Q4 2022 Lemonade Inc Earnings Call
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Hello, and welcome to you to eliminate fourth quarter of 2022 earnings call. My name is Harry and I'll be your operator today.
If you'd like to ask a question during the Q&A. Please press star one on your telephone keypad.
And I, let you go listen maybe to begin.
Please go ahead.
Okay.
Good morning, and welcome to eliminate fourth quarter 2022 earnings call. My name is you're out with no Levy and I'm the VP communications at Lemonade.
Joining me today to discuss our results are Daniel Schreiber co CEO and co founder shy winger co CEO and co founder and Tim Bixby, Chief Financial Officer.
Our letter to shareholders covering the company's fourth quarter 2022 financial results is available on our Investor Relations website investor Dot Lemonade dotcom.
Before we begin I would like to remind you that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factors section of our Form 10-K filed with the SEC.
March one 2022, our Form 10-Q filed with the SEC on November 19, 2022, and our other filings with the SEC.
Any forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.
We will be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess their operating performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders and letter to shareholders also includes information about.
Our key operating metrics, including enforced premium premium per customer gross loss ratio and net loss ratio and a definition of each metric why each is useful to investors and how we use each to monitor and manage our business.
With that I'll turn the call over to Daniel for some opening remarks Daniel.
Good morning, and thanks for joining us to review <unk> results for Q4 and for the full year of 2022 as well as our outlook for 2023.
So I just wanted to pose challenges for businesses and industries worldwide in the form of soaring inflation geopolitical unrest rising interest rates and tumbling markets.
Hopefully eliminate had a good year notwithstanding the global turmoil.
It's not that we were unaffected by these convulsions by any means but we're grateful to have been able to respond in ways that blunted. Therefore.
When inflation put upward pressure on our loss ratio, we counted by upping, our renal findings eightfold.
While we have not seen off the threat of inflation we can.
Tentatively sorry, but it is in retreat.
The cost of capital Rose dramatically, we moderated our spending so is that a sizeable results should now last the distance.
Our results this quarter indicate we believe peak losses are now behind us and that we are progressing our plan along our path to profitability.
In parallel to fending off threats from without we've made progress on within launching new products, new markets, acquiring and integrating metro model and growing our business by two thirds year on year.
All told with Hudson <unk> precept to never let a good crisis go to waste, we ended 2022 materially stronger better and bigger than we entered it.
Zooming in on our fourth quarter, we're happy to report strong results with both top and bottom lines coming in better than expected.
Q4 was also an interesting case study of some of the challenges enterprises insurance companies face in particular seasonality and extreme weather.
On seasonality the last quarter of the is usually characterized by fewer renters and homeowners moving more holidays higher cost of acquisition enhance slower sales.
This year, probably driven by spending pullback by companies across industries, our marketing efficiencies were actually stronger than we'd anticipated, helping both our top and bottom lines a pleasant surprise.
And then there was an unpleasant surprise when winter storm Elliott inflicted Missouri millions of Americans over the Christmas holiday.
Such a storm so late in the year is also atypical and the fact that our loss ratio continued its decline notwithstanding Eliot is suggestive of a strong underlying downward trend.
In fact, we saw continued loss ratio improvements across our business very much in line with our predictions, we said in our November Investor Day.
Which brings us to the year ahead, and I'll hand over to <unk> to provide some color commentary on 2023, sorry.
Thanks Danielle.
In 2023, we'll focus our efforts on three key levers of our business.
Growing with our customers further improving our loss ratio and continuing our growth.
You'll read more about each in our shareholders letter, but I'd like to add some more color.
Starting with ADR, our annual dollar retention, which is helpful indicator for our growing with our customers strategy.
Today, we reported that our ADR climbed four percentage points to 86% an all time high.
Though in Illinois, where all our products, including Lemonade car have been available for a full year.
<unk> now stands at 95% hopefully a sign of things to come.
Having said that.
Our loss ratio and growth are all intertwined in obvious as well as non obvious ways.
