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What changed in Lemonade, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Lemonade, Inc.'s 2022 and 2023 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 2023 report.

+474 added−472 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-03)

Top changes in Lemonade, Inc.'s 2023 10-K

474 paragraphs added · 472 removed · 366 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

93 edited+18 added−15 removed130 unchanged
Biggest changeRate 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. In many cases, such rating plans, policy forms, or both must be approved prior to use.
Biggest changeAs 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.
Our Product Offerings Renters and Homeowners Insurance We currently offer our products to renters and homeowners in the United States, contents and liability insurance in Germany, the Netherlands, France, and the United Kingdom.
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.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as three seconds.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as two seconds.
In the wake of the social justice movements, our employees founded in 2020 an internal anti-racism education group, and continued 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.
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.
As of December 31, 2022, 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, 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.
Expand to new geographies As of December 31, 2022, 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.
Expand 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.
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 scale 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 experience, and mitigate risk. This approach results in significant, rapid scaling coupled with high customer satisfaction.
Our primary channel of advertisement is the internet, where we promote our ads and services through various media and social media platforms, including Facebook and Instagram. We also use the data generated in customer support interactions to constantly refine and improve our marketing campaigns.
Our primary channel of advertisement is the internet, where we promote our ads and services through various media and social media platforms, including Facebook, TikTok, YouTube, and Instagram. We also use the data generated in customer support interactions to constantly refine and improve our marketing campaigns.
When a state significantly restricts both underwriting and pricing, it becomes more difficult for an insurer to maintain its profitability. 19 Table of Contents From time to time, the personal lines insurance industry comes under pressure from state regulators, legislators, and special-interest groups to reduce, freeze, or set rates at levels that do not correspond with our analysis of underlying costs and expenses.
When a state significantly restricts both underwriting and pricing, it becomes more difficult for an insurer to maintain its profitability. From time to time, the personal lines insurance industry comes under pressure from state regulators, legislators, and special-interest groups to reduce, freeze, or set rates at levels that do not correspond with our analysis of underlying costs and expenses.
The French Autorité de Contrôle Prudentiel et de Résolution, "ACPR", which is charged with preserving the stability of the financial system and protecting the customers, insurance policyholders, members and beneficiaries of the persons that it supervises, and Organisme pour le Registre des Intermédiaires en Assurance, "ORIAS", an association under the supervision of the Treasury 20 Table of Contents Department in France and in charge of approving insurance intermediaries operating on the French market; the Bank of England’s Prudential Regulation Authority (“PRA”) in charge of prudentially regulating and supervising financial services firms operating in the UK; the British Financial Conduct Authority (“FCA”), whose role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.
The French Autorité de Contrôle Prudentiel et de Résolution, "ACPR", which is charged with preserving the stability of the financial system and protecting the customers, insurance policyholders, members and beneficiaries of the persons that it supervises, and Organisme pour le Registre des Intermédiaires en Assurance, "ORIAS", an association under the supervision of the Treasury Department in France and in charge of approving insurance intermediaries operating on the French market; the Bank of England’s Prudential Regulation Authority in charge of prudentially regulating and supervising financial services firms operating in the UK; the British Financial Conduct Authority, whose role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.
Our Business Model At the foundation of our business model is a direct, digital, customer-centric experience that delivers rapid growth and strong retention. Our customer-centricity runs deep, and our underlying business model is designed to align interests between us and our customers.
Our Business Model At the foundation of our business model is a direct, digital, customer-centric experience that enables rapid growth and strong retention. Our customer-centricity runs deep, and our underlying business model is designed to align interests between us and our customers.
As a result, we believe customers are less inclined to embellish claims as they could be hurting a nonprofit they care about, rather than an insurance company they do not. Strong retention rates and a subscription-based model create highly-recurring and naturally-growing revenue streams, and provide visibility into our top-line results.
As a result, we believe customers are less inclined to embellish claims as they could be hurting a nonprofit they care about, rather than an insurance company they do not. Strong retention rates and a subscription-based model create highly-recurring and naturally-growing revenue streams, and provide visibility into our topline results.
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. 16 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.
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.
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. 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. 21 Table of Contents DNB also regulates the acquisition and increase of control over certain authorized firms, such as insurers.
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 just the last two 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. 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.
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.
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.
The product was launched as part of the Lemonade Foundation Crypto Climate Coalition - in cooperation with a number of strategic partners: Hannover Re, Pula, Chainlink, Avalanche, Etherisc and DAOstack. 14 Table of Contents Diversity We understand that strength lies in the diversity of our employees and drives the innovation behind our product.
The product was launched as part of the Lemonade Foundation Crypto Climate Coalition - in cooperation with a number of strategic partners: Hannover Re, Pula, Chainlink, Avalanche, Etherisc and DAOstack. Diversity We understand that strength lies in the diversity of our employees and drives the innovation behind our product.
OFAC maintains and enforces economic sanctions against certain foreign countries and groups and prohibits U.S. persons from engaging in certain transactions with certain persons or entities. OFAC has imposed civil penalties on persons, including insurance and reinsurance companies, arising from violations of its economic sanctions program.
Department of the Treasury. OFAC maintains and enforces economic sanctions against certain foreign countries and groups and prohibits U.S. persons from engaging in certain transactions with certain persons or entities. OFAC has imposed civil penalties on persons, including insurance and reinsurance companies, arising from violations of its economic sanctions program.
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. 22 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. 23 Table of Contents
In addition, breaches may lead to a revocation of an undertaking license and, in the case of insurers, where the breach relates to material prudential shortcomings, 21 Table of Contents DNB may impose emergency measures (including the appointment of an administrator or the imposition of measures aimed at winding-up the undertaking).
In addition, breaches may lead to a revocation of an undertaking license and, in the case of insurers, where the breach relates to material prudential shortcomings, DNB may impose emergency measures (including the appointment of an administrator or the imposition of measures aimed at winding-up the undertaking).
The claims process represents the most acute pain point in the insurance experience, and it is where animosity toward the industry is most commonly cultivated. Re-imagining claims for the benefit of the customer, by aligning interests and incentives and by removing friction, hassle, cost, and delays, is therefore a key driver of our leadership in customer satisfaction.
The claims process represents the most acute pain point in the insurance experience, and it is where animosity toward the industry is most commonly cultivated. Re-imagining claims for the benefit of the customer, by aligning interests and incentives and by endeavoring to remove friction, hassle, cost, and delays, is therefore a key driver of our leadership in customer satisfaction.
AI Jim AI Jim is our claims bot, and, as of December 31, 2022, 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, 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”).
Behind the scenes, customers who select the same charitable cause are classified as members of the same "cohort." Once a year we look at the loss ratio of each cohort, and provided that we pass the financial ratio tests required by our regulators, we aim to donate the funds remaining, if any, to the charitable cause selected by that cohort.
Behind the scenes, customers who select the same charitable cause are classified as members of the same "cohort." Once each year we review the loss ratio of each cohort, and provided that we pass the financial ratio tests required by our regulators, we aim to donate the funds remaining, if any, to the charitable cause selected by that cohort.
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 1,300 as of December 31, 2022.
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.
Our reinsurance contracts serve to lessen volatility in our operating results, as a material portion of claims are borne by our reinsurance partners. See "Risk Factors — Risks Relating to Our Business”. Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business.
Our reinsurance contracts serve to lessen volatility in our operating results, as a material portion of claims are borne by our reinsurance partners. See "Risk Factors — Risks Relating to Our Business”. In the future, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs.
As of December 31, 2022, about 72% of our pet insurance policies were sold to new customers, and about 5% of those have already added a renters or homeowners policy to their pet policy. Customers that bundle our insurance offerings typically save money.
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.
For example, in 2017, the NYDFS adopted a broad cybersecurity regulation that requires financial services institutions to, among other things, implement and maintain a cybersecurity program and a cybersecurity policy that will be monitored and tested periodically, develop controls and technology standards for data protection, meet minimum standards in response to any cybersecurity breach and annually certify their compliance with the regulation.
For example, in 2017, the New York Department of Financial Services (“NYDFS") adopted a broad cybersecurity regulation that requires financial services institutions to, among other things, implement and maintain a cybersecurity program and a cybersecurity policy that will be monitored and tested periodically, develop controls and technology standards for data protection, meet minimum standards in response to any cybersecurity breach and annually certify their compliance with the regulation.
As of December 31, 2022, 365 employees were required to maintain and did maintain requisite licenses for these activities in most states in which we operate.
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.
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 as well as reinsurance to protect us from the peril of earthquake.
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 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 2022 59 $ 1,873,588 2021 65 $ 2,303,381 2020 34 $ 1,128,109 2019 26 $ 631,540 2018 15 $ 162,135 Selected nonprofit organizations chosen by customers in 2022 included: Charity Water, Malala Fund, Habitat for Humanity, and many others.
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 Proportional Reinsurance Contracts are issued by a consortium of five reinsurers, including Hannover Ruck SE, Lloyd’s Underwriter Syndicate No. 1084 CSL, MAPFRE Re (Spain), and Swiss Re America (US), each holding an ‘A’ or better rating from A.M. Best, and each holding a share of the agreement’s commitments.
The Proportional Reinsurance Contracts are issued by a consortium of three reinsurers, including Hannover Ruck SE, MAPFRE Re (Spain), and Swiss Re America (US), each holding an ‘A’ or better rating from A.M. Best, and each holding a share of the agreement’s commitments.
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 2022 Giveback for the 12 month period ended June 30, 2022 amounted to approximately 1% of earned premiums.
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.
CX.AI CX.AI is our bot platform built to understand and instantly resolve customer requests without human intervention. About 27% of all Lemonade customer inquiries are currently handled this way.
CX.AI CX.AI is our bot platform built to understand and instantly resolve customer requests without human intervention. About a third of Lemonade’s customer inquiries are currently handled this way.
As of December 31, 2022, we have 5 issued patents and 2 pending patent applications in the United States. The issued patents generally related 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, 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.
For each added Lemonade Car customer, we plant trees based on drivers’ mileage to help offset carbon emissions, and our product was built for drivers with low mileage and environment-friendly cars. In July 2022, we announced the completion of the acquisition of Metromile, a pay-per-mile car insurance provider.
For each added Lemonade Car customer, we plant trees based on drivers’ mileage to help offset carbon emissions. Our product was built for environment-friendly cars and we also offer a fair price based on how you drive. In July 2022, we announced the completion of the acquisition of Metromile, a pay-per-mile car insurance provider.
Human Capital Resources Employees As of December 31, 2022, we had 1,367 employees, 951 of whom were based in the United States and the rest of whom were based outside of the United States, primarily in Israel and the Netherlands.
Human Capital Resources Employees As of December 31, 2023, we had 1,258 employees, 845 of whom were based in the United States and the rest of whom were based outside of the United States, primarily in Israel and the Netherlands.
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.
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.
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 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.
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 are seeing more and more customers have multi 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.
The primary goal of the analytical phase is to identify companies that appear to require immediate regulatory attention. Statutory Accounting Principles Statutory accounting principles (“SAP”) is a basis of accounting developed by U.S. insurance regulators to monitor and regulate the solvency of insurance companies.
