research), incumbents may find it harder to access new customers who increasingly choose digital, direct-to-consumer channels. Competition We face competition from established national brand names that offer competing products.
Our people team is focused on identifying and retaining top talent and building a world class organization. We use recognition and rewards including compensation and equity to attract and retain our talent.
Our people team is focused on identifying and retaining top talent and building a world class organization. We use recognition and rewards including compensation and equity to attract and retain our talent. In the fourth quarter of 2023 we launched an expense reduction initiative across the Company, which included a reduction in staff.
The CCPA excludes information covered by Gramm-Leach-Bliley Act, the Driver’s Privacy Protection Act, the Fair Credit Reporting Act, and the California Financial Information 20 Privacy Act from the CCPA’s scope, but the CCPA’s definition of “personal information” is broad and may encompass other information that we maintain.
The CCPA excludes information covered by Gramm-Leach-Bliley Act, the Driver’s Privacy Protection Act, the Fair Credit Reporting Act, and the California Financial Information Privacy Act from the CCPA’s scope, but the CCPA’s definition of “personal information” is broad and may encompass other information that we maintain. 10 The CCPA marked the beginning of a trend toward more stringent privacy legislation in the U.S., and multiple states have subsequently enacted or proposed similar laws.
These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer.
Seasonality Seasonal patterns can impact our incurrence of claims losses, as seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer.
The outcome of this misalignment is an experience that is out of touch with the needs of modern homeowners. Modern technology provides an opportunity to transform the $119 billion U.S. home insurance industry, enabling advancements and efficiencies across the customer lifecycle.
Our mission is to deliver intuitive and proactive protection for homeowners by combining the power of technology with a human touch. Modern technology provides an opportunity to transform the $133 billion U.S. home insurance industry, enabling advancements and efficiencies across the customer lifecycle.
As of December 31, 2022, our patent portfolio consisted of four utility patents covering autonomous cancellation of insurance policies using a multi-tiered data structure and real time rate monitoring, and three pending patent applications, including utility, invention, utility model and design patents in the United States. Our patents expire on June 24, 2039 and May 23, 2038, respectively.
As of December 31, 2023, our patent portfolio consisted of five U.S. utility patents covering autonomous cancellation of insurance policies using a multi-tiered data structure, system and method for updating a policy object and real time rate monitoring, and two pending utility patent applications in the United States.
In addition, certain state insurance laws require pre-acquisition notification and approval of a state where our insurance subsidiaries are merely licensed. Intellectual Property We consider the Hippo brand and those of our subsidiaries to be among our most valuable assets.
In addition, certain state insurance laws could require pre-acquisition notification and approval by a state where our insurance subsidiaries are merely licensed.
Hippo harnesses technology and data to refocus the home insurance experience around the customer’s needs at every stage of the relationship. We seek to facilitate an active partnership with our customers to help prevent losses, which in turn creates better results for Hippo. The result is a win-win. • We make Hippo policies fast and easy to buy.
We seek to facilitate an active partnership with our customers to help prevent losses, which in turn creates better results for Hippo. The result creates an opportunity for a win-win.
We believe the COVID-19 pandemic has only accelerated this change, increasing homeowner adoption of digital channels and growing demands on the use of their homes. 11 Barriers to Entry New entrants who work to rebuild the customer experience, with technology, new data and nimble changes, will be better positioned to serve today’s homeowners.
Barriers to Entry New entrants who work to rebuild the customer experience, with technology, new data and nimble changes, will be better positioned to serve today’s homeowners. For the right company, the opportunity is enormous.
The new Carrier Store helps agents discover additional carriers and products that can be bundled to increase sales. Growth Strategy As we grow, we expect to remain focused on the homeowners space and on making homes safer and better protected.
First Connect’s Carrier Store helps agents discover additional carriers and insurance providers and products that can be bundled to increase sales.
As of December 31, 2022, our trademark portfolio consisted of forty-two trademarks.
Our issued patents are expected to expire between July 31, 2038 and January 29, 2041. As of December 31, 2023, Hippo’s trademark portfolio consisted of forty-two registered trademarks, and Spinnaker had one registered trademark.
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ITEM 1. BUSINESS Our Vision and Mission Hippo’s Vision: To protect the joy of homeownership. Hippo’s Mission: To deliver intuitive and proactive protection for homeowners by combining the power of technology with a human touch.
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In connection with the Business Combination, RTPZ changed its name to Hippo Holdings Inc. Hippo Holdings Inc. (“Hippo”) is an insurance holding company, with subsidiaries that provide property and casualty insurance products to both individuals and business customers. The Company conducts its operations through three reportable segments: Services, Insurance-as-a-Service, and Hippo Home Insurance Program.
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In connection with the Business Combination, RTPZ changed its name to Hippo Holdings Inc. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8. “Financial Statements and Supplementary Data” for more information.
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The Company offers its services primarily in the United States. Services Hippo’s Services Segment is comprised of our Consumer Agency, which serves consumers who are shopping for insurance and First Connect, which serves insurance agents seeking appointments with third party insurance carriers.
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Hippo is a different kind of home protection company, built from the ground up to provide a new standard of care and protection for homeowners. Our goal is to make homes safer and better protected so customers spend less time worrying about the burdens of homeownership and more time enjoying their homes and the life within.
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These businesses are fee-driven and are not exposed to any volatility associated with losses related to the underlying insurance policies. Consumer Agency Our Consumer Agency helps consumer customers who are shopping for insurance find the policies that best meet their needs.
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Harnessing real-time data, smart home technology, and a growing suite of home services, we have created an integrated home protection platform. The home insurance industry has long been defined by century-old incumbents that deliver a passive, high-friction experience to policyholders.
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The Agency sells home insurance policies from the Hippo Home Insurance Program and from third-party carriers, as well as other personal lines policies from third party carriers. Our Agency is licensed to provide agency services in all 50 states and is appointed with 50+ carriers to sell homeowners, auto, flood, earthquake, pet, and other insurance products.
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Constrained by outdated captive-agent distribution models, large bases of existing customers, legacy technology, and strong incentives not to disrupt their businesses, the industry has not seen meaningful innovation in decades. The result is a flawed customer experience that creates a transactional, adversarial relationship — one that pits insurance companies and their “policyholders” against each other in a zero-sum game.
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We have built next-generation technology platforms to increase agent efficiency and policies per customer while streamlining the customer flow and optimizing the right products for each customer. We offer a differentiated consumer experience built around proactive home care services, the most significant of which is the Hippo Home Care Program.
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With incumbent carriers, buying home insurance is an arduous task built around the carrier’s needs, not the customer’s. The process burdens customers with long phone calls, requiring customers to answer up to 60 confusing questions without any online buying capability.
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The Hippo Home Care Program’s mobile app serves as the command center for proactive home protection, empowering our customers with tools to take better care of their homes.
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Using advanced data approaches, our proprietary underwriting engine allows Hippo to provide a quote in just 60 seconds (and a fully bound policy in less than 5 minutes) and delivers them via omni-channel distribution that meets consumers wherever they shop for insurance. • Our policies are designed for the modern homeowner. 9 Unlike the outdated policies of traditional insurers which force people to pay for coverage they don’t need, Hippo policies are designed for modern lives, offering coverage for crucial items like home office equipment and water back-up.
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Over 100,000 users have installed the 4.8-star rated app, which not only allows them to manage their policy, claims, and payments if they are also Hippo customers, but also enables them to take control of their home care and maintenance needs.
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Our modern coverage means that Hippo customers are less likely to encounter unexpected holes in coverage in the event of a loss, a primary source of frustration with other carriers’ claims experience. • We have designed a proactive, human approach to claims, enabled by technology.
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At its core is the Home Health assessment, providing personalized maintenance plans based on up to 200 data points sourced from third-party providers and user data. These actionable insights and checklists help our users understand their home’s condition and guide them on how to improve it.
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Hippo uses live data to anticipate major events, enabling our claims team to reach out in advance of major weather events with comforting advice and information. When a customer does need to file a claim, Hippo guides that customer through the process, easing anxiety and improving satisfaction.
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Additionally, the Hippo Home platform connects users with the resources they need to get things done, allowing users to actively complete maintenance actions within the app, enhancing their knowledge, engagement with Hippo, and their home's protection. If a problem or question arises, users can connect with home experts on-demand 24/7 with a Home Assist membership.
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Beyond a core insurance experience that is simple, intuitive, and human, we focus our resources on Hippo’s true promise: better outcomes for homeowners.
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Moreover, users can explore offers within the app, shopping for smart devices, leak sensors, insurance coverages, and more to enhance their home protection.
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We have created an integrated home protection platform, which offers a growing suite of proactive features designed to prevent loss and provide greater peace of mind. • We have pioneered what we believe is the most widely adopted Smart Home program in the industry.
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We believe the Hippo Home mobile app will continue to drive customer engagement, particularly among the Generation Better demographic, and provide Hippo with unique insights into homeowner behavior, positioning Hippo for a more connected and protected future for both Hippo, our users and our customers.
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We include smart home devices from trusted and reputable vendors to detect water, fire, and theft, and offer premium discounts to customers who use them. Real-time alerts from smart home devices help customers quickly identify and resolve issues before they grow into major losses. • We proactively help our customers maintain and protect their homes.
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First Connect also benefits participating carriers by helping to quickly build their network of independent agents based on geographic needs and desired risk profile. 7 Our Economic Model Our Services segment earns fees and/or commission income without assuming underwriting risk or need for reinsurance.
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Through our mobile app, a homeowner can get a dynamic assessment of the health of their home. A personalized checklist in the app provides guidance on maintenance actions the homeowner should take based on that health assessment. We also offer on-demand home care and maintenance advice and, in some areas, the ability to book professionals for some in-home services.
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Generally these fees are structured as a percentage of the policy premiums (both new and renewal) that are placed or supported by each business. Insurance-as-a-Service Insurance-as-a-Service is managed through the Company’s subsidiary Spinnaker Insurance Company and its subsidiaries (“Spinnaker”).
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This partnership is designed to create a virtuous cycle. By making homes safer, we help deliver better risk outcomes and increase customer loyalty, which improves our unit economics and customer lifetime value (“LTV”). This enables us to invest in expanding our product offering, customer value proposition, and marketing programs, which helps attract more customers to the Hippo family.
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Our Insurance-as-a-Service business is predominantly focused on providing insurance capacity to program administrators and managing general agencies (collectively referred to as “MGAs”). Spinnaker partners with MGAs across multiple lines of business, offering both Admitted and Excess and Surplus Lines (E&S) capacity. Spinnaker cedes most of the underwriting risk to a diversified panel of highly rated reinsurance companies.
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This growth generates more data and insights to fuel further innovation in our product experience and improved underwriting precision. The result is even safer homes and more loyal customers.
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This specific type of transaction structuring in the insurance industry is commonly referred to as “fronting”. Spinnaker entered the market in 2015 and was acquired by Hippo in 2020. The strategy is built on Spinnaker’s underwriting first approach paired with its risk participation in programs alongside reinsurance markets.
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We believe this virtuous cycle, combined with our significant existing scale, deep partnerships, and compelling unit economics, will propel Hippo to become a trusted household name synonymous with proactive home protection. 10 Aligned Interest: When our Customers Win, We Win Our Industry / Opportunity With $119 billion in annual premiums, the U.S. home insurance industry is a deeply fragmented market with only one carrier accounting for more than 10% of the total market share (according to S&P Capital IQ).
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This strategy aligns Spinnaker’s interests with those of the reinsurers and MGAs, prioritizing underwriting profitability over volume. Since Spinnaker’s entry into the market, the number of fronting carriers participating in underwriting risk, now referred to as participatory fronts, has increased to over 20.
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This fragmentation in the market sets the stage for positive traction from new entrants — this is not a winner-take-all industry. The U.S. home insurance industry has attractive customer dynamics and growth characteristics.
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The fronting company index, as reported by Dowling Partners, has increased from $1.8 billion of Gross Written Premium in 2015 to $11.2 billion in 2022, growing 41% year-over-year. This growth has been fueled by the significant increase in MGAs throughout this period. Our Economic Model Spinnaker’s risk appetite is primarily focused on short-tail lines of business.
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According to the Insurance Information Institute, home insurance customers remain with their selected carrier for an average of 8-10 years — more than double the length of time of renters or auto insurance customers. Additionally, home insurance customers average $1,272 in annual premiums, providing insurers with a compelling recurring revenue opportunity.
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Programs are generally reinsured utilizing program specific quota share reinsurance with XOL complementing the programmatic structure. Reinsurance structures are designed to provide Spinnaker protection from both low return period frequency events and large tail events up to the 1:250-year return period.
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Multiple factors contribute to a strong growth outlook for the industry, including the high rate of new home construction, population growth, increasingly complex homes, and rising labor and material costs. Despite these industry tailwinds, we believe customers’ needs are not being met.
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Spinnaker includes provisions in its program agreements that allow it to non-renew business if the programs it supports are unable to secure satisfactory reinsurance. Spinnaker’s economic model generates margin both on a fee basis and on a traditional underwriting (e.g., combined ratio) basis based on the risk it retains.
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Today’s insurance policies often include coverage for items that modern homeowners do not own, such as fur coats, pewter bowls and paper stock and bond certificates, and exclude coverage for common claim categories such as water-backup, home office equipment and other electronics. Homeowners’ lives and properties have evolved, but too often their coverages have not kept pace.
