re: i bought LMND today

lol I remember this Covid dumpster fire. It was worth picking up the carcass under $20 but I still don’t believe in the actual company

I don’t want to be that guy, but I would be very cautious here. My career has been in the industry so I know a bit about insurance accounting and insurer activities. I’ve worked with companies ranging from Lloyds to self insured vehicles formed to serve certain industries.

The trick with insurance is to charge enough without knowing your ultimate net cost…which is future claims. Rapid growth is not always good as it means a rapid growth in exposure to claims as well and pricing below what other companies have determined they need to charge. Your load is around 30% so operational efficiency can only impact so much and no amount of AI is going to change claims liability ie what contractors charge to rebuild your house, your totaled car ACV, defense attorney bills or Morgan and Morgan’s demand.

In perusing their web site and looking closely I see several red flags:

The standard for insured rating is AM Best. Demotech is the BBB of rating agencies. I’ve seen them on some shaky companies where a rating was needed without much scrutiny.

Bragging about not earning float on your money sounds great but not really. The float is what enables insurers to price to an operating loss to keep premiums competitive. Earning on float is good for pricing.

Donating any money left over is nuts. You want that going to surplus to shore up financials and again help with future rates or losses.

Of course that’s a moot point, as it looks like they’re running a combined ratio of 1.39? That means it costs then $1.39 in claims and overhead for every $1 of premium charged. Not good and would trigger some scrutiny from rating agencies. This is big.

Overall foo foo about ease of use, socially conscious, how much we can save you, we let you keep your money, etc. all smacks of marketing BS. I want the company insuring my family to talk about solvency and financial strength…not donating to causes you love.

There are a number of “insuretech” companies out there and the general consensus is their focus is entirely on growth and then selling. Lots of marketing and “AI going to change the world”. They’re not insurance companies. They're PE backed AI companies in the insurance industry looking to sell their technology if it works.

The #1 killer for an insurance company is understating expected claims which is very enticing if nobody is scrutinizing your financials and you want to prime to sell. Their EBITA is driven by their own estimates of future and current claims…which can be manipulated. What also separates insurance companies is you’re selling a contract to pay a future unknown expense - not a widget or technology that can just be turned off or sold for pennies on the dollar. If your asset is a bunch of unfunded liabilities…who wants to buy that?

AI is definitely helping with loss modeling and other operating aspects but it remains to be seen if it can outperform 100 yrs of actuarial science deployed by some of the biggest insurers in the world. It all depends on what data is available and fed into it to predict future claims.

YMMV and the stock might explode…but when these companies become insolvent you won’t know it until a notice goes out they’ve gone into receivership.

ETA: also, unbelievably there’s only 1 person with an insurance background on their leadership team that I could see including their BOD. Who do you think gets overruled when a rate increase is needed?

I’m just buying the chart as an opportunity and doing the research along the way.

As I mentioned, I already got my 20% in common shares after a week of holding and then exited. This was yesterday.
I liked the set up.

I still hold an $80 January 2028 call bought at 19.10, which nearly touched $27 yesterday.

I watched this stock hit $100, so I started playing after a 45-50% drawdown.

Other than that, I like to see stocks that people hold with conviction on X or YouTube. I watch, read, and try to learn new businesses.
On a very simple level, to me it looks like all of the bad metrics continue to improve while revenue and IFP grow healthily.

I’m in the 2028 call because I believe management when they say profitability will happen in 2027.

Sometimes, investments are made for simple reasons and stock prices soar well beyond fundamentals.

For example, TSLA IS Elon, not its P/E ratio.
I think that people are betting on LMND to have fantastic positioning for the future of automotive insurance, which is not something that will appear in the balance sheet.

I know this is tough for you accountant types, and I say this in jest, but the market is telling us that it expects big things. For now…

Again, I’m not committed to LMND.