For example, we have broad efforts to continue to drive down our loss ratio to our target range and in some cases. This includes parting ways with customers when we cannot adequately price the pockets of mispriced customers can always arise, but the inflationary environment of recent quarters have increased their size and prevalence.
Our machine learning models have become fairly proficient at identifying these mismatches and so we're slowing growth in these areas within the limitations imposed by regulation in the more badly priced areas, we want to make do with slowing or stopping growth will actually put growth into reverse we'll do that by non renewing.
<unk> unprofitable business.
Non renewals will put downward pressure on all three of our core metrics ADR loss ratio and growth download pressure on loss ratio is the point and is welcome downward pressure on ADR may appear to be unwelcome, though when the business were parting ways with is a drain on our profit this is actually.
Welcome to.
Gross profit retention, if you like will still be going up which brings us to the downward pressure on growth the time lag between filing new rates and these being approved implemented an earned in can be considerable.
Fortunately, we have reasonably good visibility into those dynamics and can target our growth accordingly.
But as long as sections of the market remained mispriced opportunities for profitable growth will remain somewhat constrained and our pace of growth will track to the pace of new and profitable rates coming online.
Which is a good segue to Tim who can provide more details on our guidance for 2023 as well as on our Q4 results Tim.
Great. Thanks, Chad I'll give a bit more color on our Q4 results as well as expectations for the first quarter and the full year, we will take your questions.
We had a strong quarter of growth driven by addition of new customers a portion of them related to the metro mile acquisition.
As well as a continued increase in premium per customer in.
Enforced premium for ISP grew 64% in Q4 as compared to the prior year to $625 million.
Absent the impact of the Metro mile acquisition organic annual growth was approximately 38%.
We believe that RFP is useful to understand the full scope of our top line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter.
Our customer count increased by 27% to $1 8 million as compared to the prior year.
And premium per customer increased 30% versus the prior year to $346.
This increase was driven primarily by the Metro model acquisition impact and to a lesser extent a combination of increased value of policies over time as well as the continuing mix shift towards higher value homeowner policies.
Annual dollar retention, our ADR increased by four percentage points to 86% a new high.
Measure ADR at an annual cohort basis and include the impact of changes in policy value additional policy purchases and churn.
Gross earned premium in Q4 increased 69% as compared to the prior year to 151 3 million roughly in line with the increase in enforce premium.
Revenue in Q4 increased 116% from the prior year to $88 4 million.
The growth in revenue was driven by the increase in gross earned premium as well as a reduction in the proportion of premium ceded to reinsurers to 58% in the quarter as compared to 72% in the prior year.
Our gross loss ratio was 89% for Q4 as compared to 96% in Q4, 2021, and 94% in Q3 of 2022.
The impact of cats in both Q3 and Q4 was notable with hurricane impact in Q3 and winter storm Elliot impacting the end of Q4.
Absent the impact of all cats in Q3 and Q4.
Underlying non cat loss ratio showed solid improvement of roughly nine percentage points from Q3 to Q4.
Operating expenses, excluding loss and loss adjustment expense increased 12% to <unk>.
$95 million in Q4 as compared to the prior year.
This increase was primarily driven by increased personnel expense stock based compensation expense and legal and professional fees in large part due to the metro mile acquisition, partially offset by lower sales and marketing expense.
Other insurance expense grew 68% in Q4 versus the prior year roughly in line with the growth of earned premium.
Sales and marketing expense actually declined by $10 million, primarily due to lower growth acquisition spending to acquire new customers.
Offset by certain one time software expense rationalization costs that we expect will reduce future recurring expenses.
Technology development expense increased 43%, primarily due to increased personnel and hosting expenses to support customer and product growth.
While G&A expense increased 35% as compared to the prior year, but notably decreased by $9 million as compared to the prior quarter.
We also continued to add new lemonade team members at all areas of the company on a much more modest pace than we've seen for several quarters in support of customer and premium growth and geographic expansion.
Global head count grew 22% versus the prior year to 1367 <unk>.