Rather, unusual values are viewed as part of the regulatory early monitoring system. The primary goal of the analytical phase is to identify companies that appear to require immediate regulatory attention. Statutory Accounting Principles Statutory accounting principles (“SAP”) is a basis of accounting developed by U.S. insurance regulators to monitor and regulate the solvency of insurance companies.
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. We manage the portfolio in accordance with the investment policies and guidelines approved by the board of directors.
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.
As of December 31, 2022, we hold 120 foreign registered trademarks and 4 registered trademarks in the United States, including the Lemonade mark, have 16 foreign trademark applications pending and no U.S. trademark applications pending, and hold three copyrights in the United States, covering certain videos, texts, photographs, and artwork displayed on our mobile app and website.
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.
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.
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%.
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.
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.
IRIS consists of two phases: statistical and analytical. In the statistical phase, the NAIC database generates key financial ratio results based on financial information obtained from insurers’ annual statutory statements. The statistical phase highlights those insurers that merit the highest priority in the allocation of the state insurance regulators’ resources.
In the statistical phase, the NAIC database generates key financial ratio results based on financial information obtained from insurers’ annual statutory statements. The statistical phase highlights those insurers that merit the highest priority in the allocation of the state insurance regulators’ resources. The ratios are not, in themselves, indicative of adverse financial conditions.
The assessment varies depending on the company's size (number of employees), and sector. The standards in the assessment are created and revised by an independent governing body that determines eligibility to be a Certified B Corp.
The standards in the assessment are created and revised by an independent governing body that determines eligibility to be a Certified B Corp.
There are several different ways in which the credit for reinsurance laws may be satisfied by an assuming reinsurer, including being licensed in the state, being accredited in the state, or maintaining certain types of qualifying collateral. We ensure that LIC and MIC are able to take full financial statement credit for their reinsurance.
There are several different ways in which the credit for reinsurance laws may be satisfied by an assuming reinsurer, including being licensed in the state, being accredited in the state, or maintaining certain types of qualifying collateral.
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.
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.
While we believe we are well positioned to execute our business model and reinvent insurance, we face significant competition from traditional insurance companies such as Allstate, Farmers, Liberty Mutual, State Farm, GEICO, Progressive and Travelers.
Competition The homeowners, pet, car and, to a lesser extent, the renters insurance industries in which we operate are highly competitive. While we believe we are well positioned to execute our business model and reinvent insurance, we face significant competition from traditional insurance companies such as Allstate, Farmers, Liberty Mutual, State Farm, GEICO, Progressive and Travelers.
Although new and untested, we believe that donating a portion of the money left over after paying claims to nonprofits will discourage fraud and promote greater trust between us and our customers.
Although a new and untested concept, we believe that donating a portion of the money left over after paying claims to nonprofits will discourage fraud and promote greater trust between us and our customers. The Giveback program, and our underlying ethos, has also helped build an honest relationship with our consumers.
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.
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 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 .
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 term "Certified B Corp" does not refer to a particular form of legal entity, but instead refers to companies that are certified by B Lab, an independent nonprofit organization, as meeting rigorous standards of social and environmental performance, accountability, and transparency. 13 Table of Contents The first step in becoming a Certified B Corp is completing a comprehensive and objective assessment of a business's positive impact on society and the environment.
The term "Certified B Corp" does not refer to a particular form of legal entity, but instead refers to companies that are certified by B Lab, an independent nonprofit organization, as meeting rigorous standards of social and environmental performance, accountability, and transparency.
As part of the acquisition, we received a full-stack insurance entity with 49 state licenses plus the District of Columbia, and precision data from 500 million car trips. 9 Table of Contents Life Lemonade also provides life insurance product through an arrangement with a third-party administrator (“TPA”) which operates as an insurance agent and TPA for a third-party life and health insurance company.
As part of the acquisition, we received a full-stack insurance entity with 49 state licenses plus Washington, D.C., and precision data from 500 million car trips. 9 Table of Contents Life Lemonade also provides life insurance through a partnership arrangement with a third-party carrier.
Geographic Scope of Business In the United States, as of December 31, 2022, Lemonade Insurance Company (“LIC”) and Metromile Insurance Company (“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, and subject to the temporary permissions regime in the U.K.
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.
See “Risk Factors — Risks Relating to Our Business — New legislation or legal requirements may affect how we communicate with our customers, which could have a material adverse effect on our business model, financial condition, and results of operations.” 17 Table of Contents GDPR The General Data Protection Regulation (E.U.) 2016/679 (the “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 “U.K.
See “Risk Factors — Risks Relating to Our Business — New legislation or legal requirements may affect how we communicate with our customers, which could have a material adverse effect on our business model, financial condition, and results of operations.” GDPR The General Data Protection Regulation (E.U.) 2016/679 (the “E.U.
A number of states have enacted the Insurance Data Security Model Law or similar laws, and we expect more states to follow. California has enacted legislation restricting the use of automated systems to communicate with people online.
A number of states have enacted the Insurance Data Security Model Law or similar laws, and we expect more states to follow.
The speed with which an insurer can change rates in response to competition or increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use, or (iii) use-and-file laws. In states having prior approval laws, the regulator must approve a rate before the insurer may use it.
In many cases, such rating plans, policy forms, or both must be approved prior to use. The speed with which an insurer can change rates in response to competition or increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use, or (iii) use-and-file laws.
The first-order consequence of this uncertainty is that insurers often see unwelcome swings in their results. The second-order consequence is that regulators require insurers to keep significant reserves to absorb these swings, making them capital intensive.
The first-order consequence of this uncertainty is that insurers often see unwelcome swings in their results. The second-order consequence is that regulators require insurers to keep significant reserves to absorb these swings, making them capital intensive. We set out to architect our business to be at once capital-light and possessed of a predictable and growing gross margin.
Thousands of families in Kenya have already been protected by this product, and the Foundation expects to continue scaling this product in the coming months.
The product was built with a goal of protecting subsistence farmers against the effects of climate change. Thousands of families in Kenya have already been protected by this product, and the Foundation expects to continue scaling this product in the coming months .
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. Department of the Treasury.
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.
As of December 31, 2022, LIC maintained a risk-based capital level of 376% and MIC maintained a risk-based capital level of 440%. 18 Table of Contents IRIS Ratios The NAIC Insurance Regulatory Information System (“IRIS”) is a collection of analytical tools designed to provide state insurance regulators with an integrated approach to screening and analyzing the financial condition of insurance companies operating in their respective states.
IRIS Ratios The NAIC Insurance Regulatory Information System (“IRIS”) is a collection of analytical tools designed to provide state insurance regulators with an integrated approach to screening and analyzing the financial condition of insurance companies operating in their respective states. IRIS consists of two phases: statistical and analytical.
Eighteen states, including California and New York, have prior approval laws. Under all three types of rating laws, the regulator has the authority to disapprove a rate filing.
A use-and-file law requires an insurer to file rates within a certain period of time after the insurer begins using them. Eighteen states, including California and New York, have prior approval laws. Under all three types of rating laws, the regulator has the authority to disapprove a rate filing.
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.
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.
In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used. A use-and-file law requires an insurer to file rates within a certain period of time after the insurer begins using them.
In states having prior approval laws, the regulator must approve a rate before the insurer may use it. In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used.
In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.
Our website and information included in or linked to our website are not part of this Annual Report.
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.
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.
The annual assessments required in any one year will vary from state to state, and are subject to various maximum assessments per line of insurance.
Members of the fund or association must contribute to the payment of certain claims made against insolvent insurance companies through annual assessments. The annual assessments required in any one year will vary from state to state, and are subject to various maximum assessments per line of insurance.
We believe our reinsurance structure achieves important goals: making us capital-light, buffering our gross margin from the vicissitudes of claims, and leaving room for our gross margin to grow. 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.
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.
Additionally, 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.
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.
For example in Illinois, the first state to have all of Lemonade’s suite of products for the 12-month period, the rate of “bundling”, that is, customers who went from a single-policy to a multi-policy, is growing quarter after quarter, increasing both premium and retention.
For example in Illinois, the first state to have the full suite of Lemonade products available, the rate of “bundling”, customers adding at least a second policy, is growing quarter after quarter, increasing both premium and retention.
GDPR”) applies to our activities to the extent that those activities take place in the context of our establishments in the U.K.. In addition, the GDPR/U.K. GDPR may apply to our activities that involve the processing of personal data of individuals in the European Union or U.K. to whom we offer our products or services. The GDPR/U.K.
In addition, the GDPR may apply to our activities that involve the processing of personal data of individuals in the European Union or UK to whom we offer our products or services. The GDPR could also apply to our business if we were to monitor the activities of individuals in the European Union or UK.
An insurance company may fall out of the usual range for one or more ratios for any number of reasons and a ratio falling outside the prescribed "usual range" is not considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system.
The analytical phase is a review of the annual statements, financial ratios, and other automated solvency tools. An insurance company may fall out of the usual range for one or more ratios for any number of reasons and a ratio falling outside the prescribed "usual range" is not considered a failing result.
In October, 2022, we began selling contents insurance in the United Kingdom (“UK”) on a cross border basis under the UK’s Temporary Permission Regime.
Under this license, we commenced operations in Germany in 2019, and in the Netherlands and France in 2020. In October 2022, we began selling contents insurance in the UK on a cross-border basis under the UK's Temporary Permission Regime.
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.
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.
All told, approximately half of our book is reinsured on a three-year term through June 30, 2023, with the remainder coming up for renewal and renegotiation on an annual basis. We believe that staggering the terms this way provides 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, 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 commenced operating in Germany in 2019, in the Netherlands and France in 2020, and in the U.K. in 2022. 15 Table of Contents 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.
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.
We also hold a pan-European license, enabling us to passport into and sell in 30 countries across Europe, and subject to the temporary permissions regime in the U.K.,and commenced operations in Germany in 2019, and in the Netherlands and France in 2020.
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.
Both Lemonade Insurance N.V. and Lemonade Agency B.V. operate in the UK subject to the temporary permissions 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. See Required Licensing section below for a description.
(“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.
Under the Proportional Reinsurance Contracts, which span all of our products and geographies, we transfer, or "cede, a fixed share of our premiums to our reinsurers. In exchange, these reinsurers pay us a "ceding commission" of up to 25% for every dollar ceded, in addition to funding all of the corresponding claims.
