10q10k10q10k.net

What changed in Lemonade, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Lemonade, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+444 added−463 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-28)

Top changes in Lemonade, Inc.'s 2024 10-K

444 paragraphs added · 463 removed · 386 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

98 edited+12 added−15 removed128 unchanged
Biggest changeExpand to new geographies As of December 31, 2023, we are licensed to sell renters, homeowners, pet and/or car insurance policies in 50 states of the United States and Washington, D.C. We operate in 38 of those states and Washington, D.C., which collectively represents approximately 92% of the U.S. population.
Biggest changeIn the last four years, we have added life, pet and car insurance to our growing portfolio of offerings, and have expanded product offerings in France and the UK to include Buildings insurance, and expect to add additional coverage types over time. 8 Table of Contents Expand to new geographies As of December 31, 2024, we are licensed to sell renters, homeowners, pet and/or car insurance policies in 50 states of the United States and Washington, D.C.
Our digital substrate enables us to integrate marketing and onboarding with underwriting and claims processing, collecting and deploying data throughout, to constantly drive efficient customer acquisition, enhance the experience, and mitigate risk. This approach results in significant, rapid scaling coupled with high customer satisfaction.
Our digital substrate enables us to integrate marketing and onboarding with underwriting and claims processing, collecting and deploying data throughout, to constantly drive efficient customer acquisition, enhance the customer experience, and mitigate risk. This approach results in significant, rapid scaling coupled with high customer satisfaction.
See “Risk Factors — Risks Relating to Our Business — We may face particular privacy, data security, and data protection risks as we continue to expand into Europe or UK. in connection with the GDPR and other data protection regulations.” Federal and State Legislative and Regulatory Changes A number of federal laws affect and apply to the insurance industry, including various privacy laws, the Fair Credit Reporting Act (“FCRA”), and the economic and trade sanctions implemented by the Office of Foreign Assets Control (“OFAC”) of the U.S.
See “Risk Factors — Risks Relating to Our Business — We may face particular privacy, data security, and data protection risks as we continue to expand into Europe and the UK. in connection with the GDPR, UK GDPR and other data protection regulations.” Federal and State Legislative and Regulatory Changes A number of federal laws affect and apply to the insurance industry, including various privacy laws, the Fair Credit Reporting Act (“FCRA”), and the economic and trade sanctions implemented by the Office of Foreign Assets Control (“OFAC”) of the U.S.
The policy, which may change from time to time, is approved by the board of directors and is reviewed on a regular basis in order to ensure that the policy evolves in response to changes in the financial markets. See "Note 4 — Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in this Annual Report.
The policy, which may change from time to time, is approved by the board of directors and is reviewed on a regular basis to ensure that the policy evolves in response to changes in the financial markets. See "Note 4 — Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in this Annual Report.
Moreover, as we expand into new lines of business and offer additional products beyond renters and homeowners insurance, pet and car insurance, we face intense competition from traditional insurance companies that are already established in such markets. Competitors in the pet insurance space include companies such as Nationwide, Embrace, and Trupanion.
Moreover, as we expand into new lines of business and offer additional products beyond renters and homeowners insurance, pet and car insurance, we may face intense competition from traditional insurance companies that are already established in such markets. Competitors in the pet insurance space include companies such as Nationwide, Embrace, and Trupanion.
We continually review our development efforts to assess the existence and patentability of new intellectual property. Intellectual property laws, procedures, and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed, or misappropriated.
We continually review our development efforts to assess the existence and patentability of intellectual property. Intellectual property laws, procedures, and restrictions provide only limited protection and any of our intellectual property rights may be challenged, invalidated, circumvented, infringed, or misappropriated.
State insurance regulators use risk-based capital to set capital requirements, considering the size and degree of risk taken by the insurer and taking into account various risk factors including asset risk, credit risk, underwriting risk, and interest rate risk.
State insurance regulators use risk-based capital ratios to set capital requirements, considering the size and degree of risk taken by the insurer and taking into account various risk factors including asset risk, credit risk, underwriting risk, and interest rate risk.
As a result, the values for assets, liabilities, and equity reflected in financial statements prepared in accordance with GAAP may be different from those reflected in financial statements prepared under SAP. 19 Table of Contents Rate Regulation Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority.
As a result, the values for assets, liabilities, and equity reflected in financial statements prepared in accordance with GAAP may be different from those reflected in financial statements prepared under SAP. 20 Table of Contents Rate Regulation Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority.
As we continue to strengthen brand recognition and execute our marketing strategy, we will look to increase the number of customers migrating to the Lemonade platform. 7 Table of Contents Grow within our existing customer base As our customers move up the economic ladder and through lifecycle events, their insurance needs evolve to higher value products: renters continuously acquire more property and frequently upgrade to successively larger homes.
As we continue to strengthen brand recognition and execute our marketing strategy, we will look to increase the number of customers migrating to the Lemonade platform. 7 Table of Contents Grow within our existing customer base As our customers move up the economic ladder and through lifecycle events, their insurance needs evolve to higher value products: renters typically acquire more property and frequently upgrade to successively larger homes.
In addition, we established a Cayman Islands-based captive reinsurer to which Metromile Insurance Company (“MIC”) cedes approximately 25% of its premiums and losses. Our Non-Proportional Reinsurance Contracts are issued by a collection of reinsurers, each holding an ‘A’ or better rating from A.M. Best, have a one-year term that expires on June 30, 2024.
In addition, we established a Cayman Islands-based captive reinsurer to which Metromile Insurance Company (“MIC”) cedes approximately 25% of its premiums and losses. Our Non-Proportional Reinsurance Contracts are issued by a collection of reinsurers, each holding an ‘A’ or better rating from A.M. Best, have a one-year term that expires on June 30, 2025.
We ensure that LIC and MIC are able to take full financial statement credit for their reinsurance. 18 Table of Contents Insolvency Funds and Associations, Mandatory Pools, and Insurance Facilities Most states require admitted property and casualty insurance companies to become members of insolvency funds or associations which generally protect customers against the insolvency of the admitted insurance companies.
We ensure that LIC and MIC are able to take full financial statement credit for their reinsurance. 19 Table of Contents Insolvency Funds and Associations, Mandatory Pools, and Insurance Facilities Most states require admitted property and casualty insurance companies to become members of insolvency funds or associations which generally protect customers against the insolvency of the admitted insurance companies.
As of December 31, 2023, and based on public information from five competing insurance companies in the United States, we estimate that the number of customers per employee for those companies ranges from approximately 150 to approximately 450 customers per employee. We base this estimate on publicly available information, which we have adjusted for comparability.
As of December 31, 2024, and based on public information from five competing insurance companies in the United States, we estimate that the number of customers per employee for those companies ranges from approximately 150 to approximately 450 customers per employee. We base this estimate on publicly available information, which we have adjusted for comparability.
We estimate that approximately half of our book is reinsured through June 30, 2024, and renewed and renegotiated on an annual basis. We believe that the terms of our reinsurance arrangements provide an appropriate balance between maximizing predictability, and enabling us to capture more margin over time.
We estimate that approximately half of our book is reinsured through June 30, 2025, and renewed and renegotiated on an annual basis. We believe that the terms of our reinsurance arrangements provide an appropriate balance between maximizing predictability, and enabling us to capture more margin over time.
Currently, the European Commission is preparing for a review of the Solvency II Directive. Lemonade Agency B.V. is subject to the IDD, the DFSA and national regulations, as well as local business conduct requirements, in each of the jurisdictions in which it operates.
Currently, the European Commission is preparing for a review of the Solvency II Directive. Lemonade Agency B.V. is subject to the IDD, the DFSA and national regulations, as well as local business conduct requirements and consumer laws, in each of the jurisdictions in which it operates.
In particular, unlike us, many of these competitors offer consumers the ability to purchase homeowners and multiple other types of insurance products and "bundle" them together, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.
In particular, many of these competitors offer consumers the ability to purchase homeowners and multiple other types of insurance products and "bundle" them together, and in certain circumstances, to include an umbrella liability policy for additional coverage at competitive prices.
As of December 31, 2023, we have 5 issued patents in the United States. The issued patents generally relate to determining the route and parking location of a vehicle, recording trip data associated with a vehicle, and estimating the usage of a vehicle based on refueling events.
As of December 31, 2024, we have 5 issued patents in the United States. The issued patents generally relate to determining the route and parking location of a vehicle, recording trip data associated with a vehicle, and estimating the usage of a vehicle based on refueling events.
GDPR”) applies to our activities to the extent that those activities take place in the context of our establishments in the European Union and the United Kingdom General Data Protection Regulation and Data Protection Act 2018 (collectively, the “UK GDPR”) applies to our activities to the extent that those activities take place in the context of our establishments in the UK (EU GDPR and UK GDPR together referred to as the “GDPR”).
GDPR”) applies to our activities to the extent that those activities take place in the context of our establishments in the European Union, and the UK General Data Protection Regulation and Data Protection Act 2018 (collectively, the “UK GDPR”) applies to our activities to the extent that those activities take place in the context of our establishments in the UK (EU GDPR and UK GDPR together referred to as the “GDPR”).
Governance requirements include the need to ensure sound business operations, implement mandatory key functions (being Actuarial, Compliance, Internal Audit and Risk) and requirements relating to Lemonade Insurance N.V.’s Management Board members, Supervisory Board Members and other key personnel.
Governance requirements include the need to ensure sound business operations, implement mandatory key functions (including Actuarial, Compliance, Internal Audit and Risk) and requirements relating to Lemonade Insurance N.V.’s Management Board members, Supervisory Board Members and other key personnel.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. Investment Regulation LIC is subject to New York’s insurance laws and MIC is subject to Delaware and California’s laws regarding the composition of their investments.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. 17 Table of Contents Investment Regulation LIC is subject to New York’s insurance laws and MIC is subject to Delaware and California’s laws regarding the composition of their investments.
We believe we compete favorably across many of these factors, and have developed a digital platform and business model based on artificial intelligence and behavioral economics that we believe will be difficult for incumbent insurance providers to emulate. Intellectual Property The protection of our technology and intellectual property is an important aspect of our business.
We believe we compete favorably across many of these factors, and have developed a digital platform and business model based on artificial intelligence and behavioral economics that we believe will be difficult for incumbent insurance providers to emulate. 13 Table of Contents Intellectual Property The protection of our technology and intellectual property is an important aspect of our business.
Seasonality For information regarding the seasonality of our business, please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. Regulation of our Business Insurance Regulation Our U.S. insurance subsidiaries are regulated by insurance regulatory authorities in the states in which we operate.
Seasonality For information regarding the seasonality of our business, please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. 16 Table of Contents Regulation of our Business Insurance Regulation Our U.S. insurance subsidiaries are regulated by insurance regulatory authorities in the states in which we operate.
Applicable insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. 16 Table of Contents Insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amounts calculated under any applicable formula would be permitted to be made by our insurance subsidiaries.
Applicable insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amounts calculated under any applicable formula would be permitted to be made by our insurance subsidiaries.
To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, and the full technology stack to power them.
To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the UK and the full technology stack to power them.
Additionally the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. 23 Table of Contents
Additionally the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov. 24 Table of Contents
DNB regularly pro-actively contacts insurers to discuss matters of strategy, day-to-day operations and the current (and expected future) financial standing of the undertaking, in order to assess what parts of a regulated undertaking (if any) could pose (systemic) risk.
DNB regularly pro-actively contacts insurers to discuss matters of strategy, day-to-day operations and the current (and expected future) financial standing of the undertaking, in order to assess what parts of a regulated undertaking, if any, which could pose systemic risks.
In addition, DNB monitors operations and business through monthly updates, the submission of Quantitative Reporting Templates, by reviewing annual reports, approving prospective Management Board and Supervisory Board members prior to their appointment and through scheduled and unannounced audits. 21 Table of Contents DNB also regulates the acquisition and increase of control over certain authorized firms, such as insurers.
In addition, DNB monitors operations and business through monthly updates, the submission of Quantitative Reporting Templates, by reviewing annual reports, approving prospective Management Board and Supervisory Board members prior to their appointment and through scheduled and unannounced audits. 22 Table of Contents DNB also regulates the acquisition and increase of control over certain authorized firms, including insurers.
Growing households often need car, pet, and life insurance, and additional coverage. These progressions regularly trigger orders of magnitude jumps in insurance premiums, and within states that offer all of Lemonade’s “suite of products” - Renters, Home, Car, Pet, and Life - we see a growing proportion of customers with multiple Lemonade policies.
Growing households often need car, pet, and life insurance, and additional coverage. These progressions regularly trigger orders of magnitude jumps in insurance premiums, and within states that offer all of Lemonade’s “suite of products” - Renters, Home, Car, Pet, and Life - we see a growing proportion of customers with multiple Lemonade policies and see ripe opportunities for the business.
About 72% of our pet insurance policies were sold to new customers, and about 6% of those have already added a renters or homeowners policy to their pet policy as of December 31, 2023. Customers that bundle our insurance offerings typically save money.
About 83% of our pet insurance policies were sold to new customers, and about 6% of those have already added a renters or homeowners policy to their pet policy as of December 31, 2024. Customers that bundle our insurance offerings typically save money.
The remaining 28% or so of pet insurance policies were sold to existing customers, whose median premium per customer grew roughly 3.7x with little to no incremental customer acquisition costs. Car We launched car insurance in December 2021 in Illinois, and now offer it in a handful of states.
The remaining 17% or so of pet insurance policies were sold to existing customers, whose median premium per customer grew roughly 3.7x with little to no incremental customer acquisition costs. Car We launched car insurance in December 2021 in Illinois, and now offer it in nine states.
Growth Opportunities Acquire more customers About 90% of our current home and renters customers said that they were not switching to Lemonade from another carrier. We are well positioned to grow our customer base by continuing to attract first time buyers, an underserved population replenishing every year.
Growth Opportunities Acquire more customers As of December 31, 2024, about 92% of our current home and renters customers said that they were not switching to Lemonade from another carrier. We are well positioned to grow our customer base by continuing to attract first time buyers, an underserved population replenishing every year.
Furthermore, our investment policy considers our focus on ESG and prohibits investments in areas such as oil and gas, coal, tobacco, controversial weapons, and non-compliance with the United Nations Global Compact.
Furthermore, our investment policy prohibits investments in areas such as oil and gas, coal, tobacco, controversial weapons, and non-compliance with the United Nations Global Compact.
The calculation of "employees" includes insurance agents and brokers because they are a significant cost component for other insurance companies. In comparison to these competitors, our number of customers per employee was approximately 1,600 as of December 31, 2023.
The calculation of "employees" includes insurance agents and brokers because they are a significant cost component for other insurance companies. In comparison to these competitors, our number of customers per employee was approximately 2,000 as of December 31, 2024.
As of December 31, 2023, 382 employees were required to maintain and did maintain requisite licenses for these activities in most states in which we operate.
As of December 31, 2024, 422 employees were required to maintain and did maintain requisite licenses for these activities in most states in which we operate.
Failure to maintain risk-based capital at the required levels could adversely affect the ability of LIC and MIC to maintain the regulatory approvals necessary to conduct their businesses. As of December 31, 2023, LIC maintained a risk-based capital level of 416% and MIC maintained a risk-based capital level of 476%.
Failure to maintain risk-based capital at the required levels could adversely affect the ability of LIC and MIC to maintain the regulatory approvals necessary to conduct their businesses. As of December 31, 2024, LIC maintained a risk-based capital level of 577% and MIC maintained a risk-based capital level of 525%.
As of December 31, 2023, we hold 131 foreign registered trademarks and 10 registered trademarks in the United States, including the Lemonade and Metromile marks, have 8 foreign trademark applications pending and no U.S. trademark applications pending, and hold 3 copyrights in the United States, covering certain videos, texts, photographs, and artwork displayed on our mobile app and website.
As of December 31, 2024, we hold 137 foreign registered trademarks and 10 registered trademarks in the United States, including the Lemonade and Metromile marks, have 4 foreign trademark applications pending and no U.S. trademark applications pending, and hold 3 copyrights in the United States, covering certain videos, texts, photographs, and artwork displayed on our mobile apps and website.
