Q4 2023 Lemonade Inc Earnings Call
Davie: Hello everyone, and welcome to the Lemonade fourth quarter 2023 financial results call. Thank you for standing by. My name is Davie, and I'll be coordinating your call today. If you would like to register a question, please press star followed by one on your telephone keypad, and I would now like to hand the call over to your host, Yael Wisner-Levy, the VP of Communications from Lemonade, to begin. So, Yael, please go ahead.
Hello, everyone and welcome to the eliminate fourth quarter 'twenty to 'twenty three financial results call and thank you for standing by my name is David and I'll be coordinating a bookstore.
I would like to register a question. Please press star one on your telephone keypad.
I would now like to hand, the cool I liked your highest yeah no lumpy from the BP of communications from M&A to begin so yeah. Please go ahead.
Yaron Kinar: Good morning, and welcome to Lemonade's fourth quarter 2023 earnings call. My name is Yael Wissner-Levy, and I am the VP of communications here at Lemonade. Joining me today to discuss our results are Daniel Shriver, CEO and Co-Founder, Shai Winninger, President and Co-Founder, and Tim Bixby, our Chief Financial Officer. A letter to shareholders covering the company's fourth quarter 2023 financial results is available on our investor relations website, investor.lemonade.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 Security Prolification Reform Act of 1995. However, 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 3, 2023, our Form 10-Q filed with the SEC on November Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to uphold them.
Good morning, and welcome to eliminate its fourth quarter 2023 earnings call. My name is levy and I'm the VP communications here eliminate.
Joining me today to discuss our results are Daniel <unk>, CEO and co founder shy Weninger, President and co founder and Tim Bixby, Our Chief Financial Officer.
Let her to shareholders covering the company's fourth quarter 2023 financial results is available on our Investor Relations website, Investor don't 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.
<unk> 10-K filed with the SEC on March 3rd 2023, our Form 10-Q filed with the SEC on November three 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.
Yaron Kinar: 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. 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 X-CAP, and net loss ratio, and the 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.
We will be referring to certain non-GAAP financial measures on today's call such as adjusted EBITDA and adjusted gross profit 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.
Letters of shareholders also included 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 net loss ratio.
And the definition of each metric while each is useful to investors and how we use each to monitor and manage our business well.
With that I'll turn the call over to Daniel for some opening remarks Daniel.
Daniel Shriver: Daniel, Good morning and thank you for joining us to discuss Lemonade's Q4 results and to offer some perspective both on the outgoing year and on the year ahead. As you will have seen, Q4 was an excellent quarter, capping off a year of dramatic progress for Lemonade. Our top line grew 20% to $747 million of in-force premium while our quarterly loss ratio came in at 77%, down 12 points from Q4'22 and down 19 points from Q4'21. Since Q4 of last year, our adjusted gross profit has nearly doubled, while our adjusted EBITDA loss nearly halved. As I say, dramatic progress. Moving from the income statement to the cash flow statement, it's noteworthy that we're ending this quarter with a total of $945 million in cash, cash equivalents, and investments.
Good morning, and thank you for joining us to discuss eliminates Q4 results and offer some perspective based on the outgoing year and on the year ahead.
As you will have seen in Q4 was an excellent quarter.
Coming off a year of dramatic progress or eliminate.
Our top line grew 20% to $747 million of in force premium while our quarterly loss ratio came in at 77% down 12 points from Q4, 22, and 2019 points from Q4 'twenty one.
Since Q4 of last year, our adjusted gross profit has nearly doubled adjusted EBITDA loss nearly halved.
Dramatic progress.
Moving from the income statement to the cash flow statement, it's noteworthy level ending this quarter with a total of $945 million in cash cash equivalents and investments.
Daniel Shriver: That is the very same level we reported at the end of the last quarter, and it is up since our report of two quarters ago. While we expect this level to dip somewhat in 2024, we expect our total cash and investments to turn positive again in the first half of 2025, and we expect it to dip by less than 10% before reaching that point.
That is the very same level, we reported at the end of the last quarter and it is up since our report of two quarters ago.
While we expect this level to get somewhat in 2024, we expect our total cash and investments to turn positive again in the first half of 2025 and.
And we expect it to less than 10% before reaching that point.
Daniel Shriver: Underpinning our results was a steady stream of improvements in our ability to match rate to risk as well as in our operational efficiencies, all mediated by a singular integrated system that improves and is improved by all our customer interactions. In many ways, therefore, 2023 was the year when the plan came together, the year when the thesis of Lemonade transitioned from being a hypothesis to being more evidence-based. This isn't a mission-accomplished moment, not by a long shot, but the progress in 2023 was tangible and material, and it increases our confidence that we're on track not only to turn cash flow positive next year, with plenty of cash in the bank, but to build a large, enduring, and profitable business thereafter.
Underpinning our results was a steady stream of improvements in our ability to match rates to risk as well as an operational efficiencies. All these mediated by a singular integrated system that improves and has improved by almost.
Our customer interactions.
In many ways that for 2023 was the year when the plan came together.
And the thesis eliminates transitioned from being a hypothesis to be more evidence based.
This isn't a mission accomplished moments not by a long shot but the progress in 2023 was tangible and material and it increases our confidence that we're on track not only to turn cash flow positive next year with plenty of cash in the bank, but to build a large and jewelry and profitable business thereafter.
Daniel Shriver: We hope our latest results boost your confidence alongside our own. 2023's results are all the more noteworthy for the turbulent times in which they were achieved. The last couple of years have been some of the toughest for both established insurance companies and for up-and-coming tech companies. As dual citizens, we were buffeted by the storms that afflicted both insurance and technology. As we reflect back on this tumultuous period, we find resonance in the famous words of Nietzsche, or Kelly Clarkson, if you prefer, that what doesn't kill you makes you stronger.
We hope our latest results, we steal confidence alongside.
2000, <unk> results all the more noteworthy for the turbulent times in which the materialized. The last couple of years with some of the toughest for both established insurance companies and often coming tech companies.
A dual citizens we were buffeted by the storms that affected both insurance and technology.
As we reflect back on this tumultuous period, we find residents in the famous words of Mitra, who Kelly Clarkson or if you prefer that what doesn't kill you makes you stronger we are quite sure that we are emerging from these shocks the better having enjoyed them.
Daniel Shriver: We are quite sure that we are emerging from these shocks the better for having endured them. We are, we believe, leaner and more focused, stronger and more resilient, with better unit economics, and with fewer competitors than would have been the case had the turbulence never come. As the African proverb says, Smooth seas never made a skillful sailor.
All we believe leaner and more focused stronger and more resilient with better unit economics, and with fewer competitors than it would've been the case had the turbulence never come.
As the African programs has smoothed fees never made a skillful failure.
Daniel Shriver: As we look forward to 2024, there's reason for optimism that the worst of these storms may be behind us. Inflation appears to be receding, costs of capital may have peaked, and rates are finally catching up with risk. If the headwinds indeed become tailwinds in 2024, that will, of course, be good news. That said, piloting with tailwinds comes with its own set of challenges. And to explore these, let me hand over to Shai. Chai.
