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The Details on Lemonade's Newest Product

Lemonade launches pet insurance and restructures its reinsurance contracts.

Caleb Dismuke

Note: We've updated Lemonade's card to reflect the recent changes. View it here.


What's New

Early in Q3, Lemonade launched health insurance for cats and dogs.

The details:

  • Plans start at $10 per month for both new and existing customers.
  • Existing customers can get 10% off if they bundle their renters or homeowners policy with a pet policy.
  • Learn more.

What it covers:

  • Diagnostics-X-rays, MRIs, and labwork.
  • Procedures-Emergency care, hospitalization, and surgery.
  • Medications-Injections and prescriptions meds.
  • Accidents-Unexpected events like road accidents, poisonings, broken bones, and sprains.
  • Illness-Vomiting, diarrhea, infections, cancer, heart disease, plus much more.

What's Changed

Lemonade retired its existing reinsurance contracts and replaced them with proportional reinsurance contracts.

  • Proportional reinsurance-The reinsurer's share of risk is defined for each policy.
  • For Lemonade, they cede 75% of premiums collected to reinsurance companies. In return, the reinsurers pay Lemonade a ceding commission of 25 cents for every dollar ceded.

This is both good and bad

The good: Capital efficiency.  Every dollar of surplus can support three times the amount of premium it did in Q2, pushing Lemonade further into a capital-light business.

The bad: The restructuring changes how GAAP revenue is calculated. GAAP revenue excludes all ceded premiums (proportional reinsurance is fundamentally about ceded premium).

This change will result in a drop in GAAP revenue and a spike in GAAP gross margin in the third quarter (see chart below).


Guidance

What they're projecting for Q3 2020 and full-year 2020.

Guidance Q3 2020
In force premium (IFP) $170-$175 million
Gross earned premium (GEP) $37-$39 million
Revenue $14-$15 million
Adjusted EBITDA loss $(32)-$(33) million
Stock based compensation exp. $3 million
CAPEX $1 million

Guidance Full-year 2020
In force premium (IFP) $195-$190 million
Gross earned premium (GEP) $147-$151 million
Revenue $86-$88 million
Adjusted EBITDA loss $(106)-$(109) million
Stock based compensation exp. $11 million
CAPEX $4 million

Stock performance YTD:

Lemonade ($LMND) (12.09%)
S&P 500 ($SPY) 6.02%