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Spinnaker earns investment income on the premiums and commission it retains while waiting to pay claims or settle obligations, commonly referred to as float. Hippo Home Insurance Program The Hippo Home Insurance Program is the Company’s Hippo-branded homeowners insurance business.
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This set-it-and-forget-it mentality in underwriting can mean that while insurers collect premiums, homeowners discover gaps in coverage only after a loss. Even if consumers proactively recalibrate coverage over time, they are still constrained by outdated policy designs.
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We believe the COVID-19 pandemic only accelerated this change, increasing homeowner adoption of digital channels and growing demands on the use of their homes. 8 Hippo harnesses technology and data to refocus the home insurance experience around the customer’s needs at every stage of the relationship.
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For the right company, the opportunity is enormous.
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In the third quarter of 2023 we began taking several actions to lower the volatility of our Hippo Homeowners Insurance Program portfolio in light of the significant catastrophe losses we experienced in the second quarter, including raising rates on a portion of our renewal business, increasing deductibles for wind and hail perils, selectively non-renewing policies in certain regions, and instituting a nationwide pause on underwriting new premiums for our HO3 business as we examine our risk appetite.
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Incumbent Challenges This leads to incumbents potentially facing a dilemma being forced to choose between maintaining the stability of their current books of business or investing in the innovation that would drive further growth and value to homeowners. We believe they are generally choosing the former.
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We also launched an expense reduction initiative across the Company, including a reduction in staff which we announced in October 2023. Our Economic Model Hippo Home Insurance Program’s main source of revenue is the premiums paid to us by our homeowner customers.
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We believe well-positioned new entrants have an opportunity to rise to the challenge and capitalize on growth opportunities more quickly. We are confident that Hippo’s vision, technology, and innovative approach are positioned to create the change the industry and homeowners need.
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In addition, the revenues include commissions for premiums we cede to third parties, policy and service fees and investment income. Our strategy is to retain underwriting risk where we believe our loss prevention strategies are the most effective.
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The Hippo Business Approach Hippo set out to solve what it saw as a flawed customer experience in home insurance and deliver intuitive and proactive protection for homeowners by combining the power of technology with a human-touch and empathy.
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States with recently enacted and currently effective data privacy laws include Nevada, Virginia, Colorado, Connecticut, and Utah; new data privacy laws will become effective during 2024 in Montana and Oregon; and Delaware, Indiana, Iowa, Tennessee, and Texas have all passed data privacy laws that will become effective in 2025 or 2026.
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We started by rebuilding the home insurance experience around the customer’s needs, at every stage of the relationship. • We make insurance easy to buy: Hippo provides a quote in under 60 seconds and allows customers to purchase a policy in about 5 minutes.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
162 edited+26 added−30 removed422 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
162 edited+26 added−30 removed422 unchanged
2022 filing
2023 filing
Biggest changePursuant to the Lock-Up Agreements and the Sponsor Agreement, dated March 3, 2021, by and between RTPZ and Old Hippo, as amended and modified from time to time (the “Sponsor Agreement”), after the consummation of the Business Combination and subject to certain exceptions, the Sponsor (as defined in the Sponsor Agreement), Company Directors and Officers, and the Major Company Equityholders are contractually restricted from selling or transferring any of their shares of Hippo Holdings Inc. common stock (other than shares purchased in the public market or pursuant to the subscription agreements, dated as of March 3, 2021, between RTPZ and certain institutional and accredited investors (the “PIPE Investment”) and the shares of Hippo Holdings 61 Inc. common stock issuable to the Company Directors and Officers upon settlement or exercise of Hippo Holdings Inc. options or other equity awards outstanding as of immediately following the closing of the Business Combination (the “Lock-up Shares”)).
Biggest changeThe Company D&O Lock-Up Agreements contain certain restrictions on transfer with respect to shares of our common stock held by our directors and officers immediately following the closing of the Business Combination (other than shares purchased in the public market or pursuant to the subscription agreements, dated as of March 3, 2021, between RTPZ and certain institutional and accredited investors (the “PIPE Investment”)) and the shares of our common stock issuable to our directors and officers upon settlement or exercise of restricted stock units, stock options or other equity awards outstanding as of immediately following the closing of the Business Combination in respect of equity awards outstanding immediately prior to the closing of the Business Combination (collectively, the “D&O Lock-up Shares”).
In the ordinary course of business, we collect, store, and transmit information, including personal information, in relation to our current, past, or potential customers, business partners, agents, staff, and contractors.
In the ordinary course of business, we collect, store, and transmit information, including personal information, in relation to our current, past, or potential customers, business partners, agents, staff, and contractors.
Additionally, we are subject to the federal Telephone Consumer Protection Act, which restricts the making of telemarketing calls and the use of automatic telephone dialing systems. There is also discussion in Congress of a new comprehensive federal data protection and privacy law to which we likely would be subject if it is enacted.
There is also discussion in Congress of a new comprehensive federal data protection and privacy law to which we likely would be subject if it is enacted. Additionally, we are subject to the federal Telephone Consumer Protection Act, which restricts the making of telemarketing calls and the use of automatic telephone dialing systems.
While these agreements will give us contractual remedies upon any unauthorized use or disclosure of our proprietary business information or intellectual property, we cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our platform and proprietary information, and we may not always be able to effectively monitor or prevent such unauthorized use of disclosure.
While these agreements will give us contractual remedies upon any unauthorized use or disclosure of our proprietary business information or intellectual property, we cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our platform and proprietary information, and we may not always be able to effectively monitor or prevent such unauthorized use or disclosure.
We face a number of challenges that may affect our ability to sustain our corporate culture, including: • failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values, and mission; • the increasing size and geographic diversity of our workforce and our ability to promote a uniform and consistent culture across all our offices and employees; • competitive pressures to move in directions that may divert us from our mission, vision, and values; • the continued challenges of a rapidly evolving industry; and • the increasing need to develop expertise in new areas of business that affect us.
We face a number of challenges that may affect our ability to sustain our corporate culture, including: • failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values, and mission; • the size and geographic diversity of our workforce and our ability to promote a uniform and consistent culture across all our offices and employees; • competitive pressures to move in directions that may divert us from our mission, vision, and values; • the continued challenges of a rapidly evolving industry; and • the increasing need to develop expertise in new areas of business that affect us.
Currently, Spinnaker is licensed to write limited lines of business in 50 states and the District of Columbia, and Hippo Analytics Inc. is licensed as an insurance agency in 50 states and the District of Columbia.
Currently, Spinnaker is licensed to write limited lines of business in 50 states and the District of Columbia, and Hippo Analytics Inc. is licensed as an insurance agency in 50 states and the District of Columbia.
The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) Act provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things: • be required to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; • be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting; • be exempt from the “say on pay” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); and • be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act.
The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) provides that, so long as a company qualifies as an “emerging growth company,” it will, among other things: • be required to have only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations disclosure; • be exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting; • be exempt from the “say on pay” and “say on golden parachute” advisory vote requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”); and • be exempt from certain disclosure requirements of the Dodd-Frank Act relating to compensation of its executive officers and be permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act.
These provisions include: 56 • our board of directors is classified into three classes of directors with staggered three-year terms, and directors are only able to be removed from office for cause; • nothing in our Certificate of Incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; • our stockholders are only able to take action at a meeting of stockholders and not by written consent; • only our chairman of the board of directors, our chief executive officer, our president, or a majority of the board of directors are authorized to call a special meeting of stockholders; • no provision in our Certificate of Incorporation or Bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; • certain amendments to our Certificate of Incorporation require the approval of two-thirds of the then outstanding voting power of our capital stock; • our Bylaws provide that the affirmative vote of two-thirds of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our Bylaws; • our Certificate of Incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and • certain litigation against us can only be brought in Delaware.
These provisions include: • our board of directors is classified into three classes of directors with staggered three-year terms, and directors are only able to be removed from office for cause; • nothing in our Certificate of Incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; • our stockholders are only able to take action at a meeting of stockholders and not by written consent; • only our chairman of the board of directors, our chief executive officer, our president, or a majority of the board of directors are authorized to call a special meeting of stockholders; • no provision in our Certificate of Incorporation or Bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; • certain amendments to our Certificate of Incorporation require the approval of two-thirds of the then outstanding voting power of our capital stock; • our Bylaws provide that the affirmative vote of two-thirds of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our Bylaws; • our Certificate of Incorporation authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and • certain litigation against us can only be brought in Delaware.
As we seek to expand, we may incur significant operating expenses, although our expansion may not be successful for a variety of reasons, including because of, among other things: • barriers to obtaining the required government approvals, licenses, or other authorizations, including seasoning or other limitations imposed by a state; • failures in identifying and entering into joint ventures with strategic partners or entering into joint ventures that do not produce the desired results; • challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax and regulatory restrictions; • competition from incumbents that already own market share, better understand the market, may market and operate more effectively, and may enjoy greater affinity or awareness; and • differing demand dynamics, which may make our product offerings less successful.
As we seek to expand, we may incur significant operating expenses, although our expansion may not be successful for a variety of reasons, including because of, among other things: • barriers to obtaining the required government approvals, licenses, or other authorizations, including seasoning or other limitations imposed by a state; • failures in identifying and entering into joint ventures with strategic partners or entering into joint ventures that do not produce the desired results; • challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax and regulatory restrictions; 36 • competition from incumbents that already own market share, better understand the market, may market and operate more effectively, and may enjoy greater affinity or awareness; and • differing demand dynamics, which may make our product offerings less successful.
If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market 59 price of our common stock could be negatively affected.
If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.
Rating agencies could downgrade or change the outlook on ratings due to: • changes in the financial profile of one of our insurance companies; 27 • changes in a rating agency’s determination of the amount of capital required to maintain a particular rating; • increases in the perceived risk of our investment portfolio, a reduced confidence in management or our business strategy, or other considerations that may or may not be under our control; or • AM Best evaluation of the financial health of the holding company and its impact on the balance sheet strength of our rated insurance companies.
Rating agencies could downgrade or change the outlook on ratings due to: • changes in the financial profile of one of our insurance companies; • changes in a rating agency’s determination of the amount of capital required to maintain a particular rating; • increases in the perceived risk of our investment portfolio, a reduced confidence in management or our business strategy, or other considerations that may or may not be under our control; or • AM Best evaluation of the financial health of the holding company and its impact on the balance sheet strength of our rated insurance companies.
The Sponsor has agreed, in addition to the existing exercise provisions in the Warrant Agreement, to exercise certain warrants if (a) Hippo Holdings Inc. elects to redeem the warrants not held by the Sponsor or its permitted transferees, (b) the Reference Value exceeds $625.00 per share, and (c) there is an effective registration statement covering the issuance of shares of Hippo Holdings Inc. common stock issuable upon exercise of the warrants held by the Sponsor or its permitted transferees, and a current prospectus relating thereto, available at the time of such exercise.
The Sponsor has agreed, in addition to the existing exercise provisions in the Warrant Agreement, to exercise certain warrants if (a) Hippo Holdings Inc. elects to redeem the warrants not held by the Sponsor or its permitted transferees, (b) the 54 Reference Value exceeds $625.00 per share, and (c) there is an effective registration statement covering the issuance of shares of Hippo Holdings Inc. common stock issuable upon exercise of the warrants held by the Sponsor or its permitted transferees, and a current prospectus relating thereto, available at the time of such exercise.
There are many factors that could negatively affect our ability to grow our customer base, including if: • we fail to effectively use search engines, social media platforms, content-based online advertising, and other online sources for generating traffic to our website; • potential customers in a particular marketplace or more generally do not meet our underwriting guidelines; • our products are not competitive in terms of customer experience, pricing, or insurance coverage options; • our competitors mimic our digital platform or develop other innovative services, causing current and potential customers to purchase their insurance products instead of our products; • we lose customers to new market entrants and/or existing competitors; • we do not obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as line, form, underwriting, and rating approvals) or such approvals contain conditions that impose restrictions on our operations (such as limitations on growth); • our digital platform experiences disruptions; • we suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we fail to expand geographically; • we fail to offer new and competitive products, to provide effective updates to our existing products or to keep pace with technological improvements in our industry; • we are unable to maintain traditional retail agent relationships; • customers have difficulty installing, updating or otherwise accessing our website on mobile devices or web browsers as a result of actions by us or third parties; • customers are unable or unwilling to adopt or embrace new technology; • technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; or • we are unable to address customer concerns regarding content, data privacy, and security generally or for our digital platform specifically.
There are many factors that could negatively affect our ability to grow our customer base, including if: • we fail to effectively use search engines, social media platforms, content-based online advertising, and other online sources for generating traffic to our website; • potential customers in a particular marketplace or more generally do not meet our underwriting guidelines; • our products are not competitive in terms of customer experience, pricing, or insurance coverage options; • our competitors mimic our digital platform or develop other innovative services, causing current and potential customers to purchase their insurance products instead of our products; • we lose customers to new market entrants and/or existing competitors; • we do not obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as line, form, underwriting, and rating approvals) or such approvals contain conditions that impose restrictions on our operations (such as limitations on growth); • our digital platform experiences disruptions; • we suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we fail to expand geographically; • we fail to offer new and competitive products, to provide effective updates to our existing products or to keep pace with technological improvements in our industry; • we are unable to maintain traditional retail agent relationships; • customers have difficulty installing, updating or otherwise accessing our website or software application on mobile devices or web browsers as a result of actions by us or third parties; • customers are unable or unwilling to adopt or embrace new technology; 15 • technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; or • we are unable to address customer concerns regarding content, data privacy, and security generally or for our digital platform specifically.
