Hippo Holdings Inc 10-Q for FY2023 Q2
Hippo Holdings Inc. (HIPO)
10-Q
2023-08-08
For: 2023-06-30
View Original
Added on
April 04, 2026
About this 10-Q
Hippo Holdings Inc filed this 10-Q on August 8, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $47.7M
- up 66.2% from $28.7M a year earlier
- Net loss
- $107.8M
- compared with a net loss of $73.5M a year earlier
- Diluted EPS
- -$4.61
- compared with -$3.25 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from ______ to ______.
Commission file number 001-39711
(Exact name of registrant as specified in its charter)
(State of incorporation) | (I.R.S. Employer Identification No.) | |||||||||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||||||||
(650 ) 294-8463
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
☒ | Smaller reporting company | ||||||||||
Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant had outstanding 23,665,363 shares of common stock as of August 1, 2023.
Table of Contents
Page | ||||||||
Item 1 | ||||||||
Item 2 | ||||||||
Item 3 | ||||||||
Item 4 | ||||||||
Part II. Other Information | ||||||||
Item 1 | ||||||||
Item 1A | Risk Factors | |||||||
Item 2 | ||||||||
Item 3 | ||||||||
Item 4 | ||||||||
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q of Hippo Holdings Inc. (“Hippo,” the “Company,” “we,” “us” and “our”) contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for our future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Quarterly Report on Form 10-Q, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
•our future results of operations and financial condition and our ability to attain profitability;
•our ability to grow our business and, if such growth occurs, to effectively manage such growth;
•customer satisfaction and our ability to attract, retain, and expand our customer base;
•our ability to maintain and enhance our brand and reputation;
•our business strategy, including our diversified distribution strategy and our plans to expand into new markets and new products;
•the effects of seasonal trends on our results of operations;
•our expectations about our book of business, including our ability to cross-sell and to attain greater value from each customer;
•our ability to compete effectively in our industry;
•our ability to maintain reinsurance contracts and our near- and long-term strategies and expectations with respect to cession of insurance risk;
•our ability to utilize our proprietary technology;
•our ability to underwrite risks accurately and charge profitable rates;
•our ability to leverage our data, technology and geographic diversity to help manage risk;
•our ability to protect our intellectual property;
•our ability to expand our product offerings or improve existing ones;
•our ability to attract and retain personnel, including our officers and key employees;
•potential harm caused by misappropriation of our data and compromises in cybersecurity;
•potential harm caused by changes in internet search engines’ methodologies;
•our expected use of cash on our balance sheet, our future capital needs and our ability to raise additional capital;
•fluctuations in our results of operations and operating metrics;
•our ability to receive, process, store, use and share data, and compliance with laws and regulations related to data privacy and data security;
•our ability to stay in compliance with laws and regulation that currently apply, or become applicable, to our business both in the United States and internationally;
•our inability to predict the lasting impacts of COVID-19 to our business in particular, and the global economy generally;
•our public securities’ liquidity and trading; and
•other factors detailed in the section titled “Risk Factors” in Part II, Item 1A, in this Quarterly Report on Form 10-Q.
These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. You should not place undue reliance on these forward-looking statements.
PART I - Financial Information
Item 1: Financial Statements
HIPPO HOLDINGS INC.
(In millions, except share and per share data)
(Unaudited)
| June 30, 2023 | December 31, 2022 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Investments: | |||||||||||
Fixed maturities available-for-sale, at fair value (amortized cost: $ | $ | $ | |||||||||
Short-term investments, at fair value (amortized cost: $ | |||||||||||
| Total investments | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
Accounts receivable, net of allowance of $ | |||||||||||
| Reinsurance recoverable on paid and unpaid losses and LAE | |||||||||||
| Prepaid reinsurance premiums | |||||||||||
| Ceding commissions receivable | |||||||||||
| Capitalized internal use software | |||||||||||
| Intangible assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Liabilities: | |||||||||||
| Loss and loss adjustment expense reserve | $ | $ | |||||||||
| Unearned premiums | |||||||||||
| Reinsurance premiums payable | |||||||||||
| Provision for commission | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 12) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total Hippo stockholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See Notes to the Consolidated Financial Statements
1
HIPPO HOLDINGS INC.
Consolidated Statements of Operations and Comprehensive Loss
(In millions, except share and per share data)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Net earned premium | $ | $ | $ | $ | |||||||||||||||||||
| Commission income, net | |||||||||||||||||||||||
| Service and fee income | |||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Losses and loss adjustment expenses | |||||||||||||||||||||||
| Insurance related expenses | |||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Interest and other (income) expense | ( | ( | |||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to noncontrolling interests, net of tax | |||||||||||||||||||||||
| Net loss attributable to Hippo | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Change in net unrealized gain or loss on investments, net of tax | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss attributable to Hippo | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Per share data: | |||||||||||||||||||||||
| Net loss attributable to Hippo - basic and diluted | $ | ( | $ | ( | $ | ( | ( | ||||||||||||||||
| Weighted-average shares used in computing net loss per share attributable to Hippo - basic and diluted | |||||||||||||||||||||||
| Net loss per share attributable to Hippo - basic and diluted | $ | ( | $ | ( | $ | ( | ( | ||||||||||||||||
See Notes to the Consolidated Financial Statements
2
HIPPO HOLDINGS INC.
Consolidated Statements of Stockholders’ Equity
(In millions, except share data)
(Unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Hippo Stockholders' Equity | Non controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | |||||||||||||||||||||
| Issuance of common stock from stock plans and contingently issuable shares | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Shares withheld related to net share settlement | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||
| Other | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| Net loss | — | $ | — | $ | — | $ | — | $ | ( | $ | ( | $ | $ | ( | ||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||
| Issuance of common stock from stock plans and contingently issuable shares | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | ( | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Shares withheld related to net share settlement | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||
| Other | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Hippo Stockholders' Equity | Non controlling Interests | Total Stockholders’ Equity | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| Net loss | — | — | — | — | ( | ( | ( | |||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||
| Issuance of common stock from stock plans and contingently issuable shares | — | — | — | — | ||||||||||||||||||||||
| Shares withheld related to net share settlement | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
| Net loss | — | $ | — | $ | — | $ | — | $ | ( | $ | ( | $ | $ | ( | ||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||
| Issuance of common stock from stock plans and contingently issuable shares | — | — | — | — | ||||||||||||||||||||||
| Repurchase of common stock | ( | — | — | — | — | — | — | — | ||||||||||||||||||
| Shares withheld related to net share settlement | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | |||||||||||||||||||||
| Other | — | — | — | — | ( | ( | ||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||
See Notes to the Consolidated Financial Statements
3
HIPPO HOLDINGS INC.
Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock–based compensation expense | |||||||||||
| Change in fair value of warrant liability | ( | ||||||||||
| Change in fair value of contingent consideration liability | |||||||||||
| Other non-cash items | ( | ||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable, net | ( | ( | |||||||||
| Reinsurance recoverable on paid and unpaid losses and LAE | ( | ( | |||||||||
| Ceding commissions receivable | ( | ( | |||||||||
| Prepaid reinsurance premiums | ( | ( | |||||||||
| Other assets | ( | ||||||||||
| Provision for commission | |||||||||||
| Accrued expenses and other liabilities | |||||||||||
| Loss and loss adjustment expense reserves | |||||||||||
| Unearned premiums | |||||||||||
| Reinsurance premiums payable | |||||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capitalized internal use software costs | ( | ( | |||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Purchases of investments | ( | ( | |||||||||
| Maturities of investments | |||||||||||
| Sales of investments | |||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Cash flows from financing activities: | |||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||
| Proceeds from issuances of common stock | |||||||||||
| Share repurchases under program | ( | ||||||||||
| Payments of contingent consideration | ( | ||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||
| Other | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net decrease in cash, cash equivalents, and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents, and restricted cash at the beginning of the period | |||||||||||
| Cash, cash equivalents, and restricted cash at the end of the period | $ | $ | |||||||||
See Notes to the Consolidated Financial Statements
4
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Hippo Holdings Inc., referred to in these Notes to the Consolidated Financial Statements as “Hippo” or the “Company,” specializes in the underwriting, administration, and marketing of personal property and commercial insurance policies. The Company’s subsidiary, Hippo Analytics Inc., is a licensed insurance agency that provides various insurance services, including some or all of the following services for affiliated and non-affiliated insurance carriers: soliciting, marketing, servicing, underwriting, or providing claims processing services for a variety of commercial and personal insurance products. Hippo Analytics Inc. offers its insurance products through licensed insurance agents and direct-to-consumer channels. The Company’s insurance company subsidiaries, Spinnaker Insurance Company (“Spinnaker”), an Illinois domiciled insurance company, Spinnaker Specialty Insurance Company (“SSIC”), a Texas domiciled authorized surplus lines insurance company, and Mainsail Insurance Company (“MIC”), a Texas domiciled insurance company, underwrite personal and commercial insurance products on a direct basis through licensed insurance agents and surplus lines brokers. The Company has a wholly-owned Cayman domiciled captive insurance company, RH Solutions Insurance (Cayman) Ltd. (“RHS”), which assumes insurance risk of policies from affiliated and non-affiliated insurance carriers.
The Company was incorporated in October 2020 under the name Reinvent Technology Partners Z (“RTPZ”) as a Cayman Islands exempted company for the purpose of effecting a business combination. On August 2, 2021, RTPZ domesticated as a Delaware corporation, changed its name to “Hippo Holdings Inc.” and consummated a series of mergers to acquire Hippo Enterprises Inc., a Delaware corporation (“Old Hippo”), with the Company ultimately surviving (such mergers, the “Business Combination”). The Business Combination was completed pursuant to the Agreement and Plan of Merger, dated as of March 3, 2021, by and among RTPZ, RTPZ Merger Sub Inc. and Old Hippo.
Basis of Presentation and Consolidation
The interim consolidated financial statements and accompanying notes of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the Company’s consolidated subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been omitted accordingly.
The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Interim results are not necessarily indicative of the results for a full year.
In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company reports three operating segments due to changes in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources. See Note 16 “Segment Reporting”. The Company has three reportable segments: Services, Insurance-as-a-Service, and Hippo Home Insurance Program.
Reverse Stock Split
On September 29, 2022, the Company filed a Certificate of Amendment to its Certificate of Incorporation to effect a one-for-25 reverse stock split of the Company’s common stock and a corresponding adjustment to its authorized capital stock (the “Reverse Stock Split”), effective as of 11:59 p.m. Eastern Daylight Time on September
5
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
29, 2022 (the “Effective Time”). All share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
As a result of the Reverse Stock Split, every 25 shares of the Company’s issued and outstanding common stock were automatically converted into one share of issued and outstanding common stock. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders who otherwise would have been entitled to receive fractional shares of common stock were entitled to receive cash in an amount equal to the product obtained by multiplying (a) the closing price per share of the common stock as reported on the New York Stock Exchange as of the first trading day following the Effective Time, by (b) the fraction of one share owned by the stockholder.
Proportionate adjustments were made to the number of shares issuable upon the exercise or vesting of all stock options, restricted stock, restricted stock units or other stock-based awards or rights (the “Stock-Based Awards”) and warrants outstanding at the Effective Time, as well as certain performance goals applicable to certain Stock-Based Awards, which resulted in a proportional decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such Stock-Based Awards and warrants, and, in the case of stock options, purchase rights outstanding under the Company’s 2021 Employee Stock Purchase Plan and warrants, a proportional increase in the exercise price of such stock options, purchase rights and warrants. In addition, the number of shares reserved for issuance under the Company’s 2021 Incentive Award Plan and 2021 Employee Stock Purchase Plan were proportionately reduced.
Use of Estimates
Recent Accounting Pronouncements
6
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
2. Investments
The amortized cost and fair value of fixed maturities securities and short-term investments are as follows (in millions):
| June 30, 2023 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||
| U.S. government and agencies | $ | $ | $ | ( | $ | ||||||||||||||||||
| States and other territories | ( | ||||||||||||||||||||||
| Corporate securities | ( | ||||||||||||||||||||||
| Foreign securities | ( | ||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ||||||||||||||||||||||
| Asset backed securities | ( | ||||||||||||||||||||||
| Total fixed maturities available-for-sale | ( | ||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. government and agencies | ( | ||||||||||||||||||||||
| Commercial paper | ( | ||||||||||||||||||||||
| Corporate securities | ( | ||||||||||||||||||||||
| Total short-term investments | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||
| U.S. government and agencies | $ | $ | ( | $ | |||||||||||||||||||
| States and other territories | ( | ||||||||||||||||||||||
| Corporate securities | ( | ||||||||||||||||||||||
| Foreign securities | ( | ||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ||||||||||||||||||||||
| Asset backed securities | ( | ||||||||||||||||||||||
| Total fixed maturities available-for-sale | ( | ||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. government and agencies | ( | ||||||||||||||||||||||
| Commercial paper | ( | ||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Total short-term investments | ( | ||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||
7
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following tables present the gross unrealized losses and related fair values for the Company’s investments in available-for-sale debt securities and short-term investments, grouped by duration of time in a continuous unrealized loss position as of June 30, 2023, and December 31, 2022 (in millions):
| June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| States and other territories | ( | ( | |||||||||||||||||||||||||||||||||
| Corporate securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Foreign securities | ( | ( | |||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Asset backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | ( | ( | |||||||||||||||||||||||||||||||||
| Commercial paper | ( | ( | |||||||||||||||||||||||||||||||||
| Corporate securities | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| States and other territories | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Corporate securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Foreign securities | ( | ( | |||||||||||||||||||||||||||||||||
| Residential mortgage-backed securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Commercial mortgage-backed securities | ( | ( | |||||||||||||||||||||||||||||||||
| Asset backed securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Short-term investments: | |||||||||||||||||||||||||||||||||||
| U.S. government and agencies | ( | ( | |||||||||||||||||||||||||||||||||
| Commercial paper | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
8
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
The Company has determined that unrealized losses as of June 30, 2023 and December 31, 2022 resulted from the interest rate environment, rather than a deterioration of the creditworthiness of the issuers. Therefore, an allowance for credit losses was not necessary as it is more likely than not that the Company will not be required to sell the investments before the recovery of the amortized cost basis or until maturity. As of June 30, 2023, none of our fixed maturity portfolio was unrated or rated below investment grade.
