LMND 10-K & 10-Q changes, risk factors and insider trading
Lemonade, Inc. · NYSE · Fire, Marine & Casualty Insurance · CIK 1691421 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Our pricing model for self driving technologies and reliance on direct vehicle telemetry may not function as expected, we may not be able to use it as expected, or could be adversely affected by shifting technology and safety data.”
New heading “We are periodically subject to examinations by our primary U.S. state insurance regulators, which could result in adverse examination findings and necessitate remedial actions.”
New heading “We may face particular privacy, data security, and data protection risks as we continue to expand into Europe and the UK in connection with the GDPR and other data protection regulations.”
New heading “Existing and evolving regulations concerning artificial intelligence and automated communications may restrict our business practices, affect our business model, financial condition, or lead to significant legal liability.”
New heading “Our ability to attract and convert customers depends on third-party digital platforms, search engines and social media; interference or changes to these services could significantly impair our growth and financial results.”
New heading “Compliance with evolving data privacy and security laws and regulations relating to the processing of Personal Information necessitates significant expenditure and resources, and any failure by us or our vendors to comply may result in significant liability, negative publicity, and/or erosion of trust, which could damage our reputation and brand and harm our business and operating results.”
New heading “We may not be able to utilize our net operating loss carryforwards ("NOLs") to offset future taxable income for U.S. federal income tax purposes, which could adversely affect our net income and cash flows.”
New heading “The insurance market is cyclical and our results are subject to seasonality and volatility, which may cause fluctuations in premium rates, underwriting capacity, and our quarterly and annual operating results.”
Removed heading “The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences.”
Removed heading “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.”
Removed heading “Our limited operating history makes it difficult to evaluate our current business performance, implementation of our business model, and our future prospects.”
Removed heading “We may not be able to manage our growth effectively.”
Removed heading “Existing and 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.”
Removed heading “We depend on search engines, social media platforms, digital app stores, content-based online advertising and other online sources to attract consumers to our website and our online app, which may be affected by third-party interference beyond our control.”
Removed heading “We are periodically subject to examinations by our primary state insurance regulators, which could result in adverse examination findings and necessitate remedial actions.”
Removed heading “We collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customers' privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.”
Removed heading “We may face particular privacy, data security, and data protection risks as we continue to expand into Europe and the UK in connection with the GDPR, UK GDPR, and other data protection regulations.”
Removed heading “We may not be able to utilize a portion of our net operating loss carryforwards ("NOLs") to offset future taxable income for U.S. federal income tax purposes, which could adversely affect our net income and cash flows.”
Removed heading “The insurance business, including the market for renters, homeowners, pet, life and car insurance, is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.”
Removed heading “Climate risks, including risks associated with disruptions caused by the transition to a low-carbon economy, could adversely affect our business, results of operations and financial condition.”
Removed heading “We expect our results of operations to fluctuate on a quarterly and annual basis. In addition, our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects.”
Removed heading “Risks Relating to Our Existence as a Public Benefit Corporation”
Removed heading “We operate as a Delaware public benefit corporation. As a public benefit corporation, we cannot provide any assurance that we will achieve our public benefit purpose.”
Removed heading “If we lose our certification as a Certified B Corp or our publicly reported B Corp score declines, or if state or federal regulators restrict, delay or otherwise interfere with our ability to make charitable contributions, our reputation could be harmed and our business could be adversely affected.”
Removed heading “Our directors have a fiduciary duty to consider not only our stockholders' interests, but also our specific public benefit and the interests of other stakeholders affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our stockholders.”
Removed heading “As a Delaware public benefit corporation, we may be subject to increased derivative litigation concerning our duty to balance stockholder and public benefit interest, the occurrence of which may have an adverse impact on our financial condition and results of operations.”
Removed heading “There is no guarantee that the warrants may ever be in the money, and they may expire worthless.”
Removed heading “We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.”
Removed heading “Concentrated ownership of our common stock could limit your ability to influence the outcome of important transactions, including a change in control. This concentration may create a risk of sudden changes in our common stock price.”
Largest changes
“It is possible that further new laws and regulations will be adopted in the United States, Europe, and in other non-U.S. jurisdictions, or that existing laws and regulations, including competition and, antitrust, data privacy and consumer protection laws, may be interpreted or enforced in ways that would limit our ability to use AI Technologies for our business, or require us to change the way we use AI Technologies in a manner that negatively affects the performance of our business and the way in which we use AI Technologies. …”see in full comparison
“The Company is subject to various laws and regulations at the local, state, and U.S. federal laws as well as laws in Europe and Israel that govern, and may restrict, communications via emails, calls, faxes, SMS text messages or communications done by bots. While the Company has taken steps to mitigate our liability for violations of the laws restricting the use of electronic communication tools, no assurance can be given that we will not be exposed to civil litigation or regulatory enforcement. …”see in full comparison
“Use of technology to offer insurance products involves the storage and transmission of information, including personal information, in relation to our staff, contractors, business partners and current, past or potential customers. …”see in full comparison
“Additionally, we are subject to the terms of our privacy policies and privacy-related obligations to third parties. …”see in full comparison
“Additionally, we are subject to the terms of our privacy policies and privacy-related obligations to third parties. …”see in full comparison
“For example, in the United States, the CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. In addition, the Telephone Consumer Protection Act (TCPA) places restrictions on making outbound calls, faxes, and SMS text messages to consumers using certain types of automated or prerecorded technology or that involve marketing. …”see in full comparison
Full comparison: every changed paragraph (260)
We have not been profitable since our inception in 2015 and had an accumulated deficit of $1,298.8$1,464.3 million and $1,096.6$1,298.8 million as of December 31, 20242025 and December 31, 2023,2024, respectively. We incurred net losses of $202.2$165.5 million and $236.9$202.2 million in the years ended December 31, 20242025 and December 31, 2023,2024, respectively. We expect to make significant investments to further develop and expand our business.business, Inparticularly particular, we expect to continue to expend substantial financial and other resources onin marketing and advertising asto part ofexpand our strategy to increase our customerconsumer base. The marketing and advertising expenses that we incur are typically expensed immediately while any revenues that they generate are recognized ratably over the 12-month term of each insurance policy that we write. This timing difference can therefore result in expenses that exceed the related revenue generated in any given year. As a public company, we have incurred and expect to continue to incur significant legal, accounting and other expenses. We expect that our net loss will increase in the near term as we continue to make such investments to grow our business. Despite these investments, we may not succeed in increasing our revenue on the timeline that we expect or in an amount sufficient to lower our net loss and ultimately become profitable. Moreover, if our revenue declines, we may not be able to reduce costs in a timely manner because many of our costs are fixed in the short term. In addition, if we reduce variable costs to respond to losses, this may limit our ability to sign up new customers and grow our revenues. Accordingly, we may not achieve or maintain profitability and we may continue to incur significant losses in the future.
•we are unable to cost-effectively attract and convert customers through digital distribution channels (e.g., search, social media, app stores, and online advertising);
•underwriting constraints, competitive pressures (including competitors replicating our digital model), or failure to expand geographically or offer competitive new products limit growth;
•our digital platform is disrupted or performs poorly—whether due to our systems or third parties—resulting in degraded customer experience or impaired quoting, policy servicing, or claims payments; or
•customer trust in our brand, including perceptions of our chatbots and concerns regarding content, privacy, and security, deteriorates due to actual or alleged issues or negative publicity.
•we fail to effectively use search engines, social media platforms, digital app stores, content- based online advertising, and other online sources for generating traffic to our website and our online app;
•potential customers in a particular marketplace or generally do not meet our underwriting guidelines;
•our competitors mimic our digital platform, causing current and potential customers to purchase their insurance products instead of our products;
•our digital platform experiences disruptions;
•we experience unfavorable shifts in customer perception of our chat-bots;
•we suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate;
•we fail to expand geographically;
•we fail to offer new and competitive products;
•customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties;
•technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; or
•we are unable to address customer concerns regarding the content, privacy, and security of our digital platform.
Many of our competitors have brands that are well recognized. As a relatively new entrant into the insurance market, we spend considerable money and other resources to create brand awareness and build our reputation. We may not be able to build brand awareness, and our efforts at building, maintaining and enhancing our reputation could fail. Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers or business partners, data privacy and security issues, and other aspects of our business, whether valid or not, could diminish confidence in our brand, which could adversely affect our reputation and business. As we expand our product offerings and enter new markets, we need to establish our reputation with new customers, and to the extent we are not successful in creating positive impressions, our business in these newer markets could be adversely affected. We may not be able to maintain or enhance our reputation, and failure to do so could materially adversely affect our business, results of operations and financial condition. If we are unable to maintain or enhance consumer awareness of our brand cost-effectively, our business, results of operations and financial condition could be materially adversely affected.
Our future revenue growth and prospects dependdepends on our ability to increase the lifetime value of our customers and attaining greater value from each customer.
Our future growth and prospects depend on our ability to increase the premium per customer, as described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our business model is premised on the expectation we can win customers early in their financial lives and retain them throughout their insurance life cycle.
•Failure to Retain Customers During Life Transitions: The purchase of a home or a new vehicle is a significant life event where customers are exposed to third-party service providers (such as mortgage brokers, real estate agents, or car dealers) who may influence their insurance choices in ways we cannot. If we cannot successfully transition our core renters base into higher-premium products like homeowners or car insurance, our ability to increase premium per customer will be materially impaired.