The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the warrants, including because the number of shares 62 received is capped at 0.361 shares of Hippo Holdings Inc. common stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants.
The value received upon exercise of the warrants (1) may be less than the value the holders would have received if they had exercised their warrants at a later time where the underlying share price is higher and (2) may not compensate the holders for the value of the warrants, including because the number of shares received is capped at 0.361 shares of Hippo Holdings Inc. common stock per warrant (subject to adjustment) irrespective of the remaining life of the warrants.
As a result of this concentration, if a significant catastrophe event or series of catastrophe events occur, such as a natural disaster, severe weather (such as the Texas hail storms in 2019 or the Texas winter storm in February 2021 (“Uri”)), or a disease outbreak or pandemic (such as the COVID-19 pandemic) and cause material losses in California and Texas, our business, financial condition, and results of operations could be materially adversely affected.
As a result of this concentration, if a significant catastrophe event or series of catastrophe events occur, such as a natural disaster, severe weather (such as the Texas hail storms in 2019 and 2023, or the Texas winter storm in February 2021 (“Uri”)), or a disease outbreak or pandemic (such as the COVID-19 pandemic) and cause material losses in California and Texas, our business, financial condition, and results of operations could be materially adversely affected.
Although we believe that there are commercially reasonable alternatives to the third-party products we currently license, other than proprietary information provided by ISO, this may not always be the case, or it may be difficult or costly to 36 replace. In addition, integration of new third-party products may require significant work and require substantial investment of our time and resources.
Although we believe that there are commercially reasonable alternatives to the third-party products we currently license, other than proprietary information provided by ISO, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of new third-party products may require significant work and require substantial investment of our time and resources.
It identifies insurance companies, including property-casualty insurers, that may not be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation, or liquidation.
It identifies insurance companies, including property-casualty insurers, that may be inadequately capitalized by looking at certain inherent risks of each insurer’s assets and liabilities and its mix of net written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation, or liquidation.
Our operations depend on protecting the virtual cloud infrastructure hosted in Cloud Platforms by maintaining its configuration, architecture, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Furthermore, we have no physical access or control over the services provided by our Cloud Platforms.
Our operations depend on protecting the virtual cloud infrastructure hosted in Cloud Platforms by maintaining its configuration, architecture, and interconnection specifications, as well as the information stored in these virtual data centers and which third-party internet service providers transmit. Furthermore, we have no physical access to or control over the services provided by our Cloud Platforms.
Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our website. Insurance 32 coverage may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in our services or products.
Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our website. Insurance coverage may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in our services or products.
If we fail to maintain adequate systems and processes to prevent, monitor, and detect fraud, including employee fraud, agent fraud, fraudulent policy acquisitions, claim vendor fraud, third-party or fraudulent claims 34 activity, or if inadvertent errors occur with such prevention, monitoring, and detection systems due to human or computer error, our business could be materially adversely impacted.
If we fail to maintain adequate systems and processes to prevent, monitor, and detect fraud, including employee fraud, agent fraud, fraudulent policy acquisitions, claim vendor fraud, third-party or fraudulent claims activity, or if inadvertent errors occur with such prevention, monitoring, and detection systems due to human or computer error, our business could be materially adversely impacted.
Moreover, if and when the stock options or other equity awards are substantially vested, employees under such equity arrangements may be more likely to leave, particularly when the underlying shares have seen a value appreciation or if the value of the shares underlying such awards has significantly declined. Furthermore, several members of our management team were hired recently.
Moreover, if and when the stock options or other equity awards are substantially vested, employees under such equity arrangements may be more likely to leave, particularly when the underlying shares have seen a value appreciation or if the value of the shares underlying such awards has significantly declined. Furthermore, several members of our management team were hired relatively recently.
If a third-party does not offer us a license to its intellectual property on reasonable terms, or at all, we may be required to develop alternative, non-infringing technology, which could require significant time (during which we would be unable to continue to offer our affected offerings), effort, and expense and may ultimately not be successful.
If a third-party does not offer us a license to its intellectual property on reasonable terms, or at all, we may be required to develop alternative, non-infringing technology, which could require significant time (during which we would be unable to continue to offer our affected 34 offerings), effort, and expense and may ultimately not be successful.
An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital plan that, among other things, contains proposals of corrective actions the company intends to take that are reasonably expected to result in the elimination of the company action level event.
An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital 44 plan that, among other things, contains proposals of corrective actions the company intends to take that are reasonably expected to result in the elimination of the company action level event.
Any changes in existing risk-based capital requirements, minimum statutory capital requirements, or customary writings ratios may require us to increase our statutory capital levels, which we may be unable to do. 52 Our insurance company subsidiaries are subject to assessments and other surcharges from state guaranty funds and mandatory state insurance facilities, which may affect our ability to achieve profitability.
Any changes in existing risk-based capital requirements, minimum statutory capital requirements, or customary writings ratios may require us to increase our statutory capital levels, which we may be unable to do. Our insurance company subsidiaries are subject to assessments and other surcharges from state guaranty funds and mandatory state insurance facilities, which may affect our ability to achieve profitability.
These companies are larger than us and have significant competitive advantages over us, including greater name recognition, higher financial strength ratings, greater resources, additional access to capital, and more types of insurance coverage to offer—such 25 as auto, umbrella and life—than we currently do (or expect to offer in the future).
These companies are larger than us and have significant competitive advantages over us, including greater name recognition, higher financial strength ratings, greater resources, additional access to capital, and more types of insurance coverage to offer—such as auto, umbrella and life—than we currently do (or expect to offer in the future).
Accordingly, we may not achieve or maintain profitability and we may continue to incur significant losses in the future. Our success and ability to grow our business depend on retaining and expanding our customer base. If we fail to add new customers or retain current customers, our business, revenue, operating results, and financial condition could be harmed.
Accordingly, we may not achieve or maintain profitability and we may continue to incur significant losses in the future. 14 Our success and ability to grow our business depend on retaining and expanding our customer base. If we fail to add new customers or retain current customers, our business, revenue, operating results, and financial condition could be harmed.
An assessment of risk transfer must be performed upon entry into a new treaty, as well as each time the treaty is renewed. Each of our in-force quota-share reinsurance treaties qualified for 45 reinsurance accounting at the time of its most-recent inception. Each of these treaties has a term of one-year or less.
An assessment of risk transfer must be performed upon entry into a new treaty, as well as each time the treaty is renewed. Each of our in-force quota-share reinsurance treaties qualified for reinsurance accounting at the time of its most-recent inception. Each of these treaties has a term of one-year or less.
Climate change may affect the occurrence of certain natural events, such as an increase in the frequency or severity of snow, wind and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires in certain geographies; higher incidence of deluge flooding and the potential for 47 an increase in severity of the hurricane events due to higher sea surface temperatures.
Climate change may affect the occurrence of certain natural events, such as an increase in the frequency or severity of snow, wind and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires in certain geographies; higher incidence of deluge flooding and the potential for an increase in severity of hurricane events due to higher sea surface temperatures.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. Our primary proportional reinsurance contracts generally have a fixed term, per occurrence limits, and are subject to variable commission adjustments and loss participation features, including loss corridors and loss ratio 26 caps.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. Our primary proportional reinsurance contracts generally have a fixed term, per occurrence limits, and are subject to variable commission adjustments and loss participation features, including loss corridors and loss ratio caps.
Our estimates could prove to be inadequate, and this underestimation could have a material adverse effect on our financial condition. Recorded claim reserves, including case reserves and incurred but not reported (“IBNR”) claims reserves, are based on our estimates of losses after considering known facts and interpretations of the circumstances, 46 including settlement agreements.
Our estimates could prove to be inadequate, and this underestimation could have a material adverse effect on our financial condition. Recorded claim reserves, including case reserves and incurred but not reported (“IBNR”) claims reserves, are based on our estimates of losses after considering known facts and interpretations of the circumstances, including settlement agreements.
If we fail to remain competitive on customer experience, pricing, or insurance coverage options, our ability to grow and retain our business may also be adversely affected. In addition, we may fail to accurately predict 23 or execute risk segmentation of new and renewal customers or potential customers, which could also reduce our profitability.
If we fail to remain competitive on customer experience, pricing, or insurance coverage options, our ability to grow and retain our business may also be adversely affected. In addition, we may fail to accurately predict or execute risk segmentation of new and renewal customers or potential customers, which could also reduce our profitability.
Rather, reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In our industry, there is always the risk that reserves may prove inadequate, as it is possible for us to underestimate the cost of claims and claims administration.
Rather, reserves represent an estimate of what the expected ultimate 38 settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In our industry, there is always the risk that reserves may prove inadequate, as it is possible for us to underestimate the cost of claims and claims administration.
In addition, certain states have enacted laws that require an insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities and joint underwriting associations. Certain states also require insurers to offer coverage to all consumers, often restricting an insurer’s ability to charge the price it might otherwise charge.
In addition, certain states have enacted laws that require an insurer conducting business in that state to participate in assigned risk plans, reinsurance facilities and joint underwriting associations. Certain states also require insurers to offer coverage to all consumers, often restricting an insurer’s ability to charge the price it might 41 otherwise charge.
Our success is dependent in part on protecting our intellectual property rights and technology, including any source code, proprietary information, data, processes and other forms of information, know how, and technology. We rely on a combination of patents, copyrights, trademarks, service marks, and trade secret laws to establish and protect our intellectual property.
Our success is dependent in part on protecting our intellectual property rights and technology, including any source code, proprietary information, data, processes and other forms of information, know how, and technology. We rely on a combination of patents, trademarks, service marks, and trade secret laws to establish and protect our intellectual property.
If we fail to address the foregoing risks or other problems encountered in connection with past or future acquisitions of businesses, new technologies, services, and other assets and strategic investments, or if we fail to successfully integrate such acquisitions or investments, our business, results of operations, and financial condition could be adversely affected.
If we fail to address the foregoing risks or other problems encountered in connection with past or future acquisitions of businesses, new technologies, services, and other assets and strategic investments, or if we fail to 35 successfully integrate such acquisitions or investments, our business, results of operations, and financial condition could be adversely affected.
To address the potential errors or desired or required changes in our current premium rates, we may be compelled to increase the amount allocated to cover policy claims, increased expenses, or to address other economic 28 factors resulting in an increase in future premium rates or to additionally or alternatively adopt different underwriting standards.
To address the potential errors or desired or required changes in our current premium rates, we may be compelled to increase the amount allocated to cover policy claims, increased expenses, or to address other economic factors resulting in an increase in future premium rates or to additionally or alternatively adopt different underwriting standards.
The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain sensitive personal 35 information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.
The CPRA significantly modifies the CCPA, including by imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.
Competitors could also develop innovative approaches or significant incentives that could impact our ability to grow, optimize channel economics, or build new relationships. 31 We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.
Competitors could also develop innovative approaches or significant incentives that could impact our ability to grow, optimize channel economics, or build new relationships. We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.
As is typical in the insurance industry, we continually face risks associated with litigation of various types arising in the normal course of our business operations, including disputes relating to insurance claims under our policies, as well as other general commercial and corporate litigation.
As is typical in the insurance industry, we continually face risks associated with litigation of various types arising in the normal course of our business 33 operations, including disputes relating to insurance claims under our policies, as well as other general commercial and corporate litigation.
Although we are not currently involved in any material litigation with our customers, 41 members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable.
Although we are not currently involved in any material litigation with our customers, members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable.
Regardless of whether we can successfully enforce our rights 38 against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations, or financial condition.
Regardless of whether we can successfully enforce our rights against the operators of these websites, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations, or financial condition.
Further, as compared to our competitors who operate on a wider geographic scale, any adverse changes in the regulatory or legal environment affecting property and casualty insurance in California and Texas may expose us to more significant risks.
Further, as compared to our competitors who operate on a wider geographic scale, any adverse changes in the regulatory or legal environment affecting property and casualty insurance in California and Texas may expose us 32 to more significant risks.
Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.
Some fixed income securities have call or prepayment options, which create possible 45 reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.
Also, should ISO refuse to license its proprietary information to us on the same terms that it offers to our competitors and we are unable to find a comparable replacement, we could be placed at a significant competitive disadvantage.
Also, should ISO refuse to license its proprietary information to us on the 28 same terms that it offers to our competitors and we are unable to find a comparable replacement, we could be placed at a significant competitive disadvantage.
Although we have disaster recovery plans that utilize multiple Cloud Platforms locations, the data centers that we use are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, floods, fires, severe storms, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, many of which are beyond our control, and any of which could disrupt our services, prevent customers from accessing our products, destroy customer data, or prevent us from being able to continuously back up and record data.