We manage the portfolio in accordance with the investment policies and guidelines approved by the board of directors. 12 Table of Contents We have designed our investment policy and objectives to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable to the states in which we operate.
We have designed our investment policy and objectives to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable to the states in which we operate.
AI Jim AI Jim is our claims bot, and, as of December 31, 2023, 98% of the time, it is AI Jim that will take the first notice of loss from a Lemonade customer making a claim, paying the claimant or declining the claim without human intervention (and with zero claims overhead, known as loss adjustment expense, or “LAE”).
AI Jim AI Jim is our claims bot, and, as of December 31, 2024, 96% of the time, it is AI Jim that will take the first notice of loss from a Lemonade customer without human intervention (and with zero claims overhead, known as loss adjustment expense, or “LAE”).
Geographic Scope of Business In the United States, as of December 31, 2023, LIC and MIC are licensed to sell our insurance products in the following states: 15 Table of Contents We also currently hold a pan-European license, which enables us to sell in 30 countries across Europe.
To that end, employees have access to health and wellness programs, and healthcare plans. 15 Table of Contents Geographic Scope of Business In the United States, as of December 31, 2024, LIC and MIC are licensed to sell our insurance products in the following states: We also currently hold a pan-European license, which enables us to sell in 30 countries across Europe.
While a meaningful portion of simple theft claims are paid almost instantly, in many cases the incident is also reviewed by a human before the claim is approved, and certain property damage claims or liability claims may take longer to settle.
Claims are often paid or declined through our claims bot, AI Jim, within seconds. While a meaningful portion of simple theft and standard pet claims are paid almost instantly, in many cases the incident is also reviewed by a human before the claim is approved, and certain property damage claims or liability claims may take longer to settle.
A person will be treated as increasing (or decreasing) their control over an insurer if the level of their percentage of (indirect) shareholding or voting power in the insurer crosses the 10, 20, 33, 50 percent or 100 percent threshold. Both Lemonade Insurance N.V. and Lemonade Agency B.V.
A person will be treated as increasing (or decreasing) their control over an insurer if the level of their percentage of (indirect) shareholding or voting power in the insurer crosses the 10, 20, 33, 50 percent or 100 percent thresholds.
Lemonade Insurance N.V. launched its first product in the UK market in October 2022. Since 2023 the Company has operated in the UK through its registered branch establishment Lemonade Insurance N.V., UK Branch (BR025196) which received third-country branch authorization from the Prudential Regulation Authority in the UK in May 2023.
Lemonade Insurance N.V. launched its first product in the UK market in October 2022, and operates in the UK through its registered branch establishment, Lemonade Insurance N.V., UK Branch (BR025196) which received third-country branch authorization from the Prudential Regulation Authority in the UK in May 2023. This allows the company to operate in the UK market permanently.
Although we are tapping into markets that our competitors have struggled to reach, the incumbent insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital and more types of insurance coverage to offer, such as car, health and life insurance, than we currently do.
Although we are tapping into markets that our competitors have struggled to reach, the incumbent insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital.
Additionally, a growing set of privacy regulations have created intense scrutiny regarding Interest-based advertising, or the use of data to draw inferences about a consumer’s interests and deliver relevant advertising to that consumer, by legislative, regulatory, and self-regulatory bodies, privacy advocates, academics, and commercial interests in the United States and abroad that focus on consumer data protection and privacy.
Many states have enacted the Insurance Data Security Model Law or similar laws, and we expect more states to follow. 18 Table of Contents Additionally, a growing set of privacy regulations have created intense scrutiny regarding Interest-based advertising, or the use of data to draw inferences about a consumer’s interests and deliver relevant advertising to that consumer, by legislative, regulatory, and self-regulatory bodies, privacy advocates, academics, and commercial interests in the United States and abroad that focus on consumer data protection and privacy.
Our Product Offerings Renters and Homeowners Insurance We currently offer our products to renters and homeowners in the United States, and contents and liability insurance in Germany, the Netherlands, France, and the United Kingdom.
Our Product Offerings Renters and Homeowners Insurance We offer our products to renters and homeowners in the United States, France, and the UK (in addition to liability insurance for the latter two) and contents and liability insurance in Germany and the Netherlands.
(“UK branch establishments”) commenced operations in the UK under the Temporary Permission Regime in accordance with which certain European Economic Area based firms may continue to operate in the UK for a limited period following the UK's departure from the European Union.
Both Lemonade Insurance N.V. and Lemonade Agency B.V. commenced operations in the UK under the Temporary Permission Regime in accordance with which certain European Economic Area based firms may continue to operate in the UK for a limited period following the UK's departure from the European Union.
The provisions set out in the IDD mainly relate to standards of product disclosure, promotional materials and product governance and oversight. Local regulations and conduct of business rules implemented in each of the European member states in which both Lemonade Agency B.V. and Lemonade Insurance N.V. do business supplement the requirements set out in the IDD.
Local regulations and conduct of business rules implemented in each of the European member states in which both Lemonade Agency B.V. and Lemonade Insurance N.V. do business supplement the requirements set out in the IDD.
Investments Our portfolio of investable assets is primarily held in cash, money market funds, and fixed income securities which includes U.S. government and government agencies obligations, corporate debt securities and asset-backed securities with relatively short durations.
Investments Our portfolio of investable assets is primarily held in cash, money market funds, and fixed income securities which includes U.S. and non-US government and government agencies obligations, corporate debt securities and asset-backed securities with relatively short durations. We manage the portfolio in accordance with the investment policies and guidelines approved by the board of directors.
During 2023, the UK branch establishments of Lemonade Insurance N.V., and Lemonade Agency B.V. received a third country branch authorization in the UK allowing both companies to continue to operate in the UK market on a permanent basis. See Required Licensing section below for a description.
During 2023, the UK branch establishments of Lemonade Insurance N.V., and Lemonade Agency B.V. (“UK branch establishments”) received a third country branch authorization in the UK allowing both companies to continue to operate in the UK market on a permanent basis. Lemonade Agency B.V., UK Branch (BR024862) is the UK establishment of Lemonade Agency B.V..
We have informed, and intend to continue to inform, our customers of the amount donated to their selected nonprofit during each Giveback on an annual basis, details of which follow: Giveback Year Number of Nonprofit Organizations Amount 2023 58 $ 2,008,847 2022 59 $ 1,873,588 2021 65 $ 2,303,381 2020 34 $ 1,128,109 2019 26 $ 631,540 Selected nonprofit organizations chosen by customers in 2023 included: Charity Water, New Story, Malala Fund, and many others.
The Giveback is not a contractual obligation to any customer or to any cause, and customers may not take a tax deduction related to the donations. 10 Table of Contents We have informed, and intend to continue to inform, our customers of the amount donated to their selected nonprofit during each Giveback on an annual basis, details of which follow: Giveback Year Number of Nonprofit Organizations Amount 2024 43 $ 2,112,608 2023 58 $ 2,008,847 2022 59 $ 1,873,588 2021 65 $ 2,303,381 2020 34 $ 1,128,109 Nonprofit organizations chosen by customers in 2024 included: Charity Water, New Story, Malala Fund, and many others.
Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority (FRN 846181). 22 Table of Contents Additional Information Our internet website address is www.lemonade.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website.
Lemonade Agency B.V., UK Branch is authorised and regulated by the Financial Conduct Authority (FRN: 989294). 23 Table of Contents Additional Information Our internet website address is www.lemonade.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website.
While this description characterizes all reinsurance, implementations come in different flavors, each with its own costs and benefits. We have entered into a range of reinsurance agreements, differing in both duration and terms, which combine, we believe, to deliver maximum capital efficiency, while optimizing our gross margin for both stability and size.
We have entered into a range of reinsurance agreements, differing in both duration and terms, which combine, we believe, to deliver maximum capital efficiency, while optimizing our gross margin for both stability and size.
See "Risk Factors — We could be forced to modify or eliminate our Giveback, which could undermine our business model and have a material adverse effect on our results of operations and financial condition." Our 2023 Giveback for the 12 month period ended June 30, 2023 amounted to $2,008,847.
See "Risk Factors — We could be forced to modify or eliminate our Giveback, which could undermine our business model and have a material adverse effect on our results of operations and financial condition." Our 2024 Giveback for the 12 month period ended June 30, 2024 amounted to $2,112,608 hitting a milestone of more than $10 million donated since the program’s inception in 2017.
The Delegated Regulation is promulgated under the Solvency II Directive and provides detailed requirements relating to some of the Solvency II Directive’s broader requirements. 20 Table of Contents IDD and other conduct of business rules The IDD provides a harmonized regime for insurance distribution activities.
The Delegated Regulation is promulgated under the Solvency II Directive and provides detailed requirements relating to some of the Solvency II Directive’s broader requirements. IDD and other conduct of business rules The IDD provides a harmonized regime for insurance distribution activities. It regulates the way insurance products are designed and sold both by insurance intermediaries ( e.g .
Even our basic pet insurance offering covers blood tests, urinalysis, X-rays, MRIs, lab work, and CT scans. We also offer two optional add-ons to the basic plan, a wellness package and an extended accident and illness package. These provide additional coverage for preventative care costs, including annual exams and vaccines, and recovery treatments, including physical therapy and hydrotherapy.
Even our basic pet insurance offering covers blood tests, urinalysis, X-rays, MRIs, lab work, and CT scans. We also offer two optional add-ons to the basic plan, a wellness package and an extended accident and illness package.
Enforcement DNB and AFM expect firms to avoid actions that jeopardize compliance with their statutory objectives and applicable rules and regulations and have extensive powers to intervene in the affairs of a regulated firm.
Lemonade Insurance N.V., UK branch (BR025196), is the UK establishment of Lemonade Insurance N.V.. See Required Licensing section below for a description. Enforcement DNB and AFM expect firms to avoid actions that jeopardize compliance with their statutory objectives and applicable rules and regulations and have extensive powers to intervene in the affairs of a regulated firm.
The process takes a few seconds. Our customer-facing technologies, AI Maya, AI Jim, and CX.AI deliver a superior experience at a fraction of the cost, all the while collecting and utilizing far more data than their human counterparts. A similar construct powers the rest of the Company.
CX.AI uses Natural Language Processing to analyze and understand customers' requests, helping them perform a growing set of tasks. Our customer-facing technologies, AI Maya, AI Jim, and CX.AI deliver a superior experience at a fraction of the cost, all the while collecting and utilizing far more data than their human counterparts. A similar construct powers the rest of the Company.
AI Jim triages and assigns claims he is not authorized to settle, or ones where he identifies concerns, to human claims experts, analyzing each expert's specialty, qualifications, workload, and schedule to determine to whom to assign the claim.
As of December 31, 2024, roughly 55% of our claims were automated, resulting in instant or near-instant processing from start to finish. AI Jim triages and assigns claims he is not authorized to settle, or ones where he identifies concerns, to human claims experts, analyzing each expert's specialty, qualifications, workload, and schedule to determine to whom to assign the claim.
This allows the company to operate in the UK market permanently. Lemonade Insurance N.V. is licensed as an insurance company by De Nederlandsche Bank in the Netherlands (R162036). Authorized by the Prudential Regulation Authority.
Lemonade Insurance N.V. is licensed as an insurance company by De Nederlandsche Bank in the Netherlands (R162036). Authorized by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority (FRN 846181).
In 2023, we formed a new risk-bearing entity, Lemonade Re SPC, in the Cayman Islands, where we hold some of our retained risk. We also established a captive cell facility at a Bermuda transformer vehicle that is authorized to write and purchase insurance / reinsurance where we retain most of our windstorm exposure.
We also established a captive cell facility at a Bermuda transformer vehicle that is authorized to write and purchase insurance / reinsurance where we retain most of our windstorm exposure.
Giveback Feature Giveback is a distinctive feature, whereby each year we aim to donate leftover money to causes our customers care about. After our customers purchase a policy, we ask them to select, from a pre-vetted list, a charitable cause to support with the residual premiums from their policy.
After our customers purchase a policy, we ask them to select, from a pre-vetted list, a charitable cause to support with the residual premiums from their policy.
In 2020, we issued 500,000 shares of common stock as the initial endowment of the Lemonade Foundation, a 501(c)(4) social welfare organization established under Arizona law.
In 2020, we issued 500,000 shares of common stock as the initial endowment of the Lemonade Foundation, a 501(c)(4) social welfare organization established under Arizona law. By contributing approximately 1% of our common stock to the Lemonade Foundation, we hope to promote charitable giving and other community-centric activities with a nexus to our community.
Regulated entities are generally required to comply with the new requirements imposed by the Amendment in phases throughout 2024 and 2025. 17 Table of Contents In 2017 the NAIC adopted the Insurance Data Security Model Law, which established standards for data security and for the investigation and notification of insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information.
In 2017, the NAIC adopted the Insurance Data Security Model Law, which established standards for data security and for the investigation and notification of insurance commissioners of cybersecurity events involving unauthorized access to, or the misuse of, certain nonpublic information.
We believe our expansion into pet insurance will allow us to further achieve our long-term strategy of growing with our young customer base by offering new insurance experiences to customers as they progress in their lifecycles.
These provide additional coverage for preventative care costs, including annual exams and vaccines, and recovery treatments, including physical therapy and hydrotherapy. 9 Table of Contents We believe our expansion into pet insurance will allow us to further achieve our long-term strategy of growing with our young customer base by offering new insurance experiences to customers as they progress in their lifecycles.
Together, these contracts reduce the maximum amount we would need to pay for any one claim. Our business is exposed to the risk of severe weather conditions and other catastrophes which are inherently unpredictable. To reduce this risk, we also purchase one year property catastrophe excess protection.
We believe we have achieved this through a combination of reinsurance structures known as "per risk reinsurance" and "facultative reinsurance" (the "Non-Proportional Reinsurance Contracts"). Together, these contracts reduce the maximum amount we would need to pay for any one claim. Our business is exposed to the risk of severe weather conditions and other catastrophes which are inherently unpredictable.
Our strong brand and unique business model drive rapid growth and allow us to quickly gain share in new markets. We also hold a pan-European license, enabling us to passport into and sell in 30 countries across Europe. Under this license we commenced operations in Germany in 2019, and in the Netherlands and France in 2020.
We operate in 39 of those states and Washington, D.C., which collectively represent approximately 93% of the U.S. population. Our strong brand and unique business model drive rapid growth and allow us to quickly gain share in new markets. We also hold a pan-European license, enabling us to passport into and sell in 30 countries across Europe.
Our regulatory framework, technology stack, and brand are all extensible to new lines of insurance, and we anticipate that these will contribute to our growth in the future. In the last three years, we have added life, pet and car insurance to our growing portfolio of offerings, and expect to add additional coverage types over time.
Our regulatory framework, technology stack, and brand are all extensible to new lines of insurance, and we anticipate that these will contribute to our growth in the future.
Once certified, every Certified B Corp must make its assessment score transparent on the independent non-profit organization's website. Acceptance as a Certified B Corp and continued certification is at the sole discretion of the independent nonprofit organization.
Once certified, every Certified B Corp must make its assessment score transparent on the independent non-profit organization's website.
Non-Proportional Reinsurance: Optimize Gross Margin As described above, our Proportional Reinsurance Contracts provide that we cede a significant portion of our premiums to our reinsurers, pushing our capital efficiency to near maximized levels. We have opted to manage the remaining portion of our business with alternative forms of reinsurance, with a view to maximizing profitability.
Our proportional reinsurance structure shifts most of that surplus capital requirement to the reinsurer, reducing these capital requirements significantly. Non-Proportional Reinsurance: Optimize Gross Margin As described above, our Proportional Reinsurance Contracts provide that we cede a significant portion of our premiums to our reinsurers, pushing our capital efficiency to near maximized levels.
Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States, and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology. 13 Table of Contents Certified B Corp Status While not required by Delaware law or the terms of our certificate of incorporation, we have been designated as a Certified B Corp.
Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States, and, therefore, in certain jurisdictions, we may be unable to protect our proprietary technology.
These two remaining goals live in tension with one another: leaving zero "wiggle room" around our fixed fee would guarantee its stability, but would preclude our benefiting from our improving loss ratio. Conversely, any room for improved profitability would also introduce additional volatility into our business.
