Q3 2023 Lemonade Inc Earnings Call
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Hello, everyone and welcome to the eliminate Q3 2023 earnings call. It will begin shortly have you locked you Register your question ready for the Q&A. Please press star followed by one on your telephone keypad.
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Hello, everyone and welcome to the eliminate Q3 2023 earnings call. My name is Charlie and I'll be coordinating the call. Today, you will have the opportunity to ask a question at the end of the presentation if you'd like to register your question. Please press star followed by one on your telephone keypad.
I'll now hand over to our host yeah, Wisner Levy VP.
Of communications eliminates begin.
Please go ahead.
Good morning, and welcome to eliminate third quarter 2023 earnings call. My name is al listener Levy and I'm. The VP communications at Lemonade joining me today to discuss our results are Daniel Schreiber co CEO and cofounder shy Weninger co CEO and co founder and Tim Bixby, our chief.
Financial Officer.
Our letter to shareholders covering the Companys third quarter 2023 financial results is available on our Investor Relations website, investor Dot Lemonade Dot com.
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 on March three 2023, our Form 10-Q filed with the SEC on August 4th 2023, 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 our operating performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders our.
Our letter to shareholders also includes information about our key performance indicators, including customers enforced premium premium per customer annual dollar retention gross earned premium gross loss ratio gross loss ratio ex cat and that's net loss ratio and a definition of each metric why each is useful to investors and how are you.
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 thank you for joining us to discuss eliminates Q3 results and our updated outlook for the full year.
We were very pleased by this quarter's results top line bottom line and the intervening line.
Starting at the top we saw continued growth with enforced premium growing 18% year on year boosted by strong marketing efficiencies and rising prices at.
At the same time, we also saw gross loss ratio improved 11 percentage points, both quarter on quarter and year on year to 83% continuing the trend we had seen in recent quarters, and which was so rudely interrupted in Q2.
Operating expense similarly declined by 11% since our third quarter last year.
As a result of all this our gross profit increased 170% year on year and adjusted EBITDA loss contracted by 39%.
We are as I say pleased with the results this quarter.
In other news this month, we expect to pay off the 2 million customer Mark.
The comparison of our business today to a business when we hit the 1 million customer Mark is instructive.
Today with double the number of customers, we have three and a half times as much gross earned premium is a premium per customer jumped by 70% in the intervening years.
Same time net loss as a percentage of gross earned premium roughly halved.
Taken together these improvements show strong progression of the business in recent years in this sketch it robust path to profitability.
This month, we <unk> anniversary of our first Investor day.
The lessor youll find significant updates to the projections and models, we said a year ago and I do encourage you to peruse at one notable highlight we expect it to become cash flow positive by end of year 2025.
To reach that point with hundreds of millions of unencumbered $2 in the bank, we expect it to become adjusted EBITDA positive by year end 2026.
Towards that end, we anticipate accelerating our pace of growth considerably in 2024, we previously communicated the reasons for slowdown this year and that inflation subsides and rates come online, we can see a path clear to reengage in our clusters in 2024.
In our Investor day, we spoke of 25% compounded annual growth rate as a target growth rate and we anticipate our growth rates in 2024 will be at or around this target.
Continuous and strong growth are key to fully harnessing the benefits of automation and nadeem. The combined impact of both automation and growth are key to our profitability.
To expand on our generative AI efforts and their contribution to automation, let me hand over to Shai Shai.
Thank you Danielle.
Before I get to some of the exciting work we've been doing regenerative AI I wanted to say a few words about our Israel based team members.
The horrors of the attacks of October 7th are hard to overstate.
In the days since have been challenging for many of our team members and especially so for Israel based team.
I want to acknowledge the extraordinary resilience and strength of our Israeli team and send them our collective appreciation and wishes.
Also wanted to assure investors that throughout this period of unprecedented heartbreaking upheaval in Israel Lemonade has continued to operate without interruption.
<unk> that the overwhelming majority of our team is based outside of Israel in the U S and Europe.
The resilience of our distributor team and the level of automation, we already have in our operations our productivity remained high and our business continued to operate.
Speaking of automation.
I'd like to provide some more color on the advances we've made implementing generative AI into business processes across the organization.
