hippo-20230331

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 March 31, 2023


o			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

HIPPO HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware

32-0662604

(State of incorporation)

(I.R.S. Employer Identification No.)

150 Forest Avenue

Palo Alto, California

94301

(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
Common stock, $0.0001 par value per share	HIPO	New York Stock Exchange
Warrants to purchase common stock	HIPO.WS	New York Stock Exchange

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	☐
Non-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 23,264,874 shares of common stock as of May 1, 2023.

Table of Contents


		Page
	Cautionary Note regarding Forward-Looking Statements
	Part I. Financial Information
Item 1	Consolidated Financial Statements
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations and Comprehensive Loss	2
	Consolidated Statements of Stockholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2	Management's Discussion a nd Analysis o f Financial Condition a nd Results o f Operations	26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	44
	Part II. Other Information
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3	Defaults Upon Senior Securities	45
Item 4	Mine Safety Disclosures	45
Item 5	Other Information	46
Item 6	Exhibits	47
	Signatures

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, "Risk Factors" 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.

Consolidated Balance Sheets

(In millions, except share and per share data)

(Unaudited)


	March 31, 2023		December 31, 2022
	(Unaudited)
Assets
Investments:
Fixed maturities available-for-sale, at fair value (amortized cost: $146.0 million and $127.3 million, respectively)	$	141.0	$	121.1
Short-term investments, at fair value (amortized cost: $290.7 million and $325.6 million, respectively)	290.4		324.8
Total investments	431.4		445.9
Cash and cash equivalents	188.9		194.5
Restricted cash	31.8		50.0
Accounts receivable, net of allowance of $0.3 million and $0.3 million, respectively	133.6		107.2
Reinsurance recoverable on paid and unpaid losses and LAE	300.6		286.3
Prepaid reinsurance premiums	326.8		309.9
Ceding commissions receivable	59.9		45.8

Capitalized internal use software	41.2		38.8

Intangible assets	25.8		26.9
Other assets	64.7		63.6
Total assets	$	1,604.7	$	1,568.9
Liabilities and stockholders’ equity
Liabilities:
Loss and loss adjustment expense reserve	$	305.2	$	293.8
Unearned premiums	365.7		341.3
Reinsurance premiums payable	249.5		207.1
Provision for commission	8.7		5.0





Accrued expenses and other liabilities	132.6		128.2
Total liabilities	1,061.7		975.4
Commitments and contingencies (Note 12)


Stockholders’ equity:
Common stock, $0.0001 par value per share; 80,000,000 and 80,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 23,320,786 and 23,201,434 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	1,574.7		1,558.0
Accumulated other comprehensive loss	(5.3)		(7.0)
Accumulated deficit	(1,031.1)		(961.1)
Total Hippo stockholders’ equity	538.3		589.9
Noncontrolling interest	4.7		3.6
Total stockholders’ equity	543.0		593.5
Total liabilities and stockholders’ equity	$	1,604.7	$	1,568.9

See Notes to the Consolidated Financial Statements

HIPPO HOLDINGS INC.

Consolidated Statements of Operations and Comprehensive Loss

(In millions, except share and per share data)

(Unaudited)


	Three Months Ended March 31,
	2023		2022

Revenue:
Net earned premium	$	13.8	$	9.0
Commission income, net	17.4		11.5
Service and fee income	3.2		3.6
Net investment income	5.4		0.4
Total revenue	39.8		24.5
Expenses:
Losses and loss adjustment expenses	37.7		22.5
Insurance related expenses	15.8		13.2
Technology and development	11.6		14.7
Sales and marketing	22.4		24.9
General and administrative	19.8		16.5

Interest and other (income) expense	0.3		(1.0)


Total expenses	107.6		90.8
Loss before income taxes	(67.8)		(66.3)
Income tax expense	0.3		0.2
Net loss	(68.1)		(66.5)
Net income attributable to noncontrolling interests, net of tax	1.7		1.1
Net loss attributable to Hippo	$	(69.8)	$	(67.6)
Other comprehensive income:
Change in net unrealized gain or loss on investments, net of tax	1.7		(2.6)
Comprehensive loss attributable to Hippo	$	(68.1)	$	(70.2)

Per share data:
Net loss attributable to Hippo - basic and diluted	$	(69.8)	$	(67.6)
Weighted-average shares used in computing net loss per share attributable to Hippo - basic and diluted	23,198,491		22,464,802
Net loss per share attributable to Hippo - basic and diluted	$	(3.01)	$	(3.01)

See Notes to the Consolidated Financial Statements

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	23,201,434	$	—	$	1,558.0	$	(7.0)	$	(961.1)	$	589.9	$	3.6	$	593.5
Net loss	—	—		—		—		(69.8)		(69.8)		1.7		(68.1)
Other comprehensive income	—	—		—		1.7		—		1.7		—		1.7
Issuance of common stock from stock plans and contingently issuable shares	134,824	—		0.4		—		—		0.4		—		0.4
Repurchase of common stock	(15,472)	—		(0.2)		—		—		(0.2)		—		(0.2)
Shares withheld related to net share settlement	—	—		(0.9)		—		—		(0.9)		—		(0.9)
Stock-based compensation expense	—	—		17.4		—		—		17.4		—		17.4
Other	—	—		—		—		(0.2)		(0.2)		(0.6)		(0.8)
Balance at March 31, 2023	23,320,786	$	—	$	1,574.7	$	(5.3)	$	(1,031.1)	$	538.3	$	4.7	$	543.0


	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	22,601,245	$	—	$	1,488.3	$	(0.7)	$	(628.0)	$	859.6	$	2.1	$	861.7
Net loss	—	—		—		—		(67.6)		(67.6)		1.1		(66.5)
Other comprehensive income	—	—		—		(2.6)		—		(2.6)		—		(2.6)
Issuance of common stock from stock plans and contingently issuable shares	108,916	—		1.4		—		—		1.4		—		1.4
Shares withheld related to net share settlement	—	—		(1.0)		—		—		(1.0)		—		(1.0)
Stock-based compensation expense	—	—		15.7		—		—		15.7		—		15.7
Balance at March 31, 2022	22,710,161	$	—	$	1,504.4	$	(3.3)	$	(695.6)	$	805.5	$	3.2	$	808.7

