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This Insurance Stock Is Down by More Than 50%. Is It a Buy?

By Matthew Frankel, CFP® and Jennifer Saibil – Oct 13, 2021 at 8:52AM

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Despite a massive addressable market, this company has been beaten down.

Hippo Holdings (HIPO 8.71%) is the most successful insurance technology company so far when it comes to disrupting the legacy insurers, and it has a massive market opportunity. In this Fool Live video clip, recorded on Sept. 30, contributors Jennifer Saibil discusses whether Hippo's stock is a bargain now that it has declined by more than half. Matt Frankel, CFP, chimes in at the end.

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Jennifer Saibil: Then I really wanted to talk about Hippo, which really, I mean, recently came under my radar. Maybe it's not on your radar yet. I'm not necessarily ready to say that it's a buy, but it's definitely something to watch. Ramp Public is a SPAC with Reinvent Technology Partners, and they merged at the end of July. They're really pretty new.

Actually, Matt mentioned before, Lemonade (LMND 12.52%). So Hippo is a competitor to Lemonade, although they're very focused on the homeowner's insurance market. What they do differently, Lemonade wants to shake things up by ending conflict through their charitable giving and the way that Hippo wants to do is through their smart technology.

They send out these smart home monitoring kits, which most of their, I think there is a 74% activation rates, and these kits monitor what's going on in the house they say it's the most widely used smart home monitoring kit in the U.S. They sense things that are going in the house so that they could alert the company and homeowner onto things that might change their premium. Like one of the examples they gave is somebody's pool in their backyard.

Somebody from Hippo will call them and tell them they need to get and add to their premium to the cover they're pool and things like that is like home telematics device. You can get discounts depending on things they do in their house, they do home checkups, preventive actions, and basically, they are trying to save it. They're good for the customers posted as the old and established companies that are in conflict with the customer because it's in their best chance to deny claims.

They've been growing pretty nicely. The compound annual growth rate of 69% from 2018 to 2020, and they're expecting that to drop but to still slow grow from 43% from 2021 to 2025, the main problem with Hippo is their loss ratio. Lemonade had a really bad quarter because of the Texas freeze, their loss ratio went up to 120%, the market was really not happy. Hippo's 2020 loss ratio was 120% for the whole year and then in the second quarter is 160%, which is really high. Their loss also widened to $85 million.

There's a lot of risks here and investors really haven't been so happy, and from the initial SPAC price of $10 down it's trading around $4.5 right now. I think there's a lot of good here. There's a lot that they can change, it's also, an Israeli company actually, it's based in Palo Alto but their executives are Israeli and they just opens up a tech center in Israel. But it's definitely one to watch on the silence for now.

Matt Frankel: Awesome, I'm a Lemonade shareholder and I know there are a lot of newer competitors coming on the market. It's going to be interesting to see who wins the Insurtech races over the next couple of years.

Matthew Frankel, CFP owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

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