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Richard McCathron

Thank you, Mark, and good morning everyone. Thank you for joining us.
Before we get into our Q4 in full year 2024 results. I wanted to take a moment to acknowledge the pain the community of Los Angeles has felt in January because of the wildfires and our role as an insurance company to help alleviate that pain. A handful of our Hippo homeowners' customers and their families completely lost their homes to the fires. We responded immediately with assistance arranging temporary housing, accelerated payouts of policy limits, and have been working with our builder partners to explore ways to help reduce the time to rebuild.
Other customers suffered partial losses and or damage from smoke and ash, and we are supporting them with both financial and operational assistance with remediation. Because I know you are curious about the financial impact of these events, I can say that our preliminary pre-tax estimates of Cap losses from these fires is approximately $42 million. A few days ago we cited definitive agreement to sell our subrogation rights for the eaten portion of the wildfires, so this figure is net of expected recoveries from both reinsurance as well as subrogation and includes the impact of the assessment from the California fair plan.
Approximately $30 million of this amount relates to the Hippo home insurance program, with the remaining $12 million related to non-Hippo programs supported by our spinnaker fronting business. The impact from these losses will be reflected in our Q1 2025 financial results. One more thing I should add is that the Hippo portion of these losses was related to legacy HHIP policies which we have been working to reduce our exposure to over the past few years. None of these losses related to homes we cover that came from our new homes channel, which represents a substantial majority of the new business we've been writing in California for some time.
Now turning to our performance for both a full year and fourth quarter of 2024. I think it's safe to say that this was the most successful year and quarter in the company's history. Over the course of the year, we improved our HHIP gross loss ratio by nearly 30% points, streamlined our operations to reduce fixed costs, and in Q4 achieved our long-stated goal of generating positive adjusted EBITDA, both on time and to a greater extent than we expected. We did all of this while nearly doubling our annual revenue and laying the foundation across each of our business units to deliver margin enhancing growth for years to come.
In our core HHIP homeowners' insurance program, we completed the broad transformation of our policy portfolio that was designed to reduce CAT-related volatility and bring our loss ratios down to target levels. We accomplished this through rate increases, structural changes to our coverage, and reductions in exposure to wind and hail by approximately 80% compared to mid-2023 levels. We achieved a gross loss ratio of 73% for calendar year 2024 and a Non-PCS CAT loss ratio of under 45% in the fourth quarter, approaching our long-term target level with further improvements expected in 2025. In our insurance as a service business, we have demonstrated the ability to achieve consistent long-term growth and profitability over the years while maintaining our quality bar for program vetting and underwriting.
In 2024, we grew our annual revenue by more than 40% while maintaining discipline in both program selection and risk participation, which resulted in an annual net loss ratio of 39%. There's no shortage of potential programs for Spinnaker to work with. In fact, we reviewed more than 100 opportunities in 2024. But we do not think we need to compromise on quality to achieve compelling financial results. During the year, we focused on building a solid foundation for future growth for our Hippo homeowners insurance program, with a particular focus on the New Homes Channel. We added new builders and carrier partners enhance our already differentiated risk allocation technology and made additional investments in operational excellence.
As we move into 2025, we are working to further expand our network of partners and to deepen relationships with our current partners, all while working with this group to redefine what is possible in helping buyers of newly built homes secure insurance quickly and easily as part of the home buying process. As we turn our attention to our outlook for 2025, I want to note that even with factoring in the short-term impact of the LA fires, we feel very well positioned in 2025 to deliver substantial improvements to operating income versus our 2024 results. Stewart will talk more about this in a few minutes, but because I know you're all curious, I will say with conviction.
That we remain on track to turn net income profitable by the end of 2025. I'm proud of the progress we've made as a business over the past 12 months and all of our Hippo team members who have made this progress possible. I'm even more excited about what's next on the Hippo journey, and we look forward to sharing more about our future plans and a special day for investors on June, 12th in New York City. We'll share more details about that event soon.
Now, I'd like to turn the call over to our Chief Financial Officer, Stewart Ellis, to walk through the highlights of our full year 2024 and Q4 financial results, as well as our expectations for 2025.