See Notes to the Consolidated Financial Statements

HIPPO HOLDINGS INC.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(68.1)	$	(66.5)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4.3		3.9
Stock–based compensation expense	16.1		13.4

Change in fair value of warrant liability	0.2		(1.2)
Change in fair value of contingent consideration liability	0.8		3.2






Other non-cash items	(1.8)		0.2
Changes in assets and liabilities:
Accounts receivable, net	(26.4)		(4.5)
Reinsurance recoverable on paid and unpaid losses and LAE	(14.6)		(54.5)
Ceding commissions receivable	(14.1)		(7.6)
Prepaid reinsurance premiums	(16.9)		(4.4)
Other assets	(2.1)		(3.3)
Provision for commission	3.7		2.1
Accrued expenses and other liabilities	5.0		(2.3)
Loss and loss adjustment expense reserves	11.4		21.6
Unearned premiums	24.4		(1.0)
Reinsurance premiums payable	42.4		42.3
Net cash used in operating activities	(35.7)		(58.6)
Cash flows from investing activities:
Capitalized internal use software costs	(3.9)		(3.8)

Purchases of property and equipment	—		(2.4)
Purchases of investments	(111.2)		(385.4)
Maturities of investments	122.0		12.8
Sales of investments	7.9		2.6

Other	(1.0)		(2.0)
Net cash provided by (used in) investing activities	13.8		(378.2)
Cash flows from financing activities:




Taxes paid related to net share settlement of equity awards	(0.9)		(1.0)
Proceeds from exercise of options	0.2		1.2
Share repurchases under program	(0.2)		—
Payments of contingent consideration	(0.4)		(0.5)
Other	(0.6)		—
Net cash used in financing activities	(1.9)		(0.3)

Net (decrease) increase in cash, cash equivalents, and restricted cash	(23.8)		(437.1)
Cash, cash equivalents, and restricted cash at the beginning of the period	244.5		818.7
Cash, cash equivalents, and restricted cash at the end of the period	$	220.7	$	381.6

See Notes to the Consolidated Financial Statements

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.

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 (“U.S. 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 began reporting 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 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.

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

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

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not limited to, loss and loss adjustment expense (“LAE”) reserves, provision for commission slide and cancellations, reinsurance recoverable on paid and unpaid losses and LAE, the fair values of investments, stock-based awards, warrant liabilities, contingent consideration liabilities, acquired intangible assets, deferred tax assets and uncertain tax positions, and revenue recognition. The Company evaluates these estimates on an ongoing basis. These estimates are informed by experience and other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ significantly from these estimates.

Recent Accounting Pronouncements

The Company has evaluated recent accounting pronouncements through the date the financial statements were issued and filed with the SEC and believes that there are none that will have a material impact on the Company’s consolidated financial statements.

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):


	March 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities available-for-sale:
U.S. government and agencies	$	21.5	$	—	$	(0.5)	$	21.0
States and other territories	10.3		—		(0.6)		9.7

Corporate securities	68.2		0.4		(2.1)		66.5
Foreign securities	0.9		—		—		0.9
Residential mortgage-backed securities	22.3		0.1		(1.4)		21.0
Commercial mortgage-backed securities	7.8		—		(0.6)		7.2
Asset backed securities	15.0		0.1		(0.4)		14.7

Total fixed maturities available-for-sale	146.0		0.6		(5.6)		141.0
Short-term investments:
U.S. government and agencies	119.5		—		—		119.5
Commercial paper	131.5		—		(0.2)		131.3
Corporate securities	39.7		—		(0.1)		39.6
Total short-term investments	290.7		—		(0.3)		290.4
Total	$	436.7	$	0.6	$	(5.9)	$	431.4


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Fixed maturities available-for-sale:
U.S. government and agencies	21.6		$	—	$	(0.5)	$	21.1
States and other territories	8.9		—		(0.6)		8.3

Corporate securities	54.8		0.1		(2.4)		52.5
Foreign securities	0.9		—		(0.1)		0.8
Residential mortgage-backed securities	20.4		0.1		(1.6)		18.9
Commercial mortgage-backed securities	6.5		—		(0.7)		5.8
Asset backed securities	14.2		—		(0.5)		13.7

Total fixed maturities available-for-sale	127.3		0.2		(6.4)		121.1
Short-term investments:
U.S. government and agencies	129.1		—		(0.2)		128.9
Commercial paper	147.1		—		(0.6)		146.5
Corporate securities	49.4		—		—		49.4
Total short-term investments	325.6		—		(0.8)		324.8
Total	$	452.9	$	0.2	$	(7.2)	$	445.9

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 March 31, 2023, and December 31, 2022 (in millions):


	March 31, 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	$	10.9	$	(0.2)	$	10.2	$	(0.3)	$	21.1	$	(0.5)
States and other territories	—		—		8.6		(0.6)		8.6		(0.6)

Corporate securities	5.6		(0.2)		60.9		(1.9)		66.5		(2.1)

Residential mortgage-backed securities	—		—		21.0		(1.4)		21.0		(1.4)
Commercial mortgage-backed securities	—		—		7.2		(0.6)		7.2		(0.6)
Asset backed securities	—		—		14.6		(0.4)		14.6		(0.4)
Short-term investments:

Commercial paper	131.3		(0.2)		—		—		131.3		(0.2)
Corporate securities	39.6		(0.1)		—		—		39.6		(0.1)
Total	$	187.4	$	(0.7)	$	122.5	$	(5.2)	$	309.9	$	(5.9)


	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	$	17.9	$	(0.4)	$	1.1	$	(0.1)	$	19.0	$	(0.5)
States and other territories	3.6		(0.1)		4.6		(0.5)		8.2		(0.6)

Corporate securities	30.5		(1.5)		11.1		(0.9)		41.6		(2.4)
Foreign securities	—		—		0.8		(0.1)		0.8		(0.1)
Residential mortgage-backed securities	6.3		(0.3)		7.6		(1.3)		13.9		(1.6)
Commercial mortgage-backed securities	1.9		—		3.9		(0.7)		5.8		(0.7)
Asset backed securities	5.5		(0.2)		3.7		(0.3)		9.2		(0.5)
Short-term investments:
U.S. government and agencies	129.1		(0.2)		—		—		129.1		(0.2)
Commercial paper	147.1		(0.6)		—		—		147.1		(0.6)
Total	$	341.9	$	(3.3)	$	32.8	$	(3.9)	$	374.7	$	(7.2)

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

The Company has determined that unrealized losses as of March 31, 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 March 31, 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):


	March 31, 2023
	Amortized Cost		Fair Value
Due to mature:
One year or less	$	18.0	$	17.6
After one year through five years	75.2		72.9
After five years	7.7		7.6

Residential mortgage-backed securities	22.3		21.0
Commercial mortgage-backed securities	7.8		7.2
Asset backed securities	15.0		14.7

Total fixed maturities available-for-sale	$	146.0	$	141.0

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 months ended March 31, 2023 and 2022, respectively.

