What happened
Shares of Lemonade (LMND 1.64%), the artificial intelligence-driven insurance company, were falling hard today despite the company reporting better-than-expected results for the second quarter. Investors were likely disappointed the company's gross loss ratio increased in the quarter due to catastrophic weather events.
The fintech stock was down by 16.9% as of 11:38 a.m. ET.
So what
Let's start with the good news first. Lemonade reported a non-GAAP (adjusted) loss per share of $0.97 in the second quarter, which was better than analysts' average consensus estimate of a loss of $1.03. Additionally, the company's revenue of $104.6 million was up 109% from the year-ago quarter and surpassed Wall Street's average estimate of $97.6 million.
Typically, a company beating both top- and bottom-line estimates would cause its share price to spike, but Lemonade investors had their eye on another metric today. Lemonade's management said that the company's gross loss ratio -- the proportion of premiums paid out in claims -- was up 8% from the year-ago quarter to 94%.
Why is that bad? Because it means that a large portion of insurance premiums were being paid out in the quarter, which weighed on the company's profitability. Lemonade's management addressed this issue in the shareholder letter, saying: "The second quarter was marred by the unseasonable weather catastrophes (CATs) that weighed on our gross loss ratio, ending the quarter at 94%. The extent and timing of this severe weather generated headlines around the world, with the insurance industry reporting some of the worst loss ratios in years."
The company mentioned in the letter that severe convective storms -- including events like tornadoes, hail, and thunderstorms -- were some of the worst in the first half of 2023 for insurance-related losses.
Investors weren't thrilled to hear all of this, and some went looking for the exits today.
Now what
Lemonade's management estimates revenue for the full year will be in the range between $402 million and $408 million, which is higher than analysts' average estimate of $397.3 million. But investors are more closely watching the company's net loss and gross loss ratio.
The company had a net loss of $67.2 million in the quarter and if catastrophic weather events continue to weigh on Lemonade's gross loss ratio then the company may continue to have a tough time reaching profitability.