It's been an exciting few months working on multiple initiatives with our dedicated generative AI squads and preliminary impact is already reflected in our shrinking expense ratio.
For example, we've recently introduced large language models into our customer support process, where a regenerative AI powered automation handles customer E mails from start to finish.
This initiative is just a few weeks old and is already handling more than 7% of our incoming customer service emails.
This of course is on top of requests handled by a mile in our mobile and web apps and AMIA are now handles a third of all customer interactions on these platforms.
This is just the tip of the iceberg there are dozens more initiatives in progress and we believe the percentage of generative AI handle processes, such as answering customer ticket will increase substantially.
We're focusing our efforts on automating manual intensive work such as underwriting property inspections.
Leveraging the latest generative AI image analysis technology.
Now able to substitute human involvement in many underwriting processes with systems powered by generative AI.
For example, we recently introduced a self inspection feature that guidance customers through a house tour and automatically analyzes captured images to reduce both risk and cost.
Using the new generative AI vision capabilities, we're able to determine construction quality materials finishes and levels of this repair we.
We can even with labels on water heaters and other equipment to determine their age and level of risk.
These are just some examples and we're working on dozens more with new capabilities going live every few days.
What allows us to move so fast and incorporating these new technologies is the fact that our system was built from start to finish by eliminate we.
We have zero reliance on third party providers and in the last few years have built a modular and expensive platform that can seamlessly and easily integrate with new technologies like generative AI.
As Daniel mentioned, our shareholder letter this quarter as well as a close rate.
One statistic from delivered its worth highlighting.
In just two years, our gross earned premium more than doubled while our operating expenses only grew by 19%.
This speaks volumes about our growing efficiency and bodes well for the coming years.
As we expand the scope and depth of our automation efforts, we expect to accelerate our topline growth while improving our bottom line.
Erin automation play a starring role in enabling this dynamic and hence in charting our path to profitability and beyond.
And with that I'll turn things over to Tim.
Great. Thanks Shai.
I'll review highlights of our Q3 results and provide our expectations for the fourth quarter and the full year and then we'll take some questions.
He was a strong quarter across the board with excellent loss ratio improvement coupled with rigorous cost control, resulting in strong results exceeding our own expectations in force premium grew 18% in Q3 as compared to the prior year to.
$719 million.
As a reminder, the third quarter is the first quarter, where year on year comparisons include metro mile impact in both the current and the prior year results as the acquisition closed in July of 2022.
Customer count increased by 12% to just shy of $2 million as compared to the prior year premium per customer increased 6% versus the prior year to $362 driven in roughly equal parts by rate increases and mix shift to higher priced products.
Annual dollar retention, our ADR was 85%.
We measure ADR on an annual cohort basis and include the impact of changes in policy value additional policy purchases and churn.
There was some modest downward pressure on ADR. This quarter from the addition of former Metro miles customers in the current quarter metric calculation for the first time.
Gross earned premium in Q3 increased 27% as compared to the prior year to $173 million a bit faster than ISP growth due to the partial quarter impact of Metro model results in Q3 of 2022.
Revenue in Q3 increased 55% from the prior year to $115 million.
Growth in revenue was driven by the increase in gross earned premium as well as 169% increase in investment income and a decline in the proportion of premium ceded to reinsurers.
Our gross loss ratio was 83% for Q3 as compared to 94% in both Q3 2022 and in Q2 of 2023.
The impact of cats in aggregate in Q3 was roughly 10 percentage points within the gross loss ratio about equal to the average quarterly cat impact over the last couple of years.
Absent the total cat impact the underlying gross loss ratio ex cat was in line with the prior quarter and nearly 15 percentage points better than the prior year prior.
Prior period development was roughly three 8% favorable impact in the quarter, primarily due to pet reserve adjustments.
Operating expenses, excluding loss and loss adjustment expense decreased 11% to $98 million in Q3 as compared to the prior year.
A bit of detail on the unique entries in the quarter, both one off expenses related to the metro mile acquisition.
We had a notable nonrecurring expense in the quarter related to a successful sublet of excess office space in San Francisco lease acquired in conjunction with the Metro mile acquisition.
I would consider the sublease the space is a positive outcome in a very difficult west coast real estate markets.