The Company’s net investment income is comprised of the following (in millions):


	Three Months Ended March 31,
	2023		2022
Interest on cash and cash equivalents	$	1.2	$	0.2
Fixed maturities income	1.4		0.2
Short-term investment income	3.0		—
Total gross investment income	5.6		0.4
Investment expenses	(0.2)		—
Net investment income	$	5.4	$	0.4

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 available-for-sale 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 March 31, 2023 and December 31, 2022, respectively.

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):


	March 31, 2023		December 31, 2022
Cash and cash equivalents:
Cash	$	79.9	$	65.7
Money market funds	58.6		87.1
Commercial paper	20.4		26.8
U.S. government and agencies	30.0		14.9
Total cash and cash equivalents	$	188.9	$	194.5

Restricted cash:
Fiduciary assets	23.9		30.6
Letters of credit and cash on deposit	7.9		19.4
Total restricted cash	31.8		50.0
Total cash, cash equivalents, and restricted cash	$	220.7	$	244.5

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.

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):


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Financial assets:
Cash, cash equivalents, and restricted cash	$	220.7	$	—	$	—	$	220.7
Fixed maturities available-for-sale:
U.S. government and agencies	21.0		—		—		21.0
States and other territories	—		9.7		—		9.7

Corporate securities	—		66.5		—		66.5
Foreign securities	—		0.9		—		0.9
Residential mortgage-backed securities	—		21.0		—		21.0
Commercial mortgage-backed securities	—		7.2		—		7.2
Asset backed securities	—		14.7		—		14.7
Total fixed maturities available-for-sale	21.0		120.0		—		141.0
Short-term investments
U.S. government and agencies	115.3		4.2		—		119.5
Commercial paper	—		131.3		—		131.3
Corporate securities	—		39.6		—		39.6
Total short-term investments	115.3		175.1		—		290.4
Total financial assets	$	357.0	$	295.1	$	—	$	652.1

Financial liabilities:

Contingent consideration liability	$	—	$	—	$	12.0	$	12.0

Public warrants	0.3		—		—		0.3
Private placement warrants	—		0.2		—		0.2
Total financial liabilities	$	0.3	$	0.2	$	12.0	$	12.5

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	$	244.5	$	—	$	—	$	244.5
Fixed maturities available-for-sale:
U.S. government and agencies	21.1		—		—		21.1
States and other territories	—		8.3		—		8.3
Corporate securities	—		52.5		—		52.5
Foreign securities	—		0.8		—		0.8
Residential mortgage-backed securities	—		18.9		—		18.9
Commercial mortgage-backed securities	—		5.8		—		5.8
Asset backed securities	—		13.7		—		13.7
Total fixed maturities available-for-sale	21.1		100.0		—		121.1
Short-term investments
U.S. government and agencies	128.9		—		—		128.9
Commercial paper	—		146.5		—		146.5
Corporate securities	—		49.4		—		49.4
Total short-term investments	128.9		195.9		—		324.8
Total financial assets	$	394.5	$	295.9	$	—	$	690.4

Financial liabilities:

Contingent consideration liability	$	—	$	—	$	11.9	$	11.9

Public warrants	0.2		—		—		0.2
Private placement warrants	—		0.1		—		0.1
Total financial liabilities	$	0.2	$	0.1	$	11.9	$	12.2

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 three months ended March 31, 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,	$	11.9	$	11.6
Payments of contingent consideration	(0.7)		(0.7)
Changes in fair value	0.8		3.2
Balance as of March 31,	$	12.0	$	14.1

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

5. Intangible Assets


		March 31, 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	5.7	$	13.5	$	(3.8)	$	9.7	$	13.5	$	(3.4)	$	10.1
State licenses and domain name	Indefinite	10.5		—		10.5		10.5		—		10.5
Customer relationships	2	13.7		(9.1)		4.6		13.7		(8.5)		5.2


Other	6	1.7		(0.7)		1.0		1.7		(0.6)		1.1
Total intangible assets, net		$	39.4	$	(13.6)	$	25.8	$	39.4	$	(12.5)	$	26.9

Amortization expense related to intangible assets for the three months ended March 31, 2023 and 2022 was $1.1 million and $1.9 million. 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


	March 31, 2023		December 31, 2022
	(in millions)
Capitalized internal use software	$	61.7	$	56.4
Less: accumulated amortization	(20.5)		(17.6)
Total capitalized internal use software	$	41.2	$	38.8

Amortization expense related to capitalized internal use software for the three months ended March 31, 2023 and 2022 was $2.9 million and $1.8 million, respectively. The amortization expense is included in insurance related expenses on the consolidated statements of operations and comprehensive loss.