•Perception of Brand Quality vs. Incumbents: While we are a preferred brand among the next generation of buyers, as customers’ assets grow, they may perceive traditional, larger insurers as offering higher quality or more "stable" coverage due to their longevity and financial ratings. If this perception leads customers to switch to incumbents as their insurance expenditures increase, we will fail to capture the anticipated growth.
•Competitive Pricing Sensitivity: During major purchasing decisions, such as buying a home, the relative price difference between our products and those of our competitors may appear less significant to a consumer. If we are unable to maintain a competitive edge in both price and user experience during these transitions, our growth prospects will suffer.
•Acquisition of New High-Value Customers: Beyond retaining existing customers, our growth depends on successfully acquiring new homeowners and car owners directly or through partners. If we are unable to penetrate these higher-priced segments effectively, our revenue growth may stagnate.
If we fail to effectively manage these transitions or if our customers do not "graduate" to higher-premium products as expected, our results of operations and financial condition could be materially and adversely affected.
Our future growth and prospects depend on our ability to increase the premium per customer, as described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations." Currently, the large majority of our customers are renters. In order to increase our premium per customer, we must increase the number of higher-priced customers, such as homeowners, and the proportion of higher-priced customers relative to lower-priced customers, such as renters. Our business model is premised on the expectation that a significant number of our customers that are renters will continue to retain coverage with us as they move from being renters to homeowners. Currently, however, given our limited operating history, substantially all of our current homeowner users are new customers who were not previously renters with us. The purchase of a home is a significant event in a person's life and we cannot provide assurances that we will succeed in retaining existing customers that are renters as they become homeowners. This may occur for a variety of factors. For example, at the time a renter purchases a home, he or she is exposed to a large number of service providers who have direct and personal access to that renter in a way that we do not. Those service providers may have, and share, their own views and preferences for homeowners insurance. Furthermore, given the expenditure involved in a home purchasing decision, differences in price between our insurance product and that of our competitors may appear less significant. In addition, there may even be a perception that a higher priced policy from a traditional brand name insurer may be of higher quality when coupled with the size and longevity of such traditional insurers. A failure to retain renters as they transition to homeowner status may materially adversely impact our future growth and prospects. Moreover, we also sell homeowner policies directly, or indirectly through independent insurance agencies, to customers who did not previously have a renters policy with us. To the extent we are unable to sell homeowner policies directly or via our insurance agency partners to new customers either now or in the future, our ability to increase our premium per customer would be negatively impacted, which could materially adversely impact our future growth and prospects.
The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences.
Our business model is predicated on behavioral economics. Under our model, excess premiums can be donated to nonprofits selected by our customers as part of our annual 'Giveback'. We designed our business model to attract customers, align our incentives with those customers, discourage fraudulent claims and allow us to offer competitive pricing, but it may not operate as intended over time and on a larger scale. For example:
•Our commitment to charitable giving through our Giveback program may not align our interests with those of our customers or prospective customers to the extent anticipated. Moreover, our commitment to charitable giving may not resonate with our existing customers or may fail to attract new customers.
•The amount contributed to nonprofits may be viewed as insufficient by existing or new customers. Furthermore, there may be insufficient money remaining after paying claims to make charitable contributions.
•See "Business — Our Vertically-Integrated Platform — Reinsurance." False claims or higher than expected claims could cause reinsurers to charge higher rates, refuse to provide reinsurance or provide reinsurance on less favorable terms. 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.
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 Giveback is a cornerstone of our business model that, when coupled with our fixed fee, works to align our interests with those of our customers, which we believe builds trust, minimizes fraud, and keeps our costs down. If a state, federal authority or foreign jurisdiction was to find that the Giveback was a rebate rather than a charitable contribution, or impermissible on other grounds, we may not be able to donate the residual value of our customers' premiums to nonprofits in certain, or any, of the states or foreign jurisdictions in which we operate. If even one regulator were to disallow the Giveback, it could force us to abandon the Giveback in part or entirely, either of which could undermine the behavioral economics foundation on which our business model is based, which in turn could materially and adversely affect our brand, financial condition and results of operations.
Additionally, we could modify, reduce or eliminate the Giveback at our discretion for a variety of reasons. LIC's board of directors may determine the amount and distribution of the Giveback by taking into consideration various factors such as the current goodwill and reputation of the nonprofit selected by customers, the amount of funds available for distribution by each cohort, the reasonableness of such contribution, and general shareholders' interests, such as the proposed amount and distribution of the Giveback against factors like overall shareholder returns, our financial and operating performance, and our social responsibility and the benefits shareholders and their communities receive from proposed contributions. Before determining the amount of the Giveback, LIC‘s board of directors may also analyze the extent of our reinsurance coverage and management's expectations with respect to such reinsurance coverage for the upcoming fiscal year, particularly as it relates to the amount of capital and surplus required to continue to operate successfully. If after weighing any of these factors, LIC's board of directors were to reduce or eliminate the Giveback, our business model would be impacted, which, in turn, could materially and adversely affect our brand, financial condition and results of operations.
Our limited operating history makes it difficult to evaluate our current business performance, implementation of our business model, and our future prospects.
We launched our business to sell renters and homeowners insurance in late 2016 and have a limited operating history. Due to our limited operating history and the rapid growth we have experienced since we began operations, our operating results are hard to predict, and our historical results may not be indicative of, or comparable to, our future results. In addition, we have limited data to validate key aspects of our business model. For example, our customer 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. Our inability to adequately assess our performance and growth could have a material adverse effect on our brand, business, financial condition and results of operations.
We may not be able to manage our growth effectively.
Our revenue grew from $256.7 million for the year ended December 31, 2022, $429.8 million for the year ended December 31, 2023, to $526.5 million for the year ended December 31, 2024. Our rapid growth has placed and may continue to place significant demands on our management and our operational and financial resources. Our organizational structure has become and will continue to become more complex to the extent that we add staff, and we will continue to enhance our operational, financial and management controls as well as our reporting systems and procedures. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, teamwork and attention to the insurance buying experience for the customer. If we cannot manage our growth effectively to maintain the quality and efficiency of our customers' insurance- buying experience, as well as their experience as ongoing customers, our business could be harmed as a result, and our results of operations and financial condition could be materially and adversely affected.
The markets in which we provide insurance are highly competitive. We compete against large traditional carriers who possess significant advantages in name recognition, financial ratings, capital resources, and the ability to offer "bundled" policies coverage at scale. Our future growth depends heavily on our ability to compete in all markets, including the homeowners and auto market where these traditional advantages are most pronounced. Furthermore, we face intense competition in specialized lines from Embrace and Trupanion in pet insurance, and from Progressive and GEICO in car insurance.
We also face increasing pressure from technology companies entering the insurance space, as well as traditional carriers adopting technology similar to ours to erode our current market advantages. These competitors may offer more aggressive pricing or superior resources, and our ability to counter them may be hindered if our new products face regulatory delays or fail to receive approval. If we are unable to compete effectively against both established insurance giants and tech-first entrants, our business and financial results will be materially and adversely affected.
We use artificial intelligence (“AI”) machine learning, and automated decision-making technologies, including proprietary AI and machine learning algorithms and models, (collectively “AI Technologies”) throughout our business, and are making significant investments in this area. For example, we utilize the data gathered from the insurance application process to determine whether or not to write a particular policy and, if so, how to price that particular policy. Similarly, we use proprietary AI Technologies to process many of our claims. The data that we gather through our interactions with our customers is evaluated and curated by proprietary AI Technologies.
We expect that increased investment will be required in the future to continuously improve our use of AI Technologies. As with many technological innovations, there are significant risks involved in developing, maintaining and deploying these technologies and there can be no assurance that the usage of or our investments in such technologies will always enhance our products or services or be beneficial to our business, including our efficiency or profitability.
In particular, if the models underlying our AI Technologies are incorrectly designed or implemented; trained or reliant on incomplete, inadequate, inaccurate, biased or otherwise poor quality data, or on data to which we do not have sufficient rights or in relation to which we and/or the providers of such data have not implemented sufficient legal compliance measures; used without sufficient oversight and governance to ensure their responsible use; and/or adversely impacted by unforeseen defects, technical challenges, cybersecurity threats or material performance issues, the performance of our business, as well as our reputation could suffer or we could incur liability resulting from the violation of laws or contracts to which we are a party or civil claims. In addition, we may incorrectly price insurance products for our customers or incorrectly pay or deny claims made by our customers, either of which could result in customer dissatisfaction with us, which could cause customers to cancel their insurance policies with us, prevent prospective customers from obtaining new insurance policies, or cause us to underprice policies or overpay claims.
The renters, homeowners (including buildings and content), pet, life and car insurance market is highly competitive with carriers competing through product coverage, reputation, financial strength, advertising, price, customer service and distribution.
