Hippo CEO: $50 million surplus note will allow Spinnaker to ‘grow more aggressively’

By Michael Loney

May 12 - (The Insurer) - Hippo’s CEO has told The Insurer that a new $50 million surplus note will allow its Spinnaker fronting business to grow “aggressively” by supporting existing partners, adding new partners and taking on more underwriting risk on attractive programs.

Along with its first-quarter results, homeowners insurtech Hippo on May 7 announced it had signed an agreement to raise a $50 million surplus note, which will be used to support the growth of diversified product lines it accesses through the Spinnaker platform.

In an interview with The Insurer, Hippo president and CEO Rick McCathron said: “If you look at the long-term profitability and sustainability of our Spinnaker platform, we're highly motivated to continue to grow that platform and support both existing and new partners in that platform.

“We opted to raise the surplus note as a way to allow us to grow more aggressively in the Spinnaker channel.”

McCathron said that Spinnaker has been “highly profitable and very successful”, and that additional surplus was needed to support both premium growth and risk participation.

Spinnaker’s loss ratio for non-Hippo business has been below 40% historically, and even with the California wildfires was below 60% in this year’s first quarter.

“Just looking at that by itself, we would be foolish not to participate in risk and not to grow that particular portfolio, because it's highly, highly profitable for us,” McCathron said. “We want to support our existing partners, we want to add new partners, and we want to consider taking some level of underwriting risk for those programs that we deem better than average in their particular product line.”

AM Best when affirming Spinnaker’s A-minus rating in January said the fronting carrier generally cedes 80% to 100% of premiums on a program-by-program basis to quota share reinsurers.

McCathron said that a fronting carrier has the best view of the quality of an MGA program and risk participation on it. He also noted that a fronting carrier generally can choose to participate in zero risk all the way up to a “sizeable participation”.

“As an example, we've had one particular program that for the first three years of that program's existence we did not participate in the underwriting portion of the program. We were merely a fronting carrier. We have grown very comfortable. We believe the program has an exceedingly good operator, and so we now take 20% of the underlying risk and exposure of that particular program,” he said.

The surplus note issuance is subject to the approval of Illinois’ insurance regulator.

On an investor call on May 8, McCathron said that the surplus note’s rate is 9.5%, which he described as “quite favourable”.

During the call, McCathron added that while the surplus note proceeds will be used predominantly to grow the Spinnaker portfolio, Hippo will also grow its homeowners insurance program portfolio now that the volatility in it has been reduced.

Hippo in the first quarter reported a net loss of $48 million, which was up from $36 million in the same period of last year. Los Angeles wildfires contributed $45 million to the Q1 2025 net loss.

The Hippo Homeowners Insurance Program’s gross loss ratio worsened by 41 percentage points to 121% in the first quarter because of wildfire losses.

Gross written premium increased to $210.9 million in the first quarter, from $194.7 million in the same period of last year.

HHIP reported a 35% year-on-year increase in gross written premium from its homebuilder partners in Q1, while Hippo continued to reduce the program’s written premium for existing homes in catastrophe-prone areas, a process that is now largely complete.

Written premium outside HHIP increased by 21% year on year, with Hippo in a letter to shareholders noting that these other lines of business are available “because of the quality of the Spinnaker platform".

McCathron highlighted to this publication that that the underlying fundamentals of Hippo’s business continued to improve in Q1, including improvements in attritional loss ratio and revenue.

The insurtech will hold an investor day next month to outline its plans for the next three years.

“Continued improvement in all the underlying aspects of the business have now put us into a position where we can shift a bit from a defensive posture of remediating the portfolio into an offensive one of really growing and expanding what we are going to be over the next three years,” McCathron told The Insurer.