7. Other Assets


	March 31, 2023		December 31, 2022
	(in millions)

Prepaid expenses	$	17.5	$	17.4
Claims receivable	10.6		9.0
Lease right-of-use assets	26.1		27.6
Property and equipment	5.1		5.4
Other	5.4		4.2
Total other assets	$	64.7	$	63.6

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

8. Accrued Expenses and Other Liabilities


	March 31, 2023		December 31, 2022
	(in millions)

Claim payments outstanding	$	28.6	$	27.7
Lease liability	27.8		28.9
Advances from customers	16.8		10.2
Deferred revenue	8.1		11.0
Employee related accruals	7.2		6.2
Premium refund liability	9.7		8.2
Fiduciary liability	3.7		6.6
Contingent consideration liability	12.0		11.9

Other	18.7		17.5
Total accrued expenses and other liabilities	$	132.6	$	128.2

9. Loss and Loss Adjustment Expense Reserves

The reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance is summarized as follows for the three months ended March 31, (in millions):


	2023		2022
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of beginning of the period	$	293.8	$	260.8
Less: Reinsurance recoverables on unpaid losses and LAE	(228.8)		(217.0)
Reserve for losses and LAE, net of reinsurance recoverables as of beginning of the period	65.0		43.8
Add: Incurred losses and LAE, net of reinsurance, related to:
Current year	37.8		25.3
Prior years	(0.1)		(2.8)
Total incurred	37.7		22.5
Deduct: Loss and LAE payments, net of reinsurance, related to:
Current year	6.5		8.8
Prior years	14.8		10.4
Total paid	21.3		19.2

Reserve for losses and LAE, net of reinsurance recoverables at end of period	81.4		47.1
Add: Reinsurance recoverables on unpaid losses and LAE at end of period	223.8		235.3
Reserve for losses and LAE gross of reinsurance recoverables on unpaid losses and LAE as of end of the period	$	305.2	$	282.4

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 $0.1 million and $2.8 million for the three months ended March 31, 2023 and 2022, respectively. The prior years’ development of $0.1 million was driven primarily by favorable net loss development relating to the 2022 accident year, resulting in a net release of $0.2 million from catastrophe reserves, offset by adverse development of $0.1 million from attritional reserves. These changes are primarily a result of ongoing analysis of claims emergence patterns and loss trends.

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

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 six 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 expects to retain 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.

For business produced through the Company’s 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, 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 eleven 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 may increase the amount of losses retained by its insurance company subsidiaries in excess of the Company’s pro rata participation. The Company also seeks to further reduce its risk retention through purchases of non-proportional reinsurance described below in the section titled “Non-Proportional Reinsurance.”

For the Company’s primary homeowners reinsurance treaty that commenced in 2021, the Company secured proportional reinsurance from a diverse panel of nine third-party reinsurers with AM Best ratings of “A-” or better. A total of approximately 12% of the premium was retained either by Spinnaker or RHS, which aligns interests with third-party reinsurers. Two of the reinsurers, representing approximately one-third of the programs, provided three-year agreements.

Non-Proportional Reinsurance — Hippo

The Company also purchases non-proportional excess of loss catastrophe coverage (“XOL”) reinsurance. 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.

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

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

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.

Other Reinsurance

Spinnaker 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 also 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. 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.

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 allowance has been recorded in the three months ended March 31, 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 months ended March 31, 2023, and 2022 (in millions).


	For the Three Months Ended March 31,
	2023						2022
	Written premiums		Earned premiums		Loss and LAE incurred		Written premiums		Earned premiums		Loss and LAE incurred
Direct	$	185.7	$	164.1	$	124.6	$	117.0	$	120.1	$	90.9
Assumed	3.8		0.9		1.6		0.1		—		0.3
Gross	189.5		165.0		126.2		117.1		120.1		91.2
Ceded	(168.2)		(151.2)		(88.5)		(116.5)		(111.1)		(68.7)
Net	$	21.3	$	13.8	$	37.7	$	0.6	$	9.0	$	22.5

As of March 31, 2023 and December 31, 2022, a provision for sliding scale commissions of $6.2 million and $3.5 million, respectively, is included in provision for commission on the consolidated balance sheets. As of March 31, 2023 and December 31, 2022, a receivable for sliding scale commissions of $4.0 million and $4.5 million, respectively, is included in ceding commissions receivable on the consolidated balance sheets.

As of March 31, 2023 and December 31, 2022, a provision for loss participation features of $70.5 million and $51.3 million, respectively, was recorded as a contra-asset in reinsurance recoverable on the consolidated balance sheets.

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 March 31,
	2023				2022
	Amount		% of GWP		Amount		% of GWP
State
Texas	$	39.6	20.9	%	$	33.9	28.9	%
California	32.8		17.3	%	22.1		18.9	%
Florida	21.5		11.3	%	6.8		5.8	%
Georgia	9.2		4.9	%	6.1		5.2	%
Colorado	5.8		3.1	%	3.5		3.0	%
Arizona	4.5		2.4	%	3.2		2.7	%
Illinois	5.1		2.7	%	3.0		2.6	%
New Jersey	4.3		2.3	%	3.1		2.6	%
Ohio	3.7		2.0	%	2.6		2.2	%
Missouri	3.6		1.9	%	2.6		2.2	%
Other	59.4		31.3	%	30.2		25.8	%
Total	$	189.5	100	%	$	117.1	100	%

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.

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. The parties are engaged in fact discovery, and a trial date is set for November 6, 2023. 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

Adopted in 2019, the 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. Upon the closing of the Business Combination, the remaining unallocated share reserve under the 2019 Plan was cancelled and no new awards will be granted under such plan. Awards outstanding under the 2019 Plan were assumed by the Company upon the Closing and continue to be governed by the terms of the 2019 Plan.

2021 Incentive Award Plan

In connection with the Closing of the Business Combination, on August 2, 2021, the Company adopted the 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 two 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.

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	1,986,978	$	36.54	7.8	$	1.3
Granted	—	—
Exercised	(24,724)	5.85			0.3
Cancelled/Expired	(98,037)	36.37
Outstanding as of March 31, 2023	1,864,217	16.21		7.6	$	2.1
Vested and exercisable as of March 31, 2023	1,092,833	$	16.06	7.2	$	1.7

The aggregate intrinsic value of options exercised during the three months ended March 31, 2023 and 2022 was $0.3 million and $2.5 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 options granted during the three months ended March 31, 2023 and 2022.

Total unrecognized compensation cost of $17.1 million as of March 31, 2023 is expected to be recognized over a weighted-average period of 1.2 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”).

