Cool product! But I would love for this to have a decentralized backend using tokenized assets as the securities. It would help me solve the trust issue with yet another new FinTech startup and then I wouldn't mind letting you collect the PFOF if I could swap out backends if needed. Or can let the community develop the best strategies/factor tilts/tax alpha for each individual's unique situation.
The lobbying organization of dealers, NADA, actually stopped publishing profit numbers for the first time in the nearly decade I've been watching. [0] It can't help their lobbying effort with data that makes them look bad.
I consider that pretty telling of the markups they have been getting during the pandemic.
It "allows you to subscribe to specific hardware features that may already be built into your car but that you didn’t activate when you bought the car — like heated seats or advanced driver assistance systems"
Excited to think a whole industry around jail breaking cars could exist
Interesting read! It took me a bit longer to get through that S1 than you though. A few points I'd love to discuss
> to become more efficient versus than competitors and ultimately lower loss ratios
I didn't see them explicitly mention their focus on reducing LR for their business model. I read the LR data as a metric to prove their sustainability.
However, I explicitly saw them mention that they want to generate consistent profits, with a reduced focus on pricing/claims, by just taking a fee. Their utilization of ML AI is focused on the UI
> Thus the strategy of lowering their revenue, as ceded revenue to reinsurers doesn’t contribute to GAAP revenue
Where is there GAAP revenue reported? To me it looks like they included ceded revenue in both "Total Revenue" (is this GAAP?) and their non-GAAP "Operating Revenue"
Thanks! After drafting & reading S-1s for years, my superpower is skimming through quickly :)
On your first point, Lemonade's loss ratios are currently higher than industry average. This is likely tail weighted & driven by a few outlier claims, as their premiums underwritten are minuscule versus their large competitors. Lemonade has every incentive to continue pricing risk better, and ML is the perfect tool for this. Having spoken to CIOs (chief insurance officers) in the industry, the amount of data insurance companies generate is tremendous, and very quickly ML can spot correlations between price, claims payouts, frequency, etc. Harnessing the data as the largest insurcos are surprisingly manual & paper based, and asking the right questions to the machine is the hard part, but Lemonade has the advantage of being more nimble & not encumbered by the legacy tech stack.
Lemonade's original philosophy of taking a flat fee & donating the unpaid claims, was driven by disincentivzing fraud. They hired behavioral scientists, and this was big marketing push for their 1.0/1.5 platform. Insurance companies only have so many value levers to pull, and I think while not explicitly stated in the S-1, reading through publicly available posts & data show Lemonade is very much focused on pricing risk correctly and lower LR.
Regarding point 2, GAAP revenue (rarely use this term) is on the income statement throughout the S-1 (pg 18 is the first instance). Ceded premium to reinsurers is excluded from GAAP revenue (pg 103 has a table breakdown).
My thought is Lemonade is marketing GWP front and center on page 2, but shifting their biz to be heavily ceded to insurers, which lowers revenue. Yes, Lemonade is receiving a fee in exchange, and maybe lowering liabilities on their balance sheet. But, its not a great trade because 1) expensive CAC to cede it away, 2) they essentially become a broker, and brokers don't generate the multiples investors want, and 3) they don't take advantage of insurance float.
Definitely the easiest insurance line to get started in for a variety of reasons. Things like easier compliance, younger and uninsured demographics that are easier to market to, and reduced complexity
Regulators also don't put as much financial scrutiny in lines that don't have high caps (although they still scrutinize other aspects like consumer protection).
If a "renters only" insurance agency goes under, most guaranteed funds could pay it out without much consequence.
It is a whole different story if a major health insurance company were to go under.
Why does LR even matter? They cede 75% of their risk so they operate more like a broker. I reckon the reason they don't cede more risk is because the re-insurers want them to have skin in the game. The re-insurers could get adversely selected if Lemonade can't price well
LR always matters, whether or not one cedes a portion of the risk. An insurance program has little value unless it is profitable over time. While some large P&C insurers historically ran their book of business at break-even, and made it up on investment income (reflected in their combined ratio), that is not a viable option given current interest rates.
The combined LR isn't 72%. The combined LR includes marketing and sales.
I'd argue the pure LR should be evaluated without respect to growth. If you want to adjust for growth look at the combined LR which doesn't look too pretty. But if they can manage to get that LTV it will be a big success
The rest of the executives probably having ownership. If the CFO was a late hire, their compensation comes from the options. I haven't done much research on the CFO but many companies bring in a CFO as they prepare to IPO
> If so, I’m surprised they weren’t bought by one of the bigger brands by now.
From the S1
"As a public benefit corporation, we will be less attractive as a takeover target than a traditional company would be and, therefore, your ability to realize your investment through an acquisition may be limited. Under Delaware law, a public benefit corporation cannot merge or consolidate with another entity if, as a result of such merger or consolidation, the surviving entity's charter "does not contain the identical provisions identifying the public benefit or public benefits transaction receives approval from two-thirds of the target public benefit corporation's outstanding voting shares. Additionally, public benefit corporations may also not be attractive targets for activists or hedge fund investors because new directors would still have to consider and give appropriate weight to the public benefit"
From an individual stock's financial performance perspective, sure.
Right now it looks like individual stocks are highly correlated to the broader market. [1]
The economy and a diversified portfolio could benefit more from benefits to broader society than anything they do individually. Public benefit corporations could be a trend that could significantly grow in the coming years