Under the Proportional Reinsurance Contracts, which span all of our products and geographies, we transfer, or "cede”, a fixed share of our premiums to our reinsurers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSpecifically, the following issues, among others, must be addressed as we continue to integrate the operations of Lemonade and Metromile in order to realize the anticipated benefits of the mergers so the combined company performs as expected: • combining the companies’ operations and corporate functions; • combining the business of Lemonade and Metromile and meeting the capital requirements, in a manner that permits the combined company achieve any cost savings or other synergies anticipated to result from the mergers, the failure of which would result in the anticipated benefits of the mergers not being realized in the time frame currently anticipated or at all; • integrating personnel from the two companies, especially in the COVID-19 environment which has required employees to work remotely in many locations; • integrating the companies’ technologies and technologies licensed from third parties; • integrating and unifying the offerings and services available to customers; • identifying and eliminating redundant and underperforming functions and assets; • harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; • maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company; • addressing possible differences in business backgrounds, corporate cultures and management philosophies; • consolidating the companies’ administrative and information technology infrastructure; • coordinating distribution and marketing efforts; • managing the movement of certain positions to different locations; • coordinating geographically dispersed organizations; and • effecting actions that may be required in connection with obtaining regulatory or other governmental approvals and consents In addition, at times the attention of certain members of Lemonade’s management and respective resources may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt each company’s ongoing business and the business of the combined company. 63 Table of Contents The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
Biggest changeWe have faced and expect to continue to face numerous challenges as we continue to integrate the operations of Lemonade and Metromile in order to realize the anticipated benefits of the mergers, including: 48 Table of Contents • combining the business of Lemonade and Metromile and meeting the capital requirements, in a manner that permits the combined company achieve any cost savings or other synergies, the failure of which would result in the anticipated benefits of the mergers not being realized in the time frame currently anticipated or at all; • integrating the companies’ technologies and technologies licensed from third parties; • integrating and unifying the offerings and services available to customers; • identifying and eliminating redundant and underperforming functions and assets; • maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company; • consolidating the companies information technology infrastructure; In addition, at times the attention of certain members of Lemonade’s management and respective resources have been and may in the future be focused on the integration of the businesses and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt the business of the Company.
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.
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; 23 Table of Contents • 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 • 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; 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.
Any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
Furthermore, any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities.
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. 54 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. 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.
While we have implemented control procedures to detect false claims, such procedures may not prevent such claims from being filed or prevent a sufficient number of them from being paid out. The failure of our business model to function as intended could materially and adversely impact our financial condition and results of operations.
The control procedures we have implemented to detect false claims, may not prevent such claims from being filed or prevent a sufficient number of them from being paid out. The failure of our business model to function as intended could materially and adversely impact our financial condition and results of operations.
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 and the NYSE.
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.
Per the applicable laws and regulations of New York and Delaware, respectively, generally no person may acquire control of any insurer, whether by purchase of its securities or otherwise, unless it gives prior notice to the insurer and has received prior approval from the Commissioner of Financial Services.
Per the applicable laws and regulations of New York and Delaware, respectively, generally no person may acquire control of any insurer, whether by purchase of its securities or otherwise, unless it gives prior notice to the insurer and has received prior approval from the superintendent or Commissioner of Financial Services.
The GDPR and UK GDPR increases the maximum level of fines for the most serious compliance failures to the greater of four percent of annual worldwide turnover or €20,000,000/ GBP17,500,000, respectively. We may also be subject to the local privacy and data protection laws of the E.U.
The GDPR increases the maximum level of fines for the most serious compliance failures to the greater of four percent of annual worldwide turnover or €20,000,000/ GBP17,500,000, respectively. We may also be subject to the local privacy and data protection laws of the E.U.
In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual growth and any potential cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated.
In addition, continued integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual growth and any potential cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated.
Moreover, if, for any reason, an unfavorable perception develops that data automation, artificial intelligence and/or bots are less efficacious than traditional offline methods of purchasing insurance, underwriting, claims processing, and other functions that use data automation, artificial intelligence and/or bots, our business, results of operations and financial condition could be adversely affected. 52 Table of Contents Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Moreover, if, for any reason, an unfavorable perception develops that data automation, artificial intelligence and/or bots are less efficacious than traditional offline methods of purchasing insurance, underwriting, claims processing, and other functions that use data automation, artificial intelligence and/or bots, our business, results of operations and financial condition could be adversely affected. 55 Table of Contents Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and our existing stockholders may experience dilution.
If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock and warrants, and our existing stockholders may experience dilution.
If third parties with whom we work were to violate their obligations under the GDPR, and/or under their agreements with us, such violation could potentially have an adverse impact on our business; 36 Table of Contents • The GDPR grants data subjects certain rights, including the right to object to the processing of their personal data by us, to request copies of their personal data from us, to receive information regarding the processing of their personal data and to exercise certain other rights against us in respect of their personal data, and we are implementing internal policies and procedures designed to address those rights; • The GDPR prohibits automated decision making, i.e. a decision evaluating a data subject's personal aspects based solely on automated processing that produces legal effects or other significant effects for that data subject, except where such decision making is necessary for entering into or performing a contract or is based on the data subject's explicit consent.
If third parties with whom we work were to violate their obligations under the GDPR, and/or under their agreements with us, such violation could potentially have an adverse impact on our business; • The GDPR grants data subjects certain rights, including the right to object to the processing of their personal data by us, to request copies of their personal data from us, to receive information regarding the processing of their personal data and to exercise certain other rights against us in respect of their personal data, and we are implementing internal policies and procedures designed to address those rights; • The GDPR prohibits automated decision making, i.e. a decision evaluating a data subject's personal aspects based solely on automated processing that produces legal effects or other significant effects for that data subject, except where such decision making is necessary for entering into or performing a contract or is based on the data subject's explicit consent.
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 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 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.
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. 55 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. 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.
We cannot predict the extent to which investor interest in us will sustain a trading market on the NYSE or how active and liquid that market may remain.
We cannot predict the extent to which investor interest in us will sustain a trading market on the NYSE and NYSE American or how active and liquid that market may remain.
Our success depends upon the continued service of Daniel Schreiber, our co-founder, Co-Chief Executive Officer and a member of our board of directors, and Shai Wininger, our co-founder, Co-Chief Executive Officer and a member of our board of directors (collectively with Mr.
Our success depends upon the continued service of Daniel Schreiber, our co-founder, Chief Executive Officer and a member of our board of directors, and Shai Wininger, our co-founder, President and a member of our board of directors (collectively with Mr.
Increased focus, including from governmental organizations, investors, employees and clients, 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, 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.
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; • only our chairman of the board of directors, our co-chief executive officers, our president (in the absence of a 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; 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.
Numerous aspects of our insurance business are subject to regulation, including, but not limited to, premium rates, mandatory covered 46 Table of Contents risks, limitations on the ability to renew or elect not to renew business, prohibited exclusions, licensing and appointment of agents, restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of customers, investments and capital, policy forms and coverages, advertising and other conduct, including restrictions on the use of credit information and other factors in underwriting, as well as other underwriting and claims practices.
Numerous aspects of our insurance business are subject to regulation, including, but not limited to, premium rates, mandatory covered risks, limitations on the ability to renew or elect not to renew business, prohibited exclusions, licensing and appointment of agents, restrictions on the size of risks that may be insured under a single policy, reserves and provisions for unearned premiums, losses and other obligations, deposits of securities for the benefit of customers, investments and capital, policy forms and coverages, advertising and other conduct, including restrictions on the use of credit information and other factors in underwriting, as well as other underwriting and claims practices.
If any analyst who may cover us were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to materially decline. 65 Table of Contents Item 1B. Unresolved Staff Comments None.
If any analyst who may cover us were to cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to materially decline. 66 Table of Contents Item 1B. Unresolved Staff Comments None.
For example, at the time a renter 24 Table of Contents 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.
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.
Further, the National Association of Insurance Commissioners (“NAIC”), announced on July 23, 2020 the formation of a new Race and Insurance Special Committee (the “Special Committee”).
Further, the National Association of Insurance Commissioners (“NAIC”), announced on July 23, 2020 the formation of a Race and Insurance Special Committee (the “Special Committee”).
We cannot predict with precision the likelihood, nature, or extent of any necessary remedial actions, if any, resulting from any examination, or the associated costs of such remedial actions or regulatory scrutiny. In addition, insurance regulators of other states in which we are licensed to operate periodically conduct financial condition or market conduct examinations or other targeted investigations.
We cannot predict with precision the likelihood, nature, or extent of any necessary remedial actions, if any, resulting from any examination, or the associated costs of such remedial actions or regulatory scrutiny. In addition, insurance regulators of other states in which we are licensed to operate periodically conduct market conduct examinations or other targeted investigations.
See "Business - Regulation." 48 Table of Contents The increasing adoption by states of cybersecurity regulations could impose additional compliance burdens on us and expose us to additional liability. In response to the growing threat of cyber-attacks in the insurance industry, certain jurisdictions, including New York, have begun to consider new cybersecurity measures, including the adoption of cybersecurity regulations.
See "Business - Regulation." 51 Table of Contents The increasing adoption by states of cybersecurity regulations could impose additional compliance burdens on us and expose us to additional liability. In response to the growing threat of cyber-attacks in the insurance industry, certain jurisdictions, including New York, have begun to consider new cybersecurity measures, including the adoption of cybersecurity regulations.
We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. 50 Table of Contents In addition, a variety of organizations have developed ratings to measure the performance of companies on ESG topics, and the results of some of these assessments are widely publicized.
We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. 53 Table of Contents In addition, a variety of organizations have developed ratings to measure the performance of companies on ESG topics, and the results of some of these assessments are widely publicized.
Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include, but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the NAIC and the NYDFS.
Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include, but are not limited to, maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within applicable guidelines established by the NAIC, the NYDFS and the DE Department.
If after weighing any of these factors, Lemonade Insurance Company's board of directors were to reduce or eliminate the 25 Table of Contents Giveback, our business model would be impacted, which, in turn, could materially and adversely affect our brand, financial condition and results of operations.
If after weighing any of these factors, Lemonade Insurance Company's board of directors were to reduce or eliminate the 26 Table of Contents Giveback, our business model would be impacted, which, in turn, could materially and adversely affect our brand, financial condition and results of operations.
If we fail to grow our geographic footprint or geographic growth occurs at a slower rate than expected, our business, results of operations and financial condition could be materially and adversely affected. 45 Table of Contents Fluctuations in foreign currency exchange rates may adversely affect our financial results.
If we fail to grow our geographic footprint or geographic growth occurs at a slower rate than expected, our business, results of operations and financial condition could be materially and adversely affected. 47 Table of Contents Fluctuations in foreign currency exchange rates may adversely affect our financial results.
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. 51 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. 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.
This could erode customer trust in our products and services, weaken incentives for good customer behavior, and drive down demand for our products and services. 56 Table of Contents Any such harm to our reputation could have a material adverse effect on our business, financial position and results of operations.
This could erode customer trust in our products and services, weaken incentives for good customer behavior, and drive down demand for our products and services. 59 Table of Contents Any such harm to our reputation could have a material adverse effect on our business, financial position and results of operations.
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 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.
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.
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.
Increasing scrutiny, actions and changing expectations from investors, clients, regulators and our employees with respect to environmental, social and governance (“ESG”) matters may impose additional costs on us, impact our access to capital, or expose us to new or additional risks.
Increasing scrutiny, actions and changing expectations from investors, clients, regulators and our employees and other stakeholders with respect to environmental, social and governance (“ESG”) matters may impose additional costs on us, impact our access to capital, or expose us to new or additional risks.
The lower the percentage, the more severe the regulatory response, including, in the event of a 53 Table of Contents mandatory control level event (total adjusted capital falls below 70% of the insurer's authorized control level risk-based capital), placing the insurance company into receivership.
The lower the percentage, the more severe the regulatory response, including, in the event of a 56 Table of Contents mandatory control level event (total adjusted capital falls below 70% of the insurer's authorized control level risk-based capital), placing the insurance company into receivership.
