Lemonade's stock sweet with auto rollout; P&C stocks mixed as earnings wind up

Shares of Lemonade Inc. surged this week, as the company announced that its much-awaited auto insurance product was live in the state of Illinois.

U.S. equity markets hit fresh all-time highs during the week of Nov. 5. The S&P 500 climbed 2% to a record 4,697.53, while the S&P 500 Insurance index slipped 1.38% to 542.19.

Personal auto is a competitive market for Lemonade, according to Deutsche Bank analyst Joshua Shanker, because user-friendly price comparison tools and low prices clear the market. There are many technically savvy customers who will be successful in seeking out the lowest price possible, he said in a research note. Still, the insurtech-focused underwriter seems to be entering the personal auto insurance space at a time when the incumbents are struggling to price business profitably, Shanker added.

Lemonade's shares were up 11.86% for the week.

Underscoring some of those struggles in the auto industry, The Progressive Corp. executives said the company is pulling back in the California auto insurance market due to rate inadequacy in the face of rising frequency and severity trends. President and CEO Tricia Griffith during a conference call said Progressive will reduce its marketing spending to slow its growth in the Golden State until it can prove to the regulator that its rates are inadequate.

California has stood out from the rest of the country in not approving a single auto insurance rate increase since April 2020. California's insurance regulator has insisted that there is no justification to raise private auto rates in the state because of reduced driving activity caused by the pandemic. However, Griffith this week said California now actually outpaces the entire U.S. when it comes to auto accident frequency.

Progressive's stock rose 1.01% on the week.

The Allstate Corp.'s third-quarter net income applicable to common shareholders fell to $508 million, or $1.71 per share, from $1.13 billion, or $3.58 per share, a year ago, primarily driven by lower underwriting income partially offset by a $300 million increase in net investment income.

CEO Tom Wilson during a conference call said auto severity has been significantly impacted by supply chain disruptions and climbing used vehicle and parts prices. Allstate has responded by pushing for higher rates, receiving approval for increases in a dozen states during the third quarter and implementing hikes in eight states in the fourth quarter.

Rate increases across the industry are bound to create more shoppers for auto insurance, including those who are currently with Allstate, said Glenn Shapiro, president of personal property-liability.

Allstate shares finished down 5.26%.

Multiline heavyweight American International Group Inc. this week reported third-quarter net income attributable to common shareholders of $1.66 billion, or $1.92 per share, a sharp increase from $281 million, or 32 cents per share, a year ago.

AIG President and CEO Peter Zaffino said the insurer managed to produce strong results despite the backdrop of a "very active" catastrophe season and the lingering effects of the COVID-19 pandemic. The company logged catastrophe losses of $625 million for the third quarter, the vast majority due to Hurricane Ida in the U.S. and flooding in Europe in July.

Zaffino said during an earnings call that the industry needed to come to grips with the growing number of outsized catastrophic events because of climate change. Insurers need to make adjustments to their models, and their rates, given this phenomenon, he said.

AIG's shares finished the week down 0.22%.