Hippo Holdings Inc (HIPO) 2025 Q4 法說會逐字稿

Good morning or good afternoon, and welcome to the Hippo fourth-quarter '25 earnings call. My name is Adam, and I'll be your operator today. (Operator Instructions)

I will now hand the floor to Charles Sebaski 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, Rick McCathron; and Chief Financial Officer, Guy Zeltser. 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, Hippo'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 Hippo's Form 10-K. For more information, please refer to the risks, uncertainties and other factors discussed in Hippo'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 Hippo's SEC filings. Do not place undue reliance on forward-looking statements as Hippo 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 SEC and is available on our website.

And with that, I'll turn the call over to Rick McCathron, our President and CEO.

Thank you, Chuck, and good morning, everyone. Thank you for joining us. Once again, I am pleased to report that Hippo 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 are 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 enter 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 3 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. Optimize 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 E&S.

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 2 key developments: First, through our Baldwin partnership, we are now actively quoting business with more than 50 homebuilders nationwide, up from 6 prior to the sale of our homebuilder distribution network.

Second, following the completion of improvements to our homeowners 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 Renters 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 renters market.

Now turning to our most diversified portfolio of risk, our Commercial Lines business. Commercial multi-peril 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 5 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-peril. 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 establish 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 2 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 Hippo'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 Zeltser, 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. Gross written premiums 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-peril lines and slightly offset a modest contraction 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 written premium growth. Casualty grew 169% compared to Q4 of last year, grew 92% over full year 2024 and accounted for 24% of 2025 gross written premium. Commercial multi-peril grew 58% compared to Q4 of last year, grew 75% over full year 2024 and also accounted for 24% of 2025 gross written 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 written premium compared to 47% in 2024, demonstrating our ongoing portfolio diversification.

Net written 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-peril 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 written premium in the quarter and 60% for the full year, goes 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 CAT and non-CAT loss experience. CAT loss ratio improved 7 percentage points to negative 1%, driven primarily by a very low level of CAT losses during the quarter and by a positive development from earlier quarters in accident year 2025.

Non-CAT loss ratio improved 5 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 4 percentage points year-over-year to 53.5%. This was fully driven by the sale of our Homebuilders Distribution Network in Q3 of 2025 as our expense ratio in Q4 of last year benefited from 5 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 CAT and non-CAT loss experience. Non-CAT loss ratio improved 11 percentage points year-over-year to 45%, reflecting the same previously mentioned actions.

CAT loss ratio improved 6 percentage points to 15% compared to 2024. Our net expense ratio for 2025 improved 8 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%, a 25 percentage points improvement compared to 2024.

Q4 net income attributable to Hippo was $6 million or $0.23 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 sale of a majority stake of First Connect 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 $0.67 per diluted share. For full year 2025, net income attributable to Hippo was $58 million or $2.22 per diluted 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 $0.68 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 Hippo 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 homebuilder distribution network and better underwriting performance, which more than offset first quarter operating losses from the California wildfires and share repurchase executed in the third quarter.

Looking ahead to 2026, we expect gross written premium to grow between 27% and 36% to a range of $1.4 billion to $1.5 billion. This reflects our expectation that growth in our newer lines of business will continue. And as Rick mentioned, our homeowners business will return to growth in 2026.

We expect net written premium to grow between 19% and 28% to a range of $500 million 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% CAT loss ratio, a slight reduction versus 15% of actual CAT loss ratio in 2025, which includes the Los Angeles wildfires.

This reduction is supported by our continued diversification into less CAT-exposed lines of business. And finally, we expect adjusted net income of between $45 million and $55 million compared to the $18 million in 2025.

While we are no longer providing net income guidance, we are now guiding to stock-based 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.

(Operator Instructions) Tommy McJoynt, KBW.

My first question is just about the relaunch of the homeowners book outside of builders. Can 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. 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 2 years retooling that product line, a 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. In 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. 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 time line to continue to increase retention there? I understand gross is growing, but there's obviously room for the retention side to increase as well.

Yes, Tommy, I appreciate the question, given this is a newer endeavor for us. Predominantly, it's combined some cyber insurance, some 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 2 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 tail 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.

Andrew Andersen, Jefferies.

This is Sid on for Andrew. Just curious if you could discuss what drove the reserve development in the quarter?

This is Guy. Happy to take this question. So to answer your question directly, it was mostly driven by one large loss actually in our homeowners 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 are right that from the prior accident year, there was 1 point of adverse development, but we did see about 3 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. 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.

Yes, absolutely. So as you mentioned, we achieved about 15% in 2025. Obviously, that was way above the loss cost trends in 2025. Given that what Rick just said that we feel very good about the rate adequacy for the book, we don't expect another year of 15%, but it will still go up given that in addition to some rate, we have the annual -- essentially, we're automatically catching up with inflation.

So we do expect the premium change increase in 2026 to continue. And we also expect it to still come ahead of loss cost, which is another reason why we are very, very bullish about the new partnerships that we launched and 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 slightly faster than loss cost.

Yes. So if I could -- 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. 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.

(Operator Instructions) 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-end 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.