Good afternoon. Thank you for attending today's Hippo Second Quarter 2022 Earnings Call. My name is Daniel, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Cliff Gallant of Hippo. Cliff, please proceed.

Thank you, operator. Good afternoon, everybody and thank you for joining Hippo's second quarter earnings conference call. Earlier Hippo issued a shareholder letter announcing its results, which is also available at investors.hippo.com. Leading today's discussion will be Hippo's Chief Executive Officer and President, Rick McCathron; Executive Chairman and Founder, Assaf Wand and Chief Financial Officer, Stewart Ellis. Following management's prepared remarks, we will open up the call to questions. Before we begin, I would like to remind you that our discussion will contain predictions, expectations, Forward-Looking Statements, and other information about our business that is based on management's current expectations as of the date of this presentation. Forward-looking statements include but are not limited to Hippo's expectations or predictions of financial and business performance and conditions in competitive and industry outlook. Forward-looking statements are subject to risks, uncertainties, and other factors that will cause our actual results to differ materially from historical results and/or from our forecasts, including those set forth in Hippo's Form 8-K filed today. For more information, please refer to the risk uncertainty and other factors discussed in Hippo's SEC filings. All cautionary statements that we make during this call are applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks and uncertainties and other factors discussed in Hippo's SEC filing. Do not place undue reliance on forward-looking statements as Hippo is under no obligation and expressly disclaims any responsibility for updating, altering or otherwise revising any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. During the conference call, we will also refer to non-GAAP financial measures such as total generated premium and adjusted EBITDA. Our GAAP results and description of our non-GAAP financial measures with a full reconciliation to GAAP can be found in the second quarter 2022 shareholder letter, which has been furnished to the SEC and available on our website. And with that, I will turn the call over to Assaf Wand, Founder and Executive Chairman of Hippo.

Thanks, Cliff. Before we dig into the details of another solid quarter of delivering on what we said we do, I wanted to take this opportunity to thank Hippo's customers, employees, supporters, and investors for my time as the CEO of the company. When I founded Hippo in 2015, I had a vision of what we could do for homeowners, and how we could build a great company. And I think we're well on our way of achieving that vision. As Executive Chairman, and Hippo's largest individual investor, I continue to be involved on an ongoing basis, and dedicated to the continued success of Hippo. Rick and I have worked side by side for six years to build Hippo into what it is today. As we look to the next phase of Hippo's development, Rick's operational background makes him ideal to take the lead in the CEO role. As an entrepreneur at heart, I will be focused on finding more strategic opportunities for Hippo on our long-term growth and on advancing our mission of protecting the joy of homeownership. Nothing gives me more pride and confidence than Rick promotion to the CEO role and knowing that Hippo is in amazing hands. Thank you. And now, Rick.

Thank, Assaf for your continued involvement and support. Now onto the quarter. Hippo was making steady progress towards our goals of profitability and delivering on our mission of protecting the joy of homeownership. In Q2, we delivered another quarter of strong TGP growth, revenue growth, and perhaps most importantly, significant loss ratio improvement. Our total generated premium was up 29% over the prior year quarter. We are growing throughout our geographies, as we establish our presence and grow share in the States launched over the last 18 months. During Q2, we announced the entry into the major states of New York, Massachusetts and North Carolina. While these states will take some time to be meaningful contributors, our confidence is high and our ability to succeed in these new markets. Growth through our builder and partnership channels remain robust. We recently announced the creation of the Amerisave insurance agency powered by Hippo's proprietary technology. We offer our partners a quality insurance experience for their customers, creating a circular win-win-win cycle between our partners, their customers, and Hippo. Our Q2 gross loss ratio of 78% marks yet another leap of improvement from the prior year quarter. Our technology platform, which leverages advanced analytics and data played a central role in this improvement. In addition, our increased geographic diversification the early earning out of reunderwritten and rerated policies, favorable reserved development, and relatively good weather all contributed to this improvement. We expect additional improvements as we continue to refine our pricing and risk management, claims handling and cost efficiency. We are getting better at identifying our target customers and winning their business. As this attractive and appropriately priced business growth and as the other loss ratio improvement efforts gain momentum, we expect our loss ratio to continue to converge with those of our…