Primarily due to the impact of the closing of the Metro acquisition in July .
Absent the impact of the Metro mile acquisition year on year head count would have remained roughly flat.
Net loss was $63 $7 million in Q4, or a loss of 93 per share as compared to the $73 million net loss, we reported in the fourth quarter of 2021 or $1 14 per share.
Our adjusted EBITDA loss was $51 $7 million in Q4, nearly identical to the $51 $2 million net EBITDA loss in the fourth quarter of 2020.
Our total cash cash equivalents and investments ended the quarter at approximately $1 billion, reflecting a use of cash for operations and capital expenditures.
About $163 million since year end 2021.
Offset entirely.
By an increase of about $165 million acquired in conjunction with the metro mile acquisition.
With these goals and metrics in mind I'll outline our specific financial expectations for the first quarter and full year 2023, and the first quarter, we expect enforced premium at March 31.
$635 and $637 million.
Gross earned premium of between 148 and $150 million.
Revenue between 87% and $89 million and.
<unk> EBITDA loss of between $65 million to $63 million.
Stock based compensation expense of approximately $15 million capital expenditures of approximately $2 million.
And our share count weighted for additional shares issued in connection with the Metro model acquisition totaling approximately <unk> <unk>.
70 million shares.
For the full year 2023, and we expect to enforce premium at December 31 between $695 to $700 million.
Gross earned premium of between $632 $636 million revenue between 375, and $379 million and adjusted EBITDA loss between $245 $240 million stock based compensation expense of approximately $60 million capital expenditures of approximately.
<unk> $8 million and a share count for the full year totaling approximately 72 million shares.
And with that I would like to hand things over to shop.
Thanks, Tim we'll now turn to the took voted shareholders' questions submitted through the same platform.
The first question is coming from Darren who is asking about our thoughts on the increase in glass door negative reviews in relation to our customer support team.
Was there and we take all of our employee feedback very seriously and have put in place tools and procedures to make sure everyone, who is able to speak up and help us become better.
They won with instilled a culture of openness directness and Hungered for feedback in fact being directly is one of our core values.
Our managers are all trained to embrace failure as much as they celebrate success and their teams to provide them with direct feedback on what's working what's not and how theyre doing as managers.
Several years ago, we implemented an anonymous employee feedback system and since then collect extensive feedback from employees constantly and ask Tony when needed within our existing team and through the anonymous system, which we think is the most reliable we haven't seen any decreasing satisfaction in the last six months in fact.
During that time, we've seen an increase in engagement and NPS across our teams as well as by our customer service organization.
While we appreciate sites such as Glassdoor and recognize the replacing the job market. The failed to serve as a reliable operating data source for us and we prefer to be guided by the more dependable nuanced and benchmark datasets that are tools provider.
On the next question.
<unk> wanted to know what are the ways, we are reducing costs and overhead and how do we plan to reduce costs further and become as efficient as possible.
Hey paperback thanks for the question.
Efficiency is something we've been seriously monitoring since we started.
In fact, I wrote several posts about our vision of the autonomous organization and how we're using technology to lead the market in our efficiency.
We are big believers in the automation and this has been in the company's DNA and plans from the very beginning.
For example, our operating expenses in Q4 versus Q3 decreased by about 13% and four sales and marketing alone. This decrease was 24% efficiency is something we're laser focused on and I hope. These examples help show that.
More generally I am happy to say that much of the costlier Tech infrastructure building is behind us and due to that we slowed our head count growth significantly.
Here are a couple of data points to help demonstrate this.
The first is that our ISP per employee increased by 35% during 2022.
The second is that our expenses as a percent of our gross earned premium improved by 32 percentage points during the same period.
It's worth underlining that this progress was notwithstanding our acquisition of Metro miles, which added considerably to our expense load in the short term and while we're still in the process of integrating metro modest core systems in the fourth quarter, we discontinued dozens of high cost services, which we no longer require as a combined entity.
<unk>.
It's also worth noting that our expense ratio today is built for scale and we should be able to continue to grow very significantly without a matching increasing costs.