The current prevailing rents are well below the market peak of 2019 and as a result, we have written down approximately $3 $7 million in the quarter in relation to this transaction.
We have also reserved $3 million for other potential liabilities related to metro.
<unk> pre acquisition.
Based on facts known now that were not apparent at the time of the acquisition.
These expenses are included in G&A expense the impact our net operating loss and earnings per share.
And have been excluded from our adjusted EBITDA calculation given their unique nature in relation to activities pre acquisition.
Three gross spent.
As a reminder, you'll see a 100% of our gross spend flow through the P and L. As always while the impact of the new financing mechanism is visible on the cash flow statement and the balance sheet.
Technology development expense increased just 2% close to flat versus the prior year G&A expense decreased 9% as compared to the prior year.
Personnel expense and head count continued to be quite stable. Despite continued growth in customers and premium.
Total head count is actually down about 5% as compared to the prior year.
At 1300 and four.
Net loss was $62 million in Q3, or a loss of 88 cents per share as compared to the 91 million dollar loss, we reported in the third quarter of 2022.
Or a loss of $1.37 per share.
Well adjusted EBITDA loss was $40 million in Q3 as compared to $66 million of adjusted EBITDA lost in the third quarter of 2022.
Our total cash cash equivalents and investments ended the quarter at approximately $945 million, reflecting primarily of use of cash for operations of $103 million since you're in 2022.
And worth noting that that total cash and equivalents in investments balance was essentially unchanged versus the prior quarter.
With these calls and metrics in mind I'll outline our specific financial expectations for the fourth quarter and the full year.
For the fourth quarter, we expect it enforced premium at December 31 between 726 and $729 million.
Gross earned premium between 174 and $176 million.
Revenue between 107 and $109 billion.
And adjusted EBITDA loss between 44 and $42 million <unk>.
Stock based compensation of approximately $60 million capex of approximately $3 million and a weighted average share count approximately 70 million shares.
And for the full year. This would result.
In in force premium again at $726 million to $729 million gross earned premium between 665 $667 million revenue between 421 $423 million adjusted EBITDA loss between 188 and $186 million.
Stock based compensation of approximately $62 million capital expenditures of approximately $10 million.
And again, we did average share count for the full year of approximately 70 million shares.
All in all a really strong quarter, it's worth summarizing the main headlines cash flow positive expected by year end 2025, adjusted EBITDA positive. Following by year end 2026 continued progress on loss ratio rate filings and approvals, earning in with more to come impressive efficiency and nearly for.
<unk> head count.
We can look back to almost two years ago. When we first spoke about are expected peak last quarter happening in Q3 2022.
Now a year out from that day, not only was that quarter. Indeed, our peak last quarter, but just one year later, our adjusted EBITDA loss has shrunk by nearly 40 per cent.
Taken together are results give us confidence that we are on the path to creating a sizeable defensible and profitable business and we hope you see them. Similarly.
With that I'd like to hand things back over to shy to answer some questions for a retail investors.
Thanks team will now turn to our shareholders questions submitted through the same platform.
And by the way I also saw some recurring questions and Peter specifically from Neil and.
And tried to address many of those questions in the letter R comments, this morning, and again into pulling answers.
We didn't ask the most uploaded question about when meaningful profitability is expected.
The dinner and our comments earlier in the coal answer that theory, so I'm going to use the time to get two additional uploaded questions.
Matthew Us about the lemonade stock specifically, what steps are being taken to raise the value and maintain the stock.
Matthew we get this question quite often and we understand why.
The share prices, none of the place we'd like it to be so as mentioned in previous calls we're not focused on the short term performance of the stock, but look towards the long term and encourage our investors to do the same we.
We have high conviction in the long term prospects will eliminate in the valley, we can create for shareholders quarter. After quarter, we are delivering underlying improvements that are meaningful insignificant toward business and as we head closer to profitability. We are optimistic that the true value of lemonade will be reflected more fully in our stock price over time.
Our next couple of questions were around emanate car.
Darin asks what's hindering the process of lemonade car in paperback to ask for a similar update.
As with any of our product, we're only interested in growing profitably expanding our book of business with healthy sales.
That is contingent upon our loss ratio getting to where we want it to be as we increase rates to keep up with rising inflation.
