Lemonade has released its Q1 2023 financial results. Despite persistent inflation and the heightened frequency of severe weather events, the company said it has moved in the right direction this year.
The company’s In Force Premium (IFP) has topped at $653 million i.e. a 56% or $234 million increase from last year, this was due to a 23% increase in the number of customers and a 26% increase in premium per customer.
Its loss ratio has declined and is down to 87%, from 89% in Q4 and 94% in Q3 22. Net loss in Q1 was $65.8 million, as compared to $74.8 million, in the first quarter of 2022.
Lemonade’s Annual Dollar Retention (ADR) has also hit a new all-time high of 87%, which is up 5% points from last year, meanwhile, its Premium Per Customer has jumped to 26%. At $51 million, adjusted EBITDA saw an 11% improvement from 2022 while net loss currently stands at $66 million, registering a 12% improvement.
The company said that its loss ratio continued its downward journey despite the unseasonably high number of catastrophic weather events in Q1. “Indeed, an ex-CAT picture shows that our underlying loss ratio is improving faster than our headline loss ratio suggests. While we have a line of sight to our target loss ratios, we believe this destination is still several quarters away. As outlined previously, we will continue to constrain our growth until our loss ratio is within that range,” the company further added in their annual report.
Gross Earned Premium for Q1 is at $154.2 million which has increased by $58.2 million or 61% as compared to the Q1 of 2022, primarily due to the increase of in-force premium earned during the quarter.
Revenue for Q1 stands at $95.2 million, which has increased by $50.9 million or 115% as compared to the Q1 of 2022. This is primarily due to the increase of gross earned premiums during the quarter, and to a lesser extent, a reduction in the proportion of earned premiums ceded to reinsurers.
Gross profit for Q1 stands at $16.5 million, increased by $6.3 million or 62% as compared to the Q1 of 2022, primarily due to an overall increase in total revenue in the period.
Adjusted Gross Profit for Q1 is $20.6 million which has increased by $4.3 million or 26% as compared to the Q1 of 2022, primarily due to an overall increase in total revenue in the period.
Operating Expense Total operating expense, excluding net loss and loss adjustment expense, in Q1, increased by $3.8 million to $96.3 million as compared to $92.5 million in the Q1 of 2022.
On June 30, 2023, the company’s current quota share reinsurance agreement will expire though, as it is ‘risk attaching’, it will happen gradually over the subsequent 12 months.
Its reinsurance needs have evolved considerably since this agreement was incepted 3 years ago, Lemonade is now severalfold larger and more diversified, and the company is now better equipped to predict the predictable, and absorb the unpredictable. In light of this, on November Investor Day, it shared the broad strokes outline of its plan to evolve its reinsurance strategy, with a continued focus on capital efficiency.
In the intervening months, discussions with regulators and reinsurers have validated the company’s planned mix of risk retention, ceding to a captive, and commercial reinsurance.
