Hippo (HIPO) - 2022 Q1 - Quarterly Report

Cautionary Note regarding Forward-Looking Statements Forward-Looking Statements The report contains forward-looking statements involving risks and uncertainties about future performance - The report contains forward-looking statements about future operations, financial condition, and business strategy, identifiable by words like 'anticipate,' 'believe,' 'expect,' and 'plan'[6] - Key areas covered by forward-looking statements include future results, growth management, customer base expansion, brand maintenance, business strategy, and compliance[6] - Forward-looking statements are based on current information and assumptions, and the Company does not undertake to update them[7] Part I. Financial Information Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2022 and 2021 Consolidated Balance Sheets The balance sheets show the company's financial position as of March 31, 2022, compared to December 31, 2021 | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Total assets | $1,674.5 | $1,642.7 | | Total liabilities | $865.8 | $781.0 | | Total stockholders' equity | $808.7 | $861.7 | - Total assets increased by $31.8 million, primarily driven by a significant increase in short-term investments and reinsurance recoverables[9] - Total liabilities increased by $84.8 million, mainly due to increases in loss and loss adjustment expense reserves and reinsurance premiums payable[9] - Total stockholders' equity decreased by $53.0 million, primarily due to an increased accumulated deficit[9] Consolidated Statements of Operations and Comprehensive Loss The statements detail financial performance for Q1 2022 and Q1 2021, highlighting revenue, expenses, and net loss | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Total revenue | $24.5 | $17.0 | | Total expenses | $90.8 | $211.8 | | Net loss attributable to Hippo | $(67.6) | $(195.2) | | Net loss per share (basic and diluted) | $(0.12) | $(2.03) | - Total revenue increased by 44% year-over-year, driven by a 121% increase in commission income and a 24% increase in service and fee income[11] - Total expenses decreased by 57% year-over-year, primarily due to a significant reduction in interest and other expense related to prior-year fair value adjustments[11] - Net loss attributable to Hippo significantly decreased by 65% from $(195.2) million in Q1 2021 to $(67.6) million in Q1 2022[11] Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (Deficit) This statement outlines changes in stockholders' equity, reflecting the impact of net loss and stock-based compensation | Metric | Balance at Jan 1, 2022 (in millions) | Balance at Mar 31, 2022 (in millions) | | :--- | :--- | :--- | | Additional paid-in capital | $1,488.3 | $1,504.4 | | Accumulated other comprehensive loss | $(0.7) | $(3.3) | | Accumulated deficit | $(628.0) | $(695.6) | | Total Hippo stockholders' equity | $859.6 | $805.5 | - The accumulated deficit increased from $(628.0) million to $(695.6) million, primarily due to the net loss of $(67.6) million[14] - Stock-based compensation expense contributed $15.7 million to additional paid-in capital during Q1 2022[14] - Total Hippo stockholders' equity decreased from $859.6 million to $805.5 million during the period[14] Consolidated Statements of Cash Flows The statements present cash flows from operating, investing, and financing activities for Q1 2022 and Q1 2021 | Cash Flow Activity | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Net cash used in operating activities | $(58.6) | $(15.5) | | Net cash used in investing activities | $(378.2) | $(9.0) | | Net cash (used in) provided by financing activities | $(0.3) | $0.2 | | Net increase in cash, cash equivalents, and restricted cash | $(437.1) | $(24.3) | | Cash, cash equivalents, and restricted cash at end of period | $381.6 | $468.1 | - Cash used in operating activities increased significantly to $(58.6) million in Q1 2022 from $(15.5) million in Q1 2021[16] - Cash used in investing activities surged to $(378.2) million in Q1 2022, mainly driven by substantial purchases of investments[16] - The Company experienced a net decrease of $(437.1) million in cash, resulting in an ending balance of $381.6 million[16] Notes to Consolidated Financial Statements These notes provide detailed explanations of the Company's accounting policies and specific financial statement line items 1. Description of Business and Summary of Significant Accounting Policies This note describes Hippo's business model and outlines its basis of presentation and significant accounting policies - Hippo Holdings Inc underwrites, administers, and markets personal and commercial insurance policies through its agency and insurance company subsidiaries[18] - The Company operates a wholly-owned captive insurance company, RH Solutions Insurance (Cayman) Ltd, which assumes insurance risk[18] - Hippo adopted new accounting standards for Leases (Topic 842) and