Although we have disaster recovery plans that utilize multiple Cloud Platforms’ locations, the data centers that we use are vulnerable to damage or interruption from human error, intentional bad acts, earthquakes, floods, fires, severe storms, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures, and similar events, many of which are beyond our control, and any of which could disrupt our services, prevent customers from accessing our products, destroy customer data, or prevent us from being able to continuously back up and record data.
Changes in laws or 29 regulations, or changes in the interpretation of laws or regulations by a regulatory authority, specific to the use of artificial intelligence, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business.
Changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority, specific to the use of artificial intelligence, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business.
Going forward, we intend to evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our development efforts, business plans, operating performance, and the condition of the capital markets at the time we seek financing.
Going forward, we intend to evaluate financing opportunities from time to time, and our ability to obtain financing will depend, among other things, on our 23 development efforts, business plans, operating performance, and the condition of the capital markets at the time we seek financing.
Under the Israeli Patents Law, 5727-1967 (the “Israeli Patents Law”), inventions conceived by an employee during and as a result of such employee’s employment are regarded as “Service Inventions,” which belong to the employer absent an agreement between the employee and employer providing otherwise. 39 The Israeli Patents Law also provides that if there is no agreement between an employer and an employee determining whether the employee is entitled to receive consideration for service inventions and on what terms, this will be determined by the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Israel Patents Law.
Under the Israeli Patents Law, 5727-1967 (the “Israeli Patents Law”), inventions conceived by an employee during and as a result of such employee’s employment are regarded as “Service Inventions,” which belong to the employer absent an agreement between the employee and employer providing otherwise. 31 The Israeli Patents Law also provides that if there is no agreement between an employer and an employee determining whether the employee is entitled to receive consideration for service inventions and on what terms, this will be determined by the Israeli Compensation and Royalties Committee (the “Committee”), a body constituted under the Israel Patents Law.
If we or our processing vendors fail to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use 44 of their payment products.
If we or our processing vendors fail to maintain adequate systems for the authorization and processing of credit card transactions, it could cause one or more of the major credit card companies to disallow our continued use of their payment products.
Despite our efforts and processes to prevent breaches, our products and services, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, third-party or employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, unauthorized access to subscriber data, and loss of consumer confidence.
Despite our efforts and processes to prevent breaches, our products and services, as well as our servers, computer systems, and those of third parties that we use in our operations are vulnerable to cybersecurity risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, third-party or employee theft or misuse, and similar disruptions from unauthorized tampering with our servers and computer systems or those of third parties that we use in our operations, which could lead to interruptions, delays, loss of critical data, unauthorized access to customer data, and loss of consumer confidence.
As a result of any such noncompliance, regulators could impose fines, rebates, or other 48 penalties, including cease-and-desist orders for an individual state, or all states, until the identified noncompliance is rectified.
As a result of any such noncompliance, regulators could impose fines, rebates, or other penalties, including cease-and-desist orders for an individual state, or all states, until the identified noncompliance is rectified.
During the last approximately ten years, the NAIC adopted significant changes to the insurance holding company act and regulations (the “NAIC Amendments”). The NAIC Amendments are designed to respond to perceived gaps in the regulation of insurance 49 holding company systems in the United States.
During the last approximately ten years, the NAIC adopted significant changes to the insurance holding company act and regulations (the “NAIC Amendments”). The NAIC Amendments are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States.
Physical risks and transitional risks could increase the Company’s cost of doing business and 51 actual or perceived failure to adequately address ESG expectations of our various stakeholders could lead to a tarnished reputation and loss of customers and clients.
Physical risks and transitional risks could increase the Company’s cost of doing business and actual or perceived failure to adequately address ESG expectations of our various stakeholders could lead to a tarnished reputation and loss of customers and clients.
Such new laws and proposed legislation, if passed, could have conflicting requirements that could make compliance challenging, require us to expend significant resources to come into compliance, and restrict our ability to process certain personal information.
New laws and proposed legislation, if passed, could have conflicting requirements that could make compliance challenging, require us to expend significant resources to come into compliance, and restrict our ability to process certain personal information.
Despite these investments, we may not succeed in increasing our revenue on the timeline that we expect or in an amount sufficient to lower our net loss and ultimately become profitable.
Despite these actions and investments, we may not succeed in increasing our revenue on the timeline that we expect or in an amount sufficient to lower our net loss and ultimately become profitable.
Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues, which could have a material adverse effect on our business, results of operations, and financial condition.
Alternatively, we could set our premiums too high, which could reduce our 19 competitiveness and lead to lower revenues, which could have a material adverse effect on our business, results of operations, and financial condition.
Our technology platform may not operate properly or as we expect it to operate. We utilize our technology platform to gather customer data in order to determine whether or not to write and how to price our insurance products.
Our technology platform may not operate properly or as we expect it to operate. 20 We utilize our technology platform to gather customer data in order to determine whether or not to write and how to price our insurance products.
Additionally, factors, such as general economic conditions, the volatility and strength of the capital markets and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits.
Additionally, factors, such as general economic conditions, the volatility and strength of the capital markets and inflation can affect the business and economic environment. These same factors affect our ability to generate 43 revenue and profits.
In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us against the effect of the operation of such websites.
In some cases, particularly in the case of websites operating outside of the United States, our available remedies may not be adequate to protect us 30 against the effect of the operation of such websites.
If a state insurance regulatory authority were to deny an application for 57 an exemption, we would be required to seek the prior approval of the regulatory authority of the transaction pursuant to a Form A filing.
If a state insurance regulatory authority were to deny an application for an exemption, we would be required to seek the prior approval of the regulatory authority of the transaction pursuant to a Form A filing.
We also seek to protect our proprietary information and intellectual property though contractual restrictions in our commercial agreements with third-party licensees, partners, and other third parties. However, some license provisions that protect against unauthorized use, copying, transfer, and disclosure of our technology may be unenforceable under the laws of certain jurisdictions and foreign countries.
We also seek to protect our proprietary information and intellectual property through contractual restrictions in our commercial agreements with third-party licensees, partners, and other third parties. However, some license provisions that protect against unauthorized use, copying, transfer, and disclosure of our technology may be unenforceable under the laws of certain jurisdictions and foreign countries.
Litigation and other proceedings may include, but are not limited to, complaints from or litigation by vendors, employees, customers, our insurance companies, or reinsurers, related to alleged breaches of contract or otherwise. As our market share increases, competitors may pursue litigation to require us to change our business practices or offerings and limit our ability to compete effectively.
Litigation and other proceedings may include, but are not limited to, complaints from or litigation by vendors, employees, customers, our insurance companies, or reinsurers, related to alleged breaches of contract or otherwise. If our market share increases, competitors may pursue litigation to require us to change our business practices or offerings and limit our ability to compete effectively.
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event.
The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the 39 event and the severity of the event.
Our results may vary as a result of fluctuations in the number of customers purchasing our insurance products and fluctuations in the timing 50 and amount of our expenses.
Our results may vary as a result of fluctuations in the number of customers purchasing our insurance products and fluctuations in the timing and amount of our expenses.
Additionally, our claims operation utilizes our technology platform to manage claims and we intend to expand our technology platform to further support the processing of some or all of our claims. Our technology platform is expensive and complex; its continuous development, maintenance, and operation may entail unforeseen difficulties, including material performance problems, undetected defects, or errors.
Additionally, our claims operation utilizes our technology platform to manage claims and we intend to expand our technology platform to further support the processing of some or all of our claims. Our technology platform is complex and expensive to maintain and improve; its continuous development, maintenance, and operation may entail unforeseen difficulties, including material performance problems, undetected defects, or errors.
For example, undetected errors or defects in open source software could render it vulnerable to breaches or security attacks, and, in conjunction, make our systems more vulnerable to data breaches. In addition, the public availability of such software may make it easier for others to compromise our platform.
For example, undetected errors or defects in open source software could render it vulnerable to breaches or security attacks, and, in turn, make our systems more vulnerable to data breaches. In addition, the public availability of such software may make it easier for others to compromise our platform.
If we are unable to hire new employees quickly enough to meet our needs or otherwise fail to effectively manage our hiring needs or successfully integrate new hires, including our recently hired management team members, our efficiency, ability to meet forecasts, and our employee morale, productivity and retention could suffer, which in turn could have an adverse effect on our business, results of operations, and financial condition.
If we are unable to hire new employees quickly enough to meet our needs or otherwise fail to effectively manage our hiring needs or successfully integrate new hires, including our newer management team members, our efficiency, ability to meet forecasts, and our employee morale, productivity and retention could suffer, which in turn could have an adverse effect on our business, results of operations, and financial condition.
Expansion into new markets will require additional investments by us in both securing regulatory approvals and marketing. These incremental costs may include hiring additional personnel, as well as engaging third-party service providers and other research and development costs.
Expansion into new markets would require additional investments by us in both securing regulatory approvals and marketing. These incremental costs may include hiring additional personnel, as well as engaging third-party service providers and other research and development costs.
Interest rates increased in 2022, and future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase.
Interest rates increased significantly in 2022 and 2023, and future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase.
We depend on the ability of our subsidiaries to transfer funds to us to meet our obligations, and our insurance company subsidiaries’ ability to pay dividends to us is restricted by law. We are a holding company that transacts a majority of our business through operating subsidiaries.
We depend on the ability of our subsidiaries to transfer funds to us to meet our obligations, and our insurance company subsidiaries’ ability to transfer funds to us is restricted by law. We are a holding company that transacts a majority of our business through operating subsidiaries.
Catastrophic losses, such as the 2021 storms in Texas, may result in our insurance companies incurring losses greater than those experienced in prior years, the expected level of losses including modeled losses, and current reinsurance limits.
Catastrophic losses, such as the 2021 storms in Texas and 2023 storms in Texas and Colorado, may result in our insurance companies incurring losses greater than those experienced in prior years, the expected level of losses including modeled losses, and current reinsurance limits.
As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued. The COVID-19 pandemic has caused disruption to our operations and may negatively impact our business, key metrics, or results of operations in numerous ways that remain unpredictable.
As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued. The COVID-19 pandemic caused disruption to our operations and may continue to negatively impact our business, key metrics, or results of operations in ways that remain unpredictable.
In addition, it remains unclear how various provisions of the CCPA will be interpreted and enforced. California voters also recently passed the CPRA, which took effect on January 1, 2023.
In addition, it remains unclear how various provisions of the CCPA will be interpreted and enforced. In 2020, California voters also passed the CPRA, which took effect on January 1, 2023.
We may need to engage in litigation to enforce our rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property.
We may need to engage in litigation to enforce our rights. Litigation to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management and could result in the impairment or loss of portions of our intellectual property, and the outcome of litigation could be unpredictable.
Moreover, if our revenue declines, we may not be able to reduce costs in a timely manner because many of our costs are fixed, at least in the short term. In addition, if we reduce variable costs to respond to losses, this may limit our ability to sign up new customers and grow our revenues.
Moreover, if our revenue declines, we may not be able to reduce costs in a timely manner because many of our costs are fixed, at least in the short term. In addition, if we reduce variable costs to respond to losses as we did in 2023, this may limit our ability to sign up new customers and grow our revenues.
Expanding into new geographic markets and introducing new products takes time, requires us to navigate and comply with extensive regulations, and may occur more slowly than we expect or than it has occurred in the past. If we lose customers, our value will diminish.
Expanding into new geographic markets, reducing our footprint in some geographic markets, and introducing new products takes time, requires us to navigate and comply with extensive regulations, and may occur more slowly than we expect or than it has occurred in the past. If we lose customers, our value will diminish.
Such risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition, and results of operations. We may be unable to prevent or address the misappropriation of our data.
This risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition, and results of operations. We may be unable to prevent or address the misappropriation of our data.
The impact of further escalation of geopolitical tensions related to this conflict, including increased trade barriers or restrictions on global trade, is unknown and could result in, among other things, heightened cybersecurity threats, protracted or further increased inflation, lower consumer demand, fluctuations in interest and foreign exchange rates and increased volatility in financial markets, any of which could adversely affect our businesses, results of operations and financial condition.
The impact of further escalation of geopolitical tensions related to these conflicts, including increased trade barriers or restrictions on global trade, is unknown and could result in, among other things, heightened cybersecurity threats, protracted or further increased inflation, lower consumer demand, fluctuations in interest and foreign exchange rates and increased volatility in financial markets, any of which could adversely affect our businesses, results of operations and financial condition.
If a treaty that we desire to renew fails to qualify for reinsurance accounting based on its then-current renewal terms, it could adversely impact that carrier’s statutory surplus, triggering the need for additional capital infusions within a short period of time.
If a treaty that we desire to enter into or renew fails to qualify for reinsurance accounting based on its then-current renewal terms, it could adversely impact that carrier’s statutory surplus, triggering the need for additional capital infusions within a short period of time.
We have listed Hippo Holdings Inc.’s common stock and Hippo Holdings Inc.’s warrants on the NYSE under the symbols “HIPO” and “HIPO.WS,” respectively. However, it is possible that an active trading market will not develop or, if developed, that any market will not be sustained.
Hippo Holdings Inc.’s common stock and Hippo Holdings Inc.’s warrants are listed on the NYSE under the symbols “HIPO” and “HIPO.WS,” respectively. However, it is possible that an active trading market will not develop or, if developed, that any market will not be sustained.
