Lemonade stock surges 24% after reinsurance deal cuts costs

Lemonade Inc. shares surged nearly 24% this week after the insurer renegotiated its reinsurance program to retain more premium income.

"The new agreement allows us to retain more of the economics from our growing business," a Lemonade spokesperson said in a statement.

The quota share cession — the portion of premiums paid to reinsurers — dropped to about 18 percent from roughly 20 percent. The company also secured expanded protection against catastrophic and major weather events. The program runs for a standard 12-month term.

The renegotiation signals growing confidence from Lemonade's reinsurance partners in its underwriting capabilities. The company has guided for positive adjusted EBITDA by the end of this year and positive net income next year, targets that become more achievable as it keeps a larger share of each premium dollar.

The New York-based insurer has been working to improve its economics since going public. In-force premium, a key top-line metric, has accelerated for 10 consecutive quarters as Lemonade expands into new products and regions. The company uses artificial intelligence and machine learning to process claims and manage risk, helping keep operating costs steady.

The stock had already gained 12 percent in June before this week's rally, according to S&P Global Market Intelligence data. The shares remain well below their 2021 highs but have recovered ground as the company approaches profitability.

The lower cession rate directly improves Lemonade's margin profile without requiring any change in premium volume or customer growth. Investors will watch the company's third-quarter earnings report for the first full quarter of results under the new reinsurance terms.

This article is for informational purposes only and does not constitute investment advice.