Insurance fintech platform
provider Lemonade (NYSE: LMND)
stock is turning the corner after recovering from Q1 2021 Texas Freeze. The fintech provides insurance products for home, life, rental, pets, and soon-to-be car. The car insurance is a strong tailwind for the Company as it completed the development of the Lemonade Car insurance platform, team, and product. The ease of use and access is the appeal of this disruptive
fintech taking on the age-old boring insurance
space. While the Q1 2021 “Texas Freeze” posed an outlier catastrophe (CAT) event with claims. However, that is in the rearview mirror with the reopening
as business is running on all cylinders as more awareness of the service is growing. Shares have cooled off from hype levels in the high $100 range. The in-force premium (IFP) indicated 91% growth in Q2 2021. Pet insurance is an especially strong area of growth as pet adoption
surged during the pandemic and should continue to rise. Prudent investors seeking exposure in the insurance segment can watch for opportunistic pullbacks in shares of Lemonade.
Q2 FY 2021 Earnings Release
On Aug. 4, 2021, Lemonade released its second-quarter fiscal 2021 results for the quarter ending June 2021. The Company reported earnings-per-share (EPS) loss of (-$0.90) missing consensus analyst estimates for a loss of (-$0.89) by $0.01. Revenues fell (-5.7%) year-over-year (YoY) to $28.20 million, beating consensus analyst estimates for $1.4 million. The Company IFP increased 91% YoY to $297 million with 1.2 million customers. The Company say its 7th consecutive quarter with growing premiums per customer up 29% to $246. The Lemonade Car (insurance) product has a waitlist of over 10,000 customers leading to the development of an end-to-end, digital-first car policy management system from scratch.
Conference Call Takeaways
CEO Daniel Schreiber set the tone, “In Q1 2021, our business encountered a CAT, a catastrophe event, which exerts more pressure on our gross loss ratio than any other before it, the Texas Freeze. We were able to effectively endure this pressure due to the outstanding reinsurance program we implemented in Q3 of 2020, a 75% proportional or quota share reinsurance program. As a result, our bottom line was shielded from 75% of the impact of the Texas Freeze. In this hyper-growth stage of our business, our proportional reinsurance program is especially helpful. Not only does it reduce our volatility exposure, but it enables us to be capital-light as it relates to regulatory surplus requirements. However, over time, as the business matures and our expected volatility declines, we anticipate a gradual reduction of the proportion of our business that we seed. When we entered into our current reinsurance program a year ago, we locked in 55 of the 75 points for a 3-year term with the remaining 20 points up for renewal each year. Having just completed the first annual renewal process, we are pleased to share that we were able to secure similar financial terms on a portion of the quota share that we renewed. Consistent with my earlier comment, we made a modest reduction in the scope of our quota share program, stepping down from 75% to 70%. Put differently, we renewed 15 of the 20 points that were up for renewal.”
He continued, “Today, at least 1 Lemonade product is available for purchase in each of the 50 U.S. states, and we continue to push towards being able to service 100% of our customers' insurance needs regardless of where they live. We recently made meaningful progress in the pursuit of this goal with the launch of our renters insurance product in Florida. The renters insurance market in Florida is large. In fact, it's the fourth largest market in the nation, as measured by total gross written premium. By first focusing on renters insurance in Florida, we will be able to fine-tune our approach in a risky CAT state before we develop our homeowners product in that market. We look forward to bringing the Lemonade renters experience to Floridians and anticipate our product suite in the state will expand over time. As a tech-enabled business, we've been, uniquely perhaps, able to address markets across continents. To date, our investments have been heavily lopsided in the favor of the United States as that's been where we've seen the most compelling unit economics. In response to favorable recent trends around improving conversion rates and steadily declining loss ratios that we're observing in Europe, we started investing more meaningfully in R&D in the continent. We anticipate this will lead to a step-change in growth investment levels in the continent in 2022 and beyond, and we'll certainly keep you posted.”
LMND Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a near-term precision view of the price action playing field for LMND shares. The weekly rifle chart has a downtrend triggered on the market structure high (MSH) breakdown under $92.47 with a falling 5-period moving average at the $75.54 Fibonacci (fib) level. The weekly 15-period MA is flattening at $89.47. The weekly stochastic has a mini inverse pup heading towards the 20-band. The weekly market structure low (MSL) buy triggers above $77.32. The daily rifle chart has an uptrend with a rising 5-period MA at $77.30 powered by the stochastic mini pup. The daily upper Bollinger Bands (BBs) sit at $87.57. The stochastic mini pup can provide a thrust towards the daily upper BBs if shares can bounce off the daily 5-period MA. Prudent investors can watch for opportunistic pullbacks at the $75.54 fib, $72.60, $68.82 fib, $67.65 level, $64.11 fib, and the $59.39 fib. The upside trajectories range from the $92.47 weekly MSH trigger up towards the $121.85 fib level.
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