This is important because getting to our target expense ratio will require a combination of expense control denominator and growing our business the denominator.
The superpower of technology and automation as you know is most pronounced at scale and that will be true of eliminates efficiency too.
The third question is coming from <unk>.
And he's asking when does eliminate planning to offer a metro model auto to all states.
Thanks Anand.
I assume that by Metro and auto you mean pay per mile car insurance.
In terms of our rollout plans beyond reiterating our long term aspirations to offer all products to all customers.
Afraid, we don't pre announce specific rollouts.
Although I will say is that we are impatient to get these great products into the hands of as many of our customers as possible and as soon as practicable.
And the next question. We were asked how confident are we that our loss ratio will improve that customer churn will reduce.
And that we can cut operating expenses significantly in Hawaii.
On all points loss ratio retention and reducing expense load, we do see encouraging trend lines and reason for continued optimism.
This quarter's results reinforce this with loss ratio declining dollar retention climbing and greater efficiencies than ever before and I shared some stats on this.
In my answer to paper bag.
In short, though our confidence in continued progress comes from our technology and how fast its learning and impacting our kpis.
As our system has become more sophisticated and training datasets become more expensive, we become better at pricing and selecting risks, which translates into healthier loss ratios.
We become better at automating processes like customer support and claims which translates into healthier expense ratios and we get better at the lighting and cross selling to our customers and that translates into growing customer and dollar retention.
That's the short answer to get a full answer with examples statistics trend lines and projections.
Could you to watch the presentation from our November Investor Day, where we provided detailed explanations for what we're seeing.
And with that let me hand, the call over to the operator, so we can take some more questions from our friends on the street.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Our first question today is from the line of Jason <unk> of Oppenheimer.
And you thought it would be.
Now if you would like to proceed.
Thanks, two questions. The first kind of big picture in the second more specific so it appears that AI technology is going to be.
In time easily licensed from Microsoft, Google, probably Amazon to whenever companies want to use it.
And probably more competition easier then.
Would have been available.
How does how do you think that impacts <unk>.
Dominate frequently as well as the competition broadly so that's a big picture question and then just second Ken.
Can you talk about how the loss ratio in the quarter was impacted by business mix.
We said we were comparing it to last year's.
Loss ratio.
Okay.
Hey, Jason.
So I'll take the first the first question and then hand, it back over to Tim.
We are deeply gratified to see the real explosion of conferred wave AI.
Captured a lot of imagination it was.
Curious for me we opened as you may recall in November Investor day, with examples of generative AI and what it can do and it was really a week or two later that GPT K management.
It exploded into the.
<unk>.
Kind of common knowledge and people have been talking about little else for the last few months in the AI World.
No doubt these technologies are becoming incredibly powerful and far more pervasive than available. So I accept the premise of the question.
But in a way that.
As.
Important to understand I think and we tried to touch on that in the November presentations as well.
If you haven't built your company if you Havent architected in such a way that.
AI has access to deep and textured and precise information, it's really hard to see how it is going to be gleaned. The kind of insights that we have built a business of Poland.
So.
Data sets that have been built up over.
Over generations that are disparate set of not inclined who can be very very difficult for us.
For AI to really mine in a highly efficient way and broker base distribution systems.
And human interfaces of all kinds theyre going to make it harder again for them to get high precision training.
So we do feel like we have architected, our business from the ground up and from day. One have spoken that eliminate is being built for AI, it's very safe to say that today, but we have been saying that consistently since the day. We were founded which is why we believe that we'll be able to leverage these capabilities as they mature and the way that frankly is unmatched by any of the incumbents.
Tim Let me hand over to you to tackle the second part of Jason's question.
Sure.
Shifting gears to the loss ratio and the cat impact on some of the seasonality I think youre getting at Jason So.
In the fourth quarter.
We did see cat impact is we have.
Also in the third quarter, which tends to be the highest impact.
Two pretty significant storms and so one of the things we highlighted.
<unk>.
