Hippo Holdings Inc

Previous wording

Unless the context otherwise requires, references in this “Hippo 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. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.

Current wording

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. This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Previous wording

In the third quarter of 2023 we began taking several actions to lower the volatility of our Hippo Homeowners Insurance Program portfolio in light of the significant catastrophe losses we experienced in the second quarter, including raising rates on a portion of our renewal business, increasing deductibles for wind and hail perils, selectively non-renewing policies in certain regions, and instituting a nationwide pause on underwriting new premiums for our HO3 business as we examine our risk appetite. We also launched an expense reduction initiative across the Company, including a reduction in staff which we announced in October 2023.

Current wording

In the third quarter of 2023 we began taking several actions to lower the volatility of our Hippo Homeowners Insurance Program portfolio in light of the significant catastrophe losses we experienced in the second quarter, including raising rates on a portion of our renewal business, increasing deductibles for wind and hail perils, selectively non-renewing policies in certain regions, and instituting a nationwide pause on underwriting new premiums for our HO3 business as we examined our risk appetite. We also launched an expense reduction initiative across the Company, including a reduction in staff which we announced in October 2023.

Previous wording

As an MGA, we underwrite homeowners insurance policies on behalf of our insurance company subsidiaries (Spinnaker and Spinnaker Specialty Insurance Company (“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.

Current wording

As an MGA, we underwrite homeowners insurance policies on behalf of our insurance company subsidiaries (Spinnaker and Spinnaker Specialty Insurance Company (“SSIC”)) and other non-affiliated third-party insurance carriers. These carriers cede to reinsurers a portion of these risks and pay a premium based upon the risk and exposure of the policies subject to such reinsurance. The Company utilizes a variety of reinsurance structures to manage its exposure to large property losses, including non-proportional catastrophe excess of loss (“XOL”) and, to a lesser extent, proportional quota share reinsurance.

Previous wording

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.

Current wording

Without reinsurance protection, the carriers would shoulder all the insurance risk themselves and would need incremental capital to satisfy regulators and rating agency requirements. Reinsurance allows a carrier to reduce its balance sheet exposure and volatility of earnings.

Previous wording

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 retained 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.

Current wording

For our primary homeowners’ reinsurance program for policies with effective dates 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 retained 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.

Previous wording

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 are retaining 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.

Current wording

For business produced through our builder channel for policies with effective dates in 2023, 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 retained approximately 58% of the premium produced through our insurance company subsidiaries or RHS, before purchasing catastrophe protection. The reinsurance contract is subject to contingent commission adjustments and limited loss participation features, which align our interests with those of the reinsurers.

Previous wording

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.

Current wording

For our primary homeowners reinsurance program for policies with effective dates in 2022, 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 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.

Previous wording

We also purchased non-proportional excess of loss catastrophe coverage (“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 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.

Current wording

We also purchased XOL reinsurance which includes traditional reinsurance protection, state subsidized 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 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.

Previous wording

In May 2023, we secured new catastrophe protection through a per occurrence XOL 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 us 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.

Current wording

In May 2023, we secured new catastrophe protection through a per occurrence XOL 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 us 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 which inures to the benefit of our traditional XOL program described below. Amounts payable under the reinsurance agreement with respect to any covered event cannot exceed our actual losses from such event.

Previous wording

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.

Current wording

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 Mountain Re per occurrence, described above, corporate catastrophe, and Florida Hurricane Catastrophe Fund (the “FHCF”) XOL described below under “Other Reinsurance.” This reinsurance protects us from all but the most severe catastrophic events.

Previous wording

Spinnaker also purchased reinsurance for programs written by MGAs other than Hippo through our Insurance-as-a-Service business. 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.

Current wording

Spinnaker also purchased reinsurance for programs written by MGAs other than Hippo through our Insurance-as-a-Service business. The reinsurance treaties are a mix of proportional and XOL in which generally 75% to 100% of the risk, up to at least the 1 in 250-year return period, is ceded. The reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss caps, which 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.

Previous wording

Spinnaker purchased 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 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.

Current wording

Spinnaker purchased a corporate catastrophe XOL program that attaches above the individual programmatic reinsurance programs protecting the property 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 bond, and the FHCF, described above, inure to the benefit of this contract. This program provides us protection from catastrophes that could impact a large number of correlated insurance policies underwritten by us and our other MGAs. We buy this XOL so that the probability of losses from a single occurrence across the property portfolio 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.