As we look forward to 2024, there's reason for optimism that the worst of the storms, maybe behind US inflation appears to be receding cost of capital May have peaked and rates are finally catching up with risks.
If the headwinds indeed become tailwind in 2020 forward that will of course be good news.
That said just piloting the tailwind that comes with its own set of challenges and to explore these let me hand over to Sai Chu.
All right.
Shai Winninger: Thank you, Daniel. In 2023, we intentionally slowed our growth to minimize sales of products in areas where we're underpriced. At nearly 20% annual growth, we outpaced most of the industry, yet for us, it was a slowdown compared to previous years and, if things go to plan, the coming years as well. And as more rate updates come into effect, we'll have more products in more areas where we can accelerate our growth. To be clear, though, our 77 loss ratio this quarter should not be taken as an indication that our work on rate adequacy is done. We still await significant further rate approval, and so for much of 2024, we will continue to constrain sales of two products with the highest average premium and the largest market. Home and Car
Thank you Danielle.
In 2023, we intentionally slowed our growth to minimize sales of product in areas, where we're under priced.
At nearly 20% annual growth, we outpaced most of the industry is for US it was a slowdown compared to previous years, and if things goes to plan to coming years as well.
And as more rate updates come into effect, we will have more products in more areas, where we can accelerate our growth.
To be clear, though.
77 loss ratio this quarter should not be taken as an indication that our work on rate adequacy is done.
We still have ways significant further rate approvals.
So for much of 2024, we will continue to constrain sales of two products with the highest average premium in the largest markets home and car.
Shai Winninger: In other words, we will continue to throttle growth this year too. That said, the tide has definitely turned. With every passing month, we are seeing more and more opportunities for profitable growth across our portfolio, including home and car, and we will be relaxing these growth constraints accordingly. This is great news, and it's the reason we're projecting to begin to accelerate growth this year. Growth may be a virtue in its own right, but for us, it's a necessity.
In other words, we will continue to struggle growth this year too.
That said the tide has definitely turned.
With every passing month, we're seeing more and more opportunities for profitable growth across our portfolio, including home and car and we will be relaxing these growth constraints accordingly.
This is great news and it's the reason we're projecting to begin to accelerate growth this year.
Growth may be a virtue in its own right, but for us. It's a necessity our business is still sub scale and so we need to continue growing.
Shai Winninger: Our business is still subscale, and so we need to continue growing. And so, in 2024, we plan to accelerate our growth rate. But beyond being a welcome sign of improving conditions, accelerated growth also presents challenges we want you to be aware of.
And so in 2024, we plan to accelerate our growth rate.
But beyond being a welcome sign of improving conditions accelerated growth also presents challenges we want you to be aware of.
Shai Winninger: Specifically, in order to accelerate growth, we were planning to significantly increase our marketing spend in 2024 versus last year, doubling it actually. We believe that we'll generate about a 3x return on the additional $55 million planned for marketing this year, but it's important to remember that this ROI won't materialize within the same accounting period. In other words, we'll be spending dollars that will positively boost our EBITDA over time, but we'll be a drag on it in 2024. In the past, that drag translated into a cash flow gap, but our synthetic agents bill has largely taken care of that. Thanks to synthetic agents, most gross dollars spent in 2024 won't impact our cash during the year.
Specifically in order to accelerate growth, we are planning to significantly increase our marketing spend in 2024 versus last year.
Doubling it actually we believe that we will generate about three extra return on the additional 55 million planned for marketing this year, but it is important to remember the decent ROI wanted materialize within the same accounting period.
Other words will be spending dollars that will positively boosted our EBITDA over time, but it will be a drag on it in 2024.
In the past that drag translated into a cash flow gap, but our synthetic agents deal is largely taken care of that thanks.
Thanks to synthetic agents most gross dollar spend in 2024 won't impact our cash during the year.
Shai Winninger: Nevertheless, as GAAP accounting doesn't always follow the cash, our increased growth spend will be registered as a $55 million expense in 2024's EBITDA. All else being equal, that could have translated into a year-over-year evident deterioration. But we believe that not all else will be equal.
Nevertheless, as GAAP accounting doesn't always follow the cash our increased growth spend will be registered as a 55 million expense in 2024 is evident.
All else being equal that could have translated into a year over year EBITDA deterioration, but we believe that not all else will be equal.
Tim Bixby: We expect our loss ratio to continue to improve in 2024 and that our new generative AI stack, as well as many other technological innovations currently in the pipeline, will allow us to grow faster with minimal impact on our open. We believe these improvements will more than offset our growing marketing expenses during the year. Indeed, growing the top line while improving the bottom line is a tricky balancing act, but we plan to pull it off in 2025. To give a better sense of what 2024 might look like and to share more specifics about the outgoing quarter and year, let me hand it over to Terry, team. Great. Thanks, Fag.
We expect our loss ratio to continue to improve in 2024.
And as our new generative AI stack as well as many other technology innovation is currently in the pipeline will allow us to grow faster with minimal impact to our opex.
We believe these improvements will more than offset ongoing marketing expenses during the year.
Indeed growing the top line, while improving the bottom line is a tricky balancing act, but we plan to pull it off in 2024.
To give you a better sense of what 2024 might look like and to share more specifics about the outgoing quarter and the year, Let me hand, it over to Tim.
Okay.
Great. Thanks, Scott I'll review highlights of our Q4 and full year results and provide our expectations for the first quarter and the full year 2024 for the first time.
Tim Bixby: I'll review highlights of our Q4 and full-year results and provide our expectations for the first quarter and the full year 2024 for the first time, and then we'll take some questions. It 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. Zooming out, as noted in our shareholder letter, our actual IFP results in 2023 came in nearly $50 million better than our initial expectations shared a year ago, while EBITDA came in nearly $70 million better. Zooming back in, InForce Premium IFP grew 20% in Q4 as compared to the prior year to $747 million. The customer count increased by 12% to just over 2 million as compared to the prior year.
And then we'll take some questions.
It 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.
Zooming out as noted in our shareholder letter our actual <unk> results in 2023, and then nearly $50 million better than our initial expectations shared a year ago.
EBITDA came in nearly $70 million better zoom.
Zooming back in in force premium ISP grew 20% in Q4 as compared to the prior year to $747 million.
Customer count increased by 12% to just over $2 million as compared to the prior year.
Tim Bixby: Premium per customer increased 7% versus the prior year to $369, driven in roughly equal parts by rate increases as well as a mixed shift to higher priced products. Annual Dollar Retention, or ADR, was 87%, up one percentage point since this time last year. We measure ADR on an annual cohort basis and include the impact of changes in policy value, additional policy purchases, and charges.
Premium per customer increased 7% versus the prior year to $369 driven in roughly equal parts by rate increases as well as mix shift to higher priced products.
Annual dollar retention or ADR was 87% up one percentage point since this time last year.
We measure ADR on an annual cohort basis and include the impact of changes in policy value additional policy purchases and churn.
