Fourth Quarter 2023 Shareholder Letter

Q4'23:

TURNING THE CORNER

Dear Shareholders,

The beginning of a new year presents an opportunity to reflect on the past and internalize its lessons before moving forward with renewed enthusiasm and focus.

In two short years, we have nearly doubled our total generated premium from $606 million to $1.1 billion and more than doubled our revenue from $91 million to $210 million, all while lowering fixed expenses from $140 million to $138 million and improving the gross loss ratio on our Hippo Home Insurance Program by approximately 40 percentage points.

We learned that there is a real need in the market for carrier services focused on serving MGAs, where much of the innovation in the insurance market is happening. Our Spinnaker Insurance-as-a-Service ("IaaS") business has an industry-leading platform and robust underwriting processes that have allowed us to grow at an accelerating rate in 2023 while avoiding many of the pitfalls experienced by our competitors last year. We are especially excited to have achieved this growth while expanding our operating margin in this already- profitable portion of our business; truly a win-win for both Spinnaker and its customers.

Total Generated Premium ("TGP")

During 2023, we grew TGP from $811 million to more than $1.1 billion, an increase of 40%. More important than the growth itself, was how we achieved it: the parts of our business that are less exposed to underlying weather and underwriting volatility grew at an accelerating rate, while we significantly reduced our exposure to weather in our primary homeowners' insurance program. During Q4, the most profitable and predictable components of our business (IaaS and Services) collectively represented 77% of our TGP, up from 59% in the fourth quarter of 2021. In these businesses, we act as agency for third-party carriers and front for MGAs and take significantly less risk than in our Hippo Home Insurance Program segment.

We expect these trends to continue in the coming year, with TGP growing during 2024 to more than $1.3 billion, with the Services and IaaS segments collectively representing ~85% of total TGP by the final quarter of the year.

1. Total TGP is lower than sum of all segments, due to intercompany eliminations

Revenue

During the year, we grew Revenue significantly faster than TGP, from $120 million to $210 million, an increase of 75%. This growth was a result of increases in the scale of our Services and Insurance-as-a-Service segments, combined with structural changes to our program-specific reinsurance structure at HHIP.

In 2022, we retained only 12% of the premium associated with our homeowners' policies, but 30% of the risk. In 2023, we were able to retain 39% of the premium, but only 46% of the risk, significantly narrowing the gap between risk retention and premium retention, thereby getting paid more fully for the risk we retained. By moving away from our past reinsurance structure and bringing premium more in-line with the risk we are retaining, we were able to monetize the insurance risk more effectively, which is a key driver of both revenue growth and profitability.

1. Total TGP is lower than sum of all segments, due to intercompany eliminations

We expect 2024 revenue to continue to grow at an accelerated rate relative to TGP, rising more than 60%, from $210 million in 2023 to more than $340 million in 2024. Importantly, we expect to be able to achieve this while lowering our underlying volatility and exposure to the weather that has contributed to our historical losses, as measured by an almost 60% reduction we expect to achieve in our underlying severe weather exposure.

Because of our consistent, historical track record of attritional loss ratio improvement, combined with the expected reduction in underlying volatility and exposure to the weather, we felt comfortable transitioning to a more traditional excess of loss (XoL) reinsurance structure, retaining nearly all the attritional risk and related premium, and purchasing XoL reinsurance to protect against major catastrophic weather events.

This transition to XoL reinsurance will better align our net earned premium with risk retention and will also allow us to further narrow the gap between gross and net loss ratio.

In 2024, we expect to realize additional benefit to our gross loss ratio as previous rate and underwriting actions eainto our financials, as well as significantly lower losses from Cat events due to reduced exposure and higher deductibles. In 2024, we are targeting HHIP gross non-PCS loss ratio to be between 52% and 58%, with an expected PCS Cat load of 20%.

In 2024, we expect HHIP net loss ratio to be 85-90%, down more than 160 percentage points from 2023 due to the improvements in gross loss ratio and more effective use of reinsurance. Similarly to the trend we experienced in 2023, we expect the net loss ratio improvement to happen gradually over the year, with Q4'24 expected net loss ratio under 75%. We expect additional improvements in 2025, when we expect net loss ratio to be less than 75% for the full year.

Loss Ratio by peril, %

1. 2023 Expected CAT Load, per our previous guidance, was 28%