Previous wording

We also purchased 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 and protects business written by Hippo as well as other MGAs. We currently purchase reimbursement protection at the maximum level (90%) of mandatory coverage offered by the FHCF.

Current wording

We purchased reinsurance from the State Board of Administration in Florida via the FHCF annually for admitted residential hurricane losses in the State of Florida. This coverage is provided by the State of Florida and protects business written by Hippo as well as other MGAs that produce admitted residential policies. We currently purchase reimbursement protection at the maximum level (90%) of mandatory coverage offered by the FHCF.

Previous wording

For our Hippo primary homeowners’ reinsurance program commencing in 2024, we elected not to purchase proportional reinsurance. Based on our growing confidence in the profitability and predictability of our underwriting results, we decided to retain more of the exposure and associated premium. Effective January 1, 2024, we also elected to cut off 25% participation on the 2023 proportional reinsurance treaty and retain the remaining exposure and related premiums.

Current wording

For our Hippo primary homeowners’ reinsurance program commencing in 2025, we elected not to purchase proportional reinsurance. Based on our growing confidence in the profitability and predictability of our underwriting results, we decided to retain more of the exposure and associated premium.

Previous wording

Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform. For Hippo home insurance policies, we seek to minimize the volatility of our portfolio and are currently in the process of analyzing overall underwriting results for the segment, taking actions as needed. Our short-term focus is on attracting new customers to our licensed insurance agency to purchase non-Hippo policies and to our home care offerings, although over time we expect to strategically return to Hippo underwritten policies as our underwriting actions take hold. We intend to continue to drive new customer growth by highlighting our consumer- focused approach to home protection and insurance across multiple distribution channels, regardless of whether the customer is a Hippo policyholder. In particular, we seek to grow by:

Current wording

Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform. For Hippo home insurance policies, we seek to minimize the volatility of our portfolio and are currently in the process of analyzing overall underwriting results for the segment, taking actions as needed. Our short-term focus is on attracting new customers to our licensed insurance agency to purchase non-Hippo policies, although over time we expect to strategically return to Hippo underwritten policies as our underwriting actions take hold. We intend to continue to drive new customer growth by highlighting our consumer-focused approach to home protection and insurance across multiple distribution channels, regardless of whether the customer is a Hippo policyholder. In particular, we seek to grow by:

Previous wording

The accompanying consolidated financial statements have been prepared in accordance with GAAP as determined by the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), and pursuant to the regulations of the SEC.

Current wording

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”), and pursuant to the regulations of the SEC.

Previous wording

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.

Current wording

a. Agency Commission: The Company also operates licensed insurance agencies that are engaged solely in the sale of policies, including non-Hippo policies. For these policies, the Company earns a recurring agency commission from the carriers whose policies the Company sells, which is recorded in the commission income, net line in the consolidated 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, the Company recognizes commission received from insurers for the sale of insurance contracts as revenue at a point in time on the policy effective dates.

Previous wording

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.

Current wording

b. Ceding Commission: The Company receives commission based on the premium it cedes to third-party reinsurers for the reimbursement for the Company’s acquisition and underwriting services. Excess ceding commission over the cost of acquisition is included in the commission income, net line on the Company’s consolidated statements of operations and comprehensive loss. For the policies that the Company writes on its own carrier as MGA, the Company recognizes this commission as ceding commission on the consolidated statements of operations and comprehensive loss. The Company earns commission on ceded reinsurance premium 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. The Company records 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.

Previous wording

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.

Current wording

Through the Company’s Insurance-as-a-Service business the Company earns fronting fees from the MGA programs it supports. The Company earns 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 its statements of operations and comprehensive loss.

Previous wording

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.

Current wording

c. Claim Processing Fees: As an MGA the Company receives 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 the Company’s consolidated statements of operations and comprehensive loss.

Previous wording

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 unaffiliated carrier platforms who pay us a 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. 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 hold this cash in trust for the benefit of the insurers and reinsurers as fiduciary liabilities.

