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Lemonade shares plunge 13.5% after revealing it will buy auto InsurTech Metromile


Shares of Lemonade Inc. plunged as much as 13.5% in morning trading Tuesday after the InsurTech announced it is buying the auto InsurTech Metromile late Monday.

Shares of Lemonade Inc. plunged as much as 13.5% in morning trading Tuesday after the InsurTech announced it is buying the auto InsurTech Metromile late Monday.

Lemonade said the all-stock transaction, which values Metromile at $500mn, will close in the second quarter of 2022. Metromile shareholders will receive Lemonade common shares at a ratio of 19:1, representing a 6% premium to the stock’s 30-day average price.

Lemonade CEO and cofounder Daniel Schreiber said the deal, which comes a week after Lemonade launched its personal auto product, will “vault” the New York-based InsurTech, over the most time and cost intensive parts of moving into auto because of Metromile’s experience in the space.

Earlier on Tuesday Schreiber told analysts that Metromile will not operate as a distinct business after the deal closes.

Following the announcement, Dowling and Partners analyst Bill Broomall told investors that while Metromile will jumpstart Lemonade’s auto efforts and increase Lemonade’s in-force policies to $463mn from $347mn, it will also put upward pressure on its loss ratio while potentially expanding the expense ratio.

“While Metromile has yet to release Q3 earnings, we assume, like other auto writers, their experience will have deteriorated,” he wrote in a note to clients.

“We assumed MILE would ultimately reach breakeven by 2025, earlier than our projections for Lemonade,” which were in 2026 or 2027, he added.

Adding Metromile’s tech and history to help with pricing could result in a faster rollout for the auto product across more states, and greater potential for cross selling, Broomall wrote.

Morgan Stanley analyst Mike Phillips said he is “cautiously optimistic on the acquisition.”

“While MILE is a pioneer in mileage-based car insurance, it has yet to find that optimal balance between pricing, margin and growth,” he wrote in a note to clients. He noted that MILE’s core loss ratio is “notably higher than peers” – 91.7% versus 70.3% in 2Q21 – and the company’s retention ratio of 68% is well below traditional carriers.

In late morning trading, Lemonade shares were down $8.58, or 12.2%, at $61.92. The stock is down 62% since its closing peak of $163.93 in February.

In addition to announcing the Metromile deal, the company also disclosed third quarter earnings on Monday, saying that its net loss more than doubled to $66mn and its loss ratio spiked by 16 points to 81%.

Metromile shares gained 8 cents, or 2.5%, to $3.24, after earlier topping out at $3.36. The stock traded as high as $20.39 early in the year but has traded at $4 or below since early August.

InsurTech Root slipped 20 cents in morning trading, down 3.9% to $4.87. Hippo Holdings lost 12 cents, or 3%, to trade at $4.07.

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