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Lemonade Insurance. A Unicorn Vomiting a Rainbow or a Serious Disruptor?

Key facts, financial and operating metrics, and news and analysis for Lemonade Insurance.

Caleb Dismuke

Last Updated: 8/11/2020.


What They do

Lemonade is attempting to disrupt the way insurance has traditionally been sold.

How?

Instead of selling insurance through a network of agents like Allstate and State Farm, Lemonade sells policies and pays claims directly from their website with the help of two AI bots.

KEY FACTS
Ticker $LMND
Industry Insurance
Lines of business Renters, homeowners, and pets
CEO Daniel Schreiber
Headquarters New York, New York
Founded 2015
IPO Date July 1, 2020
Employees 279
TTM revenue $98 million

Returns and Margins
Return on invested capital (ROIC) (30.6%)
Gross margin 32.4%
EBITDA margin (120.8%)
EBIT margin (operating margin) (122.0%)
Net income margin (123.0%)

How They Make Money:

  1. They retain a fixed fee, currently 25% of premiums. They cede the remaining 75% of the premium to their reinsurance partners.
    • For example: If Mr. Prescott's yearly premium is $100, Lemonade keeps $25, and the reinsurance company gets the remaining $75.
  2. They earn a ceding commission of 25 cents for every dollar ceded.
    • In the above example, Lemonade earned $18.75 for ceding the $75 to their reinsurance partner.
  3. Investment income. It's small and clocked in at $3.4 million for 2019.

KPIs (Key Performance Indicators):

$ in millions, except for premium
per customer
Three months ended March
31, 2020
Three months ended June
31, 2019
Customers (end of period) 729,325 371,571
In force premium (end of period) $133.3 $57.2
Premium per customer $183.0 $154.0
Operating revenue $30.5 $12.5
Adjusted gross profit $5.4 $1.8
Adjusted EBITDA -$22.4 -$21.6
Adjusted gross margin 18% 14%
Adjusted EBITDA margin -73% -173%
Gross loss ratio 72% 87%
Net loss ratio 72% 75%

KPI definitions:

  • Customers-The number of current policyholders underwritten by Lemonade or placed by Lemonade with third-party insurance partners (who pay Lemonade recurring commissions) as of the period end date. Customers with multiple policies count as one customer.
  • In force premium (IFP)-The aggregate annualized premium for customers as of the period end date. Why it's important: It captures the impact of growth in customers and premium per customer at the end of each reported period, without adjusting for known or projected policy updates, cancellations, rescissions and non-renewals.
  • Premium per customer (PPC)-The average annualized premium customers pay for products underwritten or placed by Lemonade or with third-party insurance partners. It's calculated by dividing IFP by  number of customers. Why it's important: It reflects the average amount of money their customers spend on products, which helps drive strategic initiatives.
  • Gross earned premium (GEP)-The earned portion of Lemonade's gross written premium. Why it's important: It gives Lemonade's management insight into the gross economic benefit generated by their business operations and allows them to evaluate their underwriting performance without regard to changes in their underlying reinsurance structure.
  • Gross loss ratio-A percentage, the ratio of losses plus loss adjustment expense to gross earned premium.
  • Net loss ratio-The ratio of losses and loss adjustment expense, less amounts ceded to reinsurers, to net earned premium.

Retention: A key pillar in Lemonade's business model is strong retention.

Industry avg. 85%
Lemonade's one-year ret. 75%
Lemonade's two-year ret. 76%

News and Analysis:

Lemonade ($LMND) IPO analysis
12 min read. By the end of the article, I hope to convince you they can.
Lemonade launches pet insurance
Lemonade launches pet insurance and restructures its reinsurance contracts.
Are you Willing to Look Stupid?
4 min read. Lemonade follow-up.
Lemonade IPO: A unicorn vomiting a rainbow
On Monday, Lemonade filed its S-1 with the SEC, kicking off a highly anticipated IPO. The move comes after an aborted run at a listing in November 2019, due to perceived weakness for similar “growth/tech” companies such as WeWork.