The amortized cost and fair value of fixed maturities securities by contractual maturity are as follows (in millions):
| June 30, 2023 | |||||||||||
| Amortized Cost | Fair Value | ||||||||||
| Due to mature: | |||||||||||
| One year or less | $ | $ | |||||||||
| After one year through five years | |||||||||||
| After five years | |||||||||||
| Residential mortgage-backed securities | |||||||||||
| Commercial mortgage-backed securities | |||||||||||
| Asset backed securities | |||||||||||
| Total fixed maturities available-for-sale | $ | $ | |||||||||
Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Net realized gains and losses on fixed maturity securities were insignificant for the three and six months ended June 30, 2023 and 2022, respectively.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Interest on cash and cash equivalents | $ | $ | $ | $ | |||||||||||||||||||||||||
| Fixed maturities income | |||||||||||||||||||||||||||||
| Short-term investment income | |||||||||||||||||||||||||||||
| Total gross investment income | |||||||||||||||||||||||||||||
| Investment expenses | ( | ( | ( | ||||||||||||||||||||||||||
| Net investment income | $ | $ | $ | $ | |||||||||||||||||||||||||
Pursuant to certain regulatory requirements, the Company is required to hold assets on deposit with various state insurance departments for the benefit of policyholders. These special deposits are included in cash and cash equivalents, fixed maturities, or short-term investments on the consolidated balance sheets. The carrying value of securities on deposit with state regulatory authorities total $13.0 million and $12.6 million as of June 30, 2023 and December 31, 2022, respectively.
9
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
3. Cash, Cash Equivalents, and Restricted Cash
The following table sets forth the cash, cash equivalents, and restricted cash (in millions):
| June 30, 2023 | December 31, 2022 | ||||||||||
| Cash and cash equivalents: | |||||||||||
| Cash | $ | $ | |||||||||
| Money market funds | |||||||||||
| Commercial paper | |||||||||||
| U.S. government and agencies | |||||||||||
| Total cash and cash equivalents | $ | $ | |||||||||
| Restricted cash: | |||||||||||
| Fiduciary assets | |||||||||||
| Letters of credit and cash on deposit | |||||||||||
| Total restricted cash | |||||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | |||||||||
4. Fair Value Measurement
When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions, and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
•Level 1 — Quoted prices in active markets for identical assets or liabilities that are publicly accessible at the measurement date.
•Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•Level 3 — Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
10
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in millions):
| June 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | $ | $ | |||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||
| U.S. government and agencies | |||||||||||||||||||||||
| States and other territories | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Foreign securities | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Commercial mortgage-backed securities | |||||||||||||||||||||||
| Asset backed securities | |||||||||||||||||||||||
| Total fixed maturities available-for-sale | |||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||
| U.S. government and agencies | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Total short-term investments | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | $ | $ | $ | $ | |||||||||||||||||||
| Public warrants | |||||||||||||||||||||||
| Private placement warrants | |||||||||||||||||||||||
| Total financial liabilities | $ | $ | $ | $ | |||||||||||||||||||
11
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | $ | $ | |||||||||||||||||||
| Fixed maturities available-for-sale: | |||||||||||||||||||||||
| U.S. government and agencies | |||||||||||||||||||||||
| States and other territories | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Foreign securities | |||||||||||||||||||||||
| Residential mortgage-backed securities | |||||||||||||||||||||||
| Commercial mortgage-backed securities | |||||||||||||||||||||||
| Asset backed securities | |||||||||||||||||||||||
| Total fixed maturities available-for-sale | |||||||||||||||||||||||
| Short-term investments | |||||||||||||||||||||||
| U.S. government and agencies | |||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
| Corporate securities | |||||||||||||||||||||||
| Total short-term investments | |||||||||||||||||||||||
| Total financial assets | $ | $ | $ | $ | |||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Contingent consideration liability | $ | $ | $ | $ | |||||||||||||||||||
| Public warrants | |||||||||||||||||||||||
| Private placement warrants | |||||||||||||||||||||||
| Total financial liabilities | $ | $ | $ | $ | |||||||||||||||||||
The Company’s policy is to recognize transfers into and transfers out of fair value hierarchy levels at the end of each reporting period. There were no transfers between levels in the fair value hierarchy during the six months ended June 30, 2023.
Contingent Consideration
The contingent consideration, relating to the Company’s 2019 acquisition of North American Advantage Insurance Services, LLC, is re-valued to fair value at the end of each reporting period using the present value of future payments based on an estimate of revenue and customer renewals. North American Advantage Insurance Services, LLC’s ultimate parent company was Lennar Corporation, a related party of the Company. There is no limit to the maximum potential contingent consideration as the consideration is based on acquired customer retention. The table below presents the changes in the contingent consideration liability valued using Level 3 inputs (in millions):
| 2023 | 2022 | ||||||||||
| Balance as of January 1, | $ | $ | |||||||||
| Payments of contingent consideration | ( | ( | |||||||||
| Changes in fair value | |||||||||||
| Balance as of June 30, | $ | $ | |||||||||
12
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
5. Intangible Assets
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| Weighted- Average Useful Life Remaining (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| (in millions) | (in millions) | |||||||||||||||||||||||||
| Agency and carrier relationships | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||
| State licenses and domain name | Indefinite | — | — | |||||||||||||||||||||||
| Customer relationships | ( | ( | ||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||
| Total intangible assets, net | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||
Amortization expense related to intangible assets for the three months ended June 30, 2023 and 2022 was $1.1 million and $1.1 million, respectively, and for the six months ended June 30, 2023 and 2022 was $2.2 million and $3.0 million, respectively. The amortization expense is included in sales and marketing expenses for customer relationships, agency and carrier relationships, and other on the consolidated statements of operations and comprehensive loss.
6. Capitalized Internal Use Software
| June 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Capitalized internal use software | $ | $ | |||||||||
| Less: accumulated amortization | ( | ( | |||||||||
| Total capitalized internal use software | $ | $ | |||||||||
Amortization expense related to capitalized internal use software for the three months ended June 30, 2023 and 2022 was $3.1 million and $2.1 million, respectively, and for the six months ended June 30, 2023 and 2022 was $6.0 million and $3.9 million, respectively. The amortization expense is included in insurance related expenses on the consolidated statements of operations and comprehensive loss.
13
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
7. Other Assets
| June 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Prepaid expenses | $ | $ | |||||||||
| Claims receivable | |||||||||||
| Lease right-of-use assets | |||||||||||
| Property and equipment | |||||||||||
| Other | |||||||||||
| Total other assets | $ | $ | |||||||||
8. Accrued Expenses and Other Liabilities
| June 30, 2023 | December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Claim payments outstanding | $ | $ | |||||||||
| Lease liability | |||||||||||
| Advances from customers | |||||||||||
| Deferred revenue | |||||||||||
| Employee related accruals | |||||||||||
| Premium refund liability | |||||||||||
| Fiduciary liability | |||||||||||
| Contingent consideration liability | |||||||||||
| Other | |||||||||||
| Total accrued expenses and other liabilities | $ | $ | |||||||||
14
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
9. Loss and Loss Adjustment Expense Reserves
The reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses (“LAE”), net of reinsurance is summarized as follows for the six months ended June 30, (in millions):
| 2023 | 2022 | ||||||||||
| Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of beginning of the period | $ | $ | |||||||||
| Less: Reinsurance recoverables on unpaid losses and LAE | ( | ( | |||||||||
| Reserve for losses and LAE, net of reinsurance recoverables as of beginning of the period | |||||||||||
| Add: Incurred losses and LAE, net of reinsurance, related to: | |||||||||||
| Current year | |||||||||||
| Prior years | ( | ( | |||||||||
| Total incurred | |||||||||||
| Deduct: Loss and LAE payments, net of reinsurance, related to: | |||||||||||
| Current year | |||||||||||
| Prior years | |||||||||||
| Total paid | |||||||||||
| Reserve for losses and LAE, net of reinsurance recoverables at end of period | |||||||||||
| Add: Reinsurance recoverables on unpaid losses and LAE at end of period | |||||||||||
| Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of end of the period | $ | $ | |||||||||
Loss development occurs when actual losses incurred vary from the Company’s previously developed estimates, which are established through the Company’s loss and LAE reserve estimate processes.
Net incurred losses and LAE experienced favorable development of $2.2 million and $6.0 million for the six months ended June 30, 2023 and 2022, respectively. The prior year’s development of $2.2 million was driven primarily by favorable net loss development relating primarily to the 2022 accident year, resulting in a net release of $1.0 million from catastrophe reserves, and $1.2 million from attritional reserves. These changes are primarily a result of ongoing analysis of claims emergence patterns and loss trends.
10. Reinsurance
The Company purchases reinsurance to help manage exposure to property and casualty insurance risks, including attritional and catastrophic risks. The Company’s insurance company subsidiaries have entered into proportional and non-proportional reinsurance treaties, under which a significant portion of the liabilities have been ceded to third-party reinsurers. The Company also assumes risk from non-affiliated insurance carriers.
Proportional Reinsurance Treaties — Hippo
For the Company’s primary homeowners reinsurance treaty commencing in 2023, the Company 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. In 2023, the Company retains approximately 40 % of the premium through its insurance company subsidiaries or its captive reinsurance company, RHS, before purchasing catastrophe protection. Additionally, the reinsurance contracts are subject to contingent commission adjustments and loss participation features, which align the Company’s interests with those of its reinsurers. Loss participation features may increase the amount of losses retained by the Company’s insurance company subsidiaries in excess of its pro rata participation.
15
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
For business produced through the Company’s builder channel, the Company 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. In 2023, the Company expects to retain approximately 58 % of the premium produced through the Company’s insurance company subsidiaries or RHS, before purchasing catastrophe protection. The reinsurance contracts are subject to contingent commission adjustments and limited loss participation features, which align the Company’s interests with those of the reinsurers.
For the Company’s primary homeowners reinsurance treaty commencing in 2022, the Company 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, the Company retained approximately 10 % of the premium through the Company’s insurance company subsidiaries, including the Company’s 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 the Company’s interests with those of its reinsurers. Similar to the prior year, the Company saw increased use of loss participation features in the 2022 reinsurance agreements, which increased the amount of losses retained by its insurance company subsidiaries in excess of the Company’s pro rata participation in both the 2022 and 2023 fiscal years.
For the Company’s primary homeowners reinsurance treaty that commenced in 2021, the Company secured proportional reinsurance from a diverse panel of third-party reinsurers with AM Best ratings of “A-” Excellent or better. A total of approximately 12 % of the premium was retained either by Spinnaker or RHS, which aligns the Company’s interests with third-party reinsurers. Two of the reinsurers, representing approximately one-third of the programs, provided three-year agreements.
The Company also seeks to further reduce its risk retention through purchases of non-proportional reinsurance described below.
Non-Proportional Reinsurance — Hippo
The Company also purchases non-proportional excess of loss catastrophe coverage (“XOL”) reinsurance which includes traditional reinsurance protection, catastrophe bonds, and industry loss warranty products. Through the Company’s insurance company subsidiaries, the Company is exposed to the risk of natural catastrophe events that could occur on the risks arising from policies underwritten by the Company or other managing general agents (“MGAs”). The Company is also exposed to this risk through its captive reinsurer, which takes on a share of the risk underwritten by the Company’s MGA business.
In May 2023, Spinnaker secured new catastrophe protection through a per occurrence excess of loss reinsurance agreement with Mountain Re Ltd. (“Mountain Re”), an independent Bermuda company, licensed as a Special Purpose Insurer. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, Mountain Re issued notes (generally referred to as “catastrophe bonds”) to investors, consistent with the amount of coverage provided under the reinsurance agreement.
The reinsurance agreement provides the Company with coverage through June 2026, and pursuant to the agreement, Mountain Re provides XOL reinsurance coverage to Spinnaker for losses from a variety of perils, including named storms, fire following an earthquake, severe thunderstorms, and winter storms on business produced through the Hippo MGA.
Under the terms of the reinsurance agreement, the Company is obligated to pay annual reinsurance premiums to Mountain Re for the reinsurance coverage. Amounts payable under the reinsurance agreement with respect to any covered event cannot exceed the Company’s actual losses from such event. The principal amount of the catastrophe bonds will be reduced by any amounts paid to the Company under the reinsurance agreement.
16
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
In June 2023, the Company’s captive reinsurance company, RHS, entered into an Industry Loss Warranty (ILW) with a third party under which loss payments are triggered by reference to the level of losses incurred by the insurance industry as whole for pre-defined events, rather than by losses incurred by the Company. RHS entered into the ILW in order to hedge the risk of the Company experiencing a catastrophic hurricane loss on business assumed.
The Company’s XOL program provides protection to the Company from catastrophes that could impact a large number of insurance policies. The Company buys 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 when considered with the corporate catastrophe XOL described below under “Other Reinsurance”. This reinsurance protects the Company from all but the most severe catastrophic events.
Other Reinsurance
Spinnaker also purchases reinsurance for programs written by MGAs other than Hippo. 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 the Company’s pro-rata participation. Such provisions are recognized in the period based on the experience to date under the agreement.
Spinnaker 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. The catastrophe bonds described above inures to the benefit of this contract. 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. The Company buys 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 reinsurance protects the Company from all but the most severe catastrophic events.
The Company also purchases reinsurance from the State Board of Administration in Florida via the Florida Hurricane Catastrophe Fund (the “FHCF”) and the Reinsurance to Assist Policyholders (the “RAP”) program for residential hurricane losses in the State of Florida. This coverage is provided and required by the State of Florida. The Company currently purchases reimbursement protection at the maximum level (90 %) of mandatory coverage offered by the FHCF.
With all reinsurance programs, the Company’s wholly owned insurance carriers are not relieved of their primary obligations to policyholders in the event of a default or the insolvency of its reinsurers. As a result, a credit exposure exists to the extent that any reinsurer fails to meet its obligations assumed in the reinsurance agreements. To mitigate this exposure to reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and, in certain circumstances, holds substantial collateral (in the form of funds withheld, qualified trusts, and letters of credit) as security under the reinsurance agreements. No
17
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
ended June 30, 2023, and 2022 for amounts anticipated to be uncollectible or for the anticipated failure of a reinsurer to meet its obligations under the contracts.
The following tables reflect amounts affecting the consolidated statements of operations and comprehensive loss for reinsurance as of and for the three and six months ended June 30, 2023, and 2022 (in millions).
| For the Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Written premiums | Earned premiums | Loss and LAE incurred | Written premiums | Earned premiums | Loss and LAE incurred | ||||||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Assumed | |||||||||||||||||||||||||||||||||||
| Gross | |||||||||||||||||||||||||||||||||||
| Ceded | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Written premiums | Earned premiums | Loss and LAE incurred | Written premiums | Earned premiums | Loss and LAE incurred | ||||||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Assumed | |||||||||||||||||||||||||||||||||||
| Gross | |||||||||||||||||||||||||||||||||||
| Ceded | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
As of June 30, 2023 and December 31, 2022, a provision for sliding scale commissions of $13.7 million and $3.5 million, respectively, is included in provision for commission on the consolidated balance sheets. As of June 30, 2023 and December 31, 2022, a receivable for sliding scale commissions of $1.9 million and $4.5 million, respectively, is included in ceding commissions receivable on the consolidated balance sheets.
