Insurtech startup Hippo targeting $2.3B premium by 2025

Hippo Enterprises Inc. expects to grow its total written premium to nearly $2.28 billion by 2025 as it eyes expansion in the U.S.

The homeowners insurtech revealed the target in a presentation detailing its planned merger with Reinvent Technology Partners Z — a prelude to an IPO. Hippo wrote $405 million of premium in 2020, including the business written by recently acquired New Jersey-based insurer Spinnaker Insurance Co., and estimates it will write $544 million in 2021.

Hippo CFO Stewart Ellis told analysts on a call that the growth would be achieved in part by launching in new U.S. states, and that the company would be in 40 states by the end of 2021. The company launched in 12 states in 2020, taking its total to 32. Growth would also come from expansion in existing states, Ellis said. He added that even with $2.3 billion of premium, Hippo would only have about 2% of the $105 billion U.S. homeowners insurance market and so it has "enormous potential for future growth ahead."

Hippo is a hybrid of a managing general agency, an insurance broker and a carrier. It intends to retain about 10% of the risk associated with Hippo homeowners policies in 2021, with the rest ceded to reinsurers. The presentation shows that Hippo plans to increase its retention to 25% in the long term.

Ellis said the company had secured a three-year reinsurance cover from Mitsui Sumitomo Insurance Co. Ltd. for 20% of its capacity in the fall of 2020.

Hippo estimates that its loss ratio for 2020 at 121%. Ellis said that had natural catastrophes been at normal historic levels in 2020, the ratio would have been 24 percentage points lower. Adjusting for this, five points of COVID-19-related losses, 9 points for unearned rate changes, Hippo estimates that its normalized 2020 loss ratio would have been 83%. It is targeting a 60% steady-state loss ratio "over time," the executive added.

The anticipated improvement in loss ratio is one of the main drivers of the expectation for adjusted gross profit "to grow more than twice as fast as our total written premium over the next five years," bringing the adjusted gross profit margin to 28% of total earned premium by 2025, Ellis said.