Insurance stocks were caught in a current of market volatility as the major indexes finished lower this week despite a rally on the final trading day.
The S&P 500 closed the week ending May 14 down 1.39% at 4,173.85, while the SNL U.S. Insurance Index slipped 0.91% to 1,444.21.
Lemonade Inc., which reported its first-quarter results after the market closed on May 11, was hit particularly hard as it logged a net loss for the period that was worse than the S&P Capital IQ consensus estimate.
A major factor in the results was $6.5 million in net incurred losses attributed to the severe winter storm that swept across the Southwest in February. Chairman and CEO Daniel Schreiber during an earnings call said it had received the equivalent of a year's worth of claims in the aftermath of the storm.
Lemonade's share price plunged almost 19% on May 12, though it did recover some ground as it finished the week down 12.21%. The stock has lost two-thirds of its value since its high of $183.26 on Jan. 11.
Kaenan Hertz, managing partner of Insurtech Advisors LLC, said he was surprised how Lemonade was "hyper exposed" in Texas given that it writes business nationally. He said the company gets 90% of its premiums from renters. The balance of new premiums are split between renters and their other policies for homeowners, life and pet insurance, with auto insurance coming by the end of the year.
"If you think about that most of the Texas exposures would have been rental, just the fact that it had such a significant impact to their loss ratio to me was pretty surprising, given that renters isn't a big-dollar product," Hertz said in an interview.
Hertz said that the losses absorbed by the more traditional carriers with heavy exposure in Texas did not have the same effect on their loss ratios. While it is a positive that Lemonade was able to process those claims effectively, "by the same token, that's a lot of claims to swing that way," he said.
The decline in Lemonade's stock price comes after it was boosted by "investor euphoria" fueled by "a technology company that's saying all the right things," said Hertz.
"Then it came down to Earth, or closer to Earth," the analyst said. "And even at a $60 valuation, they're continuing to lose money, and they're about to enter auto, which is a hyper-competitive market."
Lemonade this week also had to respond to accusations made by Carson Block of Muddy Waters Capital LLC, who said in an open letter to Dan Schreiber that the company has "egregious security vulnerability" and had "utterly failed to secure customer" data. He contented that customer accounts can be accessed without any authentication.
Shai Wininger, Lemonade's president and COO, countered by saying Muddy Waters found links to four insurance quotes that had been shared by customers themselves, adding that Lemonade's quotes were designed to be shareable.
Lemonade was one of several companies in the property and casualty sector that had down weeks. Heritage Insurance Holdings Inc. fell 8.40%, Chubb Ltd. was off 3.52% and RLI Corp. dipped 3.36%.
Step back for Genworth
Concerns over volatility in the mortgage insurance sector led to Genworth Financial Inc.'s decision to postponement the planned IPO of its U.S. mortgage business, Enact Holdings Inc. President and CEO Tom McInerney in a statement said current market pricing does not accurately reflect Enact's value.
CFRA Research analyst Cathy Seifert saw both positive and negative elements in the postponement. Though it is unfortunate that market conditions for the transaction have weakened, investors will see Genworth's ability to postpone the IPO as a "positive sign that some of the company's financial stresses have eased," she said in an email.
"But, given all the strategic fits and starts Genworth has undergone in the last several years, it's important for management to project a clear path forward for the company," Seifert said.
Genworth finished the week down 5.31%, while Sun Life Financial Inc. fell 2.85% and Voya Financial Inc. dipped 1.89%. Unum Group and CNO Financial Group Inc. were up 2.84% and 2.12%, respectively.
Elsewhere, multiline carrier American National Group Inc. saw its share price shoot up 23.28% this week after Reuters reported that the company was considering strategic options that included a possible sale of the company.
