Q2 2025 Lemonade Inc Earnings Call

August 5, 2025

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I'll hand over to eliminate team to begin.

Good morning, and welcome to eliminate second quarter 2025 earnings call joining us on our call today, we have Daniel Schreiber, CEO and co founder shy Weninger, President and co founder, Tim Bixby, Chief Financial Officer, and Nick said SVP finance.

Letter to shareholders covering the company's second quarter 2025 financial results is available on our Investor Relations website at <unk> Dot Com Slash investor I would like to remind you that managements remarks made on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1990.

<unk> 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 February 26, 2025, and our other filings with the SEC.

Forward looking statements made on this call represent our views only as of today and we undertake no obligation to update them.

Good morning, all good afternoon Quadruplet today slipping in Q2 2025 earnings call. My name is that doesn't mean they'll be around parts if it's tight.

Conciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders our.

Do you like to ask a question to the Q&A portion of today's call. Please press star followed by one on your telephone keypad.

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 trailing 12 month loss ratio and net loss ratio and a definition of each metric.

Over to eliminate team to begin.

Good morning, and welcome to eliminate second quarter 2025 earnings call joining us on our call today, we have Daniel Schreiber, CEO and co founder shy wedding Garg, President and co founder, Tim Bixby, Chief Financial Officer, and Nick <unk> SVP finance.

By each are 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.

Letter to shareholders covering the company's second quarter 2025 financial results is available on our Investor Relations website.

Good morning, and thank you for joining us to discuss eliminate the results for the second quarter of 2025.

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I would like to remind you that managements remarks made on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 actually.

A pleasure to report, but really across all of our key metrics on our financial performance in the quarter was excellent on the top line, we delivered our seventh consecutive quarter of growth acceleration with 29% year on year growth and concurrently our gross loss ratio for the second quarter was 67% 12 points improved relative.

<unk> 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 S. E. T. I'm February 26, 2025, and our other filings with the SEC any forward looking statements.

For Q2 of last year and this brings our trailing 12 month gross loss ratio to 70%, our best results ever and squarely within the healthy range of our business model. It is worth noting that just one year ago <unk> was growing at 22% on a trailing 12 month gross loss ratio was 79% and while neither metric was too.

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, including adjusted EBITDA adjusted free cash flow and adjusted gross profit, which we believe may be important to investors to assess our operating performance reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures are included.

Savi 12 months on both have improved dramatically. This I believe is a clear testament to our ability to leverage AI to pinpoint and target risks with accuracy and deliver profitable growth concurrently as a result of these dynamics our gross profit grew by over 100% in the second quarter.

In our letter to shareholders.

Gross margin at 39% is among the highest we've ever recorded and what's more the growth of our topline eclipsed any growth in the underlying expense structure and as a result, we saw strong adjusted free cash flow generation of $25 million more than a tenfold increase relative to the second quarter of 2024.

Letter to shareholders also includes information about our key performance indicators.

And customer enforced premium premium per customer annual dollar retention grocery its premium gross loss ratio gross loss ratio ex cat trailing 12 month loss ratio and that loss ratio and a definition of each metric by each of you spoke to investors and how we use each to monitor and manage our big bets.

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In recent quarters, we have been highlighting eliminated cause progressions in Q2, we continue to see that momentum build through the first half of the year cause growth has significantly exceeded our original financial plan. It has now crossed $150 million of in force premium and continuing to grow product enhancements have fueled conversion rate gains.

With that I'll turn the call over to Daniel for some opening remarks.

Good morning, and thank you for joining us to discuss eliminate the results for the second quarter of $20 25, and it's a pleasure to report that really across all of our key metrics on our financial performance in the quarter was excellent.

Geographic expansion has been another tailwind concurrent with that it is important to note that our core gross loss ratio has improved dramatically with Q2 result of 82%, marking a 13 point improvement relative to last year.

The top line, we delivered our seventh consecutive quarter of growth acceleration with 29% year on year growth and concurrently our gross loss ratio for the second quarter was 67% 12 points improved relative to Q2 of last year and this brings our trailing 12 month gross loss ratio to 17% our best results.

Switching gears, we recently announced the renewal of our reinsurance program at similar terms to the expiring program with one important exception, which is that we reduced the scope of our quota share program from 55% to 20%.

[laughter] squarely within the healthy range of our business model. It is worth noting that just one year ago. She was growing up 22% and a trailing 12 month gross loss ratio was 79% and while neither metric was too shabby 12 months on both have improved dramatically.

It is worth underscoring this decision was solely of making the confidence to make such a move directly stems from our multiyear track record of improving loss ratios as key products and geographies have become more mature and predictable.

I believe is a clear testament to our ability to leverage AI to pinpoint and target risks with accuracy and deliver profitable growth concurrently as a result of these dynamics our gross profit grew by over 100% in the second quarter and our gross.

In his remarks later on this call Tim will walk you through a couple of important related nuances on the capital efficiency and accounting, but before that let me hand off to Shai for an update on our European business site.

Gross margin at 13, 9% is among the highest ever recorded and what's more the growth of our topline eclipse and the growth in our underlying expense structure and as a result, we saw strong adjusted free cash flow generation of $25 million more than a tenfold increase relative to the second quarter of 2024.

Thanks, Daniel before I get to Europe, I wanted to highlight a couple of updates to our new Investor Relations website, which can be valuable for those new to eliminate story.

This morning, we've added an investor presentation as well as the hand, the spreadsheet with key financial metrics. We hope you will find these helpful.

In recent quarters, we've been highlighting eliminated cause progressions in Q2, we continued to see that momentum built through the first half of the year Cogs growth has significantly exceeded our original financial plan, because now crossed $150 million of in force premium and continuing to grow product enhancements have fueled converge.

We first launched lemonade in Europe in Germany in 2019, and now service over 250000 customers across four key European markets, the UK, Netherlands, France, and Germany, and two products renters and homeowners.

Rate gains and geographic expansion had been another tailwind concurrent with that it is important to note that our core gross loss ratio has improved dramatically with Q2 result of 82%, marking a 13 point improvement relative to last year.

Europe is of growing importance for a few reasons.

It deals a diversification benefit to our growth with notably lower cap exposure and a flexible regulatory environment.

In the past few quarters, we've really seen our European business come into its own and is now a meaningful driver of growth for the organization.

We concluded Q2 with $43 million, Europe, ISP, which represents over 200% growth our eighth consecutive quarter of triple digit growth and our fourth consecutive quarter of growth rate acceleration.

It is worth underscoring this decision was solely of making the confidence to make such a move directly stems from our multiyear track record of improving loss ratios the key products and geographies have become more mature and predictable.

I am pleased to report that the story in Europe is very similar to what Daniel highlighted in our card business growth acceleration has been paired with improvement in underwriting performance.

83% gross loss ratio in the second quarter.

15% improved relative to last year, and roughly 20 points better than where our U S business was at a similar scale.

Thanks, Danielle before I get to Europe, I wanted to highlight a couple of updates to our new Investor Relations website, which can be valuable for those new to eliminate story.

This performance is powered by a structural cost advantages driven by our AI platform <unk>.

One Great example of this is a technology we call local.

This morning, we've added an investor presentation as well as the handy spreadsheets with key financial metrics. We hope you will find these helpful.

Sure <unk> No code insurance application builder.

With local we can rapidly build new product launched new regions iterate on pricing and underwriting and experiment with various dynamic experiences all in hours instead of weeks and without touching any code.

We first launched lemonade in Europe in Germany in 2019, and now service over 250000 customers across four key European markets, the U K, Netherlands, France and Germany.

Local is a powerful platform that enables us to manage our multi continent insurance company with unmatched efficiency.

Two products renters and homeowners.

Europe is of growing importance for a few reasons it yields a diversification benefit to our growth with notably lower cap exposure and a flexible regulatory environment.

Where our competitors have large local teams on the ground in the regions they operate.

And with each region, having its own specific legacy infrastructure.

In the past few quarters, we've really seen our European business come into its own and it's now a meaningful driver of growth for the organization.

Prior theory technology enables us to expand our geographical footprint with unmatched velocity and limited incremental overhead.

We concluded Q2 with $43 million, Europe, ISP, which represents over 200% growth our eighth consecutive quarter of triple digit growth.

We are clearly in the early innings of our European journey eliminate but believe Europe is positioned to remain a key engine of rapid profitable growth for years to come.

And with that I'll hand, it off to the team who will cover our financial performance and outlook.

Our fourth consecutive quarter of growth rate acceleration.

I'm pleased to report that the story in Europe is very similar to what Daniel highlighted in our card business growth acceleration has been paired with improvement in underwriting performance. We saw an 83% gross loss ratio in the second quarter.

Thanks, Sean I'll review highlights of our Q2 results and provide our expectations for Q3 and the full year 2025, and then we'll take some questions.

In short our Q2 financial results were exemplary across the board we remain very much on track with our ambitious goals for positive EBITDA by the end of next year loss ratio tracking to target consistently.

6% improved relative to last year, and roughly 20 points better than where our U S business was at the similar scale.

Consistently accelerating topline growth with little change in fixed overhead expenses and favorable cash flow dynamics.

This performance is powered by structural cost advantages driven by our AI platform.

One Great example of this is a technology we call local.

In force premium grew 29% to just above a $1 billion, while customer account increased by 24% to $2 7 million.

Our elegant first no code insurance application builder.

With local we can rapidly build new product launched new regions isolate on pricing and underwriting and experiment with various dynamic experience at all.

Premium per customer increased 4% versus the prior year to $402 driven primarily by rate increases.

Annual dollar retention, our ADR was 84% flat as compared to the prior quarter.

In hours instead of weeks and without touching any code.

And continuing to show modest downward pressure as a result of our continuing effort to improve the profitability of our home book through targeted non renewals.

Local is a powerful platform that enables us to manage our multi continental insurance company with unmatched efficiency.

Where our competitors have large local teams on the ground in the regions they operate.

We expect ADR to normalize and resume improvement over the coming quarters.

And with each region, having its own specific legacy infrastructure.

Gross earned premium in Q2 increased 26% as compared to the prior year $252 million in line with ISP growth.

Prior theory technology enables us to expand our geographical footprint with unmatched velocity and limited incremental overhead.

Revenue in Q2 increased 35% from the prior year to $164 million the growth in revenue was driven by the increase in gross earned premium a slightly higher effective ceding commission rate under our quota share reinsurance and a 16% increase in investment income.

Well clearly in the early innings of our European journey eliminate but believe Europe is positioned to remain a key engine of rapid profitable growth for years to come.

