Recent layoffs and a reverse stock split seem to have done little to change Hippo Holdings Inc.'s fortunes in the public market, though its underlying performance may be improving after hitting a low point in the first half of 2021.
The California-based insurtech's stock value has fallen in value by 93.4% since the company went public in April 2021, according to an S&P data analysis. In an apparent effort to slow the slide, Hippo made several notable changes in September, including a reverse stock split and slashing 10% of its workforce.
The sharp drop in Hippo's stock value can mostly be attributed to general market factors and a difference between how the public and venture markets value insurance startups, according to Kaenan Hertz, managing partner with Insurtech Advisors.
"Venture [capital] typically funds for growth, the public markets fund more for profitability," Hertz said. "Now the markets realize that you have to have a viable business model."
Hertz said Hippo was essentially forced to implement the reverse split in order to raise the value of its shares above $1 and avoid being delisted from the New York Stock Exchange. The insurtech needed its stock to trade above $10 to ensure that they can get attention from larger investors and pension funds, he said.
"But similarly, once you have a $10 to $20 stock, then it's more profitable to short," he said.
Hippo in a Sept. 1 statement said the announced layoffs were aimed at driving efficiency and increasing the company's focus on its "strategic priorities." In an investor call following the announcement, CEO Richard Lyn McCathron characterized the layoffs as "rightsizing."
"We've been around up now for six years, and we have never really rightsized the organization. It was time to do it," McCathron said.
Sunnier loss picture
After recording a sky-high direct incurred loss and loss adjustment expense ratio of 197.7% in the first quarter of 2021, Hippo's loss ratio has improved to 76.9% for the second quarter of 2022.
Hertz attributed the high loss ratio in the first half of 2021 to the impact of the deadly freeze that struck Texas during that season and said that Hippo has since geographically diversified its portfolio.
"Now that they've diversified, the impact of these regional weather events should be less dramatic on their bottom line," Hertz said. "It'll be interesting to see what happened to their portfolio with Hurricane Ian because they've moved into Florida."
Chris Donahue, Hippo's chief underwriting officer, during a September conference call attributed the improved loss ratio to a variety of strategies, including data integration and geographic diversification.
Key to the geographic diversification was seeking more business outside of California and Texas, Donahue said. In the last year and a half Hippo has gone from generating more than 70% of its premiums from those states to around 50%.
"I think when we talk about geographic diversification in insurance terms, most of the time, we're talking about avoiding volatility, creating a resilient portfolio where we don't have risk aggregations where in a single event is going to cause us disproportionate loss."
A representative from Hippo declined to comment on the company's stock price or its loss ratio.
Insurtechs reeling
Hippo is not alone in the insurtech space when it comes to earnings and stock price struggles. Root Inc., for instance, priced its IPO at $27 in October 2020; its shares stood at $15.70 as of noon on Oct 7.
Although Hippo faces the same growing pains as Root when it comes to transitioning from the venture market to the public market, Hertz said that he believes Hippo is much better situated due to diversified acquisitions, business approach and business channels.
"Auto insurance is facing a greater set of challenges in terms of frequency and severity, costs and inflation and social inflation, than homeowners," Hertz said.