Current wording

Company’s 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, the Company charges policy fees and inspection fees (see Service and Fee Income below), retains its share of commission, and remits 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. Cash received in advance of policy effective dates is recorded on the consolidated balance sheets, representing the Company’s portion of commission and premium due to insurers and reinsurers, and hold this cash in trust for the benefit of the insurers and reinsurers as fiduciary liabilities.

Previous wording

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.

Current wording

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. The Company is required to return a portion of its 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. The Company also returns a portion of its MGA commission if the policies are cancelled before the term of the policy. Accordingly, the Company reserves for commission slide using estimated Hippo programs’ loss ratio performance, or a cancellation reserve as a reduction of revenue for each period presented in its statements of operations and comprehensive loss.

Previous wording

For the year ended December 31, 2023, adjusted EBITDA loss was $200.6 million, a decrease of $5.8 million compared to $206.4 million for the year ended December 31, 2022, The decrease was primarily due to a growth in revenue reflecting an increase in premiums earned mainly due to higher premium retention as a result of the 2023 reinsurance treaty compared to 2022, a lower net loss ratio, and a decrease in advertising costs. These improvements in adjusted EBITDA were partially offset by an increase in losses due primarily to an increase in Property Claims Services (“PCS”) catastrophic weather and other weather loss experience and insurance related costs due to the overall growth of our total book of business.

Current wording

For the year ended December 31, 2024, adjusted EBITDA loss was $43.5 million, a decrease of $157.1 million compared to a loss of $200.6 million for the year ended December 31, 2023, the decrease was due primarily to a growth in revenue reflecting an increase in premiums earned mainly due to higher premium retention as a result of the 2023 and 2024 reinsurance treaties compared to prior periods, partially offset by an increase in loss and loss adjustment expenses and insurance-related expenses.

Previous wording

For the year ended December 31, 2023, our Gross Loss Ratio was 71% net of a prior year favorable development of 1 percentage point relating to non-PCS events and 2 percentage points relating to PCS events, compared with 76% net of a prior year favorable development of 8 percentage points relating to non-PCS events and 9 percentage points relating to PCS events for the year ended December 31, 2022. Excluding the impact of prior year reserve releases, gross loss ratio was 74% compared to 93% in the prior year. The decrease reflected the benefits of the pricing and underwriting actions we took in calendar years 2022 and 2023. We expect continued improvement as these actions have more time to impact our financial results.

Current wording

For the year ended December 31, 2024, our Gross Loss Ratio was 53% net of a prior year favorable development of 2 percentage points relating to non-PCS events and 2 percentage points relating to PCS events, compared with 71% net of a prior year favorable development of 1 percentage point relating to non-PCS events and 2 percentage points relating to PCS events for the year ended December 31, 2023. The decrease reflected the benefits of the pricing and underwriting actions we have taken and due to a lower impact from PCS events. We expect continued improvement as these actions have more time to impact our financial results.

Previous wording

For the year ended December 31, 2023, our Services segment had Total Generated Premium of $459.7 million, an increase of 28% from $358.0 million over the prior year period, while revenue was $44.3 million, an increase of 20% from $36.9 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 premium retention rates and experienced premium rate increases. The growth was also due to the growth in the total book of business in our aggregator channel. Our adjusted operating loss was $37.6 million, a decrease of 23% compared to a loss of $49.0 million in the prior year period due primarily to the increase in revenue as noted above, as well as a decrease in sales and marketing costs, partially offset by an increase in technology and development costs.

Current wording

For the year ended December 31, 2024, our Services segment had Total Generated Premium of $596.7 million, an increase of 30% from $459.7 million over the prior year period, while revenue was $48.2 million, an increase of 9% from $44.3 million over the prior year period. The growth was driven primarily due to the growth in the total book of business in our aggregator channel, as well as in our builder channel for new and renewal business, as we experienced premium rate increases. Our adjusted operating loss was $16.9 million, a decrease of 55% compared to a loss of $37.6 million in the prior year period due primarily to a decrease in sales and marketing costs, as well as the increase in revenue as noted above.