Letter that we put out in materials, we put out is that absent all the cat activity, we saw significant underlying improvement in the loss ratio sequentially.
Something on the order of nine points of improvement.
So while the seasonality is something that is.
Predictable, but consistent meaning.
Q3 tends to be higher but you don't always know what the impact is.
Absent that all of that impact about nine point improvement and then.
A similar result, as compared to the prior year.
In the fourth quarter. So if you strip out again all of the Cat <unk>.
Impact.
We would have seen something on the order of a seven point improvement, so really with or without just about any comparison showed the continuing underlying improving the loss ratio in Q4.
Thank you.
Alright. Our next question is from the line of Josh Shanker of Bank of America Merrill Lynch. Josh. Please go ahead now.
Yeah.
Tom.
Sorry about that yes Hello.
Seasonality impact if that continues to be the longterm goal and I think we started to see and will continue to see the impact of of a pretty dramatic increase in rate filings, which will we expect will continue to move us fairly rapidly toward that goal not just over five years, but over the coming quarters.
And in terms of the industry I'm I'm, a little more reticent to say what's appropriate for the other players I think we're pretty focused on on our path to profitability and our loss ratio and and I think with the rate filings, we had in place and coming online. We expect it will see good results and <unk>.
<unk> on it.
And one thing that I guess I'll, just a follow up.
That that you're already seeing those sort of numbers in the renters area, how should we expect longterm renters as a much better loss ratio than the rest of the product that's the case for the industry.
But what should we expect that lemonade actually thinks that renters should have a talk with the same margin.
Right.
Or is it will be like the rest of the industry, where renters are materially better.
Ah Ah.
Loss ratio business and everything else.
So maybe two ways to think about that so one yes. The underlying profitability is there and we've we've shown it we're experiencing it now.
But on the other hand, one of the.
Levers or options that we have is to deliver some of that value back to our customers in terms of pricing and so that's something we've done historically, where we don't automatically take every bit of benefit to increase our own profitability or renters product is quite attractively priced we don't compete so.
Wholly on price for that product, but because of our cost structure and because of our go to market strategy. It continues to be pretty attractively priced, but I would say that we have that that optionality to do that and.
That's one of the levers as our product mix changes that enables us to to generate a little more visibility. So for example, this coming year will probably lean a little more into growing the renters book than we have in the past not dramatically, but modestly because that's a little more profitable while we wait for some of the right.
Impacts to come online and some of the other products. So it continues to be one of our healthy levers that we can pull from time to time as we grow the business.
Maybe just just to add another symptoms on that.
What one would like to think about this as optimizing for gross profit dollars.
Have you take pricing loss ratio of course being a ratio is one that you can managed to so you could raise prices that would increase your loss ratio, but would also increase your cost of acquisition and retention and market share and come back to that you can lower prices, you'll have another administration, but you'll be able to grow.
Between customers talk to will be looking to really optimize for gross profit dollars, which was the multiple up to two so.
With each with a products, including with rented that would be the kind of logic of where we end up in terms of loss ratio.
Well. Thank you for the answers very complete I appreciate it.
[noise]. Thank you. The next question of the day is from the lineup Andrey Cocoa enough Credit Suisse. Andrew. Please go ahead now.
Hi, good morning.
Hi curious in the right. After you talked about some pressures on the pet services products as well as the home and car repairs in terms of glass cost inflation.
Given I just don't don't see a lot of companies with these pet services could could you give a little color on on what loss ratios, you're seeing in the pet services area and.
Just some color on the inflationary environment for that product.
Sure. So a couple of thoughts on inflation in general and then pet in specific specifically so generally you know this is something we've talked about for a few quarters all of our all of the other players have as well we've seen impacts on inflation across into.
Near book, it's more pronounced.
In home and to a somewhat lesser extent patent car and then lesser still in renters, but still across the.
The whole book in terms of the loss ratio impact, it's it's a little hard to parse out, but but based on our the way we've come at it we've seen car with the most dramatic loss ratio impact and part of that is the nature of the required business through metro mile, but something like on the order of <unk>.
