Trupanion Inc. has had a bear of a time in 2023 and was the most shorted insurance stock in the US as of mid-May.

The pet insurer had 26.50% short interest as of mid-May and has seen an average of 21.64% short interest year to date, according to the latest S&P Global Market Intelligence data. Short interest measures the percentage of outstanding shares of a given company or industry held by short sellers.

In an interview, Piper Sandler analyst John Barnidge said Trupanion has historically been one of the more shorted US stocks and was the second-most shorted company across the financial sector at the end of April.

Poor performance

Early in 2023, Trupanion's stock was trading up but started a downward tumble in March around the time the company announced its CFO was stepping down and two executive vice presidents were departing immediately.

Barnidge cited the management turnover as well as the pet insurer's profitability issues with pricing as part of the reason why the stock has been targeted by short sellers.

However, Barnidge said the pet insurance marketplace is still generally growing, and Trupanion continues to see growth, but that expansion has slowed in its core subscription business.

"When a company grows to a certain size the rate of growth tends to decelerate because the base is so large," Barnidge said.

Since the start of 2023, Trupanion's shares had fallen about 50% as of the close of business June 8.

Trupanion did not respond to a request for comment.

Betting against insurtech

Short sellers have also bet against several insurance technology (insurtech) companies in 2023.

Lemonade Inc. had 19.40% short interest as of mid-May, and it has seen an average of 17.93% short interest year to date. It was the second-most shorted insurance stock during that period.

Root Inc. followed closely behind with 17.71% short interest as of mid-May and an average of 17.33% short interest year to date.

Kaenan Hertz, managing partner with Insurtech Advisors LLC, said in a May note that the first quarter proved a "critical" time for insurtech companies as they worked to disrupt the traditional insurance landscape.

"Their reliance on technology alone has not proven to be a sufficient catalyst to propel them into profitability or to capture significant market share," Hertz said.

Hertz noted that Root and Lemonade are under seven years old and said he expects their cash on hand to last only two to three more years if they are unable to "significantly" alter their profitability.

"They will need everything to go right for them in order to pull through this challenging period," Hertz said.

Since the start of the year, Root's shares were up about 31% as of close of business June 8, while Lemonade's stock gained about 42%.

Lemonade and Root did not respond to requests for comment.

Industry trends

As of mid-May, short interest in the property and casualty space experienced the most year-over-year growth, rising 43 basis points to 2.72% during that time period.

Short interest in the life insurance space booked the biggest decrease, falling 116 basis points year over year to 2.05% as of mid-May.