As of June 30, 2023 and December 31, 2022, a provision for loss participation features of $101.0 million and $51.3 million, respectively, was recorded as a contra-asset in reinsurance recoverable on the consolidated balance sheets.
18
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
11. Geographical Breakdown of Gross Written Premium
Gross written premium by state is as follows (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Amount | % of GWP | Amount | % of GWP | Amount | % of GWP | Amount | % of GWP | ||||||||||||||||||||||||||||||||||||||||
| State | |||||||||||||||||||||||||||||||||||||||||||||||
| Texas | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
| California | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Florida | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Georgia | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Colorado | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Arizona | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Illinois | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| New Jersey | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Ohio | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Missouri | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Other | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||||||||||||||
12. Commitments and Contingencies
Legal Proceedings
From time to time, the Company may become involved in litigation or other legal proceedings. The Company is routinely named in litigation involving claims from policyholders. Legal proceedings relating to claims are reserved in the normal course of business. 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 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. 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. Innovius 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. 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. 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. Wand provided Innovius and its principal, Justin Moore, with material nonpublic information about Hippo’s business. Finally, Mr. Navon alleges conversion claims against Hippo related to the transfer of his shares to Innovius after Innovius exercised the call option.
19
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
All claims asserted are based on alleged conduct that occurred prior to Hippo becoming a publicly traded company. Hippo engaged counsel to defend both Hippo and Mr. Wand, and Hippo and Mr. Wand have denied all claims. As a result of the new allegations in the Third Amended Complaint, Hippo moved to have the court designate the case as complex. The court granted this motion, and took the previously scheduled November 6, 2023 trial date off the calendar. A new trial date has not yet been set.
The parties are engaged in fact discovery, and Hippo intends to move for summary judgment against the claims alleged in the amended complaint.
13. Stockholders’ Equity
Common Stock
On August 2, 2021, the Company’s common stock and warrants began trading on the New York Stock Exchange (“NYSE”) under the ticker symbols “HIPO” and “HIPO.WS,” respectively. Pursuant to Certificate of Incorporation, the Company is authorized to issue 80 million shares of common stock, with a par value of $0.0001 per share. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors. No dividends have been declared or paid since inception.
Stock-Based Compensation Plans
2019 Stock Option and Grant Plan
The Company’s 2019 Stock Option and Grant Plan (“the 2019 Stock Plan”) provides for the direct award or sale of shares, the grant of options to purchase shares, and the grant of restricted stock units (“RSUs”) to employees, consultants, and outside directors of the Company. Stock options under the plan may be either incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”), with an exercise price of not less than 100 % of fair market value on the grant date, with a term less than or equal to ten years . The vesting period of each option and RSU shall be as determined by a committee of the Company’s board of directors but is generally over four years
2021 Incentive Award Plan
The Company’s 2021 Incentive Award Plan (the “2021 Plan”), which authorized for issuance 3.1 million shares of common stock. The 2021 Plan provides for the issuance of a variety of stock-based compensation awards, including stock options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, performance bonus awards, performance stock unit awards, dividend equivalents, or other stock or cash-based awards. The vesting period of each option and award shall be as determined by a committee of the Company’s board of directors but is generally over to four years . This reserve increases on January 1 of each year through 2031, by an amount equal to the smaller of: (i) 5 % of the number of shares of common stock issued and outstanding on the last day of the immediately preceding fiscal year, or (ii) an amount determined by the board of directors.
20
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
Stock Options
The following table summarizes option activity under the plans:
| Options Outstanding | Weighted-Average Remaining | Aggregate Intrinsic Value (In Millions) | |||||||||||||||||||||
| Number of Shares | Weighted Average Exercise Price | Contract Term (In Years) | |||||||||||||||||||||
Outstanding as of December 31, 2022 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Cancelled/Expired | ( | ||||||||||||||||||||||
| Outstanding as of June 30, 2023 | $ | ||||||||||||||||||||||
| Vested and exercisable as of June 30, 2023 | $ | $ | |||||||||||||||||||||
The aggregate intrinsic value of options exercised during the six months ended June 30, 2023 and 2022 was $0.5 million and $3.4 million, respectively, and is calculated based on the difference between the exercise price and the fair value of the Company’s common stock as of the exercise date. There were no
Total unrecognized compensation cost of $10.5 million as of June 30, 2023 is expected to be recognized over a weighted-average period of 1.9 years.
Valuation Assumptions of Stock Options
The fair value of granted stock options are estimated as of the date of grant using the Black-Scholes-Merton option-pricing model, based on the following inputs:
Expected Term – The expected term represents the period that the Company’s Stock-Based Awards are expected to be outstanding. The Company has opted to use the simplified method for estimating the expected term of options. Accordingly, the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).
Expected Volatility – Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of peer companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the Stock-Based Awards.
Risk-Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the grant’s expected term.
Expected Dividend Yield – The Company has never paid dividends and does not currently expect to pay dividends.
Fair value of common stock – The Company determined the value of its common stock based on the observable daily closing price of its common stock (ticker symbol “HIPO”).
21
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
Early Exercises of Stock Options
In 2020 and 2021, certain employees early exercised stock options with cash. On June 30, 2023 and December 31, 2022, the Company had $1.0 million and $1.4 million, respectively, recorded in accrued expenses and other liabilities related to early exercises of the stock options, and the related number of unvested shares subject to repurchase was 0.1 million and 0.1 million, respectively.
Stock Option Repricing
On March 1, 2023, the Board approved a one-time repricing of certain stock option awards. The repricing will impact out-of-the-money stock options held by all employees who remain employed through March 6, 2023 (the “Repricing Date”), including our executive officers. Each stock option was repriced to have a per share exercise price equal to the closing price of the Company’s common stock on the Repricing Date, except that the per share exercise price of each stock option held by any of our executive officers that was repriced is subject to a premium. The premium will be in effect from the Repricing Date through the first anniversary of the Repricing Date (the “Premium End Date”). In the event the applicable executive officer (i) exercises his/her stock options prior to the Premium End Date or (ii) does not provide services to the Company as an employee or a consultant through the Premium End Date, the per share exercise price applicable to his/her stock options will be two times the closing price of the Company’s common stock on the Repricing Date. There were no changes to the number of shares, the vesting schedule or the expiration date of the repriced stock options. As a result of the repricing, the Company recorded an incremental share-based compensation charge of $3.6 million, of which $1.4 million was recognized on the Repricing Date, and $2.2 million will be recognized over the remaining term of the repriced options.
Restricted Stock Units and Performance Restricted Stock Units
The Company grants service based RSUs and performance based RSUs (“PRSUs”) as part of our equity compensation plans. The Company measures RSU and PRSU expense for awards granted based on the estimated fair value of those awards at grant date. To estimate the fair value of PRSUs containing a market condition, the Company uses the Monte Carlo valuation model. The fair value of all other awards is based on the closing price of the Company’s common stock as reported on the NYSE on the date of grant. The RSUs generally vest over a period of to four years . The PRSUs vest based on the level of achievement of the performance goals and continued employment with the Company over a to four year performance period.
Stock-based compensation expense for RSUs is recognized based on the straight-line basis over the employee requisite service period. Stock-based compensation expense for PRSUs is recognized on a graded accelerated basis over the employee requisite service period. The Company accounts for forfeitures as they occur.
In June 2022, the Company began granting PRSUs. Half of the PRSUs granted are subject to the achievement of market-based performance goals, and the remaining PRSUs are subject to vesting pursuant to internal financial measures. The actual number of units that ultimately vest will range from 0 % to 100 % of the granted amount, based on the level of achievement of the performance goals and continued employment with the Company. During the six months ended June 30, 2023 and 2022, 1.1 million and 1.0 million PRSUs were granted.
22
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| Number of Shares | Weighted Average Grant-Date Fair Value per Share | ||||||||||
Unvested and outstanding as of December 31, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Released | ( | ||||||||||
| Canceled and forfeited | ( | ||||||||||
Unvested and outstanding as of June 30, 2023 | $ | ||||||||||
Total unrecognized compensation cost related to unvested RSUs and PRSUs is $81.4 million as of June 30, 2023, and it is expected to be recognized over a weighted-average period of 2 years.
2021 Employee Stock Purchase Plan
The Company’s 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which authorized 0.5 million shares of common stock for issuance. The 2021 ESPP became effective on October 25, 2021. The 2021 ESPP is designed to allow eligible employees of the Company to purchase shares of our common stock with their accumulated payroll deductions at a price equal to 85 % of the lesser of the fair market value on the first business day of the offering period or on the designated purchase date of the offering period up to $25,000 during the calendar year. The ESPP offers a six-month look-back feature as well as an automatic reset feature that provides for an offering period to be reset to a new lower-priced offering if the offering price of the new offering period is less than that of the current offering period. During the six months ended June 30, 2023, 80,990 shares have been issued under the 2021 ESPP for $1.0 million. During the six months ended June 30, 2022, 44,000 shares have been issued under the 2021 ESPP for $1.6 million. In addition, the number of shares available for issuance under the 2021 ESPP will be annually increased on January 1 of each calendar year beginning in 2022 and ending in 2031, by an amount equal to the lesser of (i) one percent of the shares outstanding (on a converted basis) on the last day of the immediately preceding fiscal year and (ii) such number of shares as may be determined by the board of directors.
Stock-Based Compensation
Total stock-based compensation expense, classified in the accompanying consolidated statements of operations and comprehensive loss was as follows (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Insurance related expenses | ||||||||||||||||||||||||||||||||
| Technology and development | ||||||||||||||||||||||||||||||||
| Sales and marketing | ||||||||||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Stock Repurchases
In March 2023, the Company’s Board of Directors authorized the repurchase of up to $50.0 million of its common stock, with no expiration date. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at the Company’s discretion depending on market conditions and corporate needs. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its common stock under this authorization.
23
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
14. Income Taxes
The consolidated effective tax rate was (0.3 )% and (0.4 )% for the six months ended June 30, 2023 and 2022, respectively. The difference between the rate for the three months ended June 30, 2023 and 2022 and the U.S. federal income tax rate of 21% was due primarily to a full valuation allowance against the Company’s net deferred tax assets.
As of June 30, 2023 and 2022, the Company has $3.8 million and $1.4 million of unrecognized tax benefits, respectively, fully offset by a valuation allowance. No
15. Net Loss Per Share Attributable to Common Stockholders
Net loss per share attributable to common stockholders was computed as follows:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
Net loss attributable to Hippo – basic and diluted (in millions) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares used in computing net loss per share attributable to Hippo — basic and diluted | |||||||||||||||||||||||
| Net loss per share attributable to Hippo — basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
The potential shares of common stock that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been antidilutive are as follows:
| June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Outstanding options | |||||||||||
| Common stock from outstanding warrants | |||||||||||
| Common stock subject to repurchase | |||||||||||
| RSU and PRSUs | |||||||||||
| Total | |||||||||||
24
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
16. Segments
Starting with the first quarter of 2023, the Company realigned its internal reporting to reflect how the Company now manages and monitors its operating results. As a result of these changes, the Company now has three reportable segments: Services, Insurance-as-a-Service, and Hippo Home Insurance Program.
The Company’s Services segment earns fees and/or commission income without assuming underwriting risk or need for reinsurance. The Company also partners with home builders, as well as independent agencies, to source insureds seeking a product for which the Company provides the best carrier for the insured whether it be of Hippo or a third-party carrier, including other insurance products like auto, rental, etc.
Insurance-as-a-Service is managed through the Company’s subsidiary Spinnaker and is a platform to support third party MGAs. The Company rents its capital, 50 state licenses and the strong financial rating of Spinnaker (rated “A-” Excellent by A.M. Best) to earn fee-based revenues with the assumption of limited underwriting risk using quota-share reinsurance. The Company also earns a portion of the premiums paid to it for the risk the Company retains as well as generates investment income. The diversification of the Company’s balance sheet allows it to carry less capital than the Company’s MGA clients would be required to on their own.
The Hippo Home Insurance Program is the Company’s Hippo-branded homeowners insurance business. The Company’s main source of revenue is the premiums paid to it by the Company’s homeowner customers. In addition, the Company’s revenues include commissions for premiums the Company cedes to third parties, policy and services fees and investment income. The Company’s strategy is to retain the portion of the underwriting risk where the Company believes its loss prevention strategies are the most effective.
The Company’s Chief Executive Officer, who serves as the chief operating decision maker (“CODM”), evaluates the financial performance of the Company’s segments based upon segment revenues and segment adjusted operating income or (loss) as the profitability measure. Items outside of adjusted operating income or (loss) are not reported by segment, since they are excluded from the single measure of segment profitability reviewed by the CODM. The Company’s CODM does not use segment assets to allocate resources or to assess performance of the segments and, therefore, segment assets have not been reported separately.
The tables below present segment information reconciled to total Net Loss attributable to Hippo, for the periods indicated (in millions). Financial information for the period ended June 30, 2022 has been revised to conform with the current year presentation.
25
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Net earned premium | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commission income, net | ( | ||||||||||||||||||||||||||||
| Service and fee income | |||||||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Total Revenue | ( | ||||||||||||||||||||||||||||
| Adjusted Operating Expenses: | |||||||||||||||||||||||||||||
| Loss and loss adjustment expense | |||||||||||||||||||||||||||||
| Insurance related expense | ( | ||||||||||||||||||||||||||||
| Sales and marketing | ( | ||||||||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||
| Total adjusted operating expenses | ( | ||||||||||||||||||||||||||||
| Less: Net investment income | ( | ( | ( | ||||||||||||||||||||||||||
| Less: Noncontrolling interest | ( | ( | |||||||||||||||||||||||||||
| Adjusted operating income (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||
| Fair value adjustments | |||||||||||||||||||||||||||||
| Contingent consideration charge | ( | ||||||||||||||||||||||||||||
| Other one-off transactions | ( | ||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Net loss attributable to Hippo | $ | ( | |||||||||||||||||||||||||||
(1)Intersegment eliminations include commissions paid from Hippo Home Insurance Program for policies sold by the Company’s Services segment (revenue, cost, and other adjustments in respective business units eliminated as part of consolidation).
26
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Net earned premium | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commission income, net | ( | ||||||||||||||||||||||||||||
| Service and fee income | |||||||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Total Revenue | ( | ||||||||||||||||||||||||||||
| Adjusted Operating Expenses: | |||||||||||||||||||||||||||||
| Loss and loss adjustment expense | |||||||||||||||||||||||||||||
| Insurance related expense | ( | ||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||
| Total adjusted operating expenses | ( | ||||||||||||||||||||||||||||
| Less: Net investment income | ( | ( | ( | ||||||||||||||||||||||||||
| Less: Noncontrolling interest | ( | ( | |||||||||||||||||||||||||||
| Adjusted operating loss | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||
| Fair value adjustments | |||||||||||||||||||||||||||||
| Contingent consideration charge | |||||||||||||||||||||||||||||
| Other one-off transactions | ( | ||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Net loss attributable to Hippo | $ | ( | |||||||||||||||||||||||||||
(1)Intersegment eliminations include commissions paid from Hippo Home Insurance Program for policies sold by the Company’s Services segment (revenue, cost, and other adjustments in respective business units eliminated as part of consolidation).