Previous wording

Our Insurance-as-a-Service segment, which through our carrier, Spinnaker, leverages our capital and insurance licenses to provide capacity to third party MGAs, creating diversified income through fees, underwriting profits, and investment income. For the year ended December 31, 2023, our Insurance-as-a-Service segment’s Total Generated Premium was $513.9 million, an increase of 84% from $278.6 million over the prior year period, while revenue was $70.7 million, an increase of 91% from $37.0 million over the prior year period. The growth was driven primarily by the performance of both new and existing programs. Adjusted operating income was $18.3 million, an increase of 239% compared to $5.4 million in the prior year period due primarily to the increase in revenue mentioned above, partially offset by an increase in insurance related expenses due to the growth of the book of business.

Current wording

Our Insurance-as-a-Service segment, which through our carrier, Spinnaker, leverages our capital and insurance licenses to provide capacity to third party MGAs, creating diversified income through fees, underwriting profits, and investment income. For the year ended December 31, 2024, our Insurance-as-a-Service segment’s Total Generated Premium was $617.6 million, an increase of 20% from $513.9 million over the prior year period, while revenue was $99.5 million, an increase of 41% from $70.7 million over the prior year period. The growth was driven primarily by the performance of existing programs and higher retention. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year which results in an increase in ceded earned premium and lower net earned premium. For the years ended December 31, 2024 and 2023, $33.7 million and $22.8 million, respectively, was offset against earned premium for XOL. Adjusted operating income was $24.4 million, an increase of 33% compared to $18.3 million in the prior year period due primarily to the increase in revenue mentioned above, partially offset by increases in loss and loss adjustment expenses and insurance related expenses due to the growth of the book of business.

Previous wording

For the year ended December 31, 2023, our Hippo Homeowners Insurance Program had Total Generated Premium of $360.5 million, a decrease of 2% from $366.3 million over the prior year period, while revenue was $102.1 million, an increase of 60% from $63.9 million over the prior year period. The increase in revenue was due primarily to higher earned premiums, partially offset by a decrease in commission income, net, reflecting changes in our 2023 reinsurance treaties, resulting in higher premium retention, and achieving planned premium rate increases. There was also an increase in investment income due to an increase in yields. The increase in revenue from 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 years ended December 31, 2023 and 2022, $31.1 million and $25.8 million, respectively, was offset against earned premium for XOL. Adjusted operating loss was $180.3 million, an increase of 11% compared to a loss of $162.8 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 due primarily to five major wind and hail events in Colorado and Texas during the second quarter of 2023, partially offset by a decrease in other operating expenses and an increase in revenue, as noted above.

Current wording

For the year ended December 31, 2024, our Hippo Homeowners Insurance Program had Total Generated Premium of $282.9 million, a decrease of 22% from $360.5 million over the prior year period, while revenue was $236.4 million, an increase of 132% from $102.1 million over the prior year period. The increase in revenue was due primarily to higher net earned premium, partially offset by a decrease in commission income, net, due to higher retention on our 2023 and 2024 reinsurance treaties, and achieving planned premium rate increases. We purchased XOL to cover events in excess of per occurrence limits based on the expected growth in exposure during the year which results in an increase in ceded earned premium and lower net earned premium. For the years ended December 31, 2024 and 2023, $26.5 million and $31.1 million, respectively, was offset against earned premium for XOL. Adjusted operating loss was $51.5 million, a decrease of 71% compared to a loss of $180.3 million in the prior year period. The decrease in adjusted operating loss was due primarily to improvement in our net loss ratio due to improved terms on our reinsurance treaties and a lower impact of PCS events. This was partially offset by an increase in insurance related expenses due to higher premium retention.

Previous wording

For the year ended December 31, 2023, net earned premium was $107.5 million, an increase of $65.0 million compared to $42.5 million for the year ended December 31, 2022. The 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 due to our 2023 reinsurance treaties, 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 years ended December 31, 2023 and 2022, $53.9 million and $23.1 million, respectively, was offset against earned premium for XOL.

Current wording

For the year ended December 31, 2024, net earned premium was $272.5 million, an increase of $165.0 million compared to $107.5 million for the year ended December 31, 2023. The increase was due primarily to increases in gross earned premium due to higher retention of earned premium, and year-over-year growth of our Insurance-as-a-Service and HHIP segments, 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. For the years ended December 31, 2024 and 2023, $60.2 million and $53.9 million, respectively, was offset against earned premium for XOL.