We have opted to manage the remaining portion of our business with alternative forms of reinsurance, with a view to maximizing profitability. These two remaining goals live in tension with one another: leaving zero "wiggle room" around our fixed fee would guarantee its stability, but would preclude our benefiting from our improving loss ratio.
In an event that requires immediate assistance or temporary housing as a result of fire, ongoing water damage, or any other structural damage that leaves the customer's home exposed, we contact the customer to assess the situation and provide emergency services, such as water or fire damage cleanup, temporary housing, or a designated specialist.
In an event that requires immediate assistance or temporary housing as a result of fire, ongoing water damage, or structural damage that leaves the customer's home exposed, we contact the customer to assess the situation and provide emergency services, such as water or fire damage cleanup, temporary housing, or a designated specialist. 11 Table of Contents Reinsurance Insurance often produces businesses with highly recurring revenue streams, and hence predictable top lines, but with significant bottom-line volatility, as profits can literally fluctuate with the weather.
We believe our reinsurance structure achieves these important goals: making us capital-light, buffering our gross margin from the vicissitudes of claims, and leaving room for our gross margin to grow.
We believe our reinsurance structure achieves these important goals: making us capital-light, buffering our gross margin from the vicissitudes of claims, and leaving room for our gross margin to grow. 12 Table of Contents Duration Our goal of maximizing predictability of our results, while growing gross margin over time, led us to vary not only the terms of our reinsurance agreements, but their term, too.
We conduct drip campaigns via email to follow up with those who have inquired about us or started the on-boarding process.
We conduct drip campaigns via email to follow up with those who have inquired about us or started the on-boarding process. Additionally, we enter into agreements with parties who have access to potential customers, including insurance agencies, apartment building owners, and property management companies.
We encourage employees to bring their lived experiences, and personal strengths, to develop new ideas, improve customer experience and shape our brand. We engage with employees for ideas of nonprofits to partner with, or resources to learn more about a social issue, and their candid (and anonymous, should they choose) feedback about our workplace culture and environment.
We engage with employees for ideas of nonprofits to partner with, or resources to learn more about a social issue, and their candid (and anonymous, should they choose) feedback about our workplace culture and environment. Additionally, our employees organize several education groups across the Company addressing these importantt topics.
These requirements tend to be more onerous for younger companies experiencing rapid growth, such that without reinsurance we would need to reserve as much as 50 cents for every dollar of premiums sold. Our proportional reinsurance structure shifts most of that surplus capital requirement to the reinsurer, reducing these capital requirements significantly.
Under U.S. and E.U. regulatory laws, insurance companies are required to set aside "surplus capital" in accordance with various formulae. These requirements tend to be more onerous for younger companies experiencing rapid growth, such that without reinsurance we would need to reserve as much as 50 cents for every dollar of premiums sold.
Customers often require assistance pre- or post-purchase, ranging from coverage questions to making changes to their policy, such as adding a spouse, updating coverage amounts, changing payment methods, or adding newly purchased items. CX.AI uses Natural Language Processing to analyze and understand customers' requests, helping them perform a growing set of tasks.
CX.AI CX.AI is our bot platform built to understand and resolve customer requests without human intervention. Currently, over half of Lemonade’s customer inquiries are handled this way. Customers often require assistance pre- or post-purchase, ranging from coverage questions to making changes to their policy, such as adding a spouse, updating coverage amounts, changing payment methods, or adding newly purchased items.
In May and June 2023 respectively, we received a third country branch authorization in the UK for both of these registered branches allowing us to operate on a permanent basis in the UK market. 8 Table of Contents The Lemonade platform is inherently multilingual and agile by design, so that we can efficiently expand into new markets and new product offerings both within the United States and internationally.
In May and June 2023 respectively, we received a third country branch authorization in the UK for both of these registered branches allowing us to operate on a permanent basis in the UK market.
Claims can be substantiated with receipts, notes of where and when the item was purchased, and in certain cases, police reports. We also ask the customer to record a video explaining their claim to enhance the claim review process. After the customer completes a claim report on our mobile app, the customer is asked to enter bank account information.
We also ask the customer to record a video explaining their claim to enhance the claim review process. After the customer completes a claim report on our mobile app, the customer is asked to enter bank account information. If the claim is approved, a payment is issued and deposited directly into the customer's account.
It regulates the way insurance products are designed and sold both by insurance intermediaries ( e.g . Lemonade Agency B.V.) and directly by insurance undertakings ( e.g . Lemonade Insurance N.V.). The rules and regulations set out in the IDD have been implemented in the DFSA.
Lemonade Agency B.V.) and directly by insurance undertakings ( e.g . Lemonade Insurance N.V.). The rules and regulations set out in the IDD have been implemented in the DFSA. The provisions set out in the IDD mainly relate to standards of product disclosure, promotional materials and product governance and oversight.
In the wake of the social justice movements, our employees founded in 2020 an internal anti-racism education group, and continue to share resources, promote racial equity, and develop anti-bias training. Health, Safety and Wellness As a B Corp, it is part of our legal mission to advance the health, well-being and equity of employees.
Health, Safety and Wellness As a B Corp, it is part of our legal mission to advance the health, well-being and equity of employees.

… 45 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

193 edited+24 added−46 removed422 unchanged
Biggest changeWe could face allegations that we have violated the TCPA, CAN-SPAM Act, or similar laws, rules and regulations, and even if these allegations are without merit, we could face regulatory inquiries, lawsuits and related defense costs, liability (such as fines, damages, consent decrees, and injunctions), harm to our reputation and other losses that could harm our business.
Biggest changeWe could face allegations that we have violated the TCPA, CAN-SPAM Act, or similar laws, rules and regulations, and even if these allegations are without merit, we could face regulatory inquiries, lawsuits and related defense costs, liability (such as fines, damages, consent decrees, and injunctions), harm to our reputation and other losses that could harm our business. 31 Table of Contents A California law, effective as of July 2019, makes it unlawful for any person to use a bot to communicate with a person in California online with the intent to mislead the other person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase of goods or services in a commercial transaction.
Further, outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our information or customers' information.
Further, outside parties may attempt to fraudulently induce employees or customers to disclose sensitive information in order to gain access to our information or customers' information.
Negative public perception, adverse publicity or negative comments in social media could damage our reputation or harm our relationships with regulators and the communities in which we operate, if we do not, or are not perceived to, adequately address these issues, including if we fail to demonstrate progress towards any current or future our ESG goals.
Negative public perception, adverse publicity or negative comments in social media could damage our reputation or harm our relationships with regulators and the communities in which we operate, if we do not, or are not perceived to, adequately address these issues, including if we fail to demonstrate progress towards any current or future ESG goals.
The warrant agreement, as amended, between American Stock Transfer & Trust Company, LLC, as warrant agent, and us, as successor thereunder following the consummation of the merger (the “Metromile Warrant Agreement”), provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants (as defined in the Metromile Warrant Agreement) to make any change that adversely affects the interests of the registered holders.
The warrant agreement, as amended, between American Stock Transfer & Trust Company, LLC, as warrant agent, and us, as successor thereunder following the consummation of the Metromile Merger (the “Metromile Warrant Agreement”), provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding Public Warrants (as defined in the Metromile Warrant Agreement) to make any change that adversely affects the interests of the registered holders.
Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof (such as the recent Inflation Reduction Act which, among other changes, introduced a 15% corporate minimum tax on certain United States corporations and a 1% excise tax on certain stock redemptions by United States corporations); tax policy initiatives and reforms in effect or under consideration (such as those related to the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing or other projects); the practices of tax authorities in jurisdictions in which we operate; and the resolution of issues arising from tax audits or examinations and any related interest or penalties.
Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof (such as the Inflation Reduction Act which, among other changes, introduced a 15% corporate minimum tax on certain United States corporations and a 1% excise tax on certain stock redemptions by United States corporations); tax policy initiatives and reforms in effect or under consideration (such as those related to the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing or other projects); the practices of tax authorities in jurisdictions in which we operate; and the resolution of issues arising from tax audits or examinations and any related interest or penalties.
There are many factors that could negatively affect our ability to grow our customer base, including if: • we fail to effectively use search engines, social media platforms, digital app stores, content- based online advertising, and other online sources for generating traffic to our website and our online app; • potential customers in a particular marketplace or generally do not meet our underwriting guidelines; • our competitors mimic our digital platform, causing current and potential customers to purchase their insurance products instead of our products; • our digital platform experiences disruptions; • we experience unfavorable shifts in customer perception of our chat-bots; • we suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we fail to expand geographically; 24 Table of Contents • we fail to offer new and competitive products; • customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; or • we are unable to address customer concerns regarding the content, privacy, and security of our digital platform.
There are many factors that could negatively affect our ability to grow our customer base, including if: • we fail to effectively use search engines, social media platforms, digital app stores, content- based online advertising, and other online sources for generating traffic to our website and our online app; • potential customers in a particular marketplace or generally do not meet our underwriting guidelines; • our competitors mimic our digital platform, causing current and potential customers to purchase their insurance products instead of our products; • our digital platform experiences disruptions; • we experience unfavorable shifts in customer perception of our chat-bots; • we suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we fail to expand geographically; • we fail to offer new and competitive products; • customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; or 25 Table of Contents • we are unable to address customer concerns regarding the content, privacy, and security of our digital platform.
These provisions include: • our board of directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause; • nothing in our Amended Charter precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; 61 Table of Contents • our stockholders will only be able to take action at a meeting of stockholders and not by written consent; • only our chairman of the board of directors, our chief executive officer, our president (in the absence of the chief executive officer), or a majority of the board of directors are authorized to call a special meeting of stockholders; • no provision in our Amended Charter or Amended Bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; • directors will only be able to be removed for cause; • certain amendments to our Amended Charter will require the approval of two-thirds of the then outstanding voting power of our capital stock; • our Amended Bylaws will provide that the affirmative vote of two-thirds of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our bylaws; • our Amended Charter authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and • certain litigation against us can only be brought in Delaware.
These provisions include: • our board of directors is classified into three classes of directors with staggered three-year terms and directors are only able to be removed from office for cause; • nothing in our Amended Charter precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock; • advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; • our stockholders will only be able to take action at a meeting of stockholders and not by written consent; 62 Table of Contents • only our chairman of the board of directors, our chief executive officer, our president (in the absence of the chief executive officer), or a majority of the board of directors are authorized to call a special meeting of stockholders; • no provision in our Amended Charter or Amended Bylaws provides for cumulative voting, which limits the ability of minority stockholders to elect director candidates; • directors will only be able to be removed for cause; • certain amendments to our Amended Charter will require the approval of two-thirds of the then outstanding voting power of our capital stock; • our Amended Bylaws will provide that the affirmative vote of two-thirds of the then-outstanding voting power of our capital stock, voting as a single class, is required for stockholders to amend or adopt any provision of our bylaws; • our Amended Charter authorizes undesignated preferred stock, the terms of which may be established and shares of which may be issued, without the approval of the holders of our capital stock; and • certain litigation against us can only be brought in Delaware.
There is not yet any clear precedent as to whether use of artificial intelligence to make insurance offers to individuals will be considered necessary even though it is integral to our business model. If our automated decision making processes cannot meet this necessity threshold, we cannot use these processes with E.U. data subjects unless we obtain their explicit consent.
There is not yet any clear precedent as to whether use of artificial intelligence to make insurance offers to individuals will be considered necessary even though it is integral to our business model. If our automated decision making processes cannot meet this necessity threshold, we cannot use these processes with E.U./U.K. data subjects unless we obtain their explicit consent.
Severe weather events include, but are not limited to, winter storms, rain, hail, and high winds. The incidence and severity of weather conditions are largely unpredictable. Catastrophes can be caused by various events, such as wildfires, tornadoes, tsunamis, hurricanes, tropical storms, earthquakes, windstorms, hailstorms, severe thunderstorms, fires, and other non-natural events such as explosions, riots, terrorism, or war.
Severe weather events include, but are not limited to, winter storms, rain, hail, wild fires and high winds. The incidence and severity of weather conditions are largely unpredictable. Catastrophes can be caused by various events, such as wildfires, tornadoes, tsunamis, hurricanes, tropical storms, earthquakes, windstorms, hailstorms, severe thunderstorms, fires, and other non-natural events such as explosions, riots, terrorism, or war.
If our claims adjusters or third party claims administrators are unable to effectively process our volume of non-automated claims, our ability to grow our business while maintaining high levels of customer satisfaction could be compromised, which in turn, could adversely affect our operating margins. Our future revenue growth and prospects depend on attaining greater value from each user.
If our claims adjusters or third party claims administrators are unable to effectively process our volume of non-automated claims, our ability to grow our business while maintaining high levels of customer satisfaction could be compromised, which in turn, could adversely affect our operating margins. Our future revenue growth and prospects depend on attaining greater value from each customer.
Our business model is premised on the expectation that a significant number of our users that are renters will continue to retain coverage with us as they move from being renters to homeowners. Currently, however, given our limited operating history, substantially all of our current homeowner users are new users who were not previously renters with us.
Our business model is premised on the expectation that a significant number of our customers that are renters will continue to retain coverage with us as they move from being renters to homeowners. Currently, however, given our limited operating history, substantially all of our current homeowner users are new customers who were not previously renters with us.
Below is Demotech, Inc.'s rating scale: • A" (A Double Prime), Unsurpassed: 100% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • A' (A Prime), Unsurpassed: 99% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • A, Exceptional: 97% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • S, Substantial: 95% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • M, Moderate: 90% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; and • L, Licensed: These companies have been assessed but have not been given one of the financial strength ratings listed above. 57 Table of Contents While our Demotech, Inc. rating has proved satisfactory to date, we cannot assure that this rating will remain at its current level and it is possible that some prospective customers may be reluctant to do business with a company that is not rated by A.M.
Below is Demotech, Inc.'s rating scale: • A" (A Double Prime), Unsurpassed: 100% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • A' (A Prime), Unsurpassed: 99% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • A, Exceptional: 97% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • S, Substantial: 95% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; • M, Moderate: 90% of insurers with this rating are expected to have a positive surplus at least 18 months from the initial date of rating assignment; and • L, Licensed: These companies have been assessed but have not been given one of the financial strength ratings listed above. 58 Table of Contents While our Demotech, Inc. rating has proved satisfactory to date, we cannot assure that this rating will remain at its current level and it is possible that some prospective customers may be reluctant to do business with a company that is not rated by A.M.
We are subject to the insurance holding company laws of New York, Delaware and California, which require LIC and MIC to register with the NYDFS, the Delaware Department of Insurance ("DE Dept.") and the California Department of Insurance ("CDI"), as applicable, and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of LIC and MIC.
We are subject to the insurance holding company laws of New York, Delaware and California, which require LIC and MIC to register with the NYDFS, DE Dept. and CDI, as applicable, and furnish information concerning the operations of companies within the holding company system that may materially affect the operations, management or financial condition of LIC and MIC.
Best. We have never been reviewed by A.M. Best and do not currently intend to seek a rating from A.M. Best. Unlike Demotech, Inc., A.M. Best may penalize companies that are highly leveraged, including those companies that utilize reinsurance to support premium writings.
Best. We have not been reviewed by A.M. Best and do not currently intend to seek a rating from A.M. Best. Unlike Demotech, Inc., A.M. Best may penalize companies that are highly leveraged, including those companies that utilize reinsurance to support premium writings.
In addition, our decision to expand our insurance product offerings beyond the renters, homeowners, pet, life and car insurance market would subject us to additional regulatory requirements specific to such insurance products, which, in turn, could require us to incur additional costs or devote additional resources to compliance. 29 Table of Contents Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to, which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers.
In addition, our decision to expand our insurance product offerings beyond the renters, homeowners, pet, life and car insurance market would subject us to additional regulatory requirements specific to such insurance products, which, in turn, could require us to incur additional costs or devote additional resources to compliance. 30 Table of Contents Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to, which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers.
In the case of a service invention, employees and former employees may petition the Israeli Compensation and Royalties Committee established under the Israel Patent Law to determine whether they are entitled to remuneration for their service inventions.