Tim Bixby: Gross earned premium in Q4 increased 20% as compared to the prior year to $181 million, in line with IFP growth. Revenue in Q4 increased 31% from the prior year to $116 million. The growth in revenue is driven by the increase in gross earned premium, a slightly lower rate of seeded premium under our quarter share reinsurance structure, and a near doubling of investment income. Our gross loss ratio was 77% for Q4 as compared to 89% in Q4 2022 and 83% in Q3 2023. The impact of cats in the fourth quarter was roughly five percentage points within the gross loss ratio, and nearly all driven by winter storm activity.
Gross earned premium in Q4 increased 20% as compared to the prior year to $181 million in line with <unk> growth.
Revenue in Q4 increased 31% from the prior year to $116 million the growth in revenue is driven by the increase in gross earned premium.
The lower rate of ceded premiums under our quota share reinsurance structure and a near doubling of investment income.
Our gross loss ratio was 77% for Q4 as compared to 89% in Q4, 2022% and 83% in Q3 2023.
The impact of cats in the fourth quarter was roughly five percentage points within the gross loss ratio.
And nearly all driven by winter storm activity ebbs.
Tim Bixby: Absent this total CAT impact, the underlying gross loss ratio, XCAT, was in line with the prior quarter and roughly 6 percentage points better than the prior year. Prior period development was roughly 1.5 percentage points favorable in the quarter. Notably, prior period development from cats was about 1.5% unfavorable, while non-cat prior period development was about 3% favorable.
Absent this total cat impact the underlying gross loss ratio ex cat was in line with the prior quarter and roughly six percentage points better than the prior year.
Prior period development was roughly one five percentage points favorable in the quarter.
Notably prior period development from Cats was about one 5% unfavorable while non cat prior period development was about 3% favorable.
Tim Bixby: Given the notable ups and downs of the quarterly loss ratio, it's all the more useful to also consider the rolling four-quarter view of the loss ratio, or TTM loss ratio, that we include in our shareholder letter, to get a feel for the longer-term positive trend for the loss ratio that we're experiencing. From a product perspective, loss ratios improved across the business, with the loss ratios of each of the four products we underwrite, renters, home, car, and pet, all improving between 9 and 18 percentage points year over year. Gross profit and adjusted gross profit have shown notable improvement over time, driven by continued premium growth, coupled with loss ratio and investment income improvement. Q4 gross profit increased by 165% to $34 million versus the prior year, while adjusted gross profit increased by 97% over the same period.
Given the notable ups and downs of the quarterly loss ratio, it's all the more useful.
To also consider the rolling four quarter view of loss ratio or TTM loss ratio that we included in our shareholder letter to get a feel for the longer term positive trend for loss ratio that we're experiencing.
From a product perspective loss ratios improved across the business with the loss ratios of each of the four products, we underwrite renters home car and pet all improving between nine and 18 percentage points year over year.
Gross profit and adjusted gross profit as a notable improvement over time, driven by continued premium growth coupled with loss ratio and investment income improvements.
Q4, gross profit increased by 165% to $34 million versus the prior year, while adjusted gross profit increased by 97% over the same period.
Tim Bixby: Zooming out a bit, quarterly gross profit has more than quadrupled in just two years, while quarterly adjusted gross profit has nearly tripled. If the loss-ratio improvement continues as expected... This recent trend of adjusted gross profit growing faster than our top line may well continue for some time. Operating expenses, excluding loss and loss adjustment expenses, decreased 5% to $90 million in Q4 as compared to the prior year. Other insurance expense grew 18% in Q4 versus the prior year, a bit less than the growth of earned premium and is primarily in support of our increased investment in rate filing.
Zooming out a bit quarterly gross profit has more than quadrupled in just two years, while quarterly adjusted gross profit has nearly tripled.
If loss ratio improvement continues as expected.
This recent trend of adjusted gross profit growing faster than our topline may well continue for some time.
Operating.
Expenses, excluding loss and loss adjustment expense decreased 5% to $90 million in Q4 as compared to the prior year.
Other insurance expense grew 18% in Q4 versus the prior year a bit less than the growth of earned premium and is primarily in support of our increased investment in rate filing capacity.
Tim Bixby: If I had to summarize the financial performance year-on-year, I would highlight this: top line up 20%, adjusted gross profit up 97%, operating expenses down 5%, and EBITDA loss 44% improved, an impressive combination. We saw a consistent improvement across the other three expense lines, sales and marketing, technology development, and G&A, all coming in lower than the prior year in absolute terms during a year of notable growth. Total sales and marketing expense declined by $3 million, or 10 percent, primarily due to lower personnel costs related to efficiency.
If I had to summarize our financial performance year on year I would highlight.
<unk> top line up 20% adjusted gross profit up 97% operating expenses down, 5% and EBITDA loss of 44% improved.
An impressive combination.
We saw a consistent improvement across the other three expense lines sales and marketing technology development and G&A, all coming in lower than the prior year in absolute terms during a year of notable growth.
Total sales and marketing expense declined by $3 million or 10%, primarily due to lower personnel costs related to efficiency gains.
Tim Bixby: Total growth spend in the quarter was $13 million, in line with the prior year quarter. In July, we began to use our synthetic agents program, which financed about 50% of our Q3 and Q4 growth spend. And we've upped that ratio to 80% since January 1, 2024. As a reminder, you'll see 100% of our growth spending flow through the P&L as always, while the impact of the new growth mechanism is visible on the cash flow statement and balance sheet. And the net total impact is roughly $15 million at year-end 2023. Staying with the Synthetic Agents Program a moment longer, we're pleased to share that we've extended our agreement with General Catalyst by another year and added $140 million to this program. The agreement that was due to renew at the end of this year is now set to come up for renewal only at the end of 2025. Back to costs, technology development expense decreased 10% to $20 million, due primarily to a reduction in personnel-related costs, while G&A expense decreased 7% as compared to the prior year to $29 million.
Total gross spend in the quarter was $13 million in line with the prior year quarter.
In July we began to use our synthetic agents program, which financed about 50% of our Q3 and Q4 gross spend.
We've upped that ratio to 80% since January one 2024.
As a reminder, youll see a 100% of our growth spend flows through the P&L as always while the impact of the new growth mechanism is visible on the cash flow statement and balance sheet and the net total impact.
It's roughly $15 million at year end 2023.
Staying with the synthetic agents program a moment longer we're pleased to share that we've extended our agreement with general catalyst by another year and added $140 million to this program.
The agreement that was due to renew at the end of this year is now set to come up for renewal only at the end of 2025.
That could cost technology development expense decreased 10% to $20 million due primarily to a reduction in personnel related costs, while G&A expense decreased 7% as compared to the prior year to $29 million.