27
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Net earned premium | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commission income, net | ( | ||||||||||||||||||||||||||||
| Service and fee income | |||||||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Total Revenue | ( | ||||||||||||||||||||||||||||
| Adjusted Operating Expenses: | |||||||||||||||||||||||||||||
| Loss and loss adjustment expense | |||||||||||||||||||||||||||||
| Insurance related expense | ( | ||||||||||||||||||||||||||||
| Sales and marketing | ( | ||||||||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||
| Total adjusted operating expenses | ( | ||||||||||||||||||||||||||||
| Less: Net investment income | ( | ( | ( | ||||||||||||||||||||||||||
| Less: Noncontrolling interest | ( | ( | |||||||||||||||||||||||||||
| Adjusted operating income (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||
| Fair value adjustments | |||||||||||||||||||||||||||||
| Contingent consideration charge | ( | ||||||||||||||||||||||||||||
| Other one-off transactions | ( | ||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Net loss attributable to Hippo | $ | ( | |||||||||||||||||||||||||||
(1)Intersegment eliminations include commissions paid from Hippo Home Insurance Program for policies sold by the Company’s Services segment (revenue, cost, and other adjustments in respective business units eliminated as part of consolidation).
28
HIPPO HOLDINGS INC.
Notes to Consolidated Financial Statements
(Unaudited)
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||
| Net earned premium | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Commission income, net | ( | ||||||||||||||||||||||||||||
| Service and fee income | |||||||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Total Revenue | ( | ||||||||||||||||||||||||||||
| Adjusted Operating Expenses: | |||||||||||||||||||||||||||||
| Loss and loss adjustment expense | |||||||||||||||||||||||||||||
| Insurance related expense | ( | ||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| Technology and development | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||
| Total adjusted operating expenses | ( | ||||||||||||||||||||||||||||
| Less: Net investment income | ( | ( | ( | ||||||||||||||||||||||||||
| Less: Noncontrolling interest | ( | ( | |||||||||||||||||||||||||||
| Adjusted operating income (loss) | ( | ( | ( | ||||||||||||||||||||||||||
| Net investment income | |||||||||||||||||||||||||||||
| Depreciation and amortization | ( | ||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||
| Stock-based compensation | ( | ||||||||||||||||||||||||||||
| Fair value adjustments | |||||||||||||||||||||||||||||
| Contingent consideration charge | ( | ||||||||||||||||||||||||||||
| Other one-off transactions | ( | ||||||||||||||||||||||||||||
| Income tax expense | ( | ||||||||||||||||||||||||||||
| Net loss attributable to Hippo | $ | ( | |||||||||||||||||||||||||||
(1)Intersegment eliminations include commissions paid from Hippo Home Insurance Program for policies sold by the Company’s Services segment (revenue, cost, and other adjustments in respective business units eliminated as part of consolidation).
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this “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. You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission.
Overview
Hippo is a different kind of home protection company, built from the ground up to provide a higher standard of care and protection for homeowners. Our goal is to make homes safer and better protected so that customers spend less time worrying about the burdens of homeownership and more time enjoying their homes and their lives within. 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 incumbents that we believe deliver a passive, high- friction experience to policyholders. We view these incumbents as constrained by outdated captive-agent distribution models, legacy technology, and strong incentives not to disrupt their businesses. Accordingly, the industry has not seen meaningful innovation in decades. We believe this results in 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. The outcome of this misalignment is an experience that is out of touch with the needs of modern homeowners.
As a digital-first, customer-centric company, we offer an improved customer value proposition and are well-positioned to succeed in this growing market. By making our policies fast and easy to buy, designing coverages around the needs of modern homeowners, and offering a proactive, white-glove claims experience, we have created an active partnership with our customers to better protect their homes, which saves our customers money and is expected to deliver a better economic outcome for Hippo.
Beyond a core insurance experience that is simple, intuitive, and human, we focus our resources on Hippo’s true promise: better outcomes for homeowners. Through our Smart Home program, customers may detect and address water, fire, and other issues before they become major losses. And we help our customers maintain their homes with on-demand maintenance advice and access to home check-ups designed to reduce the probability of future losses. In short, 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.
Our partnership with our customers 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 help attract more customers to the Hippo family. 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. 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 home protection.
Reinsurance
We utilize reinsurance primarily to support the growth of our new and renewal insurance business, to reduce the volatility of our earnings, and to optimize our capital management.
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As an MGA, we underwrite homeowners insurance policies on behalf of our insurance company subsidiaries (Spinnaker and SSIC) and other non-affiliated third-party insurance carriers. 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. 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). As additional protection against natural catastrophes or other large loss events, the fronting carrier frequently purchases additional, non-proportional reinsurance.
Without reinsurance protection, the insurer would shoulder all of the insurance risk itself and would need incremental capital to satisfy regulators and rating agencies. 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 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. In 2023, we retain 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. 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. In 2023, we expect to retain approximately 58% of the premium produced through our insurance company subsidiaries or RHS, before purchasing catastrophe protection. The reinsurance contracts are subject to contingent commission adjustments and limited loss participation features, which align our interests with those of the reinsurers.
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. 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. Similar to the prior year, we saw increased use of loss participation features in the 2022 reinsurance agreements, which increased the amount of losses retained by our insurance company subsidiaries in excess of our pro rata participation in both the 2022 and 2023 fiscal periods.
For our primary homeowners reinsurance treaty that commenced in 2021, we secured proportional reinsurance from a diverse panel of third-party reinsurers with AM Best ratings of “A-” Excellent or better. A total of approximately 12% of the premium was retained either by Spinnaker or RHS, which aligns the Company’s
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interests with third-party reinsurers. Two of the reinsurers, representing approximately one-third of the programs, provided three-year agreements.
We also seek to further reduce our risk retention through purchases of non-proportional reinsurance described below.
Non-Proportional Reinsurance — Hippo
We also purchase non-proportional XOL reinsurance which includes traditional reinsurance protection, catastrophe bonds, and industry loss warranty products. Through our insurance company subsidiaries, we are exposed to the risk of natural catastrophe events that could occur on the risks arising from policies underwritten by us or other managing general agents (“MGAs”). We are also exposed to this risk through our captive reinsurer, which takes on a share of the risk underwritten by our MGA business.
In May 2023, Spinnaker secured new catastrophe protection through a per occurrence excess of loss reinsurance agreement with Mountain Re Ltd. (“Mountain Re”), an independent Bermuda company, licensed as a Special Purpose Insurer. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, Mountain Re issued notes (generally referred to as “catastrophe bonds”) to investors, consistent with the amount of coverage provided under the reinsurance agreement.
The reinsurance agreement provides us with coverage through June 2026, and pursuant to the agreement, Mountain Re provides XOL reinsurance coverage to Spinnaker for losses from a variety of perils, including named storms, fire following an earthquake, severe thunderstorms, and winter storms on business produced through the Hippo MGA.
Under the terms of the reinsurance agreement, we are obligated to pay annual reinsurance premiums to Mountain Re for the reinsurance coverage. Amounts payable under the reinsurance agreement with respect to any covered event cannot exceed our actual losses from such event. The principal amount of the catastrophe bonds will be reduced by any amounts paid to us under the reinsurance agreement.
In June 2023, our captive reinsurance company, RHS, entered into an Industry Loss Warranty (ILW) with a third party under which loss payments are triggered by reference to the level of losses incurred by the insurance industry as whole for pre-defined events, rather than by losses incurred by us. RHS entered into the ILW in order to hedge the risk of us experiencing a catastrophic hurricane loss on business assumed.
Our XOL program provides us protection from catastrophes that could impact a large number of insurance policies. 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 when considered with the corporate catastrophe XOL described below under “Other Reinsurance”. This reinsurance protects us from all but the most severe catastrophic events.
Other Reinsurance
Spinnaker also purchases reinsurance for programs written by MGAs other than Hippo. 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 us in excess of our pro-rata participation. Such provisions are recognized in the period based on the experience to date under the agreement.
Spinnaker 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. The catastrophe bonds described above inures to the benefit of this contract. 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
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a single occurrence exceeding the protection purchased is no more than 0.4%, or equivalent to a 1 in 250 year return period. This reinsurance protects us from all but the most severe catastrophic events.
We also purchase reinsurance from the State Board of Administration in Florida via the Florida Hurricane Catastrophe Fund (the “FHCF”) and the Reinsurance to Assist Policyholders (the “RAP”) program for residential hurricane losses in the State of Florida. This coverage is provided and required by the State of Florida. We currently purchase reimbursement protection at the maximum level (90%) of mandatory coverage offered by the FHCF.
Key Factors and Trends Affecting our Operating Results
Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:
Our Ability to Attract New Customers
Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform. We intend to continue to drive new customer growth by highlighting our consumer-focused approach to home protection and insurance across multiple distribution channels. In particular:
•Our growth strategy is centered around accelerating our existing position in markets that we already serve by increasing our direct-to-consumer advertising, increasing the number of agents selling Hippo policies, and growing our network of partners within existing partner channels.
•In addition to efforts in states where we are currently selling insurance, we also expect to drive growth by developing new strategic partnerships with key players involved in the real estate transaction ecosystem.
•Finally, we plan to deepen our relationships with our customers by offering value-added services, both directly and through partners, that are not specifically insurance products, such as home maintenance, home monitoring, and home appliance warranties.
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.
We face competition from traditional insurers who have more diverse product offerings and longer established operating histories, as well as from new, technology-driven entrants who may pursue more horizontal growth strategies. 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.
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 the COVID-19 pandemic or any new public health events. 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. Our customers typically become more valuable to us over time because retention rates have historically increased with the age of customer cohorts and because non-catastrophic loss frequency declines as cohorts mature.
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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. 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.
Our Ability to Manage Regulatory Impact, Including on Our Efforts to Manage Our Exposure to Volatility
The Company is subject to extensive laws, regulations, administrative directives, and regulatory actions. From time to time, regulatory authorities or legislative bodies seek to influence and restrict premium rates, require premium refunds to policyholders, require reinstatement of terminated policies, restrict the ability of insurers to cancel or non-renew policies, require insurers to continue to write new policies or limit their ability to write new policies, limit insurers’ ability to change coverage terms and deductibles or to impose underwriting standards, impose additional regulations regarding agency and broker compensation, impose fines and penalties for unintended errors or mistakes, impose additional regulations regarding cybersecurity and privacy, and otherwise expand overall regulation of insurance products and the insurance industry. These laws may limit or restrict the ability of the Company to reduce its exposures, including to weather related losses.
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. As we roll out these services, we expect to be able to generate incremental, non-risk-based service and fee income from our existing customers. We expect these home protection services not only to generate incremental revenue, but also to reduce losses for our customers, and—by implication—our loss ratios. Our success in expanding revenue and reducing losses by offering these services depends on our ability to market these services, our operational ability to deliver value to our customers, and the ability of these services to reduce the probability of loss for an average homeowner.
We are also in the early stages of cross-selling non-homeowner insurance products across our customer base. Cross-sales allow us to generate additional premium per customer, and ultimately higher revenue and fee income, without material incremental marketing spend. Our success in expanding revenue through cross-sales depends on our marketing efforts with new products, offerings of our competitors, additional expansion into new states, and the pricing of our bundled products.
Our Ability to Manage Risk
We leverage data, technology, and geographic diversity to help manage risk. For instance, we obtain dynamic data from various sources and use advanced statistical methods to model that data into our pricing algorithm. Incorporating these external data sources and utilizing the experience gained with our own customer base should lead to better underwriting, reduced loss frequency, and—adjusting for weather related events—lower loss ratios over time. While our current reinsurance framework helps us manage the volatility of earnings, reducing our overall gross loss ratio is critical to our success. Our ability to incorporate new data sources as they become available and to use them to improve our ability to accurately and competitively price risk is central to our growth strategy.
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Seasonality of Customer Acquisition
Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims losses. Based on historical experience, existing and potential customers move more frequently during the summer months of the year, compared to the rest of the calendar year. As a result, we may see greater demand for new or expanded insurance coverage, and increased engagement resulting in proportionately more growth during the third quarter. We expect that as we grow, expand geographically, and launch new products, the impact of seasonal variability on our rate of growth may decrease.
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. The mix of geographic exposure and products within our customer base impacts our exposure to these weather patterns, and as we diversify our base of premium such that our exposure more closely resembles the industry exposure, we should see the impact of these events on our business more closely resemble the impact on the broader industry.
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. In addition, gross written premium includes amounts received from our participation in our own reinsurance treaty. 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.
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. Ceded written premium is treated as a reduction from gross written premium written during a specific period of time over the reinsurance contract period in proportion to the period of risk covered. 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.
Net Earned Premium
Net earned premium represents the earned portion of our gross written premium for insurance policies written or assumed by us and less the earned portion of ceded written premium (any portion of our gross written premium that is ceded to third-party reinsurers under our reinsurance agreements). We earn written premiums on a pro-rata basis over the term of the policies.
Commission Income, Net Includes:
a.MGA Commission: We operate as an MGA for multiple insurers. We design and underwrite insurance products on behalf of the insurers culminating in the sale of insurance policies. We earn recurring commission and policy fees associated with the policies we sell. We have underwriting authority and responsibility for administering claims (see Claim Processing Fees below) and, we work with affiliated and
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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. Our performance obligation associated with these contracts is the placement of the policy, which is met on the effective date. Upon issuance of a new policy, we charge policy fees and inspection fees (see Service and Fee Income below), retain our share of commission, and remit the balance to the respective insurers. 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. We are required to return a portion of our MGA commission due to commission slide on the policies placed as an MGA if the underwriting performance varies due to higher Hippo programs’ loss ratio from provisional performance of the Hippo programs’ loss ratio. 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.Agency Commission: We also operate licensed insurance agencies that are engaged solely in the sale of policies, including non-Hippo policies. For these policies, we earn a recurring agency commission from the carriers whose policies we sell, which is recorded in the commission income, net line on our statements of operations and comprehensive loss. 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. 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 we hold this cash in trust for the benefit of the insurers and reinsurers as fiduciary liabilities.
c.Ceding Commission: We receive commission based on the premium we cede to third-party reinsurers for the reimbursement for our acquisition and underwriting services. Excess ceding commission over the cost of acquisition is included in the commission income, net line on our statements of operations and comprehensive loss. For the policies that we write on our own carrier as MGA, we recognize this commission as ceding commission on the statement of operations and comprehensive loss. We earn commission on reinsurance premium ceded in a manner consistent with the recognition of the earned premium on the underlying insurance policies, on a pro rata basis over the terms of the policies reinsured. 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 earn fronting fees in a manner consistent with the recognition of the earned premium on the underlying insurance policies, on a pro-rata basis over the terms of the policies. This revenue is included in the commission income, net line on our statements of operations and comprehensive loss.
e.Claim Processing Fees: As an MGA, we receive a fee that is calculated as a percent of the premium from the insurers in exchange for providing claims adjudication services. The claims adjudication services are provided over the term of the policy and recognized ratably over the same period. This revenue is included in the commission income, net line on our statements of operations and comprehensive loss.