Thanks, Rick. The first half of 2022 has gone well for Hippo. Our growth loss ratio improved substantially versus the prior year period with indications of more to come. Our TGP growth rate remained strong despite significant underwriting action, and our confidence in our financial position is higher than ever. We ended the first half of the year with cash and investments of 732 million and believe we can achieve profitability without raising additional capital. TGP with 204 million in Q2, up 29% from 159 million in the prior year quarter. And our Hippo homeowners premium retention rate of 87% remains high. As we have worked to accelerate our timeline to profitability, we have become more selective in our underwriting. This has shifted the mix of customers toward our most attractive segments but has slowed our TGP growth slightly. Moving forward this potential policies are on the margin between a profitable and unprofitable expected loss ratio, we will continue to lean toward profitability when choosing whether to write the business on our Hippo program. As a result, we are slightly reducing our TGP guidance from 800 million to 820 million offered previously to 790 million to 810 million. We plan to go into more detail about our future growth plans at our Investor Day in September. Geographic expansion has been a key driver of our growth as we develop a balanced portfolio of risk exposure. With the recent additions of New York, Massachusetts and North Carolina, we are now live in 40 states. We estimate that our current geographic footprint covers approximately 94% of the U.S. population. But our share of the overall homeowners insurance market is still less than 1%, indicating ample room for share gains and long-term growth even while optimizing for a profitable underwriting results. Revenue in…

[Operator Instructions] The first question comes from Matt Carletti of JMP. Please proceed.

Hey, thanks. Good afternoon. My first question centers around the loss ratio. Hey, how are you? First question is around the loss ratio. I mean, great to see the ongoing improvement. It seems clear from your guidance that it's exceeding your expectations, despite, what is a pretty inflationary environment, and we've seen pressures, the opposite direction at other companies. Stewart, I think you hit on a couple pieces there. But I was hoping you could maybe peel the onion back a little bit on kind of what's been allowing you to do that. And also maybe if you need a little more granular, I'd be curious if -- are you seeing a big difference in frequency just avoiding losses because of some of the smart home stuff or kind of breakout frequency versus severity, if you can?

Yes. Hi, Matt. Thanks for the question. I think you are reading it accurately. We are ahead of the expectations we had at the beginning of the year. And I think that comes from a variety of things that we've been doing. This is an area that's been, as you know, and as we've said in prior quarters, a large focus of the company's efforts. And I think we would break down those efforts into a few big buckets. I think we've been leaning hard into trying to grow more, smarter growth, basically more focused on better segments. I think we've put a lot of energy into figuring out how to find the kinds of customers who resonate with our value proposition. And we're beginning to see some success in targeted messaging and marketing to people who will resonate with our technology forward approach. And I think that has resulted in a mixed shift to the sort of better in terms of customers for Hippo's program. Another way our technology platform has supported the efforts that we've been making in the first half of this year on loss ratio is the high throughput way that we can take pricing action and rating action and also underwriting actions. And we're doing that in a very granular and targeted way. We've also made improvements to claims efficiency and cost efficiency more generally, by being proactive about working with our partners in those areas. And then I think, finally, something we've tried to put in prior calls, but we're really starting to see the benefits of that this year is, the areas that we've been able to grow and to expand our geographic diversity have really benefited us from a volatility standpoint, with respect to the loss ratio. We launched in New York, Massachusetts, North Carolina, these states, while still small, today represent big growth opportunities for us. But as we, diversify out of North Texas, we're seeing benefits to the volatility that comes from weather events like hail. And I think, despite the environment, as you mentioned, it's getting harder and others are seeing headwinds. We feel like we're -- everyone is swimming upstream against those trends. But we feel like we've been able to actually accelerate our progress despite that, and just went faster in the right direction. And I also think there's more to come. We mentioned earlier that the large number of rate actions and filings that we've been taking, those have only partially earned their way into the financial results. And we expect to see benefits of those in future quarters as well. So we're optimistic about the future and feel like we're making progress. And Rick, do you have anything to add.

Yes. Hey, Matt. Your question around smart home, I think those are two different components to consider. The types of customers that resonate with our value proposition, the ones that we are targeting, and we make great progress and identifying those and convincing them that our value proposition is what they mean, those are customers that are generally positively selected that really participate either in our smart homes programs, people that want a partner in that particular area. The second component of that is specific segments of our business, like our builder channel. These are positively selected new construction properties. And we have various distribution techniques that allow us to get more of those positively selected exposures. So in our effort to really make sure that we are avoiding claims for the benefit of our customers that is very much where we are focusing our growth and growth targets.

Very helpful. Thank you. And one other quick follow up if I could, I'm looking at Page 19 of the investor letter, the geographic diversification, and it looks like a slightly bigger piece of the pie. This quarter came from California and Texas. And I know one quarter doesn't make a trend. But just to be curious, if you could help me through why that might be versus last year.