10, 10, or 11 points of impact on car home and pet more in line with each other five or six points and then renters, maybe one or two points of of loss ratio impact now because of seasonality and other impacts you you can't completely isolate inflation, but generally that's how we think about it and in the pet market specifically labor costs.
Vet labor cost is a is a significant part of what's being covered and so that has faced upward pressure is have a number of other types of cost so.
Terms of the specifics, we did share a bit more detail in our investor day presentation in terms of loss ratios. So you can see I would point you to those materials, where you've seen Ah Ah Ah Ah continued improvement quarter over quarter of next fourth quarter loss ratio experience was was a bit better in terms of each of the.
Sub product loss ratios and we shared an investor day. So so good positive trends there and then you know from a macro standpoint, we see our ability and based on Ah filing pace to keep up or even better to to to match, where we think inflation is heading over to come here and and we're hopeful.
Some of that has been built into our guidance and and we've is always set our guidance in a way that we believe we can achieve it and if some of those filings come on his plan, we might even it might even have a more favorable impact.
I was very helpful and and then with respect to I was reading through the the letter.
Shareholder letter and you talked about a I G N.
And could you give an example of how a gym with with handle a claim.
What might be a typical claim for AIG EM.
Hi, Andrew let me take a run at that so <unk> begins pretty much all claimed processes that lemonade something in the order of 98% of our claims begin with a conversation with AI gym, so almost regardless of the nature of the incident your first port of call that lemonade.
B, the app and in the App, you'll be very quickly talking to this AI.
Now, they're all claims that AIG, Jim can handle from start to finish in fact, it's not far from half of our claims it's 40 something percent about claims.
<unk> ask you some questions so you're in the coffee shop, and your laptop went missing and he'll ask you to upload a video just explaining and kind of normal language what exactly happened.
If you have a receipt you might ask you for that you might ask you for a police report if you have that until I'll keep it if necessary.
And almost half the cases of claims 40, something you were thinking maybe around 45 per cent I forget the precise number.
There'll be no need for any human intervention at all.
In the remaining cases, he will do the triage and ask for the information, but something in the claim will be such that he is not authorized to close out the case.
And in that case, you will directed to a claims professional and AIG has access to all our claims professionals.
He knows what the area of expertise is at G knows what the work load is and he will send them a link where they can open up directly or dashboard with all of the claim laid back in front of them. The video of the receipts et cetera, et cetera, and any concerns at AIG and flag. So if there was any things that start a IGN from payment.
Claim that will also be laid bare in front of the trains professional and they will take it from there. So even in those 55 per cent odd claims that all handled partially by humans a lot of the heavy lifting has already done by agents. So he really of the stove or <unk> claims.
Restructure.
Super Thanks, a lot.
Thank you is a phone reminder, if you would like to ask a question today. Please press star one and your telephone keypad. Now next question is coming from the line of <unk> K B W. Tell me. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
The the first one can we drill down a little bit on the operating expenses. So so both sales and marketing Angie and a saw some solid declines sequentially. How should we think about the trajectory of those two expense lines going forward and I guess along that same lines. When you think about the marketing spend how much of that is.
The function of just waiting for right adequacy.
[noise], yeah. So a couple of comments and welcome to the analysts group <unk> for to have a new.
A new contributor on board and then one of the things that that he's been highlighting and that we wanted to make sure that we're highlighting as well as around the expenses is how they breakdown in and I'll cover that but just also important I think the highlight what we've been saying for quite some time as we've expected that Q3 last.
<unk> would be our peak last quarter and I think if you break down our expenses now and going forward and our expectations. That's something that continues to be the case Q4 came in quite nicely. It was one of those quarters, where things that so are expected came and is expected and things that were a little uncertain came in to the good.
And so Q for we ended up doing a little bit better as you saw her in our our own expectations and certainly compared to the market's expectations. So that peak loss expectation continues to be the case you know what it I think in in one of your notes that.