Tim Bixby: Personnel expense and headcount control continue to be a high priority. Total headcount is down about 8% as compared to the prior year at 1,258, while the top line IFP, as noted, grew about 20%. The net loss was $42 million in Q4, or a loss of about $0.61 per share, about 35% better as compared to the $64 million loss, or $0.93 per share we reported in the fourth quarter of 2022. Our adjusted EBITDA loss was $29 million in Q4, as compared to the $52 million adjusted EBITDA loss in the fourth quarter of 2022, about 44% better. Our total cash, cash equivalents, and investments ended the quarter at approximately $945 million, reflecting primarily a use of cash for operations of $119 million since the year in 2022, while total cash equivalents and investments were down only $92 million in that same period.
Personnel expense and head count control continues to be a high priority total head count is down about 8% as compared to the prior year at 1258, while the top line ISP has noted grew about 20%.
Net loss was $42 million in Q4, or a loss of about 61 per share about 35% better as compared to the $64 million loss or <unk> 93 per share.
Ported in the fourth quarter of 2022.
Our adjusted EBITDA loss was $29 million in Q4 as compared to the $52 million adjusted EBITDA loss in the fourth quarter of 2020 to about 44% better.
Our total cash cash equivalents and investments ended the quarter at approximately $945 million reflecting.
Primarily a use of cash for operations at $119 million since year end 2022.
While total cash equivalents and investments as downloading $92 million in that same period.
Tim Bixby: And as Daniel noted, total cash investments actually increased by about $3 million since June 30, 2023. Now, with these goals and metrics in mind, I'll outline our specific financial expectations for the first quarter and for the full year of 2024. Please note our approach to guidance this year is measured as always, but it's realistic, and it's in line with our own internal expectations. While we certainly delivered excellent results in 2023, particularly when compared to our original guidance for the year, we don't currently expect that same magnitude of overachievement in 2024. While there is always the aspiration for outperformance, especially this early in the year, we would urge listeners to be cautious about assuming that our guidance is overly conservative. It is not.
And as Daniel noted total cash and investments actually increased by about $3 million since June 32023.
Now with these goals and metrics in mind, I will outline our specific financial expectations for the first quarter and for the full year of 2024. Please.
Please note our approach to guidance. This year is measured as always but it's realistic and it's in line with our own internal expectations.
While we certainly delivered excellent results in 2023, particularly when compared to our original guidance for the year. We don't currently expect that same magnitude of over achievement in 2024.
Well there is always the aspiration for outperformance, especially this early in the year, we would urge listeners caution about assuming that our guidance is overly conservative it is not.
Tim Bixby: For the first quarter of 2024, we expect in-force premium at March 31 between $789 and $791 million, and gross earned premium between $183 and $185 million. Revenue between $111 and $113 million and an adjusted EBITDA loss of between $43 and $41 million. We also expect a stock-based compensation expense of approximately $15 million in the quarter, capital expenditures of approximately $2 million in the quarter, and a weighted average share count of approximately 70 million shares.
For the first quarter of 2024, we expect in force premium at March 31 at between 789 and $791 million.
Gross written premium of between 183 $185 million.
Revenue between $111 and $113 million and adjusted EBITDA loss of between 43% and $41 million.
We also expect stock based compensation expense of approximately $15 million in the quarter capital expenditures of approximately $2 million in the quarter and at a weighted average share count of approximately 70 million shares.
Tim Bixby: Now for the full year of 2024, we expect in-force premium at December 31 of between $938 and $942 million, gross earned premium between $815 and $820 million, revenue between $505 and $510 million, and an adjusted EBITDA loss between $160 and $155 million. Stock-based compensation expense for the full year is estimated to be approximately $60 million, capital expenditures of approximately $10 million, and a weighted average share count for the full year of approximately 71 million shares.
Now for the full year of 2024, we expect enforce premium at December 31.
Between 938, and $942 million gross earned premium between 815 and $820 million Rev.
<unk> revenue between 505, and $510 million and an adjusted EBITDA loss between 160 and $155 million.
Stock based compensation expense for the full year, we estimate to be approximately $68 million.
Capital expenditures approximately $10 million.
And our weighted average share count for the full year of approximately 71 million shares.
Tim Bixby: And finally, I note that we've published a handy deep dive guide to a couple more detailed accounting topics in conjunction with our shareholder letter. You'll find the supplementary information on our investor relations website as well. It gives some additional detail on our cash flow, our synthetic agents accounting program, and reinsurance. It's worth a read.
And finally I note that we've published a handy deep dive guide to a couple of more detailed accounting topics in conjunction with our shareholder letter you will find the supplementary information on our Investor Relations website as well it give some additional detail on our cash flow our synthetic agents accounting program and reinsurance it's worth a read.
And with that I would like to hand things back over to Daniel to answer some questions from our retail investors Daniel.
Daniel Shriver: And with that, I would like to hand things back over to Daniel to answer some questions from our retail investors. Thanks, Tim. We'll now turn to questions submitted and upvoted by our community of engaged and extremely thoughtful shareholders. And the first one comes from Paperbag, who asks, with car loss ratios improving, how aggressively will Lemonade expand this product? What percentage of IFP is cars now, and what might it be in a year?
Thanks, Tim.
We'll now take questions submitted and have voted by a community of engaged an extremely thoughtful shareholders and the first one comes from paper bag, who asks with core loss ratio is improving how aggressively we eliminate expand this product what percentage of IOP is gone now and what might it be in a year.
So as you enter 2023 call represents about 15% of our total RFP and we expect it to roughly maintain that share in 2024 and begin to expand significantly in 2025 and beyond.
Daniel Shriver: So at year's end, 2023, CAR represents about 15% of our total ISP, and we expect it to roughly maintain that share in 2024 and begin to expand significantly in 2025 and beyond. Put differently, CAR is going from losing share in 2023 to really carrying its own weight and maintaining its share in 2024 to growing its share thereafter. In terms of how aggressively we plan to expand, let me say the following. The first is that you're right, of course. As the loss ratio of cars comes down to our target range, we will be seeing opportunities to invest much more aggressively in growing the book. That process has begun.
Put differently car is going from losing share in 2023 to really carrying its own weight and maintaining its share in 2024 to growing it.
Thereafter.
In terms of how aggressively we plan to expand let me say the following.
First is that you are right of course.
The loss ratio of car comes down to our target range, we will be seeing opportunities to invest much more aggressively in growing the book that process has begun.
It will step up in 2024, but it wont really hit its stride until 2025, but I'll just say it has begun in fact in 2023 actually grew significantly in places where our profitability was attractive.
That wasn't true for our largest markets like California, and New Jersey, but outside of those states. Our book is relatively small but it grew at 55 zero percent growth rate in 2023, so where opportunities present, we can grow pretty aggressively and this foray into growing car has given us data experienced confidence and.
Daniel Shriver: It will step up in 2024, but it won't really hit its stride until 2025. But, as I say, it has already begun. In fact, in 2023, car sales actually grew significantly in places where profitability was attractive. Now, that wasn't true for our largest markets like California and New Jersey, but outside of those states, our book is relatively small, but it grew at 50, five, zero percent growth rate in 2023. So where opportunities present themselves, we can grow pretty aggressively, and this foray into growing cars has given us data, experience, confidence, and time to adjust rates in those other places. So we will be increasing growth investments in 2024, and we're expecting cars to account for 10 to 15% of newly written premiums this year. That's still not the breakout we expect cars to deliver in due course when the engine is finally tuned and revved up, but we're definitely gearing up for.
