Insurtech Lemonade posted a net loss of $91.4 million in the third quarter compared to a net loss of $66.4 million in the same quarter last year, but in a letter to shareholders, the company said that both the top and bottom line were above were expected.
The New York City-based startup posted ongoing premiums of $609 million in the third quarter — an increase of 76% compared to the third quarter of 2021 — and also posted gross earned premiums of $136 million, up 71 % year- over year.
A notable reversal: Lemonade posted an 8% increase in gross loss ratio in the third quarter of 2022. The insurance company pointed to the acquisition of Metromile, a pay-per-mile auto insurer, and other factors for the recent spike, which drove its GLR to 94% – an increase of 17% year-on-year.
“In our most recent earnings call, we noted that ‘we expect the acquisition of Metromile… to add approximately 3 to 5 percentage points to our loss ratios for the coming quarters,’ [and] every now and then a CAT event will put an unforeseen dent in our loss ratios,” reads a shareholder letter. “Indeed, the closing of the acquisition had the effect we anticipated, while ‘Ian’ – the deadliest hurricane to hit Florida since 1935 – added the ‘unforeseen’.”
During the company’s third-quarter call, the impact of claims paid by Ian was described as “fairly minimal” on the loss ratio and amounted to less than $3 million. Florida represents less than 1% of the company’s business overall. Looking ahead, company leaders expect Lemonade’s loss ratio to continue the overall downward trend of recent quarters, with occasional unforeseen — if short-lived — reversals.
Lemonade’s customer base increased to 1,775,824 in the third quarter of 2022 – a 30% increase over the third quarter of 2021. Premium per customer increased 35% from the prior year to $343. Q3 revenue of $74 million increased $38.3 million or 107% compared to Q3 2021 primarily due to the increase in gross earned premium during the quarter, and to a lesser extent a reduction in the portion of the earned premium that was ceded to reinsurers.
During an Investor Day presentation on Nov. 15, Tim Bixby, Lemonade’s chief financial officer, explained that the company’s leadership has noted several times in recent quarters that it expected the third quarter of 2022 to be “our quarter of peak losses, in terms of the EBITDA loss that we reported. And we continue to believe that it is.”
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