Wall Street analysts scrambled on Wednesday evening to assess the impacts of Hurricane Laura’s landfall on Lemonade (NYSE:LMND), the insurance startup that conducted its IPO last month and has since become a market darling. Most of the analysts, pouring over balance sheets after pounding their eighth Monster Energy (NASDAQ:MNST) of the frantic night threw up their hands and came to the same conclusion: Hurricane Laura would bankrupt Lemonade.
Lemonade currently focuses on renters and homeowners policies, and has an outsized portfolio in the parts of the Texas and Louisiana coasts expected to be most impacted by Hurricane Laura.
In an email obtained by The Stonk Market, Lemonade CEO Daniel Schreiber noted that, “9% of our policy holders are located in Cameron and Calcasieu Parishes, home to Lake Charles, with an additional 6% in the Houston area, and numerous other policyholders in the barren crap hole wastelands of Southeast Texas.”
Industry experts have long decried Lemonade’s reliance on certain geographic areas prone to natural disasters, but a company spokesperson said that this allowed the company to “compete with the idiotic profit-making incumbent insurance companies that service the same areas.”
Lemonade’s S-1, the initial registration form for their IPO, noted that the company had seemingly found a loophole in the insurance business to begin a path to profitability, calling on other insurance companies to act as “reinsurers.” The S1 stated, in part, that:
“In defiance ofâ€¦ industry norms, we set out to architect our business to be at once capital-light and possessed of predictable and growing gross margins. Through judicious use of “reinsurance,” we believe we have largely achieved these goals. Reinsurance is a financial instrument under which one insurer, the “reinsurer,” agrees to cover a portion of the claims of another insurer, the “primary insurer,” in return for a portion of their premium. While this description characterizes all reinsurance, implementations come in different flavors, each with its own costs and benefits. We have entered into a range of reinsurance agreements, differing in both duration and terms, which combine, we believe, to deliver maximum capital efficiency, while optimizing our gross margins for both stability and size.”
However, as came to light by industry analysts Wednesday night, Lemonade’s leadership had forgotten to tick the box for â€˜flood endorsement’ when drunkenly ordering their reinsurance for clients.
Thus, any damage caused by the impending 15-foot wall of water imminently crashing into the Gulf Coast and areas directly inland would be Lemonade’s liability, and not that of their reinsurers. This, analysts say, will cost Lemonade billions of dollars in losses for which they have no reinsurance or recourse.
Philip Kett, Jefferies Group (NYSE: JEF) insurance industry analyst, stated, “oh my god, this is so terrible. I’m going to lose my job and my wife will probably leave me and take the kids. Oh no, I’m probably going to lose my home, too. Not because it’s getting destroyed by the hurricane, but because I was hungover and didn’t take a close look at Lemonade’s business model, and gave them a â€˜Strong Buy’ rating. How could I miss the lack of a flood endorsement?”
Daniel Schreiber, Lemonade CEO, perhaps summed the situation up most succinctly, saying “our only hope to continue to exist as a company is that many of our policyholders die in the hurricane, and don’t leave their email passwords for their next-of-kin. Since all communications are solely electronic, only mass death will reduce our liability enough to avoid bankruptcy from Hurricane Laura.”