Reinsurance News

Lemonade reduces quota share reinsurance cession rate again

12th August 2022 - Author: Pete Carvill

Lemonade has said it is to cede 55% of its gross premiums to the quota sharing reinsurance program it entered into two years ago, down from the original 75%, and the 70% it had reduced the cession rate to last year.

LemonadeThe announcement was made in the firm’s letter to shareholders, where it said the new, reduced cession rate percentage would start at the beginning of July.

It referred back to its shareholder letter from mid-2021 when it said it was stepping down its quota reinsurance cession rate percentage due to ongoing business growth and diversification.

Lemonade wrote in this year’s Shareholder Letter: “A 55% cession is stage-appropriate for us, as our current IFP is more than 4x where it was two years ago, and we’ve diversified in the intervening years, growing from a monoline business to a multi-product, multi-geography business.

“As was the case until now, we continue to purchase assorted per-risk reinsurance, with a view to mitigating volatility and risk concentration. We expect to continue to revisit our quota-share and other reinsurance agreements regularly in order to optimize our capital efficiency and concentration exposure.”

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It added: “Note that Metromile’s business is not included in Lemonade’s extant quota share agreements, and is reinsured via SwissRe and Mapfre (both also partners of Lemonade). Metromile’s existing 30% quota share program will remain in effect through June 30, 2023, at which time we expect to roll this part of our business under our Lemonade-wide reinsurance structure.”

Lemonade originally announced a reduction in its quota share reinsurance program cession rate from 75% to 70% last year.

In 2020, Lemonade transitioned to a quota share program and agreed to cede 75% of its premium to a panel of reinsurers, with the firm retaining 25%.

Announcing that it was now ceding only 55% of its gross premiums came in the same week that the firm said that its in-force premiums (IFP) have risen 54% year on year to reach $458m in Q2 2022.

The insurer said that (IFP) stood at $297m in Q2 2021 and at $155m in Q2 2020.

Gross earned premiums over the same periods rose from $35m in Q2 2020, to $67m in Q2 2021, and reached $107m in Q2 of this year.

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