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Reinsurance | 12 Months Ended
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Dec. 31, 2023
Insurance [Abstract] |
Reinsurance | 11. Reinsurance The Company purchases reinsurance to help manage exposure to property and casualty insurance risks, including attritional and catastrophic risks. The Company’s insurance company subsidiaries have entered into proportional and non-proportional reinsurance treaties, under which a significant portion of the liabilities have been ceded to third-party reinsurers. The Company also assumes risk from non-affiliated insurance carriers. Proportional Reinsurance Treaties — Hippo Home Insurance Program For the Company’s primary homeowners reinsurance treaty commencing in 2023, the Company secured proportional reinsurance from a diverse panel of third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized. In 2023, the Company retains approximately 40% of the premium through its insurance company subsidiaries or its captive reinsurance company, RHS, before purchasing catastrophe protection. Additionally, the reinsurance contracts are subject to contingent commission adjustments and loss participation features, which align the Company’s interests with those of its reinsurers. Loss participation features may increase the amount of losses retained by the Company’s insurance company subsidiaries in excess of its pro rata participation. For business produced through the Company’s builder channel, the Company purchased proportional reinsurance from three third-party reinsurers. All reinsurers are rated “A-” Excellent or better by AM Best, or the reinsurance is appropriately collateralized. In 2023, the Company is retaining approximately 58% of the premium produced through the Company’s insurance company subsidiaries or RHS, before purchasing catastrophe protection. The reinsurance contracts are subject to contingent commission adjustments and limited loss participation features, which align the Company’s interests with those of the reinsurers. For the Company’s primary homeowners reinsurance treaty commencing in 2022, the Company secured quota share reinsurance from a diverse panel of third-party reinsurers. All reinsurers are either rated “A-” Excellent or better by AM Best, or the reinsurance is collateralized. In 2022, the Company retained approximately 10% of the premium through the Company’s insurance company subsidiaries, including the Company’s captive reinsurance company, RHS. Additionally, the reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss ratio caps and loss corridors, which align the Company’s interests with those of its reinsurers. The Company saw increased use of loss participation features in the 2022 reinsurance agreements, which increased the amount of losses retained by its insurance company subsidiaries in excess of the Company’s pro rata participation in both the 2022 and 2023 fiscal years. For the Company’s primary homeowners reinsurance treaty that commenced in 2021, the Company secured proportional reinsurance from a diverse panel of third-party reinsurers with AM Best ratings of “A-” Excellent or better. A total of approximately 12% of the premium was retained either by Spinnaker or RHS, which aligns the Company’s interests with third-party reinsurers. Two of the reinsurers, representing approximately one-third of the programs, provided three-year agreements. The Company also seeks to further reduce its risk retention through purchases of non-proportional reinsurance described below. Non-Proportional Reinsurance — Hippo Home Insurance Program The Company also purchases non-proportional excess of loss catastrophe coverage (“XOL”) reinsurance which includes traditional reinsurance protection, catastrophe bonds, and industry loss warranty products. Through the Company’s insurance company subsidiaries, the Company is exposed to the risk of natural catastrophe events that could occur on the risks arising from policies underwritten by the Company or other managing general agents (“MGAs”). The Company is also exposed to this risk through its captive reinsurer, which takes on a share of the risk underwritten by the Company’s MGA business. In May 2023, the Company secured new catastrophe protection through a per occurrence XOL reinsurance agreement with Mountain Re Ltd. (“Mountain Re”), an independent Bermuda company, licensed as a Special Purpose Insurer. The reinsurance agreement meets the requirements to be accounted for as reinsurance in accordance with the guidance for reinsurance contracts. In connection with the reinsurance agreement, Mountain Re issued notes (generally referred to as “catastrophe bonds”) to investors, consistent with the amount of coverage provided under the reinsurance agreement. The reinsurance agreement provides the Company with coverage through June 2026, and pursuant to the agreement, Mountain Re provides XOL reinsurance coverage to the Company for losses from a variety of perils, including named storms, fire following an earthquake, severe thunderstorms, and winter storms on business produced through the Hippo MGA. Under the terms of the reinsurance agreement, the Company is obligated to pay annual reinsurance premiums to Mountain Re for the reinsurance coverage. Amounts payable under the reinsurance agreement with respect to any covered event cannot exceed the Company’s actual losses from such event. In June 2023, the Company’s captive reinsurance company, RHS, entered into an Industry Loss Warranty (ILW) with a third party under which loss payments are triggered by reference to the level of losses incurred by the insurance industry as whole for pre-defined events, rather than by losses incurred by the Company. RHS entered into the ILW in order to hedge the risk of the Company experiencing a catastrophic hurricane loss on business assumed. The Company’s XOL program provides protection to the Company from catastrophes that could impact a large number of insurance policies. The Company buys XOL so that the probability of losses from a single occurrence exceeding the protection purchased is no more than 0.4%, or equivalent to a 1 in 250 year return period when considered with the corporate catastrophe XOL described below under “Other Reinsurance”. This reinsurance protects the Company from all but the most severe catastrophic events. Other Reinsurance Spinnaker also purchases reinsurance for programs written by MGAs other than Hippo through