And with that I'll hand.

After the team who will cover our financial performance and outlook.

Our gross loss ratio was 67%.

Great. Thanks, Sean I'll review highlights of our Q2 results and provide our expectations for Q3 and the full year of 2025, and then we'll take some questions.

For Q2 as compared to 79% in Q2 2024, 94% in Q2 2023.

In short our Q2 financial results were exemplary across the board.

Excluding the total impact of cats in Q2, roughly seven percentage points or gross loss ratio ex cat was 60%.

We remain very much on track with our ambitious goals for positive EBITDA by the end of next year loss ratio tracking to target.

Total gross prior period development had a roughly 3% favorable impact.

Consistently accelerating topline growth with little change in fixed overhead expenses and favorable cash flow dynamics.

<unk>, 5% from non cat offset by 2% unfavorable from cat.

Enforced premium grew 29% to just above $1 billion Wow customer count increased by 24% to $2 7 million.

We saw this favorable prior period development across all products with the exception of pet with the largest impact in our homeowners multi peril business.

Premium per customer increased 4% versus the prior year to $402 driven primarily by rate increases.

On a net basis prior period development was in line with growth, including non cat and cat breakdown.

Annual dollar retention or ADR was 84%.

Prior year development, which is reported on a net basis was about $2 $2 million favorable in the quarter and about $12 $6 million favorable year to date.

As compared to the prior quarter.

And continuing to show modest downward pressure as a result of our continuing effort to improve the profitability of our home books through targeted non renewals.

Trailing 12 months or TTM loss ratio was about 70% or nine points better year on year.

We expect ADR to normalize and resume improvement over the coming quarters.

All of these insurance metrics and more are included in our insurance supplement that you'll find at the end of our shareholder letter.

Gross earned premium in Q2 increased 26% as compared to the prior year $252 million in line with IFC growth.

Gross profit increased 109% as compared to the prior year, while adjusted gross profit increased 96%.

Revenue in Q2 increased 35% from the prior year to $164 million.

Both driven primarily by premium growth.

The growth in revenue was driven by the increase in gross earned premium slightly higher effective ceding commission rate under our quota share reinsurance and a 16% increase in investment income.

Significant loss ratio improvement.

Operating expenses, excluding loss and loss adjustment expense increased 21% to $129 million in Q2 as compared to the prior year driven primarily by an increase in gross spend.

Our gross loss ratio was 67%.

For Q2 as compared to 79% in Q2, 2024, and 94% in Q2 2023.

And the impact of the $12 million, one time benefit from a tax refund.

Excluding the total impact of cats in Q2, roughly seven percentage points or gross loss ratio ex cat was 60%.

Other insurance expense grew 14% in Q2 versus the prior year at roughly half the growth rate of earned premium.

Total gross prior period development had a roughly 3% favorable impact.

Total sales and marketing expense increased by $23 million or 62%.

5% from non cat offset by 2% unfavorable from cats.

Primarily due to the increase in gross spend of approximately $24 million total growth spend in the quarter was $50 million roughly double the $26 million in the prior year quarter.

We saw this favorable prior period development across all products with the exception of pet with the largest impact in our homeowners multi peril business.

We continue to utilize our synthetic agents growth funding program and have continued to finance, 80% of our growth spend as a reminder, youll see a 100% of our gross spend flow through the P&L, while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet.

On a net basis prior period development was in line with gross including non cat and cat breakdown.

Prior year development, which is reported on a net basis. It was about $2.2 million favorable in the quarter and about $12 $6 million favorable year to date.

And our net financing to date is about $124 million as of June 30.

Trailing 12 months or TTM loss ratio was about 70% or nine points better year on year.

Technology development expense was up 6% year on year to $22 million, while G&A expense decreased 13% as compared to the prior year to $22 million.

All of these insurance metrics and more are included in our insurance supplement you'll find at the end of our shareholder letter.

Gross profit increased 109% as compared to the prior year, while adjusted gross profit increased 96%.

Primarily due to a onetime tax refund of about $12 million.

Personnel expense and head count control continues to be a high priority total head count is up slightly about 5% as compared to the prior year at 274, while the topline FP grew fully 29%.

Both driven primarily by premium growth and significant loss ratio improvement.

Operating expenses, excluding loss and loss adjustment expense increased 21% to $129 million in Q2 as compared to the prior year driven primarily by an increase in gross spend.

Net loss was $44 million in Q2, or a loss of about <unk> 60 per share as compared to a net loss of $57 million or <unk> 81 per share in the prior year.

And the impact of the $12 million, one time benefit from the.

The tax refunds.

Our adjusted EBITDA loss was $41 million in Q2 versus $43 million in the prior year.

Other insurance expense grew 14% in Q2 versus the prior year.

Roughly half the growth rate of earned premium.

Our total cash cash equivalents and investments ended the quarter at approximately 1.3 billion up $11 million versus year end 2024.

Total sales and marketing expense increased by $23 million or 62%.

Primarily due to increase in gross spend of approximately $24 million total growth spend in the quarter was $50 million roughly double the 26 million in the prior year quarter.

And with these metrics in mind I'll outline our specific financial expectations for the third quarter and the full year.

From a gross spend perspective, we expect to invest roughly $47 million in Q3 to generate profitable customers with a healthy lifetime value.

We continue to utilize our synthetic agents growth funding program that continued to finance, 80% of our growth spend as a reminder, you'll see 100% of our gross spend flow through the P&L, while the impact of the growth mechanism is visible on the cash flow statement and the balance sheet.

We expect Q4 spend at a level similar to the Q1 rate and.

And thus totaling roughly $173 million for the full year.

And our net financing to date, there's about $124 million as of June 30.

As expected quarterly spend pattern is similar to prior years.

Technology development expense was up just 6% year on year to $22 million, while G&A expense decreased 13% as compared to the prior year to $22 million, primarily due to a onetime tax refund of about $12 million.

For the third quarter of 2025, we expect enforced premium at September 30 of between $1 144, and $1 147 billion.

Gross earned premium of 267 million to $269 million revenue between 183 and $186 million.

Personnel expense and head count control continues to be a high priority total head count is up slightly about 5% as compared to the prior year.

And an adjusted EBITDA loss of between <unk>, 37, and $34 million.

1200, 74, while the topline that feed grew fully 29%.

Stock based compensation expense, we expect to be approximately $17 million and a weighted average share count of approximately 74 million shares.

Net loss was $44 million in Q2 or a loss of about 60 per share as compared to a net loss of $57 million or 81 cents per share in the prior year.

And for the full year, we expect in force premium at December 31 of between one point to one three and one to $1 $8 billion.

Our adjusted EBITDA loss was $41 million in Q2 versus $43 million in the prior year.

Our total cash cash equivalents and investments ended the quarter at approximately 1.3 billion up $11 million versus year end 2024.

Gross earned premium between 136 and 1.39 billion.

Revenue between 710 $715 million.

And with these metrics in mind I'll outline our specific financial expectations for the third quarter and the full year.

And an adjusted EBITDA loss between $140 and 135 billion.

Mark based compensation for the full year, we expect to be approximately $61 million.

From a gross spend perspective, we expect to invest roughly $47 million in Q3 to generate profitable customers to the healthy lifetime value.

And a weighted average share count for the full year of approximately 74 million shares.

We expect Q4 spend at a level similar to the Q1 rate.

And finally I wanted to make a couple of comments on the reinsurance transition as a follow up to Daniels earlier remarks.

And thus totaling roughly a $173 million for the full year.

First the transition from 55% to 20% quota share does not happen overnight. Each program is risk attaching which means it covers policies written between July 2025, and June 2026.

This expected quarterly spend pattern is similar to prior years.

So the third quarter of 2025, we expect enforced premium.

Timber 30 of between 1.144 in 114 $7 billion.

That we expect the transition to unfold over several quarters on our P&L in a roughly linear fashion.

Gross earned premium of $267 million to $269 million revenue between 183, and $186 million and an adjusted EBITDA loss of between <unk> 37 and $34 million.

By Q3, 2026, we expect to be ceding roughly 20% of premium and.

And in the second half of 2025, we expect to see roughly 45% due to those transition dynamics.

Stock based compensation expense, we expect to be approximately $17 million and a weighted average share count of approximately 74 million shares.

Second a reduction in our quota share program does increase our revenue retention, but has no impact on AFP. As a result, we are about to enter a period during which revenue growth rates are expected to outpace ISP growth rates.

And for the whole year, we expect in force premium at December 31 of between one.

And finally, all else equal less quota share increases regulatory capital needs. However, with an improved loss ratio and the expanded use of our wholly owned captive we are able to offset these pressures such that there is no material change.

213, and one point to one $8 billion.

Gross earned premium between one point over three six and $1.39 billion.

Revenue between 710700 $15 million.

And an adjusted EBITDA loss between 140 and $135 million stock based compensation for the full year, we expect to be approximately $61 million.

And our capital planning.

We have included a slide within the insurance supplement to our Q2 shareholder letter that cover some of these dynamics and a bit more detail.

And a weighted average share count for the full year of approximately 74 million shares.

And with that I would like to pass over to Nick to answer some questions for our retail investors.

And finally I wanted to make a couple of comments on the reinsurance transition as a follow up to Daniels earlier remarks.

Nick.

Thanks, Tim well now turn to our shareholders' questions submitted through the same platform.

First the transition from 55% to 20% quota share it does not happen overnight. Each program is risk attaching which means it covers policies written between July 2025, and June 2026.

Paper bag asked what is your plan with synthetic agents going forward.

Will you continue using synthetic agent funding in 2026 and beyond or stop at the end of 2025.

Great question, Thanks paper bag the.

The synthetic agent program has worked precisely as intended when we launched it nearly two years ago and has enabled us to drive growth acceleration in a capital light manner.

We expect the transition to unfold over several quarters on our P&L in a roughly linear fashion.

By Q3, 2026, we expect to be ceding roughly 20% of premium.

In 2023, we deployed $55 million on growth.

And then the second half of 2025, we expect to see roughly 45% due to those transition dynamics.

In 2025, we expect to more than triple our total growth spend to $170 million now with an 80% advance from our synthetic agents.

Second a reduction in our quota share program does increase our revenue retention, but has no impact on ISP.

And while we do pay our synthetic agent a 16% IRR the impact on our unit economics as transformational.

As a result, we are about to enter a period during which revenue growth rates are expected to outpace ISP growth rates.

IRR on our growth spend is around 50% without the synthetic agent and that doubles to roughly a 100% with the partnership in place.