Previous wording

For the year ended December 31, 2023, commission income was $63.4 million, an increase of $9.1 million, or 17%, compared to $54.3 million for the year ended December 31, 2022. The increase was due primarily to an increase in carrier fronting fees of $8.5 million and agency commissions of $7.2 million, both of which grew due to the year-over-year growth of our total book of business. This was partially offset by a decrease in ceding commission of $7.1 million due to an increase in our premium retention, which decreases ceding commission, compared to the prior year.

Current wording

For the year ended December 31, 2024, commission income was $63.6 million, an increase of $0.2 million, compared to $63.4 million for the year ended December 31, 2023. The increase was due primarily to an increase in agency commissions of $8.6 million from our Services segment and carrier fronting fees of $4.3 million from our Insurance-as-a-Service segment, both of which grew due to the year-over-year growth of our total book of business. This was offset by a decrease in ceding commission due to an increase in our premium retention, compared to the prior year.

Previous wording

For the year ended December 31, 2023, service and fee income was $15.7 million, an increase of $1.8 million, or 13%, compared to $13.9 million for the year ended December 31, 2022. The increase was due primarily to an increase in revenue fee sharing arrangements and non-inspection policy fees.

Current wording

For the year ended December 31, 2024, service and fee income was $11.6 million, a decrease of $4.1 million, or 26%, compared to $15.7 million for the year ended December 31, 2023. The decrease was due primarily to a decrease in non-inspection policy fees from our HHIP segment.

Previous wording

For the year ended December 31, 2023, net investment income was $23.1 million, an increase of $14.1 million, or 157%, compared to $9.0 million for the year ended December 31, 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.

Current wording

For the year ended December 31, 2024, net investment income was $24.4 million, an increase of $1.3 million, or 6%, compared to $23.1 million for the year ended December 31, 2023. 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.

Previous wording

For the year ended December 31, 2023, loss and loss adjustment expenses were $181.7 million, an increase of $80.3 million, or 79%, compared to $101.4 million for the year ended December 31, 2022. The increase was due primarily to an increase in our total book of business and higher premium retention rates, as well as an increase in PCS catastrophic weather, other weather loss experience, and our loss participation features. For the year ended December 31, 2023, we recorded a net reserve release of $2.0 million related to prior accident years, compared with $11.8 million for the year ended December 31, 2022.

Current wording

For the year ended December 31, 2024, loss and loss adjustment expenses were $209.0 million, an increase of $27.3 million, or 15%, compared to $181.7 million for the year ended December 31, 2023. The increase was due primarily to an increase in our total book of business and higher premium retention rates, as well as an increase in PCS catastrophic weather and other weather loss experience. This was partially offset by an improvement in our net loss ratio due to improved terms on our reinsurance treaties, and pricing and underwriting actions we have taken. For the year ended December 31, 2024, we recorded a net reserve release of $6.1 million related to prior accident years, compared with $2.0 million for the year ended December 31, 2023.

Previous wording

For the year ended December 31, 2023, sales and marketing expenses were $80.1 million, a decrease of $21.7 million, or 21%, compared to $101.8 million for the year ended December 31, 2022. The decrease was due primarily to a decrease in advertising costs of $16.6 million, a decrease in consultants’ costs of $2.8 million, and a decrease in employee related expenses of $2.5 million driven by a reduction in headcount compared to the prior year.

Current wording

For the year ended December 31, 2024, sales and marketing expenses were $51.2 million, a decrease of $28.9 million, or 36%, compared to $80.1 million for the year ended December 31, 2023. The decrease was due primarily to a decrease in employee-related expenses of $10.5 million, including a decrease in stock-based compensation of $5.2 million due to a decrease in headcount, a decrease in advertising costs of $7.0 million, a decrease due to the change in fair value of contingent consideration of $4.1 million, and a decrease in commission expense of $2.4 million.

Previous wording

For the year ended December 31, 2023, general and administrative expenses were $79.6 million, an increase of $8.1 million, or 11%, compared to $71.5 million for the year ended December 31, 2022. The increase was due primarily to an increase in stock-based compensation of $4.8 million, partially driven by charges related to the repricing of options during the first quarter of 2023. There was also an increase in legal costs of $2.8 million.