Service and Fee Income
Service and fee income mainly represents policy fees and other revenue. We directly bill policyholders for policy fees and collect and retain fees per the terms of the contracts between us and our insurers. Similar to the
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commission revenue, we estimate a cancellation reserve for policy fees using historical information. The performance obligation associated with these fees is satisfied at a point in time upon completion of the underwriting process, which is the policy effective date. Accordingly, we recognize all fees as revenue on the policy effective date.
Net Investment Income
Net investment income represents interest earned from fixed maturity securities, short-term investments and other investments, and the gains or losses from the sale of investments. Our cash and invested assets primarily consist of investment grade fixed-maturity securities, and may also include cash and cash equivalents, equity securities, and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value, such as changes in interest rates), the size of our investment portfolio is mainly a function of our invested equity capital along with premium we receive from our customers less payments on customer claims.
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.
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. 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. 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.
Insurance Related Expenses
Insurance related expenses primarily consist of amortization of direct acquisition commission costs and premium taxes incurred on the successful acquisition of business written on a direct basis and credit card processing fees not charged to our 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. 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.
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.
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 development activities to achieve our technology development roadmap.
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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.
We plan to continue to invest in sales and marketing to attract and acquire new customers and to increase our brand awareness. We expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to scale our business, increase commission payments to our producers and partners as a result of our premium growth, and invest in developing a nationally recognized brand. We expect that sales and marketing costs will increase in absolute dollars in future periods and vary from period-to-period as a percentage of revenue in the near-term. We expect that—in the long-term—our sales and marketing costs will decrease as a percentage of revenue as we continue to drive customer acquisition efficiencies and as the proportion of renewals to our total business increases.
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. We expect our general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC and other regulatory bodies, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Interest and Other (Income) Expense
Interest and other (income) expense primarily consists of fair value adjustments on outstanding warrants.
Income Taxes
We record income taxes using the asset and liability method. Under this method, we record deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities. We measure these differences using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse. We recognize the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.
We record a valuation allowance to reduce deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, both positive and negative, including historical levels of income, expectations, and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a valuation allowance.
Key Operating and Financial Metrics and Non-GAAP Measures
We regularly review the following key operating and financial metrics in order to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, and make strategic decisions.
The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. 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. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies.
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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.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Total Generated Premium | $ | 317.6 | $ | 204.1 | $ | 562.6 | $ | 357.8 | |||||||||||||||||||||
| Total Revenue | 47.7 | 28.7 | 87.5 | 53.2 | |||||||||||||||||||||||||
| Net Loss attributable to Hippo | (107.8) | (73.5) | (177.7) | (141.1) | |||||||||||||||||||||||||
| Adjusted EBITDA | (87.7) | (55.8) | (139.9) | (104.3) | |||||||||||||||||||||||||
| Gross Loss Ratio | 107 | % | 78 | % | 93 | % | 77 | % | |||||||||||||||||||||
| Net Loss Ratio | 344 | % | 261 | % | 317 | % | 256 | % | |||||||||||||||||||||
Total Generated Premium
We define Total Generated Premium as the aggregate written premium placed across all of our business platforms for the period presented. We measure Total Generated Premium as it reflects the volume of our business irrespective of choices related to how we structure our reinsurance treaties, the amount of risk we retain on our own balance sheet, or the amount of business written in our capacity as an MGA, agency, or as an insurance carrier/reinsurer. We calculate Total Generated Premium as the sum of:
i)Gross written premium (“GWP”)—a GAAP measure defined above; and
ii)Gross placed premium—premium of policies placed with third-party insurance companies, for which we do not retain insurance risk and for which we earn a commission payment, and policy fees charged by us to the policyholders on the effective date of the policy.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Written Premium | $ | 244.8 | $ | 161.8 | $ | 83.0 | $ | 434.2 | $ | 278.9 | $ | 155.3 | ||||||||||||||||||||||||||||||||||||||
| Gross Placed Premium | 72.8 | 42.3 | $ | 30.5 | $ | 128.4 | $ | 78.9 | $ | 49.5 | ||||||||||||||||||||||||||||||||||||||||
| Total Generated Premium | $ | 317.6 | $ | 204.1 | $ | 113.5 | $ | 562.6 | $ | 357.8 | $ | 204.8 | ||||||||||||||||||||||||||||||||||||||
Our Total Generated Premium for the three months ended June 30, 2023 grew 56% year-over-year to $317.6 million from $204.1 million for the three months ended June 30, 2022. The growth was driven primarily by the growth of non-Hippo written premium supported by our Insurance-as-a-Service business as well as the continued growth across channels in existing states, expansion of our independent agent network, maintaining solid premium retention levels, and achieving planned premium rate increases.
Our Total Generated Premium for the six months ended June 30, 2023 grew 57% year-over-year to $562.6 million from $357.8 million for the six months ended June 30, 2022. The growth was driven primarily by the growth of non-Hippo written premium supported by our Insurance-as-a-Service business as well as the continued growth across channels in existing states, expansion of our independent agent network, maintaining solid premium retention levels, and achieving planned premium rate increases.
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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.
For the three months ended June 30, 2023, adjusted EBITDA loss was $87.7 million, an increase of $31.9 million compared to $55.8 million for the three months ended June 30, 2022, due primarily to an increase in losses due primarily to named event Property Claims Services (“PCS”) catastrophic weather and other weather loss experience. These amounts were partially offset by an increase in revenues.
For the six months ended June 30, 2023, adjusted EBITDA loss was $139.9 million, an increase of $35.6 million compared to $104.3 million for the six months ended June 30, 2022, due primarily to an increase in losses due primarily to named event PCS catastrophic weather and other weather loss experience. These amounts were partially offset by an increase in revenues.
The following table provides a reconciliation from net loss attributable to Hippo to adjusted EBITDA for the periods presented (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net loss attributable to Hippo | $ | (107.8) | $ | (73.5) | $ | (177.7) | $ | (141.1) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Net investment income | (5.4) | (1.1) | (10.8) | (1.5) | |||||||||||||||||||
| Depreciation and amortization | 5.2 | 3.5 | 9.5 | 7.4 | |||||||||||||||||||
| Stock-based compensation | 16.7 | 15.9 | 32.8 | 29.3 | |||||||||||||||||||
| Fair value adjustments | (0.2) | (1.4) | — | (2.6) | |||||||||||||||||||
| Contingent consideration charge | 2.9 | (0.8) | 3.7 | 2.4 | |||||||||||||||||||
| Other one-off transactions | 0.7 | 1.3 | 2.1 | 1.3 | |||||||||||||||||||
| Income tax expense | 0.2 | 0.3 | 0.5 | 0.5 | |||||||||||||||||||
| Adjusted EBITDA | $ | (87.7) | $ | (55.8) | $ | (139.9) | $ | (104.3) | |||||||||||||||
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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).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Gross Losses and LAE | $ | 200.0 | $ | 101.0 | $ | 326.3 | $ | 192.2 | |||||||||||||||||||||
| Gross Earned Premium | 187.3 | 128.8 | 352.3 | 248.9 | |||||||||||||||||||||||||
| Gross Loss Ratio | 107 | % | 78 | % | 93 | % | 77 | % | |||||||||||||||||||||
The following table provides a reconciliation of Gross Loss Ratio by PCS and non-PCS events.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| PCS losses | 57 | % | 22 | % | 42 | % | 21 | % | |||||||||||||||||||||
| Non-PCS losses | 50 | % | 56 | % | 51 | % | 56 | % | |||||||||||||||||||||
| Gross loss ratio | 107 | % | 78 | % | 93 | % | 77 | % | |||||||||||||||||||||
For the three months ended June 30, 2023, our Gross Loss Ratio was 107% net of a favorable development of 6 percentage points relating to Non-PCS events and 4 percentage points relating to PCS events; compared with 78% net of a favorable development of 10 percentage points for Non-PCS events and 12 percentage points for PCS events for the three months ended June 30, 2022.
Excluding the impact of reserve movements, our Gross Loss Ratio was 117% for the three months ended June 30, 2023, compared with 100% for the three months ended June 30, 2022.
For the six months ended June 30, 2023, our Gross Loss Ratio was 93% net of a favorable development of 3 percentage points relating to Non-PCS events and 2 percentage points relating to PCS events, compared with 77% net of a favorable development of 12 percentage points for Non-PCS events and 9 percentage points relating to PCS events for the six months ended June 30, 2022.
Excluding the impact of reserve movements, our Gross Loss Ratio was 98% for the six months ended June 30, 2023, compared with 98% for the six months ended June 30, 2022.
Net Loss Ratio
Net loss ratio expressed as a percentage, is the ratio of the net losses and LAE to the net earned premium (in millions).
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||
| Net Losses and LAE | $ | 76.7 | $ | 29.2 | $ | 114.4 | $ | 51.7 | |||||||||||||||||||||
| Net Earned Premium | 22.3 | 11.2 | 36.1 | 20.2 | |||||||||||||||||||||||||
| Net Loss Ratio | 344 | % | 261 | % | 317 | % | 256 | % | |||||||||||||||||||||
For the three months ended June 30, 2023, our Net Loss Ratio was 344% compared with 261% for the three months ended June 30, 2022. The increase was due primarily to an increase in PCS catastrophic weather losses and
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other weather loss experience and our loss participation features. The losses were partially offset by an increase in net earned premium.
For the six months ended June 30, 2023, our Net Loss Ratio was 317% compared with 256% for the six months ended June 30, 2022. The increase was due primarily to an increase in PCS catastrophic weather losses and other weather loss experience and our loss participation features. The losses were partially offset by an increase in net earned premium.
Segment Information
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Total Generated Premium | $ | 118.1 | $ | 151.7 | $ | 102.2 | $ | (54.4) | $ | 317.6 | |||||||||||||||||||
| Total Revenue | 11.5 | 16.2 | 22.6 | (2.6) | 47.7 | ||||||||||||||||||||||||
| Adjusted operating income (loss) | (9.6) | 4.7 | (82.2) | (0.6) | (87.7) | ||||||||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Total Generated Premium | $ | 87.6 | $ | 71.6 | $ | 93.1 | $ | (48.2) | $ | 204.1 | |||||||||||||||||||
| Total Revenue | 8.9 | 8.0 | 16.3 | (4.5) | 28.7 | ||||||||||||||||||||||||
| Adjusted operating loss | (8.2) | (0.8) | (46.8) | — | (55.8) | ||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Total Generated Premium | $ | 216.0 | $ | 255.7 | $ | 194.4 | $ | (103.5) | $ | 562.6 | |||||||||||||||||||
| Total Revenue | 21.2 | 29.2 | 42.1 | (5.0) | 87.5 | ||||||||||||||||||||||||
| Adjusted operating income (loss) | (20.6) | 7.9 | (126.2) | (1.0) | (139.9) | ||||||||||||||||||||||||
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| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||
| Services | Insurance-as-a-Service | Hippo Home Insurance Program | Intersegment Eliminations(1) | Total | |||||||||||||||||||||||||
| Total Generated Premium | $ | 163.5 | $ | 112.3 | $ | 172.1 | $ | (90.1) | $ | 357.8 | |||||||||||||||||||
| Total Revenue | 16.3 | 15.0 | 29.3 | (7.4) | 53.2 | ||||||||||||||||||||||||
| Adjusted operating income (loss) | (19.6) | 1.8 | (86.5) | — | (104.3) | ||||||||||||||||||||||||
(1)Intersegment eliminations include commissions paid from Hippo Home Insurance Program for policies sold by the Company’s Services segment (revenue, cost, and other adjustments in respective business units eliminated as part of consolidation). Intersegment eliminations also include premiums written between the segments.
Segment adjusted operating income (loss) is our primary segment profitability measure, and is calculated as segment revenue less operating expenses that are directly attributable to the segments. Refer to Note 16 of the accompanying consolidated financial statements for additional information on segments and a reconciliation of Segment adjusted operating income (loss) to net loss attributable to Hippo.
Services
For the three months ended June 30, 2023, our Services segment, which earns fees and/or commission income without assuming underwriting risk or need for reinsurance, had Total Generated Premium of $118.1 million, an increase of 35%, from $87.6 million over the prior year quarter, while revenue was $11.5 million, an increase of 29%, from $8.9 million over the prior year quarter. The growth was driven primarily by the growth in our builder channel for new and renewal business, as we maintain higher retention rates. Our adjusted operating loss was $9.6 million, an increase of 17%, compared to a loss of $8.2 million in the prior year quarter as we continue to invest heavily in our platforms to provide differentiated services for our customers across all our businesses.
For the six months ended June 30, 2023, our Services segment had Total Generated Premium of $216.0 million, an increase of 32%, from $163.5 million over the prior year period, while revenue was $21.2 million, an increase of 30%, from $16.3 million over the prior year period. The growth was driven primarily by the growth in our builder channel for new and renewal business, as we maintain higher retention rates. Our adjusted operating loss was $20.6 million, an increase of 5%, compared to a loss of $19.6 million in the prior year period as we continue to invest heavily in our platforms to provide differentiated services for our customers across all our businesses.
Insurance-as-a-Service
Our Insurance-as-a-Service segment, which through our carrier, Spinnaker, we leverage our capital and insurance licenses to provide capacity to third party MGAs, creating diversified income through fees, underwriting profits, and investment income. For the three months ended June 30, 2023, Total Generated Premium was $151.7 million, up 112%, from $71.6 million over the prior year quarter, while revenue was $16.2 million, an increase of 103%, from $8.0 million over the prior year quarter. The growth was driven primarily by the performance of both new and existing programs. Adjusted operating income was $4.7 million, an increase of 688%, compared to a loss of $0.8 million in the prior year quarter due primarily to the increase in revenue mentioned above and continued program diversification.
For the six months ended June 30, 2023, our Insurance-as-a-Service segment’s Total Generated Premium was $255.7 million, up 128%, from $112.3 million over the prior year quarter, while revenue was $29.2 million, an increase of 95%, from $15.0 million over the prior year period. The growth was driven primarily by the performance of both new and existing programs. Adjusted operating income was $7.9 million, an increase of 339%, compared to $1.8 million in the prior year period due primarily to the increase in revenue mentioned above and continued program diversification.