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Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed1 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed1 unchanged
2022 filing
2023 filing
Biggest changeITEM 2. PROPERTIES We lease facilities under operating leases with various expiration dates through 2030. Our corporate headquarters are located in Palo Alto, California. We also lease office space in Oakland, California; Austin, Texas; Dallas, Texas; Bedminster, New Jersey; Israel; and Poland. We do not own any real property as of December 31, 2022.
Biggest changeITEM 2. PROPERTIES Our corporate headquarters are located in Palo Alto, California. We own and occupy an office building in Austin, Texas and also lease facilities under operating leases with various expiration dates in Austin, Texas, Palo 56 Alto, California, Oakland, California; Dallas, Texas; Bedminster, New Jersey; Tel Aviv, Israel; and Warsaw, Poland.
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
6 edited+6 added−2 removed1 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
6 edited+6 added−2 removed1 unchanged
2022 filing
2023 filing
Biggest changeNavon brings two causes of action against Hippo – he repeats the fraud claim that is alleged against Mr. Wand, and also alleges a claim for declaratory judgment, requesting that the Court declare that Mr. Navon properly revoked the call option he entered into with Innovius. Hippo has engaged counsel to defend both Hippo and Mr. Wand.
Biggest changeInnovius was an investor in the Company prior to its transaction with Mr. Navon. Mr. Navon alleges a fraud claim against Hippo and also alleges a claim for declaratory judgment, requesting that the Court declare that Mr. Navon properly revoked the call option he entered into with Innovius. On May 2, 2022, Mr.
Wand for breach of fiduciary duty, breach of contract, promissory estoppel, fraud, negligent misrepresentation, and constructive fraud surrounding a loan and call option entered into between Innovius Capital Canopus I, L.P. (“Innovius”) and Mr. Navon, as well as alleged promises made by Mr. Wand to Mr. Navon while Mr. Navon was an employee of Hippo. Mr.
Wand for breach of fiduciary duty, breach of contract, promissory estoppel, fraud, negligent misrepresentation, and constructive fraud surrounding a loan and call option entered into between Innovius Capital Canopus I, L.P. (“Innovius”) and Mr. Navon, as well as alleged promises made by Mr. Wand to Mr. Navon while Mr. Navon was an employee of Hippo.
The Company does not believe it is a party to any pending litigation or other legal proceedings that is likely to have a material adverse effect on the Company’s business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
The Company does not believe it is a party to any pending litigation or other legal proceedings that is likely to have a material adverse effect on the Company’s business, financial condition or results of operations.
Hippo intends to move for summary judgment against the claims alleged in the amended complaint.
The parties are engaged in fact discovery, and Hippo intends to move for summary judgment against the claims alleged in the Fourth Amended Complaint.
Navon amended his 63 complaint, naming Hippo in his breach of contract, promissory estoppel, negligent misrepresentation, and constructive fraud causes of action (in addition to re-pleading the declaratory relief and fraud causes of action). Hippo filed a second demurrer in response to the amended complaint, which the Court denied on July 22, 2022.
Navon amended his complaint, naming Hippo in his breach of contract, promissory estoppel, negligent misrepresentation, and constructive fraud causes of action (in addition to re-pleading the declaratory relief and fraud causes of action). On February 28, 2023, Mr. Navon filed a Third Amended Complaint alleging 18 claims for relief.
On November 19, 2021, Hippo and Assaf Wand were named in a civil action in San Francisco Superior Court brought by Eyal Navon. Mr. Navon brings six causes of action against Mr.
Regardless of outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors. On November 19, 2021, Hippo and Assaf Wand, the Company’s co-founder, were named in a civil action in San Francisco Superior Court brought by Eyal Navon. Mr. Navon alleged six causes of action against Mr.
Removed
On January 20, 2022, Hippo filed a demurrer moving to dismiss the claims alleged in the complaint against Hippo, which the Court sustained with leave to amend on March 8, 2022. On May 2, 2022, Mr.
Added
In addition to the original allegations, the Third Amended Complaint alleges fraud, insider-trading, and aiding-and-abetting claims based on the theory that Hippo and Mr.
Removed
The Company’s Directors & Officers insurance carrier has been notified of this result. On August 9, 2022, Hippo filed an answer to the claims contained in the amended complaint. The parties are engaged in fact discovery, and a trial date is set for November 6, 2023.
Added
Wand provided Innovius and its principal, Justin Moore, with material nonpublic information about Hippo’s business, as well as conversion claims against Hippo related to the transfer of his shares to Innovius after Innovius exercised the call option. All claims asserted are based on alleged conduct that occurred prior to Hippo becoming a publicly traded company.
Added
Hippo engaged counsel to defend both Hippo and Mr. Wand, and Hippo and Mr. Wand have denied all claims. As a result of the allegations in the Third Amended Complaint, Hippo moved to have the court designate the case as complex.
Added
The court granted this motion, took the previously scheduled trial date off the calendar, and trial is now expected to take place in September 2024. On February 2, 2024, Mr. Navon filed a Fourth Amended Complaint alleging 19 claims for relief.
Added
In addition to the previous allegations, the Fourth Amended Complaint alleges securities fraud by affirmative false statements and aiding-and-abetting claims against Hippo, Mr. Wand, Innovius, and Mr. Moore on the theory that Mr. Wand purposely misled Mr. Navon into selling his Hippo shares, and that all defendants were aware of Mr. Wand’s plan to mislead Mr.
Added
Navon in an effort to convince him to sell his Hippo shares. On February 16, 2024, Innovius filed eight cross claims against Hippo and Mr. Wand, claiming breach of contract, promissory fraud and aiding and abetting fraud, and Hippo filed three cross claims against Mr. Navon including fraud, fraudulent inducement, negligent misrepresentation, and breach of contract.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
2 edited+2 added−1 removed2 unchanged
2022 filing
2023 filing
Biggest changePurchase of Equity Securities by the Issuer and Affiliated Purchasers None. Recent Sale of Unregistered Securities and Use of Proceeds None. Performance Graph The performance graph has been omitted as permitted under rules applicable to smaller reporting companies.
Biggest changePerformance Graph The performance graph has been omitted as permitted under rules applicable to smaller reporting companies.
Dividends We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Holders As of February 21, 2024, there were approximately 56 holders of record of the Company’s common stock. Dividends We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Removed
Prior to August 2, 2021 and before the completion of the Business Combination, the Class A ordinary shares of RTPZ traded on the New York Stock Exchange under the ticker symbol “RTPZ”. Holders As of February 22, 2023, there were approximately 65 holders of record of the Company’s common stock.
Added
Recent Sales of Unregistered Securities There were no unregistered sales of equity securities in fiscal year 2023. Issuer Purchases of Equity Securities In March 2023, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of its common stock.
Added
The share repurchase program, which does not have a specific expiration date, authorizes repurchases in the open market or in private transactions. There were no share repurchases in the three months ended December 31, 2023. As of December 31, 2023, the Company had $48.2 million remaining under the share repurchase authorization.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
99 edited+65 added−69 removed69 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
99 edited+65 added−69 removed69 unchanged
2022 filing
2023 filing
Biggest changeThe increase in net loss and loss adjustment expenses is due primarily to an increase in loss participation features in our reinsurance agreements for the year ended December 31, 2022. 77 Results of Operations The following table sets forth our consolidated results of operations data for the periods indicated (dollars in millions): Years Ended December 31, 2022 2021 Change % Change Revenue: Net earned premium $ 42.5 $ 38.9 $ 3.6 9 % Commission income, net 54.3 37.5 16.8 45 % Service and fee income 13.9 14.5 (0.6) (4) % Net investment income 9.0 0.3 8.7 2900 % Total revenue 119.7 91.2 28.5 31 % Expenses: Losses and loss adjustment expenses 101.4 84.4 17.0 20 % Insurance related expenses 59.9 41.7 18.2 44 % Technology and development 57.5 36.2 21.3 59 % Sales and marketing 101.8 95.0 6.8 7 % General and administrative 71.5 49.2 22.3 45 % Impairment and restructuring charges 55.3 — 55.3 100 % Interest and other (income) expense, net (2.5) 198.9 (201.4) (101) % Gain on extinguishment of debt — (47.0) 47.0 100 % Total expenses 444.9 458.4 (13.5) (3) % Loss before income taxes (325.2) (367.2) 42.0 (11) % Income taxes expense 1.3 0.7 0.6 86 % Net loss (326.5) (367.9) 41.4 (11) % Net income attributable to noncontrolling interests, net of tax 6.9 3.5 3.4 97 % Net loss attributable to Hippo $ (333.4) $ (371.4) $ 38.0 (10) % Other comprehensive income: Change in net unrealized gain on available-for-sale securities, net of tax (6.3) (0.8) (5.5) 688 % Comprehensive loss attributable to Hippo $ (339.7) $ (372.2) $ 32.5 (9) % Comparison of the Year Ended December 31, 2022 and 2021 Net Earned Premium For the year ended December 31, 2022, net earned premium was $42.5 million, an increase of $3.6 million compared to $38.9 million for the year ended December 31, 2021.
Biggest changeWe expect continued improvement as these actions have more time to impact our financial results. 71 Results of Operations The following table sets forth our consolidated results of operations data for the periods indicated (dollars in millions): Year Ended December 31, 2023 2022 Change % Change Revenue: Net earned premium $ 107.5 $ 42.5 $ 65.0 153 % Commission income, net 63.4 54.3 9.1 17 % Service and fee income 15.7 13.9 1.8 13 % Net investment income 23.1 9.0 14.1 157 % Total revenue 209.7 119.7 90.0 75 % Expenses: Losses and loss adjustment expenses 181.7 101.4 80.3 79 % Insurance related expenses 79.1 59.9 19.2 32 % Technology and development 47.0 57.5 (10.5) (18) % Sales and marketing 80.1 101.8 (21.7) (21) % General and administrative 79.6 71.5 8.1 11 % Impairment and restructuring charges 5.5 55.3 (49.8) (90) % Other income, net (0.8) (2.5) 1.7 (68) % Total expenses 472.2 444.9 27.3 6 % Loss before income taxes (262.5) (325.2) 62.7 (19) % Income taxes expense 0.5 1.3 (0.8) (62) % Net loss (263.0) (326.5) 63.5 (19) % Net income attributable to noncontrolling interests, net of tax 10.1 6.9 3.2 46 % Net loss attributable to Hippo $ (273.1) $ (333.4) $ 60.3 (18) % Other comprehensive income (loss): Change in net unrealized gain on available-for-sale securities, net of tax 4.1 (6.3) 10.4 (165) % Comprehensive loss attributable to Hippo $ (269.0) $ (339.7) $ 70.7 (21) % Comparison of the Year Ended December 31, 2023 and 2022 Net Earned Premium For the year ended December 31, 2023, net earned premium was $107.5 million, an increase of $65.0 million compared to $42.5 million for the year ended December 31, 2022.
We expect that this would enable us to benefit from the higher premium retention rates and inherently lower frequency of losses that characterize renewed premiums. Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors, and our ability to continue delivering exceptional customer service and support.
We expect that this would enable us to benefit from the higher premium retention rates and inherently lower frequency of losses that characterize renewed premiums. Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, the offerings of our competitors, and our ability to continue delivering exceptional customer service and support.
Sales and Marketing Sales and marketing expenses primarily consist of sales commission, advertising costs, and marketing expenditures, as well as employee compensation (including stock-based compensation and benefits) for employees engaged in sales, marketing, data analytics, and customer acquisition. Sales and marketing also include allocated facility costs and related overhead based on headcount.
Sales and Marketing Sales and marketing expenses primarily consist of sales commission, advertising costs, and marketing expenditures, as well as employee compensation (including stock-based compensation and benefits) for employees engaged in sales, marketing, data analytics, and customer acquisition. Sales and marketing expenses also include allocated facility costs and related overhead based on headcount.
In addition, Adjusted EBITDA should not be construed as an indicator of our operating performance, liquidity, or cash flows generated by operating, investing, and financing activities, as there may be significant factors or trends that it fails to address. We caution investors that non-GAAP financial information—by its nature—departs from traditional accounting conventions.
In addition, Adjusted EBITDA should not be construed as an indicator of our operating performance, liquidity, or cash flows generated by operating, investing, and financing activities, as there may be significant factors or trends that it fails to address. We caution investors that non-GAAP financial 66 information—by its nature—departs from traditional accounting conventions.
The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period so that federal NOLs generated in tax years after December 31, 2017 do not expire. For such amounts generated prior to 2018, the 20-year carryforward periods continue to apply. For additional information refer to Note 20, Income Taxes, to the audited consolidated financial statements.
The provisions of the Tax Cuts and Jobs Act of 2017 eliminated the 20-year carryforward period so that federal NOLs generated in tax years after December 31, 2017 do not expire. For such amounts generated prior to 2018, the 20-year carryforward periods continue to apply. For additional information refer to Note 17, Income Taxes, to the audited consolidated financial statements.
We also return a portion of our MGA commission if the policies are cancelled before the term of the policy. Accordingly, we reserve for commission slide using estimated Hippo programs’ loss ratio performance, or a cancellation reserve as a reduction of revenue for each period presented in our statement of operations and comprehensive loss. 71 b.