While we face limited direct competition from traditional insurance companies for first-time renters, we face significant competition from traditional insurance companies for homeowners, car and life. Competitors include companies such as Allstate, Farmers, Liberty Mutual, State Farm, GEICO, Progressive and Travelers. These companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, and additional access to capital. Our future growth will depend in large part on our ability to grow our homeowners insurance business in which traditional insurance companies retain certain advantages. In particular, unlike us, many of these competitors offer consumers the ability to purchase renters, homeowners and multiple other types of insurance coverage and "bundle" them together into one policy and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices. Moreover, as we expand into new lines of business and offer additional products beyond renters, homeowners, pet, life and car insurance, we could face intense competition from insurance companies that are already established in such markets. Competitors in the pet insurance space include companies such as Nationwide, Embrace, and Trupanion. 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. There are various technology companies that have recently started operating in adjacent insurance categories that may in the future offer renters, homeowners, pet, life and car insurance products. Technology companies may in the future begin operating and offering products at better and more competitive pricing than us, which could cause our results of operations and financial condition to be materially and adversely affected. In addition, traditional insurance companies may seek to adapt their businesses to sell insurance and process claims using technology similar to ours. Given their size, resources, and other competitive advantages, they may be able to erode any market advantage we may currently have over them.
Reinsurance is a contract by which an insurer, which may be referred to as the ceding insurer, agrees with a second insurer, called a reinsurer, that the reinsurer will cover a portion of the losses incurred by the ceding insurer in the event a claim is made under a policy issued by the ceding insurer, in exchange for a premium. Our insurance subsidiaries, LIC and MIC, obtain reinsurance to help manage their exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured. As a result, reinsurance does not eliminate the obligation of our insurance subsidiaries to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts, limiting recovery. Reinsurers may become financially unsound by the time that they are called upon to pay amounts due, which may not occur for many years, in which case we may have no legal ability to recover what is due to us under our agreement with such reinsurer. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success.
Under the Proportional Reinsurance Contracts, which span all of our products and geographies, we transfer, or “cede,” a specified percentage of our premiums to our reinsurers. In exchange, these reinsurers pay us a “ceding commission” on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations. We have also opted to manage the remaining portion of our business with alternative forms of reinsurance through the Non-Proportional Reinsurance Contracts. Our business is exposed to the risk of severe weather conditions and other catastrophes which are inherently unpredictable. On July 1, 2024, we entered into a one year property catastrophe excess of loss treaty. If we are unable to renegotiate, at the same or more favorable terms, the Proportional Reinsurance Contracts or the Non-Proportional Reinsurance Contracts when each expires, such changes could have an adverse impact on our business model.
The unavailability of acceptable reinsurance cover would have an adverse impact on our business model, which depends on reinsurance companies to absorb any unfavorable variance from the level of losses anticipated at underwriting. If we are unable to obtain adequate reinsurance at reasonable rates, we would have to increase our risk exposure or reduce the level of our underwriting commitments, each of which could have a material adverse effect upon our business volume and profitability. Alternatively, we could elect to pay higher than reasonable rates for reinsurance coverage, which could have a material adverse effect upon our profitability until policy premium rates could be raised, in most cases subject to approval by state regulators, to offset this additional cost. Moreover, if adequate reinsurance cannot be obtained or maintained at reasonable rates, we may be unable to make contributions to the nonprofit organizations selected by our customers as part of our Giveback, which could erode customer trust, damage our brand, and have a material adverse effect on our financial condition and results of operations.
We must have sufficient capital to comply with insurance regulatory requirements and maintain authority to conduct our business. The National Association of Insurance Commissioners ("NAIC") has developed a system to test the adequacy of statutory capital of U.S.-based insurers, known as risk-based capital that all states have adopted. This system establishes the minimum amount of capital necessary for an insurance company to support its overall business operations. It identifies insurers, including property-casualty insurers, that may be inadequately capitalized by looking at certain inherent risks of each insurer's assets and liabilities and its mix of net written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Moreover, as a new entrant to the insurance industry, we may face additional capital requirements as compared to those of our larger and more established competitors. Failure to maintain adequate risk-based capital at the required levels could adversely affect the ability of our insurance subsidiaries to maintain regulatory authority to conduct its business. See "Regulation — Risk-Based Capital."
Some parts of our business depend on our relationships and contractual arrangements with third parties. If our third parties terminate business arrangements with us, or renew contracts on terms less favorable to us, we may fail to meet our business objectives and targets, and our cash flows, results of operations and financial condition could be adversely affected. For example, our life insurance product is offered through an arrangement with a life insurance provider. In these relationships, we rely on the third-party’s internal controls, to manage the product. Our monitoring efforts of the third party provider’sproviders and other service providers may not be adequate, or our providers could exceed their authorities or otherwise breach obligations owed to us, which could result in operational disruption, reputational damage and regulatory intervention and otherwise have a material adverse effect on our results of operation and financial condition. Furthermore, these third parties are subject to many of the same risks that we face, including those related to cybersecurity and fraudulent claims. These parties also experience intense competition in the segments of the insurance industry in which they operate. They may be acquired or form alliances with our competitors thereby reducing or eliminating their business with us. If we are unsuccessful in our ability to maintain successful relationships with these third-party service providers and implement our arrangements with them for any of these reasons, our business may be adversely affected.
If we are unable to expand our product offerings, or expand intopenetrate new markets, our prospects for future growth may be adverselylimited; affected.conversely, effectively managing any such growth may strain our resources.
Our ability to increase revenue depends on our capacity to successfully launch new product offerings and expand into new geographic markets. Since 2020, we have diversified our portfolio by launching pet, life, and car insurance to complement our core renters and homeowners products, and in 2024, we expanded our offerings in the UK and France to include buildings insurance. However, entering these complex markets requires substantial investments of time and capital to gain a deep understanding of unique business challenges and customer needs; we may not be successful in these efforts. Furthermore, insurance regulations may limit our ability to introduce new products or restrict the states and countries in which we operate and regulatory approvals may take months to be obtained or may be rejected entirely.
Even if we successfully expand, managing this growth effectively presents significant operational risks. Our revenue grew from $429.8 million for the year ended December 31, 2023 to $526.5 million for the year ended December 31, 2024 and $737.9 million for the year ended December 31, 2025, placing substantial demands on our management, employees, and financial resources. As we add staff and enhance our internal controls, our organizational structure will become increasingly complex. This expansion requires significant capital expenditures and the allocation of management resources to ensure that our corporate culture of innovation and the quality of our customer experience are not undermined. If we cannot maintain the efficiency of our insurance-buying experience as we scale, our brand could be harmed, and our business, results of operations, and financial condition could be materially and adversely affected.
Our ability to attract and retain customers and therefore increase our revenue depends on our ability to successfully expand our product offerings into new markets. In 2020, we launched pet insurance and in 2021 we launched our life and car insurance products to add to our renters and homeowners insurance offerings, and in 2024, we expanded our offerings in the UK and France to include Buildings insurance. Our success in the renters, homeowners, pet, life and car insurance markets depend on our deep understanding of each market and associated business challenges faced by participants in 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. Additionally, any new insurance products could take months to be approved by regulatory authorities, or may not be approved at all. If our products are not competitive in current markets or we do not penetrate new markets successfully, our revenue may grow at a slower rate than we anticipate and our business, results of operations and financial condition could be materially and adversely affected. In addition, our decision to expand our insurance product offerings beyond the renters, homeowners, pet, life and car insurance market would subject us to additional regulatory requirements specific to such insurance products, which, in turn, could require us to incur additional costs or devote additional resources to compliance.
We utilize the data gathered from the insurance application process to determine whether or not to write a particular policy and, if so, how to price that particular policy. Similarly, we use proprietary artificial intelligence algorithms to process many of our claims. The data that we gather through our interactions with our customers is evaluated and curated by proprietary artificial intelligence algorithms. The continuous development, maintenance and operation of our deep-learning backend data analytics engine is expensive and complex, and may involve unforeseen difficulties including material performance problems, undetected defects or errors, for example, with new capabilities incorporating artificial intelligence. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our proprietary algorithms from operating properly. If our data analytics do not function reliably, we may incorrectly price insurance products for our customers or incorrectly pay or deny claims made by our customers. Either of these situations could result in customer dissatisfaction with us, which could cause customers to cancel their insurance policies with us, prevent prospective customers from obtaining new insurance policies, or cause us to underprice policies or overpay claims. Such situations may also result in fines and monetary penalties as well as regulatory orders requiring remedial, injunctive, or other corrective action.
Existing and 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.
State and federal lawmakers, and insurance regulators are focusing upon the use of AI broadly, including concerns about transparency, deception, and fairness in particular. Changes in laws or regulations, or changes in the interpretation of laws or regulations by a regulatory authority, specific to the use of AI, may decrease our revenues and earnings and may require us to change the manner in which we conduct some aspects of our business. In addition, our business and operations are subject to various U.S. federal, state, and local consumer protection laws, including laws which place restrictions on the use of automated and non-automated tools and technologies to communicate with wireless telephone subscribers or consumers generally.
For example, in the United States, the CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future commercial emails from the sender. In addition, the Telephone Consumer Protection Act (TCPA) places restrictions on making outbound calls, faxes, and SMS text messages to consumers using certain types of automated or prerecorded technology or that involve marketing. Among other restrictions under the TCPA, with respect to phone calls and text messages, prior express consent, and in the case of certain marketing messages, prior express written consent, of consumers may be required before sending certain outbound calls or text messages. 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.