Time to adjust rates in those other places so we will be increasing growth investments in 2024.
And we're expecting core to account for 10% to 15% of newly written premiums this year.
Still the breakout we expect core to deliver in due course, when the engine is finely tuned and ramped up but we definitely gearing up towards that.
There are several exciting technology advancements that should help with cross selling and with even further refinement of our telemetry and the data science behind that those will be released in 2024 and will really enable us to accelerate growth core growth further in 2025.
Given that that's the case with currently project that the.
Share of newly written premiums next year will probably be double what it is this year I hope that addressed your question.
Daniel Shriver: There are several exciting technological advancements that should help with cross-selling and with even further refinement of our telemetry and the data science behind that. Those will be released in 2024 and will really enable us to accelerate car growth further in 2025. Given that that's the case, we currently project that the share of newly written car premiums next year will probably be double what it is this year. I hope that addresses your question. The next one comes from Darren S., who asked two questions that are kind of related, so I'm going to bundle them together.
The next one comes from Darrin Darrin asked.
Two questions.
And a related so I'm going to bundle them together firstly he says in Q1 'twenty three.
Eliminate had mentioned that generative AI was meaningfully improving cost structure was expected to over the course of 18 months. Once they are now 12 months or so into those 18 months are there any financial benefits that had been realized any evidence.
For <unk>.
Generally if AI can help.
He also asked if we could elaborate on how much RFP and customers the current head count could support.
Daniel Shriver: Firstly, he says in Q1'23, Lemonade mentioned that generative AI was meaningfully improving cost structure or was expected to over the course of 18 months, and he wants to know now, 12 months or so into those 18 months, are there any financial benefits that have been realized, any evidence for how generative AI can help? He also asked if we could elaborate on how much IFP and customers the current headcount could support, particularly if we had $10 billion or when we had $10 billion in ISP, how much larger would our employee base need to be? So Darren, those are really great questions.
Particularly if we had a $10 billion of when we have $10 billion of ISP, how much larger would.
Employee base needs to be so Darren those are really great questions. It's exactly the kinds of things Thats preoccupy us and that we focus on.
Start by giving you the rearview mirror, what's been achieved so far.
Because we've delivered significant operating leverage in recent years.
So over the last few years head count has grown by 8%.
Daniel Shriver: It's exactly the kinds of things that preoccupy us and that we focus on. Let me start by giving you a kind of rear view mirror on what's been achieved so far because we've delivered significant operating leverage in recent years. So over the last few years, headcount has grown by eight percent compounded annual growth, while IFP has grown by 40% CAGR during the same time. So you can see the dramatic divergence between an 8% headcount expense or payroll expense and the 40% top line. I think that speaks volumes about the financial benefits that we've realized and continue to realize. In fact, our payroll expense was down in 2023 year on year, even though our business grew by up to 20%.
Compounded annual growth.
<unk> has grown by 40% CAGR during the same time. So you can see those dramatic divergence between 8% head count expense or payroll expense and 40% topline I think that speaks volumes about the financial benefits that we've realized and continued to realize.
In fact, our payroll.
<unk> was down in 2023 year on year, even though our business grew at 20% again, I think very strong indicators that you're looking for.
Give me a little bit more context and color when we think about the scalability of our employee base, we tend to think.
Think about it is split roughly half our employees on what we think of as a variable cost so because of the customer facing teams the customer support the claims that you would typically expect to grow more or less in line with customer growth twice as many customers will usually mean twice as many customer support queries and twice as many claims.
Daniel Shriver: Again, I think very strong indicators that you're looking for. Giving a little bit more context and color, when we think about the scalability of our employee base, we tend to think about it as split. Roughly half our employees are what we think of as a variable cost. So those are the customer-facing teams, the customer support, the claims that you would typically expect to grow more or less in line with customer growth. Twice as many customers will usually mean twice as many customer support queries and twice as many claims. So that would naturally, all else being equal, grow more or less in a linear fashion.
So that would naturally all else being equal grow more or less in a linear fashion and then everything else the engineering to finance, the legal et cetera, where you wouldn't have that expectation.
The really outstanding historical operating leverage that I mentioned, just now really delivered both by.
Ever improving pretty dramatic improvement.
Daniel Shriver: And then there's everything else, the engineering, the finance, the legal, et cetera, where you wouldn't have that expectation. The really outstanding historical operating leverage that I've mentioned just now was really delivered both by an ever-improving, pretty dramatic improvement in our automation rate, placing very significant downward pressure on the growth of variable headcount, plus a lot of smart expense management and targeted automation initiatives that keep the rest of the organization more or less in a stable size. Marketing and other teams that are using generative AI, coding teams that are using generative AI, et cetera. I'm Just a few months ago, we mentioned the fact that some of our brand new generative AI tools were handling 7% of incoming customer service emails. To be clear, that's distinct from the roughly third of in-app interactions that Maya handles unaided. Emails are much harder; they usually come without context; you don't necessarily know which customer you're talking to, or which policies they have, unlike the app, where all the context is already there.
Imation rate, placing very significant downward pressure on the growth of variable head count plus a lot of smart expense management and targeted automation initiatives that keep the rest of the organization more or less in a stable size marketing and other teams that are using generative AI coding team.
We are using generative AI et cetera.
<unk>.
Just two months ago, we referenced the fact that.
Some of our brand new generative AI tools, we're handling 7% of incoming customer service E mails.
Clearly that's distinct from the roughly third of in App interactions that handles.
Unaided.
E mails on much harder they usually come without context, you don't necessarily know, which customer you're talking to which policies. They have.
Unlike the App, where all the context is already there. So that's been a hard nut to crack it anyways I am happy to report that just one quarter later that 7% has pretty much tripled its roughly 20% as of now so we're seeing a very notable acceleration you can see the trajectory that's on.
Daniel Shriver: So that's been a harder nut to crack. At any rate, I'm happy to report that just one quarter later, that 7% has pretty much tripled; it's roughly 20% as of now. So we're seeing a very notable acceleration. You can see the trajectory that's on. And we think of what we've done so far as really just the early innings, the tip of the iceberg or whatever other metaphor you want.
And we think of what we've done so far is really just the early innings the tip of the iceberg. The metaphor you want we see no reason why we can't ultimately.
Automate the overwhelming majority of our customer interactions and to deliver them as we do today.
At least the level of customer satisfaction as we generate by human interaction. So we're seeing very similar levels of net promoter score and Ccas and other indicators.