Yes. I think one thing to keep in mind is Texas, specifically, the Texas is a massively large state that you can fit, a half dozen other states within and it has very different exposures, catastrophe. So in areas where we were overly saturated and where we felt like we had inferior pricing, with all intents and purposes shut down those particular markets, areas that we were not overly saturated and where we believe we have pricing adequacy. Those are areas that actually within a given geography, provide better diversification across different weather perils. So we are very confident that we are growing in all of our geographies and we are very focused on making sure we don't have overconcentration oversaturation, similar types of things in places like California, the exposures in Northern California are very different than the exposures in Southern California. So we look at geographical diversification not just at a state-by-state basis, but also in a more granular way, including different exposures that might exist and those specific granular territories.

That makes perfect sense. Thank you for the color.

Operator, are you there? We'll take our next question.

Next question comes from Michael Phillips of Morgan Stanley. Please proceed.

Hey, thanks. Good evening, everybody. Guys, I'm hoping you can touch on comments about be more selective with underwriting. So obviously, that's the impact on your guidance down modestly for the full year versus, an uptick in marketing spend for the back half of the year and leaning more into customer acquisition. So, which normally what I would think would have an uptick in your top line. So it sounds like the first one is winning over a guidance versus what you might get from a lift for more marketing spend and customer acquisition. So if you could just kind of talk about those two nuances.

Yes. Thanks, Mike. Happy to talk more about that question. So I think we mentioned this last quarter. But this is a kind of continuing trend. We mentioned we have a large number of rate and underwriting filings that we're rolling out over the course of the country. And some of those take time. And so we were cautious in the first half of the year while we were rolling out those things, and while they were being filed and approved. And at this point, we do feel like we are better positioned to write profitable business in a broader area of the country. And I think if you looked at the growth last quarter, and the guidance for the year, it was always going to be the case that we would see accelerating growth in the second half of the year, that has not changed, we still are expecting growth to pick up in the second year or the second half of the year, as we mean in to the broader geographies in the U.S. where we feel like we have rate adequacy. In terms of guidance, I would think of that more as a refinement of guidance. If you look from midpoint to midpoint, it's just a 1% reduction. And it's we felt like it makes sense to refine that slightly simply because, we are erring on the side, and we want to send the message to the broader investment community that we're erring on the side of profitability. Even at the new guidance, we're still expecting 30% year-over-year growth. And so what's going to get us there, I think, we're going to continue to build on the progress we've made in targeting those high value segments, with our new brand campaign, which we're planning to roll out in the second half of the year bit more broadly, branding and brand spend, as I'm sure you know, does take a little bit longer to show a positive return on investment, as compared to more quantitative marketing spent. We do have a higher confidence in our pricing. So we're spending more on the quantitative side as well, to bring customers to the website. And as Rick mentioned, we are seeing a lot of success in the builder and other positively selected channels from a risk standpoint, and those we expect to be -- continuing to be the fastest growing. And also now that we're live in New York and Massachusetts, North Carolina, we're starting to see positive traction there, it's at the early stage, but we feel optimistic. And so I think about the guidance as a signal in a more on the lines of -- on the margin, we're going to focus on making sure we get to cashflow positivity, but we still feel like growth will be a positive feature for our story.

Okay. Thank you, Stewart. I guess also in lines with your comments about kind of, this policies that might be on the margin and kind of how you decide whether they get onto Hippo paper and from here. What does that imply for, I guess near term growth and commission income? And whether it's because of add or not just general comments about how commission income like kind of change over the next 12 months?

Yes. I think in areas where we don't feel like we're adequately right, or we're not the best fit or the best policy for a customer. We do have the ability to our agencies to sell other people's products. And that is something that we've been doing more of, and I expect that that will be a feature of our business and our customer experience going forward. So we've mentioned over the past few quarters that we do see, service fee and non-receipt gross commission income to be parts of our future growth story, and we expect that we will see that become a larger part of our financials. I don't think there's anything that's changed. It's something that we're excited about.

Okay, great. Thank you, Stewart. Appreciate it.

Thank you. The next question comes from the line of Alex Scott of Goldman Sachs. Please proceed.

Hi, good afternoon. The first question I had was just to see if you could elaborate a bit on the comment in the shareholder letter around achieving profitability without raising additional capital. Can you just talk a little bit about what that looks like over what timeframe? We should think about that?

