3 Things – Public Insurtechs Improve, Insurtech Investment Favors Weather & Tailwinds Prevail for Allstate

Hello again, we are back with our weekly dispatch of ‘3 Things We Learned’ where we use the headlines to tell this week’s story in the insurance industry.  First-quarter earnings were numerous and consumed the most space this week.  There were many reports from traditional insurers throughout the value chain along with Root, Hippo and Lemonade from the pubic insurtech group.  We all Warren Buffet fans were treated to Berkshire Hathaway’s usual Saturday annual investor conference where ‘The Oracle’ provided some wisdom for insurers. In addition to these stories, we got our quarterly read on insurtech investment from Gallagher’s reliable report. Other notable movements seem to keep with the status quo.  The main headline is that insurance seems to be turning a corner into profitability and demonstrates an adjustment has been made to the economic and climate conditions that have caused pain over the past two years.  Let’s dive in once again and explore what we learned.

Public Insurtechs Show Improvement

In the latest quarterly reports, Root Insurance, Lemonade, and Hippo Holdings Inc. all show promising signs of improvement. Root celebrates its first operating income, Lemonade demonstrates exceptional growth driven by technology, and Hippo makes progress in reducing losses and improving underwriting results.  Despite their collective stories, investors remain concerned about their long-term viability and struggle to become profitable while gaining market share against the industry stalwarts.

Root Insurance’s CEO, Alex Timm, emphasizes the company’s achievement of operating income for the first time during Q1 2024, showcasing significant growth in policies-in-force and gross premiums written. Timm underscores Root’s commitment to transforming insurance through technology and data science, maintaining a disciplined approach to achieve profitability and scale while continuing to enhance customer experience and expand partnerships.

Lemonade’s CEO highlights the company’s exceptional Q1 2024 results, showcasing substantial growth in in-force premium, total revenue, and gross profit while improving loss ratios and operating expenses. With a relentless pursuit of automation across all lines of business, Lemonade expects to achieve cash flow breakeven by year-end 2024, driven by sustained strength in unit economics and the transformative impact of technology on expense categories.

Hippo Holdings Inc.’s CEO, Rick McCathron, highlights the company’s significant progress in narrowing its net loss and multiplying net earned premiums while reducing catastrophe exposure. Despite experiencing losses from a hailstorm in March, the company’s strategic efforts to rebalance geographic exposure and adjust policies have led to improved underwriting results and operational efficiencies, driving solid progress and anticipating further improvements by year-end.

Insurtech Investment Spreads Wealth, Favors Weather Innovations

Amidst the dynamic landscape of insurtech investment, a clear trend is emerging: a growing preference for ventures that address weather and climate-related challenges. This shift is evident in recent reports and funding rounds across the industry. Investors are increasingly drawn to companies specializing in climate risk solutions, such as parametric insurance and advanced data analytics for flood risk assessment. Aside from this trend, investments into reinsurance and niche risk capacity continue from other stories.

Gallagher Re’s Q1 2024 InsurTech Report indicates a slight decline in global InsurTech funding, attributed to a decrease in mega-round deals, leading to a more sustainable market as investors spread capital evenly among companies. Despite the drop in average deal size, the deal count increased, especially in early-stage funding. AI-centered InsurTechs garnered significant attention, with a higher average deal size, suggesting a growing focus on AI’s potential in the industry.

Arbol’s recent $60 million Series B funding round, co-led by Giant Ventures and Opera Tech Ventures, underscores a broader trend where investment increasingly favors climate and weather-related innovations. With a surge in climate-related insured losses and unprecedented climate events, investors recognize the significance of parametric insurance in addressing climate risk, leading to substantial funding for companies like Arbol specializing in climate risk solutions.

Neptune Flood’s acquisition of Charles River Data, a data science consulting group, underscores the growing importance of advanced technology in flood insurance. By integrating Charles River Data’s expertise, Neptune aims to enhance its Triton underwriting system with predictive analytics and AI, aligning with the industry trend of leveraging data-driven solutions to address weather-related risks.

Along the lines of investments in reinsurance capacity and insurance platforms.  Third Point LLC launches Malibu Life Reinsurance SPC, a Cayman Islands-based life and annuity reinsurer aimed at providing asset-intensive reinsurance solutions. Led by CEO Daniel S. Loeb, Malibu Life Re intends to partner with leading insurers to deliver favorable long-term risk-adjusted returns, leveraging Third Point’s multi-asset class investment strategy and strategic services, including risk management and asset liability management.

Brookfield Asset Management completed its acquisition of American Equity Investment Life Holding Company. This acquisition reflects Brookfield’s strategic focus on expanding its North American insurance and retirement offerings to build a diversified platform.

Tailwinds for Allstate and Others Prevail

Earnings took up a lot of space in the headlines this week, and we were busy sifting through them all.  There were a few that stuck out, and we believe this could illustrate an over-arching trend, such that tailwinds may prevail as several companies that had been struggling are turning a corner.  One of the significant turnarounds happened at Allstate with broad-based profit improvement.  Allstate reported a substantial net income rise and total revenue of $15.3 billion.  Their CEO, Tom Wilson, emphasizes the impact of rising legal costs and claims severity on rate increases while highlighting the company’s strategic initiatives for growth, including plans to increase market share in home and auto.

AIG reported a massive increase in net income.  AIG’s CEO, Peter Zaffino, outlined the company’s cost-saving initiatives, including U.S. staff cuts through a voluntary retirement plan, as part of its “AIG Next” strategy to become a leaner and more focused organization. These measures and the ongoing divestiture of its life and retirement business are expected to generate significant annual savings and streamline AIG’s operations.

Berkshire Hathaway’s P&C reinsurance arm saw a surge in underwriting earnings, surpassing $1 billion in Q1 2024, a significant leap from the previous year. This surge was fueled by a nearly 3% increase in premiums written, attributed to new business and expanded participation elsewhere. This positive performance also extended to the primary insurance group, which recorded a substantial increase in underwriting profits driven by lower loss ratios and higher premiums written.

Join us as we continue to explore the headlines and news shaping the insurance sector, and stay tuned for more insights on the unfolding narrative of our industry!  Stay productive, stay safe and stay in touch!