'Black swan' US winter storm sparked thousands of claims for Lemonade – CEO

The winter storm that hit the southern U.S. in February "quickly became the largest catastrophe we as a company have ever contended with," Lemonade Inc. CEO Daniel Schreiber said March 2.

Schreiber said on a fourth-quarter earnings call that the effect of the 2020 wildfires and hurricanes on the technology-enabled insurer's book of business was "disproportionately light," because the probability pattern of those events had enabled the company to manage its exposures. However, the winter storm, which many are referring to as the 'Texas Freeze' because of its impact on that state in particular, was "different" and a "black swan event," Schreiber said.

He said that a quarter of Lemonade's customers are in Texas, and the company faced "many thousands of claims in the space of just a few days." But while the surge of claims had tested Lemonade's people and financial model, Schreiber said both held up "exceedingly well."

He said that the company's gross loss ratio "will spike in Q1" as a result of the storm, but that Lemonade's reinsurance arrangements were "playing their designated role" and that the company's first-quarter guidance showed, "we do not expect the Texas Freeze to have a material adverse impact on our financials in 2021."

Lemonade reported a gross loss ratio of 71% for 2020, down from 79% in 2019. The company's adjusted earnings before interest, tax, depreciation and amortization, or EBITDA, was negative $29.7 million in the fourth quarter of 2020, compared with negative $31.4 million in the same quarter of 2019. The company expects an adjusted EBITDA loss of between $40 million and $43 million in the first quarter of 2021.

For full year 2021, Lemonade is projecting an adjusted EBITDA loss of between $163 million and $173 million.

Lemonade started out providing renters' insurance, but has since branched out into providing homeowners, pet and, most recently, life cover. Schreiber told analysts that the company planned to "keep launching products until we have catered to the totality of our customers' needs." Schreiber said that this was more than just planning, however, and that the company was working on its "next major yet-to-be announced product."

Shai Wininger, Lemonade's COO, told analysts that the new product, which did not yet have a name, "may well be the most significant launch we have ever done."