Lemonade is a quality insurance business that has figured out how to acquire customers who have previously never engaged with an insurance company for their renters insurance needs at reasonable payback economics (~2 years). This low-touch customer base / insurance product allows Lemonade to service the insurance policies with minimal human oversight, thus providing reasonable economics on an otherwise razor thin insurance product. Their renters insurance product is magical and is a step-up from any other insurance transaction I've experienced.

For Lemonade to achieve its true potential (and recent multi-billion dollar valuation) it will have to successfully move into other lines of insurance (homeowners, life, auto, or commercial). Unfortunately, the prospectus does not touch on Lemonades ability to sell beyond the initial renters insurance market, even branching into the homeowners insurance space with HO-3/HO-5 policies, which requires a higher amount of engagement for underwriting and claims servicing. Based on the self-reported $183 of premium per customer, it's hard to imaging they're doing much business outside of renters. In order to turn into a Lemonade bull, I'd want to understand loss ratio + gross margin profile (underwriting, servicing, etc) of lines outside the renters category or at least better appreciate the depth of technology built today to price and service the renters insurance.

In its current state, operating at an estimated EOY 2020 GWP of $265M and net revenue (not GAAP) of $80M and -$100M+ in loss, I find it hard to believe Lemonade will price north of their latest funding round of $2B (25x net revenue), or at least I find it hard to believe that it's worth north of this price, public markets sentiment is not a great indicator of value.

Detailed Notes


Loss Ratio

Growth + 2020 Numbers

Margin + Payback