Nevertheless, in the case of a service invention, employees and former employees may petition the Israeli Compensation and Royalties Committee established under the Israel Patent Law to determine whether they are entitled to remuneration for their service inventions.
In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us. 58 Table of Contents Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.
In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us. 59 Table of Contents Unexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations.
The market price of our common stock may decline below the public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid or at all.
The market price of our common stock or warrants may decline below the public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid or at all.
The data that we gather through our interactions with our customers is evaluated and curated by proprietary artificial intelligence algorithms. The continuous development, maintenance and operation of our deep-learned backend data analytics engine is expensive and complex, and may involve unforeseen difficulties including material performance problems, undetected defects or errors, for example, with new capabilities incorporating artificial intelligence.
The data that we gather through our interactions with our customers is evaluated and curated by proprietary artificial intelligence algorithms. The continuous development, maintenance and operation of our deep-learning backend data analytics engine is expensive and complex, and may involve unforeseen difficulties including material performance problems, undetected defects or errors, for example, with new capabilities incorporating artificial intelligence.
Additionally, any such derivative litigation may be costly, which may have an adverse impact on our financial condition and results of operations. 60 Table of Contents Risks Relating to Ownership of Our Common Stock and Warrants The market price of our common stock and warrants may be volatile or decline, and you may not be able to resell your shares at or above the price you initially paid for our common stock.
Additionally, any such derivative litigation may be costly, which may have an adverse impact on our financial condition and results of operations. 61 Table of Contents Risks Relating to Ownership of Our Common Stock and Warrants The market price of our common stock and warrants may be volatile or decline, and you may not be able to resell your shares at or above the price you initially paid for our common stock.
These statutes also provide that all transactions among members of a holding company system must be fair and reasonable and, if material or of specified types, such transactions require prior notice and approval or non-disapproval by the NYDFS, DE Dept. or the CDI. These prior notification and approval requirements may result in business delays and additional business expenses.
These statutes also provide that all transactions among members of a holding company system must be fair and reasonable and, if material or of specified types, such transactions require prior notice and approval or non-disapproval by the NYDFS, DE Dept. or the CDI, as applicable. These prior notification and approval requirements may result in business delays and additional business expenses.
If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. 62 Table of Contents We are subject to rules and regulations established from time to time by the SEC and the NYSE and the NYSE American regarding our internal control over financial reporting.
If so, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition. 63 Table of Contents We are subject to rules and regulations established from time to time by the SEC and the NYSE and the NYSE American regarding our internal control over financial reporting.
In particular, we expect to continue to expend substantial financial and other resources on marketing and advertising as part of our strategy to increase our user base. The marketing and advertising expenses that we incur are typically expensed immediately while any revenues that they generate are recognized ratably over the 12-month term of each insurance policy that we write.
In particular, we expect to continue to expend substantial financial and other resources on marketing and advertising as part of our strategy to increase our customer base. The marketing and advertising expenses that we incur are typically expensed immediately while any revenues that they generate are recognized ratably over the 12-month term of each insurance policy that we write.
We may be required to pay substantial 45 Table of Contents damages, royalties or other fees in connection with a claimant securing a judgment against us, we may be subject to an injunction or other restrictions that prevent us from using or distributing our intellectual property, or from operating under our brand, or we may agree to a settlement that prevents us from distributing our offerings or a portion thereof, which could adversely affect our business, results of operations and financial condition.
We may be required to pay substantial damages, royalties or other fees in connection with a claimant securing a judgment against us, we may be subject to an injunction or other restrictions that prevent us from using or distributing our intellectual property, or from operating under our brand, or we may agree to a settlement that prevents us from distributing our offerings or a portion thereof, which could adversely affect our business, results of operations and financial condition.
We are implementing external and internal policies and procedures, technical measures and internal training designed to adhere to those principles; • In relation to the transparency principle, the GDPR requires us to provide individuals in the European Union whose personal data we process ("data subjects") with certain information regarding the processing of their personal data by us, and we have an E.U. privacy policy, which can be found at 37 Table of Contents https://www.lemonade.com/de/en/privacy-policy (with respect to Germany), https://www.lemonade.com/nl/en/privacy-policy (with respect to the Netherlands) and http://www.lemonade.com/fr/en/privacy-policy (with respect to France); • The GDPR requires us to maintain internal records of our processing activities and to make those records available to regulators on demand; • The GDPR requires us to include certain mandatory terms in our agreements with third parties that process personal data subject to the GDPR on our behalf ("Processors") and we are in the process of entering into compliant data processing terms with each of our Processors.
We are implementing external and internal policies and procedures, technical measures and internal training designed to adhere to those principles; • In relation to the transparency principle, the GDPR requires us to provide individuals in the European Union and the U.K. whose personal data we process ("data subjects") with certain information regarding the processing of their personal data by us, and we have an E.U. and U.K. privacy policy, which can be found at https://www.lemonade.com/de/en/privacy-policy (with respect to Germany), https://www.lemonade.com/nl/en/privacy-policy (with respect to the Netherlands) and http://www.lemonade.com/fr/en/privacy-policy (with respect to France); and https://www.lemonade.com/uk/privacy-policy (with respect to UK). • The GDPR requires us to maintain internal records of our processing activities and to make those records available to regulators on demand; • The GDPR requires us to include certain mandatory terms in our agreements with third parties that process personal data subject to the GDPR on our behalf ("Processors") and we are in the process of entering into compliant data processing terms with each of our Processors.
See "Dividends." 63 Table of Contents Because we are a holding company and all of our business is conducted through our subsidiaries, dividends, distributions and other payments from, and cash generated by, our subsidiaries will be our principal sources of cash to fund operations and pay dividends.
See "Dividends." 64 Table of Contents Because we are a holding company and all of our business is conducted through our subsidiaries, dividends, distributions and other payments from, and cash generated by, our subsidiaries will be our principal sources of cash to fund operations and pay dividends.
Further, to the extent that any changes in law or regulation further restrict the ways in which we communicate with prospective or current customers before or during onboarding, customer care, or claims management, these restrictions could result in a material reduction in our 30 Table of Contents customer acquisition and retention, reducing the growth prospects of our business, and adversely affecting our financial condition and future cash flows.
Further, to the extent that any changes in law or regulation further restrict the ways in which we communicate with prospective or current customers before or during onboarding, customer care, or claims management, these restrictions could result in a material reduction in our customer acquisition and retention, reducing the growth prospects of our business, and adversely affecting our financial condition and future cash flows.
Alabama, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, New Hampshire, North Dakota, Ohio, Pennsylvania, South Carolina, Tennessee, Vermont, Virginia and Wisconsin have adopted versions of the NAIC Insurance Data Security Model Law, each with a different effective date, and other states may adopt versions of the NAIC Insurance Data Security Model Law in the future.
Alabama, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, New Hampshire, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia and Wisconsin have adopted versions of the NAIC Insurance Data Security Model Law, each with a different effective date, and other states may adopt versions of the NAIC Insurance Data Security Model Law in the future.
We designed our business model to attract users, align our incentives with those users, discourage fraudulent claims and allow us to offer competitive pricing, but it may not operate as intended over time and on a larger scale.
We designed our business model to attract customers, align our incentives with those customers, discourage fraudulent claims and allow us to offer competitive pricing, but it may not operate as intended over time and on a larger scale.
Our future growth and prospects depend on our ability to increase the premium per customer of our users, as described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Currently, the large majority of our users are renters.
Our future growth and prospects depend on our ability to increase the premium per customer, as described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Currently, the large majority of our customers are renters.
Such arrangements may limit our ability to protect, maintain, enforce or commercialize such intellectual property rights, including requiring agreement with or payment to our joint development partners before protecting, maintaining, licensing or initiating enforcement of such intellectual property rights, and may allow such joint development partners to register, 44 Table of Contents maintain, enforce or license such intellectual property rights in a manner that may affect the value of the jointly-owned intellectual property or our ability to compete in the market.
Such arrangements may limit our ability to protect, maintain, enforce or commercialize such intellectual property rights, including requiring agreement with or payment to our joint development partners before protecting, maintaining, licensing or initiating enforcement of such intellectual property rights, and may allow such joint development partners to register, maintain, enforce or license such intellectual property rights in a manner that may affect the value of the jointly-owned intellectual property or our ability to compete in the market.
In addition, there may even be a perception that a higher priced policy from a traditional brand name insurer may be of higher quality when coupled with the size and longevity of such traditional insurers. A failure to retain renters as they transition to homeowner status may materially adversely impact our future growth and prospects.
In addition, there may even be a perception that a higher priced policy from a traditional brand name insurer may be of higher quality when coupled with the size and longevity of such traditional insurers. A failure to 26 Table of Contents retain renters as they transition to homeowner status may materially adversely impact our future growth and prospects.
We enter into assignment of invention agreements with employees and contractors, pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us.
We enter into assignment of invention agreements with employees and consultants, pursuant to which such individuals assign to us all rights to any inventions created in the scope of their employment or engagement with us.
With regards to the recent hostilities, there is still uncertainty regarding the extent to which it will impact our operations in Israel, which we continue to evaluate. Our commercial insurance may not cover losses that could occur as a result of events associated with the security situation in the Middle East.
With regards to the recent hostilities, there is still uncertainty regarding the extent to which it will impact our operations in Israel, which we continue to evaluate. 42 Table of Contents Our commercial insurance may not cover losses that could occur as a result of events associated with the security situation in the Middle East.
For example, at the time a renter purchases a home, he or she is exposed to a large number of service providers who have direct and personal 25 Table of Contents access to that renter in a way that we do not. Those service providers may have, and share, their own views and preferences for homeowners insurance.
For example, at the time a renter purchases a home, he or she is exposed to a large number of service providers who have direct and personal access to that renter in a way that we do not. Those service providers may have, and share, their own views and preferences for homeowners insurance.
If such laws or regulations were enacted federally or in a large number of states in which we operate, it could impact the integrity and quality of our pricing and underwriting processes. 31 Table of Contents There is also increasing focus on regulating the use of artificial intelligence and machine learning in Europe.
If such laws or regulations were enacted federally or in a large number of states in which we operate, it could impact the integrity and quality of our pricing and underwriting processes. There is also increasing focus on regulating the use of artificial intelligence and machine learning in Europe.
Such changes could potentially have an adverse impact on our business. 39 Table of Contents We may be unable to prevent or address the misappropriation of our data. From time to time, third parties may misappropriate our data through website scraping, bots or other means and aggregate this data on their websites with data from other companies.
Such changes could potentially have an adverse impact on our business. We may be unable to prevent or address the misappropriation of our data. From time to time, third parties may misappropriate our data through website scraping, bots or other means and aggregate this data on their websites with data from other companies.
Lemonade Insurance Company's board of directors may determine the amount and distribution of the Giveback by taking into consideration various factors such as the current goodwill and reputation of the nonprofit selected by customers, the amount of funds available for distribution by each cohort, the reasonableness of such contribution, and general shareholders' interests, such as the proposed amount and distribution of the Giveback against factors like overall shareholder returns, our financial and operating performance, and our social responsibility and the benefits shareholders and their communities receive from proposed contributions.
LIC's board of directors may determine the amount and distribution of the Giveback by taking into consideration various factors such as the current goodwill and reputation of the nonprofit selected by customers, the amount of funds available for distribution by each cohort, the reasonableness of such contribution, and general shareholders' interests, such as the proposed amount and distribution of the Giveback against factors like overall shareholder returns, our financial and operating performance, and our social responsibility and the benefits shareholders and their communities receive from proposed contributions.
In exchange, these reinsurers pay us a “ceding commission” on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations. We have opted to manage the remaining portion of our business with alternative forms of reinsurance. We have achieved this through the Non-Proportional Reinsurance Contracts.
In exchange, these reinsurers pay us a “ceding commission” on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations. We have also opted to manage the remaining portion of our business with alternative forms of reinsurance through the Non-Proportional Reinsurance Contracts.
While we maintain agents errors and omissions insurance coverage to protect us against such liability, such coverage may be insufficient or inadequate. 40 Table of Contents We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.
While we maintain agents errors and omissions insurance coverage to protect us against such liability, such coverage may be insufficient or inadequate. We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.
See "Legal Proceedings." Failure to protect or enforce our intellectual property rights could harm our business, results of operations and financial condition. Our success is dependent in part on protecting our intellectual property rights and technology (such as source code, information, data, processes and other forms of information, knowhow and technology).
See "Legal Proceedings." 45 Table of Contents Failure to protect or enforce our intellectual property rights could harm our business, results of operations and financial condition. Our success is dependent in part on protecting our intellectual property rights and technology (such as source code, information, data, processes and other forms of information, knowhow and technology).
Any such events could adversely affect our business, results of operations or financial condition. See "Business - Regulation - European Regulation." State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
Any such events could adversely affect our business, results of operations or financial condition. See "Business - Regulation - European Regulation." 51 Table of Contents State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and 43 Table of Contents adversely affect our business and results of operations.
If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in the marketplace, this could materially and adversely affect our business and results of operations.
Alternatively, we might be forced to limit the features available in affected products. Any of these results could harm our business, results of operations and financial condition. 54 Table of Contents Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses.
Alternatively, we might be forced to limit the features available in affected products. Any of these results could harm our business, results of operations and financial condition. Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses.
If such customers were to bring a claim or claims alleging that we failed in our responsibilities to provide them with the type or amount of coverage that they sought to purchase, Lemonade Insurance Agency, LLC or Metromile Insurance Services LLC could be found liable, resulting in an adverse effect on our business, results of operations and financial condition.
Customers could purchase policies that prove to be inadequate or inappropriate, and if such customers were to bring a claim or claims alleging that we failed in our responsibilities to provide them with the type or amount of coverage that they sought to purchase, Lemonade Insurance Agency, LLC or Metromile Insurance Services LLC could be found liable, resulting in an adverse effect on our business, results of operations and financial condition.
Increased focus, including from governmental organizations, investors, employees, clients and other stakeholders, on ESG matters such as environmental stewardship, climate change, diversity, equity and inclusion, pay equity, racial justice, workplace conduct and cybersecurity and data privacy, may result in increased costs (including but not limited to increased costs related to compliance and stakeholder engagement), impact our reputation, or otherwise affect our business performance.
Increased focus, including from governmental organizations, investors, employees, clients and other stakeholders, on ESG matters such as environmental stewardship, climate change, pay equity, workplace conduct and cybersecurity and data privacy, may result in increased costs (including but not limited to increased costs related to compliance and stakeholder engagement), impact our reputation, or otherwise affect our business performance.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often they are not recognized until launched against a target, and may originate from less regulated and remote areas around the 34 Table of Contents world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often they are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.
The EU AI Act will apply to companies like ours that develop, use and/ or provide artificial intelligence in the EU and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, accuracy, general purpose artificial intelligence and foundation models, and proposes fines for breach of up to 7% of worldwide annual turnover.
The EU AI Act will apply to companies like ours that develop, use and/ or provide artificial intelligence in the EU and includes requirements around transparency, conformity assessments and monitoring, risk assessments, human oversight, security, accuracy, general purpose artificial intelligence and foundation models, and proposes fines for breach of up to 7% of worldwide annual turnover for the most serious compliance failures.
We also utilize the data that we gather through our interactions with our customers, as evaluated and curated by our proprietary artificial intelligence algorithms. 42 Table of Contents Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses ("LAE") and other costs.
We also utilize the data that we gather through our interactions with our customers, as evaluated and curated by our proprietary artificial intelligence algorithms. Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses ("LAE") and other costs.
Our business is exposed to the risk of severe weather conditions and other catastrophes which are inherently unpredictable. To reduce risk, on July 1, 2023, we entered into a one year property catastrophe excess of loss treaty.
Our business is exposed to the risk of severe weather conditions and other catastrophes which are inherently unpredictable. On July 1, 2024, we entered into a one year property catastrophe excess of loss treaty.
Competitors in the car insurance space include companies such as Progressive, GEICO and Allstate. Additionally, any new insurance products could take months to be approved by regulatory authorities, or may not be approved at all. 27 Table of Contents We currently face competition by technology companies in the markets in which we operate.