As a reminder, the increase in car repair and parked costs had led to an industry wide challenge.
Today I'm happy to report that California approved a 51% rate increase for car product.
This is especially significant is approximately 50% of our car premium come from California.
As these new rates earn in we expect to become right adequate.
We believe that this can yield a healthy loss ratio, allowing us to grow car faster in the coming years.
Paperback also asks about cost cutting measures, citing other insurance companies taking measures to cut operating expenses.
I appreciate the question here and it's important to note that we apply great scrutiny to every single initiative with walking on into the resources at our disposal.
That has allowed us to steadily isolate as needed rather than undertake sudden and drastic changes.
Over the last two years gross earned premium grew six times faster than operating expenses.
This quarter alone exemplifies the ability to grow wild costcutting with ISP growing 18% year on year gross loss ratio, improving by 11 percentage points to 83% and operating expenses declining by 11%.
And you can see that in our head count as well will end 2023 with roughly the same number of full time employees as the start even as our business will have grown considerably.
And with that let me and the cold over to the operator, so we can take some questions from our friends on the street.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad you fill out with Julie a question. Please press start followed by two.
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Our first question comes from Smithfield holds the thugs <unk> Yolanda's open. Please go ahead.
Oh, and congrats guys on a in a great color.
Yeah, and please know all of our sporting purse lithium in Israel I know it's.
<unk> a little bit of time, so just wanted to let you know that we're supporting you as well.
I wanted to touch on your L. T data cap ratio, you mentioned pretty significant improvement, giving to a greater than four in recent quarters Uhm. It looks like this is related in parts of it because of more efficient marketing spend that Tim touched on but.
But can you give some additional color on one more thing for AI is picking up on to drive that LTV component of that equation.
Yeah, I think I think.
Kind of hit on the to keep Q drivers. There one is yes, when you're when you're spending somewhat less overtime you tend to spend it on the more productive channels, where the higher <unk>. So there is that aspect and.
And probably worse kind of reminding of our our pace of spending paced gross as we highlighted in the letter we'd be growing sort of in the mid to upper teens over the course of this year by choice by design, you can really set our own growth pace by the amount of growth spend we deploy.
With the addition of our synthetic agents program are improving loss ratios. We're now getting to the point as we've talked about for a few quarters were were much more comfortable leaving and upping that grow spend over time, and so we get a little indication of that in the letter that we see as we head into 2024 that all those pieces are now coming together.
We will have the ability to spend more to keep you Roy strong and return to growth rates that look more like our long term target in the mid twenties or above.
The balance of the of the impact is definitely more efficiency. There are some highlights from the letter.
Around our LTV. The CAC are LTV fix LTV seven O P. V. Eight models that are now continue to evolve.
Consistently and with that enabled us to do is be much more granular around the channels that are working the channels are that are not working and adapt and adjust more quickly and so it's really a combination of those two things that give us the the.
Uptick in marketing <unk>.
Marketing efficiency about 15% improvement this quarter.
Marketing efficiency dollar for dollar versus.
The prior year.
If I could just started quickly.
Yeah.
Matt Sorry, I'll take your phone off in a second.
Two quick comments when you're festival really appreciate your comments of support thanks very much.
To underline one of the things that.
Tim settlement to add one dimension farther so.
Definitely this is one of our lower spend quarters and the systems are very good at Cherry picking.
Incremental Donald will be spent as close as possible to the incremental ltv's a cat.
Your dollars we spend.
Great to the <unk> ratio cut off if we kept spending we'd be getting the next slightly less efficient customer and a further down the kind of if you follow my mainly Sir I just want to.
We think that the system that we have in place an incredibly powerful to allow us to do that.
But don't extrapolate necessary that if we doubled or tripled spend we would see exactly the same multimedia cats, a byproduct of that kind of.
And.
Uhm highly targeted spend of dollars is what I just said.
The second thing to bear in mind Richardson may or May not cloud the same I'm, becoming courses at a macro level uhm.
Insurance industry has suffered a great deal we references somewhere in my letter we've seen from the largest players.
Either totally exit lodge marketed so suddenly stop spending and we have seen a precipitous decline and compactness is deploying dollars in order to acquire acquisitions.
So the last quarter overhead bin.
Have some unusual dynamic time will tell where customer.
