CEO: Hippo ‘back on the offense’ after improved Q2 results and Baldwin partnership

By Michael Loney

Aug 14 - (The Insurer) - Hippo is set to grow its premiums and profits as well as diversify its portfolio following an improved performance and the announcement of a strategic partnership with The Baldwin Group in the second quarter, the insurtech’s CEO told The Insurer.

Hippo on August 6 reported its net loss ratio improved 46 points to 47% in the second quarter. The Hippo Home Insurance Program (HHIP) net loss ratio of 55% was a 58 point improvement on Q2 2024.

Second-quarter net income attributable to Hippo was $1.3 million, or $0.05 per share, compared to a loss of $40.5 million, or $1.64 per share, in the prior-year period.

In an interview with The Insurer following the release of the results, Hippo CEO Rick McCathron said the second quarter is where “you've finally seen the hard work and efforts that we've been doing over the last couple of years start showing itself in the financial results”.

"We've had continuous improvements in our loss ratio over the last couple of years. We've continued to grow our business. We've continued to have discipline and operating leverage in the company. We have positioned ourselves in a very favorable way for the future, and then we accelerated that position by the strategic transaction we did with Baldwin last quarter,” he said.

“All of these together really put us in a position to get back on the offense fairly significantly and really grow not just premiums, but revenues, net income and return on equity.”

Hippo is looking to diversify its premium base across both personal and commercial lines, while also broadening its reach by leveraging its hybrid fronting carrier Spinnaker, McCathron said.

At its investor day in June, Hippo announced it had entered into a strategic partnership with The Baldwin Group, which McCathron has previously said “is set to supercharge our momentum”.

The partnership has three facets.

First, Hippo's hybrid fronting carrier Spinnaker will build upon its support of Baldwin's MSI renters and homeowners programs by extending capacity to a broader spectrum of Baldwin's MGA programs.

Second, Hippo will distribute its newly built homes product through Baldwin's Westwood Insurance Agency, which partners with 20 of the top 25 homebuilders in the U.S. Hippo said this triples its access to new home closings.

Third, Hippo closed a deal to transfer its homebuilder assets to The Baldwin Group for $100 million. Hippo’s homebuilder distribution network generated revenues of approximately $29.2 million in the most recent trailing 12-month period.

“The strategic partnership with Baldwin allows us to grow in the short run on very predictable business,” McCathron told this publication.

McCathron noted that the MSI programs were already a significant partner of Spinnaker.

“This just solidifies that,” he said. “As we continue to grow our portfolio, it really is growing in a diversified way, which reduces the volatility in (writing) just property business but also gives you the opportunity to take advantage of various market cycles.”

Hippo provided guidance along with its Q2 results.

It raised the lower end of its guidance for gross written premium for full-year 2025 from between $1.05 billion and $1.1 billion to between $1.07 billion and $1.1 billion, driven by stronger performance of newly launched programs.

Hippo expects revenue for full-year 2025 to come in between $460 million and $465 million, with the sale of the homebuilders distribution assets to lower revenue in Q3 and Q4 by approximately $5.5 million and $6.5 million, respectively, compared to the guidance provided prior to announcing this transaction.

The guidance for consolidated net loss ratio for full-year 2025 has been improved from between 72% and 74% to between 67% and 69%, driven by positive loss trends reflected in Q2 results.

Hippo raised guidance for net income for full-year 2025 from between a $65 million and $69 million loss to positive net income of between $35 million and $39 million, and raised guidance for adjusted net income for full-year 2025 from between a $10 million to $14 million loss to between a $4 million loss and breakeven.

New York-listed Hippo’s share price closed up 14% at $31.54 on August 6, following the Q2 results being released before markets opened that day.

The share price was trading at $30.72 at 2.50 p.m. on Thursday.

McCathron suggested the share price has a lot of potential upside.

“I think if you look at the growth in the underlying loss ratio, my sense is that people will look at Hippo as at a fairly extreme discount right now. It's our responsibility as management to continue to deliver what we've said that we are going to deliver," he said.

FOUR DRIVERS OF FUTURE GWP GROWTH

Hippo outlined at its investor day in June that there are four key drivers of future gross written premium growth: organic growth from existing hybrid fronting programs, the addition of new hybrid fronting programs, scaling its new homes channel within HHIP and expanding HHIP beyond the new homes channel.

McCathron said that Hippo is looking to fully transition from being solely a producer of homeowners insurance to accumulating a broad, diversified portfolio across multiple product lines.

“Hippo Home Insurance Program is one of them, that's an anchor tenant in this endeavor, and we'll continue to grow that business. We also have partners like Baldwin, like MSI and many others. We have a total of 19 partners and 30 programs currently on Spinnaker, they continue to grow, and they will help fulfill that.

“And then we'll go out and find other quality operators or quality programs, and possibly acquire programs if we feel that there's a gap or a need within the space,” he said.

Speaking during an investor call on August 6, McCathron noted that Hippo’s risk participation when launching new programs is low.

“As we gain more experience with each program, we'll consider increasing our risk participation if doing so enhances our return on equity,” he said. “Crucially, while expanding our top line remains core to our strategy, we did not compromise on underwriting profitability.”