Competitors in the car insurance space include companies such as Progressive, GEICO and Allstate. Additionally, any new insurance products could take months to be approved by regulatory authorities, or may not be approved at all. We currently face competition by technology companies in the markets in which we operate.
Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put 36 Table of Contents personal information at risk, which may result in increased regulatory scrutiny and have a material adverse effect to our reputation, business and operating results.
Moreover, if third parties that we work with violate applicable laws or our policies, such violations also may put personal information at risk, which may result in increased regulatory scrutiny and have a material adverse effect to our reputation, business and operating results.
We also currently rely on the EU standard contractual clauses and the UK Addendum to the EU standard contractual clauses and the UK International Data Transfer Agreement as relevant to transfer personal data outside the EEA and the UK with respect to both intragroup and third party transfers.
We currently rely on the EU standard contractual clauses and the UK Addendum to the EU standard contractual clauses and the UK International Data Transfer Agreement as relevant to transfer personal data outside the EEA and the UK with respect to both intragroup and third party transfers. We expect international personal data transfers to continue.
DNB and AFM expect firms to avoid actions that 50 Table of Contents jeopardize compliance with their statutory objectives and applicable rules and regulations and have extensive powers to intervene in the affairs of a regulated firm.
DNB and AFM expect firms to avoid actions that jeopardize compliance with their statutory objectives and applicable rules and regulations and have extensive powers to intervene in the affairs of a regulated firm.
Given their size, resources, and other competitive advantages, they may be able to erode any market advantage we may currently have over them. Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs.
Given their size, resources, and other competitive advantages, they may be able to erode any market advantage we may currently have over them. 28 Table of Contents Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs.
Before determining the amount of the Giveback, Lemonade Insurance Company's board of directors may also analyze the extent of our reinsurance coverage and management's expectations with respect to such reinsurance coverage for the upcoming fiscal year, particularly as it relates to the amount of capital and surplus required to continue to operate successfully.
Before determining the amount of the Giveback, LIC‘s board of directors may also analyze the extent of our reinsurance coverage and management's expectations with respect to such reinsurance coverage for the upcoming fiscal year, particularly as it relates to the amount of capital and surplus required to continue to operate successfully.
Our insurance subsidiaries, LIC and MIC, obtains reinsurance to help manage its exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured.
Our insurance subsidiaries, LIC and MIC, obtain reinsurance to help manage their exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured.
We have a reinsurance captive subsidiary, Lemonade Re SPC, domiciled in the Cayman Islands which is subject to inspections by the Cayman Islands Monetary Authority. 49 Table of Contents We are subject to extensive regulation and supervision in the states in which we transact business by the individual state insurance departments.
We have a reinsurance captive subsidiary, Lemonade Re SPC, domiciled in the Cayman Islands which is subject to inspections by the Cayman Islands Monetary Authority. We are subject to extensive regulation and supervision in the states in which we transact business by the individual state insurance departments.
We may incur significant operating expenses and may not be successful in our international expansion for a variety of reasons, including: • obtaining any required government approvals, licenses or other authorizations; • complying with varying laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax and local regulatory restrictions; • recruiting and retaining talented and capable employees in foreign countries; • competition from local incumbents that better understand the local market, may market and operate more effectively and may enjoy greater local affinity or awareness; • differing demand dynamics, which may make our product offerings less successful; • currency exchange restrictions or costs and exchange rate fluctuations; • operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States; and • limitations on the repatriation and investment of funds as well as foreign currency exchange restrictions.
We may incur significant operating expenses and may not be successful in our international expansion for a variety of reasons, including: • obtaining any required government approvals, licenses or other authorizations; • complying with varying laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax and local regulatory restrictions; • recruiting and retaining talented and capable employees in foreign countries; • competition from local incumbents that better understand the local market, may market and operate more effectively and may enjoy greater local affinity or awareness; • differing demand dynamics, which may make our product offerings less successful; • currency exchange restrictions or costs and exchange rate fluctuations; • operating in jurisdictions that do not protect intellectual property rights to the same extent as the United States; and • limitations on the repatriation and investment of funds as well as foreign currency exchange restrictions. 48 Table of Contents Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake may not be successful.
We maintain offices in Israel and some of our officers, employees and directors are located in Israel, including our Co-Founders and some of our product development staff, help desk and online sales support operations. As of December 31, 2023, we had approximately 294 full-time employees in Israel.
We maintain offices in Israel and some of our officers, employees and directors are located in Israel, including our Co-Founders and some of our product development staff, help desk and online sales support operations. As of December 31, 2024, we had approximately 297 full-time employees in Israel.
Security breaches, including by hackers or insiders, could expose confidential information, which could result in potential regulatory investigations, fines, penalties, compliance orders, liability, litigation and remediation costs, as well as reputational harm, any of which could materially adversely affect our business and financial results.
Security breaches have occurred and may occur again, including by hackers or insiders, could expose confidential information, which could result in potential regulatory investigations, fines, penalties, compliance orders, liability, litigation and remediation costs, as well as reputational harm, any of which could materially adversely affect our business and financial results.
Likewise, a change in guidance could be costly and have an adverse effect on our business. We are also subject to evolving EU and UK privacy laws on cookies, tracking technologies and e-marketing.
Likewise, a change in guidance could be costly and have an adverse effect on our business. 40 Table of Contents We are also subject to evolving EU and UK privacy laws on cookies, tracking technologies and e-marketing.
Although we monitor the third-party provider’s and other service providers on an ongoing basis, our monitoring efforts may not be adequate, or our providers could exceed their authorities or otherwise breach obligations owed to us, which could result in operational disruption, reputational damage and regulatory intervention and otherwise have a material adverse effect on our results of operation and financial condition.
Our monitoring efforts of the third party provider’s and other service providers may not be adequate, or our providers could exceed their authorities or otherwise breach obligations owed to us, which could result in operational disruption, reputational damage and regulatory intervention and otherwise have a material adverse effect on our results of operation and financial condition.
We are also subject to European Union rules with respect to cross-border transfers of personal data out of the European Economic Area (“EEA”) and the United Kingdom.
We are also subject to European Union rules with respect to cross-border transfers of personal data out of the European Economic Area (“EEA”) and the UK.
Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability. The renters and homeowners insurance market is highly competitive with carriers competing through product coverage, reputation, financial strength, advertising, price, customer service and distribution.
Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability. The renters, homeowners (including buildings and content), pet, life and car insurance market is highly competitive with carriers competing through product coverage, reputation, financial strength, advertising, price, customer service and distribution.
As of December 31, 2023, we were licensed to sell renters, homeowners, pet and/or car insurance policies in 50 states of the United States, and operate in 38 of those states, and Washington, D.C.
As of December 31, 2024, we were licensed to sell renters, homeowners, pet and/or car insurance policies in 50 states of the United States, and operate in 39 of those states, and Washington, D.C.
Risks Relating to Our Business We have a history of losses and we may not achieve or maintain profitability in the future. We have not been profitable since our inception in 2015 and had an accumulated deficit of $1,096.6 million and $859.7 million as of December 31, 2023 and December 31, 2022, respectively.
Risks Relating to Our Business We have a history of losses and we may not achieve or maintain profitability in the future. We have not been profitable since our inception in 2015 and had an accumulated deficit of $1,298.8 million and $1,096.6 million as of December 31, 2024 and December 31, 2023, respectively.
We face a number of challenges that may affect our ability to sustain our corporate culture, including: • failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values and mission; • the increasing size and geographic diversity of our workforce, and our ability to promote a uniform and consistent culture across all our offices and employees; • the market perception about our charitable contributions and social and political stances; • competitive pressures to move in directions that may divert us from our mission, vision and values; • the continued challenges of a rapidly-evolving industry; and • the increasing need to develop expertise in new areas of business that affect us.
We face a number of challenges that may affect our ability to sustain our corporate culture, including: • failure to identify, attract, reward and retain people in leadership positions in our organization who share and further our culture, values and mission; • the increasing size and geographic diversity of our workforce, and our ability to promote a uniform and consistent culture across all our offices and employees; • the market perception about our charitable contributions and social and political stances; • competitive pressures to move in directions that may divert us from our mission, vision and values; • the continued challenges of a rapidly-evolving industry; and • the increasing need to develop expertise in new areas of business that affect us. 43 Table of Contents Our unique culture is one of our core characteristics that helps us to attract and retain key personnel.
In light of the complex and evolving nature of EU, EU Member State and UK privacy laws on cookies and tracking technologies, there can be no assurances that we will be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/ change our use of such technologies, as well as civil claims including class actions, and reputational damage.
In light of the complex and evolving nature of EU, EU Member State and UK privacy laws on cookies and tracking technologies be successful in our efforts to comply with such laws; violations of such laws could result in regulatory investigations, fines, orders to cease/ change our use of such technologies, as well as civil claims including class actions, and reputational damage.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our markets, or our competitors. We cannot provide any assurance that analysts will continue to cover us or provide favorable coverage.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our markets, or our competitors. Analysts may not continue to cover us or provide favorable coverage.
The National Association of Insurance Commissioners (“NAIC”) adopted Artificial Intelligence Principles in August 2020, and a number of states have had legislative or regulatory initiatives relating to the use of external data and artificial intelligence in the insurance industry, including bulletins issued in 2022 by the California and Connecticut Departments of Insurance, and more recently in January 2024 by the New York State Department of Financial Services, advising insurers of their obligations related to unfair discrimination when using big data and artificial intelligence.
The National Association of Insurance Commissioners (“NAIC”) adopted its Artificial Intelligence Principles in August 2020, a model bulletin titled “Use of Artificial Intelligence Systems by Insurers,” and a number of states have had legislative or regulatory initiatives relating to the use of external data and artificial intelligence in the insurance industry, including bulletins issued in 2022 by the California and Connecticut Departments of Insurance, and more recently in July 2024 by the New York State Department of Financial Services, advising insurers of their obligations related to unfair discrimination when using big data and artificial intelligence.
As of December 31, 2023, the Company has gross accumulated state and local losses for tax purposes of $29.6 million which will begin to expire in 2029. We may be unable to fully use our NOLs, if at all.
As of December 31, 2024, the Company has gross accumulated state and local losses for tax purposes of $35.3 million which will begin to expire in 2029. We may be unable to fully use our NOLs, if at all.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price. We are subject to the rules and regulations established from time to time by the SEC,the NYSE and the NYSE American.
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price. We are subject to the rules and regulations established from time to time by the SEC, the New York Stock Exchange (“NYSE”) and the New York Stock Exchange American (“NYSE American”).
Regulatory requirements and economic conditions are also considered. Since reserves are estimates of the unpaid portion of losses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process that is regularly refined to reflect current estimation processes and practices.
Since reserves are estimates of the unpaid portion of losses that have occurred, including IBNR losses, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process that is regularly refined to reflect current estimation processes and practices.
However, since actual catastrophic events vary considerably, there are limitations with respect to its usefulness in predicting losses in any reporting period.
However, since actual catastrophic events vary considerably, there are limitations with respect to its usefulness in predicting losses in any reporting 55 Table of Contents period.
Specifically, regulators have raised questions about the potential for unfair discrimination, disparate impact, and lack of transparency associated with the use of external consumer data. Regulators may also require us to disclose the external data we use, algorithms and/or predictive matters prior to approving our underwriting models and rates. Such disclosures could put our intellectual property at risk.
Specifically, regulators have raised questions about the potential for unfair discrimination, disparate impact, and lack of transparency associated with the use of external consumer data. Regulators may also require us to disclose the external data we use, algorithms and/or predictive matters prior to approving our underwriting models and rates.
Once fully applicable, the EU AI Act will have a material impact on the way artificial intelligence is regulated in the EU, and together with developing guidance and/ or decisions in this area, is likely to affect our use of artificial intelligence and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition.
With these developments, legislation relating to artificial intelligence including the EU AI Act has a material impact on the way artificial intelligence is regulated in the EU, and together with developing guidance and/ or decisions in this area, is likely to affect our use of artificial intelligence and our ability to provide and to improve our services, require additional compliance measures and changes to our operations and processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect our business, operations and financial condition.
There can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend. As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.
Specifically negotiated loss limitations or exclusions in our policies may not be enforceable in the manner we intend. As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.
We incurred net losses of $236.9 million and $297.8 million in the years ended December 31, 2023 and December 31, 2022, respectively. We expect to make significant investments to further develop and expand our business.
We incurred net losses of $202.2 million and $236.9 million in the years ended December 31, 2024 and December 31, 2023, respectively. We expect to make significant investments to further develop and expand our business.
If global economic and market conditions, or economic conditions in the United Kingdom, European Union, the United States or other key markets remain uncertain or deteriorate further, the value of the pound sterling and euro and the global credit markets may further weaken.
If global economic and market conditions, or economic conditions in the UK, European Union, the United States or other key markets remain uncertain or deteriorate further, the value of the GBP pounds and euro and the global credit markets may further weaken.

… 183 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

1 edited+0 added−0 removed14 unchanged
Biggest changeThe CISO reports to an internal security team periodically regarding current security posture, risk, and trending security incidents and threats relevant to the Company. The security team comprises key management personnel, department heads, and business unit leaders.
Biggest changeThe CISO reports to an internal security committee periodically regarding current security posture, risk, and trending security incidents and threats relevant to the Company. The security committee comprises key management personnel, department heads, and business unit leaders.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed0 unchanged
Biggest changeThe Company leases additional office space in Arizona, California, Tel Aviv, Amsterdam, and London, to support our operations in the U.S., Europe and the UK. “See Note 22 - Leases”. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
Biggest changeThis office space is used for corporate functions and business operations. The Company leases additional office space in Arizona, California, Tel Aviv, Amsterdam, and London, to support our operations in the U.S., Europe and the UK. “See Note 22 - Leases”.
Item 2. Properties The Company does not own any real property. Our principal office is located at 5 Crosby Street, 3rd Floor, New York, New York 10013 where we lease approximately 43,985 square feet of office space under a lease agreement that terminates in November 2025. This office space is used for corporate functions and business operations.
Item 2. Properties The Company does not own any real property. Our principal office is located at 5 Crosby Street, 3rd Floor, New York, New York 10013 where we lease approximately 43,985 square feet of office space under a lease agreement that terminates in November 2025, and extended through February 2029 for a portion of the leased office space.
Added
We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

5 edited+4 added−3 removed21 unchanged
Biggest changeDebra Schwartz has served as a member of our board of directors since November 2023. Ms. Schwartz is a seasoned financial leader skilled at enabling companies to innovate, grow and scale. She is currently the Chief Financial Officer of H1, a leading healthcare data technology company whose mission is to connect the world to the right doctors.
Biggest changeSchwartz is a seasoned financial leader skilled at enabling companies to innovate, grow and scale. She is currently the Chief Financial Officer of H1, a leading healthcare data technology company whose mission is to connect the world to the right doctors.
She previously served as CFO at Cameo, the celebrity video shoutout pioneer, and at Bustle Digital Group, the digital media provider. Ms. Schwartz spent more than a decade as an equity analyst with Goldman Sachs and Credit Suisse, and holds an MBA from Harvard University, and a BA/BS from the University of Pennsylvania. 70 Table of Contents PART II
She previously served as CFO at Cameo, the celebrity video shoutout pioneer, and at Bustle Digital Group, the digital media provider. Ms. Schwartz spent more than a decade as an equity analyst with Goldman Sachs and Credit Suisse, and holds an MBA from Harvard University, and a BA/BS from the University of Pennsylvania.
Samer Haj-Yehia (1)(2) 54 Director Mwashuma Nyatta (1)(2) 43 Director Debra Schwartz (1)(3) 45 Director (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Nominating and Corporate Governance Committee The following is a brief biography of each of our executive officers and directors: Daniel Schreiber has served as our Co-Founder, Chief Executive Officer, and Chairman of our board of directors since our founding in June 2015.
Samer Haj-Yehia (1)(2) 55 Director Debra Schwartz (1)(3) 46 Director Maria Angelidis-Smith (1)(2) 46 Director (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Nominating and Corporate Governance Committee The following is a brief biography of each of our executive officers and directors: Daniel Schreiber has served as our Co-Founder, Chief Executive Officer, and Chairman of our board of directors since our founding in June 2015.
