One of the biggest players in the US pet insurance market was the most-shorted insurance stock in the first half of 2024.
Seattle-based Trupanion Inc. saw short interest in its stock at 26.1% as of the end of June. In the first half of 2024, the average short interest in the stock was 29.3%, according to S&P Global Market Intelligence data. Short interest measures the percentage of outstanding shares of a given company or industry held by short sellers.
The pet insurer also landed the top spot on the list of most-shorted insurers last year and, with short interest at 26.35% as of mid-October 2023, experienced a similar amount of short interest.
Trupanion is the second-largest underwriter of pet insurance in the US, recording $270.3 million in direct pet insurance premiums in the first quarter.
Trupanion's business
Kaenan Hertz, managing partner with Insurtech Advisors, said in an interview that Trupanion has been "highly unprofitable," a characteristic that he believes most other pet insurance companies share.
"The challenge is people who buy pet insurance have pets and are more likely to want to use the insurance to cover their pets and visits and everything else," Hertz said. "The loss ratio on the whole among pet insurance companies is significantly higher, I think partially because of self-selection."
Although Trupanion has shown some improvement in its financials, the company is still losing money, Hertz said.
"Anytime somebody's losing money, there's short interest for sure," he said.
Piper Sandler analyst John Barnidge in a July 11 note said pet claim cost trends are about double the historic average. That brings a need for "fine attention to pricing adequacy," which he believes Trupanion is accomplishing through its "decentralized approach to rating."
"We think headlines about inflation and recession increase the likelihood vets will want to communicate to pet parents about the need for insurance, with it likely resonating better as well," Barnidge said.
Barnidge also said the subscription loss ratio has seen quarter-over-quarter improvement over the last several periods, attributing the change to material pricing increases earning in.
In a June interview with Market Intelligence, incoming Trupanion CEO Margi Tooth said investors should be paying attention to the company because of its unique position in a heavily underpenetrated market as one of the largest and longest standing pet insurers. Tooth cited Trupanion's ability to pay the vendor directly at the time of checkout, its deep data routes and its commitment to not deploy capital unless there is an internal rate of return between 30% and 40%.
"We have a great track record historically of delivering on that time and time again," Tooth said.
Sector trends
Insurtechs Lemonade Inc. and Root Inc. were also among the list of most-shorted insurance companies in the first half of 2024. Lemonade ranked second with 23.6% short interest at the end of June and an average short interest of 23.4% in the first six months of the year. Root came in at third with 15.8% short interest at the end of June and an average short interest of 12.8% in the first half of 2024.
As of the end of June, the life insurance space has seen the biggest decrease in short interest since mid-January 2023, falling 105.1 basis points to 2.29%. Short interest in the insurance brokers space, on the other hand, grew the most, rising 89.9 basis points to 3.21% over the same period.