Yes. Thanks, Alex. I'm happy to take that. And then, if Rick wants to add anything happy to have him do so. I think we've been talking a lot on this call about the fact that our loss ratio results in Q2 represent another quarter of consistent progress. And I think we're also sharpening our focus internally on cost containment and operating efficiencies. And we're doing that and trying to balance that with continuing to make strategic investments and in important growth areas for our business, like the builder and the partner channel that have the potential to deliver positively selected risk. I think based on our expectations, we think Q3 is the quarter we're in right now, will be our peak last quarter from an adjusted EBITDA standpoint. And as I said earlier, like we do expect to reach bottom-line profitability without the need to raise additional capital. I think that's a topic that is probably best covered in a bit more detail than we can on a call like this. And so that's going to be the focus of my presentation at the Investor Day that we're planning on September 6, so I'd invite everyone who's interested to join us there. And we'll have an opportunity to talk more about our growth plans, and also the mechanisms by which we see convergence to profitability.

Alex, I just want to make sure we're very clear on this point, getting to cashflow positive with a cash on hand is our number one priority as a company. And we intend to do so with a cushion. So as Stewart said, we'll have a lot more detail in our Investor Day. But just to be clear, that is something that we will achieve.

Now that was helpful. Next one I had for you all, is just on the net loss ratio and your reinsurance agreements. I mean, as you mentioned, we've seen a lot of gross loss ratio improvement over the first half of 2021. And the net loss ratio, though, is continued to go up pretty substantially. So what point is the gross loss ratio begin translating more to the net? I mean, do you have to get to the end of the year and restructure reinsurance contracts? Are those things that can be restructured annually? Or is there some sort of a longer timeline because if when they come up or how do I think about all that?

Yes. I'm happy to take the first part of that question. And then, Rick, please feel free to add. I think you're captured, I think what's going on, which is that the terms of our annual reinsurance agreements, as we've said, are somewhat lagging related to the performance of the underlying book, which is best represented by the gross loss ratio. And our 2022 reinsurance treaty, as we said, in prior periods, has some lock participation features that are the result of our loss ratio in 2021, which was abnormally high for reasons related to both winter storm Uri as well as one of the most severe hail seasons on record. Part of the driver of the improvement in loss ratio is the geographic diversity that we've been able to put into the book through the growth. And yet, we still have some loss participation features that are impacting our net loss ratio, because we're experiencing losses, but we're not actually able to recognize the earned premium. And so in addition to those loss participation, we also have seen like the rest of the industry, higher actual costs, which reduced that net earned premium. And so the percentage is quite volatile, because we're looking at a very small denominator of earned premium that you can see the financials, but it's one of those things that the annual portion of our reinsurance treaty, we are exploring ways with our reinsurance partners to develop structures that are more cost effective going into 2023. We're optimistic about our ability to translate the much-improved loss ratio, which we're delivering in 2022 into better reinsurance trends in the next year.

Just to add a few points to that. Reinsurance is generally backwards looking on the performance of the book and how the book is exposed to weather. So historically, we have not had a great loss ratio, and that loss ratio, or the business, the book was very much exposed to catastrophic weather. So as an example, our 2022 treaty will impact us for 2022 and part of the 2023 because they're calendar year treaties. And we are working with our reinsurance partners to structure the 2023 treaty in the one that recognizes both the improvements in our loss ratio, and the reduction of exposure to catastrophic weather. So it's lagging. But we're excited that we have strong reinsurance partners, they have a very deep look into the trends. And what we're doing as a reminder, we were oversubscribed, last year, even with a poor historical loss ratio. So I think you're going to see continued improvement in that as time goes on. And as we continue to take the actions to produce a much more favorable gross loss ratio.

Got it. Thanks.

Thank you. The next question comes from Yaron Kinar of Jefferies. Please proceed.

Hey, good afternoon. This is Andrew on for Yaron. You'd mentioned some of your most attractive risks are seeing rate reductions, can you help us think about and maybe quantify what percentage of policies are seeing these rate reductions?

Yes. I think on average, we're seeing rate increase across the book. And I don't know if we can get into quantifying the specific numbers of policies that are in the best risk segments. But our goal generally, is to try to match price of the policy and the rate of the policy to the underlying risk. And so when you look at the portfolio as a whole, it's a mid teens rate increase. But there are places where we're getting more precise. And where we want to be able to -- if we're overpriced for our best segments, we're not getting our customers. And so by being able to lower the price selectively where we're overpriced in certain areas, that helps us with both growth and also loss ratio, because these are the best customers that we can bring in. So that's an area where, maybe being more refined and more precise with our pricing, we can generate benefits on both sides of that equation.