its Insurance-as-a-Service business. The reinsurance treaties are a mix of proportional and XOL in which approximately 75% to 100% of the risk is ceded. The reinsurance contracts are subject to variable commission adjustments and loss participation features, including loss caps, and may increase the amount of losses retained by the Company in excess of the Company’s pro-rata participation. Such provisions are recognized in the period based on the experience to date under the agreement. Spinnaker purchases a corporate catastrophe XOL program that attaches above the reinsurance programs protecting the business written by Hippo as well as the other MGAs. This treaty has a floating retention and attaches at the exhaustion point of the underlying programs’ specific reinsurance. The catastrophe bonds described above inures to the benefit of this contract. This program provides protection to the Company from catastrophes that could impact a large number of insurance policies underwritten by the Company or other MGAs. The Company buys XOL so that the probability of losses from a single occurrence exceeding the protection purchased is no more than 0.4%, or equivalent to a 1 in 250 year return period. This reinsurance protects the Company from all but the most severe catastrophic events. Spinnaker also purchases reinsurance from the State Board of Administration in Florida via the Florida Hurricane Catastrophe Fund (the “FHCF”) and the Reinsurance to Assist Policyholders (the “RAP”) program for residential hurricane losses in Florida. This coverage is provided and required by the State of Florida and protects business written by Hippo as well as other MGAs. The Company currently purchases reimbursement protection at the maximum level (90%) of mandatory coverage offered by the FHCF. With all reinsurance programs, the Company’s wholly owned insurance carriers are not relieved of their primary obligations to policyholders in the event of a default or the insolvency of its reinsurers. As a result, a credit exposure exists to the extent that any reinsurer fails to meet its obligations assumed in the reinsurance agreements. To mitigate this exposure to reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and, in certain circumstances, holds substantial collateral (in the form of funds withheld, qualified trusts, and letters of credit) as security under the reinsurance agreements. No allowance has been recorded in the years ended December 31, 2023 and 2022 for amounts anticipated to be uncollectible or for the anticipated failure of a reinsurer to meet its obligations under the contracts. The following table reflects amounts affecting the consolidated statements of operations and comprehensive loss for ceded reinsurance (in millions):
| For the Year Ended December 31,
| 2023 |  | 2022
| Written Premiums |  | Earned Premiums |  | Loss and LAE Incurred |  | Written Premiums |  | Earned Premiums |  | Loss and LAE Incurred
Direct | $ | 834.6 |  |  | $ | 760.5 |  |  | $ | 531.8 |  |  | $ | 628.3 |  |  | $ | 541.1 |  |  | $ | 409.6 |
Assumed | 12.7 |  |  | 8.8 |  |  | 11.7 |  |  | 1.6 |  |  | 0.4 |  |  | 0.1 |
Gross | 847.3 |  |  | 769.3 |  |  | 543.5 |  |  | 629.9 |  |  | 541.5 |  |  | 409.7 |
Ceded | (687.7) |  |  | (661.8) |  |  | (361.8) |  |  | (580.3) |  |  | (499.0) |  |  | (308.3) |
Net | $ | 159.6 |  |  | $ | 107.5 |  |  | $ | 181.7 |  |  | $ | 49.6 |  |  | $ | 42.5 |  |  | $ | 101.4 |
As of December 31, 2023 and December 31, 2022, a provision for sliding scale commissions of $23.8 million and $3.5 million, respectively, is included in provision for commission on the consolidated balance sheets. As of December 31, 2023 and December 31, 2022, a receivable for sliding scale commissions of $5.8 million and $4.5 million, respectively, is included in ceding commissions receivable on the consolidated balance sheets. As of December 31, 2023 and December 31, 2022, a provision for loss participation features of $112.8 million and $51.3 million, respectively, was recorded as a contra-asset in reinsurance recoverable on the consolidated balance sheets. Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverable on paid and unpaid losses and LAE. Such balance is presented in the table below (in millions).
| December 31,
| 2023 |  | 2022
Reinsurance recoverable on paid loss | $ | 59.9 |  |  | $ | 57.5 |
Ceded unpaid loss and LAE | 221.4 |  | 228.8
Total reinsurance recoverable | $ | 281.3 |  |  | $ | 286.3 |
The Company evaluates the financial condition of its reinsurers and, in certain circumstances, holds collateral in the form of funds withheld and letters of credit. This collateral serves as security under the terms of its reinsurance contracts to reduce credit exposure to reinsurance recoverable and prepaid reinsurance premium balances. The Company has the following unsecured reinsurance recoverable and prepaid reinsurance premium balances from reinsurers (in millions):
|  |  |  | December 31,
AM Best Rating |  | Reinsurer |  | 2023 |  | 2022
A+ |  | Munich Reinsurance America, Inc. |  | $ | 60.0 |  |  | $ | 34.3 |
A+ |  | Hannover Rück SE |  | 56.9 |  |  | 49.9 |
A+ |  | Everest Reinsurance Company |  | 41.6 |  |  | 55.3 |
A+ |  | Digital Advantage Insurance Company |  | 24.1 |  |  | 19.4 |
A+ |  | Swiss Reinsurance America Corporation |  | 18.3 |  |  | 14.0 |
A+ |  | Partner Reinsurance Company of the U.S. |  | 14.9 |  |  | 15.0 |
A+ |  | Sirius America Insurance Company |  | 12.5 |  |  | 7.8 |
|  |  |  | $ | 228.3 |  |  | $ | 195.7 |
|  | Other reinsurers |  | 143.1 |  |  | 160.3 |
|  |  |  | $ | 371.4 |  |  | $ | 356.0 |

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- Definition The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 944 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479838/944-20-50-3 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 944 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 4 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479838/944-20-50-4 Reference 3: http://www.xbrl.org/2003/role/exampleRef -Topic 944 -SubTopic 605 -Name Accounting Standards Codification -Section 55 -Paragraph 12 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479629/944-605-55-12 Reference 4: http://www.xbrl.org/2003/role/exampleRef -Topic 944 -SubTopic 605 -Name Accounting Standards Codification -Section 55 -Paragraph 15 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479629/944-605-55-15 + Details
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