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Lemonade net loss nearly doubles to $66mn as LR swells 16 points to 81%

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Personal lines InsurTech Lemonade reported a net loss that more than doubled in the third quarter, to $66mn from $31mn last year, while the company’s net loss ratio jumped 16 points to 81%.

The New York-based InsurTech posted a $1.08 net loss per share in the quarter, weaker than the $0.57 loss per share from Q3 2020 but above the $1.16 loss per share estimated by Wall Street analysts for the period.

The uptick in Lemonade’s loss ratio, it said, came from its efforts to diversify away from renters into homeowners' and pet, two parts of the portfolio that are less seasoned and where it will take time for the underwriting results to stabilize.

Some of the steps the company said it was taking to improve its loss ratio include prioritizing more profitable geographies, refiling rates across states to improve pricing accuracy and adequacy, as well as implementing rigorous cat management strategy.

The personal lines specialist also said that marketing efficiency – the change in in-force premium driven by marketing costs – dropped by 26% in the quarter, but that the company was nonetheless able to hit is in-force premium growth targets at what they described as “compelling LTV to CAC ratios in spite of this headwind”.

The company also provided an update on its cross-selling efforts, saying that about 8% of its in-force premium comes from bundled products. Cross sales amounted to $5mn in the quarter.

Lemonade said favorable loss trends in its European portfolio have led it to re-allocate advertising dollars away from its life product towards its European business.

“While our Europe and life businesses each have relatively small scopes today, we continue to believe that they will achieve a Lemonade-style growth curve with meaningful scale in the long term.”

Included in its earnings release, Lemonade said it had $1.1bn in cash on hand, up from $578mn at the end of 2020.

Lemonade expects to report an adjusted Ebitda loss in the fourth quarter of between $50mn-$52mn, with up to $89mn in gross earned premiums

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Lemonade’s business mix has evolved considerably since a year ago, the company said, with renters comprising 53% of the book, relative to 70% a year ago. The company noted that the lines of businesses that now capture a higher percentage of that share, demonstrate higher loss ratios than the more “mature, stable” renters book.

In the “long term”, the InsurTech said it expects the loss ratios of all Lemonade product lines to be under 75%.

Premiums: The company’s gross written premiums jumped 64% to $116.8mn. Net earned premiums increased by 104.8% to $21.5mn.

Lemonade cedes three quarters of its book to a panel of reinsurers, led by Hannover Re.

Expense ratio: The company did not disclose its expense ratio and unusually for an insurer, did not post its combined ratio.

Lemonade’s expenses, excluding net loss and loss adjustment expense soared 98% in Q3 to $82.4mn from $41.6mn a year ago, were fueled by increased advertising and employee-related expenses, higher technology investments, and increased larger overhead costs.

Customers: Customer count increased by 45% to 1,363,754 as compared to the third quarter of 2020.

Commentary: “We expect that injecting all the Metromile capabilities into Lemonade Car will lead to a product offering that stands alone in the market: we'll have all the people and tools in place to deliver the most seamless and customer-centric car insurance product,” the company said in its Q3 letter to shareholders.

Lemonade posted its third quarter underwriting results after announcing an agreement to buy auto InsurTech Metromile, in an all-stock transaction implying a diluted equity value of $500mn, a deal Lemonade considered “the most exciting news” of the day as the transaction is expected to pay dividends by flattening risk, increasing efficiencies and collapsing time.

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