Financial Instruments — Credit Losses (Topic 326) effective January 1, 2022[25][26] 2. Investments This note details the Company's investment portfolio, which consists primarily of fixed maturities and short-term investments | Investment Type | March 31, 2022 (Fair Value in millions) | December 31, 2021 (Fair Value in millions) | | :--- | :--- | :--- | | Fixed maturities available-for-sale | $86.5 | $54.9 | | Short-term investments | $348.9 | $9.1 | | Total investments | $435.4 | $64.0 | - Total investments significantly increased from $64.0 million to $435.4 million, primarily due to a large increase in short-term investments[33] | Net Investment Income | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Fixed maturities income | $0.2 | $0.1 | | Short-term investment income | $0.2 | $— | | Total gross investment income | $0.4 | $0.1 | - The Company determined that unrealized losses were due to the interest rate environment, not creditworthiness[37] 3. Cash, Cash Equivalents, and Restricted Cash This note provides a breakdown of cash, cash equivalents, and restricted cash balances as of March 31, 2022 | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $336.8 | $775.6 | | Restricted cash | $44.8 | $43.1 | | Total cash, cash equivalents, and restricted cash | $381.6 | $818.7 | - Total cash, cash equivalents, and restricted cash decreased by $437.1 million from December 31, 2021, to March 31, 2022[42] 4. Fair Value Measurement This note summarizes financial assets and liabilities measured at fair value, categorized by the fair value hierarchy | Financial Assets (March 31, 2022) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | Total (in millions) | | :--- | :--- | :--- | :--- | :--- | | Total cash equivalents | $195.4 | $— | $— | $195.4 | | Total fixed maturities available-for-sale | $14.9 | $71.6 | $— | $86.5 | | Short term investments (U.S. government and agencies) | $348.9 | $— | $— | $348.9 | | Total financial assets | $559.2 | $71.6 | $— | $630.8 | | Financial Liabilities (March 31, 2022) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | Total (in millions) | | :--- | :--- | :--- | :--- | :--- | | Contingent consideration liability | $— | $— | $14.1 | $14.1 | | Public warrants | $1.6 | $— | $— | $1.6 | | Private placement warrants | $— | $1.5 | $— | $1.5 | | Total financial liabilities | $1.6 | $1.5 | $14.1 | $17.2 | - The contingent consideration liability, valued using Level 3 inputs, increased from $11.6 million to $14.1 million due to changes in fair value[47] 5. Intangible Assets This note provides a breakdown of the Company's intangible assets, net of accumulated amortization | Intangible Asset Type | March 31, 2022 (Net Carrying Amount in millions) | December 31, 2021 (Net Carrying Amount in millions) | | :--- | :--- | :--- | | Agency and carrier relationships | $11.4 | $11.8 | | State licenses and domain name | $10.5 | $10.5 | | Customer relationships | $7.1 | $7.7 | | Developed technology | $— | $0.9 | | Other | $1.3 | $1.3 | | Total intangible assets, net | $30.3 | $32.2 | - Total intangible assets, net, decreased from $32.2 million to $30.3 million during Q1 2022[53] - Amortization expense for intangible assets increased to $1.9 million for Q1 2022 from $1.4 million in the prior year period[53] 6. Capitalized Internal Use Software This note presents the carrying amount and amortization for capitalized internal use software | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Capitalized internal use software | $40.7 | $34.5 | | Less: accumulated amortization | $(10.4) | $(8.6) | | Total capitalized internal use software | $30.3 | $25.9 | - Total capitalized internal use software, net, increased from $25.9 million to $30.3 million during Q1 2022[54] - Amortization expense for capitalized internal use software increased to $1.8 million for Q1 2022 from $1.0 million in the prior year period[54] 7. Other Assets This note details the components of other assets, including prepaid expenses and lease right-of-use assets | Other Asset Type | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Prepaid expenses | $26.1 | $21.2 | | Claims receivable | $25.0 | $24.4 | | Lease right-of-use assets | $15.9 | $— | | Other | $8.8 | $6.2 | | Total other assets | $75.8 | $51.8 | - Total other assets increased by $24.0 million, primarily due to the recognition of lease right-of-use assets of $15.9 million[56] 8. Accrued Expenses and Other Liabilities This note outlines the components of accrued expenses and other liabilities, including lease and fiduciary liabilities | Liability Type | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Claim payments outstanding | $25.3 | $23.2 | | Lease liability | $16.6 | $— | | Advances from customers | $13.7 | $8.7 | | Deferred revenue | $10.8 | $11.2 | | Employee related accruals | $8.1 | $8.5 | | Premium refund liability | $6.1 | $4.8 | | Fiduciary liability | $4.6 | $3.7 | | Accrued licenses and taxes | $3.2 | $5.8 | | Warrant liability | $3.1 | $4.3 | | Other | $9.6 | $13.6 | | Total accrued expenses and other liabilities | $101.1 | $83.8 | - Total accrued expenses and other liabilities increased by $17.3 million, primarily due to the recognition of a $16.6 million lease liability[57] 9. Loss and Loss Adjustment Expense Reserves This note reconciles the beginning and ending balances of loss and loss adjustment expense (LAE) reserves | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Reserve for losses and LAE, net of reinsurance recoverables as of beginning of the period | $43.8 | $13.0 | | Total incurred losses and LAE, net of reinsurance | $22.5 | $19.0 | | Total paid losses and LAE, net of reinsurance | $19.2 | $14.2 | | Reserve for losses and LAE, net of reinsurance recoverables at end of period | $47.1 | $17.8 | | Reserve for losses and LAE gross of reinsurance recoverables as of end of the period | $282.4 | $167.9 | - Net incurred losses and LAE experienced favorable development of $2.8 million for Q1 2022, primarily from the 2021 accident year[60] 10. Reinsurance This note explains the Company's reinsurance strategy to manage exposure to property and casualty risks - Hippo utilizes proportional and non-proportional reinsurance to manage risk, retaining approximately 10% of the premium[62][63][66] - Reinsurance contracts include variable commission adjustments and loss participation features, which may increase the amount of risk retained[65][68] | Metric (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Gross Written Premiums | $117.1 | $99.2 | | Ceded Written Premiums | $(116.5) | $(92.0) | | Net Written Premiums | $0.6 | $7.2 | | Gross Earned Premiums | $120.1 | $74.4 | | Ceded Earned Premiums | $(111.1) | $(65.6) | | Net Earned Premiums | $9.0 | $8.8 | | Gross Loss and LAE incurred | $91.2 | $147.4 | | Ceded Loss and LAE incurred | $(68.7) | $(128.4) | | Net Loss and LAE incurred | $22.5 | $19.0 | 11. Geographical Breakdown of Gross Written Premium This note provides a geographical breakdown of the Company's gross written premium (GWP) by state | State | Three Months Ended March 31, 2022 (Amount in millions) | % of GWP (2022) | Three Months Ended March 31, 2021 (Amount in millions) | % of GWP (2021) | | :--- | :--- | :--- | :--- | :--- | | Texas | $33.9 | 28.9% | $33.0 | 33.3% | | California | $22.1 | 18.9% | $18.9 | 19.1% | | Florida | $6.8 | 5.8% | $5.8 | 5.8% | | Georgia | $6.1 | 5.2% | $4.1 | 4.1% | | Illinois | $3.5 | 3.0% | $3.1 | 3.1% | | Colorado | $3.2 | 2.7% | $2.5 | 2.5% | | Missouri | $3.0 | 2.6% | $2.4 | 2.4% | | Arizona | $3.1 | 2.6% | $2.4 | 2.4% | | Ohio | $2.6 | 2.2% | $2.0 | 2.0% | | New Jersey | $2.6 | 2.2% | $2.2 | 2.2% | | Other | $30.2 | 25.8% | $22.8 | 23.0% | | Total | $117.1 | 100% | $99.2 | 100% | - Gross written premium increased to $117.1 million in Q1 2022 from $99.2 million in Q1 2021, with Texas and California remaining the largest markets[76] 12. Commitments and Contingencies This note discusses the Company's legal proceedings, including a civil action against Hippo and its CEO - Hippo is involved in a civil action where its CEO is accused of breach of fiduciary duty, breach of contract, and fraud[79] - The Court initially dismissed claims against Hippo without prejudice, but an amended complaint re-pleaded several causes of action[80] - The Company believes no pending litigation is likely to have a material adverse effect on its business or financial condition[78] 13. Leases This note provides information on the Company's operating leases for office space - The Company leases office space under non-cancelable operating leases expiring through 2026[83] | Metric | Value | | :--- | :--- | | Weighted average remaining lease term | 4.29 years | | Weighted average discount rate | 3.38% | | Fiscal Year | Operating Leases (in millions) | | :--- | :--- | | 2022 (Remainder) | $2.9 | | 2023 | $3.9 | | 2024 | $4.0 | | 2025 | $3.7 | | 2026 | $2.7 | | Total undiscounted lease payments | $17.2 | | Present value of lease payments | $16.6 | - The Company recognized $1.0 million in operating lease expense for the three months ended March 31, 2022[84] 14. Stockholders' Equity This note details the Company's common stock, stock-based compensation plans, and related activity - Hippo's common stock trades on the NYSE under 'HIPO', with 567,754,016 shares outstanding as of March 31, 2022[86][9] - The 2021 Incentive Award Plan authorized 78,000,000 shares for issuance, with an annual increase of up to 5% of outstanding common stock[90] | Stock-Based Compensation Expense (in millions) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Losses and loss adjustment expenses | $0.7 | $0.1 | | Insurance related expenses | $1.3 | $0.1 | | Technology and development | $5.2 | $0.4 | | Sales and marketing | $2.4 | $1.0 | | General and administrative | $3.8 | $0.9 | | Total stock-based compensation expense | $13.4 | $2.5 | - Total unrecognized compensation