What Happened
Insurance company Lemonade(NYSE: LMND) was trending lower on Friday, finishing the day down 2.95% at $21.42 per share. It had dipped below $21 per share, falling to $20.97 at 12:31 p.m. ET. The stock price is down roughly 49% year to date (YTD).
It is not clear what drove the stock price down as insurance stocks in general were all over the place in Friday's trading session, with stocks like Aegon(NYSE: AEG) up over 2% and several others, including Lemonade, down.
So what
Lemonade is among a new breed of insurance companies that uses artificial intelligence (AI) to price policies and review claims. Its growth in customers and revenue has been strong and steady, but it remains unprofitable due to high expenses as it ramps up its technology and expands its markets.
Today's nearly 3% drop was preceded by an over 6% gain on Thursday, as the stock price surged after two Federal Reserve Board members, James Bullard and Christopher Waller, at separate events, advocated for another 75 basis-point interest rate hike in July. Rising interest rates are favorable for insurance companies because they improve the yields of their underlying bond investments.
Now what
Lemonade has been expanding from its roots of offering renters, homeowners, and pet health insurance. It now offers life and car insurance as well. The first quarter of this year was the first in which it offered all five types of insurance in a bundle but only in a couple of states. The company plans to expand that offering to more states.
But the next big thing to look out for is Lemonade's acquisition of Metromile(NASDAQ: MILE), a company that sets insurance rates by the mile and, like Lemonade, uses AI and machine learning to develop policies. The deal was expected to close in Q2, but that didn't happen, so Q3 is likely.
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Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.