This rating, however, may not be a reliable indicator of our customer satisfaction relative to other companies who are rated on the Apple App Store since, to date, we have received a fraction of the number of reviews of some of the companies we benchmark against. 31 Table of Contents We also attract customers through our relationships with certain business development partners.
This rating, however, may not be a reliable indicator of our customer satisfaction relative to other companies who are rated on the Apple App Store since, to date, we have received a fraction of the number of reviews of some of the companies we benchmark against. We also attract customers through our relationships with certain business development partners.
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.
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.
We cannot assure you that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our online app, the features we provide and the manner in which we market our online app. To the extent either or both of them do so, our business, results of operations and financial condition could be adversely affected.
We cannot be certain that Apple or Google will not limit, eliminate or otherwise interfere with the distribution of our online app, the features we provide and the manner in which we market our online app. To the extent either or both of them do so, our business, results of operations and financial condition could be adversely affected.
As of December 31, 2022, 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, 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.
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.
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.
In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available 35 Table of Contents on commercially reasonable terms or at all.
In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all.
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.
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.
We also hold a pan-European license, which enables us to sell in 30 countries across Europe, and commenced operating in Germany in 2019, and in the Netherlands and in France in 2020. We also began selling contents insurance in the U.K. on a cross border basis under the UK’s Temporary Permission Regime in October 2022.
We also hold a pan-European license, which enables us to sell in 30 countries across Europe, and commenced operating in Germany in 2019, and in the Netherlands and in France in 2020. We also began selling contents insurance in the UK on a cross border basis under the UK’s Temporary Permission Regime in October 2022.
The tension between Israel and Iran and/or these groups may escalate in the future and turn even more violent, which could materially adversely affect conditions in Israel in general and our operations in particular.
The tension between Israel and Iran and/or these groups continues to escalate and may turn even more violent in the future, which could materially adversely affect conditions in Israel in general and our operations in particular.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. We currently have proportional reinsurance contracts covering a significant portion of our business. Under the Proportional Reinsurance Contracts, which span all of our products and geographies, we transfer, or "cede," a fixed share of our premiums to our reinsurers.
Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. We currently have proportional reinsurance contracts covering a significant portion of our business. Under the Proportional Reinsurance Contracts, which span all of our products and geographies, we transfer, or “cede,” a fixed share of our premiums to our reinsurers.
The GDPR and the UK GDPR impose comprehensive data privacy compliance obligations in relation to our collection, processing, sharing, disclosure, transfer and other use of data relating to an identifiable living individual or “personal data” , including a principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
The GDPR imposes comprehensive data privacy compliance obligations in relation to our collection, processing, sharing, disclosure, transfer and other use of data relating to an identifiable living individual or “personal data” , including a principal of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit.
As a result of this concentration, if a significant catastrophe event or series of catastrophe events occur, such as COVID-19 or a natural disaster, and cause material losses in California, New York and Texas, our business, financial condition and results of operation could be materially adversely 41 Table of Contents affected.
As a result of this concentration, if a significant catastrophe event or series of catastrophe events occur, such as COVID-19 or a natural disaster, and cause material losses in California, New York and Texas, our business, financial condition and results of operation could be materially adversely affected.
Our insurance subsidiaries may also face competitive pressures in the future to maintain insurance 60 Table of Contents financial stability or strength ratings. These restrictions and other regulatory requirements would affect the ability of our insurance subsidiaries to make dividend payments and we may not receive dividends in the amounts necessary to meet our obligations.
Our insurance subsidiaries may also face competitive pressures in the future to maintain insurance financial stability or strength ratings. These restrictions and other regulatory requirements would affect the ability of our insurance subsidiaries to make dividend payments and we may not receive dividends in the amounts necessary to meet our obligations.
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.
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.
Companies in the internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased or otherwise 43 Table of Contents obtained.
Companies in the internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased or otherwise obtained.
Our organizational structure is becoming more complex as we add staff, and we will need to enhance our operational, financial and management controls as well as our reporting systems and procedures.
Our organizational structure is becoming more complex as we add staff, and we will continue to enhance our operational, financial and management controls as well as our reporting systems and procedures.
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.
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.
The following factors, in addition to other factors described in this "Risk Factors" section and included elsewhere in this document may have a significant impact on the market price of our common stock: • the occurrence of severe weather conditions and other catastrophes; • our operating and financial performance, quarterly or annual earnings relative to similar companies; • publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • the public's reaction to our press releases, our other public announcements and our filings with the SEC; • announcements by us or our competitors of acquisitions, business plans or commercial relationships; • any major change in our board of directors or senior management, including the departure of either of our Co-Founders; • additional sales of our common stock by us, our directors, executive officers, principal shareholders, or our Co-Founders; • adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • short sales, hedging and other derivative transactions in our common stock; • exposure to capital market risks related to changes in interest rates, realized investment losses, credit spreads, equity prices, foreign exchange rates and performance of insurance- linked investments; • our creditworthiness, financial condition, performance, and prospects; • our dividend policy and whether dividends on our common stock have been, and are likely to be, declared and paid from time to time; • perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; • regulatory or legal developments; • changes in general market, economic, and political conditions; • conditions or trends in our industry, geographies or customers; • short selling activities • changes in accounting standards, policies, guidance, interpretations or principles; and • threatened or actual litigation or government investigations. 58 Table of Contents In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly.
The following factors, in addition to other factors described in this "Risk Factors" section and included elsewhere in this document may have a significant impact on the market price of our common stock and warrants: • the occurrence of severe weather conditions and other catastrophes; • our operating and financial performance, quarterly or annual earnings relative to similar companies; • publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts; • the public's reaction to our press releases, our other public announcements and our filings with the SEC; • announcements by us or our competitors of acquisitions, business plans or commercial relationships; • any major change in our board of directors or senior management, including the departure of either of our Co-Founders; • additional sales of our common stock and warrants by us, our directors, executive officers, principal shareholders, or our Co-Founders; • adverse market reaction to any indebtedness we may incur or securities we may issue in the future; • short sales, hedging and other derivative transactions in our common stock and warrants; • exposure to capital market risks related to changes in interest rates, realized investment losses, credit spreads, equity prices, foreign exchange rates and performance of insurance- linked investments; • our creditworthiness, financial condition, performance, and prospects; • our dividend policy and whether dividends on our common stock and warrants have been, and are likely to be, declared and paid from time to time; • perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; • regulatory or legal developments; • changes in general market, economic, and political conditions; • conditions or trends in our industry, geographies or customers; • short selling activities • changes in accounting standards, policies, guidance, interpretations or principles; and • threatened or actual litigation or government investigations.
We may not carry sufficient business interruption insurance, it may not be sufficient to 32 Table of Contents compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our services or products.
We may not carry sufficient business interruption insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business that may result from interruptions in our services or products.
Further, the CCPA provides for civil 34 Table of Contents penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action increases the likelihood of, and risks associated with, data breach litigation.
Further, the CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action increases the likelihood of, and risks associated with, data breach litigation.
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.
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.
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. We are subject to rules and regulations established from time to time by the SEC and the NYSE 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. 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.
While we designed our business model to attract users, align our incentives with those users, discourage fraudulent claims and allow us to offer competitive pricing, our business model may not operate as intended over time and on a larger scale.
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.
See "Dividends." 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." 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.
Acquisitions such as the acquisition of Metromile, involve numerous risks, any of which could harm our business and negatively affect our financial condition and results of operations, including: • intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms; • failure or material delay in closing a transaction, including as a result of regulatory review and approvals; • inadequacy of reserves for losses and loss expenses; • quality of their data and underwriting processes; • conditions imposed by regulatory agencies that make the realization of cost-savings through integration of operations more difficult; • difficulties in obtaining regulatory approvals on our ability to be an acquirer; • a need for additional capital that was not anticipated at the time of the acquisition; • transaction-related lawsuits or claims; • difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; • difficulties in retaining key employees or business partners of an acquired company; • diversion of financial and management resources from existing operations or alternative acquisition opportunities; • failure to realize the anticipated benefits or synergies of a transaction; • failure to identify the problems, liabilities or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, litigation, accounting practices, or employee or user issues; • risks that regulatory bodies may enact new laws or promulgate new regulations that are adverse to an acquired company or business; • theft of our trade secrets or confidential information that we share with potential acquisition candidates; • risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business; and • adverse market reaction to an acquisition.
There is no assurance that such acquired businesses will be successfully integrated into our business or generate substantial revenue. 64 Table of Contents Acquisitions such as the acquisition of Metromile, involve numerous risks, any of which could harm our business and negatively affect our financial condition and results of operations, including: • intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms; • failure or material delay in closing a transaction, including as a result of regulatory review and approvals; • inadequacy of reserves for losses and loss expenses; • quality of their data and underwriting processes; • conditions imposed by regulatory agencies that make the realization of cost-savings through integration of operations more difficult; • difficulties in obtaining regulatory approvals on our ability to be an acquirer; • a need for additional capital that was not anticipated at the time of the acquisition; • transaction-related lawsuits or claims; • difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; • difficulties in retaining key employees or business partners of an acquired company; • diversion of financial and management resources from existing operations or alternative acquisition opportunities; • failure to realize the anticipated benefits or synergies of a transaction; • failure to identify the problems, liabilities or other shortcomings or challenges of an acquired company or technology, including issues related to intellectual property, regulatory compliance practices, litigation, accounting practices, or employee or user issues; • risks that regulatory bodies may enact new laws or promulgate new regulations that are adverse to an acquired company or business; • theft of our trade secrets or confidential information that we share with potential acquisition candidates; • risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business; and • adverse market reaction to an acquisition.
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.
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.
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.
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.
The loss of either of our Co-Founders or any other member of our senior management team, specialized insurance experts or key personnel might significantly delay or prevent 38 Table of Contents the achievement of our strategic business objectives and could harm our business.
The loss of either of our Co-Founders or any other member of our senior management team, specialized insurance experts or key personnel might significantly delay or prevent the achievement of our strategic business objectives and could harm our business.
In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may 39 Table of Contents impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise.
In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise.
Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary to meet our business partners face to face.
Parties with whom we do business may sometimes decline to travel to Israel during periods of heightened unrest or tension, forcing us to make alternative arrangements when necessary to meet our business partners in person.
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.
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.
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 region.
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.
See "Business - Regulation of Our Business — Risk-Based Capital." We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability. The insurance laws of many states subject property and casualty insurers doing business in those states to statutory property and casualty guaranty fund assessments.
See "Business - Regulation of Our Business — Risk-Based Capital." We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may affect our ability to achieve profitability. The insurance laws of many states subject property and casualty insurers doing business in those states to statutory property and casualty guaranty fund assessments.
Developing this level of understanding may require substantial investments of time and resources, and we may not be successful. In addition to the need for substantial resources, insurance regulation could limit our ability to introduce new product offerings or the states in which we offer them.
Developing this level of understanding of the newer markets we have entered may require substantial investments of time and resources, and we may not be successful. In addition to the need for substantial resources, insurance regulation could limit our ability to introduce new product offerings or the states in which we offer them.
Our exposure to loss activity and regulation may be greater in states where we currently have most of our customers: California, New York and Texas. Approximately 54% of our gross written premium for the year ended December 31, 2022 originated from customers in California, New York, and Texas.
