Last Updated: 8/11/2020.
What They do
Lemonade is attempting to disrupt the way insurance has traditionally been sold.
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.
|Lines of business||Renters, homeowners, and pets|
|Headquarters||New York, New York|
|IPO Date||July 1, 2020|
|TTM revenue||$98 million|
|Returns and Margins|
|Return on invested capital (ROIC)||(30.6%)|
|EBIT margin (operating margin)||(122.0%)|
|Net income margin||(123.0%)|
How They Make Money:
- 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.
- 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.
- Investment income. It's small and clocked in at $3.4 million for 2019.
KPIs (Key Performance Indicators):
|$ in millions, except for premium
|Three months ended March
|Three months ended June
|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|
|Adjusted gross profit||$5.4||$1.8|
|Adjusted gross margin||18%||14%|
|Adjusted EBITDA margin||-73%||-173%|
|Gross loss ratio||72%||87%|
|Net loss ratio||72%||75%|
- 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.
|Lemonade's one-year ret.||75%|
|Lemonade's two-year ret.||76%|