Trupanion shares in the doghouse despite pet insurance boom

As activity in the pet insurance space heats up in 2022, pet insurance specialist Trupanion Inc. ‘s share price had another year to forget.

Trupanion’s stock underperformed in both 2021 and 2022 despite company expansion and opportunities presented by a growing market. One possible reason is Trupanion’s vulnerability, like many other companies, to macroeconomic factors such as inflation, Piper Sandler analyst John Barnidge said in an interview.

The pet insurer’s stock is down about 60% year-to-date.

Similar to what’s happening in the auto space, loss costs for pet insurance are going up “astronomically.” Kaenan Hertz, managing partner of Insurtech Advisors, said in an interview. Hertz said vet costs were up about 18% year-over-year.

“That’s the trouble right now … expenses are rising faster than these insurtechs and pet insurers can keep up from a pricing perspective,” Hertz said. “Distribution costs and places you can go to find larger groups of pet owners are probably getting smaller and smaller.”

Trupanion’s loss ratios have been rising steadily since the fourth quarter of 2021, and the pet insurer filed for several rate hikes due to higher expenses.

But despite the stock’s struggles, Barnidge said Trupanion posted “strong growth” in 2022. The pet insurer has also done well with some international bolt-on acquisitions, Barnidige said, noting that Trupanion has good growth paths and channels around the world.

Trupanion’s shares were essentially flat for the week ended December 2nd.

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Partnerships, M&A

In contrast, Petco Health and Wellness Company Inc. ‘s shares rose this week after it reported third-quarter results and hosted an earnings call where executives shared further details about its recently announced partnership with Nationwide Mutual Group, which is developing new insurance offerings with a focus on pet care provided by Petco’s animal medical centers must be filled.

Petco CEO Ronald Coughlin said Nationwide initially approached him about the partnership and he sees insurance as a “significant benefit.”

“If you look at it today, it’s about a $2.6 billion market, but penetration in the United States is relatively low compared to Europe,” Coughlin said. “Europe has about 25% penetration; the US is a fraction of that.”

The pet insurance space has also seen increased activity this year when it comes to M&A.

Earlier this year, Jab Holding Co. SARL Unit Independence Pet Group Inc. Acquired Crum & Forster Pet Insurance Group and an affiliate of Fairfax Financial Holdings Limited in a transaction valued at approximately $1.4 billion.

One obstacle to fully understanding the exact size of the market is that pet insurance is not broken out as a separate category in regulatory filings. Changes in the way the product is classified will provide additional insight into the profitability and growth of the business line, which may serve to attract new underwriters to the market.

Insurtechs put it out

Chubb Ltd., Nationwide and Trupanion are some of the biggest players in the pet insurance space and have a fairly dominant hold on the market.

That control by a few incumbents probably makes insurtechs a little more wary of jumping into that space, according to Hertz. A few digital startups have ventured into the space.

Lemonade Inc., whose stock has fallen dramatically over the past two years, has been in the pet insurance business since launching its health offering for cats and dogs in July 2020. In October this year, Chewy Inc. partnered with the insurtech to expand its range of insurance and wellness offerings with new plans powered by Lemonade.

Lemonade reported $92.3 million in domestic marine premium, a large portion of which is pet insurance, year-to-date through the third quarter. This represents a year-on-year increase of 105%.

Although Hertz sees the relationship between Chewy and Lemonade as positive, he said the biggest challenge is still that the market is dominated by a few “very large, entrenched competitors.”

“Playing on the sidelines means you really have to find a unique niche to be successful,” Hertz said.

Lemonade ended the week with 1.72%.

The S&P 500 climbed 1.13% to 4,071.70 for the week, while the S&P 500 US Insurance index rose 0.59% to 610.27.

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