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Putting Lemonade's zesty growth in context

Insurance technology startup Lemonade Insurance Co. has generated a significant amount of buzz for its novel approach to underwriting and, in keeping with that tradition, has taken the rare move of releasing large amounts of operational data to the public.

In a series of blog postings entitled "The Transparency Chronicles," the New York-based homeowners insurer disclosed key metrics, including how much premium it wrote in 2016: $179,855. In its first NAIC statutory statement, Lemonade said it began business Sept. 20, 2016, and that as of Sept. 30, 2016, it had written $31,328 in direct premium. This would imply $148,527 in the fourth quarter of 2016, or a 374.1% increase quarter over quarter.

Other homeowners startups in the past decade have had similarly explosive growth in their second quarter, based on a select peer group compiled by S&P Global Market Intelligence. This is not too surprising, however, given that the second quarter of a business's operations is often an increase off a very low number logged in the first. By the third quarter, the median growth rate was around 15%.

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When forming a list of potential peers, S&P Global Market Intelligence looked for homeowners insurers that were established after Jan. 1, 2006, and began writing in the third quarter of the respective years in which they started. The result was a group of seven: 360 Insurance Co., Amer Modern Insurance Co. of Florida Inc., Homeowners Choice P&C Insurance Co. Inc., Northern Capital Insurance Co., Olympus Insurance Co., ASI Preferred Insurance Corp. and Safety Property & Casualty Insurance Co.

Five of the companies in the group were Florida-domiciled, the exceptions being Wyoming-domiciled 360 Insurance Co., which is a unit of Mountain West Farm Bureau Mutual Insurance Co., and Safety Property & Casualty, which is domiciled in Massachusetts and part of Safety Insurance Group Inc. American Modern, Homeowners Choice and ASI Preferred also have parents — Munich Re, HCI Group, Inc. and Progressive Corp., respectively.

In an effort to prevent survivorship bias, the data includes the aforementioned Northern Capital, which was placed into receivership. The insurer began in 2006 as one of the takeout insurers for Citizens Property Insurance Corp., assuming policies from the state-run insurer of last resort. Northern Capital ran into trouble in 2009 amid the economic downturn.

Though there were several factors contributing to its woes, Northern Capital said the single greatest cost element that year was reinsurance, according to the MD&A section of its annual statutory statement. Capacity dried up after the global financial crisis, ratcheting up the cost of protection for companies such as Northern Capital, despite a relatively benign hurricane year.

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SNL offers a variety of tools to analyze underwriting performance of insurance companies. Click here for a template to review quarterly underwriting information for insurance companies.

Quarterly underwriting information by line of business is available in Parts 1 and 2 of the NAIC quarterly statements filed by U.S. insurance subsidiaries.