Lemonade: The pet-first, ex-CAT insurer

Key takeaways of Lemonade’s Q2’23 shareholder letter:

• Q2’23 had better top and bottom lines than anticipated.
• In-force premium (IFP) reached $687 million, up 50% YoY.
• 55% quota share reinsurance program was oversubscribed.
• Secured customer acquisition cost (CAC) financing to enhance cash-flow.
• California approved rate hikes: 30% for homeowners, 23% for Lemonade Pet.
• Rate increases are accelerating with expected improvements in loss ratio.
• Adjusted EBITDA loss: $53 million, better than projected despite CAT losses.
• Q2 net loss: $67 million.
• Two new structures have been introduced for risk retention: Lemonade Re in the Cayman Islands and a captive cell in Bermuda.
• The newly introduced Synthetic Agents program aims for capital efficiency by addressing the upfront costs in the direct-to-consumer strategy.
• The Synthetic Agents help balance the cash outflows with premium collections, enabling accelerated growth without a ‘cash flow gap’.
• Lemonade is analyzing homeowners business based on several factors to assess risk better – some policies shouldn’t be renewed.
• Already non-renewed about 2,000 homeowners policies.
• This review is an ongoing process – anticipate it to significantly reduce loss ratio by a double-digit percentage in the upcoming years.
• Reached the one-year mark since acquiring Metromile, which has integrated smoothly with Lemonade.
• Though the acquisition significantly boosted Lemonade’s metrics last year, its impact will start to fade in year-on-year comparisons. For instance, while Lemonade reported a 50% IFP growth year-on-year, its growth without Metromile’s contribution was 28%.
• Customer count increased by 21% to 1,906,408 as compared to Q2’22.