cost was $25.2 million for stock options and $90.9 million for unvested RSUs as of March 31, 2022[92][97] 15. Income Taxes This note discusses the Company's income tax expense and effective tax rate | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Income tax expense | $0.2 million | $0.1 million | | Effective tax rate | (0.3)% | (0.1)% | - The effective tax rate was significantly lower than the U.S. federal rate of 21% due to a full valuation allowance against net deferred tax assets[104] 16. Net Loss Per Share Attributable to Common Stockholders This note details the computation of basic and diluted net loss per share | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net loss attributable to Hippo (in millions) | $(67.6) | $(195.2) | | Weighted-average shares used in computing net loss per share (basic and diluted) | 561,620,061 | 95,970,269 | | Net loss per share attributable to Hippo (basic and diluted) | $(0.12) | $(2.03) | - Potential common shares totaling 87,492,918 as of March 31, 2022 were excluded from diluted EPS calculation due to their antidilutive effect[108] Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations This section provides management's perspective on the Company's financial condition and results of operations Overview Hippo aims to be a home protection company offering an integrated platform with real-time data and smart home technology - Hippo positions itself as a digital-first, customer-centric home protection company offering a proactive insurance experience[110][112][113] - The Company's strategy is to create a 'virtuous cycle' by making homes safer, improving risk outcomes, and increasing customer loyalty[114] Our Asset-Light Capital Model and Reinsurance Hippo employs an asset-light capital strategy, relying heavily on third-party reinsurance to support growth - Hippo's asset-light capital strategy involves retaining minimal risk on its balance sheet to decrease statutory capital requirements[115][116] - The Company uses proportional and non-proportional reinsurance, retaining approximately 10% of the premium[117][118] - The 2022 reinsurance agreements feature increased use of loss participation clauses, which may lead to the Company retaining more risk[117] Key Factors and Trends Affecting our Operating Results Operating results are influenced by customer acquisition, geographic expansion, and seasonal patterns in claims - Operating results are affected by the Company's ability to attract and retain customers, expand nationally, and manage risk[121][126] - Customer acquisition shows seasonal patterns, with greater demand expected during the summer months (Q3)[122] - Claims losses are impacted by seasonal weather patterns, including hurricanes, wildfires, and hailstorms[123] Basis of Presentation The consolidated financial statements are prepared in accordance with U.S. GAAP as determined by the FASB and SEC - The consolidated financial statements are prepared in accordance with U.S. GAAP, as determined by the FASB and SEC regulations[124] Components of Results of Operations This section defines the key revenue and expense components that make up Hippo's results of operations - Revenue components include Gross Written Premium, Ceded Written Premium, Net Earned Premium, and various Commission Incomes[125][128][129][131] - Service and Fee Income primarily consists of policy fees, while Net Investment Income is derived from investments[133][134] - Expense categories include Losses and Loss Adjustment Expenses, Insurance Related Expenses, Technology and Development, and Sales and Marketing[136][137][139][141] Key Operating and Financial Metrics and Non-GAAP Measures This section outlines key metrics used by management to evaluate business performance, including non-GAAP measures | Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Total Generated Premium | $153.7 | $123.1 | | Total Revenue | $24.5 | $17.0 | | Net Loss attributable to Hippo | $(67.6) | $(195.2) | | Adjusted EBITDA | $(48.5) | $(35.6) | | Gross Loss Ratio | 76% | 198% | | Net Loss Ratio | 250% | 216% | - Total Generated Premium (TGP) increased by 25% year-over-year to $153.7 million, driven by growth in existing and new states[152][153] - Net loss attributable to Hippo decreased by $127.6 million, primarily due to a $148.1 million decrease in other expense related to prior-year warrant fair value losses[157] - Adjusted EBITDA loss increased to $(48.5) million from $(35.6) million, mainly due to higher employee-related and public company costs[159][160] - Gross Loss Ratio improved significantly from 198% to 76%, primarily due to the impact of Texas winter storm Uri in Q1 2021[163][164] - Net Loss Ratio increased from 216% to 250%, attributed to higher loss expenses from increased risk retention in reinsurance treaties[166] Results of Operations This section provides a detailed comparison of consolidated results for Q1 2022 and Q1 2021 | Metric (in