Customers would there for the taking and I don't know how much that will.
And sustain itself.
Eventually dust themselves off and start spending dollars again, so a couple of things to bear in mind and sorry, you had a follow on question as well.
Yeah, you're actually touched on kind of what I was getting them to follow up with just the sustainability of that ratio. So I mean, it sounds like.
Maybe in the longer term.
Something closer to the historical levels of <unk> for you that may be a fair statement is Edwin picks up you kind of get through this unusual period that <unk>.
I think we've we've been reasonably good at getting shopping or pencil system's getting better the modem market, we deploy animal products we.
Launched the mall Optionality the system has an order to cherry pick so I do hope that we'll be able to continue to improve but yeah. My comments were aimed at saying don't draw a straight line from where we are this last quarter 75, an internal planning purposes would want to see that materialized before you bank on it.
Great Thanks, and congrats again.
Thank you as a reminder of you wish to submit a question. Please press staff followed by one or your telephone keypad.
Next question comes from Tummy, but the joint of K B W. Told me. Your line is open. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions can you help bridge what changed in terms of the timing of the cash flow and EBITDA attorney profitable a bit sooner than you expected just what were the inputs exactly that drove that change.
Yeah. So.
Maybe a comment on there are no short term cash flow.
Perhaps part of your question, but perhaps not but worth noting that in the short term cash flow and a quarter was pretty interesting essentially zero change quarter to quarter naturally a timing impact you to our new reinsurance structure and you can kind of see the different pieces on the balance sheet that should normalize somewhat over time.
But ah notable casual benefits for the current quarter.
Arms of the longer term review a couple of things have changed in the <unk> comparison on is probably the.
Our investor day from a year ago, where we really got into a fair amount of detail on our different modeling scenarios and assumptions one thing two things that really changed fundamentally one is enough time has passed and enough right has earned in enough rates have been approved where we just have.
Much more clarity on how.
Loss ratio is likely to play out there are certain aspects of loss ratio, but you can't know in terms of weather, but the pieces that we can know the dollars earned in the dollars expected, Germany, then the rate approvals, we just have.
For almost five more quarters of data much more clarity around that and that's a key driver second thing of note is if you look at our cost lines on our head count.
Reporting that we do quarter to quarter, you can see the real impact.
Automation and leverage and scale in the model and this is something we've known and plan for for many years, but has not been really evident externally.
Until the last three or four quarters, where you can really see it in those ratios premium growing at a very healthy healthy clip operating expenses growing at a much slower pace and in some cases, some operating expense lines flat or even down. So those are the the two.
Primary drivers, there's a little bit of benefit from these synthetic agents program. We put in place that obviously has a cash flow benefit where you're spreading out cash flow over a somewhat longer period of time and that's really the the combination of those enabled us to.
Solidify our models with much more granularity much more confidence.
More quarters of hard data versus projections and gives us an expected cash cushion in the trough years roughly double.
What it was when we looked at it a year ago. So all around good stuff.
Thanks, and then my second question is with the the large rate increase improved and an order in in California can you talk about the trajectory of how you see that book of business. The audio book of business diversifying overdue.
Time, you know obviously, there's a lot of concentration in California, now and you are continuing to roll out new states, but you've got a big premium bump in California. So can you just talk through the how do you see the diversification on a geographic basis finding out for auto.
Yeah, So I <unk> I would think of it as an opportunistic approach obviously, the the California right of approval in our concentration.
In that state is a is a pretty dramatic change in our ability to grow generally in car. It's also notable.
That we can see a loss ratio, even before that rate increase continuing to to improve higher than our target, but certainly continuing to improve.
And so I think in the same way that we are able to pick and choose among marketing channels. This will enable us to pick and choose among not only states, but also regions and you can get granular in terms of where and how we grow.
With five products car is not the only game in town.
And will be fairly thoughtful about how we grow the renters book the homework.
At book continues to really perform nicely.
In terms of marketing efficiency in terms of growth and certainly in terms of loss ratios. So <unk> certainly looks a little our ability to to grow with him car that that data has come much closer.
These recent changes, but will continue to really.
To build that all other products.
Alright, and then my last question just for my modeling perspective, do you guys have an expectation for what you're kind of annual cat load would be you know I'm like a percentage or.