Hippo Home Insurance Program
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For the three months ended June 30, 2023, our Hippo Homeowners Insurance Program had Total Generated Premium of $102.2 million, an increase of 10%, from $93.1 million over the prior year quarter, while revenue was $22.6 million, an increase of 39%, from $16.3 million over the prior year quarter. The increases were due primarily to continued growth across channels in existing states and achieving planned premium rate increases. The increase in revenue from net earned premiums was 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. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year. For the three months ended June 30, 2023 and 2022, $8.5 million and $5.8 million, respectively, was offset against earned premium for XOL. Adjusted operating loss was $82.2 million in the quarter, an increase of 76%, compared to a loss of $46.8 million in the prior year quarter. The increase in adjusted operating loss was due primarily to an increase in PCS catastrophic weather and other weather loss experience and our loss participation features, primarily due to five major wind and hail events in Colorado and Texas, partially offset by an increase in revenues.
The second quarter impact of PCS cat losses was $109.9 million on a gross basis and $50.9 million on a net basis, and we expect an additional $13 to $15 million over the remainder of the year due to their impact on the loss participation features embedded in our reinsurance treaties.
We are planning to take decisive actions to reduce our future exposure to wind and hail, with the explicit goal of reducing the volatility of our financial results. These actions include increasing deductibles for wind and hail perils, selective non-renewal of policies in high-risk regions, and increasing the rates we charge for cat-exposed properties across our portfolio.
Our goal and expectation is to have a homeowners insurance program that consistently produces underwriting profit, and we believe being more aggressive in these areas during the rest of this year will accelerate our path to achieving this goal.
In addition, we have taken steps during the quarter to reduce our dependence on the reinsurance market and the costs associated with not retaining the risk we underwrite on our own balance sheet, including the catastrophe bonds noted in our reinsurance disclosures above.
For the six months ended June 30, 2023, our Hippo Homeowners Insurance Program had Total Generated Premium of $194.4 million, an increase of 13%, from $172.1 million over the prior year period, while revenue was $42.1 million, an increase of 44%, from $29.3 million over the prior year period. The increases were due primarily to continued growth across channels in existing states and achieving planned premium rate increases. The increase in revenue from net earned premiums was 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. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year. For the six months ended June 30, 2023 and 2022, $15.9 million and $11.5 million, respectively, was offset against earned premium for XOL. Adjusted operating loss was $126.2 million, an increase of 46%, compared to a loss of $86.5 million in the prior year period. The increase in adjusted operating loss was due primarily to an increase in PCS catastrophic weather and other weather loss experience and our loss participation features primarily due to from five major wind and hail events in Colorado and Texas, partially offset by an increase in revenues.
Hippo Home Insurance Program Gross Loss Ratio
Hippo Home Insurance Program Gross Loss Ratio (‘HPGLR’) is a key performance indicator that represents our underwriting operational performance for the entire Total Generated Premium underwritten by Hippo as part of the Hippo Home Insurance Program. This ratio includes losses and premiums written and placed on Spinnaker (our carrier) as well as other carriers for Hippo policies (policies underwritten by the Hippo MGA). For the periods presented, changes in this ratio also impact our ceding commission revenue and loss participation features in our reinsurance treaties, which is included in loss and loss adjustment expense on our consolidated statements of operations and comprehensive loss. This ratio is also used by our reinsurers and other carriers to make
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business decisions relating to the capacity of reinsurance and amount of ceding commission that would be available to Hippo. The lower the ratio, the better the economics for Hippo.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Hippo Home Insurance Program | |||||||||||||||||||||||
| Non-PCS | 58 | % | 59 | % | 59 | % | 62 | % | |||||||||||||||
| PCS | 120 | % | 36 | % | 81 | % | 35 | % | |||||||||||||||
| HPGLR | 178 | % | 95 | % | 140 | % | 97 | % | |||||||||||||||
For the three and six months ended June 30, 2023, HPGLR was 178% and 140%, respectively, compared to 95% and 97% in the prior year. Excluding the impact of reserve releases, HPGLR was 185% and 143% respectively, compared to 130% and 125% in the prior year.
Excluding the impact of reserve releases, the PCS component of HPGLR for the three and six months ended June 30, 2023, HPGLR was 122% and 82% respectively, compared to 55% and 48% in the prior year. The increases reflect catastrophes in the year primarily due to hail and wind, unusually heavy rains, and snow in parts of California, our second largest market.
Excluding the impact of reserve releases, the Non-PCS component of HPGLR for the three and six months ended June 30, 2023, was 63% and 61% respectively, compared to 75% and 76% in the prior year. This represents a decrease of 12 percentage points and 15 percentage points respectively. The decrease reflects the benefits of the pricing and underwriting actions we took in calendar year 2022. We expect continued improvement as these actions have more time to impact our financial results.
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Results of Operations
The following table sets forth our consolidated results of operations data for the periods presented (in millions, except percent data):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | 2023 | 2022 | Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net earned premium | $ | 22.3 | $ | 11.2 | $ | 11.1 | 99 | % | 36.1 | 20.2 | $ | 15.9 | 79 | % | |||||||||||||||||||||||||||||||||
| Commission income, net | 16.2 | 12.9 | 3.3 | 26 | % | 33.6 | 24.4 | 9.2 | 38 | % | |||||||||||||||||||||||||||||||||||||
| Service and fee income | 3.8 | 3.5 | 0.3 | 9 | % | 7.0 | 7.1 | (0.1) | (1) | % | |||||||||||||||||||||||||||||||||||||
| Net investment income | 5.4 | 1.1 | 4.3 | 391 | % | 10.8 | 1.5 | 9.3 | 620 | % | |||||||||||||||||||||||||||||||||||||
| Total revenue | 47.7 | 28.7 | 19.0 | 66 | % | 87.5 | 53.2 | 34.3 | 64 | % | |||||||||||||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 76.7 | 29.2 | 47.5 | 163 | % | 114.4 | 51.7 | 62.7 | 121 | % | |||||||||||||||||||||||||||||||||||||
| Insurance related expenses | 18.8 | 17.4 | 1.4 | 8 | % | 34.5 | 30.6 | 3.9 | 13 | % | |||||||||||||||||||||||||||||||||||||
| Technology and development | 13.1 | 16.5 | (3.4) | (21) | % | 24.7 | 31.2 | (6.5) | (21) | % | |||||||||||||||||||||||||||||||||||||
| Sales and marketing | 22.6 | 19.4 | 3.2 | 16 | % | 45.0 | 44.3 | 0.7 | 2 | % | |||||||||||||||||||||||||||||||||||||
| General and administrative | 21.5 | 18.2 | 3.3 | 18 | % | 41.3 | 34.7 | 6.6 | 19 | % | |||||||||||||||||||||||||||||||||||||
| Interest and other (income) expense | — | (0.3) | 0.3 | (100) | % | 0.5 | (1.3) | 1.8 | (138) | % | |||||||||||||||||||||||||||||||||||||
| Total expenses | 152.7 | 100.4 | 52.3 | 52 | % | 260.4 | 191.2 | 69.2 | 36 | % | |||||||||||||||||||||||||||||||||||||
| Loss before income taxes | (105.0) | (71.7) | (33.3) | 46 | % | (172.9) | (138.0) | (34.9) | 25 | % | |||||||||||||||||||||||||||||||||||||
| Income tax expense | 0.2 | 0.3 | (0.1) | (33) | % | 0.5 | 0.5 | — | — | % | |||||||||||||||||||||||||||||||||||||
| Net loss | (105.2) | (72.0) | (33.2) | 46 | % | (173.4) | (138.5) | (34.9) | 25 | % | |||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests, net of tax | 2.6 | 1.5 | 1.1 | 73 | % | 4.3 | 2.6 | 1.7 | 65 | % | |||||||||||||||||||||||||||||||||||||
| Net loss attributable to Hippo | $ | (107.8) | $ | (73.5) | $ | (34.3) | 47 | % | (177.7) | (141.1) | $ | (36.6) | 26 | % | |||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Change in net unrealized gain on available-for-sale securities, net of tax | (1.1) | (1.6) | 0.5 | (31) | % | 0.6 | (4.2) | 4.8 | (114) | % | |||||||||||||||||||||||||||||||||||||
| Comprehensive loss attributable to Hippo | $ | (108.9) | $ | (75.1) | $ | (33.8) | 45 | % | (177.1) | (145.3) | $ | (31.8) | 22 | % | |||||||||||||||||||||||||||||||||
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Comparison of the Three and Six Months Ended June 30, 2023 and 2022
Net Earned Premium
For the three months ended June 30, 2023, net earned premium was $22.3 million, an increase of $11.1 million compared to $11.2 million for the three months ended June 30, 2022. This 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, 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. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year. For the three months ended June 30, 2023 and 2022, $13.9 million and $5.3 million, respectively, was offset against earned premium for XOL.
For the six months ended June 30, 2023, net earned premium was $36.1 million, an increase of $15.9 million compared to $20.2 million for the six months ended June 30, 2022. This 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, 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. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year. For the six months ended June 30, 2023 and 2022, $25.6 million and $11.1 million, respectively, was offset against earned premium for XOL.
The following table presents gross written premium, ceded written premium, net written premium, change in unearned premium, and net earned premium for the three and six months ended June 30, 2023 and 2022 (in millions).
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| Gross written premium | $ | 244.8 | $ | 161.8 | $ | 83.0 | $ | 434.2 | $ | 278.9 | $ | 155.3 | |||||||||||||||||||||||
| Ceded written premium | (213.6) | (147.2) | (66.4) | (381.7) | (263.6) | (118.1) | |||||||||||||||||||||||||||||
| Net written premium | 31.2 | 14.6 | 16.6 | 52.5 | 15.3 | 37.2 | |||||||||||||||||||||||||||||
| Change in unearned premium | (8.9) | (3.4) | (5.5) | (16.4) | 4.9 | (21.3) | |||||||||||||||||||||||||||||
| Net earned premium | $ | 22.3 | $ | 11.2 | $ | 11.1 | $ | 36.1 | $ | 20.2 | $ | 15.9 | |||||||||||||||||||||||
Commission Income, Net
For the three months ended June 30, 2023, commission income was $16.2 million, an increase of $3.3 million, or 26%, compared to $12.9 million for the three months ended June 30, 2022. The increase was due primarily to increased ceding commissions, including fronting fees, of $1.9 million, as well as an increase in agency commissions of $1.7 million, both of which grew due to the year-over-year growth of our total book of business.
For the six months ended June 30, 2023, commission income was $33.6 million, an increase of $9.2 million, or 38%, compared to $24.4 million for the six months ended June 30, 2022. The increase was due primarily to increased ceding commissions, including fronting fees, of $5.6 million, as well as an increase in agency commissions of $3.4 million, both of which grew due to the year-over-year growth of our total book of business.
Service and Fee Income
For the three months ended June 30, 2023, service and fee income was $3.8 million, an increase of $0.3 million, or 9%, compared to $3.5 million for the three months ended June 30, 2022. The increase was due primarily to an increase in non-inspection policy fees.
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For the six months ended June 30, 2023, service and fee income was $7.0 million, a decrease of $0.1 million, or 1%, compared to $7.1 million for the six months ended June 30, 2022. In order to drive better loss ratio performance, we have tightened our underwriting thresholds which has had the effect of lowering the number of new policies requiring fee-generating inspections, partially offset by an increase in policy fees other than inspection fees.
Net Investment Income
For the three months ended June 30, 2023, net investment income was $5.4 million, an increase of $4.3 million, compared to $1.1 million for the three months ended June 30, 2022. The increase was due primarily to an increase in yields and diversification. 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.
For the six months ended June 30, 2023, net investment income was $10.8 million, an increase of $9.3 million, compared to $1.5 million for the six months ended June 30, 2022. The increase was due primarily to an increase in yields and diversification. 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.
Loss and Loss Adjustment Expenses
For the three months ended June 30, 2023, loss and loss adjustment expenses were $76.7 million, an increase of $47.5 million, compared to $29.2 million for the three months ended June 30, 2022. The increase was due primarily to an increase in PCS catastrophic weather and other weather loss experience and our loss participation features.
For the six months ended June 30, 2023, loss and loss adjustment expenses were $114.4 million, an increase of $62.7 million, compared to $51.7 million for the six months ended June 30, 2022. The increase was due primarily to an increase in PCS catastrophic weather and other weather loss experience and our loss participation features.
Insurance Related Expenses
For the three months ended June 30, 2023, insurance related expenses were $18.8 million, an increase of $1.4 million, or 8%, compared to $17.4 million for the three months ended June 30, 2022. The increase was due primarily to an increase in amortization expense attributable to capitalized internal use software of $1.0 million.
For the six months ended June 30, 2023, insurance related expenses were $34.5 million, an increase of $3.9 million, or 13%, compared to $30.6 million for the six months ended June 30, 2022. The increase was due primarily to an increase in amortization of deferred direct acquisition costs of $1.1 million due to the growth of our business and an increase in amortization expense attributable to capitalized internal use software of $2.1 million.
The primary components of insurance related expenses are listed below (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Amortization of deferred direct acquisition costs, net | $ | 6.9 | $ | 7.2 | $ | 12.9 | $ | 11.8 | ||||||||||||||||||
| Employee-related costs | 3.4 | 3.1 | 6.4 | 5.9 | ||||||||||||||||||||||
| Underwriting costs | 2.2 | 2.1 | 4.0 | 4.1 | ||||||||||||||||||||||
| Amortization of capitalized internal use software | 3.1 | 2.1 | 6.0 | 3.9 | ||||||||||||||||||||||
| Other | 3.2 | 2.9 | 5.2 | 4.9 | ||||||||||||||||||||||
| Total | $ | 18.8 | $ | 17.4 | $ | 34.5 | $ | 30.6 | ||||||||||||||||||
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Direct acquisition costs were $19.7 million and $36.0 million for the three and six months ended June 30, 2023, of which $12.8 million and $23.1 million were offset by ceding commission income.
Direct acquisition costs were $16.3 million and $30.5 million for the three and six months ended June 30, 2022, of which $9.1 million and $18.7 million were offset by ceding commission income.
Technology and Development Expenses
For the three months ended June 30, 2023, technology and development expenses were $13.1 million, a decrease of $3.4 million, or 21%, compared to $16.5 million for the three months ended June 30, 2022. The decrease was due primarily to a decrease in stock-based compensation of $1.9 million, driven by performance RSUs related to an acquisition fully vesting in the prior year. The decrease was also due to a decrease in consultants costs of $1.1 million.
For the six months ended June 30, 2023, technology and development expenses were $24.7 million, a decrease of $6.5 million, or 21%, compared to $31.2 million for the six months ended June 30, 2022. The decrease was due primarily to a decrease in stock-based compensation of $3.8 million, driven by performance RSUs related to an acquisition fully vesting in the prior year. The decrease was also due to a decrease in consultants costs of $1.1 million and a decrease in amortization of $0.8 million for acquired intangibles fully amortized in the first half of 2022.
