Hippo Holdings Inc.

Good morning all, good afternoon all, and welcome to the HIPPO fourth quarter 25 earnings call. My name is Adam and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing star followed by one on your telephone keypad. I will now hand the floor to Charles Sebastian to begin. So Charles, please go ahead when you are ready.

Thank you, operator. Good morning and thank you for joining HIPPO's fourth quarter 2025 earnings call. Earlier today, HIPPO issued an earnings release announcing its fourth quarter and full year 2025 results and a financial results presentation, which will be webcast during today's call, both of which are available at investors.hippo.com. Leading today's discussion will be HIPPO President and Chief Executive Officer, Greg McCatherin, and Chief Financial Officer, Guy Zeltzer. Following management's prepared remarks, we will open the call for questions. Before we begin, we would like to remind you that our discussion will contain predictions, expectations, forward-looking statements, and other information about our business that are based on management's current expectations as of the date of this presentation. Forward-looking statements include, but are not limited to, HIPAA's expectations or predictions of financial and business performance and conditions and competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from historical results and or from our forecast, including those set forth in HIPAA's Form 10-K. For more information, please refer to the risks, uncertainties, and other factors discussed in HIPAA's SEC filings, in particular, in the section entitled Risk Factors in our Form 10-Q and 10-K. All cautionary statements are applicable to any forward-looking statements we make whenever they appear. You should carefully consider the risks and uncertainties and other factors discussed in HIPAA's SEC filings. Do not place undue reliance on forward-looking statements as HIPAA is under no obligation and expressly disclaims any responsibility for updating, offering, or otherwise revising any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During this conference call, we will also refer to non-GAAP financial measures, such as adjusted net income. Our GAAP results and description of our non-GAAP financial measures with full reconciliation to GAAP can be found in our fourth quarter 2025 earnings release, which has been furnished to the FCC and is available on our website. And with that, I'll turn the call over to Rick McCatherin, our president and CEO.

Thank you, Chuck, and good morning, everyone. Thank you for joining us. Once again, I am pleased to report that HIPAA delivered a very strong performance in 2025, continuing to advance and strengthen our business, building on our technology-native insurance platform. For the year, we generated over $1.1 billion of gross written premium for the first time, an increase of 24%, and we're just getting started. Net written premium for the year of $422 million was up 13%. This growth was achieved while improving our combined ratio by 25 percentage points, helping deliver net income of $58 million for the year. These results underscore the strength of our model and our ability to drive consistent improvements across the core drivers of our business. Guy will discuss more details when he reviews the financials later. We entered 2026 with positive momentum and increased confidence in achieving and exceeding our 2028 targets of over $2 billion in gross written premium, $125 million of adjusted net income, and an 18% adjusted return on equity by the end of 2028. Our continued evolution aligns squarely with the three strategic pillars that guide our business and position HIPPO for long-term profitable growth. Strategic diversification. We continue to broaden our premium base across both personal and commercial lines. building a more balanced and profitable portfolio. Unlocking market growth. Our programs deliver a differentiated, technology-driven customer experience that sets HIPPO apart and expands our reach into attractive markets. Optimized for risk management. We are leveraging our diversified portfolio and deep risk management capabilities to continuously optimize performance across market cycles. Now, I'd like to provide updates on our main lines of business. First, in homeowners, our largest and original line of business. For 2025, we wrote $379 million of gross written premium down approximately 10% from the prior year as we prioritize profitability over growth given the heightened competition in ENS. However, we believe the line performed well, having achieved an average renewal premium increase of approximately 15% in our HHIP business, which we now view as rate adequate. Consequently, we've turned the corner in homeowners and expect this business to return to growth again in 2026, driven by two key developments. First, through our Baldwin partnership, we are now actively quoting business with more than 50 homebuilders nationwide, up from six prior to the sale of our homebuilder distribution network. Second, following the completion of improvements to our homeowner's product outside the builder channel, which included an advanced rate filing process, revised terms and conditions, and improved claims handling, I am pleased to report that we have relaunched writing traditional new policies with selected partners. Turning to our renter's business, which produced $175 million gross written premium for the year, a 19% increase year over year, As one of Hippo's most seasoned programs, it continues to grow while maintaining attractive profitability. We are pleased to support this program and its continued innovation in the renter's market. Now turning to our most diversified portfolio of risk, our commercial lines business. Commercial multi-parallel delivered a very strong year of growth, increasing 75% over 2024 to $265 million of gross written premium. making it our second largest line of business after homeowners. Fundamental to our program strategy is supporting programs we know well or have had a long track record of performance, and this is exactly where this year's growth originated. Specifically, programs with five years operating histories and consistently attractive underwriting results. Our casualty business experienced even faster growth, increasing 92% to an end of year with $264 million of gross written premium, just slightly behind commercial multi-parallel. Importantly, this growth came from a well-diversified group of programs with relatively modest limits profiles. Consistent with our strategy of supporting long tenured programs, our risk retention levels in casualty was only 3% for 2025. However, These programs were well supported by the reinsurance market, and as we continue to deepen those partnerships, we expect to increase our retention levels over time. Given the growth in our partner program business, we wanted to provide additional insight into how we manage this platform, which is likely a bit more engaged than some may realize. When launching new lines of business with program partners, we follow a rigorous diligence process. Together, we established the underwriting guidelines the program will operate under, an approach we believe is critical to our long-term success. For instance, over 70% of our liability policies have limits under $300,000, and our portfolio has an average liability duration of approximately two years, which is generally considered short tail exposure. We remain highly engaged with our program partners through the underwriting and claims, once new programs are operational. For example, if a program wants to write a policy that falls outside of its established underwriting guidelines, it must request an exception. Today, we are well under 1% of quotes requiring such an exception. Claims management is also critical to underwriting outcomes, and we are actively involved in that process as well. We set claims authority limits on third-party administrators and proactively review claims that approach those thresholds. Today, our claims team reviews more than 800 files per month. While we currently have 38 programs in operation, not all have performed as initially expected. In those cases, we will place a program into runoff to protect the overall underwriting performance. I am very pleased with how our team has managed the program business, driving growth, maintaining oversight, and exiting when necessary. This disciplined approach is clearly evidenced by our 54% gross loss ratio in 2025, which includes the impact of the severe California wildfires in early 2025. Overall, I'm very pleased with HIPAA's position today and confident in our prospects for 2026 and beyond. Now, I'd like to turn the call over to our Chief Financial Officer, Guy Seltzer, to walk through the highlights of our fourth quarter and 2025 financial results and our expectations for 2026.

