Rick McCathron: Yes. It’s a really good question. And I think you bring up the two interesting aspects of how I’m going to answer that question. First of all, let me begin by saying we are thrilled with the asset that we have with Spinnaker. It is doing an exceptional job to the company. So when you ask, is it core to our mission of partnering with customers, helping them reduce losses in their home? I would say no. You can do that as an MGA and you don’t have to have a carrier to necessarily do that. That said when you do have the carrier and you have control of the balance sheet and control the capacity, it significantly de-risks the reliance on any third-party. This was a risk that we had several years ago before we bought Spinnaker.
And we think that hypothesis stands true. Having Spinnaker de-risks the business and it allows us to continue to help our customers reduce risks. And of course, as you correctly pointed out, it does contribute positively both to TGP and to EBITDA. So as I said, we think the business is doing very well. We like the business. We won’t comment on rumors within the marketplace. But I think I’ve been very clear on how we view that business.
Yaron Kinar: Thank you. I’ll re-queue.
Rick McCathron: Thanks, Yaron.
Operator: Our next question comes from Tommy McJoynt with KBW. Please proceed.
Tommy McJoynt: Hey, good evening, guys. Thanks for taking my questions. The first one is just around the kind of decision you guys had or announcement about kind of pulling forward the expectations to timing of when you’ll turn EBITDA profitable. Can you just walk through the components of sort of what brings that timeline forward? How much of that is the staff reductions on the expense side? How much is better underwriting within the HHIP side and the other component?
Stewart Ellis: Hey, Tommy, this is Stewart. Thanks for the question. I think that you’ve hit on a number of the most significant drivers and this is with the exception of the expense reduction, which I’ll talk about in a second. A lot of the answers are going to be a recurring theme from some of the conversations we’ve had in the prior quarter. So the loss ratio improvement, which is probably the biggest driver of the Hippo Home Insurance Programs segment’s profitability, I think we’re very pleased with the progress that we’ve made there, continuing to see very large meaningful year-over-year improvement in our core non-PCS loss ratio. We’re also, as Rick mentioned, taking aggressive action to reduce the volatility from the kind of PCS events that impacted us last quarter and that have been accounting really for the bulk of our losses in the history of the company, reducing exposure to wind and hail.
By reducing the exposure in these areas, it allows us to rely less on expensive reinsurance because we have less volatility in the portfolio. And as we’ve talked about in previous quarters, the many rate filings and other rate actions that we’ve taken in 2022, and earlier this year in 2023, are going to start to show off in a more substantial way over the course of the rest of this year and into 2024. So the loss ratio improvement, while also reducing the volatility, allows us to deliver a higher net underwriting profit going forward. So we think that we’ve made great progress on that. And as we continue to get more data, I expect our confidence will increase further. Beyond that, the expense savings are significant. So right now, we’re estimating that we’re going to save on an annualized basis somewhere between $50 million and $75 million relative to the pre-action cost structure in the business.