Probably a percentage basis the dollars talk with how 'bout to you guys are growing I'm not sure. If you guys have just kind of a baseline number that you can think of.
Yeah. So we don't we don't guide to that by design, but we certainly think and model it.
The best way to think about it is to look back over the last eight.
Maybe nine quarters.
You'll see an average cat load of roughly.
Roughly between nine and a half and 10.5%. There's obviously a spike in Q2 of this year, which excuse that number but actually not a whole lot when you're looking over the course of a couple of years or so so that I would think of that as sort of a normalized catboat. Obviously that may change somewhat is the mix of business grows over time, but that's been relative.
Consistent so if you're looking at it.
A year.
That's a pretty reasonable number obviously quarter to quarter will have fluctuations and they won't always be as expected Q2 and Q3. This year are notable examples where if you were just looking at weather patterns. Historically, you were probably swapped the two quarters and in some ways, but over the course of the year that that's a reasonable assumption to make.
Makes sense.
Thank you. Our next question comes from Jason S. S hand of Oppenheimer. Jason You know it is open. Please proceed.
Hey, guys.
So and just just before the last question is what to send our our support to everyone in Israel.
The car situations are thinking of everybody.
There's two questions and they kind of both tired of cats cause they're just Tim can you clarify like what was the cat impact if God I, just Wanna make sure we heard it right and then to the extent that it.
It's been like this where they a light quarter for a cat, but he kind of fourth quarter comes in like do you think about like reinvesting that back in that either.
Other areas and how how.
Like how would you think about it if if the next let's say for a quarter it happened to be.
Meaningfully less cat then what we've kind of gone through that does that change how you think about where those dollars go back.
Sure Yeah, great Great question in terms of the impact in the quarter. It was roughly 10 points from all.
Cat combined in the quarter and it was a little skewed slightly skewed more to what we call a major storm not a named storm, but up for a major storm versus just general cat.
Maybe a 60 40 split but 10 points in aggregate in.
In line with the historical average for a Coupla years quarterly average as as I noted in about half what it was in Q2.
Q3 is from from a hurricane and a home product perspective seasonally higher expected ordered that actually came in somewhat better.
Saw that in the in the numbers Q for that season impact diminishes somewhat.
If we were to see a reputation with Q3 and Q4 where the expected pattern.
Little bit better yeah.
You would you would see that flow through in terms of our choice for our ability to redeploy that that.
Upside or that.
Mental margin or cash flow, it's a little tricky you don't know you know as you go through a quarter.
[noise] you know right you can have a cat on the last day of the quarter or the first day the corner and then they can have a <unk>.
A similar impact, but I would say from a macro view, if we had several quarters in a row.
As in your example, sure that's a that's a benefit I mean, what are the things we're striving towards his <unk>.
Visibility into longterm cash flow, our cash flow cushion and.
Growing faster helps that and so we're balancing all of those things and if we see some upsides benefit in the coming quarters that enables us to nudge that growth and that's been up a bit which gets to scale faster. So it's it's a little bit of I would call it sort of a virtuous cycle and we'd love to see that pattern evolved I don't know that it would be.
Every single dollar you pushed back in but certainly it would give us the ability to be more thoughtful and lean in a bit more on growth. We're already planning to do that based on what we know now but that could certainly help with it.
Hey, Jason.
And then just walk off the throat.
Sorry about that do.
Thanks, that's all thank you too for your kind of what.
<unk> they.
When we received as well.
A couple of funny kind of comments about cats. One is the causes may be slightly.
Slightly less.
Uhm randomly distributed than you might expect what I mean by that is there was some speculation in Q2, when we saw very severe storms in.
In Q2 at a time that we didn't expect and in some places that didn't expect California. For example was very severely hit it was.
Some speculation at the time, but got my results in a lighter wildfire season, which would have been around now because so much of the timber so much of a fuel is dampened by it so we do see perhaps that.
Turns out of your comments about the <unk> being swapped around there may be some actual basis for that Robyn being entirely random, but it is an opportune time to say <unk>.
These storms and wildfires and other catastrophes come basically in a way that we can't predict.
And we do encourage everybody to look at the long term trends, we do have reinsurance that buffets from the west of the Sox at least in terms of our epitaph impact.