Sales and Marketing Expenses
For the three months ended June 30, 2023, sales and marketing expenses were $22.6 million, an increase of $3.2 million, or 16%, compared to $19.4 million for the three months ended June 30, 2022. The increase was due primarily to the change in fair value of contingent consideration of $3.7 million and an increase in advertising costs of $0.9 million. These amounts were partially offset by a decrease in consulting fees of $1.3 million.
For the six months ended June 30, 2023, sales and marketing expenses were $45.0 million, an increase of $0.7 million, or 2%, compared to $44.3 million for the six months ended June 30, 2022. The increase was due primarily to an increase in stock-based compensation of $2.5 million partially offset by decreases in consulting fees of $1.3 million and other employee costs of $0.9 million.
General and Administrative Expenses
For the three months ended June 30, 2023, general and administrative expenses were $21.5 million, an increase of $3.3 million, or 18%, compared to $18.2 million for the three months ended June 30, 2022. The increase was due primarily to an increase in stock-based compensation of $2.9 million.
For the six months ended June 30, 2023, general and administrative expenses were $41.3 million, an increase of $6.6 million, or 19%, compared to $34.7 million for the six months ended June 30, 2022. The increase was due primarily to an increase in stock-based compensation of $5.7 million, partially driven by a charge due to the repricing of options during the first quarter of 2023. There was also an increase in facilities costs of $1.3 million. These amounts were partially offset by a decrease in consulting fees of $0.6 million.
Interest and Other (Income) Expense
For the three months ended June 30, 2023, other expense was $0.0 million compared to income of $0.3 million for the three months ended June 30, 2022. The decrease was due primarily to changes in the fair market value on the outstanding public and private placement warrants of $1.2 million, partially offset by other expenses of $0.8 million.
For the six months ended June 30, 2023, other expense was $0.5 million compared to income of $1.3 million for the six months ended June 30, 2022. The increase was due primarily to changes in the fair market value
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on the outstanding public and private placement warrants of $2.6 million, partially offset by other expenses of $0.8 million.
Income Taxes
For the three months ended June 30, 2023, income tax expense was $0.2 million, a decrease of $0.1 million, compared to an expense of $0.3 million for the three months ended June 30, 2022.
For the six months ended June 30, 2023 and 2022, income tax expense was $0.5 million.
Net Loss Attributable to Hippo
Net loss attributable to Hippo is calculated in accordance with GAAP as total revenue less total expenses and taxes and net of net income attributable to noncontrolling interest, net of tax.
For the three months ended June 30, 2023, net loss attributable to Hippo was $107.8 million, an increase of $34.3 million compared to $73.5 million for the three months ended June 30, 2022 due to the factors described above.
For the six months ended June 30, 2023, net loss attributable to Hippo was $177.7 million, an increase of $36.6 million compared to $141.1 million for the six months ended June 30, 2022 due to the factors described above.
Liquidity and Capital Resources
Sources of Liquidity
Our existing sources of liquidity include cash and cash equivalents and marketable securities. As of June 30, 2023, we had $238.4 million of cash and restricted cash and $364.4 million of available-for-sale fixed income securities and short-term investments.
In addition, we are a member of the Federal Home Loan Bank (FHLB) of New York, which provides secured borrowing capacity. Our borrowing capacity as of June 30, 2023, is $23.2 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. Until we can generate sufficient revenue and other income to cover operating expenses, working capital and capital expenditures, we expect the funds raised as discussed above to fund our cash needs. Our capital requirements depend on many factors, including the volume of issuances of insurance policies, the timing and extent of spending to support research and development efforts, investments in information technology systems, and the expansion of sales and marketing activities. In the future, we may raise additional funds through the issuance of debt or equity securities or through borrowing. We cannot assure that such funds will be on favorable terms, or available at all.
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Cash Flow Summary
The following table summarizes our cash flows for the periods presented (in millions):
| Six Months Ended | |||||||||||||||||
| June 30, | |||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | (45.0) | $ | (88.4) | $ | 43.4 | |||||||||||
| Investing activities | $ | 48.8 | $ | (403.2) | $ | 452.0 | |||||||||||
| Financing activities | $ | (9.9) | $ | (2.6) | $ | (7.3) | |||||||||||
Operating Activities
Cash used in operating activities represents payments for our operations including, payroll, loss and loss adjusted expenses and marketing activities. Cash used in operating activities was $45.0 million for the six months ended June 30, 2023, an increase of $43.4 million, from $88.4 million for the six months ended June 30, 2022. Our cash used in operations was lower than last year mainly due to the working capital changes that benefited cash, partially offset by an increase in our net loss.
Investing Activities
Cash provided by investing activities was $48.8 million for the six months ended June 30, 2023, due primarily to the maturities and sales of investment securities, partially offset by purchases of investment securities and an office building.
Cash used in investing activities was $403.2 million for the six months ended June 30, 2022, due primarily to purchases of investment securities.
Financing Activities
Cash used in financing activities was $9.9 million for the six months ended June 30, 2023, primarily driven by distributions to noncontrolling interests, repurchases of shares, and taxes paid related to net share settlement of RSUs, partially offset by proceeds from common stock issuances.
Cash used in financing activities was $2.6 million for the six months ended June 30, 2022, primarily driven by taxes paid related to net share settlement of RSUs and distributions to noncontrolling interests, partially offset by proceeds from common stock issuances.
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. 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. The estimation of the unpaid losses and loss adjustment expenses is based on various complex and subjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our consolidated financial statements. Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity. The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid can be significantly different from the amounts disclosed.
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Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenue, loss and loss adjustment expense reserve, recoverability of our net deferred tax asset, and intangible assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management’s expectations, the actual results may differ from these estimates, or our estimates may be affected by different assumptions or conditions.
Recent Accounting Pronouncements
The information set forth under Note 1 to the consolidated financial statements under the caption “Description of Business and Summary of Significant Accounting Policies” is incorporated herein by reference.
Emerging Growth Company Status
We currently qualify as an “emerging growth company” under the JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (1) within the same periods as those otherwise applicable to non-emerging growth companies or (2) within the same time periods as private companies.
We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines that it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For financial market risks related to changes in interest rates, refer to Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in Part II of our Annual Report on Form 10-K for the year ended December 31, 2022. Our exposure to market risk has not changed significantly since December 31, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and our chief financial officer, has concluded, based upon its evaluation as of the end of the period covered by this report, that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), are effective in providing reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting
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There was no change in our internal control over financial reporting that occurred during the most recently completed fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under Note 12 Commitments and Contingencies in the notes to the consolidated financial statements under the caption “Legal Proceedings” is incorporated herein by reference.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Company Purchases of Equity Securities
The following table provides information with respect to purchases of our common stock by the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three months ended June 30, 2023.
| Period | Total Number of Shares Purchased(1) | Average Price Paid per Share(2) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| (in millions, except share and per share data) | ||||||||||||||||||||||||||
| April 1 through April 30, 2023 | 48,963 | $ | 17.29 | 48,963 | ||||||||||||||||||||||
| May 1 through May 31, 2023 | 36,359 | $ | 18.73 | 36,359 | ||||||||||||||||||||||
| June 1 through June 30, 2023 | — | $ | — | — | ||||||||||||||||||||||
| Total | 85,322 | $ | 48.2 | |||||||||||||||||||||||
(1) In March 2023, the Company’s Board of Directors authorized a share repurchase program to purchase up to $50.0 million of the Company’s common stock, with no expiration date. Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases to be determined at the Company’s discretion depending on market conditions and corporate needs. This program does not obligate the Company to acquire any particular amount of its common stock, and may be modified, suspended or terminated at any time at the Company’s discretion.
(2) Includes direct costs incurred to acquire the shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
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Not applicable.
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 101.INS | XBRL Instance Document* | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document* | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* | |||||||
| Exhibit 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |||||||
| * | Filed herewith. | |||||||
| # | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise specifically stated in such filing. | |||||||
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 8, 2023.
| HIPPO HOLDINGS INC. | ||||||||
| By: | /s/ Richard McCathron | |||||||
| Name: | Richard McCathron | |||||||
| Title: | Chief Executive Officer | |||||||
| By: | /s/ Stewart Ellis | |||||||
| Name: | Stewart Ellis | |||||||
| Title: | Chief Financial Officer | |||||||
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Exhibit 10.1
HIPPO HOLDINGS INC.
2021 INCENTIVE AWARD PLAN
PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE
Hippo Holdings Inc., a Delaware corporation, (the “Company”), pursuant to its 2021 Incentive Award Plan, as amended from time to time (the “Plan”), hereby grants to the holder listed below (the “Participant”), an award of performance-based restricted stock units (“Restricted Stock Units” or “RSUs”). Each vested Restricted Stock Unit represents the right to receive, in accordance with the Performance Restricted Stock Unit Award Agreement attached hereto as Exhibit A (the “Agreement”), one share of Common Stock (“Share”). This award of Restricted Stock Units is subject to all of the terms and conditions set forth herein and in the Agreement and the Plan, each of which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Performance Restricted Stock Unit Award Grant Notice (the “Grant Notice”) and the Agreement.
| Participant: | [ ] | ||||
Grant Date: | [ ] | ||||
Total Number of RSUs: | [ ] | ||||
Vesting Commencement Date: | [ ] | ||||
Vesting Schedule: Vesting of the RSUs shall be contingent on the satisfaction of both a service-based requirement (the “Service-Based Requirement”) and a performance-based requirement (the “Performance-Based Requirement”).
Service-Based Requirement. The Service-Based Requirement will be satisfied as to 100% of the RSUs on the first anniversary of the Vesting Commencement Date, subject to Participant not experiencing a Termination of Service prior to such date.
Performance-Based Requirement. The Performance-Based Requirement shall be divided into three separate tranches of performance goals (the “Performance Goals”) based on a percentage of the aggregate number of RSUs: (i) 50% of the RSUs shall satisfy the Performance-Based Requirement based on achievement of the Stock Price Goals (the “Stock Price Tranche”), (ii) 25% of the RSUs shall satisfy the Performance-Based Requirement based on the achievement of the Revenue Goals (the “Revenue Tranche”) and (iii) 25% of the RSUs shall satisfy the Performance-Based Requirement based on the achievement of the AGP Goals (the “AGP Tranche” and, collectively, each of subsection (i) through (iii) the “Tranches”). Upon the occurrence of a Determination Date (defined below) prior to earlier of (A) the fourth anniversary of the Vesting Commencement Date and (B) the date of Participant’s Termination of Service (the earlier of such dates, the “Expiration Date”), the Performance-Based Requirement shall be satisfied in respect of that percentage of the total number of RSUs determined based on the achievement of the applicable Performance Goal set forth in the following table below that must occur.
Percentage of RSUs in a given Tranche that Incrementally Vest upon Achievement of Performance Goal | Stock Price Goals (Stock Price Tranche) | Revenue Goals (Revenue Tranche) | AGP Goals (AGP Tranche) | ||||||||
| 20% | |||||||||||
| 20% | |||||||||||
| 30% | |||||||||||
| 30% | |||||||||||
For avoidance of doubt, upon the achievement of a specific Performance Goal set forth in the table above, any applicable Performance Goal with a lower value will also then have been achieved if not previously satisfied and the number of RSUs that have satisfied the Performance-Based Requirement shall be equal to (i) the percentage set forth in the table above (plus any lower value percentages that have not been previously achieved) multiplied by (ii) the aggregate number of RSUs in the applicable Tranche.
For purposes hereof, “AGP Goals” shall mean, upon any date between the Grant Date and the Expiration Date, the adjusted gross profit of the Company as calculated by the Company at the time of the grant, measured as the sum of the preceding four quarters before the applicable Determination Date, equals or exceeds the amount set forth in the table above. “Determination Date” shall mean (i) with respect to the achievement of a Stock Price Goal, any date when the Administrator determines in writing that the applicable Performance Goal first equals or exceeds the value set forth in the table above and
(ii) with respect to the achievement of the AGP Goals and/or Revenue Goals, a date that occurs at least once a calendar year quarter when the Company measures such Performance Goals and the Administrator certifies in writing that such Performance Goals have been achieved. Determination Dates for a given Tranche are eligible to occur any time following the Grant Date until the earlier to occur of (a) the date 100% of the RSUs in a given Tranche have satisfied the Performance-Based Requirement and (b) the Expiration Date. “Revenue Goals” shall mean, upon any date between the Grant Date and the Expiration Date, the revenue of the Company calculated in accordance with the generally accepted accounting principles, measured as the sum of the preceding four quarters before the applicable Determination Date, equals or exceeds the amount set forth in the table above. “Stock Price Goals” shall mean upon any date between the Grant Date and the Expiration Date, the average of the volume weighted average trading price per share of the Company’s common stock over the immediately trailing 30 day period equals or exceeds the amount set forth in the table above.
In the event a Change in Control is consummated prior to a vesting date of the RSUs and the RSUs are assumed (as provided for in accordance with Section 9.3(c) of the Plan) in connection with such Change in Control, then, subject to Participant not experiencing a Termination of Service prior to the closing of such Change in Control, the Performance-Based Requirement shall be deemed satisfied in full with respect to 100%
2
of the RSUs then-outstanding and the Service- Based Requirement shall be deemed amended to provide that the RSUs shall vest and satisfy the Service-Based Requirement on each quarterly anniversary of the Vesting Commencement Date in substantially equal increments until the fourth anniversary of the Vesting Commencement Date. For the avoidance of doubt, nothing in this paragraph shall supersede Section 9.3(d) of the Plan.
Vesting of RSUs Following Satisfaction of Both Service-Based and Performance-Based Requirements: No RSUs will vest (in whole or in part) if only one (or if neither) of the Service-Based Requirement and the Performance-Based Requirement is satisfied. In the event a Tranche (or portion thereof) has not satisfied the Performance-Based Requirement prior to the fourth anniversary of the Vesting Commencement Date, then the RSUs associated with such Tranche (or portion thereof) shall terminate and cease to be outstanding effective as of 30 days following the such anniversary. If both the Service- Based Requirement and the Performance-Based Requirement are satisfied, each RSU will vest on the first date upon which the Administrator certifies that both of those requirements were satisfied with respect to that particular RSU.