Name Age Position Executive Officers Daniel Schreiber 52 Co-Founder, Chief Executive Officer, Chairman and Director Shai Wininger 50 Co-Founder, President and Director Adina Eckstein 39 Chief Operating Officer Tim Bixby 59 Chief Financial Officer John Peters 52 Chief Insurance Officer Maya Prosor 39 Chief Business Officer Directors Michael Eisenberg (2)(3) 52 Director Dr.
Name Age Position Executive Officers Daniel Schreiber 53 Co-Founder, Chief Executive Officer, Chairman and Director Shai Wininger 51 Co-Founder, President and Director Adina Eckstein 40 Chief Operating Officer Tim Bixby 60 Chief Financial Officer John Peters 53 Chief Insurance Officer Maya Prosor 40 Chief Business Officer Directors Michael Eisenberg (2)(3) 53 Director Dr.
Haj-Yehia holds a Ph.D. in economics from MIT, and an MBA (summa cum laude), LLB, MA (magna cum laude) in economics, and BA (magna cum laude) in accounting, all from Hebrew University. He is a CFA charterholder. Mwashuma (Shu) Nyatta has served as a member of our board of directors since November 2018. Mr.
Haj-Yehia holds a Ph.D. in economics from MIT, and an MBA (summa cum laude), LLB, MA (magna cum laude) in economics, and BA (magna cum laude) in accounting, all from Hebrew University. He is a CFA charterholder. Debra Schwartz has served as a member of our board of directors since November 2023. Ms.
Removed
Nyatta is also an independent board member for a number of private companies. In May 2022, Mr. Nyatta founded Bicycle Capital, a growth equity investment firm, and serves as its founder and managing partner. Prior to Bicycle, he was a Managing Partner at SoftBank, which he joined in 2015.
Added
Maria Angelidis-Smith has served as a member of our board of directors since October 2024. Ms. Angelidis-Smith is currently the Chief Product and Technology Officer of Personio, Europe’s leading HR software provider empowering small and mid-sized organizations.
Removed
At SoftBank, he invested in and sat on the boards of multiple high-growth companies across varied industries and geographies. Prior to SoftBank, Mr. Nyatta served as a Vice President at J.P. Morgan from 2011 to 2015. Mr.
Added
Prior to Personio, she served as a Vice President of Product and General Manager at Meta, leading and scaling the monetization of the Facebook App as well as billion+ user products such as Facebook Groups, Events and Profile.
Removed
Nyatta has passed the Series 63 Uniform Securities Agent State Law Exam and the Series 79 Investment Banking Representative Exam, both administered by FINRA. He holds a Bachelor of Arts in Economics from Harvard College, as well as a Master of Science in Anthropology with Distinction from Oxford University, where he was a Rhodes Scholar.
Added
She previously held leadership roles with several companies, including Intuit and The Boston Consulting Group, focused primarily on product development, growth strategies, and marketing. She holds a BBA in Economics, Operations and Marketing from Athens University of Economics and Business, and an MBA from University of Michigan - Stephen M.
Added
Ross School of Business, where she was a Fulbright Scholar. 70 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed5 unchanged
Biggest changeJuly 2, 2020 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Lemonade, Inc. $100.00 $422.41 $145.21 $47.17 $55.62 Nasdaq Composite Index $100.00 $123.78 $153.27 $102.54 $147.06 Nasdaq Insurance Index $100.00 $123.27 $140.90 $143.68 $155.54 71 Table of Contents The foregoing performance graph and data shall not be deemed “filed” as part of this Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such filing.
Biggest changeJuly 2, 2020 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 Lemonade, Inc. $ 100.00 $ 422.41 $ 145.21 $ 47.17 $ 55.62 $ 126.48 Nasdaq Composite Index $ 100.00 $ 123.78 $ 153.27 $ 102.54 $ 147.06 $ 189.18 Nasdaq Insurance Index $ 100.00 $ 123.27 $ 140.90 $ 143.68 $ 155.54 $ 193.05 71 Table of Contents The foregoing performance graph and data shall not be deemed “filed” as part of this Annual Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates it by reference into such filing.
Performance Graph The following performance graph compares the cumulative total shareholder return of an investment in our common shares since July 2, 2020 (first day of trading) through December 31, 2023 to the cumulative total return of Nasdaq Composite Stock Index (“Nasdaq Index’) and the Nasdaq Insurance Index (“Nasdaq Insurance Index”).
Performance Graph The following performance graph compares the cumulative total shareholder return of an investment in our common shares since July 2, 2020 (first day of trading) through December 31, 2024 to the cumulative total return of Nasdaq Composite Stock Index (“Nasdaq Index’) and the Nasdaq Insurance Index (“Nasdaq Insurance Index”).
Holders As of February 27, 2024, there were approximately 160 holders of record of the Company’s common stock and 3 holders of record of the Company’s warrants to purchase common stock. Dividends We have never declared or paid any cash dividends on our capital stock.
Holders As of February 25, 2025, there were approximately 149 holders of record of the Company’s common stock and 1 holder of record of the Company’s warrants to purchase common stock. Dividends We have never declared or paid any cash dividends on our capital stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

81 edited+17 added−13 removed121 unchanged
Biggest changeNet Loss Ratio We define net loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense, less amounts ceded to reinsurers, to net earned premium. 81 Table of Contents Results of Operations The following table presents our results of operations for the periods indicated: Years Ended December 31, 2023 2022 Change % Change ($ in millions) Revenue Net earned premium $ 315.2 $ 172.4 $ 142.8 83 % Ceding commission income 69.8 64.1 5.7 9 % Net investment income 24.7 8.4 16.3 194 % Commission and other income 20.1 11.8 8.3 70 % Total revenue 429.8 256.7 173.1 67 % Expense Loss and loss adjustment expense, net 280.4 167.3 113.1 68 % Other insurance expense 59.2 44.0 15.2 35 % Sales and marketing 101.9 138.3 (36.4) (26) % Technology development 88.8 79.6 9.2 12 % General and administrative 129.3 122.3 7.0 6 % Total expense 659.6 551.5 108.1 20 % Loss before income taxes (229.8) (294.8) 65.0 (22) % Income tax expense 7.1 3.0 4.1 137 % Net loss $ (236.9) $ (297.8) $ 60.9 (20) % Comparison of the Years Ended December 31, 2023 and 2022 Net Earned Premium Net earned premium increased by $142.8 million, or 83%, to $315.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to the earning of increased gross written premium, and decrease in cession of ceded written premium under our Proportional Reinsurance Contracts as discussed in detail above under “Reinsurance.” Years Ended December 31, 2023 2022 Change % Change ($ in millions) Gross written premium $ 738.4 $ 555.7 $ 182.7 33 % Ceded written premium (389.1) (333.1) (56.0) 17 % Net written premium $ 349.3 $ 222.6 $ 126.7 57 % Gross written premium increased $182.7 million, or 33%, to $738.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Biggest changeNet Loss Ratio We define net loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense, less amounts ceded to reinsurers, to net earned premium. 81 Table of Contents Results of Operations The following table presents our results of operations: Years Ended December 31, 2024 2023 Change % Change ($ in millions) Revenue Net earned premium $ 370.6 $ 315.2 $ 55.4 18 % Ceding commission income 91.1 69.8 21.3 31 % Net investment income 34.0 24.7 9.3 38 % Commission and other income 30.8 20.1 10.7 53 % Total revenue 526.5 429.8 96.7 22 % Expense Loss and loss adjustment expense, net 277.0 280.4 (3.4) (1) % Other insurance expense 76.8 59.2 17.6 30 % Sales and marketing 166.3 101.9 64.4 63 % Technology development 85.8 88.8 (3.0) (3) % General and administrative 124.5 129.3 (4.8) (4) % Total expense 730.4 659.6 70.8 11 % Loss before income taxes (203.9) (229.8) 25.9 (11) % Income tax (benefit) expense (1.7) 7.1 (8.8) (124) % Net loss $ (202.2) $ (236.9) $ 34.7 (15) % Comparison of the Years Ended December 31, 2024 and 2023 Net Earned Premium Net earned premium increased by $55.4 million, or 18%, to $370.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to the earning of increased gross written premium and impact of our reinsurance program to ceded written premium under our Proportional Reinsurance Contracts as discussed above under “Reinsurance.” Years Ended December 31, 2024 2023 Change % Change ($ in millions) Gross written premium $ 929.0 $ 738.4 $ 190.6 26 % Ceded written premium (513.9) (389.1) (124.8) 32 % Net written premium $ 415.1 $ 349.3 $ 65.8 19 % Gross written premium increased $190.6 million, or 26%, to $929.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
The decrease in cash used in operating activities from year ended December 31, 2023 compared to year ended December 31, 2022 was primarily due to claims payments, settlements with our reinsurance partners, and decreased spend related to growth and expansion, offset by collection of premiums and recoveries from reinsurance partners.
The decrease in cash used in operating activities from the year ended December 31, 2023 compared to December 31, 2022 was primarily due to claims payments, settlements with our reinsurance partners, and decreased spend related to growth and expansion, offset by collection of premiums and recoveries from reinsurance partners.
Through our captives, we are exposed to the risk of natural catastrophe events and other covered risks under the reinsurance agreements from assumed risks from policies underwritten by both LIC and MIC. 75 Table of Contents Components of our Results of Operations Revenue Gross Written Premium Gross written premium is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurance.
Through our captives, we are exposed to the risk of natural catastrophe events and other covered risks under the reinsurance agreements from assumed risks from policies underwritten by both LIC and MIC. 75 Table of Contents Components of our Results of Operations Revenue Gross Written Premium Gross written premium is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurers.
Net earned premiums from the pay-per-mile car insurance policies are earned over the term of the policy which is written for six-month terms. Ceding Commission Income Ceding commission income is commission we receive based on the premium ceded to third-party reinsurers to reimburse us for acquisition and underwriting expenses.
Net earned premiums from the pay-per-mile car insurance policies is earned over the term of the policy which is written for six-month terms. Ceding Commission Income Ceding commission income is commission we receive based on the premium ceded to third-party reinsurers to reimburse us for acquisition and underwriting expenses.
The amount by which estimated losses differ from those originally reported for a period is known as "Development." Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
The amount by which estimated losses differ from those originally reported for a period is known as "Development”. Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
There can be no assurance that we will be able to raise additional capital on favorable terms or at all. 89 Table of Contents The following table summarizes the Company’s contractual obligations and commitments as of December 31, 2023, and the effect of such obligations are expected to have on our liquidity and cash flows in the future periods.
There can be no assurance that we will be able to raise additional capital on favorable terms or at all. 89 Table of Contents The following table summarizes the Company’s contractual obligations and commitments as of December 31, 2024, and the effect of such obligations are expected to have on our liquidity and cash flows in the future periods.
The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2023 and do not include any allowance for claims for future events within the time period specified. Accordingly, we expect that the total amounts of obligations paid by us in the time periods shown will be greater than those indicated in the table.
The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2024 and do not include any allowance for claims for future events within the time period specified. Accordingly, we expect that the total amounts of obligations paid by us in the time periods shown will be greater than those indicated in the table.
In force placed premium currently reflects approximately 1% of IFP. 79 Table of Contents The annualized value of premiums is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of contracts is not determined by reference to historical revenues, deferred revenues, or any other GAAP financial measure over any period.
In force placed premium currently reflects approximately 2% of IFP. 79 Table of Contents The annualized value of premiums is a legal and contractual determination made by assessing the contractual terms with our customers. The annualized value of contracts is not determined by reference to historical revenues, deferred revenues, or any other GAAP financial measure over any period.
By leveraging technology, data, artificial intelligence, contemporary design, and social impact, we believe we are making insurance more delightful, more affordable, and more precise. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the United Kingdom and the full technology stack to power them.
By leveraging technology, data, artificial intelligence, contemporary design, and social impact, we believe we are making insurance more delightful, more affordable, and more precise. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the UK and the full technology stack to power them.
The increase was primarily due to a 12% increase in net added customers year over year driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings.
The increase was primarily due to a 20% increase in net added customers year over year, driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings.
For additional information, see “Risk Factors - Risks Relating to our Business - We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.” 74 Table of Contents Reinsurance We obtain reinsurance to help manage our exposure to property and casualty insurance risks.
For additional information, see “Risk Factors - Risks Relating to our Business - We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.” Reinsurance We obtain reinsurance to help manage our exposure to property and casualty insurance risks.
We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government.
We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government and non-US Government.
Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts").
Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. 74 Table of Contents We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts").
Our insurance policies generally have a term of one year and premium is earned pro rata over the term of the policy. In addition, following the Metromile Acquisition, we also include earned premiums from the pay-per-mile car insurance policies which are written for six-month terms.
Our insurance policies generally have a term of one year and premium is earned pro rata over the term of the policy. In addition, we also include earned premiums from the pay-per-mile car insurance policies which are written for six-month terms.
Effective July 1, 2023 through June 30, 2024, we agreed to the terms of our reinsurance program which includes Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company and Lemonade Insurance N.V.
We agreed to the terms of our reinsurance program effective July 1, 2023 through June 30, 2024 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V.
("Lemonade Insurance"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers.
("LINV"), and each of Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," a share of premium to the Reinsurers.
As of December 31, 2023, the total adjusted capital of our U.S. insurance subsidiaries was in excess of its respective prescribed risk-based capital requirements.
As of December 31, 2024, the total adjusted capital of our U.S. insurance subsidiaries was in excess of its respective prescribed risk-based capital requirements.
If the fair value exceeds the book value, goodwill is considered not the be impaired.
If the fair value exceeds the book value, goodwill is considered not impaired.
The following tables summarize our Gross Ultimate Losses and LAE, and Net Ultimate Losses and LAE as of December 31, 2023 and 2022, respectively.
The following tables summarize our Gross Ultimate Losses and LAE, and Net Ultimate Losses and LAE as of December 31, 2024 and 2023, respectively.
Adjusted Gross Profit and Adjusted Gross Profit Margin We define adjusted gross profit, a non-GAAP financial measure, as gross profit excluding net investment income, interest income and other income, net realized gains and losses on sale of investments, plus fixed costs and overhead associated with our underwriting operations including employee-related expense, professional fees and other, and depreciation and amortization allocated to cost of revenue, and other adjustments that we would consider to be unique in nature.
Adjusted Gross Profit and Adjusted Gross Profit Margin We define adjusted gross profit, a non-GAAP financial measure, as gross profit excluding net investment income, interest income and other income, plus fixed costs and overhead associated with our underwriting operations including employee-related expense, professional fees and other, and depreciation and amortization allocated to cost of revenue, and other adjustments that we would consider to be unique in nature.
We also saw a 7% increase in premiums per customer year over year due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies.
In addition, we saw a 5% increase in premiums per customer year over year due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies.
Gross Profit Gross profit is calculated in accordance with GAAP as total revenue less loss and loss adjustment expense, net, other insurance expense, and depreciation and amortization (allocated to cost of revenue). 80 Table of Contents Adjusted Gross Profit We define adjusted gross profit, a non-GAAP financial measure, as: • Gross profit, excluding net investment income and interest income and expense, and net realized gains and losses on sale of investments, plus • Employee-related expense, plus • Professional fees and other, plus • Depreciation and amortization (allocated to cost of revenue).
Gross Profit Gross profit is calculated in accordance with GAAP as total revenue less loss and loss adjustment expense, net, other insurance expense, and depreciation and amortization (allocated to cost of revenue). 80 Table of Contents Adjusted Gross Profit We define adjusted gross profit, a non-GAAP financial measure, as: • Gross profit, excluding net investment income, interest income and other income, plus • Employee-related expense, plus • Professional fees and other, plus • Depreciation and amortization (allocated to cost of revenue).
Investing Activities Cash provided by investing activities was $88.7 million for the year ended December 31, 2023 primarily due to proceeds from sales and maturities of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments, offset by purchases of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments.