And finally, all else equal less quota share increases regulatory capital needs. However.

There was a model lies on our Investor Relations site posted alongside the materials from our 2024 Investor day that covers these mechanics in more detail.

However, with an improved loss ratio and the expanded use of our wholly owned captive.

We are able to offset these pressures such that there is no material change in our capital planning.

The net impact of inflows and outflows to and from the synthetic agent leaves us with $124 million outstanding on the balance sheet at the end of the second quarter.

We have included a slide within the insurance supplement to our Q2 shareholder letter that cover some of these dynamics and a bit more detail.

We have already announced for 2026 renewal of our synthetic agent agreement with another $200 million of capital available to fund growth investments in 2026 at.

And was that.

I would like to pass over to Nick to answer some questions for our retail investors.

Thanks, Tim well now turn to our shareholders' questions submitted through the same platform.

At each renewal, we evaluate all strategic options available to us and we'll continue to do so but in the near and medium term, we expect to continue to expand this partnership.

Paper bag asks what is your plan with synthetic agents going forward when.

Will you continue using synthetic agent funding in 2026 and beyond or stop at the end of 2025.

Emmanuel Oh asked what is the largest impediment right now stopping eliminate from releasing car to more states.

Great question, Thanks paper bag the.

The synthetic agent program has worked precisely as intended when we launched it nearly two years ago and has enabled us to drive growth acceleration in a capital light manner.

We are currently live with our car product in 10 states and address roughly 50% of the U S car insurance market, a vast market opportunity relative to our current scale.

In 2023, we deployed $55 million on growth.

That has been increasing with two state launches, Colorado and Indiana in the past few months.

In 2025, we expect to more than triple our total growth spend to $170 million now with an 80% advance from our synthetic agents.

We have plans to continue to increase our nationwide coverage and expect to launch multiple additional states through the end of 2026, such that our 50% coverage metric is notably increased.

And while we do pay our synthetic agent a 16% IRR the impact on our unit economics as transformational.

As we look to the state launch roadmap several factors guide us.

IRR on our growth spend is around 50% without the synthetic agent and that doubled to roughly a 100% with the partnership in place.

We evaluate the market opportunity existing eliminate customer penetration and the regulatory landscape.

There was a model lies on our Investor Relations site posted alongside the materials from our 2024 Investor day that covers these mechanics in more detail.

Also new state launches typically involve higher loss ratios is getting a new state online requires rate adjustments post launch and naturally brings a new business penalty impact so we manage that strategically as well.

The net impact of inflows and outflows to and from the synthetic agent leaves us with $124 million outstanding on the balance sheet at the end of the second quarter.

I should note that at most other insurance companies. It takes considerable internal resources to launch new states.

We have already announced for 2026 renewal of our synthetic agent agreement with another $200 million of capital available to fund growth investments in 2026 at.

But with loco as shy covered earlier in his remarks, we have substantially reduced the amount of work required by our insurance and product teams to do so, allowing our teams to shift to more impactful initiatives, while maintaining our targeted pace of state launches.

At each renewal, we evaluate all strategic options available to us and we'll continue to do so but in the near and medium term, we expect to continue to expand this partnership.

Emmanuel also asks does the team believe that even with all of the developments in AI that they are ahead of other AI first companies in terms of the effectiveness and efficiency of the model.

Emmanuel Oh asked what is the largest impediment right now stopping eliminate from releasing car to more states.

Well the short answer is yes, we do think so and Youre right Emmanuel to focus on AI first companies as we believe the gap between us and incumbent insurers who are built on legacy systems is very likely to expand at AI development accelerates.

We are currently live with our car products in 10 states and.

It addressed roughly 50% of the U S car insurance market.

<unk> market opportunity relative to our current scale.

That has been increasing with two state launches, Colorado and Indiana in the past few months.

We have been AI native since day one.

We have plans to continue to increase our nationwide coverage and expect to launch multiple additional states through the end of 2026, such that our 50% coverage metric is notably increased.

Relative to new upstart that 10 years and market gives us a real data edge.

<unk> of AB tests, 10 million driving trips billions of customer interactions and claims.

As we look to the state launch roadmap several factors guide us.

When it comes to data there is really no shortcut to that type of depth and scale.

We evaluate the market opportunity existing lemonade customer penetration and the regulatory landscape.

By the time generative AI really accelerated in 2023 and onwards, we already had AI embedded across the tech stack with terabyte of proprietary data flowing through the system.

We stand apart from incumbents with a single AI system that connects every aspect of the business and from upstart <unk> with the depth and breadth of proprietary data that feeds it.

I should note that at most other insurance companies. It takes considerable internal resources to launch a new state.

So we believe we're really the only full stack multiline insurance company with the tech stack and data to fully capture AI has potential.

Loco as shy covered earlier in his remarks, we have substantially reduced the amount of work required by our insurance and product teams to do so, allowing our teams to shift to more impactful initiatives, while maintaining our targeted pace of state launches.

And this is playing out in our business outcomes.

Our proprietary telematics pricing model now outperforms the off the shelf product that many competitors rely on and over the last two years. Our overall gross loss ratio improved by 27 points, while ISP grew by nearly 60% during the same period clear evidence that our AI flywheel advantages come.

And then you also asked does the team believes that even with all of the developments in AI that they are ahead of other AI first companies in terms of the effectiveness and efficiency of the model.

Well the short answer is yes, we do think so and Youre right Emmanuel to focus on AI first company as we believe the gap between us and incumbent insurers who are built on legacy systems is very likely to expand and AI development accelerate.

Pounding.

For additional reading on this I suggest you checkout Daniels recent eliminated turns 10 blog posts and the Investor presentation, just posted to our Investor Relations site. This morning to learn more about how AI drives our business performance.

We have been AI native since day, one relative to new upstart that 10 years and market gives us a real data edge.

And with that I'll pass it over to the moderator and Daniel and Tim will take some questions from the street.

Thousands of a b tests 10 million driving trips billions of customer interactions and claims.

As a reminder, if you'd like to ask a question on todays call. Please press star followed by one or no telephone keypad announcements of the queue and preparing to ask a question. Please ensure you're on mute locally.

When it comes to data, there's really no shortcut to that type of depth and scale.

Our first question comes from Jason <unk> from Oppenheimer. Jason. Please go ahead. Your line is open.

By the time generative AI really accelerated in 2023 and onwards, we already had AI embedded across the tech stack with terabytes of proprietary data flowing through the system.

Thanks, just a few questions around.

The reinsurance or the reinsurance change because I know a lot of clients that some questions. There. So obviously youre holding more risk, but there is no free lunch.

We stand apart from incumbents with a single AI system that connects every aspect of the business and from ups starts with the depth and breadth of proprietary data that feeds it.

Maybe just talk a little more about the structures you have in place the way you can manage.

So we believe we're really the only full stack multiline insurance company with the tech stack and data to fully capture AI has potential.

Risk and if theres ways to how you manage.

Just the different ways that you can now manage the risk and then there is like a follow up to that does this reflect some kind of step function in you think the company's ability.

And this is playing out in our business outcomes.

Our proprietary telematics pricing model now outperforms the off the shelf products that many competitors rely on and over the last two years. Our overall gross loss ratio improved by 27 points, while ISP grew by nearly 60% during the same period.

To manage risk so like why now I guess is the question right. So first is structurally how you plan on managing that going forward as this evolves to.

Why now and then I guess like the third as you did the revenue will outpace ISP.

<unk> evidenced that our AI flywheel advantages compounding.

Especially through this transition, but how should we think about gross profit relative to IP growth. Thank you.

For additional reading on this I suggest you checkout Daniels recently eliminated turns 10 blog posts and the Investor presentation, just posted to our Investor Relations site. This morning to learn more about how AI drives our business performance.

Hey, Jason good morning.

It is a significant change in Spain.

I guess the only constant here that we've been every couple of years stepping down the amount of quota share reinsurance since IPO from 75% and 55 in FY 'twenty.

And with that I'll pass it over to the moderator and Daniel and Tim will take some questions from the street.

In that sense, it's a continuation, but nevertheless have dropped from $55 <unk> is significant and I think we're spending another few minutes on the first thing that I'd highlight there and then I will hand over to Tim to add a bit more color on some of these points but.

As a reminder, if you'd like to ask a question on todays call. Please press star followed by one on your telephone keypad now turn to the queue.

Your parents or ask a question. Please ensure you're on mute locally.

Our first question comes from Jason Hope steam from Oppenheimer. Jason. Please go ahead. Your line is open.

<unk> for us was not predominantly about risk management at all.

Thanks, just a few questions around the.

The reinsurance in our reinsurance change because I know a lot of clients that some questions. There. So obviously youre holding more risk, but there is no free lunch.

We can use reinsurance to serve different goals, we have actually other policies in place that do manage risk concentration.

So when you see when it hits for example, like the one that hit in Q1, and the California fires.

Maybe just talk a little more about the structures you have in place the way you can manage.

Risk and if there's ways to how you manage.

And you saw that our gross loss ratio was much worse than our net loss ratio that wasn't the quota side that was helping.

Just the different ways that you can now manage the risk and then there was like a follow up to that does this reflect some kind of step function in you think the company's ability.

Quite the same theory will produce very similar gross and net loss ratios because you seed X percent of premiums and you see the same X percent of clay.

To manage risk so like why now I guess is the question right. So first is structurally how you plan on managing that going forward. As this evolves to is why now and then I guess like the 30 that you did say revenue will outpace ISP.

Claims and first approximation the gross and the net should be similar.

If anything because some cat events are excluded from the quota share agreements you might see slightly worse net.

<unk> gross loss ratios.

<unk>.

Especially through this transition, but how should we think about gross profit relative to IP growth. Thank you.

In fact, we saw significantly better net loss ratios and that was because of other policies that we have in place about risk concentration.

Hey, Jason good morning.

Covering losses beyond a certain dollar amount or too many losses in a particular.

<unk>.

It is a significant change it's been I guess, the only constant is that we've been every couple of years stepping down.

Im quadrant or something like that so we have various policies does continue.

The policies that we have in place that are helping us.

Out of quota share reinsurance since our IPO from 75% down to $55 20, so in that sense, it's a continuation, but nevertheless ah.

Tagged against risk concentration on not being materially changed.

Sure.

I'm, 55% to 20 is significant and I think we're spending another few minutes on the first thing that I'd highlight.

In place as I say not predominantly as a tool of risk management, but much more so as a tool for capital management.

I'll hand over to Tim to add a bit more color on some of these points.

The regulators are required that we set aside.