Thanks, Rick, and good morning, everyone. In the fourth quarter, we once again delivered strong top-line premium growth, improved underwriting, and increased profitability. Growth return premium in Q4 grew 40% year-over-year to $288 million, and for the full year grew 24% year-over-year to over $1.1 billion. Growth in both the fourth quarter and for the full year was driven primarily by strong performance in casualty and commercial multi-parallel lines and slightly offset and modest construction in homeowners as we continue to prioritize underwriting discipline over premium growth in that line of business. I'll now highlight a few additional details of this gross return premium growth. Casualty grew 169% compared to Q4 of last year, grew 92% over full year 2024, and accounted for 24% of 2025 gross return premium. Commercial multi-parallel grew 58% compared to Q4 of last year, grew 75% over full year 2024, and also accounted for 24% of 2025 gross return premium. And homeowners declined 5% compared to Q4 last year and declined 10% versus full year 2024. For 2025, homeowners accounted for 34% of gross return premium compared to 47% in 2024, demonstrating our ongoing portfolio diversification. Net return premium in Q4 grew 23% year-over-year to $97 million, and for the full year, grew 13% to $422 million, while also getting more diversified. Renters grew 227% compared to Q4 of last year and grew 311% over full year 2024. Commercial multi-parallel grew 36% compared to Q4 of last year and grew 127% over full year 2024. And homeowners declined 3% in the quarter and was down 17% for the year. Homeowners accounted for 65% of net return premium in the quarter and 60% for the full year, both down from approximately 82% in each of the prior year periods. In Q4, net loss ratio improved 12 percentage points year over year to 46% driven by favorable trends in both CAAT and non-CAAT loss experience. CAAT loss ratio improved seven percentage points to negative 1%, driven primarily by a very low level of CAAT losses during the quarter and by a positive development from earlier quarters in accident year 2025. Non-CAAT loss ratio improved five percentage points year over year to 47%, reflecting continued rate actions refined policy terms and conditions, enhanced underwriting processes, and stronger claims operations. In Q4, net expense ratio increased four percentage points year-over-year to 53.5%. This was fully driven by the sale of our homebuilder distribution network in Q3 of 2025, as our expense ratio in Q4 of last year benefited from five percentage points of profit from these agencies in that period. Together in Q4, net combined ratio improved 8 percentage points to 99.4% compared to Q4 of last year. For full year 2025, our net loss ratio improved 17 percentage points to 60%, driven by improvements in both CAAT and non-CAAT loss experience. Non-CAAT loss ratio improved 11 percentage points year over year to 45%, reflecting the same previously mentioned actions. Chaos loss ratio improved six percentage points to 15% compared to 2024. Our net expense ratio for 2025 improved eight percentage points year over year to 53%. This was driven by the scalability of our platform, which enabled us to grow top line significantly faster than our fixed expenses. Together, the improvements in our loss and expense ratios resulted in a combined ratio of 113% at 25 percentage points improvement compared to 2024. June 4 net income attributable to HIPAA was $6 million or 23 cents per diluted share compared to $44 million or $1.71 per diluted share in the prior year quarter. The year-over-year decline was primarily due to the $46 million gain from the set of the majority stake at FirstConnect in the prior year period, which more than offset the improvement in underwriting performance over the same period. Q4 adjusted net income grew 20% year-over-year to $18 million, or 67 cents per diluted share. For full year 2025, net income attributable to HIPPO was $58 million, or $2.22 per day of the share, representing a $98 million improvement year over year. This improvement was driven by continued top-line growth, materially stronger underwriting performance, and an incremental $45 million in net gain from asset sales in 2025 versus 2024. Full year 2025, adjusted net income was $18 million, or 68 cents per diluted share, a $38 million improvement year over year. This was driven by the same underlying factors that drove the net income improvement, with the exception of the net gain on the sale, which is excluded from adjusted net income. Total HIPAA shareholders' equity at the end of the quarter was $436 million, or $16.97 per share, up 17% from $362 million or $14.56 per share at year end 2024. The increase was driven primarily by the gain on the sale of the home builder distribution network and better underwriting performance, which more than offset first quarter operating losses from the California wildfires, a share repurchase executed in the third quarter. Looking ahead to 2026, we expect gross return premium to grow between 27 and 36% to a range of $1.4 to $1.5 billion. This reflects our expectation that growth in our newer lines of business will continue. And as Rick mentioned, our homeowner's business will return to growth in 2026. We expect net return premium to grow between 19 and 28% to a range of 500 to $540 million. We expect net combined ratio to improve between 8 and 10 percentage points to a range of 103 to 105%, driven mostly by the operating leverage and scalability of our platform. This outlook assumes a 13% cap loss ratio, a slight reduction versus 15% of actual cap loss ratio in 2025, which includes the Los Angeles wildfires. This reduction is supported by our continued diversification into less gap-exposed lines of business. And finally, we expect adjusted net income of between $45 and $55 million compared to the $18 million in 2025. While we are no longer providing net income guidance, we are now guiding to stop with compensation and depreciation and amortization expense and expect these line items to total approximately 41 million in 2026, down from 50 million in 2025. And with that, operator, I'd now like to open the floor to questions.