We also purchased property and equipment during the year. Cash provided by investing activities was $88.7 million for the year ended December 31, 2023 primarily due to proceeds from sales and maturities of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments, offset by purchases of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments.
On January 8, 2024, we entered into an Amended and Restated Customer Investment Agreement (“Amended Agreement”) where GC will provide up to an additional $140 million of financing for our sales and marketing growth efforts beginning from the Original Commitment End Date through December 31, 2025. All other material terms and condition from the Agreement remain unchanged.
On January 8, 2024, we entered into an Amended and Restated Customer Investment Agreement (“Amended Agreement”) where GC will provide up to an additional $140 million of financing for our sales and marketing growth efforts beginning from the Original Commitment End Date through December 31, 2025.
Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding the impact of income tax expense, depreciation and amortization, stock-based compensation, interest income and expense, net investment income, net realized gains and losses on sale of investments, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, interest expense on borrowings under the financing agreement and other non-cash adjustments and other transactions that we consider to be unique in nature.
Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding the impact of income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, and other non-cash adjustments and other transactions that we consider to be unique in nature.
We believe our existing cash and cash equivalents as of December 31, 2023 will be sufficient to meet our working capital,liquidity and capital expenditures needs over at least the next 12 months and for the foreseeable future. However, this is subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.
We believe our existing cash and cash equivalents as of December 31, 2024 will be sufficient to meet our working capital, liquidity and capital expenditure needs over at least the next 12 months. This belief is subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.
The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align our interests with those of its Reinsurers.
The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align our interests with those of our Reinsurers, and is settled primarily on a funds withheld basis.
A discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021 has been reported previously under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 3, 2023 (the “2022 Annual Report’”).
A discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022 has been reported previously under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 28, 2024 (the “2023 Annual Report’”).
The following table sets forth our calculation of the Ratio of Adjusted Gross Profit to Gross Earned Premium for the periods presented: Year Ended December 31, 2023 2022 ($ in millions) Numerator: Adjusted gross profit $ 97.4 $ 64.9 Denominator: Gross earned premium $ 672.3 $ 490.5 Ratio of Adjusted Gross Profit to Gross Earned Premium 14 % 13 % 86 Table of Contents Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding income tax expense, depreciation and amortization, stock-based compensation, interest income and others, net investment income, net realized gains and losses on sale of investments, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, interest expense on borrowings under the financing agreement, and other non-cash adjustments and other transactions that we would consider to be unique in nature.
The following table sets forth our calculation of the Ratio of Adjusted Gross Profit to Gross Earned Premium for the periods presented: Year Ended December 31, 2024 2023 ($ in millions) Numerator: Adjusted gross profit $ 174.9 $ 97.4 Denominator: Gross earned premium $ 827.3 $ 672.3 Ratio of Adjusted Gross Profit to Gross Earned Premium 21 % 14 % 86 Table of Contents Adjusted EBITDA We define Adjusted EBITDA, a non-GAAP financial measure, as net loss excluding income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile Acquisition, and other non-cash adjustments and other transactions that we would consider to be unique in nature.
We also purchased an Excess of Loss ("XOL") Reinsurance Contract through a captive in Bermuda to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, which is further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and auto business underwritten by LIC.
We also entered into an Excess of Loss Reinsurance Contract (the "XOL reinsurance contract") through a captive in Bermuda in which we have a variable interest, primarily to cover catastrophe risk over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and car business underwritten by LIC.
This reflected the $60.9 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities.
This reflected the $34.7 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities.
We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the region, including the evolving conflict in Israel and surrounding region. The conflict between Israel and Hamas, primarily within Gaza, has increased global economic and political uncertainty.
We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability and conflict in Israel and the surrounding region. This evolving conflict has increased global economic and political uncertainty.
Net loss Net loss decreased $60.9 million, or 20%, to $236.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to the factors described above. 84 Table of Contents Non-GAAP Financial Measures The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results.
Net loss Net loss decreased $34.7 million, or 15%, to $202.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 due to the factors described above. 84 Table of Contents Non-GAAP Financial Measures The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results.
The following tables summarize our gross and net reserves for unpaid loss and LAE as of December 31, 2023 and 2022, respectively: December 31, 2023 Gross % of total Net % of Total ($ in millions) Loss and loss adjustment reserves Case reserve $ 93.3 36 % $ 46.7 33 % IBNR 169.0 64 % 95.4 67 % Total reserves $ 262.3 100 % $ 142.1 100 % 91 Table of Contents December 31, 2022 Gross % of total Net % of Total ($ in millions) Loss and loss adjustment reserves Case reserve $ 89.0 35 % $ 44.3 34 % IBNR 167.2 65 % 87.3 66 % Total reserves $ 256.2 100 % $ 131.6 100 % We have assessed the impact of potential reserve deviations from our carried reserve at December 31, 2023.
The following tables summarize our gross and net reserves for unpaid loss and LAE as of December 31, 2024 and 2023, respectively: December 31, 2024 Gross % of total Net % of Total ($ in millions) Loss and loss adjustment reserves Case reserve $ 101.7 34 % $ 48.4 33 % IBNR 196.4 66 % 100.2 67 % Total reserves $ 298.1 100 % $ 148.6 100 % 91 Table of Contents December 31, 2023 Gross % of total Net % of Total ($ in millions) Loss and loss adjustment reserves Case reserve $ 93.3 36 % $ 46.7 33 % IBNR 169.0 64 % 95.4 67 % Total reserves $ 262.3 100 % $ 142.1 100 % We have assessed the impact of potential reserve deviations from our carried reserve at December 31, 2024.
Year Ended December 31, 2023 2022 ($ in millions) Net loss $ (236.9) $ (297.8) Adjustments: Income tax expense 7.1 3.0 Depreciation and amortization 20.0 12.2 Stock-based compensation (1) 59.9 58.5 Transaction and integration costs from Metromile acquisition — 8.4 Interest income and others (3.2) (0.8) Net investment income (24.7) (8.4) Change in fair value of warrants liability (0.3) (0.2) Amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile acquisition (1.2) — Other adjustments (2) 6.7 — Adjusted EBITDA $ (172.6) $ (225.1) (1) Includes compensation expense related to warrant shares of $2.5 million for the year ended December 31, 2023.
Year Ended December 31, 2024 2023 ($ in millions) Net loss $ (202.2) $ (236.9) Adjustments: Income tax expense (1.7) 7.1 Depreciation and amortization 20.0 20.0 Stock-based compensation (1) 64.5 59.9 Interest expense 6.2 0.4 Interest income and others (6.2) (3.6) Net investment income (34.0) (24.7) Change in fair value of warrants liability — (0.3) Amortization of fair value adjustment on insurance contract intangible liability relating to the Metromile acquisition (0.4) (1.2) Other adjustments (2) (3) 4.1 6.7 Adjusted EBITDA $ (149.7) $ (172.6) (1) Includes compensation expense related to warrant shares of $6.5 million and $2.5 million for the years ended December 31, 2024 and 2023.
Net Investment Income Net investment income increased $16.3 million, or 194%, to $24.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by the diversification of the Company’s investment portfolio with higher returns in comparison to prior year, offset by investment expenses of $0.3 million.
Net Investment Income Net investment income increased $9.3 million, or 38%, to $34.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily driven by the diversification of the Company’s investment portfolio with higher returns in comparison to prior year, offset by investment expenses of $0.3 million.
Assumed premium related to car insurance policies written in Texas from our fronting arrangement with a third party carrier in Texas which began in December 2022 also contributed to the increase in gross written premium during the period. 82 Table of Contents Ceded written premium increased $56.0 million, or 17%, to $389.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to growth in business across all products and the impact of our reinsurance arrangements.
Assumed premium related to car insurance policies written in Texas from our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period. 82 Table of Contents Ceded written premium increased $124.8 million, or 32%, to $513.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to growth in business across all products and the impact of our reinsurance arrangements.
An asset impairment on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile were recorded during the third quarter of 2023.
During the third quarter of 2023, we recognized nonrecurring items which include an asset impairment charge on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile.
The following table summarizes our cash flow data for the periods presented: Year Ended December 31, 2023 2022 ($ in millions) Net cash used in operating activities $ (119.1) $ (163.0) Net cash provided by investing activities $ 88.7 $ 181.1 Net cash provided by financing activities $ 15.4 $ 3.6 88 Table of Contents Operating Activities Cash used in operating activities was $119.1 million for the year ended December 31, 2023, a decrease of $43.9 million from $163.0 million for the year ended December 31, 2022.
The following table summarizes our cash flow data for the periods presented: December 31, 2024 2023 ($ in millions) Net cash used in operating activities $ (11.4) $ (119.1) Net cash provided by investing activities $ 40.6 $ 88.7 Net cash provided by financing activities $ 87.7 $ 15.4 88 Table of Contents Operating Activities Cash used in operating activities was $11.4 million for the year ended December 31, 2024, a decrease of $107.7 million from $119.1 million for the year ended December 31, 2023.
As of December 31, 2023, cash and investments held by these companies was $423.8 million, of which $181.6 million is held as regulatory surplus. Insurance companies in the United States are also required by state law to maintain a minimum level of policyholder's surplus.
As of December 31, 2024, cash and investments held by these companies was $593.9 million, of which $271.4 million is held as regulatory surplus. Insurance companies in the United States are also required by state law to maintain a minimum level of policyholder's surplus.
The following table provides a reconciliation of total revenue and gross profit margin to adjusted gross profit and the related adjusted gross profit margin, respectively, for the periods presented: Year Ended December 31, 2023 2022 ($ in millions) Total revenue $ 429.8 $ 256.7 Adjustments: Loss and loss adjustment expense, net $ (280.4) $ (167.3) Other insurance expense (59.2) (44.0) Depreciation and amortization (6.1) (3.1) Gross profit $ 84.1 $ 42.3 Gross profit margin (% of total revenue) 20 % 16 % Adjustments: Net investment income $ (24.7) $ (8.4) Interest income and other income (4.1) (0.7) Employee related expense 18.2 15.9 Professional fees and other 17.8 12.7 Depreciation and amortization 6.1 3.1 Adjusted gross profit $ 97.4 $ 64.9 Adjusted gross profit margin (% of total revenue) 23 % 25 % 85 Table of Contents Ratio of Adjusted Gross Profit to Gross Earned Premium We define the Ratio of Adjusted Gross Profit to Gross Earned Premium as the ratio of adjusted gross profit to gross earned premium.
The following table provides a reconciliation of total revenue and gross profit margin to adjusted gross profit and the related adjusted gross profit margin, respectively, for the periods presented: Year Ended December 31, 2024 2023 ($ in millions) Total revenue $ 526.5 $ 429.8 Adjustments: Loss and loss adjustment expense, net $ (277.0) $ (280.4) Other insurance expense (76.8) (59.2) Depreciation and amortization (5.8) (6.1) Gross profit $ 166.9 $ 84.1 Gross profit margin (% of total revenue) 32 % 20 % Adjustments: Net investment income $ (34.0) $ (24.7) Interest income and other income (9.3) (4.1) Employee related expense 21.8 18.2 Professional fees and other 23.7 17.8 Depreciation and amortization 5.8 6.1 Adjusted gross profit $ 174.9 $ 97.4 Adjusted gross profit margin (% of total revenue) 33 % 23 % 85 Table of Contents Ratio of Adjusted Gross Profit to Gross Earned Premium We define the Ratio of Adjusted Gross Profit to Gross Earned Premium as the ratio of adjusted gross profit to gross earned premium.
In addition, LIC and Lemonade Insurance agreed to the terms of a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC agreed to the terms of an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024.
LIC and LINV entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), and LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), each effective from July 1, 2023 until June 30, 2024.
Gross Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2023 2.9 2022 2022 to 2023 2016 $ — $ — $ — 2017 4.5 5.1 (0.6) 2018 22.5 23.2 (0.7) 2019 61.5 59.9 1.6 2020 121.0 119.4 1.6 2021 264.1 263.6 0.5 2022 431.3 439.9 (8.6) 2023 578.3 N/A N/A $ (6.2) Net Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2023 2022 2022 to 2023 2016 $ 2.3 $ 2.0 $ 0.3 2017 26.1 34.2 (8.1) 2018 39.6 47.3 (7.7) 2019 71.5 70.9 0.6 2020 72.1 64.3 7.8 2021 154.7 140.9 13.8 2022 209.9 207.0 2.9 2023 274.2 N/A N/A $ 9.6 92 Table of Contents Reinsurance assets The estimation of reinsurance recoverable involves a significant amount of judgment.
Gross Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2024 1.4 2023 2023 to 2024 2016 $ — $ — $ — 2017 4.6 4.5 0.1 2018 25.9 22.5 3.4 2019 60.1 61.5 (1.4) 2020 119.2 121.0 (1.8) 2021 263.3 264.1 (0.8) 2022 437.1 431.3 5.8 2023 559.1 578.3 (19.2) 2024 618.1 N/A N/A $ (13.9) Net Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2024 2023 2023 to 2024 2016 $ 3.3 $ 2.3 $ 1.0 2017 39.7 26.1 13.6 2018 55.5 39.6 15.9 2019 77.8 71.5 6.3 2020 68.5 72.1 (3.6) 2021 152.8 154.7 (1.9) 2022 211.3 209.9 1.4 2023 266.5 274.2 (7.7) 2024 278.2 N/A N/A $ 25.0 92 Table of Contents Reinsurance assets The estimation of reinsurance recoverable involves a significant amount of judgment.
The Amended Agreement contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms. We had $14.9 million of outstanding borrowings under the financing agreement and incurred interest expense of $0.4 million as of and for the year ended December 31, 2023.
The Amended and Restated Agreement contains standard customary 73 Table of Contents representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms. We had $83.4 million and $14.9 million of outstanding borrowings under the Amended and Restated Agreement as of December 31, 2024 and December 31, 2023, respectively.
However, if the book value exceeds the fair value of a reporting unit, an impairment loss will be recognized in the amount of the excess book value over fair value limited by the total amount of goodwill for the reporting unit. 93 Table of Contents Stock-based compensation We account for stock-based compensation in accordance with ASC Topic 718, "Compensation — Stock Compensation." Stock options are mainly awarded to employees and members of our board of directors and measured at fair value at each grant date.
However, if the book value exceeds the fair value of a reporting unit, an impairment loss will be recognized in the amount of the excess book value over fair value limited by the total amount of goodwill for the reporting unit. 93 Table of Contents Stock-based compensation We account for stock-based compensation in accordance with ASC Topic 718, "Compensation — Stock Compensation”.
Other non-proportional reinsurance contracts were renewed with terms similar to the expiring contracts. The proportional reinsurance and other non-proportional reinsurance contracts expired on June 30, 2023. Metromile entered into a Quota Share reinsurance agreement effective January 1, 2022 which expired on June 30, 2023. Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.
MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023, and was not renewed. Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.
Payments Due by Period Total Less than 1 Year 1 to 3 Years 4 to 5 Years More than 5 Years ($ in millions) Unpaid losses and loss adjustment expense (1) $ 262.3 $ 184.7 $ 63.2 $ 9.1 $ 5.3 Borrowings under financing agreement 14.9 14.9 — — — Operating lease commitments 32.3 10.1 16.1 2.7 3.4 Total $ 309.5 $ 209.7 $ 79.3 $ 11.8 $ 8.7 ___________ (1) The reserve for losses and loss adjustment expenses represent management's estimate of the ultimate cost of settling losses.
Payments Due by Period Total Less than 1 Year 1 to 3 Years 4 to 5 Years More than 5 Years ($ in millions) Unpaid losses and loss adjustment expense (1) $ 298.1 $ 206.1 $ 81.1 $ 7.8 $ 3.1 Borrowings under financing agreement 83.4 40.1 43.3 — — Operating lease commitments 27.0 9.0 10.0 7.3 0.7 Total $ 408.5 $ 255.2 $ 134.4 $ 15.1 $ 3.8 ___________ (1) The reserve for losses and loss adjustment expenses represent management's estimate of the ultimate cost of settling losses.