Cause yourself asked was not predominantly about risk management at all.

Percentage of our premiums it was kind of a rule of thumb of three to one but when the insurance entities are fast growing and loss, making it can be more cumbersome still.

We can use reinsurance to serve different goals, we have actually other policies in place that do manage risk concentration.

And once you see to those premiums to quota share partners. It is really that capital rather than yours in that cost of capital lower so we saw coaches have predominantly as a tool for managing that aspect of our business remaining capital light through quota share.

So when you see when it hits for example, like the one that hit in Q1, and the California fires and.

And you saw that our gross loss ratio was much less than our net loss ratio that wasn't the quota side that was helping.

As the last few quarters came in and we have consistently lowered and stabilized our trailing 12 month loss ratio.

Quite the same theory will produce very similar growth in that loss ratio because you seed X percent of premiums and you see the same X percent of <unk>.

67% this past quarter trailing 12 months, which I think is the more dependable metric if you like less.

Claims and first approximation the gross and the net should be similar.

If anything because some cat events are excluded from the quota share agreements you might see slightly less net.

Less volatile less and given to the vicissitudes of a particular event, 70% trading 12 month loss ratio was simply fantastic.

Gross loss ratios.

In fact, we saw significantly better net loss ratios and that was because of all the policies that we have in place about risk concentration.

Perfectly aligned with our long term goals and what that has meant is that our insurance entities have moved from being loss making to profit.

Im covering losses beyond a certain dollar amount or too many losses in a particular quadrant.

Rather than consuming capital they are generating capital and that is something that changed over the course of the last few quarters as we indeed became cash flow positive we reported a 25 million dollar.

Quadrant or something like that so we have various policies does continue.

Policies that we have in place that are helping us protect against risk concentration on not being materially changed.

Cash flow this past quarter 10 fold increase year on year.

Is that more than anything else thats, allowing us.

Quota share was.

In place as I say not predominantly as a tool of risk management, but much more so as a tool for capital management.

To take onboard less or to utilize less quota share reinsurance and of course.

<unk> partners have been stellar they've been amazing the being with us from the get go the biggest and most trusted names in the industry, but as you say no free lunches when you.

Regulators required that we set aside.

Percentage of our premiums is kind of a rule of thumb of three to one but when the insurance entities are fast growing and loss, making it can be more cumbersome still.

Engage in quota share reinsurance Youre really margin stacking you are giving up part of your business you are getting the game that I outlined before predominantly capital efficiency, but you are sacrificing some of your EBITA.

And once you see those premiums to quote you said partners. It is really that capital rather than yours in that cost of capital are lower so we saw coaches had predominantly as a tool for managing that aspect of our business remaining capital light through quota share.

And you really want to use a we really want to use a little of that as we need given our capital requirements.

And the last few quarters came in and we have consistently lowered and stabilized our trailing 12 month loss ratio.

That's more than anything else is what's change we've moved from being.

Businesses that are draining cash to those that are generating cash.

67% this past quarter trailing 12 months, which I think is a more dependable metric if you like less less.

Low loss ratios have changed the capital requirements significantly in those entities and that is what is allowing us to be less dependent on <unk>. We made those adjustments Tim anything you want to add.

Less volatile less given to the vicissitudes of a particular event, 70% trading 12 month loss ratio simply fantastic.

Yes, just a couple of <unk>.

Perfectly aligned with our long term goals.

On the second part of your question, Jason One of note is that.

And what that has mentioned that our insurance entities have moved from being loss, making to profit thinking.

Before you even get to our reinsurance structure.

Rather than consuming capital and they are generating capital and that is something that change over the course of the last few quarters as we indeed became cash flow positive. We reported a 25 million dollar adjusted free cash flow. This past quarter 10 fold increase year on year.

We do take advantage of one of our.

Assets, which is our ability to grow at a very healthy clip, but be very selective about the risks that we take in the business that we write and so in some ways we.

It is that's more than anything else, that's allowing us to take onboard less or to utilize less quota share reinsurance and of course our core.

Enforce our own level of reinsurance by writing in certain areas.

Risks and not ready and others are risk in Florida for example is quite.

Chat partners have been stellar they've been amazing the beam with us from the get go the biggest and most trusted names in the industry, but as you say no free lunches when you.

Limited relative to a typical incumbents.

Our experience in the California fire.

Cat of Q1 was before we even got to reinsurance relatively limited because we're choosy about the level of risk we take in terms of.

Engage in quota share reinsurance.

Really margin stacking you are giving up part of your business you are getting the gains that I outlined before predominantly capital efficiency, but you are sacrificing some of your EBITDA.

High value homes, and so that's a layer that sort of underpins. Our reinsurance then we layer on reinsurance of course.

And you really want to use a we really want to use as little of that as we need given our capital requirements.

The bulk of the reinsurance structure at renewal remained unchanged.

The quota share changed in terms of its <unk> ratio was notable everything else is more or less in place to continue so we have protection against <unk>.

That's more than anything else is is whats change we've moved from being a.

Businesses that are draining cash so those that are generating cash.

Concentrated losses, we have protection against a single large losses in our CPR on our fac coverage in those.

Low loss ratios have changed.

Capital requirements significantly in those entities and that is what is allowing us to be less dependent on <unk>. We made those adjustments Tim anything you want to add.

Continue it continue and were renewed at.

Similar structural impact as it has in the past.

With regard to the impact on gross profit and revenue a couple of things we included.

Yeah, just a couple of.

Points on the second part of your question, Jason one of no.

A pretty straightforward example of what.

Is that.

Before you even get to our reinsurance structure.

Dollars of premium would look like under the old structure and now under the new structure and how it flows through each of the key.

Do take advantage of one of our.

Assets, which is our ability to grow at a very healthy clip, but be very selective about the risks that we take in the business that we write and so in some ways we.

P&L items items line items, and I would say.

<unk> urge you to kind of look at that it's in the.

The back of the shareholder letter today, and I think that will be helpful to sort of navigate how the model is expected to evolve, particularly over the coming four quarters.

Enforce our own level of reinsurance by writing in certain areas of the.

Risks and not writing and others are risk in Florida for example is quite.

Has the change.

Change in the ceding ratio.

Limited relative to a typical incumbents.

More into play.

At a very high level the impact on revenue is greater than the impact on gross profit.

Our experience in the California fire.

Gross profit for many quarters has grown at a very healthy clip well ahead of the topline growth of IOP in premium and Thats because of our.

Cat of Q1 was before we even got to reinsurance relatively limited because we're choosy about the level of risk we take in terms of Ah.

High value homes, and so that that's a layer that sort of underpins. Our reinsurance then we layer on reinsurance of course, so the bulk of the reinsurance structure at renewal remains unchanged.

Youre combining two elements that are combining the benefit of growth as well as the benefit of significant loss ratio improvement and so those dynamics will continue but our loss ratio now that it's.

Nicely in our target range those ships will be somewhat less than they have been over the past.

<unk> changed in terms of its fees ratio was notable everything else is more or less in place to continue. So we have protection against concentrated losses, we have protection against a single large losses in our CPR and our fact coverage in those.

A few years and Thats good news.

On the other hand, we will be a little more.

We will grow at a faster pace again as the reinsurance change rules in.

Continuing.

Again, you should see those dynamics.

Can you and were renewed at.

And the example that we shared.

A similar structural impact as it has in the past.

With regard to the impact on gross profit and revenue a couple of things included.

Thank you.

Yeah.

The next question comes from the Tommy Mcclung from Keyw somebody. Please go ahead. Your line is open.

A pretty straightforward example of what.

Hi.

Dollars of premium would look like under the old structure and now under the new structure and how it flows through each of the key P&L items items line items and I would urge.

Hey, good morning, guys. Thanks for taking my questions.

Maybe to simplify.

The previous question and respond.

Urge you to kind of look at that in the.

I think a couple of years ago, you guys put out a slide an illustrative slides showing the premium leverage.

But back of the shareholder letter today, and I think that will be helpful to sort of navigate how the model is expected to evolve, particularly over the coming four quarters.

You could write out do you have an update on what sort of premium leverage on a gross basis you can write at.

The change.

Change in the ceding ratio.

And then how that changes under this new reinsurance structure.

More into play.

At a very high level the impact on revenue is greater than the impact on gross profit.

Sure I think you are.

Referring to some comments, we've made from time to time regarding the capital surplus requirements relative to the premium.

Gross profit for many quarters has grown at a very healthy clip well ahead of the topline growth of premium and that's because of a youre combining two elements that are combining the benefit of growth as well as the benefit of significant loss ratio improvement and so those dynamics will continue but our loss.

Right is that the.

The crux of the question I think.

That's right.

So.

You're you're correct, there's sort of trace the history a bit.

When we shifted to a more material quota share reinsurance structure several years ago.

Now that it's.

Nicely in our target range. So those shifts will be somewhat less than they have been over the past.

One of the primary benefits as Daniel noted was the capital surplus benefit since then.

A few years and that's that.

Good news.

A few things have happened.

<unk> volatility has decreased our trailing 12 months loss ratio has come very much in line with our long term targets. Our book is much more.

Diverse and we've put in place a couple of structural Ed.

To captive reinsurers that are wholly owned or partially owned that we can now leverage and the net of all of that is our capital planning is substantially unchanged how much of that capital surplus benefit we get from quota share versus our own.

Captive entities has shifted somewhat and so some of the surplus benefit that we'd give up.

As a result of the quota share.

We get to retain more profit.

We're able to replace that essentially.

Hole through our captive reinsurer.

Capital structures. So net net we've talked about a 61 target ratio in the past historically, we've been above and below that ratio depending on the loss ratio in the end.

<unk>.

Premium growth and some other factors that impact that ratio have changed but over the coming <unk>.

Several year outlook our net.

<unk> ratio target for us is unchanged.

Okay got it thanks for clarifying that.

And then.

I think you made the comment that the insurance entities are have gone from a phase of.

Sort of losing.

Net income driving losses in sort of capital decreasing to a period of capital generation themselves because of the improvement in the loss ratio.

When I look and I sort of reconcile that comment too.

The consolidated bottom line metrics, whether it be adjusted net income or adjusted EBITDA.

That may imply some pretty sizeable losses still at the holding company level.

So can you just talk about sort of what capital.

Has trended at the holding company level.

Apart from the insurance entities, just as we think about the need for potential more capital at the insurance entities to come from the holding company.

Yes. There is some there is some complexity when you look at each of the parts in isolation, you're you're correct that the.

Particularly like eliminate entity is.

