What happened

Shares of Lemonade (LMND 0.74%) were falling two days after the "insurtech" company posted solid results in its fourth-quarter earnings report. 

Today, the culprit seemed to be rising interest rates after a hotter-than-expected inflation report, which sparked a broad sell-off in the stock market.

As a result, Lemonade stock was down 3.9% as of 11:53 a.m. ET. At the same time, the Nasdaq was down 1.7%.

So what

Like other unprofitable growth stocks, Lemonade, which bills itself as a mobile-first, AI-based insurance company, has proven to be highly sensitive to interest rates and the macro outlook. The stock soared after its 2020 IPO before crashing over the last two years.

A hotter-than-expected personal consumption expenditure reading for January out this morning makes it more likely that the Federal Reserve will continue to raise rates, adding to pressure on unprofitable growth stocks like Lemonade as profits in the distant future become worth less in a high-interest rate environment. 

Lemonade actually beat estimates in its fourth-quarter earnings report, but still reported a wide loss. Lemonade's loss ratio narrowed from 96% in the quarter a year ago to 89%, a positive sign, while its revenue jumped 116% to $88.4 million, driven by a 69% increase in its gross earned premium to $151 million.

However, the company still finished the quarter with an adjusted EBITDA loss of $52 million, an improvement from a $66 million loss in the third quarter. Its GAAP net loss narrowed from $91 million in the third quarter to $64 million.

Now what

In its shareholder letter, Lemonade noted that regulatory rate approvals have not kept pace with inflationary pressures, a sign that the company is feeling a direct impact from inflation. 

Management did say that the mismatched pricing areas are shrinking, though it noted discrepancies in pet services, and home and car repairs.

Given those headwinds, investors should expect the stock to remain sensitive to inflationary pressure at least as long as the company is struggling to raise its premiums.