Our exposure to loss activity and regulation may be greater in states where we currently have most of our customers: California, New York and Texas. Approximately 53% of our gross written premium for the year ended December 31, 2023 originated from customers in California, New York, and Texas.
The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report their results of risk-based capital calculations to the NYDFS, or DEDFS, as applicable and the NAIC.
The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require our insurance subsidiaries to report their results of risk-based capital calculations to the NYDFS, or DE Dept., as applicable and the NAIC.
If and when the warrants become redeemable by us, we may exercise its redemption right even if we are unable to register or qualify the 61 Table of Contents underlying securities for sale under all applicable state securities laws.
If and when the warrants become redeemable by us, we may exercise its redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have been subject to, and may in the future be subject to, such examination and investigations. Any regulatory or enforcement action or any regulatory order imposing remedial, injunctive, or other corrective action against us resulting from these examinations or investigations could have a material adverse effect on our business, reputation, financial condition or results of operations.
We are presently subject to, and in the future will continue to be subject to, such examination and investigations. Any regulatory or enforcement action or any regulatory order imposing remedial, injunctive, or other corrective action against us resulting from these examinations or investigations could have a material adverse effect on our business, reputation, financial condition or results of operations.
We also could become subject to sanctions or investigations by the SE or other regulatory authorities.
We also could become subject to sanctions or investigations by the SEC or other regulatory authorities.
In recent years, Israel has been involved in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of Southern Lebanon, and with Iranian-backed military forces in Syria.
In recent years, including most recently in October 2023, Israel has been involved in sporadic armed conflicts with Hamas, an Islamist terrorist group that controls the Gaza Strip, with Hezbollah, an Islamist terrorist group that controls large portions of Southern Lebanon, and with Iranian-backed military forces in Syria.
In response to the foregoing developments, many individuals, organizations and institutions, both within and outside of Israel, have voiced concerns that the proposed changes may negatively impact the business environment in Israel, due to potential reluctance of foreign investors to invest or transact business in Israel, increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in securities markets, and other changes in macroeconomic conditions.
In response to such changes, many individuals, organizations and institutions, both within and outside of Israel, have in the past and may in the future voice concerns that the proposed changes may negatively impact the business environment in Israel, due to potential reluctance of foreign investors to invest or transact business in Israel, increased currency fluctuations, downgrades in credit rating, increased interest rates, increased volatility in securities markets, and other changes in macroeconomic conditions.
For example, our user base is made up primarily of renters and we have very few instances of those renters becoming homeowners, a key element of our business model. It is also difficult for us to track that data. We cannot provide any assurance that the data that we collect will provide useful measures for evaluating our business model.
For example, our user base is made up primarily of renters and we have very few instances of those renters becoming homeowners, a key element of our business model. It is also difficult for us to track that data and the data that we collect may not provide useful measures for evaluating our business model.
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. 40 Table of Contents Our unique culture is one of our core characteristics that helps us to attract and retain key personnel.
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 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, 2022, we had 315 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, 2023, we had approximately 294 full-time employees in Israel.
While we strive to be compliant with these and similar laws, we 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 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.
We 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 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.
Biggest changeItem 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.
The Company leases additional office space in Arizona, California, Georgia, Texas, Tel Aviv, Amsterdam, and London, to support our operations in the U.S., Europe and the UK. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
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”. 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 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The Company is occasionally a party to routine claims or litigation incidental to its business and settled a class action litigation in October 2022, which alleged that certain of our business practices are or were improper. See “Note 20 - Contingencies” in our consolidated financial statements included elsewhere in this Annual Report.
Biggest changeItem 3. Legal Proceedings The Company is occasionally a party to routine claims or litigation incidental to its business. See “Note 21 - Commitments and Contingencies” in our consolidated financial statements included elsewhere in this Annual Report.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeName Age Position Executive Officers Daniel Schreiber 51 Co-Founder, Co-Chief Executive Officer, Chairman and Director Shai Wininger 49 Co-Founder, Co-Chief Executive Officer, President, Secretary and Director Adina Eckstein 38 Chief Operating Officer Tim Bixby 58 Chief Financial Officer John Peters 51 Chief Insurance Officer Jorge Espinel 51 Chief Business Development Officer Directors Michael Eisenberg (2)(3) 51 Director Silvija Martincevic (1)(3) 43 Director Irina Novoselsky (1)(2) 38 Director Mwashuma Nyatta (1)(2) 42 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, Co-Chief Executive Officer, and Chairman of our board of directors since our founding in June 2015.
Biggest changeSamer 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.
Prior to that, Mr. Schreiber practiced corporate commercial law at Herzog, Fox & Neeman, and was a member of the Israeli Bar Association. He holds a Bachelor of Laws with First Class Honors from King’s College London. We believe Mr.
Prior to that, Mr. Schreiber practiced corporate commercial law at Herzog, Fox & Neeman, and was a member of the Israeli Bar Association. He holds a Bachelor of Laws with First Class Honors from King’s College London.
She holds a Bachelor of Arts in Economics in Hebrew University and a Master of Business Administration from Tel Aviv University. 67 Table of Contents Tim Bixby has served as our Chief Financial Officer since June 2017.
She holds a Bachelor of Arts in Economics in Hebrew University and a Master of Business Administration from Tel Aviv University. 69 Table of Contents Tim Bixby has served as our Chief Financial Officer since June 2017.
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. We believe Mr.
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.
Item 4. Mine Safety Disclosures Not applicable. 66 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information regarding our executive officers and directors as of the date of this Annual Report.
Item 4. Mine Safety Disclosures Not applicable. 68 Table of Contents INFORMATION ABOUT OUR EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth information regarding our executive officers and directors as of the date of this Annual Report.
Prior to Bicycle, he was a Managing Partner at SoftBank, which he joined in 2015. 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.
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.
Peters also spent ten years with McKinsey & Company’s global property-casualty insurance practice, serving in various roles including partner. He holds a Bachelor of Arts in Mathematics and German from Bowdoin College and is a former fellow of the Casualty Actuarial Society. Jorge Espinel has served as our Chief Business Development Officer since October 2018.
Peters also spent ten years with McKinsey & Company’s global property-casualty insurance practice, serving in various roles including partner. He holds a Bachelor of Arts in Mathematics and German from Bowdoin College and is a former fellow of the Casualty Actuarial Society.
Eisenberg is a Partner at Aleph, an early stage venture capital fund that invests in Israeli entrepreneurs, which he joined in July 2013. In addition to his role on our board of directors, Mr. Eisenberg serves as a member of the board of several private companies. He holds a Bachelor of Arts in Political Science from Yeshiva University.
Michael Eisenberg has served as a member of our board of directors since July 2015. Mr. Eisenberg is a Partner at Aleph, an early stage venture capital fund that invests in Israeli entrepreneurs, which he joined in July 2013. In addition to his role on our board of directors, Mr.
Mwashuma (Shu) Nyatta has served as a member of our board of directors since November 2018. Mr. 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.
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.
Schreiber is qualified to serve on our board of directors due to his perspective and experience from serving as a Co-Founder and Chief Executive Officer, as well as his experience leading technology companies. Shai Wininger has served in various roles, including as our Co-Founder, Secretary, Treasurer, and Chief Technology Officer, since our founding in June 2015. Mr.
Shai Wininger has served in various roles, including as our Co-Founder, Co-Chief Executive Officer, Secretary, Treasurer, and Chief Technology Officer, since our founding in June 2015. Mr. Wininger has served as our President since January 1, 2024, and is a member of our board of directors since June 2015. Prior to co-founding Lemonade in 2015, Mr.
Eckstein served as Chief Operating Officer of HSBC, where she helped one of the world’s largest financial institutions with the digitization of its business. Prior to that, from 2014 to 2016, Ms. Eckstein served as Vice President of Programme and Portfolio at BBC Worldwide, where she led the development and operations of all consumer digital technology.
Prior to joining the Company in 2019, Ms. Eckstein served as Chief Operating Officer of HSBC, where she helped one of the world’s largest financial institutions with the digitization of its business. Prior to that, from 2014 to 2016, Ms.
Wininger has served as our Co-Chief Executive Officer since July 2021, and is a member of our board of directors. Prior to co-founding Lemonade in 2015, Mr. Wininger founded Fiverr Ltd. in 2009, and as the Chief Technology Officer, managed the engineering, design, and product departments. Prior to 2010, Mr.
Wininger founded Fiverr Ltd. in 2009, and as the Chief Technology Officer, managed the engineering, design, and product departments. Prior to 2010, Mr.
Adina Eckstein has served as the Company’s Chief Operating Officer since July 2021. Prior to becoming our Chief Operating Officer, Ms. Eckstein served as our Vice President of Operations since November 2020. Prior to joining the Company in 2019, Ms.
Wininger also served as a resident faculty member of Computer Graphics at The Neri Bloomfield Academy of Design and Education from 2002 to 2007 in Haifa, Israel. Adina Eckstein has served as the Company’s Chief Operating Officer since July 2021. Prior to becoming our Chief Operating Officer, Ms. Eckstein served as our Vice President of Operations since November 2020.
He holds a Bachelor of Science in Economics and a Bachelor of Arts in International Relations, magna cum laude, from University of Pennsylvania’s The Wharton School and the College of Arts and Sciences. Michael Eisenberg has served as a member of our board of directors since July 2015. 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. Mwashuma (Shu) Nyatta has served as a member of our board of directors since November 2018. Mr.
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Wininger also served as a resident faculty member of Computer Graphics at The Neri Bloomfield Academy of Design and Education from 2002 to 2007 in Haifa, Israel. We believe Mr. Wininger is qualified to serve on our board of directors due to his visionary perspective, technical acumen, and experience in founding and leading technology companies.
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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.
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Prior to joining Lemonade, from 2013 to 2018, he served as the Vice President of Global Business Development at Spotify. Mr. Espinel also spent 2009 to 2013 at News Corporation’s Digital Media Group, now 21st Century Fox, serving as the Executive Vice President of Corporate Strategy and Development. From 2008 to 2009, Mr.
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Eckstein served as Vice President of Programme and Portfolio at BBC Worldwide, where she led the development and operations of all consumer digital technology.
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Espinel served as an investment partner with Fuse Capital, formerly Velocity Interactive Group. In addition, Mr. Espinel served as the Vice President of Corporate Strategy and Mergers and Acquisitions at America Online from 2002 to 2007.
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Maya Prosor is a founding team member of Lemonade and has served as our Chief Business Officer since July 2022. Prior to becoming our Chief Business Officer, Ms. Prosor served in different roles at Lemonade, including Homeowners company lead from July 2020 to July 2022, and VP business development from August 2015 to July 2020.
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We believe Mr. Eisenberg is qualified to serve on our board of directors due to his technology investment experience and his service as a director at numerous companies. Silvija Martincevic has served as a member of our board of directors since April 2021. Since February 2023, Ms.
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Prior to joining Lemonade in 2015, Ms. Prosor was the AVP of market development for the joint venture of Duracell and Powermat Technologies Ltd. a wireless charging solutions and technology company, from 2010 to 2015. She holds a Bachelor’s Art from the Reichman University in Business Administration and Entrepreneurship and is a graduate of the Zell Entrepreneurship Program.