Profitable and generating surplus.

At a consolidated level.

The.

How do we kind of manage the overall capital availability.

And we've talked historically.

Tim Bixby: Ratio in the past. Historically, we've been above and below that ratio depending on how the loss ratio and the premium growth and some other factors that impact that ratio have changed. But over the coming several-year outlook, that ratio target for us is unchanged.

Our parent capital cushion, which is basically a consolidated level how much capital remains once we fund the growth plan.

Above and below that ratio, depending on how the loss ratio.

The.

Once we set aside the required level of capital that we're required to then forecast forecasting to be required based on our growth plans and then what remains basically after satisfying all of those obligations and that cushion.

Premium growth and some other factors that impact that ratio have changed but over the coming.

Several year outlook are.

That ratio target for us is unchanged.

Has been more or less steady for quite some time.

Jack Matten: Okay. Got it. Thanks for clarifying that. I think you made the comment that the insurance entities have gone from a phase of losing, negative net income driving losses, and capital decreasing to a period of capital generation themselves because of the improvement in the loss ratio. When I look and I sort of reconcile that comment to the consolidated bottom-line metrics, whether it be adjusted net income or adjusted EBITDA, that may imply some pretty sizable losses still at the holding company level. Can you just talk about what capital has trended at the holding company level, apart from the insurance entities, just as we think about the need for potential more capital at the insurance entities to come from the holding company?

Okay got it thanks for clarifying that.

We've noted a level of around $200 million.

And then.

I think you made the comment that the insurance entities are have gone from a phase of.

That varies up and down and that continues to be the level of cushion that were.

Sort of losing.

Comfortable with.

Negative net income driving losses in sort of capital decreasing to a period of capital generation themselves because of the improvement in the loss ratio.

And so at times, the parent company must fund the reinsurance companies currently its the opposite where there is excess capital excess surplus being generated at the insurance companies.

When I look and I sort of reconcile that comment too.

But the big picture is we've got more than sufficient capital to satisfy all of those needs with cushion leftover for opportunities that arise.

The consolidated bottom line metrics, whether it would be adjusted net income or adjusted EBITDA.

That may imply some pretty sizeable losses still at the holding company level.

For weather events that are unpredictable and all the risks that we.

Understand you come our way.

So can you just talk about sort of what capital is.

Has trended at the holding company level.

Thanks.

Apart from the insurance entity is just as we think about the need for potential more capital at the insurance and seems to come from the holding company.

The next question comes from Jack Morton from BMO. Please go ahead. Your line is open.

Hey, good morning, just a question on the <unk>.

Tim Bixby: Yeah. There is some, there is some complexity when you look at each of the parts in isolation. You're correct that the, particularly, LIC, the Lemonade entity, is profitable and generating surplus. At a consolidated level, that is how we kind of manage the overall capital availability. We've talked historically of a parent capital cushion, which is basically a consolidated level, how much capital remains, once we fund the growth plan, once we set aside the required level of capital that we are required today and that we are forecasting to be required based on our growth plans, and then what remains, basically, after satisfying all of those obligations. That cushion has been more or less steady for quite some time. We've noted a level of around $200 million. That varies up and down, and that continues to be the level of cushion that we're comfortable with.

Yes. There is some there is some complexity when you look at each of the parts in isolation, you're you're correct.

Car loss ratios and I'm wondering if you can just discuss some of the just the drivers of the <unk>.

<unk> was there any mix change, we should be thinking about with renewal versus new business.

We are particularly LIC eliminate entity is.

And then any thoughts you have on on loss trends that youre seeing in terms of either frequency or severity in the car insurance line.

Profitable and generating surplus.

At a consolidated level.

The how.

How are we kind of manage the overall capital availability.

Yes, so there is actually a fairly.

And we've talked historically.

Notable difference that we've been pleased to see unfolding.

Our parent capital cushion, which is basically a consolidated level how much capital remains once we fund the growth plan.

Where it is typical in any insurance realm for renewal business to be.

Once we set aside the required level of capital that we are required today in your forecast forecasting to be required based on our growth plans and then what remains basically after satisfying all of those obligations and that cushion.

At a more favorable unit economics then.

Initial.

Policy and car, especially for US is limited we are seeing a much more notable difference something on the order of 20 percentage points.

Has been more or less steady for quite some time.

Loss ratio improvement from.

We've noted the level of around $200 million.

The first policy to the renewal policy.

It is earlier early and so those that continues to develop but that's a really encouraging sign.

That varies up and down and that continues to be the level of cushion that were.

We're both.

Comfortable with.

Tim Bixby: At times, the parent company must fund the reinsurance companies. Currently, it's the opposite where there's excess capital, excess surplus being generated at the insurance companies. The big picture is we've got more than sufficient capital to satisfy all of those needs, with cushion left over, for opportunities that arise, for weather events that are unpredictable, and all the risks that we understand can come our way.

And so at times, the parent company must fund the reinsurance companies currently its the opposite where there is excess capital excess surplus being generated at the insurance companies.

Choosing risks effectively.

And as you see the overall loss ratio is coming down but also that renewal is a great early indicators of that.

We're doing this well.

But the big picture is we've got more than sufficient capital to satisfy all of those needs with cushion leftover for opportunities that arise.

From a.

Severity and frequency standpoint, generally across the business we're seeing.

And particularly in Q2, we saw.

For weather events that are unpredictable and all the risks that we.

Consistent theme of.

Reduced frequency, but somewhat increased severity and severity tends to come in the form of inflation.

Understand can come our way.

Of different sorts.

Whether its whether its expected inflation or existing inflation.

Jack Matten: Thanks.

Thanks.

Tim Bixby: The next question comes from Jack Matten from BMO. Jack, please go ahead. Your line is open.

The next question comes from Jack Morton from BMO. Please go ahead. Your line is open.

But the net as Youll see in the overall loss ratio trend is.

Jack Matten: Hey, good morning. Just a question on the car loss ratios. I am wondering if you could just discuss some of the drivers of the improvement. Is there any mixed change that you should be thinking about with renewal versus new business? Any thoughts you have on loss trends that you are seeing in terms of either frequency or severity in the car insurance line?

Hey, good morning, just a question on the <unk>.

The favorable trends have been winning out.

Core loss ratios, but I'm wondering if you can just discuss some of the just the drivers.

Getting that trailing 12 months number down to 70% which is a.

<unk> was there any like mix change, we should be thinking about with renewal versus new business.

The headline number I would say.

Maybe I'll just add that.

And then any thoughts you have on loss trends that youre seeing in terms of either frequency or severity in the car insurance line.

It's not a mix change that is driving us that we're seeing both on new and renewal business improving significantly so it's really across the board.

Tim Bixby: There is actually a fairly notable difference that we have been pleased to see unfolding, where it is typical in the insurance realm for renewal business to be at a more favorable unit economics than the initial policy. In car insurance, especially for us at Lemonade, we are seeing a much more notable difference, something on the order of 20 percentage points of loss ratio improvement from the first policy to the renewal policy. It is earlier, and so that continues to develop. But that is a really encouraging sign that we are both choosing risks effectively, and as you see the overall loss ratio coming down, but also that renewal is a great early indicator that we are doing this well.

Yes, so there is actually a fairly.

Got it thank you.

Notable difference that we've been pleased to see unfolding.

Just wondering your outlook it looks like to be.

ISP guidance for the full year doesn't imply much of an acceleration versus the 29% growth this quarter.

Where it is typical in any insurance realm for renewal business to be.

At a more favorable unit economics then.

Any reason you Wouldnt expect further acceleration this year given that I think we're starting to lap some of the home non renewals in the back half of the year it looks like you're.

Initial.

Policy and <unk>.

Especially for US is limited we are seeing a much more notable difference something on the order of 20 percentage points.

You maintained the outlook for your growth spend this year as well so.

Any any color on the moving pieces there.

Loss ratio improvement from.

Yes, I think I think there's certainly the potential for that you've seen a couple of quarters, particularly the.

The first policy to the renewal policy.

It is earlier early and so that continues to develop but that's a really encouraging sign.

Second quarter, where we were able to accelerate things things came together nicely a couple of headwinds that we assume will come our way to varying degrees in the second half there is some seasonality in terms of.

We're both.

Choosing risks effectively.

And as you see the overall loss ratio is coming down but also that renewal is a great early indicators of that that we're.

Growth in high growth higher growth in Q3 versus Q4.

We're doing this well.

There's some churn dynamics that.

Tim Bixby: From a severity and frequency standpoint, generally across the business, we are seeing, and particularly in Q2, we saw a consistent theme of reduced frequency but somewhat increased severity. Severity tends to come in the form of inflation of different sorts, whether it is expected inflation or existing inflation. The net, as you see in the overall loss ratio trend, is that the favorable trends have been winning out, and getting that trailing 12-month number down to 70%, which is the headline number, I would say.

From a.

<unk> moved very very nicely in Q2 that we don't necessarily expect to replicate although.

Severity and frequency standpoint, generally across the business we're seeing.

And particularly in Q2, we saw.

We could see upside there.

And we continue to.

Consistent theme of.

Move forward with the project, we've called sort of clean the book in our home book, which.

Reduced frequency, but somewhat increased severity and severity tends to come in the form of inflation.

Provides a headwind, but a good headwind.

Of different sorts.

AIDS our move towards profitability.

Whether its whether its expected inflation or existing inflation.

We take advantage of an ability to non renew certain business that no longer fits our underwriting guidelines and.

But the net as Youll see in the overall loss ratio trend as fast.

One place you will see that in our metrics as in our annual dollar retention metrics, which have been flat for a couple of quarters now.

The favorable trends have been winning out and getting getting that trailing 12 months number down to 70% which is.

We estimate that there is roughly a 4% drag on that metric because of our.

The headline number I would say.

Daniel Schreiber: Maybe I'll just add, though, that it's not a mix that change that is driving this. We're seeing both our new and our renewal business improving significantly. So it's really across the board.

Maybe I'll just add though that.

Home home efforts to move more aggressively to profitability, we're kind of balancing top line and the path to profitability notwithstanding any of that.

It's not a mix change that is driving that we're seeing both on new and renewal business improving significantly so it's really across the board.

We've seen seven consecutive quarters of topline growth, we will endeavor to continue that record.

Jack Matten: Got it. Thank you. Just one year outlook, it looks like the IFP guidance for the full year doesn't imply much of an acceleration versus the 29% growth this quarter. I guess, any reason you wouldn't expect further acceleration this year given I think we're starting to lapse some of the homeowners insurance non-renewals in the back half of the year? It looks like you're maintaining the outlook for your growth spend this year as well. So, just any color on the moving pieces there?

