William Blair Initiates Coverage of Hippo Holdings Inc. and HCI Group, Inc.

William Blair initiated research coverage of Hippo Holdings Inc. (HIPO $11.28) and HCI Group, Inc. (HCI $64.18), two technology-forward homeowners insurers.

In addition to the initiations, analyst Adam Klauber explored recent developments in the homeowners insurance market in his report, detailing how the market “has been evolving in recent years in response to shifting macro trends,” as well as the structural flaws in the homeowners sector, the rising opportunity in the homeowners insurance market, and emerging technology-driven solutions. “The core value of homeowners insurance premium is determined by a combination of property valuation and risk assessment,” Klauber said. “Both factors are undergoing considerable shifts with increasingly volatile weather and rising home values. The overall market opportunity is growing as a result, but participation requires a reevaluation of profitability strategies.”

In the report, Klauber explained, “Hippo Holdings Inc. is a digital insurance company focused on the homeowners market based in Palo Alto, California, and offers various home insurance and home insurance-adjacent products through a vertically integrated business model.” Klauber added that “Hippo’s product mix generates multiple revenue streams diversified by full, partial, and no-risk exposure. This creates some insulation from the cyclicality/seasonality of the home insurance market as well as from large, catastrophic events. As the business matures, we expect this to contribute to lower-volatility earnings. In addition, growth is being pursued strategically to accelerate the path to profitability. Growth will be focused in the low- to no-risk segments, Services and IaaS, as the home insurance segment focuses on refining and maturing its current book of business.”

Speaking about HCI, Klauber described the company as “a property and casualty insurer that also operates in the information technology services, reinsurance, and real estate markets based in Tampa, Florida.” Klauber added, “The company’s HCPCI segment, one of its three major operating segments, is largely concentrated in the Florida market, where many of the larger insurers have begun to pull back due to high levels of risk; thus, the consistent focus on Florida has allowed for better underwriting capabilities specific to the state’s risk. However, the company did expand beyond its initial Florida-focused product through the launch of TypTap insurance in 2016, which is a technology-driven insurance carrier that underwrites risk at a granular property level. The integration of TypTap has expanded the geographic reach of HCI without compromising its risk selection process and the segment has been growing at a quick pace, with a CAGR of over 120% from 2018 to 2022, while maintaining a profitable book with below-industry loss ratios.”

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William Blair or an affiliate is a market maker in the security of Hippo Holdings Inc. and HCI Group, Inc.

William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from Hippo Holdings Inc. and HCI Group, Inc. or an affiliate within the next three months.

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