My position in LMND was 2%. I just added 1% after-hour so it’s sitting at 3%. It’s a small position because insurance is still a complicated business. At 5B cap, If LMND succeeds and increases 10 times. It’ll become a meaningful position. I’ll add to the position as it progresses.
So many people don’t understand Lemonade. Lemonade’s disruption is not about AI although it’s a plus. It’s about the business model.
Traditional insurance wants to pay out as least amount of benefit as possible to use the leftover money as profit or to invest in bonds, stocks, etc. They call this float. So this business model acts against the customer. Instead of payout claims painlessly, there will a lot of hassle.
Lemonade takes a fixed percentage from the premium as a fee and the rest go to reinsurance and charity. Lemonade has no incentive to act against the customer so Lemonade is happy to pay out the benefits customers deserved. Happy customers bring in more business. Lemonade is not available in my area but if it does, I’ll definitely switch to Lemonade. As Lemonade scale-up, Revenue increases faster than the expense, Lemonade will make a profit.
We can almost guarantee traditional insurance companies are not going to pull down old system of “pay out as little as possible and save the rest of premium for profit and investment” and change to a fixed fee business model!
If I am not mistaken, for the last quarter, the revenue dropped 40% mainly because of the change in accounting method not from natural disasters. Loss from disasters was only 6% out of the 72% loss.
A few key points:
-In force premium continued to increase at high rate of 100% per year.
-Loss ratio continued to go down.
-Premium per customer increased 20%. You can think of this as retention rate in the Saas world.
- Gross profit increased 83% over Q3 2019
-Adjusted Gross profit increased 138% over Q3 2019
-Operating expense increased just 11%, a lot lower than gross profit increase.
-Gross earned premium increased 104% over Q3 2019
From shareholder letter: "All told, our gross loss ratio improved from the 78% we reported in Q3 2019,
to 72% in Q3 this year. From all of the events of the quarter, CAT losses
accounted for only 6% of that 72%.
"
Changes in GAAP Revenue
Q3 2020 was the first quarter since our change to proportional reinsurance,
and so GAAP revenue deserves special attention. While our July 1, 2020
reinsurance contracts deliver a significant improvement in the fundamentals
of our business, they also result in a significant change in GAAP revenue, as
GAAP excludes all ceded premiums (and proportional reinsurance is
fundamentally about ceding premium). This led to a spike in GAAP gross
margin and a dip in GAAP revenue on July 1 - even though no corresponding
change in the scope or profitability of our business took place at midnight
on June 30. "
"Revenue
Third quarter total revenue was $17.8 million. Note that our ‘proportional
reinsurance’ agreements went into effect at the beginning of the quarter,
increasing the proportion of premium that is ceded. This meaningfully
improves the capital efficiency of our business, but can make year-on-year or
quarter-on-quarter comparisons of revenue misleading.
"
https://s24.q4cdn.com/139015699/files/doc_downloads/2020/11/…