A California law, effective as of July 2019, makes it unlawful for any person to use a bot to communicate with a person in California online with the intent to mislead the other person about its artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase of goods or services in a commercial transaction. Although we have taken steps to mitigate our liability for violations of this and other laws restricting the use of electronic communication tools, no assurance can be given that we will not be exposed to civil litigation or regulatory enforcement. 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.
Management's Discussion & Analysis (MD&A)
Removed heading “Reinsurance assets”
Removed heading “Intangible Assets and Goodwill”
Largest changes
“Changing U.S. and global conditions may impact our business. Evolving U.S. trade policy, including tariffs imposed on imported goods in 2025, could affect our claims costs. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act ("IEEPA") to impose tariffs was not authorized by Congress, invalidating a significant portion of tariffs that had been in effect since April 2025. While the ruling struck down the IEEPA-based tariffs, it does not prevent the administration from imposing tariffs using other legal authorities. …”see in full comparison
“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. These intangible assets were acquired as part of the Metromile Acquisition except for trademark associated with the Company’s name, which was acquired in 2019. …”see in full comparison
“General and administrative expense decreased $4.8 million, or 4%, to $124.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. During the third quarter of 2023, we recognized nonrecurring items which include an asset impairment charge on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile. Bad debt expense increased by $2.9 million, or 36%, as compared to the year ended December 31, 2024.”see in full comparison
“(2) Includes asset impairment charge of $3.7 million related to the San Francisco office sublease (Note 22) and $3.0 million accrual for a potential liability claim, both related to Metromile for the year ended December 31, 2023.”see in full comparison
Full comparison: every changed paragraph (63)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, the accompanying notes and other information included elsewhere in this Annual Report. This discussion and analysis below includes forward-looking statements that are subject to risks, uncertainties and other factors described in the “Risk Factors” section that could cause actual results to differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. A discussion of the year ended December 31, 20232024 compared to the year ended December 31, 20222023 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, 20232024 filed with the SEC on February 28,26, 20242025 (the “20232024 Annual Report’Report”).
In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. To lessen the volatility inherent in an industry directly impacted by the weather, we utilize several forms of reinsurance, with the goal of dampening the impact on our gross margin. The result is that excess claims are generally offloaded to reinsurers, while excess premiums can be donated to nonprofits selected by our customers as part of our annual "Giveback". These two ballasts, reinsurance and Giveback, reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers. See “Business - Our Business Model” and “Business - Our Product Offerings - Giveback Feature.”
On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC"). Underunder thewhich Agreement,GC agreed to provide up to $150 million of financing will be provided for our sales and marketing growth efforts.efforts The Agreement has a commitment period of 18 months which expires onthrough December 31, 2024 (“Original Commitment End Date”).2024. Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC. During each growth period, we will repay each Investment Amount including a 16% rate of return based upon an agreed schedule. Once fully repaid, we will retain all future reference income related to each respective Investment Amount.
The Agreement has been amended and restated on several occasions to extend the commitment period and increase the financing agreement. On January 8, 2024, wethe enteredAgreement intowas an Amendedamended and Restatedrestated Customer Investment Agreement (“Amended Agreement”) where GC willto provide up to an additional $140 million of financing for our sales and marketing growth efforts beginning from the Original Commitment End Date through December 31, 2025. This was further amended and restated in April 2024 and June 2024 to clarify certain provisions. On February 3, 2025, the Agreement was further amended under which GC willto provide up to an additional $200 million of financing from January 1, 2026 tothrough December 31, 2026 for our sales and marketing growth effortsefforts. (collectively,In addition, the Agreement was amended in April 2024, June 2024 and December 2025 to clarify certain provisions with theno Amendedchanges to material terms. The Agreement, as amended and restated (the “Amended and Restated Agreement”). The Amended and Restated Agreement contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.
WeAs of December 31, 2025, we had $83.4 million and $14.9$158.1 million of outstanding borrowings under the Amended and Restated Agreement as of December 31, 2024 and December 31, 2023, respectively.Agreement. We incurred interest expense of $6.2 million and $0.4$17.3 million for the yearsyear ended December 31, 2024 and December 31, 2023, respectively, and such interest is included in “General and administrative expense” in the consolidated statements of operations and comprehensive income.2025.
Changing U.S. and global conditions may impact our business. Evolving U.S. trade policy, including tariffs imposed on imported goods in 2025, could affect our claims costs. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act ("IEEPA") to impose tariffs was not authorized by Congress, invalidating a significant portion of tariffs that had been in effect since April 2025. While the ruling struck down the IEEPA-based tariffs, it does not prevent the administration from imposing tariffs using other legal authorities. Following the ruling, the administration invoked alternative statutory authorities imposing a global tariff, and the administration has indicated its intention to continue to pursue alternative statutory mechanisms to reinstate or impose new tariffs. Tariffs on building materials may increase home repair costs, tariffs on automotive parts may increase vehicle repair and replacement costs, and tariffs on consumer goods may increase the cost of replacing covered personal property. To the extent tariff-driven cost increases are sustained, we may seek premium rate adjustments, subject to regulatory approval in applicable states; however, there may be a lag between when we experience increased claims costs and when we are able to implement corresponding rate increases, which could negatively impact our loss ratios in the interim. More broadly, inflation, whether driven by tariffs, supply chain disruptions, labor market conditions, or other factors, if any, has impacted and could continue to our claims costs, product pricing and investment yield, among other impacts. Capital market volatility may also affect our investment portfolio and access to capital. The actual effects of these macroeconomic factors on our results remains to be unknown and cannot be estimated with precision.
General economic inflation has increased and there is a risk of inflation remaining elevated for an extended period. We anticipate the effects of inflation impacting our investment portfolio, pricing of our products, and in estimating reserves for unpaid claims and claim expenses. The actual effects of the current and potential future increase in inflation on our results remains to be unknown and cannot be estimated with precision.
We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability and conflict in Israel and the surrounding region. This evolving conflict has increased global economic and political uncertainty. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. We will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations. These and other uncertainties could result in changes to our current expectations. For additional information, see “Risk Factors - Risks Relating to our Business - We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.”
We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transferred,transfer, or “ceded,cede,” a specified percentage of the premium to reinsurers ("Proportional Reinsurance Contracts").reinsurers. We also opted to manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts ("Non-Proportional Reinsurance Contracts").contracts.
Our proportional reinsurance contracts provides 55% protection on covered risks. We agreed to the terms of our reinsurance program effective July 1, 20232024 through June 30, 20242025 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, LemonadeLIC, Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE,SE ("Hannover"), MAPFRE Re,Re Compania De Reaseguros S.A. ("MAPFRE"), and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," aapproximately share55% of premium to the Reinsurers. In exchange, these Reinsurers pay us a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $5,000,000$10,000,000 per occurrence for non-hurricane catastrophe losses. The overall share of proportional reinsurance under the Reinsurance Program is approximately 55% of premium. The Per Risk Cap across the contracts is $750,000. Additionally, thethese contracts are subject to loss ratio caps and variable ceding commission levels,commission, which align our interests with those of our Reinsurers,Reinsurers and is settled primarily on a funds withheld basis. We renewed the Reinsurance Program with Hannover and MAPFRE effective July 1, 20242025 and will expire on June 30, 2025,2026, with similara reduced effective cession rate of 20% and with other terms similar to the contracts that expired on June 30, 2024, except for the limit per occurrence for non-hurricane catastrophe losses which increased to $10,000,000.2025.
MIC entered into a Quota Share reinsurance agreement effective January 1, 2022 and expired on June 30, 2023, and was not renewed. Under the terms of the agreement, the Company ceded 30% of premiums and losses to reinsurers.
LIC and LINVMIC entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract"), andwhich LIC entered into an Automatic Facultative Property Per Risk Excess of Loss Reinsurance Contract with Arch Re (the "Automatic Facultative PPR Contract"), eachwas effective from July 1, 20232024 untiland expired on June 30, 2024.2025. Under the PPR Contract, claims in excess of $750,000 arewere 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewed at similar terms effective July 1, 20242025 throughand Junewill 30, 2025. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 are 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, expiredexpire on June 30, 2024, and was not renewed.2026.
LIC entered into an Automatic Facultative PPR Contract with Arch Reinsurance, which was effective July 1, 2023 and expired on June 30, 2024. The Automatic Facultative PPR Contract, in which claims in excess of $3,000,000 were 100% ceded with a potential recovery of at least $10,000,000, subject to certain limitations, which expired on June 30, 2024, and was not renewed.
We also entered into an Excess of Loss Reinsurance Contract (the "XOL reinsurance contract") through a captive in Bermuda in which we have a variable interest,interest. This XOL reinsurance contract primarily to covercovers catastrophe risk on property and car business underwritten by LIC and MIC over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate, primarily on property and car business underwritten by LIC.aggregate. This XOL reinsurance contract became effective July 1, 2023 and expired on June 30, 2024. We have renewed the XOL reinsurance contract effective July 1, 2024 and will expireexpired on June 30, 2025, and was renewed at similar terms effective July 1, 2025 and isexpiring expandedon toJune include30, risks written by MIC.2026.
