What Led to Metromile Inc (NASDAQ: MILE) Stock Crash?

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Metromile Inc (NASDAQ: MILE) stock fell over 11.8% in the pre-market session of March 31st, 2021 (Source: Google finance). The company posted GAAP Gross Margin in 2020 of (40.3) % compared to (9.3)% in 2019. The GAAP Gross Margin has contracted year-over-year, primarily due to a decrease in up-front per policy fees the company had received from reinsurers for new policies sold in 2020 relative to 2019. The Accident Year Loss Ratio was 57.4% for 2020, which represents an 18.3-point improvement from 2019. This Accident Year Loss Ratio improvement results from year-over-year pricing improvements, advantages from the per-mile and behavioral pricing, enhanced fraud detection using the proprietary claims platform, and the focus on investing in known profitable segments. The Accident Year Loss Adjustment Expense Ratio was 11.5% for 2020, representing an improvement of 40 basis points from 2019. Cash and cash equivalents totaled $19.2 million on December 31, 2020, compared to $18.7 million on December 31, 2019.

The company in the fourth quarter of FY 20 has reported the ended 2020 with 92,635 Policies in Force, up 5.1% from the end of 2019. The Average Annual Premium per Policy, defined as Direct Earned Premium divided by the Average Policies in Force for the period, was $1,111 at the end of 2020. Direct Earned Premium was $99.7 million. The company ended 2020 with $103.0 million in Premium Run-Rate. At year-end 2020, the one-year new customer retention was 69.4% for policies that completed their second term in Q4 2020. The average policy life expectancy for a new customer was 3.4 years at year end. As policies age, retention rates improve, and thus the overall policy life expectancy of the overall book is significantly higher than the new policy life.

For the first quarter of 2021, the company expects Policies in Force to be between 95,500 and 96,000, an Accident Quarter Loss Ratio to be between 62.5% and 67.5% and an Accident Quarter Contribution Margin to be between 6.0% and 11.0%.

For fiscal 2021, the company expects Policies in Force to be between 125,000 and 133,000. the company expects Policies in Force to steadily increase throughout the year as marketing channels mature and the company plans to launch in additional markets. For 2021, the company expects Accident Year Loss Ratio to be between 65% and 70%. Given the nature of the per-mile model, the company expects Loss Ratio to be less sensitive to changes in driving patterns. The company expects to record Accident Year Contribution Margin to be between 8.5% and 13.5%. Further, the Underwriting report costs are expected to be reduced by 36% effective 2H 2021.

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