Hippo's transformation from a direct homeowners insurer into a program platform has reached a new stage. Casualty is now its biggest line, and it now writes more commercial multi-peril business than homeowners in some measures of its book.
Gross written premium rose 60% year on year to $498 million in the third quarter. Casualty grew 146% to $188 million and commercial multi-peril (CMP) rose 63% to $108 million. On a gross written basis, casualty now makes up 38% of Hippo’s book, homeowners 23% and CMP 22%.
“Even as the market softens, we’ve been able to grow while improving profitability, and we’ll stay selective, writing more only where we believe the underwriting economics are attractive,” said Rick McCathron, Hippo’s president and chief executive.
Hippo keeps much less of its fast-growing business. Net written premium rose 26% to $149 million, well behind gross growth, because casualty and CMP are the lines where Hippo retains the least risk. Its overall net retention fell to 30% from 38% a year earlier, slightly below its full-year guidance of the mid-30s. Homeowners still makes up half of net written premium, down from 64%.
That model means Hippo earns more of its income from fronting and program fees, with reinsurers taking most of the casualty risk. McCathron described the business as a program platform built for long-term partnerships, and said he expects long-term profitable growth across the MGA and program space.
Hippo’s combined ratio improved by one point to 98.4%, as a sharp drop in expenses offset higher catastrophe losses. The expense ratio fell 10 points to 41.7%, mainly because net earned premium grew 29% while expenses rose only 12%.
The net loss ratio rose to 56.7% from 47.6%. Catastrophe losses added 6.5 points, compared with none in the same quarter last year. The accident year loss ratio excluding catastrophes rose 1.5 points to 49.9%.
Net income fell to $9 million from $98 million, but the prior-year figure included a $91 million gain from selling its homebuilder distribution network. Adjusted net income rose 9% to $20 million.
Hippo raised its full-year guidance, now expecting a combined ratio of 97% to 98% and gross written premium of $1.7 billion to $1.75 billion.
For MGAs and program administrators, Hippo is now a significant source of fronting capacity, especially in casualty and CMP. Growth of this size suggests it is adding programs and partners quickly, which gives MGAs looking for paper another option at a time when demand for fronting capacity remains strong.
The model carries risks that brokers and MGAs should understand. With low retention, Hippo depends on reinsurers’ continued appetite for the casualty it writes. Casualty has been the most difficult line for the industry, with adverse reserve development and rising claim severity. If reinsurers tighten terms, fronting carriers can be forced to cut capacity or raise their own retentions quickly, which could disrupt the programs that rely on them.
For homeowners agents, homeowners is now a smaller share of Hippo’s business, although it remains the largest part of what Hippo keeps on its own balance sheet. The shift suggests Hippo’s future growth will come mainly from commercial lines programs rather than direct homeowners distribution.