We also purchased property and equipment during the year. Cash provided by investing activities was $181.1 million for the year ended December 31, 2022 primarily due to cash from the Metromile Acquisition, sales and maturities of U.S. government obligations, corporate debt securities, asset-backed securities, short term investments, offset by purchases, and property and equipment purchased during the year.
Investing Activities Cash provided by investing activities was $40.6 million for the year ended December 31, 2024 primarily due to proceeds from sales and maturities of U.S. and non-US government obligations, corporate debt securities, asset-backed securities, short term investments, offset by purchases of U.S. and non-US government obligations, corporate debt securities, asset-backed securities, short term investments.
Sales and Marketing Sales and marketing expenses decreased $36.4 million, or 26%, to $101.9 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Expense related to brand and performance advertising decreased by $33.3 million, or 38%, as a result of reduced spending on search advertising and other customer acquisition channels.
Sales and Marketing Sales and marketing expense increased $64.4 million, or 63%, to $166.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. Expense related to brand and performance advertising increased by $66.3 million, or 120%, as a result of increased spending on search advertising and other customer acquisition channels.
Loss and Loss Adjustment Expense, Net Loss and LAE, net increased $113.1 million, or 68%, to $280.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Loss and Loss Adjustment Expense, Net Loss and LAE, net decreased $3.4 million, or 1%, to $277.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Gross written premium includes direct and assumed premium. In December 2022, we began assuming premium related to car insurance policies written in Texas, in connection with our fronting arrangement with a third party carrier in Texas. Following the Metromile Acquisition, we also include gross written premium from the sale of pay-per-mile car insurance policies within the United States.
Gross written premium includes direct and assumed premium. We began assuming premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas.
Ceded earned premium as a percentage of gross earned premium decreased to 53% for the year ended December 31, 2023, as compared to 65% for the year ended December 31, 2022 primarily due to the change in total participation under the proportional reinsurance contracts, as discussed above.
Ceded earned premium as a percentage of gross earned premium slightly increased to 55% for the year ended December 31, 2024, as compared to 53% for the year ended December 31, 2023 primarily due to the impact of the renewed terms under the proportional reinsurance contracts, as discussed above.
We calculate the fair value of share options on the date of grant using the Black-Scholes option-pricing model and the expense is recognized over the requisite service period for awards expected to vest using the straight-line method. The requisite service period for share options is generally four years. We recognize forfeitures as they occur.
Stock options are mainly awarded to employees and members of our board of directors and measured at fair value at each grant date. We calculate the fair value of share options on the date of grant using the Black-Scholes option-pricing model and the expense is recognized over the requisite service period for awards expected to vest using the straight-line method.
Years Ended December 31, 2023 2022 Change % Change ($ in millions) Gross earned premium $ 672.3 $ 490.5 $ 181.8 37 % Ceded earned premium (357.1) (318.1) (39.0) 12 % Net earned premium $ 315.2 $ 172.4 $ 142.8 83 % Ceding Commission Income Ceding commission income increased $5.7 million, or 9% to $69.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, consistent with the increase in ceded earned premium related to the proportional reinsurance contracts with third-party reinsurance companies during the year.
Years Ended December 31, 2024 2023 Change % Change ($ in millions) Gross earned premium $ 827.3 $ 672.3 $ 155.0 23 % Ceded earned premium (456.7) (357.1) (99.6) 28 % Net earned premium $ 370.6 $ 315.2 $ 55.4 18 % Ceding Commission Income Ceding commission income increased $21.3 million, or 31% to $91.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, consistent with the increase in ceded earned premium related to the proportional reinsurance contracts with third-party reinsurance companies during the year.
See “Note 17 - Stock-based compensation” in the Notes to Consolidated Financial Statements included in this Annual Report for a complete description of the accounting for stock-based awards.
The requisite service period for share options is generally four years. We recognize forfeitures as they occur. See “Note 17 - Stock-based compensation” in the Notes to Consolidated Financial Statements included in this Annual Report for a complete description of the accounting for stock-based awards.
Professional fees, and other increased by $5.2 million, or 41%, as compared to the year ended December 31, 2022, primarily in support of growth and expansion initiatives. Amortization of deferred acquisition costs, net of ceded commissions also increased by $4.3 million, or 77% as compared to the year ended December 31, 2022, consistent with growth in business.
Amortization of deferred acquisition costs, net of ceded commissions also increased by $3.8 million, or 38% as compared to the year ended December 31, 2023, consistent with growth in business.
Financing Activities Cash provided by financing activities was $15.4 million for the year ended December 31, 2023 primarily due to borrowings under the financing agreement and proceeds from stock exercises. Cash provided by financing activities was $3.6 million for the year ended December 31, 2022 primarily due to proceeds from stock exercises.
Cash provided by financing activities was $15.4 million for the year ended December 31, 2023 primarily due to borrowings under the financing agreement and proceeds from stock exercises. We do not have any current plans for material capital expenditures other than current operating requirements.
Credit card processing fees increased $3.4 million, or 35%, as a result of the increase in customers and associated premium. Employee-related expense, including stock based compensation, increased by $2.3 million, or 14%, as compared to the year ended December 31, 2022, driven by an increase in underwriting staff to support our continued growth.
Employee-related expense, including stock based compensation, increased by $3.6 million, or 20%, as compared to the year ended December 31, 2023, driven by an increase in underwriting staff to support our continued growth.
Under the PPR Contract, claims in excess of $750,000 are 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. Under the Automatic Facultative PPR Contract, claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations.
The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expired on June 30, 2024, and was not renewed.
Employee-related expense, including stock based compensation, net of capitalized costs for the development of internal-use software, increased $3.3 million, or 5%, as compared to the year ended December 31, 2022, driven by an increase in payroll expense for product, engineering, design and quality assurance personnel to support our continued growth and product development initiatives, including automation, improvement in machine learning, new products, and geographic expansion.
Employee-related expense, including stock based compensation, net of capitalized costs for the development of internal-use software, decreased $1.6 million, or 2%, as compared to the year ended December 31, 2023, driven by decrease in payroll and stock compensation expense for product, engineering, design and quality assurance personnel.
In December 2022, we began assuming premium related to car insurance policies written in Texas, in connection with our fronting arrangement with a third party carrier in Texas, and this did not impact the key performance indicators for periods prior to the fourth quarter of 2022.
We also began assuming premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas.
Employee-related expense, including stock-based compensation decreased by $1.7 million or 5%, as compared to the year ended December 31, 2022, due to reduced headcount. Technology Technology development expenses increased $9.2 million, or 12%, to $88.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Software costs increased by $1.4 million, or 82% as compared to December 31, 2023. Fees paid to contractors increased by $1.2 million, or 100% as compared to December 31, 2023. Employee-related expense, including stock-based compensation decreased by $3.7 million or 11%, as compared to the year ended December 31, 2023, due to reduced headcount.
(2) Includes impairment charge of $3.7 million related to the San Francisco office sublease and $3.0 million accrual for a potential liability claim, both related to Metromile. 87 Table of Contents Liquidity and Capital Resources As of December 31, 2023, we had $271.5 million in cash and cash equivalents, and $673.2 million in investments.
(2) Includes asset impairment charge of $3.7 million related to the San Francisco office sublease (Note 22) and $3.0 million accrual for a potential liability claim, both related to Metromile for the year ended December 31, 2023.
Commission and Other Income Commission and other income increased $8.3 million, or 70% to $20.1 million for the year ended December 31, 2023 compared to year ended December 31, 2022, due to growth in premiums placed with third-party insurance companies and an increase in installment fees.
Commission and Other Income Commission and other income increased $10.7 million, or 53% to $30.8 million for the year ended December 31, 2024 compared to year ended December 31, 2023, primarily due to growth in premiums placed with third-party insurance companies, installment fees and sublease income from our New York and San Francisco office space.
The following table sets forth these metrics as of and for the periods presented: Year Ended December 31, 2023 2022 ($ in millions, except Premium per customer) Customers (end of period) 2,026,918 1,807,548 In force premium (end of period) $ 747.3 $ 625.1 Premium per customer (end of period) $ 369 $ 346 Annual dollar retention (end of period) (1) 87 % 86 % Total revenue $ 429.8 $ 256.7 Gross earned premium $ 672.3 $ 490.5 Gross profit $ 84.1 $ 42.3 Adjusted gross profit $ 97.4 $ 64.9 Net loss $ (236.9) $ (297.8) Adjusted EBITDA $ (172.6) $ (225.1) Gross profit margin 20 % 16 % Adjusted gross profit margin 23 % 25 % Ratio of Adjusted Gross Profit to Gross Earned Premium 14 % 13 % Gross loss ratio 85 % 90 % Net loss ratio 89 % 97 % (1) Includes Metromile beginning in the third quarter of 2023.
The following table sets forth these metrics as of and for the periods presented: Year Ended December 31, 2024 2023 ($ in millions, except Premium per customer) Customers (end of period) 2,430,056 2,026,918 In force premium (end of period) $ 943.7 $ 747.3 Premium per customer (end of period) $ 388 $ 369 Annual dollar retention (end of period) (1) 86 % 87 % Total revenue $ 526.5 $ 429.8 Gross earned premium $ 827.3 $ 672.3 Gross profit $ 166.9 $ 84.1 Adjusted gross profit $ 174.9 $ 97.4 Net loss $ (202.2) $ (236.9) Adjusted EBITDA $ (149.7) $ (172.6) Gross profit margin 32 % 20 % Adjusted gross profit margin 33 % 23 % Ratio of Adjusted Gross Profit to Gross Earned Premium 21 % 14 % Gross loss ratio 73 % 85 % Net loss ratio 75 % 89 % Customers We define customers as the number of current policyholders underwritten by us or placed by us with third party insurance partners (who pay us recurring commissions) as of the period end date.
This XOL reinsurance contract became effective July 1, 2023 and will expire on June 30, 2024. We are also exposed to some risks from MIC ceded through the Quota Share ("QS") Reinsurance Contract which is retained in a captive subsidiary, Lemonade Re SPC in the Cayman Islands.
We also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023, and was not renewed We are also exposed to some risks from MIC ceded through the Quota Share Reinsurance Contract (the “QS reinsurance contract”) which is retained in a captive subsidiary, Lemonade Re SPC in the Cayman Islands.
The Agreement has a commitment period of 18 months which expires on December 31, 2024 (“Original Commitment End Date”). Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC.
Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC. During each growth period, we will repay each Investment Amount including a 16% rate of return based upon an agreed schedule.
The increase was primarily due to the $182.7 million, or 33% increase in gross written premium offset by the increase in ceded written premium of $56.0 million, or 17% for the year ended December 31, 2023, as compared to year ended December 31, 2022. The table below shows the amount of premium we earned on a gross and net basis.
Net written premium increased $65.8 million, or 19%, to $415.1 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 due to factors noted above. The table below shows the amount of premium we earned on a gross and net basis.
Customer Investment Agreement On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Under the Agreement, up to $150 million of financing will be provided for our sales and marketing growth efforts.
See “Business - Our Business Model” and “Business - Our Product Offerings - Giveback Feature.” Customer Investment Agreement On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC").
To the extent our future operating cash flows are insufficient to cover our net losses from catastrophic events, we had $937.7 million in cash and cash equivalents, and investments available at December 31, 2023. We may also seek to raise additional capital through third-party borrowings, sales of our equity, issuance of debt securities or entrance into new reinsurance arrangements.
We may also seek to raise additional capital through third-party borrowings, sales of our equity, issuance of debt securities or entrance into new reinsurance arrangements.
During each growth period, we will repay each 73 Table of Contents Investment Amount including a 16% rate of return based upon an agreed schedule. Once fully repaid, we will retain all future reference income related to each respective Investment Amount.
Once fully repaid, we will retain all future reference income related to each respective Investment Amount.
Income tax Income tax expense increased $4.1 million, or 137%, to $7.1 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to change in transfer pricing methodology and uncertain tax positions.
Income tax Income tax (benefit) expense decreased $8.8 million, or 124%, from $7.1 million income tax expense for the year ended December 31, 2023 to $1.7 million income tax benefit for the year ended December 31, 2024, due to decrease in the liability for uncertain tax positions due to updated benchmarking analyses in the current year.
Net incurred losses included $10.4 million from winter storm Elliott and $4.2 million from the hail storm that impacted our customers in Texas. 83 Table of Contents Other Insurance Expense Other insurance expense increased $15.2 million, or 35%, to $59.2 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Net incurred losses in 2024 also included $3.5 million from Hurricane Helene and $4.0 million from Hurricane Beryl. 83 Table of Contents Other Insurance Expense Other insurance expense increased $17.6 million, or 30%, to $76.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023 consistent with growth in premium.
Employee related expense, including stock-based compensation, increased by $2.9 million, or 6%, as compared to the year ended December 31, 2022, as we increased finance, legal, business operations and administrative personnel.
Bad debt expense increased by $2.9 million, or 36%, as compared to the year ended December 31, 2024.
Under the terms of our Reinsurance Program which became effective July 1, 2023, our overall share under the proportional reinsurance is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000 and contracts are subject to loss ratio caps and variable commission levels.
Under the terms of our proportional reinsurance program, we cede approximately 55% of premium and are subject to loss ratio caps and variable commission. Other non-proportional reinsurance contracts were renewed with terms similar to expired contracts. See "Reinsurance" above for further information.
Cash used in operating activities was $163.0 million for the year ended December 31, 2022, an increase of $18.4 million from $144.6 million for the year ended December 31, 2021.
Cash used in operating activities was $119.1 million for the year ended December 31, 2023, a decrease of $43.9 million from $163.0 million for the year ended December 31, 2022. This reflected the $60.9 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities.
Excluding capital raises, our principal sources of funds are insurance premiums, investment income, reinsurance recoveries and proceeds from maturity and sale of invested assets. These funds are primarily used to pay claims, operating expenses and taxes.
From the date we commenced operations, we have generated negative cash flows from operations, and we have financed our operations primarily through private and public sales of equity securities and third-party financing. Our principal sources of funds are insurance premiums, investment income, reinsurance recoveries and proceeds from maturity and sale of invested assets.
Customers We define customers as the number of current policyholders underwritten by us or placed by us with third party insurance partners (who pay us recurring commissions) as of the period end date. A customer that has more than one policy counts as a single customer for the purposes of this metric.
A customer that has more than one policy count as a single customer for the purposes of this metric.
Hosting and development costs also increased by $3.0 million, or 49%, as compared to the year ended December 31, 2022 consistent with growth of business. Fees paid to contractors increased by $2.5 million, or 179%, as compared to December 31, 2022, due to the integration of Metromile.
Hosting and development costs also decreased $1.0 million, or 11%, as compared to the year ended December 31, 2023. General and Administrative General and administrative expense decreased $4.8 million, or 4%, to $124.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.
In exchange, these reinsurers pay a ceding commission for every dollar ceded, in addition to funding all of the corresponding claims at the same specified percentage as applied to premium. We opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").
We also opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts"). Our proportional reinsurance contracts provides 55% protection on covered risks.

… 31 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed11 unchanged
Biggest changeAs of December 31, 2023 and 2022, none of our fixed maturity securities were unrated or rated below investment grade. To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations.
Biggest changeAs of December 31, 2024 and 2023, none of our fixed maturity securities were unrated or rated below investment grade. To reduce credit exposure to reinsurance recoverable balances, the Company obtains letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations.
The Company’s investment policy and objectives provide a balance between current yield, conservation of capital, and liquidity requirements of the Company’s operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable in states in which we operate.
The Company’s investment policy and objectives provide a balance between current yield, conservation of capital, and liquidity requirements of the Company’s operations setting guidelines that provide for a well-diversified investment portfolio that is compliant with insurance regulations applicable in the states in which we operate.
In addition, if a 10% change in interest rates were to have immediately occurred on December 31, 2023, this change would not have a material effect on the fair value of our investments as of that date. Credit Risk We are also exposed to credit risk on our investment portfolio and reinsurance recoverable.
In addition, if a 10% change in interest rates were to have immediately occurred on December 31, 2024, this change would not have a material effect on the fair value of our investments as of that date. Credit Risk We are also exposed to credit risk on our investment portfolio and reinsurance recoverable.

Other LMND 10-K year-over-year comparisons