Daniel Shriver: We see no reason why we can't ultimately automate the overwhelming majority of our customer interactions and deliver them as we do today, with at least the level of customer satisfaction we generate through human interaction. So we're seeing very similar levels of net promoter score, CSAT, and other indicators. Shifting to look forward to kind of how far this can go, well, in terms of our fixed teams, if you like, what I was referring to as engineering and finance and marketing and others, we do think that that is massively scalable. We think we've got very strong teams, well-staffed, and conceptually, we could double, triple, and perhaps even 10X our business without seeing any significant growth in those teams. As we choose to launch We are pretty much staffed to the levels that we see ourselves needing in those departments for the foreseeable future.
Shifting to look forward kind of how far can this go well in terms of.
Fixed teams if you like what I was referring to is engineering and finance.
Marketing and others.
We do think that that is massively scalable. We think we've got very strong teams well stopped and conceptually, we could double and triple and perhaps even <unk> business without seeing any significant growth in those teams.
As we choose to launch new markets and new products, we may have to.
Introduce a bit more head count, but I think even than what I said is broadly true we are pretty much stopped to the levels that we see ourselves needing in those departments for the foreseeable future in terms of the variable we do expect to have to grow those teams as we grow but given the massive automation drive the generative.
Daniel Shriver: In terms of the variable, we do expect to have to grow those teams as we grow, but given the massive automation drive, the generative AI, and other tools, we do think that this divergence will continue, our top line will grow significantly faster, and that the growth of these teams will be a fraction of the book's growth rate, and that's really where the scalability and the financial results come from. So in summary, all of the kind of anecdotes that I said, or statistics, or historical successes that we've had, all of those are indicators of operating leverage, how much it's been a focus and will continue to be, and how the sustained scalability of our team is a key driver for how we're focusing on our business.
AI and other tools.
Do think that this divergence will continue out top line will grow significantly faster than the growth of these teams will be a fraction of the books growth rate and Thats really where the scalability and the financial results come from so in summary, as all of these kind of.
Anecdotes that I said, all statistics or historical successes that we've had all of those are indicators of the operating leverage how much it's been a focus and will continue to be.
And how the sustained scalability of our team is a key driver for how we are focusing on our business and ultimately it is that that will deliver the EBITDA breakeven point that we've been speaking about in 2026 as we continue to grow to nominate a holding the numerator is close to steady as possible is really the key that and we think we're doing it.
Daniel Shriver: And ultimately, it is that that will deliver the EBITDA break-even point that we've been speaking about in 2026, as we continue to grow our denominator. Holding the numerator as close to steady as possible is really the key there, and we think we're doing exactly that. Okay, the next question comes from both Darren and Paperbag, pretty much the same question they asked about how things are going with Chewy. So talking about our own results in some detail is something we're very comfortable doing. But we are far more cautious about disclosing partners' results.
Actually that.
Okay. The next question comes from both Darren and paper bag pretty much. The same question I asked about how things are going with chewy.
So talking about our own results in some detail is something we're very comfortable doing we are far more cautious about disclosing partners results. They have not made these numbers public. So we're also going to be circumspect I will say that we are thrilled by the nationwide launch in by the collaboration between the companies.
Daniel Shriver: They have not made these numbers public, so we're also going to be circumspect. I will say that we are thrilled by our nationwide launch and by the collaboration between the companies. It's very much expanded our reach. We remain very bullish about our ability to continue to leverage that platform. I will also say that the results have so far been broadly aligned with the modeling that we and our partner CHIWI did.
It's very much expanded our reach we remain very bullish about our ability to continue to leverage that platform.
And I will also say that the results have so far been broadly aligned with the modeling that we and our partner <unk> has done so.
Without getting too specific this is pretty much in line with what we had.
Planned so beyond the quantity I'll also share that the quality of the book has been very good really on par with our own book in terms of premiums in terms of retention loss rates bundled rates et cetera. So all of this reinforces aspirations for this partnership going forward.
Daniel Shriver: So without getting too specific, this is pretty much in line, in broad strokes, with what we had planned. So, beyond the quantity, I also share that the quality of the book has been very good, really on par with our own book in terms of premiums, retention, loss rates, bundle rates, etc. So, all of this reinforces our aspirations for this partnership going forward. Finally, Paperbag.
Finally.
Paper bag, we've got to do.
<unk> question is today, so paperback asks the following in Q2 2022.
Daniel Shriver: We've got a duopoly of questioners today. And so Paperbag asks the following. In Q2 2022, 21% of non-car sales were cross-sells or ups. In Illinois, with CAR, it reached 36%. What's the current cross-cell, up-cell rate with CAR and without?
21% of noncore sales were cross sells of Upsells in the noise with call. It reached 36%, what's the current cross sell upsell rate with and without also at Investor Day, three 7% of U S customers was up where multiline, what's the current percentage okay.
Daniel Shriver: Also, as of yesterday, 3.7% of U.S. customers were multiline. What's the current percentage? Okay.
Great folk.
<unk> questions, let me try and address them so.
Daniel Shriver: Great focused questions. Let me try and address them. I'm happy to report that all the metrics that you referenced are up since the numbers that you gave in your questions. They've all improved.
I'm happy to report that all the metrics that you referenced.
Up since.
The numbers that you gave in your questions have all improved over.
Daniel Shriver: Over the course of 2023, in the past year, about 25% of our non-car sales were cross-sales. So in all of our other products combined, about a quarter of the sales came from existing customers. If I include car, then we get closer to 30% on a nationwide basis, even though car is not available in all that many states. On a nationwide basis, we're at 30%.
Over the course of 2023 and the past year about 25% of our non core sales were cross sales.
So in all of our other products combined about a quarter of the sales came from existing customers. If I include car than we get closer to 30% on a nationwide basis, even though <unk> is not available in all of that money.
<unk> on a nationwide basis, we're at 30%.
All told today about four 5% of our customers have more than one product.
Daniel Shriver: I'm told today that about 4.5% of our customers have more than one product, and that's up about 20% or by a fifth from the number that you quoted from my investor day. It's important to note that in Illinois, we have continued to see good progress. We talk about Illinois because it's the first state where all of our products were available, so it's a great kind of indicator of where this might go on a nationwide basis.
That's up about 20% will buy a fifth from the number that you created from our Investor day.
Important to note that.
Illinois, we have continued to see good progress so.
We talked about Illinois, because it's the first date of all of our products where available. So it's a great indicator of where this might go on a nationwide basis I don't know.
Illinois has more than 9% of customers customers have been with US a couple of years two years or more.
More than 9% almost 10% of them have more than one product. So thats twice. The average that we have elsewhere. So it will take time for us to grow multiline customer across the entire book.
Daniel Shriver: At any rate, Illinois has more than 9% of customers who have been with us for a couple of years, two years or more. And more than 9%, almost 10% of them have more than one product, so that's twice the average that we have elsewhere.
That might be an indicator of where we might go over the course of the next couple of years in places, where we have all the products, we do need to allow the books to mature we do need to continue to expand product availability nationwide.