Stewart Ellis

Thanks, Rick, and good morning everyone. 2.5 years ago in September 2022, Hippo hosted its first investor day. During that event, we committed to deliver positive adjusted EBITDA by the end of 2024 and to growing our revenue by 3.5 times between then and calendar 2025 to between $420 million and $450 million. In the fourth quarter of 2024, we delivered on that guidance by posting positive adjusted EBITDA of $8.5 million and revenue that represents an annual run rate of approximately $410 million which means we are on track to exceed our investor day revenue target in 2025.
Over the past 2.5 years we've responded quickly to changes in both the insurance and financial markets, transformed the fundamental risk dynamics of our business, and laid a strong foundation for future margin enhancing growth. We've seen the benefits of these changes over the past few quarters, and they remain present as factors that helped us exceed our adjusted EBITDA guidance in Q4.
In the fourth quarter, our total generated premium, or TGP grew by 10% year over year to $295 million driven by 22% year over year growth in our insurance as a service segment. This growth was partially offset by an expected decline of 8% in our hippo home insurance program segment due to the completion of our efforts over the past 12 months to manage down our exposure to high-A geographies. If we normalize both current and prior year periods to exclude the TGP from our first connect platform, which we sold a majority stake in during the quarter, the year over year growth rate would rise from 10% to 16%.
Revenue growth in Q4 once again outpaced TGP growth, increasing 58% year over year to $102 million, up from $64 million in Q4 of last year. Like in the first, three quarters of the year, higher premium retention at HHIP and volume increases in the insurance as a service and services segments were the primary drivers of growth. As a result of the higher premium retention at HHIP, net earned premium as a percentage of gross earned premium in our HHIP business rose to 83% in Q4, up from 29% a year ago. Like in previous quarters, insurance as a service revenue growth was driven mostly by the premium growth from existing programs, augmented by slightly higher risk retention with some of the programs. We also launched a few new programs which we expect to become significant growth drivers in 2025.
Our HHIP growth loss ratio improved 3% points year over year to 50%. The HHIP non-PCS loss ratio improved at an unprecedented rate of 20% points to 43%, driven by the broad transformation we have been working on over the past 12 months, the activities of which included rate increases, structural changes to our coverages, and other underwriting actions. We achieved this improvement despite the portfolio level shift away from higher CAT-geographies, which all things equal, would have tended to raise the non-PCS loss ratio.
The HHIP PCS cat loss ratio came in at 7% during Q4. This represents an increase of 17% points year over year, which is mostly explained by substantial current and prior accident period reserve release in the fourth quarter of 2023, a year ago, which resulted in a PCS loss ratio of 10% in that period. The combination of year over year improvements in gross loss ratio and the improvements to our reinsurance structure working their way into our financials drove an even larger improvement in our HHIP net loss ratio, which came in at 60% during the quarter, an improvement of 46% points versus Q4 of last year.
In Q4 we again delivered significant top line growth while simultaneously reducing our operating expenses both as a percentage of revenue and on an absolute dollar basis. Relative to Q4 of last year, our GAAP sales and marketing, technology and development, and general and administrative expenses collectively declined by $8 million a year-over-year decrease of 19%. When combined with the increases in our revenue over the same period, these costs fell from 69% of revenue in Q4 of last year to 35% of revenue this quarter.
Q4 net income came in at $44 million an $86 million improvement versus Q4 of last year. $46 million of this improvement relates to the one-time gain from the sale of a majority stake in First Connect. The remaining $40 million of the improvement was driven by revenue growth at HHIP, enabled by our improved reinsurance structure. Improvements to HHIP's growth loss ratio. Better operating leverage and continued growth in our businesses that are less exposed to weather and underwriting volatility.
Our Q4 adjusted EBITDA came in at $8.5 million ahead of our previous guidance and a $31 million improvement versus Q4 of last year. The primary drivers of the year over year improvement are the same as the non-first connect drivers of the net income improvement I just walked through. Q4 ending cash and investments increased quarter over quarter by $25 million to $571 million. This increase was driven by positive cash flow from the business, seasonal working capital changes associated with payments to reinsurers, and proceeds from selling a majority of our shares in our First Connect platform, partially offset by our repurchase of shares during the quarter.
Turning now to our guidance for 2025, beyond the Q4 2024 adjusted EBITDA target we set at our investor day back in 2022. During that event, we also committed to deliver 2025 revenue of between $420 million and $450 million. We are now in a position to raise that revenue guidance to $465 million for calendar 2025 and to guide to positive net income by Q4 of 2025. The revenue guidance represents a 25% year over year growth rate from 2024 revenue on a GAAP basis and 27% year over year growth when First Connect is removed from our 2024 results.
The expected improvement to turn net income profitable by Q425 is driven by the continuation of the trends in the business that drove our adjusted EBITDA improvement in 2024. Specifically, excluding the benefits of prior accident year reserve releases, we expect continued year over year improvement in both gross and net loss ratios in calendar 2025 versus 2024 levels, even when factoring in the impact of the Q1 wildfires. And as far as Q4, 2025 specific guidance, we expect HHIP gross loss ratio to be less than 60%, with an expected PCS CAT-load in that quarter of 15%.
We expect HHIP net loss ratio in Q425 to be less than 67%. Beyond improvements to loss ratio, we expect continued improvements to operating leverage, with fixed expenses remaining roughly consistent with current levels despite the higher expected revenue.
And now I'd like to turn the call back over to our CEO Rick McCathron.