Of course. As a reminder, if you'd like to ask a question on today's call, please press star followed by one on your telephone keypad now. When preparing to ask a question, please ensure you are unmuted locally at star followed by one. And the first question today comes from Tommy McJoynt from KBW. Tommy, please go ahead. Your line is open.

Hey, guys. Good morning. Thanks for taking our questions. Yeah, my first question is just about the relaunch of the homeowner's book, Outside of Builders. Could you talk a little bit about your go-to-market strategy and maybe comment on what the competitive environment looks like there as you're looking to increase the distribution?

Yes, good morning, Tommy. This is Rick. Happy to answer that question. As you and the listeners know, it's been quite a while since we wrote traditional homeowners business. We've spent the last two years retooling that product line, combination of reducing some of the volatility in a more geographically diversified area. We've taken considerable rate on that product line over the last few years. We've improved our terms and conditions. We have changed some of the coverage languages as it relates to deductibles and roof schedules. And we've gotten the product that we believe is extremely rate adequate and one that we are very bullish on its profitability. As we've opened that product line, we've done it in a thoughtful way. and a number of states with very few strategic partners in order to ensure both competitiveness and profitability. We are accelerating that throughout the year. We will continue to open in other states as well as expand the partnership roster, inclusive of some direct-to-consumer play. But we're very excited about it, and we're excited to share the results as we start to develop them next quarter.

