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Short interest: InsurTechs catch a break, but pressure still on

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The latest short interest report, which included data through December 31, was released by FINRA on Tuesday. The two-week period did not see any significant industry-wide catalysts, and short interest mainly remained unchanged in the sector with a few exceptions.

InsurTechs Root and Lemonade saw their short interest as a percent of float fall, 2.4pts, and 3.4pts, respectively. All other firms covered had their short interest as a percent of float remained within 1pt of last reporting period. Recall, InsurTechs have been one of the worst performers for 2021 vs. other insurance sub-sectors.

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Despite being the two firms with the most significant decrease in short interest as a percent of float this reporting period, Lemonade and Root remain the highest shorted insurance stocks, with short interest of 35.3% and 20.4%, respectively.

Root has significant private equity and insider ownership, limiting the public float compared to industry peers, which skews Root's short interest metric higher than it otherwise would have been. Metromile and Mercury rank a more distant third and fourth with 11.6% and 6.9% of float shorted, respectively.

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To short a stock, investors typically borrow shares of that stock from a brokerage to short-sell on the open market and later repurchase the less-expensive stock after the price falls to return to the brokerage. This process involves a stock loan fee, charged per share, that is usually 0.3% of the stock price, annualized. The stock loan fee can be higher for stocks with more short interest from investors.

The chart below illustrates the change in stock loan fee rates for InsurTech firms, which shows that short-sellers are willing to pay more to short most InsurTechs. A recent exception to that rule, Metromile’s stock loan fee rate has dropped to match the 0.3% typical of stocks with limited short interest.

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Most of the covered stocks saw gains over the two-week reporting period as the year wound down. For example, James River’s stock price increased 9.7%, the fastest growth rate for covered firms.

HCI’s stock experienced the steepest drop, falling 8.1% during the two-week reporting period.

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Most firms saw their days-to-cover fall, indicating that their stock volumes were up compared to the prior reporting period.

Mercury, which had the highest days-to-cover last reporting period, saw its stock volumes increase over the subsequent two weeks, with its days-to-cover dropping from 10.5 days to 7.4 days. RLI, one of the few firms to have its days-to-cover rise over the two-week period, now has the lowest stock volume of firms covered and the highest days-to-cover, at 8.2 days.

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