Adjustments. In the event that any dividend or other distribution (whether in the form of cash, shares of the Company’s common stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger (except for a Change in Control), consolidation, split-up, spin-off, combination, reclassification, repurchase, or exchange of shares of the Company’s common stock or other securities of the Company, or other change in the corporate structure of the Company affecting the shares of the Company’s common stock occurs (other than any ordinary dividends or other ordinary distributions), the Board, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the RSUs, shall (consistent with the Plan) make appropriate proportionate and equitable adjustments to the Performance Goal(s) set forth above to the extent such Performance Goal(s) have not yet been achieved.
| Termination: | If the Participant experiences a Termination of Service, all RSUs that have not become vested (i.e., satisfied both the Service-Based Requirement and the applicable Performance-Based Requirement) on or prior to the date of such Termination of Service will thereupon be automatically forfeited by the Participant without payment of any consideration therefor. | ||||
By his or her signature and the Company’s signature below, the Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and this Grant Notice. The Participant has reviewed the Plan, the Agreement and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of the Plan, the Agreement and this Grant Notice. The Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Agreement or this Grant Notice. In addition, by signing below, the Participant also agrees that the Company, in its sole
3
discretion, may satisfy any withholding obligations in accordance with Section 2.6(b) of the Agreement by (i) withholding shares of Common Stock otherwise issuable to the Participant upon vesting of the RSUs, (ii) instructing a broker on the Participant’s behalf to sell shares of Common Stock otherwise issuable to the Participant upon vesting of the RSUs and submit the proceeds of such sale to the Company, or (iii) using any other method permitted by Section 2.6(b) of the Agreement or the Plan.
HIPPO HOLDINGS INC.: | PARTICIPANT: | ||||
By: | By: | ||||
Print Name: | Print Name: | ||||
Title: | |||||
Address: | Address: | ||||
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EXHIBIT A
TO PERFORMANCE RESTRICTED STOCK UNIT AWARD GRANT NOTICE PERFORMANCE RESTRICTED STOCK UNIT AWARD AGREEMENT
Pursuant to the Performance Restricted Stock Unit Award Grant Notice (the “Grant Notice”) to which this Performance Restricted Stock Unit Award Agreement (this “Agreement”) is attached, Hippo Holdings Inc., a Delaware corporation (the “Company”), has granted to the Participant the number of performance-based restricted stock units (“Restricted Stock Units” or “RSUs”) set forth in the Grant Notice under the Company’s 2021 Incentive Award Plan, as amended from time to time (the “Plan”). Each Restricted Stock Unit represents the right to receive one share of Common Stock (a “Share”) upon vesting.
ARTICLE I.
GENERAL
1.1Defined Terms. Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.
1.2Incorporation of Terms of Plan. The RSUs are subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.
ARTICLE II.
GRANT OF RESTRICTED STOCK UNITS
2.1Grant of RSUs. Pursuant to the Grant Notice and upon the terms and conditions set forth in the Plan and this Agreement, effective as of the Grant Date set forth in the Grant Notice, the Company hereby grants to the Participant an award of RSUs under the Plan in consideration of the Participant’s past or continued employment with or service to the Company or any Subsidiaries and for other good and valuable consideration.
2.2Unsecured Obligation to RSUs. Unless and until the RSUs have vested in the manner set forth in Article 2 hereof, the Participant will have no right to receive Common Stock or other property under any such RSUs. Prior to actual payment of any vested RSUs, such RSUs will represent an unsecured obligation of the Company, payable (if at all) only from the general assets of the Company.
2.3Vesting Schedule. Subject to Section 2.5 hereof, the RSUs shall vest and become nonforfeitable with respect to the applicable portion thereof according to the vesting schedule set forth in the Grant Notice (rounding down to the nearest whole Share).
2.4Consideration to the Company. In consideration of the grant of the award of RSUs pursuant hereto, the Participant agrees to render faithful and efficient services to the Company or any Subsidiary.
2.5Forfeiture, Termination and Cancellation upon Termination of Service. Notwithstanding any contrary provision of this Agreement or the Plan, upon the Participant’s Termination of Service for any or no reason, all Restricted Stock Units which have not vested prior to or in connection with such Termination of Service shall thereupon automatically be forfeited, terminated and cancelled as
A-1 | ||
\
of the applicable termination date without payment of any consideration by the Company, and the Participant, or the Participant’s beneficiary or personal representative, as the case may be, shall have no further rights hereunder. No portion of the RSUs which has not become vested as of the date on which the Participant incurs a Termination of Service shall thereafter become vested, except as may otherwise be provided by the Administrator or as set forth in a written agreement between the Company and the Participant.
2.6Issuance of Common Stock upon Vesting.
(a)As soon as administratively practicable following the vesting of any Restricted Stock Units pursuant to Section 2.3 hereof, but in no event later than 30 days after such vesting date (for the avoidance of doubt, this deadline is intended to comply with the “short term deferral” exemption from Section 409A of the Code), the Company shall deliver to the Participant (or any transferee permitted under Section 3.2 hereof) a number of Shares equal to the number of RSUs subject to this Award that vest on the applicable vesting date. Notwithstanding the foregoing, in the event Shares cannot be issued pursuant to Section 10.7 of the Plan, the Shares shall be issued pursuant to the preceding sentence as soon as administratively practicable after the Administrator determines that Shares can again be issued in accordance with such Section.
(b)As set forth in Section 10.5 of the Plan, the Company shall have the authority and the right to deduct or withhold, or to require the Participant to remit to the Company, an amount sufficient to satisfy all applicable federal, state and local taxes required by law to be withheld with respect to any taxable event arising in connection with the Restricted Stock Units. The Company shall not be obligated to deliver any Shares to the Participant or the Participant’s legal representative unless and until the Participant or the Participant’s legal representative shall have paid or otherwise satisfied in full the amount of all federal, state and local taxes applicable to the taxable income of the Participant resulting from the grant or vesting of the Restricted Stock Units or the issuance of Shares.
2.7Conditions to Delivery of Shares. The Shares deliverable hereunder may be either previously authorized but unissued Shares, treasury Shares or issued Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue Shares deliverable hereunder prior to fulfillment of the conditions set forth in Section
10.7 of the Plan.
2.8Rights as Stockholder. The holder of the RSUs shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of the RSUs and any Shares underlying the RSUs and deliverable hereunder unless and until such Shares shall have been issued by the Company and held of record by such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Article IX of the Plan.
ARTICLE III.
OTHER PROVISIONS
3.1Administration. The Administrator shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Participant, the Company and all other interested persons. No member of the Administrator or
A-2 | ||
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the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, this Agreement or the RSUs.
3.2Transferability. The RSUs shall be subject to the restrictions on transferability set forth in Section 10.1 of the Plan.
3.3Tax Consultation. The Participant understands that the Participant may suffer adverse tax consequences in connection with the RSUs granted pursuant to this Agreement (and the Shares issuable with respect thereto). The Participant represents that the Participant has consulted with any tax consultants the Participant deems advisable in connection with the RSUs and the issuance of Shares with respect thereto and that the Participant is not relying on the Company for any tax advice.
3.4Binding Agreement. Subject to the limitation on the transferability of the RSUs contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
3.5Adjustments Upon Specified Events. The Administrator may accelerate the vesting of the RSUs in such circumstances as it, in its sole discretion, may determine. The Participant acknowledges that the RSUs are subject to adjustment, modification and termination in certain events as provided in this Agreement and Article IX of the Plan.
3.6Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to the Participant shall be addressed to the Participant at the Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.6, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.
3.7Participant’s Representations. If the Shares issuable hereunder have not been registered under the Securities Act or any applicable state laws on an effective registration statement at the time of such issuance, the Participant shall, if required by the Company, concurrently with such issuance, make such written representations as are deemed necessary or appropriate by the Company or its counsel.
3.8Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
3.9Governing Law. The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.
3.10Conformity to Securities Laws. The Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any other Applicable Law. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the RSUs are granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such Applicable Law.
3.11Amendment, Suspension and Termination. To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any
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time or from time to time by the Administrator or the Board; provided, however, that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the RSUs in any material way without the prior written consent of the Participant.
3.12Successors and Assigns. The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth in Section 3.2 hereof, this Agreement shall be binding upon the Participant and his or her heirs, executors, administrators, successors and assigns.
3.13Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan or this Agreement, if the Participant is subject to Section 16 of the Exchange Act, then the Plan, the RSUs and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.
3.14Not a Contract of Service Relationship. Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of the Company or any of its Subsidiaries or interfere with or restrict in any way with the right of the Company or any of its Subsidiaries, which rights are hereby expressly reserved, to discharge or to terminate for any reason whatsoever, with or without cause, the services of the Participant at any time.
3.15Entire Agreement. The Plan, the Grant Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and the Participant with respect to the subject matter hereof, provided that the RSUs shall be subject to any accelerated vesting provisions in any written agreement between the Participant and the Company or a Company plan pursuant to which the Participant participates, in each case, in accordance with the terms therein.
3.16Section 409A. This Award is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “Section 409A”). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Administrator determines that this Award (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.
3.17Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. The Participant shall have only the rights of a general unsecured creditor of the Company and its Subsidiaries with respect to amounts credited and benefits
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payable, if any, with respect to the RSUs, and rights no greater than the right to receive the Shares as a general unsecured creditor with respect to RSUs, as and when payable hereunder.
* * * * *
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Exhibit 10.2
Hippo Holdings Inc.
Non-Employee Director Compensation Program
Adopted Effective August 2, 2021
Amended Effective May 3, 2023
This Hippo Holdings Inc. (the “Company”) Non-Employee Director Compensation Program (this “Program”) has been adopted under the Company’s 2021 Incentive Award Plan (the “Plan”).. Capitalized terms not otherwise defined herein shall have the meaning ascribed in the Plan. The cash and equity compensation described in this Program shall be paid or be made, as applicable, automatically and without further action of the Board to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a “Non-Employee Director”) unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company prior to the first day of the calendar year with respect to which such compensation is scheduled to be earned, or, in the case of a Non-Employee Director who first becomes eligible to participate in the Program, within the first 30 days of such eligibility. The notice shall be effective for such compensation and all subsequent compensation unless otherwise agreed in writing between the Company and the Non-Employee Director. This Policy may be amended, modified or terminated by the Board at any time in its sole discretion.
Cash Compensation
Annual retainers will be paid in the following amounts to Non-Employee Directors:
Board Service
| Non-Employee Director: | $60,000 | ||||
| Lead Independent Director: | $22,500 | ||||
Committee Service
| Chair | Non-Chair | |||||||
| Audit Committee Member | $20,000 | $10,000 | ||||||
| Compensation Committee Member | $12,000 | $6,000 | ||||||
| Nominating and Corporate Governance Committee Member | $8,000 | $4,000 | ||||||
All annual retainers will be paid in cash quarterly in arrears promptly following the end of the applicable calendar quarter, but in no event more than 30 days after the end of such quarter. In the event a Non-Employee Director does not serve as a Non-Employee Director, or in the applicable positions described above, for an entire calendar quarter, the retainer paid to such Non-Employee Director shall be prorated for the portion of such calendar quarter actually served as a Non-Employee Director, or in such position, as applicable.
Equity Compensation
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| Initial Equity Grant: | For each newly elected Non-Employee Director, at the close of business on the day of such election, such new Non-Employee Director will automatically receive the Annual RSU Award (as hereinafter defined), the value of which will be prorated from the date of election until (i) if the date of the next annual meeting of the Company’s stockholders (“Annual Meeting”) has been determined, the date of the next Annual Meeting, and (ii) if the date of the next Annual Meeting has not yet been determined, the date that is the first anniversary of the most recent Annual Meeting (such prorated Annual RSU Award, the “Prorated Annual RSU Award”). The Prorated Annual RSU Award for each newly elected Non-Employee Director shall vest in full upon the first anniversary of the date of grant. | ||||
| Annual Equity Grant: | Each Non-Employee Director who (i) is serving on the Board as of the date of an Annual Meeting and (ii) will continue to serve as a Non-Employee Director immediately following such Annual Meeting, shall be granted an award of RSUs under the Plan or any other applicable Company equity incentive plan then-maintained by the Company covering a number of shares of Common Stock calculated by dividing (x) $110,000 by (y) the Grant Date Value (the “Annual RSU Award”). For purposes hereof, “Grant Date Value” shall mean the average closing market price of the Company’s common stock as quoted on the national exchange with which the Common Stock is listed for the 30-day period immediately preceding the applicable date of grant. The Annual RSU Award will be automatically granted on the date of the applicable Annual Meeting, and will vest in full upon the earlier of (i) the first anniversary of the date of grant and (ii) immediately prior to the Annual Meeting that occurs following the date of grant, subject to the Non-Employee Director continuing in service to the Company and its subsidiaries through such vesting date. | ||||
Unless otherwise provided by the Board, no portion of an Initial RSU Award or Annual RSU Award which is unvested at the time of a Non-Employee Director’s termination of service with the Company (as determined by the Board) shall become vested thereafter. Any Initial RSU Award or Annual RSU Award granted hereunder shall be subject to the Plan and the applicable standard form of award agreement thereunder, as modified to reflect the terms herein.
Members of the Board who are employees of the Company or any parent or subsidiary of the Company who subsequently terminate their service with the Company and any parent or subsidiary of the Company and remain on the Board will not receive an Initial RSU Award, but to the extent that they are otherwise eligible, will be eligible to receive, after termination from service with the Company and any parent or subsidiary of the Company, Annual RSU Awards as described above.
Change in Control
Upon a Change in Control, all outstanding equity awards granted under the Plan and any other equity incentive plan maintained by the Company that are held by a Non-Employee Director shall become fully vested and/or exercisable, irrespective of any other provisions of the Non-Employee Director’s award agreement, subject to such Non-Employee Director’s continued service as of immediately prior to such Change in Control.
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Reimbursements
The Company shall reimburse each Non-Employee Director for all reasonable, documented, out-of-pocket travel and other business expenses incurred by such Non-Employee Director in the performance of his or her duties to the Company in accordance with the Company’s applicable expense reimbursement policies and procedures as in effect from time to time.
Miscellaneous
The other provisions of the Plan shall apply to the equity awards granted automatically pursuant to this Program, except to the extent such other provisions are inconsistent with this Program. All applicable terms of the Plan apply to this Program as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Plan. The grant of any equity award under this Program shall be made solely by and subject to the terms set forth in a written agreement in a form approved by the Board and duly executed by an executive officer of the Company.
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard McCathron, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Hippo Holdings Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |||||||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Date: August 8, 2023 | By: | /s/ Richard McCathron | |||||||||||||||
| Richard McCathron | |||||||||||||||||
Chief Executive Officer | |||||||||||||||||
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stewart Ellis, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Hippo Holdings Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||||||
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |||||||
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||||||
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||||||
Date: August 8, 2023 | By: | /s/ Stewart Ellis | |||||||||||||||
| Stewart Ellis | |||||||||||||||||
Chief Financial Officer | |||||||||||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hippo Holdings Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard McCathron, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 8, 2023
| /s/ Richard McCathron | ||||||||
| Name: | Richard McCathron | |||||||
| Title: | Chief Executive Officer | |||||||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Hippo Holdings Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stewart Ellis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 8, 2023
| /s/ Stewart Ellis | ||||||||
| Name: | Stewart Ellis | |||||||
| Title: | Chief Financial Officer | |||||||