Got it thank you and Bob.

A little tougher as we get towards our target cruising growth range of 30% plus.

Just wondering your outlook it looks like to be on the ISP.

ISP guidance for the full year doesn't imply much of an acceleration versus the 29% growth this quarter.

Certainly aim to do that in the second half.

Thank you.

Any reason you would.

Yeah.

Do you expect further acceleration this year given that I think we're starting to lap some of the home nonrenewals in the back half of the year. It looks like you maintained the outlook for.

The next question comes from Andrew Ramson of Jefferies. Please.

Please go ahead your line is open.

Hey, Good morning, just wanted to go back to the core loss ratios and I think you were saying you see a 20 percentage point improvement from the first policy to the renewal I think in the past. You've also mentioned that you were not expecting any type of new business penalty and I think that was specific to to cross sells so maybe you can just.

Your growth spend this year as well so.

Any any color on the moving pieces there.

Tim Bixby: Yeah. I think, I think there's certainly the potential for that. You've seen a couple, couple of quarters, particularly the second quarter where we were able to accelerate things. Things came together nicely. A couple of headwinds that we assume will come our way to varying degrees in the second half. There is some seasonality in terms of growth and, you know, high growth, higher growth in Q3 versus Q4. There's some churn dynamics that I think went, moved our way nicely in Q2 that we don't necessarily expect to replicate, although we could see upside there. And we continue to move forward with a project we've called sort of Clean the Book in our home book, which provides a headwind, but a good headwind. It aids our move towards profitability. We take advantage of an ability to nonrenew certain business that no longer fits our underwriting guidelines.

Yes, I think I think there's certainly the potential for that you've seen a couple of quarters, particularly the.

Level set for us what your maybe how much of the car book and how much of your car growth Youre thinking of will be from the cross sells with no new business penalty versus some that is seeing a little bit higher first policy loss ratio.

Growth in high growth higher growth in Q3 versus Q4.

There is some churn dynamics that I think.

<unk> moved our way nicely in Q2 that we don't necessarily expect to replicate although.

Yeah.

That that breakdown is not something we've disclosed.

We could see upside there.

And we continue to.

Publicly so.

Move forward with the project, we've called sort of clean the book in our home book, which.

I think I would probably point you to our.

Provides a headwind, but a good headwind.

AIDS our move towards profitability.

Some of the stats, we shared about Q2 and going forward that we'd expect to grow the whole car business at a faster pace than the total.

We take advantage of an ability to non renew certain business that no longer fits our underwriting guidelines and.

And we expect to continue to increase our growth spend for car.

Tim Bixby: And one place you'll see that in our metrics is in our annual dollar retention metrics, which have been flat for a couple of quarters now. We estimate that there's roughly a 4% drag on that metric because of our home, home efforts to move more aggressively to profitability. So we're kind of balancing top line and the path to profitability. Notwithstanding any of that, we've seen seven consecutive quarters of top line growth. We'll endeavor to continue that record. It gets a little tougher as we get towards our target, cruising growth range of 30% plus, but we'll certainly aim to do that in the second half.

One place Youll see that in our metrics as in our annual dollar retention metrics, which have been flat for a couple of quarters now.

Generally.

Half of growth overall has come from cross sales that's not.

We estimate that there is roughly a 4% drag on that metric because of our.

100% specific to car, but a significant amount of that is cross.

Home home efforts to move more aggressively to profitability, we're kind of balancing top line and the path to profitability notwithstanding any of that.

Cross sell to car and so that that rough ratio I would expect to continue as well.

Okay.

And then on the AD spend in the quarter was just a little bit higher than the guide and you're keeping the full year guidance could you maybe just talk about some of the increased opportunities you saw this quarter that led to the higher AD spend and maybe just touch on how youre seeing the competitive market for auto in the second half of the year.

We've seen seven consecutive quarters of topline growth, we will endeavor to continue that record.

A little tougher as we get towards our target cruising growth range of 30% plus.

Certainly aim to do that in the second half.

Jack Matten: Thank you.

Thank you.

Yes, some of the some of the gross spend is timing shifts and this this is not uncommon, where we'll see greater opportunity or will adjust the timing from.

Tim Bixby: The next question comes from Andrew Kligerman at Autonomous Research. Andrew, please go ahead. Your line is open.

The next question.

<unk> comes from Andrew round isn't of Jefferies. Please.

Please go ahead your line is open.

Andrew Kligerman: Hey. Good morning. Just wanted to go back to the car loss ratios. I think you were saying you see a 20 percentage point improvement from the first policy to the renewal. I think in the past, you've also mentioned that you were not expecting any type of new business penalty. I think that was specific to cross-sells. So maybe you can just kind of level set for us what your, maybe how much of the car book and how much of your car growth you're thinking of will be from the cross-sells with no new business penalty versus some that is seeing a little bit higher first policy loss ratio?

Hey, Good morning, just wanted to go back to the car loss ratios and I think you were saying you see a 20 percentage point improvement from the first policy to the renewal I think in the past. You've also mentioned that you were not expecting any type of new business penalty and I think that was specific to to cross sells so maybe you can just.

One quarter to another where the total your targeted goal is right on track, but we see greater opportunity and some will move from one quarter to another we are spending more on brand spend and some of that tends to be a little bit more front loaded.

Because you want to kind of get it.

The visibility out there is more of a halo for going into the second half of the year and that is some of the dynamic so I think versus the beginning of the year, we up the total spend but quite modestly.

A level set for us what your maybe how much of the car book and how much of your car growth Youre thinking of will be from the cross sells with no new business penalty versus some that is seeing a little bit higher first policy loss ratio.

The rest has been.

<unk> shift.

I think we had in <unk>.

Q2, certainly we saw some nice.

Outside from certain channels, where the if.

Tim Bixby: That, that breakdown is not something we've sort of disclosed publicly. So, I think I would probably point you to some of the stats we shared about Q2 and going forward that we expect to grow the whole car business at a faster pace than the total. And we expect to continue to increase our growth spend for car. Generally, about half of growth overall has come from cross-sells. That's not 100% specific to car, but a significant amount of that is cross-sell to car. And so that, that rough ratio I would expect to continue as well.

The breakdown is not something we've disclosed.

You look at the efficiency.

Publicly so.

The car spend we were able to significantly increase it.

I think I would probably point you to our.

On a sequential basis on a year on year basis.

Some of the stats, we shared about Q2 and going forward that we expect to grow the whole car business at a faster pace than the total.

The cars on the number of dollars that each dollar of spend brought in.

With stable.

And Thats, a nice when you're when you're doubling or tripling or more of the spend and the efficiency remained stable that's a great sign.

And we expect to continue to increase our growth spend.

For car.

Generally.

We'll continue to kind of push that.

Half of growth overall has come from cross sales that's not.

In Q3, which is which is typically a strong quarter of growth.

100% specific to car, but a significant amount of that is cross.

The loss ratio trend is important so we kind of watch how that tracks but.

Cross sell to car and so that that rough ratio I would expect to continue as well.

It feels like we have a great foundation for continuance of these car trends in the second half.

Andrew Kligerman: Okay. Then on the ad spend in the quarter, it was just a little bit higher than the guide, and you are keeping the full-year guidance. Can you maybe just talk about some of the increased opportunities you saw this quarter that led to the higher ad spend and maybe just touch on how you are seeing the competitive market for auto in the second half of the year?

Okay.

And just on the competitive market because it feels like a lot of the industry is reaching a pretty good profitability level and is starting to pivot to growth. What are you. It seems like your conversion rates are still strong, but maybe how are you just thinking about the competitive market.

Yes.

Yeah.

We can grow a great deal and still be a tiny drop in the in the car Ocean. So we don't ignore the competitive dynamics.

Tim Bixby: Some of the growth spend is timing shift. This is not uncommon where we will see greater opportunity or we will adjust the timing from one quarter to another where the total year target and goal is right on track, but we see a greater opportunity, so we will move from one quarter to another. We are spending more on brand spend, and some of that tends to be a little bit more front-loaded because you want to get the visibility out there as more of a halo for going the second half of the year. That is some of the dynamic. I think versus the beginning of the year, we upped the total spend but quite modestly. The rest has been timing shift.

Yes, some of the some of the gross spend is timing shifts in this this is not uncommon, where we will see greater opportunity or will it just the timing from.

One quarter to another where the total year targeted goal is right on track, but we see greater opportunity in school.

We tend to want to.

Where we can give the benefit of our.

Unit economics improvements or loss ratio improvements back to the customer so that our pricing is attractive.

From one quarter to another we're spending more on brand spend and some of that tends to be a little bit more front loaded.

Obviously, a limit to that.

Because you want to kind of get.

But the competitive dynamics of the market tend to be secondary to what we see.

The visibility out there is more of a halo for going into the second half of the year.

Some of the dynamic so I think versus the beginning of the year, we've upped the total spend but quite modestly.

In terms of what our LTV model tell us about what are what are good risks.

And where the marketing efficiency is strong.

The rest has been timing shifts.

We feel like all systems are go going into the second half.

Tim Bixby: I think we had, in Q2 certainly, we saw some nice upside from certain channels where if you look at the efficiency of the car spend, we were able to significantly increase it on a sequential basis, on a year-on-year basis, that the efficiency of the car spend, the number of dollars that each dollar of spend brought in, was stable. That is nice, you know, when you are doubling or tripling or more the spend and the efficiency remains stable, that is a great sign. We will continue to push that edge in Q3, which is typically a strong quarter of growth. The loss ratio trend is important. We kind of watch how that tracks. We feel like we have a great foundation for continuance of these car trends in the second half.

I think we had in Q2, certainly we saw some nice.

Upside from certain <unk>.

Thank you.

Panels, where the.

Just a reminder, if you'd like to ask a question Thats star followed by one or the telephone keypad.

If you look at the efficiency.

Of the car spend we were able to significantly increase it.

And the next question comes from Casey said I guess from autonomous. Please go ahead.

On a sequential basis on a year on year basis.

Hey, good morning.

Through the course of the number of dollars that each dollar of spend brought in.

I wanted to circle back to the updates and guidance specifically.

With stable.

And that's a nice when you're when you're doubling or tripling or more of the spend and the efficiency remains stable that's a great sign.

The full year 2025, EBITDA guide I guess I was a little surprised to see that that remained unchanged relative to last quarter, especially considering the progress you guys have been making on that.

We'll continue to kind of push that.