We also return a portion of our MGA commission if the policies are cancelled before the term of the policy. Accordingly, we reserve for commission slide using estimated Hippo programs’ loss ratio performance, or a cancellation reserve as a reduction of revenue for each period presented in our statement of operations and comprehensive loss. b.
We record the portion of ceding commission income, which represents reimbursement of successful direct acquisition costs related to the underlying policies as an offset to the applicable direct acquisition costs. d. Carrier Fronting Fees: Through our insurance-as-a-service business, we earn fronting fees from the MGA programs we support.
We record the portion of ceding commission income, which represents reimbursement of successful direct acquisition costs related to the underlying policies, as an offset to the applicable direct acquisition costs. 64 d. Carrier Fronting Fees: Through our Insurance-as-a-Service business, we earn fronting fees from the MGA programs we support.
Recoverability of Our Net Deferred Tax Asset The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion, that it is more likely than not, that all or some portion of the deferred tax asset will be realized.
Recoverability of Our Net Deferred Tax Asset The evaluation of the recoverability of our deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion, that it is more likely than not, that all 78 or some portion of the deferred tax asset will be realized.
Similar to the MGA businesses, the performance obligation from the agency contracts is placement of the insurance policies. For both MGA and insurance agency activities, we recognize commission received from insurers for the sale of insurance contracts as revenue at a point in time on the policy effective dates.
Similar to the MGA businesses, the performance obligation from the agency contracts is placement of the insurance policies. For both MGA and insurance agency activities, we recognize commission received from insurers for the sale of insurance contracts as revenue at a point in time on the policy effective dates. c.
Critical Accounting Policies and Estimates We prepared our consolidated financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Our consolidated financial statements include amounts that, either by their nature or due to requirements of GAAP, are determined using best estimates and assumptions.
Critical Accounting Estimates We prepared our consolidated financial statements in accordance with GAAP, which requires the use of estimates and assumptions. Our consolidated financial statements include amounts that, either by their nature or due to requirements of GAAP, are determined using best estimates and assumptions.
While there can be no assurance that any of the above assumptions as utilized will prove to be correct, we believe that these assumptions represent a realistic and appropriate basis for estimating the reserve for loss and loss adjustment expense reserves.
While there can be no assurance that any of the above assumptions as 77 utilized will prove to be correct, we believe that these assumptions represent a realistic and appropriate basis for estimating the reserve for loss and loss adjustment expense reserves.
Cash received in advance of policy effective dates is recorded on the consolidated balance sheets, representing our portion of commission and premium due to insurers and reinsurers, and hold this cash in trust for the benefit of the insurers and reinsurers as fiduciary liabilities. c.
Cash received in advance of policy effective dates is recorded on the consolidated balance sheets, representing our portion of commission and premium due to insurers and reinsurers, and hold this cash in trust for the benefit of the insurers and reinsurers as fiduciary liabilities.
We are mainly invested in money market accounts, securities issued by the U.S. government and agencies, high-grade corporate and foreign securities, residential and commercial mortgage-backed securities, and other governmental related securities.
We are mainly invested in money market accounts, securities issued by the U.S. government and agencies, high-grade corporate securities, residential and commercial mortgage-backed securities, and other governmental related securities.
This program provides protection to the Company from catastrophes that could impact a large number of insurance policies underwritten by the Company or other MGAs. We buy XOL so that the probability of losses from a single occurrence exceeding the protection purchased is no more than 0.4%, or equivalent to a 1 in 250 year return period.
This program provides us protection from catastrophes that could impact a large number of insurance policies underwritten by us or other MGAs. We buy XOL so that the probability of losses from a single occurrence exceeding the protection purchased is no more than 0.4%, or equivalent to a 1 in 250 year return period.
See Part I, Item IA. “Risk Factors” for more information. Our Ability to Retain Customers Our ability to derive significant lifetime value from our customer relationships depends, in part, on our ability to retain our customers over time. Strong retention allows us to build a recurring revenue base, generating additional premium term over term without material incremental marketing costs.
See Part I, Item 1A. “Risk Factors” for more information. Our Ability to Retain Customers Our ability to derive significant lifetime value from our customer relationships depends, in part, on our ability to retain our customers over time. Strong retention allows us to build a recurring revenue base, generating additional premium term over term without material incremental marketing costs.
Significant Assumptions Employed in the Recording of the Loss and Loss Adjustment Expense Reserve The most significant assumptions used in the determination of the recorded reserve for loss and loss adjustment expenses as of December 31, 2022 are historical aggregate claim reporting and payment patterns, which is assumed to be indicative of future loss development and trends.
Significant Assumptions Employed in the Recording of the Loss and Loss Adjustment Expense Reserve The most significant assumptions used in the determination of the recorded reserve for loss and loss adjustment expenses as of December 31, 2023 are historical aggregate claim reporting and payment patterns, which is assumed to be indicative of future loss development and trends.
IBNR for loss and loss adjustment expense include an estimate for future loss payments on incurred claims not yet reported and for expected development on reported claims 83 Case reserves are established within the claims adjustment process based on all known circumstances of a claim at the time.
IBNR for loss and loss adjustment expense include an estimate for future loss payments on incurred claims not yet reported and for expected development on reported claims 76 Case reserves are established within the claims adjustment process based on all known circumstances of a claim at the time.
Additionally, claim counts are used for analyses relating to natural disasters, such as hurricanes, earthquakes, and wildfires as losses from these events are inherently more difficult to estimate due to the potential exposure of the catastrophic events.
Additionally, claim counts are used for analyses relating to natural disasters, such as hurricanes, earthquakes, wind and hail events, and wildfires as losses from these events are inherently more difficult to estimate due to the potential exposure of the catastrophic events.
During the year ended December 31, 2022, management identified quantitative and qualitative factors that collectively indicated we had a triggering event, mainly due to the sustained decrease in stock price and continued deterioration of general macroeconomic conditions. Based on these events, we concluded that a triggering 80 event occurred and performed a quantitative impairment test.
During the year ended December 31, 2022, management identified quantitative and qualitative factors that collectively indicated we had a triggering event, mainly due to the sustained decrease in stock price and continued deterioration of general macroeconomic conditions. Based on these events, we concluded that a triggering event occurred and performed an interim quantitative impairment test as of December 31, 2022.
These competitors may mimic certain aspects of our digital platform and offerings and have more types of insurance products and can offer customers the ability to “bundle” multiple coverage types together, which may be attractive to many customers.
These competitors may mimic certain aspects of our digital platform and offerings and have more types of insurance products, allowing them to offer customers the ability to “bundle” multiple coverage types together, which may be attractive to many customers.
Insurance related expenses also include employee compensation (including stock-based compensation and benefits) of our underwriting teams, as well as allocated occupancy costs and related overhead based on headcount. Insurance related expenses are offset by a portion of ceding commission income, which represents reimbursement of successful acquisition costs related to the underlying policies.
Insurance related expenses also include employee compensation (including stock-based compensation and benefits) of our underwriting teams, amortization of capitalized internal use software, as well as allocated occupancy costs and related overhead based on headcount. Insurance related expenses are offset by a portion of ceding commission income, which represents reimbursement of successful acquisition costs related to the underlying policies.
Impairment and Restructuring Charges For the year ended December 31, 2022, impairment and restructuring charges were $55.3 million. The charges consisted of $53.5 million related to the impairment of goodwill and $1.8 million related to severance and other personnel costs associated with a reduction in workforce.
The charges for the year ended December 31, 2022 consisted of $53.5 million related to the impairment of goodwill and $1.8 million related to severance and other personnel costs associated with a reduction in workforce.
Although the COVID-19 pandemic and the various responses to it have created significant worldwide volatility, uncertainty and economic disruption over the past few years, recently there has been a return to more normal societal interactions, including in the way we operate our business. We cannot predict the future impacts of this ongoing pandemic or any new pandemic(s).
Although the COVID-19 pandemic and the various responses to it created significant worldwide volatility, uncertainty and economic disruption over the past few years, recently there has been a return to more normal societal interactions, including in the way we operate our business. We cannot predict the future impacts of the COVID-19 pandemic or any new public health events.
For additional information refer to Note 20, Income Taxes, to the audited consolidated financial statements.
For additional information refer to Note 17, Income Taxes, to the audited consolidated financial statements.
Our Ability to Expand Fee Income and Premium Through Cross-Sales to Existing Customers Our strategy to increase the value we are providing to our customers is to offer incremental services to assist our customers in better maintaining and protecting their homes.
Our Ability to Expand Fee Income and Premium Through Cross-Sales to Existing Customers 62 One of our strategies to increase the value we are providing to our customers is to offer incremental services to assist our customers in better maintaining and protecting their homes.
We have underwriting authority and responsibility for administering claims (see Claim Processing Fees below) and we work with affiliated and unaffiliated carrier platforms and a diversified panel of highly rated reinsurance companies who pay us commission in exchange for the opportunity to take that risk on their balance sheets.
We have underwriting authority and responsibility for administering claims (see Claim Processing Fees below) and we work with affiliated and unaffiliated carrier platforms who pay us a commission in exchange for the opportunity to take that risk on their balance sheets.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires, references in this “Hippo Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “our,” “Hippo” and “the Company” refer to the business and operations of Hippo Enterprises Inc. and its consolidated subsidiaries prior to the Business Combination and to Hippo Holdings Inc. and its consolidated subsidiaries following the consummation of the Business Combination.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context otherwise requires, references in this “Hippo Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “our,” “Hippo” and “the Company” refer to the business and operations of Hippo Holdings Inc. and its consolidated subsidiaries.
Additionally, seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer.
Seasonality of Claims Losses Seasonal patterns can impact our incurrence of claims losses, as seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer.
Our ability to attract new customers depends on the pricing of our products, the offerings of our competitors, our ability to expand into new markets, and the effectiveness of our marketing efforts. Our ability to attract customers also depends on maintaining and strengthening our brand by providing superior customer experiences through our proactive, tech-enabled strategy.
Our ability to attract new customers depends on the pricing of our products, the offerings of our competitors, our geographic reach, and the extent and effectiveness of our marketing efforts. Our ability to attract customers also depends on maintaining and strengthening our brand by providing superior customer experiences across all of our offerings through our proactive, tech-enabled strategy.
The following table provides a reconciliation of net loss attributable to Hippo to adjusted EBITDA for the periods presented (in millions): Years Ended December 31, 2022 2021 Net loss attributable to Hippo $ (333.4) $ (371.4) Adjustments: Net investment income (9.0) (0.3) Depreciation and amortization 15.2 11.0 Interest expense — 26.1 Stock-based compensation 61.9 24.3 Fair value adjustments (4.0) 172.6 Gain on extinguishment of debt — (47.0) Contingent consideration charge 4.1 3.5 Other one-off transactions 2.2 8.1 Income taxes expense 1.3 0.7 Restructuring charges 1.8 — Goodwill impairment charge 53.5 — Adjusted EBITDA $ (206.4) $ (172.4) Gross Loss Ratio Gross Loss Ratio, expressed as a percentage, is the ratio of the Gross Losses and LAE to the Gross Earned Premium (in millions).
The following table provides a reconciliation of net loss attributable to Hippo to adjusted EBITDA for the periods presented (in millions): Years Ended December 31, 2023 2022 Net loss attributable to Hippo $ (273.1) $ (333.4) Adjustments: Net investment income (23.1) (9.0) Depreciation and amortization 19.8 15.2 Stock-based compensation 57.5 61.9 Fair value adjustments (1.5) (4.0) Contingent consideration charge 6.0 4.1 Other one-off transactions 7.8 2.2 Income taxes expense 0.5 1.3 Restructuring charges 2.6 1.8 Impairment charges 2.9 53.5 Adjusted EBITDA $ (200.6) $ (206.4) Gross Loss Ratio Gross Loss Ratio, expressed as a percentage, is the ratio of the Gross Losses and LAE to the Gross Earned Premium (in millions).
Net investment income also includes an insignificant amount of net realized gains (losses) on investments, which are a function of the difference between the amount received by us on the sale of a security and the security’s amortized cost, as well as any allowances for credit losses recognized in earnings, if any. 72 Expenses Loss and Loss Adjustment Expenses Loss and loss adjustment expenses represent the costs incurred for losses net of amounts ceded to reinsurers.
Net investment income also includes an insignificant amount of net realized gains (losses) on investments, which are a function of the difference between the amount received by us on the sale of a security and the security’s amortized cost, as well as any allowances for credit losses recognized in earnings, if any.
For the years ended December 31, 2022 and 2021, $23.1 million and $15.0 million, respectively, was offset against earned premium for XOL. 78 The following table presents gross written premium, ceded written premium, net written premium, change in unearned premium, and net earned premium for the years ended December 31, 2022 and 2021 (in millions).
For the years ended December 31, 2023 and 2022, $53.9 million and $23.1 million, respectively, was offset against earned premium for XOL. 72 The following table presents gross written premium, ceded written premium, net written premium, change in unearned premium, and net earned premium for the years ended December 31, 2023 and 2022 (in millions).