millions) | March 31, 2022 | March 31, 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net earned premium | $9.0 | $8.8 | $0.2 | 2% | | Commission income, net | $11.5 | $5.2 | $6.3 | 121% | | Service and fee income | $3.6 | $2.9 | $0.7 | 24% | | Net investment income | $0.4 | $0.1 | $0.3 | 300% | | Total revenue | $24.5 | $17.0 | $7.5 | 44% | | Losses and loss adjustment expenses | $22.5 | $19.0 | $3.5 | 18% | | Insurance related expenses | $13.2 | $5.8 | $7.4 | 128% | | Technology and development | $14.7 | $6.9 | $7.8 | 113% | | Sales and marketing | $24.9 | $24.7 | $0.2 | 1% | | General and administrative | $16.5 | $8.3 | $8.2 | 99% | | Interest and other (income) expense | $(1.0) | $147.1 | $(148.1) | (101)% | | Total expenses | $90.8 | $211.8 | $(121.0) | (57)% | | Net loss attributable to Hippo | $(67.6) | $(195.2) | $127.6 | (65)% | - Commission income, net, surged by 121% due to increased ceding commissions and fronting fees from business growth[171] - Losses and loss adjustment expenses increased by $3.5 million, driven by higher employee-related expenses and increased loss participation features[174] - Technology and development expenses increased by 113% due to higher employee-related costs to support business growth[178] - General and administrative expenses nearly doubled, primarily due to increased employee-related costs and public company requirements[180] - Interest and other (income) expense saw a $148.1 million positive change, mainly because of significant fair value losses on warrants recorded in Q1 2021[182] Liquidity and Capital Resources This section discusses Hippo's liquidity sources, cash flow activities, and material cash requirements - As of March 31, 2022, Hippo had $381.6 million in cash and restricted cash and $435.4 million in investments[185] - The Company has a $19.2 million secured borrowing capacity with the FHLB of New York, with no outstanding amounts[185] | Cash Flow Activity | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(58.6) | $(15.5) | $(43.1) | | Net cash used in investing activities | $(378.2) | $(9.0) | $(369.2) | | Net cash (used in) provided by financing activities | $(0.3) | $0.2 | $(0.5) | - Cash used in investing activities significantly increased by $369.2 million, primarily due to substantial purchases of investments in Q1 2022[190] - A subsidiary entered an agreement to purchase real property in Austin, Texas, for approximately $30.0 million in cash[194][196] Critical Accounting Policies and Estimates This section highlights critical accounting policies that require significant management judgment - The preparation of financial statements requires management to make estimates, particularly for loss reserves and fair value measurements[198] - Actual results may differ significantly from these estimates, which are informed by experience and reasonable assumptions[198] Recent Accounting Pronouncements This section refers to Note 1 of the consolidated financial statements for details on recent accounting pronouncements - Information on recent accounting pronouncements is incorporated by reference from Note 1 to the consolidated financial statements[199] Emerging Growth Company Status Hippo qualifies as an 'emerging growth company' under the JOBS Act, affecting accounting standard adoption timing - Hippo qualifies as an 'emerging growth company' and has elected to adopt new accounting guidance within the same time periods as private companies[200][201] - This election may make the Company's financial statements difficult to compare to those of other public companies[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the Annual Report on Form 10-K for a discussion of financial market risks - For financial market risks, refer to Item 7A in the Annual Report on Form 10-K for the year ended December 31, 2021[202] - The Company's exposure to market risk has not changed significantly since December 31, 2021[202] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022 - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[204] - Controls and procedures are designed to provide reasonable assurance, acknowledging inherent limitations[205] - There were no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter[206] Part II. Other Information Item 1. Legal Proceedings This section incorporates by reference the legal proceedings information from Note 12 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 12 Commitments and Contingencies[208] Item 1A. Risk Factors This section outlines numerous risks that could adversely affect the company's business, financial condition, and results SUMMARY RISK FACTORS This summary highlights key risks including a history of net losses, competition, reinsurance, and regulatory compliance - Key business risks include a history of net losses, dependence on customer retention, brand reputation, and claims management[210] - Industry-specific risks involve intense competition, reinsurance