Richard McCathron

Thanks, Stuart.
Before we open the floor for questions, I want to take a moment to mention an announcement in our form 10k that we filed this morning. Just over six years ago, we hired Stewart as Hippo's Chief Financial Officer. Since that time, he and the team he has assembled have been instrumental in our success as a business. One of the things we emphasize as leaders at Hippo is developing our team and preparing them to take on greater responsibility.
I've been particularly pleased with Stewart's efforts in this regard, as it relates to our finance organization, and yesterday our board of directors formally recognized this by appointing our current VP of finance, Guy Seltzer, to be Hippo's next Chief Financial Officer, effective on Monday, March 10th. Beyond his responsibilities as our CFO, Stewart has also been serving as Hippo's Chief Strategy Officer. He has been a valuable thought partner to me and our leadership team in this capacity, and I'm looking forward to his continued contributions in this more focused role.
Most of you have already had the pleasure of interacting with Guy over the years, and while he has big shoes to fill, I can't imagine a better choice to fill them. Please join me in thanking Stewart for all of his contributions as Hippo's CFO and congratulating Guy on his promotion. You'll hear more directly from Guy in his new capacity on our next earnings call.
Now operator, we'd be happy to open the floor for questions.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Our first question today comes from Tommy McJoynt from KBW. Please go ahead, Tommy, your line is now open.

Thomas McJoynt-Griffith

Hey, good morning guys. We were a little surprised to see the sale of the eat and fire subrogation rates, as we have generally heard from other carriers that, those rights and potential recoveries are not being sold, can you talk about the strategy behind that? I assume none of that was driven by a need for liquidity, but just talk about the potential, upside you guys are missing out on or just why you guys ultimately sold those.

Stewart Ellis

Yeah, happy to take that one Tommy this is Stewart, this is I'll confirm your suspicion that this is not due to liquidity needs. This was due to really looking at the potential for what we could realize in terms of proceeds in the in the market now and essentially comparing the economic value of that to what we would expect to receive by continuing to pursue the claims through the normal legal process, both the time value of money as well as the ultimate price that we were able to achieve in the market today made that just an attractive opportunity for us to do in this world.

Thomas McJoynt-Griffith

Okay, got it. And how does such an early in the year, cat loss event impact your reinsurance protection for the rest of the year? Perhaps you could share, what second event retention looks like, and just remind us when your reinsurance renewal programs, go into effect when you guys are negotiating this.

Stewart Ellis

Yeah, happy to take that one as well. So the Hippo specific or the Hippo program specific reinsurance renewals are a January 1st renewal. So this was right after the renewal for 2025, the size of the losses associated with the Hippo program.
Taking into account the subrogation barely made it into our reinsurance tower. It's not, just into the first layer by a small amount. So, our existing reinsurance is more or less intact even when giving effect to these events. So we don't really feel like it has a meaningful impact on the protection that we would have for other potential events over the course of the rest of the year.

Richard McCathron

Yeah, I think, and this is right Tommy just to emphasize on that. We don't think our reinsurance partners are going to be negatively impacted from our portfolio, as Stewart mentioned, barely made it into the first layer, and on our XOL we have three layers of reinsurance protection. So this was not an overly significant event from our reinsurer's perspective.

Thomas McJoynt-Griffith

Got it. And then just last question, it sounds like you're giving guidance for the full year for revenue, and then, bottom line figure for just the fourth quarter of '25.
I guess are there any sort of guideposts that you could help us think about for the full year 2025 on a bottom-line basis either EBITDA or an earnings basis.

Richard McCathron

Yeah, I'm going to go ahead and punt a little bit on this to our ear, or excuse me, to our investor day event on June 12th. If you recall 2.5 years ago, we had an investor day where we gave sort of three-year financial projections. Our intention is to also do that on our investor day along with sharing some other strategic opportunities that we've been. Exploring and working with to really grow and expand our portfolio now that we've gotten our house in order, our loss ratios, our near, our desired levels, we're really excited to share that. So we're going to give a lot more detailed guidance on a three-year basis on June 12th.

Stewart Ellis

And tell me I'll add a little bit more in the guidance that we did give earlier in the discussion. I think we did give you, some indication of where we feel like our operating expenses are going to be. We talked about revenue, we talked a little bit about kind of the loss ratio of progression. It should be possible to infer kind of how we're feeling about the full year on some of those things, but as Rick said, we'll try to make that a lot more specific as we get into the into the year.

Thomas McJoynt-Griffith

Sounds good. Thank you.

Operator

Thanks Tommy.
Thank you. (Operator Instructions)
Our next question comes from Andrew Anderson from Jefferies. Please go ahead, Andrew, your line is now open.