Current wording

For the year ended December 31, 2024, general and administrative expenses were $70.7 million, a decrease of $8.9 million, or 11%, compared to $79.6 million for the year ended December 31, 2023. The decrease was due primarily to a decrease in stock-based compensation of $8.0 million, partially driven by a charge due to the repricing of options during the first quarter of 2023, and facilities costs of $3.3 million, partially offset by an increase in legal costs of $2.8 million.

Previous wording

For the year ended December 31, 2023, impairment and restructuring charges were $5.5 million, a decrease of $49.8 million, or 90%, compared to $55.3 million for the year ended December 31, 2022. The charges for the year ended December 31, 2023 consisted of $2.6 million of severance and other personnel costs associated with the reduction in workforce and $2.9 million related to the impairment of a lease right-of-use asset due to abandonment of leased office space. The charges for the year ended December 31, 2022 consisted of $53.5 million related to the impairment of goodwill and $1.8 million related to severance and other personnel costs associated with a reduction in workforce. During the year ended December 31, 2022, management identified quantitative and qualitative factors that collectively indicated we had a triggering event, mainly due to the sustained decrease in stock price and continued deterioration of general macroeconomic conditions. Based on these events, we concluded that a triggering event occurred and performed an interim quantitative impairment test as of December 31, 2022. Based upon the results of the impairment test, we recognized the goodwill impairment charge to write off the remaining goodwill balance.

Current wording

For the year ended December 31, 2024, impairment and restructuring charges were $3.6 million, a decrease of $1.9 million, or 35%, compared to $5.5 million for the year ended December 31, 2023. The charges for the year ended December 31, 2024 consisted of $3.6 million which primarily related to the impairment of a lease right-of-use asset due to abandonment of leased office space. The charges for the year ended December 31, 2023 consisted of $2.6 million of severance and other personnel costs associated with the reduction in workforce and $2.9 million related to the impairment of a lease right-of-use asset due to abandonment of leased office space.

Previous wording

For the year ended December 31, 2023, other income was $0.8 million, a decrease of $1.7 million compared to $2.5 million for the year ended December 31, 2022. The decrease in other income was due primarily to changes in the fair market value on the outstanding public and private placement warrants of $3.8 million, partially offset by a step-up gain of $1.3 million related to our previously held equity method investments acquired during the year and a decrease in other expenses of $0.8 million.

Current wording

For the year ended December 31, 2024, other income was $0.1 million, a decrease of $0.7 million compared to $0.8 million for the year ended December 31, 2023. The decrease in other income was due primarily to changes in the fair market value on the delisted public and private placement warrants of $1.3 million, partially offset by a decrease in our share of losses from equity method investees of $0.7 million.

Previous wording

For the year ended December 31, 2023, income tax expense was $0.5 million, a decrease of $0.8 million, compared to $1.3 million for the year ended December 31, 2022. The decrease was due primarily to recognizing a deferred tax benefit related to foreign income taxes in the current year.

Current wording

For the year ended December 31, 2024, income tax expense was $1.2 million, an increase of $0.7 million, compared to $0.5 million for the year ended December 31, 2023. The increase was due primarily to an increase in current tax expense related to state income taxes and recognizing a deferred tax benefit related to foreign income taxes in the prior year.

Previous wording

Our existing sources of liquidity include cash and cash equivalents and marketable securities. As of December 31, 2023, we had $195.1 million of cash and restricted cash and $348.8 million of available-for-sale fixed income securities and short-term investments.

Current wording

Our existing sources of liquidity include cash and cash equivalents and marketable securities. As of December 31, 2024, we had $232.8 million of cash and restricted cash and $373.3 million of available-for-sale fixed income securities and short-term investments.

Previous wording

Cash used in investing activities was $405.9 million for the year ended December 31, 2022, due primarily to purchases of investments, partially offset by proceeds from the maturities of investments.

Current wording

Cash provided by investing activities was $30.3 million for the year ended December 31, 2024, due primarily to the maturities of investment securities and proceeds from the sale of business, partially offset by purchases of investment securities.

Previous wording

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, and the purchase of office space as noted in Note 8. 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.

Current wording

Our material cash requirements from known contractual and other obligations primarily relate to unpaid loss and loss adjustment expense, purchase commitments, and lease payments. 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, 2023, 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.