We also entered into a reinsurance program to protect against catastrophe risk in the U.S. that exceed $80,000,000 in losses effective July 1, 2022 and expired on June 30, 2023, and was not renewed We are also exposed to some risks fromon property, auto and pet insurance underwritten by LIC and MIC ceded through the Quota Share Reinsurance ContractContracts (the “"QS reinsurance contract”contracts") which is retained in aan offshore captive subsidiary, Lemonade Re SPC in the Cayman Islands. ThisThe MIC QS reinsurance contract which became effective July 1, 2023 was terminated and shallthe parties agreed to a new QS reinsurance contract effective July 1, 2025 on the same terms except for the increase in cession rate to 35% and ceding commission rate effective July 1, 2025. The new MIC QS reinsurance contract will remain in forceeffective for an indefinite period until terminated by either party. The LIC QS reinsurance contract became effective on July 1, 2025 and will expire on June 30, 2026.
Gross written premium is the amount received, or to be received, for insurance policies written by us during a specific period of time without reduction for premiums ceded to reinsurers. Gross written premium includes direct and assumed premium. We began assuming premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas. We also include gross written premium from the sale of pay-per-mile car insurance policies within the United States following the Metromile Acquisition in July 2022. The volume of our gross written premium in any given period is generally influenced by new business submissions, binding of new business submissions into policies, renewals of existing policies, and average size and premium rate of bound policies.
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,NYSE, additional corporate, director and officer insurance expenses, greater investor relations expenses and increased legal, audit and consulting fees.
Gross earned premium is the earned portion of our gross written premium. Gross earned premium includes direct and assumed premium. We alsohave began assumingassumed premium related to car insurance policies written in Texas in December 2022, in connection with our fronting arrangement with a third party carrier in Texas.
We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding the impact of income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromileacquisition Acquisition,of Metromile, and other one time and non-cash adjustments and other transactions that we consider to be unique in nature. See “- Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted EBITDA in accordance with GAAP.
Net earned premium increased by $55.4$165.7 million, or 18%,45%, to $370.6$536.3 million for the year ended December 31, 20242025 compared to the year ended December 31, 20232024 primarily due to the earning of increased gross written premium and impact of our new reinsurance program to ceded written premium under our Proportional Reinsurance Contracts as discussed abovein undermore detail in the “Reinsurance.Reinsurance” section above.
Gross written premium increased $190.6$242.3 million, or 26%, to $929.0$1,171.3 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The increase was primarily due to a 20%23% 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. In addition, we saw a 5%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. Assumed premium related to car insurance policies written in Texas fromthrough our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.
Ceded written premium increased $124.8 million, or 32%, to $513.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to growth in business across all products and the impact of our reinsurance arrangements. Under the terms of our proportional reinsurance program, we cede approximately 55% of premium and are subject to loss ratio caps and variable commission. Other non-proportional reinsurance contracts were renewed with terms similar to expired contracts. See "Reinsurance" above for further information.
NetCeded written premium increaseddecreased $65.8$106.1 million, or 19%,21%, to $415.1$407.8 million for the year ended December 31, 20242025 compared to the year ended December 31, 20232024, primarily due to factorsimpact notedof above.our reinsurance program effective July 1, 2025. See "Reinsurance" above for further information.
Net written premium increased $348.4 million, or 84%, to $763.5 million for the year ended December 31, 2025 compared to the year ended December 31, 2024 due to factors noted above.
The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium slightlydecreased increasedto 49% for the year ended December 31, 2025, as compared to 55% for the year ended December 31, 2024,2024 asconsistent comparedwith toour 53%participation forrate thein year ended December 31, 2023 primarily due to the impact of the renewed terms under the proportionalour reinsurance contracts,contracts as discussed in more detail in the “Reinsurance” section above.
Ceding commission income increased $21.3$31.6 million, or 31%35% to $91.1$122.7 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023,2024, consistent with the increase in ceded earned premium relatedand impact of our variable ceding commission arrangement with reinsurers driven by favorable loss ratio development in comparison to the proportional reinsurance contracts with third-party reinsurance companies during theprior year.
Net investment income increased $9.3$3.8 million, or 38%,11%, to $34.0$37.8 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The increase was primarily driven by the diversification of the Company’s investment portfolio with higher returns in comparison to prior year,returns, offset by investment expenses of $0.3$0.4 million. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Governmentgovernments and non-US Government.governments.
Commission and other income increased $10.7$10.3 million, or 53%33% to $30.8$41.1 million for the year ended December 31, 20242025 compared to year ended December 31, 2023,2024, primarily due to growth in premiums placed with third-party insurance companies, installment feesfees, interest income and sublease income from our New York and San Francisco office space.
Loss and LAE, net decreasedincreased $3.4$70.0 million, or 1%,25%, to $277.0$347.0 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. The decreaseincrease was indue line withto growth in premium, increased claim costs and the impact of an extra-contractual car claim liability related to pre-acquisition Metromile,premium offset by reserve releases due to better than expected loss reserve emergence on homeowners multi-peril and pet linesline of business.business and car. Net incurred losses included the impact of the California Wildfires in 2024January also2025 includedin $3.5the millionamount fromof Hurricane$19.6 Helene and $4.0 million from Hurricane Beryl.million.
Other insurance expense increased $17.6$16.9 million, or 30%,22%, to $76.8$93.7 million for the year ended December 31, 20242025 compared to the year ended December 31, 20232024 consistent with growth in premium. Professional fees,premium and otherthe California FAIR Plan assessment charge of $6.9 million related to the January 2025 California Wildfires. Credit card fees increased by $5.9$6.5 million, or 33%, as compared to the year ended December 31, 2023, primarily in support of growth and expansion initiatives. Credit card processing fees increased $4.3 million, or 33%,37%, as a result of the increase in customers and associated premium. Amortization of deferred acquisition costs, net of ceded commissions also increased by $3.8$2.8 million, or 38%20% as compared to the year ended December 31, 2023,2024, consistent with growth in business. Employee-relatedUnderwriting expense,data including stock based compensation,costs increased by $3.6$2.1 million, or 20%,18%, as compared to the year ended December 31, 2023,2024. drivenInsurance byregulatory anfees increasedecreased in$1.7 underwritingmillion, staffor 31% as compared to supportthe ouryear continuedended growth.December 31, 2024.
Sales and marketing expense increased $64.4$58.1 million, or 63%,35%, to $166.3$224.4 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. Expense related to brand and performance advertising increased by $66.3$65.8 million, or 120%,54%, as a result of increased spending on search advertising and other customer acquisition channels. SoftwareCompensation costsexpense increasedrelated byto $1.4the warrant shares decreased $11.7 million, or 82%180%, as compared to December 31, 2023.2024 Fees paid to contractors increased by $1.2 million, or 100% as compared to December 31, 2023. Employee-related expense, including stock-based compensation decreased by $3.7 million or 11%, as compareddue to the yeartermination endedof Decemberthe 31,Warrant 2023,Agreement duewith to reduced headcount.Chewy.
Technology development expense decreasedincreased $3.0$8.1 million, or 3%,9%, to $85.8$93.9 million for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024. Employee-related expense, including stock based compensation, net of capitalized costs for the development of internal-use software, decreasedincreased $1.6$9.5 million, or 2%,14%, as compared to the year ended December 31, 2023,2024, driven by decreaseincrease in headcount and related payroll and stock compensation expense for product, engineering, design and quality assurance personnel. HostingSoftware andexpense developmentincrease costs also decreased $1.0$2.0 million, or 11%,53%, as compared to the year ended December 31, 2023.2024. Hosting and development decreased $1.8 million, or 21%, as compared to the year ended December 31, 2024. Payments made to contractors decreased $1.8 million, or 44%. as compared to the year ended December 31, 2024.
General and administrative expense increased $15.3 million, or 12%, to $139.8 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. Interest expense related to borrowings from financing agreement with GC increased $11.1 million, or 179%, as compared to the year ended December 31, 2024. Bad debt expense increased by $11.1 million, or 101%, as compared to the year ended December 31, 2024. Employee related expense, including stock-based compensation, increased by $10.1 million, or 18%, as compared to the year ended December 31, 2024. Software increased by $1.0 million, or 17%, as compared to the year ended December 31, 2024. Depreciation and amortization expense decreased $4.8 million, or 24%, as compared to year ended December 31, 2024. During the second quarter of 2025, we recorded $11.7 million of tax refund received under the Employee Retention Credit program and $2.3 million of gain on early lease termination related to the Company’s office space in San Francisco.
General and administrative expense decreased $4.8 million, or 4%, to $124.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. During the third quarter of 2023, we recognized nonrecurring items which include an asset impairment charge on the right-of-use asset related to the San Francisco office in the amount of $3.7 million and an accrual for a potential liability claim of $3.0 million related to Metromile. Bad debt expense increased by $2.9 million, or 36%, as compared to the year ended December 31, 2024.
Income tax expense increased $6.3 million, or 371%, from $1.7 million income tax benefit for the year ended December 31, 2024 to $4.6 million income tax expense for the year ended December 31, 2025, primarily due to a change in uncertain tax positions related to the change in transfer pricing methodology in prior year.
Income tax (benefit) expense decreased $8.8 million, or 124%, from $7.1 million income tax expense for the year ended December 31, 2023 to $1.7 million income tax benefit for the year ended December 31, 2024, due to decrease in the liability for uncertain tax positions due to updated benchmarking analyses in the current year.