In Q3, which is which is typically a strong.

Quarter of growth.

Reported gross loss ratio as well.

The loss ratio trend is important and so we kind of watch how that tracks but.

Trailing 12 month loss ratio so.

Another question there for you guys on whether you're expecting any increasing volatility in the back half of the year that might be informing your.

It feels like.

Foundation for continuance of these car trends in the second half.

Andrew Kligerman: Just on the competitive market, because it feels like a lot of the industry is reaching a pretty good profitability level and is starting to pivot to growth. What do you, it seems like your conversion rates are still strong, but maybe how are you just thinking about the competitive market?

And just on the competitive market because it feels like a lot of the industry is reaching a pretty good profitability level and is starting to pivot to growth.

Your stable outlook on full year, EBITDA, and then sort of adjacent to that.

And reading the shareholder letter at the <unk>.

It seems like your conversion rates are still strong but maybe.

Language on.

Expectations for 2026 theme, a little bit different for positive adjusted EBITDA before the end of full year 'twenty and I think on the last call you guys had perhaps phrase positive EBITDA by <unk> 26 is there anything to read into the shift in language there.

Maybe how are you just thinking about the competitive market.

Tim Bixby: Yeah. Our, our, you know, we can grow a great deal and still be a tiny drop in the car ocean. So we don't ignore the competitive dynamics. We tend to want to, where we can, give the benefit of our unit economics improvements or loss ratio improvements back to the customer so that our pricing is attractive. There's obviously a limit to that. But the competitive dynamics of the market tend to be secondary to what we see in terms of what our LTV models tell us about what are good risks and where the marketing efficiency is strong. So, we feel like all systems are going into the second half.

Yes.

We can grow a great deal and still be a tiny drop in the in the car Ocean. So we don't ignore the competitive dynamics.

We tend to want to.

Where we can give the benefit of our.

Yeah.

Yes.

Unit economics improvements or loss ratio improvement back to the customer so that our pricing is attractive.

The breakeven no change before the end of 2026, we expect EBITDA to be positive.

There's obviously a limit to that.

That's not a change.

We have not indicated we expect the full quarter to be positive, although that's certainly possible, but we've indicated no change.

But the competitive dynamics of the market tend to be secondary to what we see.

In terms of what our LTV model tell us about what are what are good risks.

And I expect that before the end of.

26, one dynamic that probably highlight is when you look at the expected EBITDA.

And where the marketing efficiency is strong.

We feel like all systems are go going into the second half.

This year and then flow that into next year and then.

Andrew Kligerman: Thank you.

We're heading towards breakeven you will see a dynamic where it's at.

Thank you.

Not exactly linear and part of that is driven by our increasing.

Tim Bixby: There's a room, if you'd like to ask a question, that's staff, followed by one, or do a telephone keypad. The next question comes from Katie Sakys from Autonomous Research. Katie, please go ahead.

Just a reminder, if you'd like to ask a question Thats star followed by one of your telephone keypad.

The next question comes from Casey said I guess from autonomous. Please go ahead.

Growth spend which increases the <unk>.

<unk> cost for the cost structure and when you grow at a faster pace that premium that you would bring in doesn't necessarily doesn't drop to the bottom line in real time it drops over the early lifetime of that customer and so as you accelerate growth you see a dynamic where the bottomline doesn't change a whole lot at the top line increase.

Katie Sakys: Hi. Good morning. I wanted to circle back to the updates and guidance, specifically, the full-year 2025 EBITDA guide. I guess I was a little surprised to see that that remained unchanged relative to last quarter, especially considering the progress that you guys have been making on both the reported gross loss ratio as well as the trailing 12-month gross loss ratio. So kind of a question there for you guys on whether you are expecting any increasing volatility in the back half of the year that might be informing your stable outlook on full-year EBITDA. Then sort of adjacent to that, in reading the shareholder letter, the language on expectations for 2026 seemed a little bit different for positive adjusted EBITDA before the end of full-year 2026. I think on the last call, you guys had perhaps phrased it as positive EBITDA by Q4 2026.

Hey, good morning.

And I wanted to circle back to the updates and guidance specifically.

For the full year 2025, EBITDA guide I guess I was a little surprised to see that that remained unchanged relative to last quarter, especially considering the progress you guys have been making.

And that's one of the things I think that helps us indicate that we're derisking that bottom line trajectory every bit of incremental growth kind of adds to that lifetime value and the cash flow that we expect to.

Reported gross loss ratio is above the trailing 12 months credit loss ratio. So kind of a question. There for you guys on whether you're expecting any.

Spool out over the coming quarters.

Increasing volatility in the back half of the year that might be informing.

So the bottom line guidance for this year Youre correct is unchanged, but it's really that dynamic.

Youre stable outlook on full year, EBITDA, and then sort of adjacent to that.

Flow through from the top line to the bottom line, which has been the case for quite some time.

And reading the shareholder letter.

The language on.

Expectations for 2026 theme a little bit different.

Got it and then perhaps as a follow up.

Sure.

And kind of thinking about the shifts that you guys have made to the quota share program and expectations for longer term profitability is there a point at which your target for 70 years gross loss ratio might materially come down into something below 70%.

Positive adjusted EBITDA before the end of full year 2000, and I think on the last call you guys had perhaps faced a positive EBITDA by <unk> 26 is there anything to read into the shift in language there.

Katie Sakys: Is there anything to read into the shift in language there?

Tim Bixby: Yes. So, on the EBITDA breakeven, no change. Before the end of 2026, we expect EBITDA to be positive. That is not a change. We have not indicated we expect the full quarter to be positive, although that is certainly possible, but we have indicated no change, and expect that before the end of 2026. One dynamic to probably highlight is, when you look at the expected EBITDA of this year and then flow that into next year and then heading towards breakeven, you will see a dynamic where it is not exactly linear. Part of that is driven by our increasing growth spend, which increases the, you know, adds cost to the cost structure. When you grow at a faster pace, that premium that you bring in does not necessarily, or well, it does not drop to the bottom line in real time.

Yes.

On the EBITDA breakeven no change before the end of 2026, we expect EBITDA to be positive.

Yeah.

So that's not a change.

We have not indicated we expect the full quarter to be positive, although that's certainly possible, but we have indicated no change.

Yeah.

And I expect that before the end of <unk>.

Never say never but do you want to take that one.

26, one dynamic that probably highlight is when you look at the expected EBITDA.

Yes, sorry.

Mike I was on mute I apologize.

<unk>.

This year and then flow that into next year and then.

What I was saying is never say never but thats not all.

Heading towards breakeven you will see a dynamic where it's it's not exactly linear and part of that is driven by our increasing.

Inbound kind of bias if you like.

We aim to continue to drive our prices down killer pricing is a key differentiator, which will drive greater conversion no acquisition costs higher retention dynamics.

Gross spend which increases the <unk>.

<unk> cost to the cost structure and when you grow at a faster pace that premium that you would bring in doesn't necessarily.

<unk> our cost structure is so advantage you already see in this quarter what happened to E, which has already passed one of the very best in the industry. When we are so sub scale gives you an indication of what our cost structure is going to look like already now and as we scale ability to accelerate growth while decreasing our underlying operating there.

Dropped to the bottom line in real time, it drops over the Earth.

Tim Bixby: It drops over the early lifetime of that customer. As you accelerate growth, you see a dynamic where the bottom line does not change a whole lot, but the top line increases. That is one of the things I think that helps us indicate that we are de-risking that bottom line trajectory. Every bit of incremental growth kind of adds to that lifetime value and that cash flow that we expect to spool out over the coming quarters. The bottom line guidance for this year, you are correct, is unchanged, but it is really that dynamic of flow through from the top line to the bottom line, which has been the case for quite some time.

Early lifetime of that customer.

So as you accelerate growth you see a dynamic where the bottomline doesn't change a whole lot of top line increases.

That's one of the things I think that helps us indicate that we're derisking that bottom line trajectory every bit of incremental growth kind of add to that lifetime value and the cash flow that we expect to.

Expenses all of these are very strong indicators of our long term ability to operate at a far far lower cost structure than our competitors and then you've got a choice which is do you do then price similar to competition and increase your margins or do you lower prices and accelerate growth and for reasons that I elaborated at some length during our.

Spool out over the coming quarters.

So the bottom line guidance for this year Youre correct is unchanged, but it's really that dynamic.

Flow through from the top line to the bottom line, which has been the case for quite some time.

Recent Investor day.

Biases towards lowering prices getting the conversion and the growth and the retention that that brings them until we get to sizable scale. So I would not guide or set the expectation that our loss ratio will continue downward trajectory.

Katie Sakys: Got it. Perhaps as a follow-up, in thinking about the shifts that you guys have made to the quota share program and expectations for longer-term profitability, is there a point at which your target for a low 70s gross loss ratio might materially come down into something below 70%?

Got it and then perhaps as a follow up.

And kind of thinking about the ship that.

You guys have made to the quota share program and expectations for longer term profitability is there a point at which your target for 17 years gross loss ratio might materially come down into something below 70%.

It has for many many quarters, we've achieved healthy loss ratios.

At some point loss ratio is more than that just means that were.

Im not being as price competitive as we could be.

Yeah.

Super helpful. Thank you.

Yeah.

We have a follow up from Jack up BMO. Please go ahead.

Yeah.

Hey, Thanks for taking the follow up.

Just one I think there was okay.

Tim Bixby: Never say never, but.

Never say never but do you want to take that one.

Jack Matten: Do you want to take that one?

Tim Bixby: Yeah. Sorry, my mic was on mute. I apologize. Katie, what I was saying is never say never, but that is not our inbound kind of bias, if you like. We aim to continue to drive our prices down, killer pricing as a key differentiator, which will drive greater conversion, lower acquisition costs, higher retention dynamics. Because our cost structure is so advantaged, you are already seeing this quarter what happened to our LAE, which is already perhaps one of the very best in the industry when we are so sub-scale, gives you an indication of what our cost structure is going to look like already now and as we scale, our ability to accelerate growth while decreasing our underlying operating expenses. All of these are very strong indicators of our long-term ability to operate at a far, far lower cost structure than our competitors.

And $11 7 million tax refund benefit that you all had this quarter just any color on what that was and whether there's anything we should think about potentially be occurring in future quarters.

Yes, sorry my.

Mike was on mute I apologize.

Katy.

Never say never but that's not all.

Inbound kind of bias if you like.

Yes, that's a one time.

We aim to continue to drive our prices down killer pricing is a key differentiator, which will drive greater conversion.

Credit related to the ERP program, so thats not something we would expect.

