Key Points
Shares of Lemonade (NYSE: LMND) furthered their recent ascent on Monday. Investors are growing increasingly intrigued by the future earnings power of the artificial intelligence (AI)-powered insurance provider.
A favorable new deal should bolster Lemonade’s profitability
The market continues to reprice Lemonade’s shares following its announcement on June 30 that it renewed its reinsurance program on significantly better terms.
Lemonade will now cede about 18% of premium to reinsurers, down from a prior 20%. The new agreement also increases Lemonade’s catastrophe protection.
Reinsurers provide insurance to other insurance companies. They take on a portion of the liabilities in exchange for some of the premium.
The new terms are set to boost Lemonade’s profits, while also reducing its risks. That’s a good deal for shareholders.
“This renewal improves Lemonade’s reinsurance economics, coverage, and capital efficiency at the same time,” chief financial officer Tim Bixby said. “We are retaining more premium, adding protection against the volatility that matters most, and doing so on terms that are attractive on a risk-adjusted basis.”
AI is fueling Lemonade’s growth
With hassle-free service, minimal paperwork, and competitive rates, Lemonade is winning new business at an impressive clip. The AI-driven insurer’s revenue soared 71% to $258 million in the first quarter, driven by a 23% jump in customers and a 32% rise in in-force premium to $1.3 billion.
Management said in its Q1 letter to shareholders that Lemonade is on track to achieve positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter.
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade. The Motley Fool has a disclosure policy.