We define Adjusted EBITDA, a non-GAAP financial measure, as net loss excluding income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, change in fair value of warrants liability, amortization of fair value adjustment on insurance contract intangible liability relating to the Metromileacquisition Acquisition,of Metromile, and other one time and non-cash adjustments and other transactions that we would consider to be unique in nature. We exclude these items from Adjusted EBITDA because we do not consider them to be directly attributable to our underlying operating performance. We use Adjusted EBITDA as an internal performance measure in the management of our operations because we believe it gives our management and other customers of our financial information useful insight into our results of operations and our underlying business performance. Adjusted EBITDA should not be viewed as substitute for net loss calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently.
(1) Includes the impact of canceled unvested warrant shares for contract year 2 related to the termination of the Warrant Agreement with Chewy of $5.2 million for the year ended December 31, 2025 and compensation expense related to the warrant shares of $6.5 million for the year ended December 31, 2024, respectively (See Note 16 of the consolidated financial statements).
(2) Includes the California FAIR Plan assessment of $6.9 million related to the January 2025 California Wildfires for the year ended December 31, 2025 (See Note 20 of the consolidated financial statements).
(3) Includes $11.7 million of tax refund received under the Employee Retention Credit Program for the year ended December 31, 2025 (See Note 17 of the consolidated financial statements).
(14) Includes compensation$2.3 expensemillion of gain on early lease termination related to warrantthe sharesCompany's ofoffice $6.5space millionin andSan $2.5 millionFrancisco for the yearsyear ended December 31, 20242025 and(See 2023.Note 21 of the consolidated financial statements).
(5) Includes $1.0 million of gain from settlement of previously disclosed data security matter for the year ended December 31, 2025 (See Note 20 of the consolidated financial statements).
(2) Includes asset impairment charge of $3.7 million related to the San Francisco office sublease (Note 22) and $3.0 million accrual for a potential liability claim, both related to Metromile for the year ended December 31, 2023.
(36) Includes $3.9 million extra-contractual car claim liability related to pre-acquisition Metromile,Metromile (see Note 12 of the consolidated financial statements), and asset impairment charge of $0.3 million related to a portion of the New York office sublease (Note 22),sublease, net of gain on termination of lease for the year ended December 31, 2024.2024 (See Note 21 of the consolidated financial statements).
As of December 31, 2024,2025, we had $385.7$385.0 million in cash and cash equivalents, and $634.9$722.9 million in investments. From the date we commenced operations, we have generated negative cash flows from operations, and we have financed our operations primarily through private and public sales of equity securities and third-party financing. Our principal sources of funds are insurance premiums, investment income, reinsurance recoveries and proceeds from maturity and sale of invested assets. These funds are primarily used to pay claims, operating expenses and taxes. In June 2023, weWe entered into an Agreement with GC,GC in June 2023, where up to $150.0$150 million of financing willwould be provided for our sales and marketing growth efforts through December 31, 2024. The Agreement was amended and restated in January 2024, pursuant to which an additional financing of $140.0$140 million willwould be provided for our sales and marketing growth efforts through December 31, 2025, and was further amended and restated in April 2024 and June 2024 to clarify certain provisions and all material terms and conditions remain unchanged. On February 3, 2025, the Agreement was further amended under which GC will provide up to an additional $200 million of financing for our sales and marketing growth efforts from January 1, 2026 to December 31, 2026. As of December 31, 2024,2025, we had $83.4$158.1 million of outstanding borrowings under the Amended and Restated Agreement with GC. We believe our existing cash and cash equivalents as of December 31, 20242025 will be sufficient to meet our working capital, liquidity and capital expenditure needs over at least the next 12 months. This Agreement with GC was further amended and restated in December 2025 to clarify certain provisions with no changes to material terms. This belief is subject, to a certain extent, on general economic, financial, competitive, regulatory and other factors that are beyond our control.
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, 2024,2025, cash and investments held by these companies was $593.9 million, of which $271.4$773.0 million isand heldstatutory assurplus regulatoryamounted surplus.to $329.8 million.
Cash used in operating activities was $11.4 million for the year ended December 31, 2024, a decrease of $107.7 million from $119.1 million for the year ended December 31, 2023. This reflected the $34.7 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities. The decrease in cash used in operating activities from year ended December 31, 2024 compared to year ended December 31, 2023 was primarily due to claims payments and settlements with our reinsurance partners, offset by collection of premiums and recoveries from reinsurance partners.
Cash used in operating activities was $119.1$16.5 million for the year ended December 31, 2023,2025, aan decreaseincrease of $43.9$5.1 million from $163.0$11.4 million for the year ended December 31, 2022.2024. This reflected the $60.9$36.7 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities. The decreaseincrease in cash used in operating activities from theyear ended December 31, 2025 compared to year ended December 31, 2023 compared to December 31, 20222024 was primarily due to claims payments,payments and settlements with our reinsurance partners, and decreased spend related to growth and expansion, offset by collection of premiums and recoveries from reinsurance partners.
Cash used in operating activities was $11.4 million for the year ended December 31, 2024, a decrease of $107.7 million from $119.1 million for the year ended December 31, 2023. This reflected the $34.7 million decrease in our net loss, primarily offset by changes in our operating assets and liabilities. The decrease in cash used in operating activities from the year ended December 31, 2024 compared to December 31, 2023 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.
Cash providedused byin investing activities was $40.6$89.1 million for the year ended December 31, 20242025 primarily due to proceeds from sales and maturitiespurchases of U.S. and non-US government obligations, corporate debt securities, asset-backed securities, short term investments,investments offset by purchasesproceeds from sales and maturities of U.S. and non-US government obligations, corporate debt securities, asset-backed securities, short term investments. We also purchased property and equipment during the year.
Cash provided by investing activities was $88.7$40.6 million for the year ended December 31, 20232024 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. and non-US government obligations, corporate debt securities, asset-backed securities, short term investments. We also purchased property and equipment purchased during the year.
___________ (1)The reserve for losses and loss adjustment expenses represent management's estimate of the ultimate cost of settling losses. As more fully discussed in "— Critical Accounting Policies and Estimates — Unpaid loss and loss adjustment expenses", the estimation of the unpaid losses and loss adjustment expenses is based on various complex and subjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our consolidated financial statements. Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity. 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.
We also have the ability to access additional capital through pursuing third-party borrowings, sales of our equity, issuance of debt securities or entrance into new reinsurance arrangements. There can be no assurance that we will be able to raise additional capital on favorable terms or at all.
Our financial statements are prepared in accordance with GAAP in the United States. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to unpaid loss and loss adjustment expense, reinsurance assets, intangible assets, stock-based compensation, income tax assets and liabilities, including recoverability of our net deferred tax asset, income tax provisions and certain non-income tax accruals. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Reinsurance assets
The estimation of reinsurance recoverable involves a significant amount of judgment. Reinsurance assets include reinsurance recoverable on unpaid losses and loss adjustment expenses that are estimated as part of our loss reserving process and, consequently, are subject to similar judgments and uncertainties. This estimate requires significant judgment for which key considerations include:
•paid and unpaid amounts recoverable;
•whether the balance is in dispute or subject to legal collection;
•the financial condition of a reinsurer (i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory restriction); and
•the collectability of the reinsurance recovery for factors such as, amounts outstanding, length of collection periods, disputes, any collateral or letters of credit held and other relevant factors.
What changed in the latest 10-Q
Risk Factors
The Company's business, results of operations, and financial condition are subject to various risks described in the Company's Annual Report on Form 10-K. There have been no material changes to the risk factors identified in the Company's Annual Report on Form 10-K.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “New Business Financing Agreement”
New heading “Insurance Expense”
New heading “Sales and Marketing”
New heading “Technology Development”
New heading “General and Administrative”
New heading “Income Tax Expense”
New heading “Comparison of the Six Months Ended June 30, 2026 and 2025”
New heading “Net Earned Premium”
New heading “Ceding Commission Income”
New heading “Net Investment Income”
New heading “Commission and Other Income”
New heading “Loss and Loss Adjustment Expense, Net”
Largest changes
“Under the Agreement, subject to certain terms and conditions, at the start of each month, Hannover Re shall provide financing of up to 80% of our growth spend but not to exceed $20 million per reference cohort. We will repay each amount financed based on a specific percentage of premiums collected for assigned customer cohorts associated with the funded growth spend. This repayment amount will include the funding amount plus a rate of return in accordance with the Counterparty Cap Amount, defined as the sum of (a) the greater of (i) 0% or (ii) the three-year U.S. …”see in full comparison
Full comparison: every changed paragraph (73)
In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. To lessen the volatility inherent in an industry directly impacted by the weather, we utilize several forms of reinsurance, with the goal of dampening the impact on our gross margin. The result is that excess claims are generally offloaded to reinsurers, while excess premiums can be donated to nonprofits selected by our customers as part of our annual "Giveback". These two ballasts,ballasts reinsurancereinsurance, which reduces volatility, and Giveback, reducewhich volatility, while creatingcreates an aligned, trustful, and values-rich relationship with our customers.customers, are central to our model.
New Business Financing Agreement
On June 22, 2026, we entered into a New Business Financing Agreement (the “Financing Agreement”) with Hannover Re (Ireland) DAC ("Hannover Re") under which Hannover Re will provide up to $250 million of outstanding capital related to the financing of our sales and marketing growth efforts. This Financing Agreement is subject to a maximum outstanding capital amount of $150 million from January 1, 2027 through December 31, 2027, and up to $250 million at any time during the period from January 1, 2028 through December 31, 2028.