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Martincevic has served as the Chief Executive Officer of Deputy Corporation, a global leader in smart scheduling and workforce management for shift workers and businesses. From April 2019 until July 2022, Ms. Martincevic was the Chief Commercial Officer for Affirm, Inc., a consumer lending company, and was responsible for commercial, partnership, and marketing strategy.
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Eisenberg serves as a member of the board of several private companies. He holds a Bachelor of Arts in Political Science from Yeshiva University. Dr. Samer Haj-Yehia has served as a member of our board of directors since November 2023. Dr. Haj-Yehia brings extensive executive and board experience at various conglomerates across multiple industries in Israel and the US.
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She continued to serve as a consultant of Affirm through December 2022. Prior to Affirm, from 2011 until 2018, Ms. Martincevic served a variety of roles including Chief Operating Officer and Chief Marketing Officer of Groupon’s international business across Europe, Asia, and Australia. Ms.
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Until October 2023, he was the Group Executive Chairman of Bank Leumi, Israel’s largest and oldest bank. Under his leadership since 2019, Leumi became the largest and most efficient bank in Israel, grew its income and profitability, and underwent technological transformation and innovation. While in the US, Dr.
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Martincevic also spent 10 years in the investment management industry managing investments and portfolio risk for large institutions.
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Haj-Yehia practiced investment management, trading, and fintech innovation at leading financial institutions, including at Fidelity. He also served as a member of public and government committees, teaches finance and fintech at Reichman University, and is a guest speaker at international conferences. Dr.
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In 2003, she co-founded Zenna Financial Services, an index equity asset manager, and served as its Chief Executive Officer until the company was acquired in 2007, and later held other senior leadership roles in the investment and hedge fund industry investing in women and minority-owned funds. Ms.
Added
Debra 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.
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Martincevic earned her B.A. in Economics at Beloit College and M.B.A. in Econometrics and Statistics from the Booth School of Business at the University of Chicago. We believe Ms.
Added
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
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Martincevic is qualified to serve on our board of directors due to her strategic and operational background in financial technology and her experience in growing and scaling a variety of consumer technology companies. 68 Table of Contents Irina Novoselsky has served as a member of our board of directors since April 2021. Since January 2023, Ms.
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Novoselsky has served as the Chief Executive Officer of Hootsuite, a social media management platform company. Prior to Hootsuite, from 2017 to 2021, Ms.
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Novoselsky was the Chief Executive Officer and a member of the board of directors of CareerBuilder, a global media and SaaS business in the HR tech space, where she positioned the company for accelerated growth as the industry leading talent acquisition platform. She is currently serving as an advisor to the board of CareerBuilder. Previously, Ms.
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Novoselsky served as the President of Novitex Enterprise Solutions from 2014 to 2017, a technology outsourcing business, where she also served as interim CFO in 2014. Prior to Novitex, Ms. Novoselsky was an investment professional at Apollo Global Management in the Private Equity Group and an investment banker in the M&A Group at Morgan Stanley.
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She graduated magna cum laude from the Stern School of Business at New York University. We believe Ms. Novoselsky is qualified to serve on our board of directors due to her business to business and business to consumer experience driving growth and operational efficiency for large, global, complex organizations and financial acumen.
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Nyatta is qualified to serve on our board of directors due to his experience in the finance field and his service as a director at numerous companies. 69 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock is listed and traded on the New York Stock Exchange under the trading symbol “LMND”. Holders As of March 2, 2023, there were approximately 172 holders of record of the Company’s common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The Company’s common stock is listed and traded on the New York Stock Exchange under the trading symbol “LMND”. The Company’s warrants to purchase common stock are listed and traded on the New York Stock Exchange American under the trading symbol “LMND-WS”.
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, 2022 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, 2023 to the cumulative total return of Nasdaq Composite Stock Index (“Nasdaq Index’) and the Nasdaq Insurance Index (“Nasdaq Insurance Index”).
July 2, 2020 December 31, 2020 December 31, 2021 December 31, 2022 Lemonade, Inc. $100.00 $422.41 $145.21 $47.17 Nasdaq Composite Index $100.00 $123.78 $153.27 $102.54 Nasdaq Insurance Index $100.00 $123.27 $140.90 $143.68 70 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.
July 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.
Dividends We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Recent Sales of Unregistered Securities Except as previously disclosed during the third quarter of 2022, there have been no recent sales of unregistered securities. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Recent Sales of Unregistered Securities There have been no recent sales of unregistered securities. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 6. [Reserved] 72 Table of Contents
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Use of Proceeds On July 1, 2020, the SEC declared effective our registration statement on Form S-1 (File No. 333-239007), as amended, filed in connection with our initial public offering (the “Registration Statement”). The net proceeds of approximately $335.6 million from our initial public offering have been invested in investment grade, interest-bearing instruments.
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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.
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There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus, dated July 1, 2020, filed with the SEC pursuant to Rule 424(b) relating to our Registration Statement.

Item 7. Management's Discussion & Analysis

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

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Biggest changeYear Ended December 31, 2022 2021 ($ in millions) Net loss $ (297.8) $ (241.3) Adjustments: Income tax expense 3.0 7.7 Depreciation and amortization 12.2 3.7 Stock-based compensation 58.5 44.1 Transaction and integration cost (1) 8.4 3.5 Interest (income) expense, net (0.8) — Net investment income (8.4) (1.9) Change in fair value of warrants liability (0.2) — Adjusted EBITDA $ (225.1) $ (184.2) (1) Total transaction and integration cost for the year ended December 31, 2022 was $8.4 million related to the Metromile Acquisition, comprised of $1.8 million of professional services and other costs, and $6.6 million of retention and severance costs, of which $0.8 million was stock-based compensation. 85 Table of Contents Liquidity and Capital Resources As of December 31, 2022, we had $282.5 million in cash and cash equivalents, and $750.1 million in investments.
Biggest changeYear Ended December 31, 2023 2022 ($ 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.
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 direct written premium from the sale of pay-per-mile car insurance policies within the United States.
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.
See “- Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted EBITDA in accordance with GAAP. Gross Profit Margin We define gross profit margin, expressed as percentage, as the ratio of gross profit to total revenue.
See “- Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted EBITDA in accordance with GAAP. Gross Profit Margin We define gross profit margin, expressed as a percentage, as the ratio of gross profit to total revenue.
In addition, adjusted gross profit and adjusted gross profit margin, ratio of adjusted gross profit to gross earned premium, and adjusted EBITDA should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address.
In addition, adjusted gross profit, adjusted gross profit margin, ratio of adjusted gross profit to gross earned premium, and adjusted EBITDA should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address.
From the date we commenced operations, we have generated negative cash flows from operations, and we have financed our operations primarily through private sales of equity securities. On January 14, 2021, we issued and sold 3,300,000 shares of common stock, and generated net proceeds to us of $525.7 million after deducting underwriting discounts and other offering costs.
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. On January 14, 2021, we issued and sold 3,300,000 shares of common stock, and generated net proceeds to us of $525.7 million after deducting underwriting discounts and other offering costs.
We have incurred and expect to continue to incur significant additional general and administrative expense as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the NYSE, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees.
We have incurred and expect to continue to incur significant additional general and administrative expense as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and the listing standards of the NYSE and NYSE American, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees.
We expect product technology development costs, a portion of which will be capitalized, to continue to grow in the foreseeable future as we identify opportunities to invest in the development of new products and internal tools and enhancement of our existing products and technologies that we believe will drive the long-term profitability of the business.
We expect to continue to incur product technology development costs, a portion of which will be capitalized, to continue to grow in the foreseeable future as we identify opportunities to invest in the development of new products and internal tools and enhancement of our existing products and technologies that we believe will drive the long-term profitability of the business.
Intangible Assets Intangible assets are recorded at their acquisition date fair values which involves the use of valuation methodologies and various assumptions that are inherently subjective. Identifiable intangible assets consist of value of business acquired and technology, which are subject to amortization, and insurance licenses and trademark, and are not subject to amortization.
Intangible Assets and Goodwill Intangible assets are recorded at their acquisition date fair values which involves the use of valuation methodologies and various assumptions that are inherently subjective. Identifiable intangible assets consist of value of business acquired and technology, which are subject to amortization, and insurance licenses and trademark, and are not subject to amortization.
Other Insurance Expense Other insurance expense consists primarily of amortization of commissions costs and premium taxes incurred on the successful acquisition of business written on a direct basis, and credit card processing fees not charged to our customers.
Other Insurance Expense Other insurance expense consists primarily of amortization of commissions and premium taxes incurred on the successful acquisition of business written on a direct basis, and credit card processing fees not charged to our customers.
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. 91 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." Stock options are mainly awarded to employees and members of our board of directors and measured at fair value at each grant date.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as three seconds.
A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as two seconds.
The amounts in the above table represent our gross estimates of known liabilities as of December 31, 2022 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, 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 Company acquired 100% of Metromile's equity through an all-stock transaction based upon the exchange ratio of 0.05263 shares of Lemonade for each outstanding share of Metromile (the “Metromile Acquisition”). As a result of the Metromile Acquisition, Metromile stockholders received 6,901,934 shares of Lemonade's common stock, with minimal cash paid in lieu of fractional shares.
We acquired 100% of Metromile's equity through an all-stock transaction based upon the exchange ratio of 0.05263 shares of Lemonade for each outstanding share of Metromile (the “Metromile Acquisition”). As a result of the Metromile Acquisition, Metromile stockholders received 6,901,934 shares of Lemonade's common stock, with minimal cash paid in lieu of fractional shares.
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, 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 United Kingdom and the full technology stack to power them.
See “Business - Our Business Model” and “Business - Our Product Offerings - Giveback Feature.” Acquisition of Metromile On July 28, 2022 (the “Acquisition Date”), the Company completed the acquisition of Metromile, Inc. (“Metromile"), a leading digital insurance platform in the United States that offers real-time, personalized car insurance policies by the mile.
See “Business - Our Business Model” and “Business - Our Product Offerings - Giveback Feature.” Acquisition of Metromile On July 28, 2022 (the “Acquisition Date”), we completed the acquisition of Metromile, Inc. (“Metromile"), a leading digital insurance platform in the United States that offers real-time, personalized car insurance policies by the mile.
There can be no assurance that we will be able to raise additional capital on favorable terms or at all. 88 Table of Contents Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP in the United States.
There can be no assurance that we will be able to raise additional capital on favorable terms or at all. 90 Table of Contents Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP in the United States.
Investing Activities Cash provided by investing activities was $181.1 million for the year ended December 31, 2022 primarily due to cash from our 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.
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.
The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the 87 Table of Contents inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid can be significantly different from the amounts disclosed.
The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid can be significantly different from the amounts disclosed.
Annual Dollar Retention We define Annual Dollar Retention ("ADR"), as the percentage of IFP retained over a twelve month period, inclusive of changes in policy value, changes in number of policies, changes in policy type, and churn.
Annual Dollar Retention We define Annual Dollar Retention (“ADR”), as the percentage of IFP retained over a twelve month period, inclusive of changes in policy value, changes in number of policies, changes in policy type, and churn.