Daniel Shriver: So it will take time for us to grow a multi-line customer across the entire book, but that might be an indicator of where we might go over the course of the next couple of years in places where we have all the products. We do need to allow the books to mature. We do need to continue to expand product availability nationwide, but that gives you some indication. In the near term this year, our focus and growth will be more on pet and renters than on car and homeowners. I mentioned cars percentages in an earlier question. We'll see the customer growth come mainly from pet and renters rather than from the other products, and that won't be a huge boon to the numbers they're asking about in terms of multi-line customers, but as car gets to profitability in different states and as we lean into that, as we've indicated probably later this year and into next year, then we would expect that to also have a pretty significant effect on the multi-line customer numbers in 2025 and beyond.
But that gives you some indication.
Near term this year.
Our focus in growth will be more on the patent renters.
Then on car and homeowners I mentioned caused percentages in earlier question.
Excuse me so.
We will see the customer growth come mainly from pet and rent is rather than from the other products and that won't be a huge boon to the numbers I asking about in terms of multiline customers, but as car gets too.
Profitability in different states and as we lean into that as we've indicated probably later this year and into next year. Then we would expect that to also have a pretty significant effect on the multiline customer numbers in 2025 and beyond.
Operator: And with that, I'll hand the call back to the operator to take some questions from our friends on... Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star flow by two, and when preparing to ask your question, please ensure you are unmuted locally. So that's a star followed by one on your telephone keypad to register a question. Our first question today is from Jason Helton from Oppenheimer. Jason, please go ahead. Your line is open.
And with that I'll hand, the call back to the operator to take some questions from our friends on Wall Street.
Thank you thank.
If you would like to register a question. Please press star one on your telephone keypad.
If you would like to withdraw your question. Please press Star Goodbye.
And length of time to ask a question. Please ensure you Amit had lately.
So that stock split by one on your telephone keypad to register a question.
Our first question today is from Jason <unk> from Oppenheimer.
Jason. Please go ahead your line is open.
Jason Helfstein: Thanks. Two questions. Just the first, you talked in the release about using AI with third-party agents. Is this going to be something that will be financially material in 24 hours, or is it really more of a test and then it... and beyond.
Thanks, two questions just the first you talked in the release about using AI with third party agents.
Is this going to be something that will be financially material in 'twenty four or it's really more of a test and then it becomes more material in 'twenty five and beyond and the second question.
Daniel Shriver: And the second question, you know, you talked about the shift away from home. How much of that is due to learnings from the newest LTV model as opposed to just it's taking longer to get rate increases in certain states? Thank you. Hey Jason, good morning.
You talked about shifting away the mix shifted away from home.
How much of that is due to learnings from the newest LTV model as opposed to just it's taking longer to get rate increases in certain states.
No.
Okay.
Yeah.
Hey, Jason good morning.
Daniel Shriver: I'm not exactly sure what you meant by that first question. We didn't really talk about AI and third-party agents. What we did say, and I'm not sure if this is what you're asking about, but we said that within home, which touches on your second question, we will be testing selling third-party policies in states where we don't currently offer home. Is that what you were asking about? Yeah, yeah, yeah, yeah
I'm not exactly sure what you meant by that first question.
It's about AI, you said party agents.
What we did fine.
I'm not sure if thats, what youre asking about what we said that within home, which touches on your second question, we will be testing selling third party.
Policies in states, where we don't currently offer home is that what you were asking about.
Yeah.
Yeah.
Jason Helfstein: So, yeah, that's what I was referring to, sorry. Okay, so can you just refine what that first question was regarding that? Yeah, so just is that something that you know, could move the needle in 24 hours, or is that more of a test? works, we'll see the impact. Got it. The latter. The latter. I mean, these things can take off and move quickly, but it is a test.
So yes, that's what I was referring to Si.
Yes.
Okay. So can you just refined what that first question was regarding that.
Yes.
Something that could move the needle in 'twenty, four or that like more of a test.
If it works, we'll see the impact.
<unk> and.
Got it.
Sure.
The latter the last I mean, these things can take off and move quickly but.
It is a test there'll be rolling out its just in a few states. So it wouldn't be rolling out until next quarter. So I would not expect you to have a significant impact this.
Daniel Shriver: It'll be rolling out just in a few states, and it won't be rolling out until next quarter. So, I would not expect it to have a significant impact this year. It's certainly not baked into the numbers that we have provided in our guidance. It's a test. It could go well.
This year, it's certainly not baked into the numbers that we provided in our guidance. It's a test that could go well, it's the kind of thing that we've done episodically all along so.
Daniel Shriver: It's the kind of thing that we've done episodically all along. So, earthquake insurance has worked this way, our term life insurances work this way, and in areas where we haven't yet got rate adequacy or other things, we're going to test having these alternatives that we can offer to our customers in order to capture a lot of the pent-up demand that we are seeing. And that ties into your second question about rate adequacy from home. So we do find, or have found, that it's taken quite a long time to get to rate adequacy in many states. This is not just about LTV9 coming through that has allowed us to refine, as it does with every generation, to understand with ever greater nuance exactly where and which customers and lifetime values are. But frankly, the issues with homeowners insurance in states like California have been so broad-based, industry-wide, as we referenced, you know, the largest insurance companies in the nation pulling out of the state.
That was quick insurance.
Our term life insurance is back this way and in areas, where we haven't yet got rate adequacy or other things, we're going to test having these alternatives.
We can offer to our customers in order to capture a lot of the pent up demand that we're seeing in that.
It ties into your second question about rate adequacy from.
<unk>.
So we do find.
Found that it's taken quite a long time to get to rate adequacy in many states.
It is not just about LTV nine coming through that has allowed us to refine.
As it does with every generation to understand with ever greater nuance, exactly where and which customers on <unk>.
<unk> values.
But frankly the issues with homeowners insurance in states like California have been.
So broad based industry wide as you referenced the largest insurance companies in the nation pulling out of the state. So there have been much larger forces at play secular shift, which we've been responding to and tools of precision and LTV are doing a fabulous job, but if regulators onto proving rates.
Daniel Shriver: So there have been much larger forces at play, secular shifts, which we've been responding to. And our tools of precision and LTV are doing a fabulous job. But if regulators aren't approving rates that are reflective of those AI insights, then we're not going to sell insurance in those markets until they do. And we're just seeing a time lag.
That are reflective of those AI insights that we're not going to sell insurance in those markets until they do and we're just seeing a time lag. So I think we have very good understanding of which customers we want how to select for that and how to price for them. We're writing waiting for those rates to come on line. So that we can do exactly that.
Daniel Shriver: So I think we have a very good understanding of which customers we want, how to select for them, and how to price for them. We're waiting for those rates to come online so that we can do exactly that. Thank you. Thank you. Before we take our next question, I'd just like to remind everyone to register a question. Please press star followed by one on your telephone keypad. Our next question is from Yaron Kinar on Geoffrey. Yaron, please go ahead; your line is open.
Thank you.
Thank you before we take our next question I'd, just like to remind everyone to register a question. Please press star one on your telephone keypad.
Our next question is from Yaron.
From Jefferies. Please.
Please go ahead your line is open.
