Inside P&C Research
Standing of course for: Why the fluctuations?
Shares in InsurTechs have surged 40%-60% for no apparent reason connected to the fundamentals of these businesses. Although some names have reshuffled their management, this was not the contributing factor for the move.
We never thought we would be using “meme stocks” and insurance in the same sentence, but here we are. Over much of 2021 and the last few weeks, there has been a focus on the potential for short squeezes as investors (retail in many cases) go after short-sellers.
In our last note, we explained short-selling in some detail. Later in this note, we will highlight the short interest of InsurTechs vs other insurance firms. InsurTech short interest has climbed materially over the past several months. One could call it a crowded short.
Remember, a short seller has borrowed the stock and sold it in the hope of the stock price going down. When the stock price goes down, the short-seller repurchases the stock and returns it, and in the process pockets the difference.
However, suppose the stock price starts going up. In that case, some short-sellers will start giving up their position to cut their losses and buying the shares, resulting in a demand spiral driving the price even higher as other short-sellers also start abandoning their position.
As Inside P&C's news team noted yesterday, Root is finding mention on the infamous Reddit message board WallStreetBets, with posters highlighting its short interest. This short squeeze is likely resulting in the stock price appreciation shown in the chart below.
Soltz, Ella (US)
When looking at a longer time horizon, Root is still trading below its IPO price of $27/share while Lemonade is up 263% since its IPO following huge volatility.
Gallagher, Jamie (US)
To keep matters interesting, the latest short interest data came out yesterday evening. Note that FINRA updated the short interest data on the US publicly listed stocks with the settlement date ending May 28. As a reminder, FINRA publishes the data twice a month – in the middle and end of every month – with an eight-trading-day lag.
Root remains the highest shorted insurance stock with a short interest of 32.1% of its float, slightly up from the last disclosure in May. Note, Root has material private equity and insider ownership, limiting the public float versus more mature industry peers, which skews the ratio to the upside.
Lemonade remains in the second spot at 29.4%, with no changes from two weeks ago. Metromile ranks third at 18.2%, up from 16.2%.
The next update covering the current period will be out on June 24, and it will be interesting to see how different the numbers look.
Soltz, Ella (US)
Aside from the InsurTechs, Everest Re had an incremental increase in short interest, alongside the underwhelming June 1 renewal, and the stock is down ~5% this month.
On the other hand, although not material, HCI had the biggest decline in short interest over a two-week period.
Soltz, Ella (US)
On a days-to-cover basis, it appears the InsurTech’s days to cover widened, with Root at 8.5 (up from 5.8 two weeks prior) and Lemonade at 6.8 (up from 2.8 two weeks prior), suggesting that trading volumes stabilized in the post-IPO stage. However, in the past two days (data not reflective in short interest disclosure), the trading volumes have risen multitudes.
Soltz, Ella (US)
Short interest for SPACs declines
SPACs have shown incremental changes in short interest this month. Hippo’s SPAC RTPZ recorded short interest dwindle from 3.7% two weeks ago. Similarly, the claims-processing app developer CCC Information Services’ SPAC DGNR short interest is down to nearly zero, from 0.22% of its float shorted previously.
The SPACs currently searching for a target, including III, KAIR, and DWIN, registered slight upticks but continue to have a near negligible short interest. Note, SPAC shares are typically redeemable at ~$10 plus accrued interest, which serves as a floor for the price.
Soltz, Ella (US)
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