availability, capital requirements, and reliance on technology[210][211] - Operational and regulatory risks include data privacy laws, intellectual property protection, and reliance on key personnel[211][212][213] - Market risks include the cyclical nature of insurance, impact of catastrophes, economic downturns, and stock price volatility[213][214] Risks Related to Our Business This section details operational risks including net losses, customer retention, reinsurance, and technology reliance - Hippo has a history of net losses and an accumulated deficit of $695.6 million as of March 31, 2022[214][215] - The Company's success depends on retaining and expanding its customer base, which is challenged by competition and regulatory hurdles[216][217][218] - Hippo relies on an asset-light model with significant reinsurance, but faces risks if reinsurance is unavailable or reinsurers fail to meet obligations[232][234][236] - The Company's proprietary technology is complex and prone to errors, which could lead to incorrect pricing and customer dissatisfaction[244][245] - Hippo is subject to extensive data privacy laws, and any failure to comply could result in regulatory fines and reputational harm[282][283][285][272] - The Company's success depends on its founder, senior management, and key personnel, and their loss could harm the business[300][302] Risks Related to Our Industry This section addresses broader industry risks such as cyclicality, reserve uncertainty, regulation, and catastrophes - The insurance industry is cyclical, characterized by periods of intense price competition which could impair profitability[338][339] - Financial condition depends on accurately assessing loss and LAE reserves, which are estimates and may prove inadequate[340][341][344][345] - The Company is subject to extensive state-level insurance regulations, and non-compliance could lead to fines or license revocation[346][347][349][351][352] - The COVID-19 pandemic has disrupted operations, impacted loss ratios, and negatively affected economic growth[359][361][362][363] - Severe weather events and catastrophes, including climate change effects, can significantly increase claims costs and impact liquidity[364][365][367] - Results of operations are expected to fluctuate quarterly due to seasonality and external factors, which could affect financial results[368][369] Risks Related to Ownership of Our Common Stock This section covers risks for stockholders, including market volatility, anti-takeover provisions, and dividend policy - The market price of Hippo's common stock and warrants may be highly volatile due to various factors[390][394] - Provisions in Hippo's Certificate of Incorporation and Bylaws contain anti-takeover effects that could deter a third-party acquisition[393][395][396] - State insurance laws require regulatory approval for any change of control, which could delay or prevent an acquisition[397] - Hippo does not currently expect to pay cash dividends on its common stock for the foreseeable future[411][412] - Being a public company imposes significant legal, accounting, and compliance costs[413][414][415][416] - Outstanding warrants to purchase 9,000,000 shares of common stock could result in dilution to existing stockholders if exercised[419] - Warrants are accounted for as derivative liabilities, and changes in their fair value could materially affect financial results[423][424] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there are no unregistered sales of equity securities or use of proceeds to report - This item is not applicable, indicating no unregistered sales of equity securities or use of proceeds to report[425] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - This item is not applicable, indicating no defaults upon senior securities to report[426] Item 4. Mine Safety Disclosures This section states that there are no mine safety disclosures to report - This item is not applicable, indicating no mine safety disclosures to report[427] Item 5. Other Information This section discloses the purchase of real property in Austin, Texas, for office space - On February 24, 2022, a subsidiary entered into an agreement to purchase real property in Austin, Texas, for approximately $30.0 million in cash[428] - A $2.0 million escrow deposit was made for the property, which will be used as office space[428] - An affiliate is currently party to a lease for a portion of this property, with future minimum rental payments totaling $11.7 million[429] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL interactive data files - The exhibits include the Purchase and Sale Agreement, CEO and CFO certifications, and XBRL data files[431] Signatures This section contains the required signatures of the registrant's Chief Executive Officer and Chief Financial Officer - The report is signed by the Chief Executive Officer and Chief Financial Officer on May 16, 2022[434][435]