Its peak losses quarterly thing or an annual thing and I think it's probably worth clarifying for all our investors that our annual losses. We also expect to continue to decline now 2022 was a little bit of an anomaly year, where metro mile impact, which is an acquisition of closed as you know in July .
Hi, really bumped up our expense run right. In fact, if you annualize that from the beginning of the our our EBITDA and it looks more like 270 or 280 loss for the year and we came in in the in the two twenties. So from an even from an annual perspective are our aspiration and goals that will see last year's peak losses are guidance reflect some.
Services in that but that continues to be continues to be the case in terms of your specific questions on the expense lines Q4 is it really good proxy for the breakdown of the expense lines and.
And you'll see if you compare Q4 to the prior three quarters, a little bit of a break in terms of the the <unk> the absolute amount as well as the breakdown in the biggest shift is really in the sales and marketing line, where we've chosen to tamper our growth rate somewhat our top line guidance in terms of I F. P puts out something in the.
11 to 12 per cent growth range and so that's probably the biggest shift if you roll out the quarters I think the breakdown will look a lot like the fourth quarter in terms of ratio. So other insurance expand sales and marketing Tech development G&A. The four key lines that ratio I think will continue to be fairly soon.
Similar to what you'll you'll see today or are you saw yesterday in the queue for breakdown and then the last piece, it's probably worth hitting us.
Within the sales and marketing line that advertising or growth acquisition spend has for for quite some time, it's been the key component. The primary component usually running at a level of about 70% of that total sales and marketing line fairly consistently over time that has come down again, as we've tampered down the growth rate somewhat.
And so that right you'll see in queue for actually when we file our 10-K looks more like 55 per cent of the sales and marketing line and I would think of that I also as a reasonable ratio to use going forward. So a little bit of moderation Q4, and then those patterns continuing throughout.
2023.
That's great detail thing sent and then just my second question, what was sort of the impact of the the hard reinsurance market on your 2023 expectations and is there any way to quantify either the right online or changing she's seating commissions and then just remind.
How much are you guys are dependent on one one renewables versus men you renewals just kind of an overview on the reinsurance it'd be great [noise].
Hi, Tony I'm, Daniel here, So uhm, I mean reinsurance agreements come up for renewal midyear, we're coming off of a three year quota share agreement was actually too some elements. It will annual recurring submit with three years.
And those will come up for renewal images. So the end of June Uhm, we are in regular contact with all of our reinsurance partners and I think your characterization of spots on this as a hardwood insurance market.
Prices and general reinsurance have become <unk> a need for reinsurance has declined uhm other business has grown and diversified.
When we signed this agreement three years ago, we were among the line business with you in one country right now got five lines four double underwriting.
Oh of course full country. So.
That's kind of a diversification helps a great deal uhm. So we are looking at.
Uhm series of options in front of us given the cost of your insurance, but to be honest. The way. This industry operates it's very hard to do this too far in advance.
<unk> the reinsurance industry, rather tends to operate on a 60 will affect your day to renewal window. If you're lucky you can do stuff 90 days out, but we really too early in the year to know exactly what that would look like hopefully by this time next course will have greater clarity.
Under then maybe just one maybe just one note on on.
Specific impact on on the seating percentage, if you think about the the primary reinsurance structure, which is the quota share that seating proportion has shifted over the past two years. So a year ago. The seed rate was 70% at the July <unk>.
July renewal that moved to 55 per cent and so how that works running through the financial model is it doesn't happen, it's a gradual impact so.
You'll see the seed right shift in terms of flowing through the P&L from that 70 per cent level last July down towards the 55% level next July it's not a it's not a straight line, it's not a straight linear transition, but it's but relatively linear and that just to continue shift and then be on July again because.
As Daniel explained we've continued to model.
In the guidance no material change until we get a better view and clarity on where we think the renewal will appear.
Great. Thanks for reminding us those numbers down.
[laughter].
Thank you and we have no further questions registered at this time, so we will conclude the eliminate fourth quarter.
Earnings Cool. Thank you all for joining you may not disconnect your lines.
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