The HHIP business is improving from a revenue standpoint both in Q4 and continuing again in 2024 because of the factors we talked about earlier, the rate improvements and that sort of thing, but also because of the change in the reinsurance structure. And what we’re doing there as the loss ratio has come down, as the attritional loss ratio has come down, as the expected volatility around that number has come down, we are increasingly comfortable retaining more of the premium associated with the attritional risk within HHIP. And so we’ve transitioned almost entirely away from a quota-share reinsurance structure to a more traditional excess of loss reinsurance structure, which means that we’re getting paid for the risk that we are retaining. In 2022 and 2023, we ended up retaining more of the risk functionally than we retained on the premium which was a key contributor to some of the losses from the HHIP program.
And in 2024, we are correcting that. It won’t happen on January 1, because some of the policies from the 2023 treaty year are still under a partial net quota-share structure. But in 2024, we’re moving, as I said, we’re moving almost entirely away from that and retaining premium that is far more in line with the risk that we’re retaining.
Rick McCathron: Yeah. Yaron, if I could add. This is Rick. If I could add a few things to that, I would look at it almost in two categories. The current portfolio or historical portfolio and growth in the HHIP program in creating our new portfolio and/or expanding the portfolio that we already have that’s profitable. So we continue to take the actions necessary to reduce the volatility in the book. That’s efforts for our existing portfolio. When I mentioned going back on the offense, that’s our comfort writing business in segments, in demographics, in geographies, and products where we believe we have a strong competitive advantage. In these areas, we have a tech competitive advantage, distribution competitive advantage, and a product competitive advantage.
So with all of these components, that business we’re doubling down on and going to grow in an accelerated fashion and over time will overtake the reduction in that historical portfolio’s TGP. So we’re really excited that we can continue, the efforts of HIPO to really write business profitably with these areas that we think are ones that we have a distinct advantage.
Yaron Kinar: Got it. And Rick, maybe to your last comment there. So how should we think about kind of the inflection point when the pivot to offense starts overtaking the retrenchment in other parts of the business or other segments and geographies in the HHIP, namely when should we start seeing maybe TGP moving back up again or gross premiums written moving back up again?
Rick McCathron: Yeah. A couple of things. And just as a point of clarification, and I know your question was specific to HHIP, I think, as Stewart mentioned, we’ve always we never shut down for business in our agency segment. So they continue to sell homeowners policies from third-parties, and they continue to sell and cross-sell other products. In the HHIP section, we’ve already begun opening up in those areas that I mentioned where we have these advantages, and we will accelerate that opening as we continue to get comforts around the success of the portfolio, the existing portfolio. So, I think you’re going to start seeing that the traditional business slows down in terms of its decrease and then you’ll start seeing increases in premium for these new segments.
Yaron Kinar: And can you offer a timeline around that, or is it too early?
Rick McCathron: Yeah. I would say, late ‘24, early ‘25 is when you start really seeing this inflection point, but there’s growth that’s happening all along the way.
Yaron Kinar: Got it. And then, if I could, my second question was going to be just around the continued gap between the net loss ratio and gross loss ratio. I think we’re going to see, when I look at your guidance even into 2025, I would have thought that with the changes in the reinsurance program and really a diminishing quota-share and much more XoL, we’d see that gap almost eliminated. Can you talk about that? Are there still loss quarters that we should be thinking of and how is that playing out?
Stewart Ellis: Yeah. Thanks, Ron. I think as the 2023 treaty runs off, there will be small effects there, but I don’t believe those are meaningful and significant. I think the major driver between the — the difference between the growth and the net loss ratio as we get into 2024 and certainly beyond, it’s just going to be the premium that we’re ceding off for XoL reinsurance. And I think that’s a pretty standard gap between gross and net. We do have a little bit of ‘23 quota-share that’s kind of running down at this point. But again, that shouldn’t be a factor for 2025.
Yaron Kinar: Okay. Thank you.
Operator: Thank you. [Operator Instructions] Our next question comes from Matt Carletti of JMP. Matt, your line is open. Please go ahead.
Matt Carletti: Hey. Thanks. Good morning. It’s come through pretty loud and clear, the kind of the increased confidence you guys have and the path to EBITDA positivity. Can you talk a bit about kind of the exact drivers that got you to that increased confidence. We’ve talked a lot about pricing in terms of conditions and maybe that’s the answer. But, are there other factors that play in? Stewart, you obviously highlighted some of the kind of more structural expense changes that have taken place. Just trying to understand kind of what’s changed over the past few quarters that kind of you get better line of sight now?
Stewart Ellis: Yeah. Good morning, Matt. Thanks for the question. I think it breaks down into a few categories of things all of which are moving in the right direction. I think on a written basis we are achieving slightly more rate than we expected in the fourth quarter and we expect that to continue. I think we also made more progress reducing losses in the fourth quarter than we had expected previously. Both of those things along with the structural changes that you mentioned in your question mean a better expected loss ratio in 2024 with lower volatility around that expectation than we had anticipated previously. I think beyond that, we just came through our 2024 reinsurance placement and I think that maybe the market was a little bit better than we expected and I think maybe our story was a little bit more well received by the reinsurance market than we had expected.