Andrew, I think it's really important to note that disproportionate losses are generally created by fewer customers. And as we continue to refine our segmentation, the customer, we're going after the distribution channel, like builders that are more positively selected. I think what we're finding that there are customers that we have and additional customers out there that should not subsidize the sort of the greater world of customers. So as time goes on, we will write more and more and we have, by the way, written more and more from A and A plus customers that they shouldn't deserve a lower price. And we were finding those in our existing book and charging them the appropriate price.

Thanks. And I guess, lower top-line guidance on the one hand and better loss ratio on the other? Do you see your earnings power or EPS going better than planned for this year?

I think we'll talk more about bottom-line guidance, probably at our Investor Day for 2022. I don't know that we can talk to that today. But it is part of our plan to discuss in September.

Thanks. And then, maybe one more if I could sneak it in. Certainly been very active filing rates, what has kind of been the reception from regulators both in California and more broadly?

Based in my 30-year history of this, I am finding regulators generally to be more receptive Because of both sort of inflationary trends, generally and also recognizing that weather has been more pronounced across the board, and I don't think I have found -- I don't think I remember a time when regulators have been more active partners, with insurance companies to maintain a healthy insurance environment. And, frankly, we have seen the regulator's being very receptive to rate changes and increases even in places like California.

Yes. And I'll just add, the rates that we're talking about these rate changes are not only filed, but they are either approved by regulators and also live within our system. So these are more than just asks a regulators these are the things that have already made it through the process. And so just want to make sure that's great.

Great. Thanks for the answers.

Thank you. The next question comes from the line of Tommy McJoynt of KBW. Please proceed.

Hey, guys, good evening. Thanks for taking my questions. Could you remind us how big the builder channel is for you? And are there any metrics that you can share around attach rates or penetration and then the latest loss ratio performances there. And then on that same topic, has the slowdown in new home sales or the expected slowdown at least had any impact on the results in the quarter or your growth outlook?

Yes. Hey, Tommy. I do think it's relevant, there is a slowdown of builders -- a slowdown of housing starts, although keep in mind that we are relatively new in this effort. And we are improving and gaining and Stewart can talk to some specifics around attach rates. We think that our penetration within the new construction channel is just sort of at the tip of the iceberg. We don't think that the slowdown will impact us. And in fact, we are actually seeing pretty significant increases in those specific channels. So we don't see any negative impacts at all with fewer housing starts.

Yes. And Tommy on some of the metrics. One of the things that we can do that other providers that are out there having more difficult time doing is to integrate fairly deeply into the builders own customer experience. Lennar is a good case study on this, and I think we've talked about it publicly before. When we took over the business that Lennar and partnered with them. The attach rates were far lower for their customers than they are now. And so we've been able to drive meaningful increases in attach rates at Lennar, for their own homebuyers, because we have been able to improve that experience. And I think the attach rates down are north of 70%. And I think they've even talked about that publicly. In terms of size, I would say right now the builder channel is around 10% of the Hippo programs, specifically the Hippo homeowners program and that percentage is growing. It's one of the fastest channels that we have in terms of growth. And we're excited about the future there. We signed a new -- we launched new builders, we launched with Mattamy. In the quarter, we now have, I think about 20 builders and we're excited about the prospects of that business.

Thanks for those metrics there. And then, how many markets do you have the Hippo home care available in and in those markets, what are the actual take up rates by your customers that actually result in some sort of preventative maintenance plan being given to them?

Good question, Tommy. I think there's a couple of things to consider. I think our Hippo Homecare, how we utilize IoT devices through our partnerships has a wide range of what I would consider capabilities. So when you look at customers that participate in Hippo Homecare, generally and have Hippo Smart Home program, that number attached rate is north of 70%. When we talked about total home care, that is sort of the next iteration of that capabilities and it's in an infancy stage. So I don't think you're seeing meaningful amount showing on our particular economics related to that. We've had very good progress, very good relationships. We've done a [indiscernible] maintenance with that particular customer. So I think you're seeing a ton of opportunity in that particular area. And we will talk more about that on our Investor Day.

Thank you.

Thank you. There are currently no additional questions registered at this time. [Operator Instructions].

Okay. Well, if there are no further questions, we very much appreciate your time this quarter and we look forward to speaking to you next quarter and in September at our Investor Day.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.