In 2022, the insurance industry faced several challenges, including limited funding, tighter budgets, and intense competition. This year, the industry’s growth is currently being hindered by inflation, causing higher claims costs and decreased demand.

Considering the macroeconomic headwinds, I think it is best to avoid insurance stocks Lemonade, Inc. (LMND), Hippo Holdings Inc. (HIPO), and Maiden Holdings, Ltd. (MHLD), which have declined in price over the past months.

The current economic situation in the US poses significant challenges for the insurance industry. Consumers’ decreased purchasing power due to high inflation, rising interest rates, and reduced confidence, as indicated by the drop in the University of Michigan’s Consumer Sentiment Index, could potentially lead to a decline in demand for insurance products and services.

Furthermore, according to S&P Global, the property and casualty insurance market is expected to face difficulties due to increased expenses for reinsurance and a continued lack of mergers and acquisitions activity in the industry.

Moreover, amid geopolitical instabilities and climate disasters, real non-life premiums globally are expected to grow by 2.2% this year, down from a 3.3% growth expectation last year.

Furthermore, following the collapse of Silicon Valley Bank, which roiled the banking industry, Goldman Sachs cut its outlook for economic growth this year by 0.3% points to 1.2%.

Take a look at the stocks mentioned above:

Lemonade, Inc. (LMND) 

LMND provides various insurance products in the United States and Europe. Its insurance products include stolen or damaged property and personal liability that protects its customers if they are responsible for an accident or damage to another person or their property.

LMND’s forward Price/Book multiple of 1.24 is 24.3% higher than the industry average of 1. Its forward Price/Sales multiple of 2.59 is 20.5% higher than the industry average of 2.15.

Its trailing-12-month asset turnover ratio of 0.16x is 19.5% lower than the 0.20x industry average. Its trailing-12-month gross profit margin of 34.83% is 41.7% lower than the 59.8% industry average.

LMND’s total expense increased 43.1% year-over-year to $156.5 million during the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA decreased marginally year-over-year to negative $51.70 million. Its net loss came in at $63.7 million, while the net loss per share attributable to common stockholders came in at $0.93.

Analysts expect LMND’s EPS to be negative $1.09 for the fiscal first quarter ending March 2023. Its revenue is expected to be $88.17 million for the same quarter. Also, the stock failed to surpass the EPS and revenue estimates in three of the trailing four quarters, which is disappointing.

The stock has declined 49.4% over the past year to close its last trading session at $14.20.

LMND’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

LMND is also graded a D in Value, Stability, and Sentiment. It is ranked #54 among 55 stocks in the Insurance – Property & Casualty industry.      

In addition to the POWR Ratings stated above, LMND’s rating for Growth, Momentum, and Quality can be seen here.   

Hippo Holdings Inc. (HIPO)

HIPO provides home protection insurance in the United States and the District of Columbia. Its insurance products include homeowners’ insurance against risks of fire, wind, and theft; and personal and commercial insurance products.

HIPO’s trailing-12-month Price/Sales multiple of 3.08 is 24% higher than the industry average of 2.49.

Its trailing-12-month asset turnover ratio of 0.07x is 62.6% lower than the 0.20x industry average. Its trailing-12-month gross profit margin of 15.29% is 74.4% lower than the 59.75% industry average.

HIPO’s net loss increased 2% year-over-year to $60.50 million in the fiscal fourth quarter that ended December 31, 2022. Its adjusted EBITDA declined 2.8% year-over-year to $47.30 million, whereas the net loss per share attributable to HIPO increased marginally to $2.74.

HIPO’s EPS is expected to be negative $2.13 for the first fiscal quarter ending March 2023. Its revenue is expected to be $32.30 million for the same quarter.

The stock has plunged 67.7% over the past year to close the last trading session at $16.55.

It’s no surprise that HIPO has an overall rating of D, which translates to a Sell in our POWR Ratings system.

HIPO also has a D grade for Quality, Sentiment, and Value. It is ranked last in the same industry.

Click here to see the POWR Ratings of HIPO (Growth, Stability, and Momentum).

Maiden Holdings, Ltd. (MHLD)

Headquartered in Pembroke, Bermuda, MHLD provides property and casualty reinsurance solutions to regional and specialty insurers in Europe, the United States, and internationally. It operates in two segments: Diversified Reinsurance and AmTrust Reinsurance.

MHLD’s trailing-12-month Price/Sales multiple of 3.13 is 25.9% higher than the industry average of 2.49. Its trailing-12-month EV/Sales multiple of 7.52 is 232.6% higher than the industry average of 2.26.

Its trailing-12-month asset turnover ratio of 0.03x is 86% lower than the 0.20x industry average.

During the fourth fiscal quarter that ended December 31, 2022, MHLD’s total revenues decreased 61.3% year-over-year to $9.71 million. The company’s total expenses increased 302.5% year-over-year to $47.95 million. Moreover, its net loss came in at $50.99 million, compared to a net income of $12.39 million in the previous-year quarter.

The stock failed to surpass the EPS estimates in three of the trailing four quarters, which is disappointing.

It has declined 13.9% over the past month to close the last trading session at $2.16.

MHLD’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.

It also has an F grade in Growth and a D in Quality and Value. MHLD is ranked #53 in the same industry.

To access the additional ratings for MHLD for Momentum, Stability, and Sentiment, click here.

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LMND shares were trading at $13.79 per share on Tuesday morning, down $0.41 (-2.89%). Year-to-date, LMND has gained 0.80%, versus a 7.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Nidhi Agarwal

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...

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