General and Administrative General and administrative includes employee compensation, including stock-based compensation and benefits for executive, finance, accounting, legal, business operations, and other administrative personnel. In addition, general and administrative includes outside professional services, non-income based taxes, insurance, charitable donations, and allocated occupancy costs and related overhead based on headcount.
General and Administrative General and administrative includes employee compensation, including stock-based compensation and benefits for executive, finance, accounting, legal, business operations, and other administrative personnel. In addition, general and administrative includes outside professional services, non-income based taxes, insurance, charitable donations, bad debt expense and allocated occupancy costs and related overhead based on headcount.
See “Note 16 - 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.
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.
This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become ever better at delighting customers and evaluating risk.
This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become even better at delighting customers and evaluating risks.
As of December 31, 2022, 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, 2023, the total adjusted capital of our U.S. insurance subsidiaries was in excess of its respective prescribed risk-based capital requirements.
Employee-related expense, including stock based compensation, net of capitalized costs for the development of internal-use software, increased $19.3 million, or 43%, as compared to the year ended December 31, 2021, 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, 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.
Net earned premium from the pay-per-mile car insurance policies are earned over the term of the policy which is written for six-month terms. 74 Table of Contents 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 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.
The increase was primarily due to a 27% increase in net added customers year over year driven by the success of our digital advertising campaigns. We also continued to expand our geographic footprint and product offerings.
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.
We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized through expected future taxable income in the United States. 76 Table of Contents Key Operating and Financial Metrics We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized through expected future taxable income in the U.S.. 78 Table of Contents Key Operating and Financial Metrics We regularly review a number of metrics, including the following key operating and financial metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
The following tables summarize our Gross Ultimate Losses and LAE, and Net Ultimate Losses and LAE as of December 31, 2022 and 2021, respectively.
The following tables summarize our Gross Ultimate Losses and LAE, and Net Ultimate Losses and LAE as of December 31, 2023 and 2022, respectively.
In Force Premium We define in force premium ("IFP") as the aggregate annualized premium for customers as of the period end date.
In Force Premium We define in force premium (“IFP”) as the aggregate annualized premium for customers as of the period end date.
A discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020 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, 2021 filed with the SEC on March 1, 2022 (the “2021 Annual Report’”).
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’”).
In force placed premium currently reflects less than 2% of IFP. 77 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 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.
Ceded earned premium as a percentage of gross earned premium decreased to 65% for the year ended December 31, 2022, as compared to 74% for the year ended December 31, 2021 primarily due to the change in total participation in proportional reinsurance contracts, as discussed above.
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.
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 does not impact the key performance indicators for any prior periods.
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.
Recently Issued and Adopted Accounting Pronouncements See "Note 4 — Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in this Annual Report for a discussion of accounting pronouncements adopted and their impact to our consolidated financial statements. 92 Table of Contents
Recently Issued and Adopted Accounting Pronouncements See "Note 4 — Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements included in this Annual Report for a discussion of accounting pronouncements recently issued and pending adoption. 94 Table of Contents
We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP. See "— Non-GAAP Financial Measures" for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.
We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). See "— Non-GAAP Financial Measures" for additional information on non-GAAP financial measures and a reconciliation to the most directly comparable financial measures prepared in accordance with U.S. GAAP.
The increase was primarily due to the $180.0 million, or 48% increase in gross written premium offset by the increase in ceded written premium of $59.7 million, or 22% for the year ended December 31, 2022, as compared to year ended December 31, 2021. The table below shows the amount of premium we earned on a gross and net basis.
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.
We expense technology development costs as incurred, except for costs that are capitalized related to internal-use software development projects and subsequently depreciated over the expected useful life of the developed software.
Technology development also includes allocated occupancy costs and related overhead based on headcount. We expense technology development costs as incurred, except for costs that are capitalized related to internal-use software development projects and subsequently depreciated over the expected useful life of the developed software.
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) . 78 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, plus • Employee-related costs, plus • Professional fees and other, plus • Depreciation and amortization (allocated to cost of revenue) See "— Non-GAAP Financial Measures" for a reconciliation of total revenue to adjusted gross profit.
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).
Our results of operations include those of Metromile from the Acquisition Date through December 31, 2022. 72 Table of Contents Key Factors and Trends Affecting our Operating Results Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Seasonality Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.
Key Factors and Trends Affecting our Operating Results Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Seasonality Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.
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, and interest income and expense, plus fixed costs and overhead associated with our underwriting operations including employee-related expense and professional fees and other, and depreciation and amortization allocated to cost of revenue.
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.
Net loss Net loss increased $56.5 million, or 23%, to $297.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to the factors described above. 82 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 $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 Investment Income Net investment income increased $6.5 million, or 342%, to $8.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. 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 $0.4 million.
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.
The timing of our cash flows from operating activities can also vary among periods due to the timing of payments made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period.
Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant. Therefore, their timing can influence cash flows from operating activities in any given period.
In addition, the Company assumed all outstanding and unexercised options, and outstanding restricted stock units as of the Acquisition Date, which were converted into corresponding awards with substantially identical terms and conditions prior to the Acquisition Date, at the same exchange ratio of 0.05263.
In addition, we assumed all outstanding and unexercised options, and outstanding restricted stock units as of the Acquisition Date, which were converted into corresponding awards with substantially identical terms and conditions prior to the Acquisition Date, at the same exchange ratio of 0.05263. Our results of operations include those of Metromile from the Acquisition Date through December 31, 2023.
Our U.S. and Dutch insurance company subsidiaries, and our Dutch insurance holding company, are restricted by statute as to the amount of dividends that they may pay without the prior approval of their respective competent regulatory authorities. As of December 31, 2022, cash and investments held by these companies was $350.4 million.
Our U.S. and Dutch insurance company subsidiaries, and our Dutch insurance holding company, are restricted by statute as to the amount of dividends that they may pay without the prior approval of their respective competent regulatory authorities.
Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding the impact of interest income and expense, income tax expense, depreciation, amortization, stock-based compensation, net investment income, change in fair value of warrants liability, 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 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.
Sales and Marketing Sales and marketing expenses decreased $3.3 million, or 2%, to $138.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Expense related to brand and performance advertising decreased by $16.1 million, or 15%, as a result of reduced spending on search advertising and other customer acquisition channels.
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 $33.3 million, or 38%, as a result of reduced spending on search advertising and other customer acquisition channels.
The following tables summarize our gross and net reserves for unpaid loss and LAE as of December 31, 2022 and 2021, respectively: December 31, 2022 Gross % of total Net % of Total ($ 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 % 89 Table of Contents December 31, 2021 Gross % of total Net % of Total ($ in millions) Loss and loss adjustment reserves Case reserve $ 44.8 46 % $ 10.9 43 % IBNR 53.1 54 % 14.4 57 % Total reserves $ 97.9 100 % $ 25.3 100 % We have assessed the impact of potential reserve deviations from our carried reserve at December 31, 2022.
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.
Commission and Other Income Commission and other income increased $7.2 million, or 157% to $11.8 million for the year ended December 31, 2022 compared to year ended December 31, 2021, due to growth in premiums placed with third-party insurance companies during the period and an increase in installment fees billed.
Commission and Other Income Commission and other income increased $8.3 million, or 70% to $20.1 million for the year ended December 31, 2023 compared to year ended December 31, 2022, due to growth in premiums placed with third-party insurance companies and an increase in installment fees.
Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. Through June 30, 2021, we had proportional reinsurance contracts which cover all of our products and geographies, we transferred, or “ceded,” 75% of our premium to our reinsurers (“Proportional Reinsurance Contracts”).
Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred, or “ceded,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts").
The following table sets forth our calculation of the Ratio of Adjusted Gross Profit to Gross Earned Premium for the periods presented: Year Ended December 31, 2022 2021 ($ in millions) Numerator: Adjusted gross profit $ 64.9 $ 45.6 Denominator: Gross earned premium $ 490.5 $ 292.0 Ratio of Adjusted Gross Profit to Gross Earned Premium 13 % 16 % 84 Table of Contents Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding interest Income and expense, income tax expense, depreciation, amortization, stock-based compensation, net investment income, change in fair value of warrants liability, 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, 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.
Gross Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2022 2021 2021 to 2022 2016 $ — $ — $ — 2017 5.1 5.1 — 2018 23.2 23.2 — 2019 59.9 58.4 1.5 2020 119.4 121.0 (1.6) 2021 263.6 262.8 0.8 2022 439.9 N/A N/A $ 0.7 Net Ultimate Losses and LAE ($ in millions) Calendar Year Development Accident Year 2022 2021 2021 to 2022 2016 $ 2.0 $ — $ 2.0 2017 34.2 1.7 32.5 2018 47.3 13.4 33.9 2019 70.9 46.2 24.7 2020 64.3 52.0 12.3 2021 140.9 69.4 71.5 2022 204.5 N/A N/A $ 176.9 90 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 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.
The Company renewed a portion of the reinsurance contracts that expired on June 30, 2021 and June 30, 2022, which decreased the overall share of proportional reinsurance from 75% of premium to 55% effective July 1, 2022. The Company also purchased a new reinsurance program to protect against natural catastrophe risk in the U.S.
We decreased the overall share of proportional reinsurance from 75% of the premium to 70% effective July 1, 2021, and to 55% effective July 1, 2022. In addition, we purchased a reinsurance program to protect us against natural catastrophe risk in the U.S. that exceeds $80 million in losses effective July 1, 2022, and expired on June 30, 2023.
The following table summarizes our cash flow data for the periods presented: Year Ended December 31, 2022 2021 ($ in millions) Net cash used in operating activities $ (163.0) $ (144.6) Net cash provided by (used in) investing activities $ 181.1 $ (804.8) Net cash provided by financing activities $ 3.6 $ 649.6 86 Table of Contents Operating Activities Cash used in operating activities was $163.0 million for the year ended December 31, 2022, an increase of $18.4 million from $144.6 million for the year ended December 31, 2021.
The following table summarizes our cash flow data for the periods presented: Year Ended December 31, 2023 2022 ($ 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.
Loss and Loss Adjustment Expense, Net Loss and LAE, net increased $95.4 million, or 133%, to $167.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
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.
The increase in cash used in operating activities from year ended December 31, 2022 compared to year ended December 31, 2021 was primarily due to claims payments, settlements, settlements with our reinsurance partners, and increased spend related to growth and expansion. Cash used in operating activities was $144.6 million for the year ended December 31, 2021.
The decrease in cash used in operating activities from year ended December 31, 2023 compared to year ended December 31, 2022 was primarily due to claims payments, settlements with our reinsurance partners, and decreased spend related to growth and expansion, offset by collection of premiums and recoveries from reinsurance partners.
Payments Due by Period Total Less than 1 Year 1 to 3 Years 4 to 5 Years More than 5 Years ($ in millions) Unpaid losses and loss adjustment expense (1) $ 256.2 $ 184.2 $ 57.0 $ 7.8 $ 7.2 Operating lease commitments 41.2 8.8 23.7 2.6 6.1 Total $ 297.4 $ 193.0 $ 80.7 $ 10.4 $ 13.3 ___________ (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) $ 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.
Depreciation and amortization expense is recorded as a component of general and administrative. We expect to incur incremental general and administrative costs to support our global operational growth and enhancements to support our reporting and planning functions.
