February 21, 2024


High-profile insurtech company Lemonade, Inc. has successfully updated its reinsurance plan for the coming year, this time keeping the quota share transfer unchanged at 55%, but by adding captive reinsurance structures in the Cayman Islands and Bermuda. Seek efficiencies elsewhere.

lemonade logo insurtechLemonade cut its quota share reinsurance surrender rate to 55% a year ago and said it was a better fit for its growing and more diversified business than the 70% and 75% quota share surrender rates implemented in previous years.

Lemonade said today that quota share protection of 55 per cent remained “central” to the reinsurance programme.

Reinsurance program renewals were led by the same primary underwriters as last year, which Lemonade said were “oversubscribed on all fronts.”

Variable ceded commissions are expected to be roughly the same as the expiring reinsurance agreement, and the renewal will see Lemonade cover all of its global operations, now including its Metromile acquisition in 2022.

“It means a lot when some of the largest and most respected reinsurers in the world choose to invest capital in the performance of our business,” commented Daniel Schreiber, co-CEO and co-founder of Lemonade. Ability to operate on a very capital-light model and focus our resources on expanding our customer base across all products and geographies, while leveraging our technology to drive efficiencies and better match risk ratios.”

Seeking greater reinsurance capital efficiency, Lemonade looks at captive reinsurance structures in 2023.

Lemonade has established a new risk-taking entity in the Cayman Islands, called Lemonade Re, and intends to hold a portion of the retained risk in that entity.

Also prior to this update, Lemonade had installed a self-contained unit on the Bermuda transformer vehicle and planned to use it to retain most of the storm exposure.

Lemonade explained, “While storm reinsurance capacity is available, this structure is designed to provide better cost/benefit.”

Lemonade did not disclose the size of its reinsurance tower, and because of these changes and the retention of risk under the Cayman and Bermuda captive reinsurance facilities, it is difficult to know whether Lemonade actually has more or less reinsurance.

Of course, the transfer of the 55% quota share is in line with the growth of insurtechs, so extended reinsurance underwriting remains a growth area in terms of premiums.

But in terms of excess losses, where captive reinsurers seem to play a role, Lemonade may now be retaining more risk.

However, it’s also important to note that Lemonade may be financing some of this as it’s possible to bring in outside capital to collateralize some of the risk in the captive entities, perhaps part of the motivation behind setting up these entities is to focus on the future and how Lemonade will Bring third-party capital into its reinsurance arrangements in the coming years.

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