Yaron Kinar: Thank you and good morning, everybody. My first question, Tim, was helpful to hear the update on the loss ratio progression by line. Can you maybe be a little more specific there? I think you gave a range of 9 to 18 point improvement across each of the lines, but can you maybe give us a little more color on which lines are improving by how much, and if possible, even without catastrophes?
Thank you and good morning, everybody.
My first question Tim It was helpful to hear the update on the loss ratio progression by line.
Maybe a little more specific here I think you gave a range of 918 point improvement across each of the lines, but can you maybe give us a little more color on which lines are improving by how much and if possible even without catastrophe.
Tim Bixby: So we haven't been disclosing exact loss ratios every quarter, but we wanted to give some color commentary. Significant improvement across all the lines. I would say that car showed the most significant improvement, so it was at the upper end of that range, and obviously, there is no material cat impact there, typically, so not affecting the number. At the lower end of the range, renter, home, and pet.
Yeah.
So.
We havent been disclosing exact loss ratios every quarter, but wanted to give some color commentary significant improvement across all the lines.
I would say that.
<unk> showed the most significant improvement so is that the upper end of that range and obviously no material cat.
Impact there typically so not affecting the number.
At the lower end of the range renter.
Home and pet.
Tim Bixby: And home tends to be the one where the cat impact is most significant. So good progress across the board, 9 to 18 percent. We'll continue to give that sort of color commentary where it's helpful, but it's not something we disclose specific numbers every single quarter. Okay, thanks. And then I just want to make sure I'm thinking about this strategically correctly, the homeowner's business, so maybe a little less of an appetite to grow there right now, while rates are not quite adequate in all states, but you are still committed to growing your home over time on your own balance sheet in the US. Is that correct? That is, hi everyone. Good morning.
In home tends to be.
One way or that the cat impact is most significant.
So good progress across the board.
918%.
Continue to give that sort of color commentary, where it's helpful. But it's not something we disclose.
Quick numbers every single quarter.
Yeah.
Okay. Thanks.
And then I.
I just wanted to make sure I'm thinking about.
Strategically correctly.
Homeowners business so.
Maybe a little less of an appetite to grow there right now while rates are not quite adequate in all states, where you are so committed to growing in home over time on your own balance sheet in the U S is that correct.
That is higher on good morning, Yes, we are.
Shai Winninger: Yes, we are. We are seeing significant progress in our homeowners business. As Tim indicated, rate adequacy, as you know, has been a challenge for the industry. So in the meantime, there will.
We are seeing significant progress in our homeowners business as Tim indicated rate adequacy as you know has been a challenge for the industry. So in the meantime.
Shai Winninger: I say in the meantime, but there will always be certain business that we don't want to underwrite ourselves. We'll have our own underwriting appetite. We do have our own underwriting appetite, and even in places where we are very profitable, particularly in those regions, there's always the risk of getting over-indexed in those regions, and therefore, having an avenue through which when we reach our appetite limits, we can continue to satisfy customer needs either by writing our own paper or elsewhere is something that just makes a lot of solid sense and, as you know, is widely done throughout the industry. So this is not a substitute It is an augmentation that we're testing at this point. Got it. And then, if I may, on AI.
So in the meantime, but there will always be certain business that we don't want to underwrite ourselves, we'll have underwriting appetite, we do have an underwriting appetite and even in places where we are very profitable, particularly in those oil rich.
<unk> of getting over indexed on those regions and therefore, having an avenue through which when we reach appetite limits that we can continue to satisfy customer needs either by writing our own paper or elsewhere is something that just makes a lot of solid sense and as you know is a widely done throughout the industry. So this is not a substitute for us doing our own.
It is an augmentation that we're testing at this point.
Got it.
And then one final one if I may on AI. So we've seen some press recently.
Daniel Shriver: So we've seen some press recently about states that may be scrutinizing the use of AI in insurance a bit more carefully, both on the claims side and then the underwriting side, I think even the customer acquisition side. And just looking at trying to avoid any discriminatory practices that could arise there or seemingly discriminatory practices. Can you maybe talk about what you're seeing there, how you avoid maybe these pitfalls, and how much buy-in you're getting from the regulators? Yeah, with pleasure. It's a great question.
About states that may be scrutinizing, the use of AI and insurance are a bit more carefully both on the claims side and then the underwritings hiring given the customer acquisition side.
And.
Just looking at.
Trying to avoid any discriminatory practices that could arise there are seeming seemingly.
Seemingly discriminatory practices can you maybe talk about what youre seeing there how you avoid maybe these pitfalls and then how much buying youre getting from the regulators.
Yes with pleasure, it's a great question.
Daniel Shriver: And we are seeing some of that in the US. Europe is perhaps a step ahead in this regard in passing AI-related legislation. And I think it's fair to say that we've been pushing and encouraging and working with regulators on this from the get-go. We've had for some years now an AI fairness officer, an AI ethicist. We have our data science teams trained on these matters. We've got fairly strict protocols. And the old adage about great power requiring great responsibility holds true, I think. And if we are, as we claim to be, at the cutting edge of bringing AI to insurance, we also have to be thoughtful about all of those risks that come with it as well. We're quite sure that when it's applied responsibly, the benefits dramatically outweigh the risks, but the risks are not to be ignored.
We are seeing some of that in the U S. Europe is perhaps a step ahead in this regard.
AI related regulation and I think it's fair to say that we've been.
Pushing on encouraging and working with regulators on this from the get go.
We have been we've had for some years now.
And AI Spanish office.
I suggest we have our data science teams trained on these matters, we've got fairly strict protocols.
The old adage about great tower, requiring great responsibility.
True.
As we claimed to be at the cutting edge of bringing in.
AI to insurance, we also have to be thoughtful about all of those risks that come with it as well we're quite sure that when it's applied responsibly the benefit dramatically outweigh the risks, but the risks are much taken out. So yes, we do work with regulators on these things we feel quite comfortable that we are not only within regulation, but.
Daniel Shriver: So yes, we do work with regulators on these things, and we feel quite comfortable that we are not only within the regulation but, in large measure, setting the standards for how this can be done responsibly, how this can be tested on a nationwide basis, on a per-model basis, on a per-customer basis. So yeah, I think we're feeling pretty comfortable with that and will continue to monitor this space. We recently created an insurtech coalition that is working with regulators in order to set the tone and help regulators understand these issues. So yeah, an area of significant focus.
In large measure.
Setting the standards for how this can be done responsibly, how this can be tested.
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On a nationwide basis on a per model basis on a per customer basis.
So yes.
Thank you.
Are you pretty comfortable with us and will continue to monitor the space. We recently created and insure Tech coalition that is working with regulators in order to.
Set the tone and help regulators understand these issues.
Yes.
Significant focus.
Operator: Thank you. Thank you. This is all the time we have for questions today, so that will conclude today's call. Thank you everyone for joining us. You may now disconnect your lines and have a lovely day.
Thank you.
Thank you. This is all the time, we have for questions. Today. So that will conclude today's call. Thank you everyone for joining you may now disconnect your lines and have a lovely gang.
Yeah.
[music].
Okay.
Sure.
Okay.
Okay.
Okay.