Under the Agreement, subject to certain terms and conditions, at the start of each month, Hannover Re shall provide financing of up to 80% of our growth spend but not to exceed $20 million per reference cohort. We will repay each amount financed based on a specific percentage of premiums collected for assigned customer cohorts associated with the funded growth spend. This repayment amount will include the funding amount plus a rate of return in accordance with the Counterparty Cap Amount, defined as the sum of (a) the greater of (i) 0% or (ii) the three-year U.S. Treasury Bill rate, plus (b) 5.8%. Once fully repaid, we will retain all future reference premium related to each assigned customer cohorts. The Agreement also includes certain financial covenants, cancellation and commitment termination provisions.
Beginning January 1, 2027, financing of our sales and marketing growth efforts shall solely be under the Financing Agreement with Hannover Re. Separate reference premium from customer cohorts shall be attributed to financing with Hannover Re. Reference premium from customer cohorts under the Amended and Restated Agreement will continue to be applied to financing with GC.
As of MarchJune 31,30, 2026, we had $179.6$206.4 million of outstanding borrowings under the Amended and Restated Agreement. We incurred interest expense of $6.2$13.2 million for the threesix months ended MarchJune 31,30, 2026.
Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.
We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transfer, or “cede,” a specified percentage of the premium to reinsurers. We also manage thea remaining percentageportion of the remaining business with alternative forms of reinsurance through non-proportional reinsurance contracts.
We agreed to the terms of our reinsurance program effective July 1, 20242025 through June 30, 20252026 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE ("Hannover"), and MAPFRE Re Compania De Reaseguros S.A. ("MAPFRE"), and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," approximately 55%20% of premium to the Reinsurers. In exchange, these Reinsurers pay us a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $10,000,000 per occurrence for non-hurricane catastrophe losses. The Per Risk Cap across the contracts is $750,000. Additionally, these contracts are subject to loss ratio caps and variable ceding commission, which align our interests with those of our Reinsurers and is settled primarily on a funds withheld basis. We renewed the Reinsurance Program with Hannover and MAPFRE effective July 1, 20252026 and will expire on June 30, 2026,2027, with a reduced effective cession rate of 20%18% of premiums to Reinsurers. The renewed terms include a $40,000,000 limit per loss occurrence and with$100,000,000 otherin aggregate, including catastrophe losses as defined in the agreement. Other terms are similar to the contracts that expired on June 30, 2025.2026.
LIC and MIC entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract") which was effective July 1, 20242025 and expired on June 30, 2025.2026. Under the PPR Contract, claims in excess of $750,000 were 100% ceded up to a maximum recovery of $2,250,000, subject to certain limitations. The PPR Contract was renewednot at similar terms effective July 1, 2025 and will expire on June 30, 2026.renewed.
We also entered into an Excess of Loss Reinsurance Contract (the "XOL reinsurance contract") through a captive in Bermuda in which we have a variable interest. This XOL reinsurance contract primarily covers catastrophe risk on property and car business underwritten by LIC and MIC over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate. This XOL reinsurance contract which was effective July 1, 20242025 expired on June 30, 2025,2026. The XOL reinsurance contract between the captive and LIC was renewed at similar terms effective July 1, 20252026 and expiringwill expire on June 30, 2026.2027, with a limit of liability of $50,000,000 for each loss occurrence and in aggregate. The XOL reinsurance contract between the captive and MIC was not renewed.
We are also exposed to some risks on property, car and pet insurance underwritten by LIC and MIC ceded through Quota Share Reinsurance Contracts (the "QS reinsurance contracts") which is retained in an offshore captive subsidiary, Lemonade Re SPC in the Cayman Islands. The MIC QS reinsurance contract which became effective July 1, 20232025 was terminated and the parties agreed to a new QS reinsurance contract effective July 1, 20252026 onwith the same terms except for thean increase in cession rate tofrom 35% andto ceding commission rate effective July 1, 2025.40%. The new MIC QS reinsurance contract will remain effective for an indefinite period until terminated by either party. The LIC QS reinsurance contract becamewas renewed effective on July 1, 20252026 and will expire onthrough June 30, 2026.2027 with an increase in cession rate from 15% to 25%.
Revenue
Expense
Comparison of the Three Months Ended MarchJune 31,30, 2026 and 2025
Net earned premium increased $108.3$139.5 million, or 104%,124%, to $212.6$252.0 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, primarily due to the earning of increased gross written premium and the impact of the reduced cession rate from the Company's reinsurance program as discussed in more detail in the "Reinsurance" section above.
Gross written premium increased $89.7$95.5 million, or 35%,34%, to $343.9$380.0 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was primarily due to a 23% 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. In addition, we also saw a 7%8% increase in premium 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. Assumed premium related to car insurance policies written in Texas through our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.
Ceded written premium decreased $68.9$75.2 million, or 50%,48%, to $69.9$81.9 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, primarily due to the impact of the reduced cession rate from the Company's reinsurance program.program, offset by growth in business across all products. See "Reinsurance" above for further information.
Net written premium increased $158.6$170.7 million, or 137%,134%, to $274.0$298.1 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.
The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium is at 31%24% and 55% for the three months ended MarchJune 31,30, 2026 and 2025, respectively, consistent with the change in our participation rate infrom our reinsurance contracts as discussed in more detail in the "Reinsurance" section above.
Ceding commission income decreased $3.3$10.0 million, or 12%,33%, to $23.6$20.4 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, consistent with the reduction in cession rate from the reinsurance program.
Net investment income increased $0.3 million, or 3% to $9.8$9.7 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was primarily driven by the diversification of the Company's investment portfolio with higher returns.returns offset by investment expenses. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government and Non-U.S. Government.
Commission and other income increased $1.5$0.5 million, or 14%,4%, to $12.0$12.3 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025, primarily due to installment fees and realizedcontinued gainsgrowth fromon salepremium ofplaced investments.with third-party insurance companies during the period.
Loss and LAE, net increased $47.9$76.5 million, or 56%,99%, to $133.3$154.0 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. The increase was due to growth in premium and impact of the reduced cession rate from the reinsurance program, offset by reserve releases due to better than expected loss reserve emergence on homeowners multi-peril line of business and car. Net incurred loss and loss adjustment expenses for the three months ended March 31, 2025 included the $16.8 million impact of the January 2025 California Wildfires.
Insurance Expense
Other insurance expense increased $5.3 million, or 25%, to $26.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Amortization of deferred acquisition costs, net of ceding commissions increased $3.3 million, or 85% as compared to the three months ended June 30, 2025 as a result of growth in business across all products. Credit card processing fees increased $2.0 million, or 35%, as compared to the three months ended June 30, 2025 as a result of the increase in customers and associated premium. Employee-related expense decreased $1.1 million or 18%, as compared to the three months ended June 30, 2025.
Sales and Marketing
Sales and marketing expense increased $18.1 million, or 30%, to $77.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to brand and performance advertising, which is the largest component of our sales and marketing expenses. Expense related to advertising, other customer acquisition channels and partner payments increased $14.7 million, or 30%, as compared to the three months ended June 30, 2025 consistent with growth in our business. Employee-related expense, including stock-based compensation, increased $1.5 million, or 21%, as compared to three months ended June 30, 2025.
Technology Development
Technology development expense increased $7.6 million, or 34%, to $30.0 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Employee-related expense, including stock-based compensation, and net of capitalized costs for the development of internal-use software, increased $5.7 million, or 31%, as compared to the three months ended June 30, 2025 primarily due to increase in headcount. Software expense increased $1.5 million, or 125%, as compared to the three months ended June 30, 2025.
General and Administrative
General and administrative expense increased $22.0 million, or 85%, to $47.8 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Employee-related expense, including stock-based compensation, increased $7.7 million, or 50%, as compared to three months ended June 30, 2025. Interest expense related to borrowings from financing agreement with GC increased $3.0 million, or 75%, as compared to three months ended June 30, 2025 due to increased borrowings during the period. Bad debt expense increased by $2.1 million or 49%, as compared to three months ended June 30, 2025. Depreciation and amortization decreased by $2.3 million, or 49% as compared to three months ended June 30, 2025. During the three months ended June 30, 2025, we also recorded $11.7 million of tax refund received under the ERC program.
Income Tax Expense
Income tax expense slightly increased by $0.3 million, or 23%, to $1.6 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily driven by increase in foreign income tax expense and unrecognized tax benefits.
Net Loss
Net loss slightly decreased by $0.5 million, or 1%, to $43.4 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 due to the factors described above.
Comparison of the Six Months Ended June 30, 2026 and 2025
Net Earned Premium
Net earned premium increased $247.8 million, or 114%, to $464.6 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to the earning of increased gross written premium and impact of the reduced cession rate from the Company's reinsurance program as discussed in more detail in the "Reinsurance" section above.
Gross written premium increased $185.2 million, or 34%, to $723.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily due to a 23% increase in 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 also saw a 8% increase in premium per customer year over year primarily 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. Assumed premium related to car insurance policies written in Texas from our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.
Ceded written premium decreased $144.1 million, or 49%, to $151.8 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to impact of the reduced cession rate from the Company's reinsurance program, offset by growth in business across all products. See "Reinsurance" above for further information.