The following table summarizes gross and net reserves for unpaid loss and LAE as of December 31, (in millions): December 31, 2022 December 31, 2021 Gross Net Gross Net Loss and loss adjustment reserves IBNR $ 200.6 $ 47.4 $ 195.0 $ 23.4 Case reserves 93.2 17.6 65.8 20.6 Total reserves $ 293.8 $ 65.0 $ 260.8 $ 44.0 Sensitivity Analysis The table below shows the impact on the loss and loss adjustment expense reserve based on reasonably likely changes to our held unpaid amounts after consideration of our proportional and non-proportional reinsurance as of December 31, 2022 (in millions). 10% increase in ultimate loss and loss adjustment expenses 10% decrease in ultimate loss and loss adjustment expenses Impact on: Loss and loss adjustment expense reserves, net $ 18.6 $ (22.2) For additional information refer to Note 11, Loss and Loss Adjustment Expense Reserves, of the audited consolidated financial statements.
The following table summarizes gross and net reserves for unpaid loss and LAE as of December 31, (in millions): December 31, 2023 December 31, 2022 Gross Net Gross Net Loss and loss adjustment reserves IBNR $ 217.2 $ 72.5 $ 200.6 $ 47.4 Case reserves 105.3 28.6 93.2 17.6 Total reserves $ 322.5 $ 101.1 $ 293.8 $ 65.0 Sensitivity Analysis The table below shows the impact on the loss and loss adjustment expense reserve based on reasonably likely changes to our held unpaid amounts after consideration of our proportional and non-proportional reinsurance as of December 31, 2023 (in millions). 10% increase in ultimate loss and loss adjustment expenses 10% decrease in ultimate loss and loss adjustment expenses Impact on: Loss and loss adjustment expense reserves, net $ 14.0 $ (13.8) For additional information refer to Note 11, Reinsurance, of the audited consolidated financial statements.
The following table presents Total Generated Premium for the years ended December 31, 2022 and 2021 (in millions): 2022 2021 Change Gross Written Premium $ 629.9 $ 477.3 $ 152.6 Gross Placed Premium 181.2 128.8 52.4 Total Generated Premium $ 811.1 $ 606.1 $ 205.0 Adjusted EBITDA We define adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“adjusted EBITDA”), a Non-GAAP financial measure, as net loss attributable to Hippo excluding interest expense, income tax expense, depreciation, amortization, stock-based compensation, net investment income, restructuring charges, impairment expense, other non-cash fair market value adjustments, contingent consideration for one of our acquisitions, and other transactions that we consider to be unique in nature.
The following table presents Total Generated Premium for the years ended December 31, 2023 and 2022 (in millions): 2023 2022 Change Gross Written Premium $ 847.3 $ 629.9 $ 217.4 Gross Placed Premium 287.0 181.2 105.8 Total Generated Premium $ 1,134.3 $ 811.1 $ 323.2 Adjusted EBITDA We define adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“adjusted EBITDA”), a Non-GAAP financial measure, as net loss attributable to Hippo excluding interest expense, income tax expense, depreciation, amortization, stock-based compensation, net investment income, restructuring charges, impairment 67 expense, other non-cash fair market value adjustments, contingent consideration for one of our acquisitions, and other transactions, which may include certain legal fees and settlement costs, that we consider to be unique in nature.
General and Administrative General and administrative expenses primarily consist of employee compensation (including stock-based compensation and benefits) for our finance, human resources, legal, and general management functions, as well as facilities, insurance, and professional services.
General and Administrative General and administrative expenses primarily consist of employee compensation (including stock-based compensation and benefits) for our finance, human resources, legal, and general management functions, as well as facilities, insurance, and professional services. Impairment and Restructuring Charges Impairment and restructuring charges consist of non-cash impairment charges relating to goodwill.
There have been no material changes to our contractual obligations from those described in the Annual Report on Form 10-K for the year ended December 31, 2021, other than an increase in Unpaid Loss and Loss Adjustment Expense, certain operating leases as disclosed in Note 13 of the consolidated financial statements, or the agreement to purchase office space as noted below.
There have been no material changes to our contractual obligations from those described in the Annual Report on Form 10-K for the year ended December 31, 2022, other than an increase in Unpaid Loss and Loss Adjustment Expense, and the purchase of office space as noted in Note 8.
In addition, there was an increase in carrier commissions of $4.1 million, an increase in amortization expense attributable to capitalized internal use software of $4.1 million, and an increase in amortization of deferred direct acquisition costs of $3.9 million. 79 The primary components of insurance related expenses are listed below (in millions): Years Ended December 31, 2022 2021 Amortization of deferred direct acquisition costs, net $ 17.8 $ 13.9 Employee-related costs 12.5 7.2 Underwriting costs 7.8 8.1 Amortization of capitalized internal use software 9.0 4.9 Other 12.8 7.6 Total $ 59.9 $ 41.7 Direct acquisition costs were $56.5 million for the year ended December 31, 2022, of which $38.7 million were offset by ceding commission income.
The primary components of insurance related expenses are listed below (in millions): 73 Year Ended December 31, 2023 2022 Amortization of deferred direct acquisition costs, net $ 32.3 $ 17.8 Employee-related costs 12.5 12.5 Underwriting costs 6.6 7.8 Amortization of capitalized internal use software 13.1 9.0 Other 14.6 12.8 Total $ 79.1 $ 59.9 Direct acquisition costs were $88.5 million for the year ended December 31, 2023, of which $56.2 million were offset by ceding commission income.
Our Total Generated Premium for the year ended December 31, 2022 grew 34% year-over-year to $811.1 million from $606.1 million for the year ended December 31, 2021.
Our Total Generated Premium for the year ended December 31, 2023 grew 40% year-over-year to $1,134.3 million from $811.1 million for the year ended December 31, 2022.
The reinsurance contracts are subject to contingent commission adjustments and limited loss participation features, which align our interests with those of the reinsurers.
Additionally, the reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss ratio caps and loss corridors, which align our interests with those of our reinsurers.
The growth was driven primarily by growth of non-Hippo written premium supported by our insurance company, Spinnaker, maintaining solid premium retention levels, achieving planned premium rate increases, premium growth in our licensed insurance agencies, premium growth for policies placed wth third-party insurance companies, and expansion into three new states compared to the year ended December 31, 2021.
The growth was driven primarily by growth of non-Hippo written premium supported by our insurance company, Spinnaker, maintaining solid premium retention levels, achieving planned premium rate increases, premium growth in our licensed insurance agencies, and premium growth for policies placed with third-party insurance companies.
The increase is primarily due to increases in gross earned premium due to year-over-year growth of our total book of business, partially offset by an increased cost of XOL premiums for our catastrophic coverage.
The increase was due primarily to increases in gross earned premium due to year-over-year growth of our total book of business and higher retention of earned premium due to our 2023 reinsurance treaties, partially offset by an increased cost of XOL premiums for our catastrophic coverage which results in an increase in ceded earned premium and lower net earned premium.
Years Ended December 31, 2022 2021 Gross Losses and LAE $ 409.7 $ 515.4 Gross Earned Premium 541.5 374.5 Gross Loss Ratio 76 % 138 % The following table provides a reconciliation of Gross Loss Ratio by named event Property Claims Services (“PCS”) and non-PCS events.
Years Ended December 31, 2023 2022 Gross Losses and LAE $ 543.5 $ 409.7 Gross Earned Premium 769.3 541.5 Gross Loss Ratio 71 % 76 % The following table provides a reconciliation of Gross Loss Ratio by named event PCS and non-PCS events.
These carriers purchase reinsurance from a variety of sources and in a variety of structures. In the basic form of this arrangement, fronting insurance carriers will typically cede a significant portion of the total insurance premium they earn from customers, in return for a proportional amount of reinsurance protection.
In the basic form of this arrangement, fronting insurance carriers will typically cede a significant portion of the total insurance premium they earn from customers, in return for a proportional amount of reinsurance protection. This is known as “ceding” premium and losses through a “quota share” reinsurance treaty.
As we expect to broadly retain our customers, we expect our book of business to evolve to be weighted more towards renewals versus new business over time, as is the case with our more mature competitors.
As we expect to broadly retain our customers who are not located in high severe weather exposed regions, over the long-term, we expect our book of business to evolve to be weighted more towards renewals versus new business, as is the case with our more mature competitors.
The volume of our gross written premium in any given period is generally influenced by: • New business submissions; • Binding of new business submissions into policies; • Bound policies going effective; • Renewals of existing policies; and • Average size and premium rate of bound policies.
The volume of our gross written premium in any given period is generally influenced by: • New business submissions; • Binding of new business submissions into policies; • Bound policies going effective; • Renewals of existing policies; and • Average size and premium rate of bound policies. 63 Ceded Written Premium Ceded written premium is the amount of gross written premium written or assumed by us and our affiliates as a carrier that we cede to reinsurers.
Financing Activities Cash used in financing activities was $6.8 million for the year ended December 31, 2022, due primarily to taxes paid related to net share settlement of equity awards and payments of contingent consideration.
Cash used in financing activities was $6.8 million for the year ended December 31, 2022, due primarily to taxes paid related to net share settlement of equity awards and payments of contingent consideration. Material Cash Requirements Our material cash requirements from known contractual and other obligations primarily relate to purchase commitments, lease payments, and unpaid loss and loss adjustment expense.
As of December 31, 2022, we have U.S. federal and state NOL carryforwards of $540.5 million and $223.0 million, respectively. We have $93.7 million of Dual Consolidating Losses in a 953(d) company, RH Solutions Insurance (Cayman) Ltd.
As of December 31, 2023, we have U.S. federal and state NOL carryforwards of $719.8 million and $326.7 million, respectively. We have $166.2 million of Dual Consolidated Losses in a 953(d) company, RH Solutions Insurance (Cayman) Ltd.
Losses and Loss Adjustment Expenses For the year ended December 31, 2022, loss and loss adjustment expenses were $101.4 million, an increase of $17.0 million, compared to $84.4 million for the year ended December 31, 2021.
Losses and Loss Adjustment Expenses For the year ended December 31, 2023, loss and loss adjustment expenses were $181.7 million, an increase of $80.3 million, or 79%, compared to $101.4 million for the year ended December 31, 2022.
Subsequent commission adjustments arising from policy changes such as endorsements are recognized in the period when the adjustments occur. The MGA commission is subject to adjustments, higher or lower (commonly referred to as “commission slide”), depending on the underwriting performance of the policies placed by us.
The MGA commission is subject to adjustments, higher or lower (commonly referred to as “commission slide”), depending on the underwriting performance of the policies placed by us.
During 2022 we retained approximately 10% of the premium through our insurance company subsidiaries, including our captive reinsurance company, RHS. Additionally, the reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss ratio caps and loss corridors, which align our interests with those of our reinsurers.
In 2023, we retained approximately 40% of the premium through our insurance company subsidiaries or our captive reinsurance company, RHS, before purchasing catastrophe protection. Additionally, the reinsurance contracts are subject to contingent commission adjustments and loss participation features, which align our interests with those of our reinsurers.
Such provisions are recognized in the period based on the experience to date under the agreement. Spinnaker also purchases a corporate catastrophe XOL program that attaches above the reinsurance programs protecting the business written by Hippo as well as the other MGAs. This treaty has a floating retention and attaches at the exhaustion point of the underlying programs’ specific reinsurance.
Spinnaker purchased a corporate catastrophe XOL program that attaches above the reinsurance programs protecting the business written by Hippo as well as the other MGAs. This treaty has a floating retention and attaches at the exhaustion point of the underlying programs’ specific reinsurance. The catastrophe bonds described above inures to the benefit of this contract.
General and Administrative Expenses For the year ended December 31, 2022, general and administrative expenses were $71.5 million, an increase of $22.3 million, or 45%, compared to $49.2 million for the year ended December 31, 2021.
General and Administrative Expenses For the year ended December 31, 2023, general and administrative expenses were $79.6 million, an increase of $8.1 million, or 11%, compared to $71.5 million for the year ended December 31, 2022.
Sales and Marketing Expenses For the year ended December 31, 2022, sales and marketing expenses were $101.8 million, an increase of $6.8 million, or 7%, compared to $95.0 million for the year ended December 31, 2021.
Sales and Marketing Expenses For the year ended December 31, 2023, sales and marketing expenses were $80.1 million, a decrease of $21.7 million, or 21%, compared to $101.8 million for the year ended December 31, 2022.
To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity.
To meet risk transfer requirements, a reinsurance contract must include both insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss for the assuming entity. Similar risk transfer criteria are used to determine whether directly written insurance contracts should be accounted for as insurance or as a deposit.
Years Ended December 31, 2022 2021 Change Gross written premium $ 629.9 $ 477.3 $ 152.6 Ceded written premium 580.3 434.8 145.5 Net written premium 49.6 42.5 7.1 Change in unearned premium (7.1) (3.6) (3.5) Net earned premium $ 42.5 $ 38.9 $ 3.6 Commission Income, Net For the year ended December 31, 2022, commission income was $54.3 million, an increase of $16.8 million, or 45%, compared to $37.5 million for the year ended December 31, 2021.
Year Ended December 31, 2023 2022 Change Gross written premium 847.3 $ 629.9 $ 217.4 Ceded written premium (687.7) (580.3) (107.4) Net written premium 159.6 49.6 110.0 Change in unearned premium (52.1) (7.1) (45.0) Net earned premium $ 107.5 $ 42.5 $ 65.0 Commission Income, Net For the year ended December 31, 2023, commission income was $63.4 million, an increase of $9.1 million, or 17%, compared to $54.3 million for the year ended December 31, 2022.
