Thread by @ChrisBloomstran

Strange seeing a $LMND thread deleted "justifying" a 121% gross loss, 50 points from the TX freeze alone & use of AI to deny claims by detecting lying in recorded messages. Stranger still seeing yet another new entrant into the private passenger auto game. Will they not learn? 1/

https://twitter.com/Lemonade_Inc/status/1397564442720747520

Fin-tech often means even though we light cash on fire it must be worth a fortune. If you gave me $1.5 billion and said go disrupt some industry, property/casualty insurance would NOT be it. It's remarkable some of the things that get financed in the name of disruption. 2/

For a company that’s raised $1.5 billion to disrupt renter, pet health and homeowners insurance, writing a cumulative $185 million to lose a cumulative $369 million seems like a bad idea. Now Lemonade will go after Progressive, GEICO and the heavyweights in auto? Smart. 3/

Our tech is better, we use AI. Maybe these guys should have used some human intelligence as well. See today’s news on GEICO’s use of AI in repair estimates, partnering w/ Tractable. Upstarts bring nothing new to the party. Even if they did, advantage is competed away. Quickly. 4/

Technology is great but an upstart will never retain any durable advantage, particularly against industry leaders. In terms of no sense, certainly if $PGR, GEICO or any leading insurer adopted AI to determine if a claimant was lying in a recording, they wouldn’t Tweet it out. 5/

There is enormous fraud in insurance, and good carriers weigh when to fight it and challenge claims. Cumulative experience and strategy helps here. Why is it so many think the only key to disruption is bleeding edge technology? Insurance is hard and generally a lousy industry. 6/

Lemonade’s (who named this thing?) management correctly estimates the private passenger auto market at $300 billion. They call this their TAM. Of course it is. I have no dog in this fight, only to monitor the competition to my holdings in P/C insurance and reinsurance. 7/

Sometimes reading 10-Q’s provides levity. How in the world do you incur 50 points of loss due to the four-day freeze in Texas. 50 points! Did a whole bunch of insured cats and parakeets freeze to death? To the MD&A for color: 8/

Following a glowing description of the business as a “cocktail of delightful experience, aligned values, and great prices” finally some explanation as to what happened in Texas:

"Our gross loss ratio of 121% was significantly impacted by the severe winter storm...9/

that affected our customers in the states of Texas and Oklahoma during the period ("Winter Storm Uri"). The impact of this winter storm, along with other catastrophe losses, on our gross loss ratio for the three months ended March 31, 2021 was 50%...10/

...See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Operating and Financial Metrics and Results of Operations."" 11/

So directed to the aforementioned "Key Operating and Financial Metrics and Results of Operations," upon review there is zip of additional explanation. Zilch. No color on how you lose 50 points in a finite geography and AFTER ceding 75% of premiums written to reinsurers. 12/

Mind-bending stuff here. During the first quarter, $42 million of $56 million of premiums were ceded, leaving $14 million earned. The freeze cost $6.5 million in losses. Ouch. Risk aggregation or just priming the growth pump? 13/

Thank goodness for fresh "investors," parting company with cash for a piece of Lemonade, raising $335 million in July’s IPO and another $640 million in January (excluding shares sold by insiders, of course). Armed with this new $975 million, the Lemon sports equity of $1.1B. 14/

Thank goodness for that because losses exceed all prior capital raised outside of the IPO and secondary. For this book value, on which the company loses money, investors value the company at $4.7 billion (down from $11B), 4.3x book value. 15/

Of course Lemonade is growing premiums very quickly, therefore the cash-burning company should be worth way more than the cumulative cash raised? Sure. Makes SPACs look reasonable. There’s an understanding in insurance - that anybody can write a premium. It's easy to get in. 16/

Quite confident GEICO et. al. welcome the new foe in auto. The patsy is always welcome at the table. If the world gives you lemons, don’t use them to compete in a brutal, unattractive industry without a durable advantage. Best guess is cash erodes and scale is unattainable. 17/

From the 10-K: "Our two largest markets today, TX and CA, have zero Lemonade employees in-state, underscoring the highly scalable nature of our business." What of relationships with state insurance commissions? You never want to inspect a claim in person? 18/

Finally, because we sell you pet insurance on your puppy before he's neutered, you will buy our auto and homeowners insurance later in life. Better quit while I'm ahead. I genuinely wish Lemonade luck in auto and homwowners. Good thing cash exceeds statutory surplus by a bunch.