Depreciation and amortization expense, interest expense on borrowings under the financing agreement, and non-recurring items, if any are also recorded as a component of general and administrative. We expect to continue to incur incremental general and administrative costs to support our global operational growth and enhancements to support our reporting and planning functions.
In addition, we purchased a new reinsurance program to protect us against natural catastrophe risk in the U.S. that exceeds $80 million in losses effective July 1, 2022. Other non-proportional reinsurance contracts were renewed with terms similar to the expired contracts. Metromile entered into a Quota Share reinsurance agreement effective January 1, 2022 through June 30, 2023.
In 2022, we decreased the overall share of proportional reinsurance from 70% of premiums to 55% effective July 1, 2022. We also purchased a new reinsurance program to protect against natural catastrophe risk in the U.S. that exceed $80 million in losses effective July 1, 2022. Other non-proportional reinsurance contracts were renewed with terms similar to expired contracts.
Other insurance expense also includes employee compensation, including stock-based compensation and benefits, of our underwriting teams as well as allocated occupancy costs and related overhead based on headcount.
Other insurance expense also includes employee compensation, including stock-based compensation and benefits, of our underwriting teams as well as allocated occupancy costs and related overhead based on headcount. Other insurance expense is offset by the portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies.
The following table provides a reconciliation of total revenue to adjusted gross profit and the related adjusted gross profit margin for the periods presented: Year Ended December 31, 2022 2021 ($ in millions) Total revenue $ 256.7 $ 128.4 Adjustments: Loss and loss adjustment expense, net $ (167.3) $ (71.9) Other insurance expense (44.0) (24.1) Depreciation and amortization (3.1) (1.2) Gross profit $ 42.3 $ 31.2 Gross profit margin (% of total revenue) 16 % 24 % Adjustments: Net investment income $ (8.4) $ (1.9) Interest income (0.7) — Employee-related costs 15.9 9.2 Professional fees and other 12.7 5.9 Depreciation and amortization 3.1 1.2 Adjusted gross profit $ 64.9 $ 45.6 Adjusted gross profit margin (% of total revenue) 25 % 36 % 83 Table of Contents Ratio of Adjusted Gross Profit to Gross Earned Premium The Ratio of Adjusted Gross Profit to Gross Earned Premium measures the relationship between the underlying business volume and gross economic benefit generated by our underwriting operations, on the one hand, and our underlying profitability trends, on the other.
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.
Net 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. 79 Table of Contents Results of Operations The following table presents our results of operations for the periods indicated: Years Ended December 31, 2022 2021 Change % Change ($ in millions) Revenue Net earned premium $ 172.4 $ 77.0 $ 95.4 124 % Ceding commission income 64.1 44.9 19.2 43 % Net investment income 8.4 1.9 6.5 342 % Commission and other income 11.8 4.6 7.2 157 % Total revenue 256.7 128.4 128.3 100 % Expense Loss and loss adjustment expense, net 167.3 71.9 95.4 133 % Other insurance expense 44.0 24.1 19.9 83 % Sales and marketing 138.3 141.6 (3.3) (2) % Technology development 79.6 51.8 27.8 54 % General and administrative 122.3 72.6 49.7 68 % Total expense 551.5 362.0 189.5 52 % Loss before income taxes (294.8) (233.6) (61.2) 26 % Income tax expense 3.0 7.7 (4.7) (61) % Net loss $ (297.8) $ (241.3) $ (56.5) 23 % Comparison of the Years Ended December 31, 2022 and 2021 Net Earned Premium Net earned premium increased by $95.4 million, or 124%, to $172.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to the earning of increased gross written premium, and increased retention of ceded written premium under our Proportional Reinsurance Contracts as discussed in detail above under “Reinsurance.” Years Ended December 31, 2022 2021 Change % Change ($ in millions) Gross written premium $ 555.7 $ 375.7 $ 180.0 48 % Ceded written premium (333.1) (273.4) (59.7) 22 % Net written premium $ 222.6 $ 102.3 $ 120.3 118 % Gross written premium increased $180.0 million, or 48%, to $555.7 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Net Loss Ratio We define net loss ratio, expressed as a percentage, as the ratio of losses and loss adjustment expense, less amounts ceded to reinsurers, to net earned premium. 81 Table of Contents Results of Operations The following table presents our results of operations for the periods indicated: Years Ended December 31, 2023 2022 Change % Change ($ 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 $738.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Years Ended December 31, 2022 2021 Change % Change ($ in millions) Gross earned premium $ 490.5 $ 292.0 $ 198.5 68 % Ceded earned premium (318.1) (215.0) (103.1) 48 % Net earned premium $ 172.4 $ 77.0 $ 95.4 124 % Ceding Commission Income Ceding commission income increased $19.2 million, or 43% to $64.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, consistent with the increase in ceded earned premium related to the proportional reinsurance contracts with third-party reinsurance companies during the year.
Years Ended December 31, 2023 2022 Change % Change ($ 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.
Financing Activities 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 $649.6 million for the year ended December 31, 2021 primarily due to proceeds received from our Follow-on Offering as discussed above and proceeds from stock exercises.
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.
The increase was primarily in line with growth in premium, increase in net retained losses due to change in proportional reinsurance contract and increased claims costs due to impact of inflation. During the second half of 2022, net incurred losses of $0.4 million was recorded due to Hurricane Ian and $7.6 million due to winter storm Elliott.
The increase was primarily in line with growth in premium, increase in net retained losses due to change in participation under the proportional reinsurance contract and increased claims costs due to impact of inflation.
Professional fees, and other increased by $6.8 million, or 115% primarily in support of growth and expansion initiatives during the year ended December 31, 2022. Employee-related expense, including stock based compensation, increased by $6.6 million, or 71%, as compared to the year ended December 31, 2021, driven by an increase in underwriting staff to support our continued growth.
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.
We expect that, in the long-term, our sales and marketing costs will decrease as a percentage of revenue as we continue to drive customer acquisition efficiencies and as the proportion of renewals to our total business increases.
We expect that, in the long-term, our sales and marketing costs will decrease as a percentage of revenue as we continue to drive customer acquisition efficiencies and as the proportion of renewals to our total business increases. 77 Table of Contents Technology Development Technology development consists of employee compensation, including stock-based compensation and benefits, and expenses related to vendors engaged in product management, design, development and testing of our websites and products.
Cash used in investing activities was $804.8 million for the year ended December 31, 2021 primarily due to purchases of U.S. government obligations, corporate debt securities, short term investments and purchases of property and equipment during the year.
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.
Loss and LAE may be paid out over a period of years. Certain policies we write are subject to catastrophe losses.
Loss and LAE are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Loss and LAE may be paid out over a period of years. Certain policies we write are subject to catastrophe losses.
See "Risk Factors — Risks Relating to our Industry — Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition." 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 Industry — Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition." Current Macroeconomic Environment General economic inflation has increased and there is a risk of inflation remaining elevated for an extended period.
The following table summarizes the Company’s contractual obligations and commitments as of December 31, 2022, 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, 2023, and the effect of such obligations are expected to have on our liquidity and cash flows in the future periods.
The following table sets forth these metrics as of and for the periods presented: Year Ended December 31, 2022 2021 ($ in millions, except Premium per customer) Customers (end of period) 1,807,548 1,427,481 In force premium (end of period) $ 625.1 $ 380.1 Premium per customer (end of period) $ 346 $ 266 Annual dollar retention (end of period) 86 % 82 % Total revenue $ 256.7 $ 128.4 Gross earned premium $ 490.5 $ 292.0 Gross profit $ 42.3 $ 31.2 Adjusted gross profit $ 64.9 $ 45.6 Net loss $ (297.8) $ (241.3) Adjusted EBITDA $ (225.1) $ (184.2) Gross profit margin 16 % 24 % Adjusted gross profit margin 25 % 36 % Ratio of Adjusted Gross Profit to Gross Earned Premium 13 % 16 % Gross loss ratio 90 % 90 % Net loss ratio 97 % 93 % 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.
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 portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies is recorded as an offset to other insurance expense.
The portion of ceding commission income which represents reimbursement of successful acquisition costs related to the underlying policies is recorded as an offset to other insurance expense. 76 Table of Contents Net Investment Income Net investment income represents interest earned from fixed maturity securities, short term and other investments, net of investment fees paid to the Company’s investment manager.
In addition, we saw a 30% 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. 80 Table of Contents Ceded written premium increased $59.7 million, or 22%, to $333.1 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily due to the impact of the change in reinsurance arrangements.
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.
Under the terms of the agreement, the Company cedes 30% of premiums and losses to reinsurers. 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 reinsurance.
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, 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.
Sales and marketing also includes associated employee compensation, including stock-based compensation and benefits, as well as allocated occupancy costs and related overhead based on headcount. Sales and marketing costs are expensed as incurred. We plan to continue to invest in sales and marketing to attract and acquire new customers and increase our brand awareness.
Sales and Marketing Sales and marketing includes third-party marketing, advertising, branding, public relations and sales expenses. Sales and marketing also includes associated employee compensation, including employee and non employee stock-based compensation and benefits, as well as allocated occupancy costs and related overhead based on headcount. Sales and marketing costs are expensed as incurred.
Income tax Income tax expense decreased $4.7 million, or 61%, to $3.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 due to decreased tax liability related to income generated by our subsidiary in Israel, and uncertain tax positions.
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.
This reflected the $119.0 million increase in our net loss, partially offset by non-cash charges and net cash provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of non-cash stock-based compensation.
This reflected the $60.9 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities.
Credit card processing fees increased $3.2 million, or 48%, as a result of the increase in customers and associated premium. Amortization of deferred acquisition costs, net of ceded commissions also increased by $3.2 million, or 133% as compared to the year ended December 31, 2021.
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022 and 2021, none of our fixed maturity securities were unrated or rated below investment grade. Inflation Risk Inflationary factors such as increases in overhead costs may adversely affect our operating results. In addition, inflation could lead to higher interest rates which may impact the market value of our investment portfolio.
Biggest changeInflation Risk Inflationary factors such as increases in overhead costs may adversely affect our operating results. In addition, inflation could lead to higher interest rates which may impact the market value of our investment portfolio. The current short duration of the Company's fixed maturity portfolio minimizes the negative effects of higher interest rates. 95 Table of Contents
As market interest rates increase, market value of fixed maturities decrease, and vice versa. Certain of the our securities are held in an unrealized loss position, and we do not intend to sell and believe we will not be required to sell any of these securities held in an unrealized loss position before its anticipated recovery.
As market interest rates increase, market value of fixed maturities decrease, and vice versa. Certain of our securities are held in an unrealized loss position, and we do not intend to sell and believe we will not be required to sell any of these securities held in an unrealized loss position before its anticipated recovery.
In addition, if a 10% change in interest rates were to have immediately occurred on December 31, 2022, 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.
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.
Removed
The current short duration of the Company's fixed maturity portfolio minimizes the negative effects of higher interest rates. 93 Table of Contents
Added
As 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.
Added
In addition, under the terms of its reinsurance contracts, the Company may retain funds due to reinsurers as security for those recoverable balances. The Company also has reinsurance recoverable balances from reinsurers with a majority of the reinsurers having an A.M. Best rating of A (Excellent) or better.

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