Insurtech Hippo will ride cross-sales & embedded offers to 2025 gain

Insurtech  Hippo claims a clear path to profits at the EBITDA level by 2025 on a combination of growth in preferred channels, heavy cross-selling and continued savings on the drive for scale, top company officials have indicated.

“We are at the peak of losses in Q2/Q3 2022, so we’ll start to see that come down in Q4 and this trend will continue and pick up pace as 2023 progresses,” CFO Stewart Ellis (pictured) told investors. Reduced reinsurance costs will give a kick in 2023 and growth will be a constant driver throughout.

“It doesn’t require that we do things that we have not already started to do,” Ellis said.

The tech-driven homeowners insurance platform expects it can squeeze out a fractional $20-30 million adjusted EBITDA gain by 2025 from the expected $200 million loss for 2022 on over 50% compound annual growth in revenues over the period.

“We will grow revenue in excess of 50% annually, faster than customers,” Ellis said.

Customers counts should grow at a 30% CAGR rated over the period to 720-760k, some 2.2x the expected end-2022 count. Hippo sounds ready to lean more on embedded sales channels, such as mortgage originators and builders, from which it had already taken some 50% of sales by August this year; the remainder of sales are split evenly between direct and agency.

The cross-sell, chiefly embedded services or of non-home products via agency sales, can take the revenue growth past the gain in customer counts to a 50% CAGR growth towards a $420-450 million 2025 target. In force premium at end-H1, in comparison, was up 36% year on year to $680 million.

And, while loss ratios have come down sharply as the group gains scale, profit forecasts are not built on assumption that a hi-tech platform guarantees better loss picks. “We’re not assuming wildly more profitable underwriting results than what we are seeing in the industry.”

The gross loss ratio has come down from 161% Q2 2021 to 78% in the second quarter of this year, up a fraction from Q1.

Loss ratio improvement followed higher rates on the market and diligent work in rewriting some wobbly parts of the book, management claimed. Hippo bragged of 64 rate filings in 2022 across 28 states covering 93% of the group’s premium.

Reinsurance costs come down step by step with the decline in loss ratios, Ellis believes. Reinsurance costs can come down already in 2023 and constitute the second largest pillar towards the 2025 EBITDA profit target.

“We will be able to find new and more profitable ways to approach reinsurance,” Ellis said. “As the loss ratio continues to come down and as we get validation for that, we will continue to be able to save money.” Those savings will be palpable already in 2023, he expects.

In operating expense, recent additions to the tech automation list enabled staff reductions and laid the groundwork for cost cutting.

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