Lemonade plots widened 2023 EBITDA loss as growth forced to slow

AI-powered upstart insurtech  Lemonade will extend its adjusted EBITDA loss in 2023 to some $240-245 million from $225 million in 2022 alongside somewhat muted growth of premium in-force as inflation disincentivises some lines, management told markets.

“We expect our adjusted EBITDA to continue to improve on an annualised basis ..., driven by a better loss ratio and operational efficiencies over time,” management said.

Lemonade will end the year with revenues of $375 to 379 million while sporting in-force premium at end-year of $695-700 million, a mere 11-12% gain from the $6256.1 million at which Lemonade ended 2022.

That 11-12% pace is well below the multi-year target of 20-25% as Lemonade skirts jurisdictions or product lines, specifically pet services and home and car repairs, where rate hasn't held pace with inflation, management said.

“Our determination to exclude such areas from our growth plans means that for now we expect overall annual IFP growth of approximately 11-12%, though we'll look to catch up to our multi-year target of 20-25% as our rates come online,” management said.

With repair and replacement cost inflation “soaring”, Lemonade increased its pace of rate change applications by eight times vs. 2021. “Most of these rate changes have yet to be approved, implemented, and earned in, so we expect continued loss ratio improvement as they do.”

For the year closed, total revenues doubled to $256.7 million, including after a 115.6% gain in Q4. In-force premium at year-end of $625.1 million was up 64.5% year on year.

That stems from growth in client counts, a gain in policy size, a bit of cross-sell, plus a boost from the acquisition of Metromile, with its higher-value automotive clients.

Client counts are up 26.6% year on year to over 1.8 million with average premium per client now up 30% year on year.

On the claims side, management claimed “steady and significant improvement in loss ratios across the book.”

The gross loss ratio in Q4 was 89% for the quarter, down from 94% in the prior quarter, and 96% in Q4 ’21, management claimed. Long-term run rates appear more stable: the full-year loss ratio came in flat at 90%.

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