Loss and LAE are based on actuarial assumptions and management judgements, including losses incurred during the period and changes in estimates from prior periods. Loss and LAE also include employee compensation (including stock-based compensation and benefits) of our claims processing teams, as well as allocated occupancy costs and related overhead based on headcount.
Loss and LAE also include employee compensation (including stock-based compensation and benefits) of our claims processing teams, as well as allocated occupancy costs and related overhead based on headcount.
Investing Activities Cash used in investing activities was $405.9 million for the year ended December 31, 2022, due primarily to purchases of investments partially offset by proceeds from the maturities of investments.
Cash used in investing activities was $405.9 million for the year ended December 31, 2022, due primarily to purchases of investments, partially offset by proceeds from the maturities of investments. 75 Financing Activities Cash used in financing activities was $14.6 million for the year ended December 31, 2023, due primarily to distributions to noncontrolling interests, taxes paid related to net share settlement of equity awards, and acquisitions of noncontrolling interests.
Our borrowing capacity as of December 31, 2022, is $25.2 million , and there were no outstanding amounts under this agreement. To date, we have funded operations primarily with issuances of convertible preferred stock, convertible promissory notes, and from net proceeds from a private placement transaction in connection with the Business Combination, the Business Combination, and revenue.
To date, we have funded operations primarily with issuances of convertible preferred stock, convertible promissory notes, and from net proceeds from a private placement transaction in connection with the Business Combination, the Business Combination, and revenue.
This is known as “ceding” premium and losses through a “quota share” reinsurance treaty. The fronting carrier and the MGA are paid a percentage of the ceded premium as compensation for sales and marketing, underwriting, insurance, support, claims administration, and other related services (in totality, known as a ceding commission).
The fronting carrier and the MGA are paid a percentage of the ceded premium as compensation for sales and marketing, underwriting, insurance, support, claims administration, and other related services (in totality, known as a ceding commission). As additional protection against natural catastrophes or other large loss events, the fronting carrier frequently purchases additional, non-proportional reinsurance.
We intend to continue to drive new customer growth by highlighting our consumer-focused approach to homeowners insurance across multiple distribution channels.
We intend to continue to drive new customer growth by highlighting our consumer- 61 focused approach to home protection and insurance across multiple distribution channels, regardless of whether the customer is a Hippo policyholder.
Direct acquisition costs were $36.9 million for the year ended December 31, 2021, of which $23.0 million was offset by ceding commission income. Technology and Development Expenses For the year ended December 31, 2022, technology and development expenses were $57.5 million, an increase of $21.3 million, or 59%, compared to $36.2 million for the year ended December 31, 2021.
Direct acquisition costs were $56.5 million for the year ended December 31, 2022, of which $38.7 million were offset by ceding commission income. Technology and Development Expenses For the year ended December 31, 2023, technology and development expenses were $47.0 million, a decrease of $10.5 million, or 18%, compared to $57.5 million for the year ended December 31, 2022.
Additionally, the reinsurance contracts are subject to contingent commission adjustments and loss participation features, which align our interests with those of our reinsurers. Loss participation features may increase the amount of losses retained by our insurance company subsidiaries in excess of our pro rata participation. For business produced through our builder channel, we purchased proportional reinsurance from three third-party reinsurers.
Loss participation features may increase the amount of losses retained by our insurance company subsidiaries in excess of our pro rata participation. For business produced through our builder channel, we purchased proportional reinsurance from three third-party reinsurers. All reinsurers are rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized.
Ceded Written Premium Ceded written premium is the amount of gross written premium written or assumed by us and our affiliates as a carrier that we cede to reinsurers. We enter into reinsurance contracts to limit our exposure to losses, as well as to provide additional capacity for growth.
We enter into reinsurance contracts to limit our exposure to losses, as well as to provide additional capacity for growth. Ceded written premium is treated as a reduction from gross written premium. The volume of our ceded written premium is impacted by the level of our gross written premium and decisions we make to increase or decrease retention levels.
Technology and Development Technology and development expenses primarily consist of employee compensation (including stock-based compensation and benefits) for our technology staff, which includes technology development, infrastructure support, actuarial, and third-party services. Technology and development also include allocated facility costs and related overhead based on headcount.
These costs include underwriting technology service costs including software, data services used for performing underwriting, and third-party call center costs in addition to personnel-related costs. 65 Technology and Development Technology and development expenses primarily consist of employee compensation (including stock-based compensation and benefits) for our technology staff, which includes technology development, infrastructure support, actuarial, and third-party services.
We expense development costs as incurred, except for costs related to internal use software development projects, which are capitalized and subsequently depreciated over the expected useful life of the developed software. We expect our technology and development costs to increase for the foreseeable future as we continue to invest in research and develop activities to achieve our technology development roadmap.
Technology and development also include allocated facility costs and related overhead based on headcount. We expense development costs as incurred, except for costs related to internal use software development projects, which are capitalized and subsequently depreciated over the expected useful life of the developed software.
Income Taxes For the year ended December 31, 2022, income tax expense was $1.3 million, an increase of $0.6 million, compared to $0.7 million for the year ended December 31, 2021. The increase was due primarily to an increase in foreign income taxes as a result of expanded foreign operations.
Income Taxes For the year ended December 31, 2023, income tax expense was $0.5 million, a decrease of $0.8 million, compared to $1.3 million for the year ended December 31, 2022. The decrease was due primarily to recognizing a deferred tax benefit related to foreign income taxes in the current year.
Ba sis of Presentation The accompanying consolidated financial statements have been prepared in accordance with GAAP as determined by the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), and pursuant to the regulations of the SEC. 70 Components of Results of Operations Revenue Gross Written Premium Gross written premium is the amount received or to be received for insurance policies written or assumed by us and our affiliates as a carrier, without reduction for policy acquisition costs, reinsurance costs, or other deductions.
Components of Results of Operations Revenue Gross Written Premium Gross written premium is the amount received or to be received for insurance policies written or assumed by us and our affiliates as a carrier or captive reinsurer, without reduction for policy acquisition costs, reinsurance costs, or other deductions.
Our management uses non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (i) monitor and evaluate the performance of our business operations and financial performance; (ii) facilitate internal comparisons of the historical operating performance of our business operations; (iii) review and assess the operating performance of our management team; (iv) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (v) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments. 74 Years Ended December 31, 2022 2021 ($ in millions) Total Generated Premium $ 811.1 $ 606.1 Total Revenue 119.7 91.2 Net Loss attributable to Hippo (333.4) (371.4) Adjusted EBITDA (206.4) (172.4) Gross Loss Ratio 76 % 138 % Total Generated Premium We define Total Generated Premium as the aggregate written premium placed across all of our business platforms for the period presented.
Our management uses non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (i) monitor and evaluate the performance of our business operations and financial performance; (ii) facilitate internal comparisons of the historical operating performance of our business operations; (iii) review and assess the operating performance of our management team; (iv) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (v) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
We also seek to further reduce our risk retention on both the primary homeowners treaty and the builder channel treaty through purchases of non-proportional reinsurance described below in the section titled “Non-Proportional Reinsurance.” Non-Proportional Reinsurance — Hippo We also purchase non-proportional XOL reinsurance.
We also seek to further protect our balance sheet through the purchase of non-proportional reinsurance described below in the section titled “Non-Proportional Reinsurance.” Non-Proportional Reinsurance — Hippo Home Insurance Program We also purchase non-proportional XOL reinsurance.
Other assumptions considered include information developed from internal and independent external sources such as premium, rate and cost trends, litigation and regulatory trends, legislative activity, climate change, and social and economic patterns. 84 The above assumptions most significantly influence our determination of initial expected loss ratios and expected loss reporting and payment patterns which are the key inputs that impact variability in the estimate of the reserve for loss and loss adjustment expenses.
The above assumptions most significantly influence our determination of initial expected loss ratios and expected loss reporting and payment patterns which are the key inputs that impact variability in the estimate of the reserve for loss and loss adjustment expenses.
Impairment and Restructuring Charges Impairment and restructuring charges consist of non-cash impairment charges relating to goodwill. We review goodwill for impairment annually on October 1 and more frequently if events or changes in circumstances indicate that an impairment may exist.
We review goodwill for impairment annually on October 1 and more frequently if events or changes in circumstances indicate that an impairment may exist. If the carrying value of the reporting unit exceeds its fair value, the fair value of the reporting unit’s goodwill is calculated and an impairment loss equal to the excess is recorded.
Net Investment Income For the year ended December 31, 2022, net investment income was $9.0 million, an increase of $8.7 million, compared to $0.3 million for the year ended December 31, 2021.
Net Investment Income For the year ended December 31, 2023, net investment income was $23.1 million, an increase of $14.1 million, or 157%, compared to $9.0 million for the year ended December 31, 2022. The increase was due primarily to an increase in yields and diversification.
The increase was due primarily to increases in ceding commissions, including fronting fees, of $14.9 million, which grew due to the year-over-year growth of our total book of business, net of variable commission provisions.
The increase was due primarily to an increase in carrier fronting fees of $8.5 million and agency commissions of $7.2 million, both of which grew due to the year-over-year growth of our total book of business.
Reinsurance allows a carrier to write more business while reducing its balance sheet exposure and volatility of earnings. Proportional Reinsurance Treaties — Hippo For our primary homeowners reinsurance treaties we secured quota share reinsurance from a diverse panel of third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or are collateralized.
Proportional Reinsurance Treaties — Hippo Home Insurance Program For our primary homeowners reinsurance treaty commencing in 2023, we secured proportional reinsurance from a diverse panel of third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized.
The reinsurance treaties are a mix of proportional and XOL in which approximately 75% to 100% of the risk is ceded. The reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss caps, and may increase the amount of losses retained by the Company in excess of our pro-rata participation.
The reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss caps, and may increase the amount of losses retained by 60 us in excess of our pro-rata participation. Such provisions are recognized in the period based on the experience to date under the agreement.
Additionally, insurance related expenses include the costs of providing bound policies and delivering claims services to our customers. These costs include underwriting technology service costs including software, data services used for performing underwriting, and third-party call center costs in addition to personnel-related costs.
Additionally, insurance related expenses include the costs of providing bound policies and delivering claims services to our customers.
We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth. The expenses are a function of the size and term of the insurance policies and the loss experience and loss participation features associated with the underlying risks.
Expenses Loss and Loss Adjustment Expenses Loss and loss adjustment expenses represent the costs incurred for losses net of amounts ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth.
All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized. In 2023 we expect to retain approximately 40% of the premium through our insurance company subsidiaries or our captive reinsurance company, RHS, before purchasing catastrophe protection.
For our primary homeowners reinsurance treaty commencing in 2022, we secured quota share reinsurance from a diverse panel of third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is collateralized. In 2022, we retained approximately 10% of the premium through our insurance company subsidiaries, including our captive reinsurance company, RHS.
Years Ended December 31, 2022 2021 Net Losses and LAE $ 101.4 $ 84.4 Net Earned Premium 42.5 38.9 Net Loss Ratio 239 % 217 % For the year ended December 31, 2022, our Net Loss Ratio was 239% compared with 217% for the year ended December 31, 2021.
Years Ended December 31, 2023 2022 Net Losses and LAE $ 181.7 $ 101.4 Net Earned Premium 107.5 42.5 Net Loss Ratio 169 % 239 % For the year ended December 31, 2023, our Net Loss Ratio was 169% net of a prior year favorable development of 2 percentage points relating to PCS events and no favorable development for non-PCS events, compared with 239% net of a prior year favorable development of 14 percentage points relating to non-PCS events and 14 percentage points relating to PCS events for the year ended December 31, 2022.
We cannot assure that such funds will be available on favorable terms, or at all . 81 Cash Flow Summary The following table summarizes our cash flows for the periods presented (in millions): Years Ended December 31, 2022 2021 Change Net cash provided by (used in): Operating activities $ (161.5) $ (124.5) $ (37.0) Investing activities $ (405.9) $ (30.0) $ (375.9) Financing activities $ (6.8) $ 480.8 $ (487.6) Operating Activities Cash used in operating activities was $161.5 million for the year ended December 31, 2022, an increase of $37.0 million, from $124.5 million for the year ended December 31, 2021.
Cash Flow Summary The following table summarizes our cash flows for the periods presented (in millions): Year Ended December 31, 2023 2022 Change Net cash provided by (used in): Operating activities $ (92.4) $ (161.5) $ 69.1 Investing activities $ 57.6 $ (405.9) $ 463.5 Financing activities $ (14.6) $ (6.8) $ (7.8) Operating Activities Cash used in operating activities was $92.4 million for the year ended December 31, 2023, a decrease of $69.1 million from $161.5 million for the year ended December 31, 2022.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
2 edited+0 added−0 removed2 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
2 edited+0 added−0 removed2 unchanged
2022 filing
2023 filing
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 87 Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We are primarily exposed to market risk through our fixed maturities investments.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We are primarily exposed to market risk through our fixed maturities investments.
Management does not expect our results of operations or cash flows to be materially affected to any degree by a sudden change in market interest rates. 88
Management does not expect our results of operations or cash flows to be materially affected to any degree by a sudden change in market interest rates. 79