Got it. Thanks for that. And then looking at another line of business here, the casualty side, you've seen some nice growth there, both on a gross basis and retaining a bit more through a net basis. Can you unpack a little bit as to what sort of business actually underlies that casualty business? What's the tail risk there? And then can you talk about your maybe timeline to continue to increase retention there? I understand gross is growing, but there's obviously room for the retention side to increase as well.

Yeah, Tommy, I appreciate the question, given this is a newer endeavor for us. Predominantly, it's combined some cyber insurance and commercial GL, predominantly for small business, construction projects, some commercial auto. It's a fairly diverse portfolio of commercial exposure. We take a very small percentage in aggregate. I think for 2025, we took about 3% of the exposure on that portfolio, and our average exposure per account is $300,000, so nothing that's extremely large. We also think the time to settle claims is two years or less, which is still fairly short-tail in nature. As we've said previously, we typically only take risk participation with partners that develop that we develop a longer term relationship and have great conviction that they understand what they're doing, that we have proper controls in place, both from a pricing perspective, a claims handling perspective. We would expect that to increase over 2026 and beyond, but we're doing it in a very partner by partner selective way. If we find ourselves wanting to participate, but we're still concerned a bit about tele exposure or larger limits exposure, there are ways to protect that with third party reinsurance over our share. So we are taking risk. We are increasing the risk participation, but we're doing it in a very thoughtful, slow way.

Thanks, Rick. Thanks, Tommy. The next question comes from Andrew Anderson from Jefferies. Andrew, please go ahead. Your line is open.

Hi. Thanks. Good morning. This is Sidon for Andrew. Just curious if you could discuss what drove the reserve development in the quarter.

I see. Good morning. This is Guy. I did take this question. So to answer your question directly, it was mostly driven by one large loss, actually in a homeowner's business. It was a liability claim. Just to add a bit more color on how we think about that. First of all, if you just look at the prior accident year, we tend to look at it on a full year basis. On a full year basis, we did release about $10 million. So the view for the full year has been positive for us. And then also, specifically, when you look at only Q4, you arrived from the prior accident year. There was one point of adverse development. But we did see about three points of positive development from earlier quarters in accident year 2025. So even if we just focus on Q4, it was a positive quarter. And this is why we're generally speaking, feeling pretty good about where we stand from a reserve perspective entering 2026.

Okay, thanks. And then maybe you could just discuss how you're expecting the renewal premium increases in homeowners to trend moving forward relative to the 15% in 2025.

Yeah, absolutely. So, as you mentioned, we achieved about 15% in 2025. Obviously, that was way above the loss-post trends in 2025. Given that what we just said, that we feel very good about the rate adequacy for the book, we don't expect another year or 15, but it will still go up. given that in addition to some rates, we have the annual, essentially we're automatically catching up with inflation. So we do expect a premium change increase in 2026 to continue. And we also expect it to still come ahead of lost cost, which is another reason why we are very, very bullish about the new partnership that we launched in growing outside the builder channel, given that again, we're not only rate adequate, but we do expect the average premium change next year to trend faster or safety faster than those costs.

If I can, this is Rick. I just want to add one very important component as we accelerate and grow in our own HHIP homeowners program. We are only writing business with where we expect the loss ratio to be profitable. So our partners will not even see quotes for business that we are not excited to write. and the question that tommy had asked earlier i failed to answer we on the business that we want to write we find ourselves to be competitive on the business we don't want to write we find ourselves to not be competitive and frankly we're not even displaying quotes in that particular business As such, we're very confident that we'll be able to keep up with the trends and keep that portfolio profitable. We do not want to get ourselves into a position that we were in previously where we found ourselves not to be rate adequate. So we are staying ahead of that curve in a meaningful way.

Okay. Thank you.

Thank you. As a reminder, that would be star followed by one to ask a question today. Final call for questions, star one. We have no further questions, so I'll hand the call back to the management team for any closing comments.

Great. Well, thank you so much for joining us this morning. We are excited about the year and quarter we just posted and very excited to be sharing additional progress in the coming quarters. Thank you very much. Have a great day.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.