Insurtech Lemonade reports: In-force premiums rises

In-force premiums (IFP) Lemonade have risen 54% year on year to reach $458m in Q2 2022. Startup said that (IFP) stood at $297m in Q2 2021 and at $155m in Q2 2020.

Gross earned premiums over the same periods rose from $35m in Q2 2020, to $67m in Q2 2021, and reached $107m in Q2 of this year.

As noted above, our top and bottom lines came in ahead of our expectations. This belies the global financial picture, and it is noteworthy that one would struggle to detect the macroeconomic downturn based on our internal dashboards.

This is less a credit to Lemonade than a reflection of the fact that we operate in an industry that is largely impervious to recessions, supply chain interruptions, and bear markets – and that we have a diversified portfolio of products and regions that enable us to offset local issues through rebalancing. Our screens are showing strong demand, marketing efficiency 3 ahead of plan, operational efficiencies continuing their ascent, and loss ratios continuing their descent.

Lemonade shared their Q2 2022 results. Here are some highlights:

  • The company ended the quarter with 1,579,936 customers, a 31% increase compared to Q2 2021. From Q1 to Q2 of this year, Lemonade grew its customer base by ~76k.
  • In-force premium reached $458 million, a 54% increase compared to Q2 2021.
  • Premium per customer stood at $290, an increase of 18% compared to Q2 2021.
  • Gross loss ratio was 86% vs 74% in Q2 2021.
  • Net loss for the quarter was $67.9 million, compared to $55.6 million in Q2 2021. Since the beginning of the year, Lemonade reported a net loss of $142.7 million.
  • Sales and marketing expense for the quarter was $37 million, compared to $33.1 million in Q2 2021.
  • The company’s cash, cash equivalents, and investments totaled approximately $1 billion at June 30, 2022 as compared to $1.1 billion as of December 31, 2021, primarily reflecting the $79.7 million of net cash used in operations since December 3.
  • Lemonade submitted about 100 rate filings in the past 12 months.
  • In Illinois, 36% of all Lemonade Car insurance sales in Q2 were cross or upsells. Last we reported, Lemonade had under 3k car policies in Illinois.
  • Since the closing of the Metromile transaction, Lemonade has seen a significant change in its product mix –  renters now comprise about a third of its book, down from almost a half, while car jumped from 1% to 20%. “During this transitional time, and until we can offer a unified Lemonade Car experience, we expect to expend little-to-no marketing dollars on acquiring new customers to Metromile. Accordingly, we anticipate Car to represent a somewhat declining portion of our book in H2, given the natural churn inherent in the business.”
  • In the past 12 months, Lemonade handled twice as many claims as they did in their first ~4 years combined.
  • 73% of Lemonade’s premiums in Q2 originated from customers who have been with the company less than 24 months. “For incumbents it’s the other way around: the overwhelming majority of their customer are comfortably beyond their second anniversary. A health check that fails to account for this, will yield an unduly grim prognosis.”

However, its business was being impacted by inflation and the cost of capital, saying that concerns around the latter were persisting. However, it said that it had taken appropriate measures to mitigate the threat. The impact of this, it says, is being seen on the impact on its moderating loss ratio.

Our last major capital raise was in January 2021, and in the intervening months we’ve seen our cost of capital increase by about one order of magnitude – a direct corollary of what has happened to ‘growth stocks’ during this period. Fortunately, we were well capitalised entering the downturn, so this heightened cost of capital has not had a first-order impact on our business.

The deal means that Metromile shareholders will receive 7.3m Lemonade shares, while Lemonade received a business with over $155m in cash, over $110m in premiums, an insurance entity licensed in 49 states, and a team unsurpassed in harnessing precision data for auto insurance.

Most Metromile employees will transition to roles at Lemonade, and Metromile CEO, Dan Preston, has assumed the role of senior vice president of strategic initiatives.

Speaking of miles and driving, we’re thrilled to have closed our acquisition of Metromile 12 days ago. We spent approximately $145m-worth of stock on this acquisition, and in return we’ve received nearly 100,000 new customers, over $110m of additional IFP, over $155m in cash and cash equivalents, a second insurance entity with 49 state licenses, and precision data from about half a billion road trips. Downturns have their upsides.

The closing of the Metromile transaction opens seven more markets in which we can soon bundle Car & Home, and further launches are in the works. While these developments will take several quarters to fully hit their stride, their value-unlock may prove significant in time.

by Peter Sonner