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

Early Exercises of Stock Options

In 2019, certain employees early exercised stock options in exchange for promissory notes. The Company accounted for the promissory notes as nonrecourse in their entirety because the promissory notes are not aligned with a corresponding percentage of the underlying shares. The early exercises of options were not deemed to be substantive exercises for accounting purposes. Each of these loans and all interest accrued thereon was forgiven upon the consummation of the Business Combination. The forgiveness of the promissory notes was deemed to be exercises of the 0.4 million stock options with an intrinsic value of $94.0 million on the date of forgiveness. The unvested shares subject to repurchase fully vest in 2023.

In 2020 and 2021, certain employees early exercised stock options with cash. On March 31, 2023 and December 31, 2022, the Company had $1.2 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 two to four years. The PRSUs vest based on the level of achievement of the performance goals and continued employment with the Company over a one 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, 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 three months ended March 31, 2023 and 2022, no PRSUs were granted.

The following table summarizes the RSU and PRSU activity for the three months ended March 31, 2023:

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	2,881,984	$	41.15
Granted	34,782	14.28
Released	(158,346)	60.86
Canceled and forfeited	(155,827)	42.71
Unvested and outstanding as of March 31, 2023	2,602,593	$	39.45

Total unrecognized compensation cost related to unvested RSUs and PRSUs is $81.4 million as of March 31, 2023, and it is expected to be recognized over a weighted-average period of 2.1 years.

2021 Employee Stock Purchase Plan

In connection with the closing of the Business Combination, the Company adopted the 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 three months ended March 31, 2023 and 2022, no shares have been issued under the 2021 ESPP. 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
	March 31,
	2023		2022
Losses and loss adjustment expenses	$	0.5	$	0.7
Insurance related expenses	1.2		1.3
Technology and development	3.4		5.2
Sales and marketing	4.3		2.4
General and administrative	6.7		3.8
Total stock-based compensation expense	$	16.1	$	13.4

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

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)

time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its common stock under this authorization. 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. During the three months ended March 31, 2023 the Company repurchased 15.5 thousand shares of its common stock for $0.2 million under this program. As of March 31, 2023, $49.8 million of common stock remain available for repurchases. Shares repurchased by the Company are accounted for when the transaction is settled. As of March 31, 2023, there was an immaterial amount of unsettled share repurchases. Direct costs incurred to acquire the shares are included in the total cost of the shares.

14. Income Taxes

The consolidated effective tax rate was (0.4)% and (0.3)% for the three months ended March 31, 2023 and 2022, respectively. The difference between the rate for the three months ended March 31, 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 March 31, 2023 and 2022, the Company has $3.5 million and $1.1 million of unrecognized tax benefits, respectively, fully offset by a valuation allowance. No material interest or penalties were incurred during the three months ended March 31, 2023 and 2022.

15. Net Loss Per Share Attributable to Common Stockholders

Net loss per share attributable to common stockholders was computed as follows:


	Three Months Ended
	March 31,
	2023		2022
Numerator:
Net loss attributable to Hippo – basic and diluted (in millions)	$	(69.8)	$	(67.6)
Denominator:
Weighted-average shares used in computing net loss per share attributable to Hippo — basic and diluted	23,198,491		22,464,802
Net loss per share attributable to Hippo — basic and diluted	$	(3.01)	$	(3.01)

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:


	March 31,
	2023	2022

Outstanding options	1,864,217	1,777,976
Common stock from outstanding warrants	360,000	360,000

Common stock subject to repurchase	52,134	170,056
RSU and PRSUs	2,602,593	1,191,684

Total	4,878,944	3,499,717

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 its Spinnaker subsidiary and is a platform to support third party MGAs. The Company rents its capital, 50 state licenses and the strong financial rating of the Company’s Spinnaker subsidiary (A- rated 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 EBITDA, a non-GAAP profitability measure. Items outside of Adjusted EBITDA 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 March 31, 2022 has been revised to conform with the current year presentation.

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)


	Three Months Ended March 31, 2023
	Services		Insurance-as-a-Service		Hippo Home Insurance Program		Intersegment Eliminations(1)		Total
Revenue:
Net earned premium	$	—	$	7.6	$	6.2	$	—	$	13.8
Commission income, net	9.6		3.8		6.2		(2.2)		17.4
Service and fee income	0.2		—		3.0		—		3.2

Net investment income	—		1.5		3.9		—		5.4
Total Revenue	9.8		12.9		19.3		(2.2)		39.8
Operating Expenses:
Loss and loss adjustment expense	—		2.7		34.5		—		37.2
Insurance related expense	—		4.2		8.2		(0.8)		11.6
Sales and marketing	12.1		—		4.9		(1.2)		15.8
Technology and development	3.7		—		4.5		—		8.2
General and administrative	2.9		1.3		7.5		—		11.7

Other expenses	0.2		—		0.1		—		0.3
Total operating expenses	18.9		8.2		59.7		(2.0)		84.8
Less: Net investment income	—		(1.5)		(3.9)		—		(5.4)
Less: Noncontrolling interest	(1.7)		—		—		—		(1.7)
Adjusted EBITDA	(10.8)		3.2		(44.3)		(0.2)		(52.1)
Net investment income									5.4
Depreciation and amortization									(4.3)

Stock-based compensation									(16.1)
Fair value adjustments									(0.2)

Contingent consideration charge									(0.8)
Other one-off transactions									(1.4)
Income tax expense									(0.3)


Net loss attributable to Hippo									$	(69.8)

(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).

HIPPO HOLDINGS INC.

