Hippo confident portfolio shake-up will make it more attractive to reinsurers at 1.1
Hippo CEO Rick McCathron believes the re-underwriting within its Hippo Home Insurance Program (HHIP) portfolio in recent weeks will make the business a more attractive proposition to reinsurers as it looks to renew the bulk of its quota share treaties at 1 January 2024.
This publication reported in August that Hippo had pressed pause on writing the HHIP across the US as it sought to remedy issues in its portfolio highlighted by heavy weather-related losses during Q2 2023.
In the time since, Hippo has initiated non-renewals, cancelled business, changed its independent agent commission structures in certain regions and raised deductibles in states where it could do so.
As McCathron explained during KBW’s 2023 Insurance Conference last week, the US homeowners-focused insurtech will in the coming days once again begin writing HHIP business “in a very selective way”.
For the second quarter, Hippo’s consolidated gross loss ratio shot up 29 percentage points year on year to 107 percent owing to heavy catastrophe losses.
Despite the high loss ratio, McCathron said “most of our net quota share partners are actually doing quite well”.
Looking ahead, the bulk of Hippo’s reinsurance treaties renew at 1 January, and McCathron is optimistic that despite the losses incurred this year, the changes the insurtech is making to its portfolio will actually improve its position.
“I'm not concerned about the reinsurance placement for 1.1,” he said.
“All the actions we're taking are actually going to help the placement, not hurt the placement.”
McCathron highlighted how when it renewed its quota share treaties at 1 January this year, and when it later placed its catastrophe excess-of-loss program at 1 July, the insurtech was “oversubscribed for both at better terms and conditions than we had previously”.
Looking ahead to its upcoming renewals, McCathron said “the good news” is there remains “ample reinsurance solutions” for Hippo.
“The bad news is most of the quota shares have shifted from gross quota share to net quota share,” the executive explained.
As McCathron detailed, with the net quota share coverage, reinsurers impose a first dollar loss cap on weather events, and then provide an allowance to buy XoL coverage.
But with the shift in the property reinsurance market and the introduction of higher deductibles, a layer is created between the two coverages for losses from small weather events such as hail and severe convective storms that Hippo has to bear itself.
“When you have a portfolio that's concentrated more towards hail, and not towards things like hurricane, you don't have one or two huge losses, you have a lot of baby losses, and those fall below the XoL but above the caps on the gross quota share,” McCathron outlined.
“The reinsurance market has dictated that we take more net quota share as opposed to gross quota share, and that's really what hit us in the Q2 results,” the executive said.
“It’s that middle gap that’s a problem,” McCathron added, and so Hippo is working to reduce or eliminate the volatility in that section through the re-underwriting of its portfolio.
“We're fortunate that our attritional loss ratios are in a good place,” said McCathron.
“We're reducing or eliminating the weather volatility so we can take more exposure, and then still buy cat for those large single events that we're not overly exposed to.”
The next step for Hippo as it moves toward the 1 January renewals is to determine how much net quota share the company wants, with the executive confirming the percentage the insurtech takes “will likely change because the economics of the portfolio and the volatility and relation to weather in the portfolio”.