Net written premium increased $329.3 million, or 136%, to $572.1 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 due to factors noted above.
The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium is at 27% and 55% for the six months ended June 30, 2026 and 2025, consistent with the change in our participation rate from our reinsurance contracts as discussed in more detail in the "Reinsurance" section above.
Ceding Commission Income
Ceding commission income decreased $13.3 million, or 23%, to $44.0 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, consistent with the reduction in cession rate from the reinsurance program.
Net Investment Income
Net investment income increased $0.6 million, or 3%, to $19.5 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily driven by the diversification of the Company's investment portfolio with higher returns offset by investment expenses. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. and non-U.S. Government.
Commission and Other Income
Commission and other income increased $2.0 million, or 9%, to $24.3 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, due to installment fees and continued growth on premium placed with third-party insurance companies during the period.
Loss and Loss Adjustment Expense, Net
Loss and LAE, net increased $124.4 million, or 76%, to $287.3 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was due to growth in premium offset by reserve releases due to better than expected loss reserve emergence on homeowners multi-peril line of business and car. Net incurred losses included the impact of the California Wildfires in January 2025 in the amount of $19.6 million for the six months ended June 30, 2025.
Other insurance expense increased $3.3 million, or 7%, to $50.8 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 consistent with growth in business. Amortization of deferred acquisition costs, net of ceding commissions increased $5.5 million, or 75%, as compared to the six months ended June 30, 2025. Credit card fees increased $4.0 million, or 37%, as compared to the six months ended June 30, 2025, as a result of the increase in customers and associated premium. Insurance regulatory fees increased $1.3 million, or 87%, as compared to the six months ended June 30, 2025. Employee-related expense decreased $2.3 million or 19%, as compared to the six months ended June 30, 2025. During the six months ended June 30, 2025, we recorded the California FAIR Plan assessment charge of $6.9 million related to the January 2025 California Wildfires.
Other insurance expense decreased $2.0 million, or 8%, to $24.1 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 primarily due to the California FAIR Plan assessment charge of $6.9 million related to the January 2025 California Wildfires. Employee-related expense decreased $1.1 million or 19% as compared to the three months ended March 31, 2025. Credit card processing fees increased $2.0 million, or 39%, as compared to the three months ended March 31, 2025 as a result of the increase in customers and associated premium. Amortization of deferred acquisition costs, net of ceding commissions increased $2.2 million, or 65% as compared to the three months ended March 31, 2025 as a result of growth in business across all products.
Sales and marketing expense increased $22.9$41.0 million, or 53%,40%, to $66.1$143.8 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025 primarily due to brand and performance advertising, which is the largest component of our sales and marketing expenses. Expense related to advertising, other customer acquisition channels and partner payments increased $16.2$30.9 million, or 43%, to $54.3 million35%, as compared to the threesix months ended MarchJune 31,30, 2025 consistent with growth in our business. Employee-related expense, including stock-based compensation, increased $2.4 million, or 17%, as compared to six months ended June 30, 2025. Compensation expense related to the warrant shares decreasedof $5.2 million, or 100%, as compared to the three months ended March 31, 2025million due to the termination of the Warrant Agreement with Chewy inwas priorrecorded period.during the six months ended June 30, 2025.
Technology development expense increased $4.9$12.5 million, or 22%,28%, to $26.9$56.9 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025. Employee-related expense, including stock-based compensation, and net of capitalized costs for the development of internal-use software, increased $4.2$9.9 million, or 24%,28% , for the six months ended June 30, 2026 as compared to the threesix months ended MarchJune 31,30, 2025. Software expense increased by $2.4 million, or 100%, for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.
General and administrative expense increased $6.3$28.3 million, or 18%,46%, to $42.2$90.0 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025. Employee-related expense, including stock-based compensation, increased $5.0by $12.6 million, or 33%,41%, for the six months ended June 30, 2026 as compared to threethe six months ended MarchJune 31,30, 2025. Interest expense related to borrowings from financing agreement with GC increased $2.9$5.9 million, or 88%,81%, as compared to threesix months ended MarchJune 31,30, 2025 due to increased borrowings during the period. Bad debt expense increased by$3.4 $1.4 millionmillion, or 31%,38% asfor the six months ended June 30, 2026 compared to threethe six months ended MarchJune 31,30, 2025. In addition, the Company received a recovery in the amount of $1.7 million related to a pre-acquisition Metromile extra-contractual claim liability which was previously recorded in the third quarter of 2024. Depreciation and amortization expense decreased by $1.8$4.1 million, or 40%45% asfor the six months ended June 30, 2026 compared to threesix months ended MarchJune 31,30, 2025. During the six months ended June 30, 2025, we also recorded $11.7 million of tax refund received under the ERC program.
Income tax expense increased $0.2$0.5 million, or 20%,22%, to $1.2$2.8 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025,2025 primarily driven by increase in nondeductible items in foreign jurisdictions.income tax expense and unrecognized tax benefits.
Net loss decreased $26.6$27.1 million, or 43%,25%, to $35.8$79.2 million for the threesix months ended MarchJune 31,30, 2026 compared to the threesix months ended MarchJune 31,30, 2025 due to the factors described above.
We define Adjusted EBITDA, a non-GAAP financial measure, as net loss excluding income tax expense, depreciation and amortization, stock-based compensation, interest expense, interest income and others, net investment income, amortization of fair value adjustment on insurance contract intangible liability relating to the acquisition of Metromile, and other one time and non-cash adjustments and other transactions that we would consider to be unique in nature. We exclude these items from Adjusted EBITDA because we do not consider them to be directly attributable to our underlying operating performance. We use Adjusted EBITDA as an internal performance measure in the management of our operations because we believe it gives our management and other customersusers of our financial information useful insight into our results of operations and our underlying business performance. Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with U.S. GAAP, and other companies may define Adjusted EBITDA differently.
(1) Includes the impact of canceled unvested warrant shares for contract year 2 related to the termination of the Warrant Agreement with Chewy of $5.2 million forwhich was recorded in the threefirst monthsquarter ended March 31,of 2025 (See Note 11 of the condensed consolidated financial statements).
LMND insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 9 filings (3 insiders, 7 trade dates, 102,275 shares, about $7.4M; 3 of these filings say the sales were made under a Rule 10b5-1 trading plan). Net open-market shares: -102,275 (purchases minus sales); net value about -$7.4M.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Peters John Sheldon |
Open-market sale |
2,249 | $54.45 | $122.5K |
| 2026-09-03 | Prosor Maya |
Open-market sale | 1,040 | $54.63 | $56.8K |
| 2026-09-03 | Bixby Timothy E |
Open-market sale | 1,893 | $54.63 | $103.4K |
| 2026-09-03 | Peters John Sheldon |
Open-market sale |
859 | $54.63 | $46.9K |
| 2026-09-02 | Wininger Shai |
Gift | 1,876 | — | — |
| 2026-08-13 | Peters John Sheldon |
Open-market sale | 11,000 | $52.55 | $578.0K |
| 2026-07-27 | Peters John Sheldon |
Grant/award | 10,000 | — | — |
| 2026-07-07 | Bixby Timothy E |
Open-market sale |
73,000 | $79.18 | $5.8M |
| 2026-07-06 | Peters John Sheldon |
Open-market sale | 3,444 | $79.00 | $272.1K |
| 2026-06-10 | Eisenberg Michael A |
Gift | 5,000 | — | — |
| 2026-06-04 | Peters John Sheldon |
Open-market sale |
3,608 | $52.94 | $191.0K |
| 2026-06-03 | Bixby Timothy E |
Open-market sale | 2,227 | $53.17 | $118.4K |
| 2026-06-03 | Peters John Sheldon |
Open-market sale |
1,735 | $53.17 | $92.2K |
| 2026-06-03 | Prosor Maya |
Open-market sale | 1,220 | $53.17 | $64.9K |
| 2026-06-03 | Seeley Geoff |
Grant/award | 2,848 | — | — |
| 2026-06-03 | Ratanchandani Prashant |
Grant/award | 2,848 | — | — |
| 2026-06-03 | Schwartz Debra |
Grant/award | 2,848 | — | — |
| 2026-06-03 | Haj-Yehia Samer |
Grant/award | 2,848 | — | — |
| 2026-06-03 | Angelidis-Smith Maria |
Grant/award | 2,848 | — | — |
Well-known investors holding LMND (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Baillie Gifford | 2026-06-30 | 2,751,019 | $179.0M | 0.16% | Reduced 1% |
| Two Sigma Investments | 2026-06-30 | 1,173,878 | $76.4M | 0.06% | Added 24% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 472,837 | $30.8M | 0.02% | Reduced 40% |
| D. E. Shaw & Co. | 2026-06-30 | 209,386 | $13.6M | 0.01% | Reduced 38% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 46,085 | $3.0M | 0.0% | Reduced 25% |
| Bridgewater Associates | 2026-06-30 | 42,648 | $2.7M | — | Sold out |
| Millennium Management (Israel Englander) | 2026-06-30 | 38,350 | $2.5M | 0.0% | Added 442% |
| Polen Capital Management | 2026-06-30 | 8,219 | $515.2K | — | Sold out |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 5,253 | $341.7K | 0.0% | Added 1% |