Notes to Consolidated Financial Statements

(Unaudited)


	Three Months Ended March 31, 2022
	Services		Insurance-as-a-Service		Hippo Home Insurance Program		Intersegment Eliminations(1)		Total
Revenue:
Net earned premium	$	—	$	4.4	$	4.6	$	—	$	9.0
Commission income, net	7.0		2.4		5.0		(2.9)		11.5
Service and fee income	0.4		—		3.2		—		3.6

Net investment income	—		0.2		0.2		—		0.4
Total Revenue	7.4		7.0		13.0		(2.9)		24.5
Operating Expenses:
Loss and loss adjustment expense	—		1.0		20.9		—		21.9
Insurance related expense	—		2.0		11.0		(2.9)		10.1
Sales and marketing	13.2		0.1		5.2		—		18.5
Technology and development	2.0		—		6.9		—		8.9
General and administrative	2.4		1.1		8.5		—		12.0

Other expenses	0.1		—		—		—		0.1
Total operating expenses	17.7		4.2		52.5		(2.9)		71.5
Less: Net investment income	—		(0.2)		(0.2)		—		(0.4)
Less: Noncontrolling interest	(1.1)		—		—		—		(1.1)
Adjusted EBITDA	(11.4)		2.6		(39.7)		—		(48.5)
Net investment income									0.4
Depreciation and amortization									(3.9)

Stock-based compensation									(13.4)
Fair value adjustments									1.2

Contingent consideration charge									(3.2)
Other one-off transactions									—
Income tax expense									(0.2)


Net loss attributable to Hippo									$	(67.6)

17. Subsequent Events

On April 18, 2023, Spinnaker Insurance Company, a wholly owned subsidiary of Hippo Holdings Inc., closed on the purchase from Elevate Sabine Investors LP (“Seller”) certain real property, improvements and personal property located at 701 E. 5th Street, Austin, Texas 78701, as well as Seller’s interest in and to certain leases and other agreements, licenses, permits and approvals as set forth in the original Purchase and Sale Agreement entered into on February 24, 2022 (as amended from time to time) (together, the “Property”). The Property will be used as office space for employees of the Company and affiliated companies. After application of earnest money, escrowed amounts, prorations and adjustments as provided for in the Agreement, the net amount paid at closing was approximately $26.0 million in cash.

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 Enterprises Inc. and its consolidated subsidiaries prior to the Business Combination and to Hippo Holdings Inc. and its consolidated subsidiaries following the consummation of the Business Combination. 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.

As an MGA, we underwrite homeowners insurance policies on behalf of our insurance company subsidiaries (Spinnaker Insurance Company and Spinnaker Specialty Insurance Company) 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 treaties 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 are collateralized. During 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. Loss participation features may increase the amount of losses retained by our insurance company subsidiaries in excess of our pro rata participation. We also seek to further reduce our risk retention through purchases of non-proportional reinsurance described below in the section titled “Non-Proportional Reinsurance.”

Non-Proportional Reinsurance — Hippo

We also purchase non-proportional excess of loss (XOL) reinsurance. 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.

Other Reinsurance

Spinnaker 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 our pro-rata participation. Such provisions are recognized in the period based on the experience to date under the agreement.

Spinnaker also 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. 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. 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.

Fiscal Year 2023 Reinsurance Programs

Proportional Reinsurance Treaties — Hippo

For our primary homeowners reinsurance treaty commencing in 2023, we secured proportional reinsurance from a diverse panel of six third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized. In 2023, we expect to 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 53% 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.

We also seek to further reduce our risk retention on both the primary homeowners treaty and the builder channel treaty through purchases of non-proportional reinsurance described below in the section titled “Non-Proportional Reinsurance.”

Non-Proportional Reinsurance — Hippo

We also purchase non-proportional XOL reinsurance. Through our ownership of our insurance company subsidiaries, we are exposed to the risk of natural catastrophe events that could occur on the risks we are assuming 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.

Our XOL program provides protection to us 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. This reinsurance protects us from all but the most severe catastrophic events.

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 homeowners 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 expanding into new markets across the United States and by continuing to develop 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 this ongoing pandemic or any new pandemic(s). 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.

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 Expand Nationally Across the United States

We believe that national expansion will be a key driver of the long-term success of our business. As of March 31, 2023, we were authorized to sell Hippo Homeowners policies in 40 states.

We expect to benefit from our ability to provide insurance across an increasing number of states in the United States. State expansion should create a broader base from which to grow while increasing the geographic diversity in our base of customers and premium. We expect that this greater diversity will reduce the impact of catastrophic weather events in any one geographic region on our overall loss ratio, improving the predictability of our financial results over time as we scale. We believe that increased geographic diversity will also improve our ability to secure attractive terms from reinsurers, which would improve our overall cost structure and profitability.

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.

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 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 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.

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 after the Business Combination in August 2021 primarily consists of fair value adjustments on outstanding warrants. Prior to the Business Combination interest and other (income) expense primarily consisted of interest expense incurred for convertible promissory notes, fair value adjustments on preferred stock warrant liabilities, and fair value adjustments on the embedded derivative on our convertible promissory notes.

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.

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 March 31,
		2023			2022
		($ in millions)
Total Generated Premium		$	244.9		$	153.7
Total Revenue		39.8			24.5
Net Loss attributable to Hippo		(69.8)			(67.6)
Adjusted EBITDA		(52.1)			(48.5)
Gross Loss Ratio		76		%	76		%
Net Loss Ratio		273		%	250		%

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 March 31,
	2023		2022		Change
Gross Written Premium	$	189.5	$	117.1	$	72.4
Gross Placed Premium	55.4		36.6		$	18.8
Total Generated Premium	$	244.9	$	153.7	$	91.2

Our Total Generated Premium for the three months ended March 31, 2023 grew 59% year-over-year to $244.9 million from $153.7 million for the three months ended March 31, 2022. The growth was driven primarily by continued growth across channels in existing states, expansion of our independent agent network, maintaining solid premium retention levels, expansion into new states, achieving planned premium rate increases, and growth of non-Hippo written premium supported by our Insurance-as-a-Service business. As of March 31, 2023, we were selling policies in 40 states as compared to 37 states as of March 31, 2022.

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 March 31, 2023, adjusted EBITDA loss was $52.1 million, an increase of $3.6 million compared to $48.5 million for the three months ended March 31, 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.

The following table provides a reconciliation from net loss attributable to Hippo to Adjusted EBITDA for the periods presented (in millions):


	Three Months Ended
	March 31,
	2023		2022

Net loss attributable to Hippo	$	(69.8)	$	(67.6)
Adjustments:
Net investment income	(5.4)		(0.4)
Depreciation and amortization	4.3		3.9

Stock-based compensation	16.1		13.4
Fair value adjustments	0.2		(1.2)

Contingent consideration charge	0.8		3.2
Other one-off transactions	1.4		—
Income tax expense	0.3		0.2


Adjusted EBITDA	$	(52.1)	$	(48.5)

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 March 31,
		2023			2022
Gross Losses and LAE		$	126.3		$	91.2
Gross Earned Premium		165.1			120.1
Gross Loss Ratio		76		%	76		%

The following table provides a reconciliation of Gross Loss Ratio by PCS and non-PCS events.