And.
By the same token if we have one or two good quarters, we don't necessarily bank that on the assumption that that trend will continue we always prepared also the notion that the next quarter may be different you tried to take a zoomed out long-term perspective on that you had another question Jason.
Oh, just just do you have any thoughts about competitors who've been kind of moving in and out of market and obviously these things take kind of long planning and whatnot, but have you made any changes to kind of your three year plan based on our five year plan based on competitors moving in and out of markets.
Not so much about competitive moving in and out but we followed similar forces.
Ah Ah fails, a certain product in stock market from changed dramatically over recent years.
I think it was telling me you asked earlier about our concentration of calling in California, and you will see that we have made concerted efforts and product that by the way.
Something that we inherited from Metro My we have made a concerted effort.
Re balance some of our product in that sense.
Particularly when it comes to cast exposure.
Recent years off Tomatoes on home insurance in general in home insurance in <unk> areas has dropped off precipitously and we keep looking at the Arizona greatest exposure and tried to balance the book Accordingly. So we have taken and continues to take measures to avoid the worst of the the fact that all can practically plenty out of those <unk>.
Doesn't make them attractive to us.
We're really focus on selling in places that we feel we are priced adequacy I'm sucking a preference for mobile is Timothy particularly given the high cost of reinsurance at the moment.
Thank you.
Thank you as another amount of you wish to submit a question. Please dial star followed by one on your telephone keypads.
Our next question comes from Andrew Anderson of Jeffries, Andrew <unk>. Please go ahead.
Hey, good morning, I think he had kind of touched on the X cat gross loss ratio earlier, but if we go back to it 73 per cent on the quarter and kind of consistent with first quarter and second quarter results I'm just thinking there's been a lot of right taken could you kind of get some some puts and takes perhaps.
By lying on why are we haven't been seeing a little bit of sequential improvement, maybe with some seasonality or just the the lagging timing of earned right.
Yeah, I think if you if you break down the loss ratio you can certainly see a couple of of consistent themes. We <unk>, we don't see improvement every single quarter as we move forward until we saw some ups and downs.
Two three.
The net impact was was a fair bit better obviously because of the cat impact, which is primarily a home dynamic.
In terms of specifics we saw continued improvement in pet.
Quarter to quarter, which obviously is not cat exposed and we saw a nice improvement in car, even even obviously before this most recent rate increase from Q2 Q.
Q3, renters, nudged up very slightly and and home was up somewhat and so this is a.
A pretty common theme, we shared the product breakdowns, a couple of times over the over the past year and you'll see there's some short term fluctuations in volatility ordered a quarter and then you'll see the longterm trend.
Reflecting that those rates earn again.
And I'd refer folks back to the letter where we had some specifics on the on the dollar impact of rates, earning in so a fair amount summered in today, a good amount in progress and with the rates are just approved in California, obviously that that number is going to continue to be a.
A very solid driver of of both growth and loss ratio improvements going forward.
Okay, and I think you had mentioned 10 points of gross cat losses, do you have a net cat losses handy as well as.
The 3.8 points of favorable P y D.
Was that on that basis as well.
So that you'll typically see our gross and net impacts to be very close.
Not identical but very consistently.
Similar impacts quarter to quarter and that's been true for some time in terms of the prior period development that was driven.
There's two numbers there one is the quarter prior prior period development impact was about 3.8% favorable that number moves around quarter to quarter, but that was primarily a pet reserves benefit in the quarter and then there's a prior year.
<unk> number that's disclosed in the queue. Those are two different numbers for drivers are similar.
The numbers are different because prior years prior year. Prior period is all all prior periods combined but the impact was the same all favorable primarily driven by pet.
So the.
Prior period was 3.83 0.8 points favorable P Y D was also 3.8 points.
No the the the prior year is a dollar number.
And that would be a.
A smaller dollar number.
And the current.
The current quarter to 3.8% is 3.8% of gross earned premium in the current quarter.
So that dollar impact in the current quarter it'd be about if you do the math about $6 million in the prior your number or your number is about $3 million. So two two different numbers I would caution you to not to be careful when you combine those because there are two different analyses two different numbers and can lead to some confusing conclusions, but happy to follow up.
After the call if more details helpful.
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