Andrew Andersen

Hey, good morning, guys. I guess first, congratulations guy and Stewart. It's been a pleasure over the years.
It was just on the quarter and thinking about California here, the recent events kind of change your thinking about exposures in the state, and could you maybe provide an update on, where you are with de-risking a little bit? I think there was still some remediation as of last quarter, but to a to a more moderate degree than prior periods.

Richard McCathron

Yeah, Andrew, this is Rick. Happy to take that question. First, to be clear, you're still going to have lots of interactions with Stewart. He's not going anywhere. So, we're excited about what we'll be sharing during investor day. And as a result, Stewart's got a lot of work to do on that on that front. So it related to the California fires we did mention in our pre our pre-comments that none of the losses in these fires were related to our new home business, which is substantially all the new business we've been writing in the state of California in a fairly diversified fashion. So this doesn't change that perspective at all for us.
All of the losses were a result of the historical HHIP portfolio. We have been working both independently and with the state to figure out a way that we can. Reduce some concentration exposures on that particular portfolio, also allowing us to write new business in areas that we deem are appropriate where we have very solid underwriting guidelines. So, I think this is despite the tragedy, I think it's an opportunity to further refine our efforts in California. It's a big state for us, it's an important state for us, but we don't think this dramatically changes our outlook.
Related to the second part of your question on our what we call project volatility, we have done the vast majority of the corrective items, those are already in flight. They have not all shared or reflected in our P&L just yet, so we're excited we have a little bit of favorable tailwinds as a result to that, but there's still a little bit of work to be done. The biggest portion of that was California and again we're working with the regulators on how to finish that portion of our remediation, but we're all the work is substantially done now it's just time to earn that positive benefit into the portfolio.

Andrew Andersen

Thanks, and then on IAS, I think you mentioned a pretty strong pipeline, but being careful on risk selection, kind of how are you seeing the competitive environment there and thinking about growth just as perhaps reinsurance costs moderate for the industry a bit.

Richard McCathron

Yeah, Andrew, good, great question. So, a couple of things. One, I just want to reemphasize the quality asset that Spinnaker is. We had the opportunity to purchase it's approximately four years ago as we were needing a risk bearing entity and through our management of that entity over the last several years we recognized just the quality of individuals we have in that organization. The pipeline for fronting business is very full. It reduces as you start thinking about the quality of the various MGAs that we're starting to see.
A lot of our growth in that particular channel has been with our existing MGA partners that have long track records of positive underwriting results, and these are the areas where we really get to know. Those partners, these are the areas in which we consider taking a bit more risk on these programs, so we feel good about continued organic growth, and we are also adding new programs that we deem of high quality, because these are high quality programs, we're not at all concerned with how reinsurance would look at these various programs.
And just as a reminder, each of these programs have their own reinsurance panels, and then we of course have a corporate Cap that goes over each one of these individual programmatic reinsurance panels. So, the performance of our programs generally has been very strong, and we're excited that we have an opportunity to grow with those partners and add new partners.

Stewart Ellis

And I would also say I think we have a differentiated product and service within the fronting space, you know. I think both the quality of the relationships that Rick mentioned as well as some of the things that we can offer them in terms of support are part of the reason why we have such a full pipeline and we're excited about that as well.

Andrew Andersen

Thanks, and maybe just one more sales and marketing it, it's coming in over the last couple of years. How are you thinking about that spend line and seasonality the '25?

Stewart Ellis

Yeah, I think I mean we have benefited from getting more efficient in our spend and our conversion rates and everything else that drives you know the top of the funnel metrics for us so we've been able we feel like we've been able to continue to grow with well-being, very disciplined in the spending, I think we see opportunities out in the market and we will be aggressive if we feel like we can grow, in a way that will continue to enhance the margin. I think we are not finished making the business more efficient.
We're not finished in driving additional bottom line results, as we talked about earlier, we are, we turned to Justin.t positive in Q4, but we're very focused on making sure we are that income positive in 2025 by the end of the year and. Continuing to get more efficient on the, all aspects of what we call fixed costs is an important part of that. But I do think that we have, we've got opportunities in the market to grow, where we can spend some money and have a high return on that from a growth standpoint.

Andrew Andersen

Thank you.

Operator

Thanks, Andrew.
Thank you.
(Operator Instructions)
We have no further questions, so we'll hand back over to Rick McCathron for closing remarks.

Richard McCathron

Thank you so much, operator, and thank you for joining us. We're very excited about the results of the quarter and the full year, and we look forward to sharing more updates as we have our Q1's earnings call and as we share a more futuristic plan for our longer term operations and opportunities and our investor day on June 12th. Have a very good day everyone.

Operator

Thank you. This does conclude today's call.
Thank you for joining. You may now disconnect your lines.