	Three Months Ended March 31,
		2023		2022
PCS losses		25	%	19	%
Non-PCS losses		51	%	57	%
Gross loss ratio		76	%	76	%

For the three months ended March 31, 2023, our Gross Loss Ratio was 76% net of a favorable development of 1 percentage point relating to PCS; compared with 76% net of a favorable development of 13 percentage points for Non-PCS and 6 percentage points for PCS for the three months ended March 31, 2022.

Excluding the impact of reserve movements, our Gross Loss Ratio was 77% for the three months ended March 31, 2023, compared with 95% for the three months ended March 31, 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 March 31,
		2023			2022
Net Losses and LAE		$	37.7		$	22.5
Net Earned Premium		13.8			9.0
Net Loss Ratio		273		%	250		%

For the three months ended March 31, 2023, our Net Loss Ratio was 273% compared with 250% for the three months ended March 31, 2022. The increase was due primarily to an increase in PCS catastrophic weather losses and other weather loss experience and our loss participation features.

Segment Information


	Three Months Ended March 31, 2023
	($ in millions)
	Services		Insurance-as-a-Service		Hippo Home Insurance Program		Intersegment Eliminations(1)		Total
Total Generated Premium	$	97.9	$	104.0	$	92.2	$	(49.2)	$	244.9
Total Revenue	9.8		12.9		19.3		(2.2)		39.8
Adjusted EBITDA	(10.8)		3.2		(44.3)		(0.2)		(52.1)


	Three Months Ended March 31, 2022
	($ in millions)
	Services		Insurance-as-a-Service		Hippo Home Insurance Program		Intersegment Eliminations(1)		Total
Total Generated Premium	$	75.9	$	40.7	$	79.0	$	(41.9)	$	153.7
Total Revenue	7.4		7.0		13.0		(2.9)		24.5
Adjusted EBITDA	(11.4)		2.6		(39.7)		—		(48.5)

Segment Adjusted EBITDA 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 EBITDA to net loss attributable to Hippo.

Services

Our Services segment, which earns fees and/or commission income without assuming underwriting risk or need for reinsurance, had Total Generated Premium of $97.9 million, an increase of 29%, from $75.9 million over the prior year quarter, while revenue was $9.8 million, an increase of 32%, from $7.4 million over the prior year quarter. The growth was driven primarily by the growth in our builder channel. Our adjusted EBITDA loss was $10.8 million, a decrease of 5%, compared to a loss of $11.4 million in the prior year quarter. 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. Total Generated Premium was $104.0 million, up 156%, from $40.7 million over the prior year quarter, while revenue was $12.9 million, an increase of 84%, from $7.0 million over the prior year quarter. The growth was driven primarily by the performance of both new and existing programs. Adjusted EBITDA was $3.2 million, an increase of 23%, compared to $2.6 million in the prior year quarter.

Hippo Home Insurance Program (HHIP)

Our Hippo Homeowners Insurance Program had Total Generated Premium of $92.2 million, an increase of 17%, from $79.0 million over the prior year quarter, while revenue was $19.3 million, an increase of 48%, from $13.0 million over the prior year quarter. The increases were due primarily to continued growth across channels in existing states, expansion into new states, and achieving planned premium rate increases, Adjusted EBITDA loss was $44.3 million in the quarter, an increase of 12%, compared to a loss of $39.7 million in the prior year quarter.

The increase in adjusted EBITDA loss was due primarily to increase in PCS catastrophic weather and other weather loss experience and our loss participation features, partially offset by an increase in revenues.

Hippo Home Insurance Program Gross Loss Ratio

Hippo Home Insurance Program Gross Loss Ratio (or ‘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 adjusted expense on our condensed consolidated statements of operations and comprehensive loss. This ratio is also used by our reinsurers and other carriers to make 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 March 31,
	2023		2022
	Hippo Home Insurance Program
Non-PCS	60	%	65	%
PCS	41	%	34	%
HPGLR	101	%	99	%

HPGLR was 101% in the quarter, compared to 99% in the prior year quarter. Excluding the impact of reserve releases, HPGLR was 101% in the quarter, compared to 119% in the prior year quarter.

Excluding the impact of reserve releases, the PCS component of HPGLR was 41% in the quarter, compared to 41% in the prior year quarter. The catastrophes in the quarter mainly represent the 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 was 60% in the quarter, compared to 78% in the prior year quarter, representing a decrease of 18 percentage points. The decrease reflects the benefits of the pricing and underwriting actions we took in calendar 2022. We expect continued improvement as these actions have more time to earn into our financial results.

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
	March 31,
	2023		2022		Change		% Change
Revenue:
Net earned premium	$	13.8	$	9.0	$	4.8	53	%
Commission income, net	17.4		11.5		5.9		51	%
Service and fee income	3.2		3.6		(0.4)		(11)	%
Net investment income	5.4		0.4		5.0		1250	%
Total revenue	39.8		24.5		15.3		62	%
Expenses:
Losses and loss adjustment expenses	37.7		22.5		15.2		68	%
Insurance related expenses	15.8		13.2		2.6		20	%
Technology and development	11.6		14.7		(3.1)		(21)	%
Sales and marketing	22.4		24.9		(2.5)		(10)	%
General and administrative	19.8		16.5		3.3		20	%

Interest and other (income) expense	0.3		(1.0)		1.3		(130)	%


Total expenses	107.6		90.8		16.8		19	%
Loss before income taxes	(67.8)		(66.3)		(1.5)		2	%
Income tax expense	0.3		0.2		0.1		50	%
Net loss	(68.1)		(66.5)		(1.6)		2	%

Net income attributable to noncontrolling interests, net of tax	1.7		1.1		0.6		55	%
Net loss attributable to Hippo	$	(69.8)	$	(67.6)	$	(2.2)	3	%
Other comprehensive income:
Change in net unrealized gain on available-for-sale securities, net of tax	1.7		(2.6)		4.3		(165)	%
Comprehensive loss attributable to Hippo	$	(68.1)	$	(70.2)	$	2.1	(3)	%

Comparison of the Three Months Ended March 31, 2023 and 2022

Net Earned Premium

For the three months ended March 31, 2023, net earned premium was $13.8 million, an increase of $4.8 million compared to $9.0 million for the three months ended March 31, 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.

The following table presents gross written premium, ceded written premium, net written premium, change in unearned premium, and net earned premium for the three months ended March 31, 2023 and 2022 (in millions).


	Three Months Ended
	March 31,
	2023		2022		Change
Gross written premium	$	189.5	$	117.1	$	72.4
Ceded written premium	168.2		116.5		51.7
Net written premium	21.3		0.6		20.7
Change in unearned premium	(7.5)		8.4		(15.9)
Net earned premium	$	13.8	$	9.0	$	4.8

Commission Income, Net

For the three months ended March 31, 2023, commission income was $17.4 million, an increase of $5.9 million, or 51%, compared to $11.5 million for the three months ended March 31, 2022. The increase was due primarily to increased ceding commissions, including fronting fees, of $3.8 million, as well as increase in agency commissions of $1.6 million, both of which grew due to the year-over-year growth of our total book of business, net of variable commission provisions.

Service and Fee Income

For the three months ended March 31, 2023, service and fee income was $3.2 million, a decrease of $0.4 million, or 11%, compared to $3.6 million for the three months ended March 31, 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.

Net Investment Income

For the three months ended March 31, 2023, net investment income was $5.4 million, an increase of $5.0 million, compared to $0.4 million for the three months ended March 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.

Loss and Loss Adjustment Expenses

For the three months ended March 31, 2023, loss and loss adjustment expenses were $37.7 million, an increase of $15.2 million, compared to $22.5 million for the three months ended March 31, 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 March 31, 2023, insurance related expenses were $15.8 million, an increase of $2.6 million, or 20%, compared to $13.2 million for the three months ended March 31, 2022. The increase was due primarily to an increase in amortization of deferred direct acquisition costs of $1.4 million due to the growth of our business and an increase in amortization expense attributable to capitalized internal use software of $1.1 million.

The primary components of insurance related expenses are listed below (in millions):


	Three Months Ended
	March 31,
	2023		2022
Amortization of deferred direct acquisition costs, net	$	6.0	$	4.6
Employee-related costs	3.0		2.8
Underwriting costs	1.8		2.0
Amortization of capitalized internal use software	2.9		1.8
Other	2.1		2.0
Total	$	15.8	$	13.2

Direct acquisition costs were $16.3 million for the three months ended March 31, 2023, of which $10.3 million were offset by ceding commission income.

Direct acquisition costs were $14.2 million for the three months ended March 31, 2022, of which $9.6 million were offset by ceding commission income.

Technology and Development Expenses

For the three months ended March 31, 2023, technology and development expenses were $11.6 million, a decrease of $3.1 million, or 21%, compared to $14.7 million for the three months ended March 31, 2022. The decrease was due primarily to a decrease in employee-related costs of $3.0 million, including a decrease in stock-based compensation of $2.7 million, driven by performance RSUs related to an acquisition fully vesting in the prior year.

Sales and Marketing Expenses

For the three months ended March 31, 2023, sales and marketing expenses were $22.4 million, a decrease of $2.5 million, or 10%, compared to $24.9 million for the three months ended March 31, 2022. The decrease was due primarily to a decrease in advertising costs of $1.9 million.

General and Administrative Expenses

For the three months ended March 31, 2023, general and administrative expenses were $19.8 million, an increase of $3.3 million, or 20%, compared to $16.5 million for the three months ended March 31, 2022. The increase was due primarily to an increase in stock-based compensation of $2.3 million, partially driven by a charge due to the repricing of options during the quarter. There was also an increase in facilities costs of $0.8 million.

Interest and Other (Income) Expense

For the three months ended March 31, 2023, other expense was $0.3 million, an increase of $1.3 million compared to income of $1.0 million for the three months ended March 31, 2022. The increase was due primarily to changes in the fair market value on the outstanding Public and Private Placement Warrants of $1.4 million.

Income Taxes

For the three months ended March 31, 2023, income tax expense was $0.3 million, an increase of $0.1 million, compared to an expense of $0.2 million for the three months ended March 31, 2022.

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 March 31, 2023, net loss attributable to Hippo was $69.8 million, an increase of $2.2 million compared to $67.6 million for the three months ended March 31, 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 March 31, 2023, we had $220.7 million of cash and restricted cash and $431.4 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 March 31, 2023, is $40.3 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 available on favorable terms, or at all.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented (in millions):


	Three Months Ended
	March 31,
	2023		2022		Change
Net cash provided by (used in):
Operating activities	$	(35.7)	$	(58.6)	$	22.9
Investing activities	$	13.8	$	(378.2)	$	392.0
Financing activities	$	(1.9)	$	(0.3)	$	(1.6)

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 $35.7 million for the three months ended March 31, 2023, a decrease of $22.9 million, from $58.6 million for the three months ended March 31, 2022. Our cash used in operation was lower than last year mainly due to the working capital changes that benefited cash balance.

Investing Activities

Cash provided by investing activities was $13.8 million for the three months ended March 31, 2023, due primarily to the maturities and sales of investment securities partially offset by purchases of investment securities.

Cash used in investing activities was $378.2 million for the three months ended March 31, 2022, due primarily to purchases of investment securities.

Financing Activities

Cash used in financing activities was $1.9 million for the three months ended March 31, 2023, primarily driven by taxes paid related to net share settlement of RSUs.

Cash used in financing activities was $0.3 million for the three months ended March 31, 2022, primarily driven by taxes paid related to net share settlement of RSUs and payments of contingent consideration, 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.

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

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.

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 March 31, 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)
January 1 through January 31, 2023	—	$	—	—	$	50.0
February 1 through February 28, 2023	—	$	—	—	$	—
March 1 through March 31, 2023	15,472	$	15.46	15,472	$	48.8
Total	15,472			15,472

(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

Not applicable.

ITEM 6. EXHIBITS


Exhibit Number						Description
31.1						Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2						Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.#
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.#
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.

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 May 9, 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