To reoccur.

No acquisition costs higher retention dynamics, because our cost structure is so advantage you already see in this quarter, what happened to <unk>, which is already.

Got it okay. Thank you.

We also have a follow up from Andrew with Jefferies. Please go ahead.

Perhaps one of the very best in the industry. When we ask some sub scale gives you an indication of what our cost structure is going to look like already now and as we scale ability to accelerate growth while decreasing our underlying operating expenses. All of these are very strong indicators of our long term ability to operate today.

Hey, Thanks, Tim.

Tim I think I heard you say earlier the leverage that you would be running two max's six to one what was that on a gross premium basis and if so could you provide that on a net as well.

So again, we don't.

Our lower cost structure than our competitors.

It really guide to that so that's just more of a broad strokes of what our targets are yet on a on a gross gross basis historically, we've talked about gross written premium.

Tim Bixby: Then you get a choice, which is do you take, do you then price similar to competition and increase your margins, or do you lower prices and accelerate growth? For reasons that I elaborated at some length during our recent Investor Day, our bias is towards lowering prices, getting the conversion and the growth and the retention that that brings, until we get to sizable scale. So I would not guide or set the expectation that our loss ratio will continue down the trajectory that it has for many, many quarters. We have achieved healthy loss ratios. At some point, lowering loss ratios more than that just means that we are not being as price competitive as we could be.

And then you've got a choice, which is do you do then price similar to competition and increase your margins or do you lower prices and accelerate growth and for reasons that I elaborated at some length during our recent investor day.

And that six to one ratio. There is also a dynamic in the regulatory surplus.

Biases towards lowering prices getting the conversion and the growth and the retention that that brings.

That requires a three to one on a net basis, which comes into play depending on.

Until we got seen a sizable scale, so I would not guide or set the expectation that our loss ratio will continue down the trajectory that it has for many many quarters, we've achieved healthy loss ratios and at some point learning loss ratio is more than that just means that we're in.

How the quota share reinsurance is structured and other.

Sort of accounting dynamics.

But again I would think of those as substantially unchanged.

61 on a gross basis with you directly.

<unk>.

Net you did something like 401.

Not being as price competitive as we could be.

301, but.

Katie Sakys: Super helpful. Thank you.

Super helpful. Thank you.

More or less.

Think of it all is unchanged.

Tim Bixby: We have a follow-up from Jack at BMO. Jack, please go ahead.

We have a follow up from Jakob PMI chunk. Please go ahead.

Is that just on a U S entity basis or is that including the Cayman captive.

Yes.

Jack Matten: Hey. Thanks. Thanks for taking the follow-up. Just one. I think there was like an $11.7 million tax refund benefit that you all had this quarter. Just any telling on what that was and whether there's anything similar we should think about potentially reoccurring in future quarters?

Hey, thanks, Thanks for taking the follow up.

Just one I think there was.

All of that is on a consolidated basis, if you isolate the Cayman the ratios are dramatically different.

And $11 7 million tax refund benefit that you all had this quarter just any color on what that was and whether there's anything we should think about essentially recurring in future quarters.

And Thats part of the benefit of these different structures.

Is that all the regulators.

Tim Bixby: Yeah, that's a one-time tax credit related to the ERC program. So that's not something we'd expect to reoccur.

Yes, that's that's a one time tax credit related to the ERP program. So thats not something we would expect.

Understand and analyze each other's requirements and approve of them such that this is a pretty common structure.

But if you isolate any of the entities and do some math youre going to get different numbers everything that we communicate.

To reoccur.

Jack Matten: Got it. Good. Thank you.

Got it okay. Thank you.

I would think of as on a consolidated global basis for eliminating.

Tim Bixby: We also have a follow-up from Andrew Kligerman at Jefferies. Andrew, please go ahead.

We also have a follow up from Andrew about Jefferies country. Please go ahead.

Okay. Thank you.

Mhm.

Andrew Kligerman: Hey. Thanks. Tim, I think I heard you say earlier the leverage that you would be running to max is six to one. Was that on a gross premium basis? If so, could you provide that on a net as well?

Hey, thanks.

You have a follow up from Keith Yes Autonomous TCE. Please go ahead.

Tim I think I heard you say earlier the leverage that you would be running two max's six to one what was that on a gross premium basis and if so could you provide that on a net as well.

Yeah, one more question from me on the non renewal program uncertainty effort to remix the homeowners, but could you guys give us an update on <unk>.

Tim Bixby: We do not necessarily guide to that. So that is just more of broad strokes of what our targets are. Yes, on a gross basis, historically, we have talked about gross written premium in that six to one ratio. There is also a dynamic in the regulatory surplus that requires a three to one on a net basis, which comes into play depending on how the quota share reinsurance is structured and other sort of accounting dynamics. But again, I would think of those as substantially unchanged. Six to one on a gross basis, if you directly translate that to net, you get something like four to one versus three to one. But more or less, I would think of it all as unchanged.

So again, we don't know.

Where exactly in that process do you currently set how much more remixing needs to be done or how much more of the book is still subject to non renewal and has the change in the quota share structures.

It really guide to that so that's just more of a broad strokes of what our targets are yet on a gross gross basis. Historically, we've talked about gross written premium.

And that six to one ratio. There is also a dynamic in the regulatory surplus.

That requires a three to one.

Extended the potential timeline on that process I guess, what im really trying to get at is when can we expect.

Net basis, which comes into play depending on.

To see that ADR level increase.

How the quota share reinsurance is structured and other sort.

Sort of accounting dynamics.

North of 84% again.

But again I would think of those as substantially unchanged.

Yes, so I would think of the impact as being fairly steady.

61 on a gross basis with you directly translate.

You look at the back half of last year. The first half of this year and your expected second half of this year the.

Translate that to the net you did something like 401.

Versus the 301, but.

The run rate impact is more or less.

More or less.

The same in each of those three segments.

I would think of it all is unchanged.

Andrew Kligerman: Is that just on a U.S. entity basis, or is that including the Cayman captive?

Is that just on a U S entity basis or is that including the Cayman captive.

I would expect by the end of this year would be past the most significant part of it I would not expect it to necessarily go to zero.

All of that is on a consolidated basis, if you isolate the Cayman the ratios are dramatically different.

Tim Bixby: All of that is on a consolidated basis. If you isolate the Caymans, the ratios are dramatically different. That is part of the benefit of these different structures. All the regulators understand and analyze each other's requirements and approve of them, such that it is a pretty common structure. If you isolate any of the entities and do some math, you are going to get different numbers. Everything that we communicate is, I would think of it as, on a consolidated, global basis for Lemonade.

In the beginning of the following year, but I think the pace will certainly.

And that's part of the benefit of these different structures that is that all the regulators.

Begin to diminish based on what we know now this is obviously something you look at us as the book evolves, but I think it will start to dissipate as you get out of the back half of this year.

Understand and analyze each other's requirements and approve of them.

And that is not the only impact on the ADR number but it but it is a more notable impact in this period.

That's a pretty common structure.

But if you isolate any of the entities and do some math youre going to get different numbers everything that we communicate.

So I would expect the ADR to have the opposite dynamic where it was.

I would think of as on a consolidated global basis for eliminating.

To be stable and then start to tick upwards based on all of the other dynamics in ADR customer retention.

<unk>.

Andrew Kligerman: Okay. Thank you.

Okay. Thank you.

Tim Bixby: Mm-hmm. We have a follow-up from Katie Sakys, Autonomous Research. Katie, please go ahead.

Mhm.

Other improved dynamics, we noted the car loss ratio at renewal.

You have a follow up from Kgs Autonomous Keith. Please go ahead.

The thing that pushed that number up so I'd expect that to.

Katie Sakys: Yeah. One more question from me on the nonrenewal program and sort of the effort to remix the homeowners insurance book. Could you guys give us an update on where exactly in that process you currently sit, how much more remixing needs to be done, or how much more of the book is still subject to nonrenewal? Has the change in the quota share structure sort of extended the potential timeline on that process? I guess what I am really trying to get at is, when can we expect to see that ADR level increase north of 84% again?

Yeah, one more question from me on the non renewal program and some of the effort to remix the homeowners, but could you guys give us an update on <unk>.

To be more visible as we come out of the back half of this year and the ADR number.

Maybe just to state the obvious Casey, but in addition to dampening.

Where exactly in that process do you currently set how much more remixing needs to be done or how much more of the book is still subject to nonrenewable and has the change in the quota share structures.

Annual dollar retention numbers.

This program also Dampens, our topline revenue in our in force premium.

We're really growing faster than the.

The number that we reported would indicate because we've also got this counter action of non renewing parts of the book cleaning the book So.

Extended the potential timeline on on that process I guess, what im really trying to get at is when can we expect to see that ADR level increase.

As Tim said, we will get through the bulk of that by the end of this year and then there will be I think something unleash not only of.

North of 84% again.

Tim Bixby: Yeah. So I would think of the impact as being fairly steady. If you look at the back half of last year, the first half of this year, and the expected second half of this year, the run rate impact is more or less the same in each of those three segments. I would expect by the end of this year, we would be past the most significant part of it. I would not expect it to necessarily go to zero in the beginning of the following year, but I think the pace will certainly begin to diminish based on what we know now. This is obviously something you look at as the book evolves, but I think it will start to dissipate as you get out of the back half of this year.

Yes, so I would think of the impact as being fairly steady if you look at the back half of last year. The first half of this year and your expected second half of this year.

Annual dollar retention metrics, but also a bit of a.

Tailwind.

Top line metrics as well and of course, we're doing all of this in service of our bottom line metrics, which is we've always been pretty disciplined.

The run rate impact is more or less the same in.

Data comes in and we get smarter about what we should and should not be underwriting we decided to apply on new kind of insights retroactively wherever we can as well and thats, what youre seeing happening head the fruits of that and have already manifested.

In each of those three segments.

I would expect by the end of this year, we would be passed.

The most significant part of it I would not expect it to necessarily go to zero.

In the beginning of the following year, but I think the pace will certainly.

Several times our loss ratio is testament to that of Q1.

Loss ratio during the wildfires in California were very strong evidence of why this is all <unk>.

Begin to diminish based on what we know now this is obviously something you look at us as the book evolves.

This was paying but we do paid you pay for it in a couple of currencies operating one and top line metrics being another.

I think it will start to dissipate as you get out of the back half of this year.

Tim Bixby: That is not the only impact on the ADR number, but it is a more notable impact in this period. So I would expect the ADR to have the opposite dynamic where it would continue to be stable and then start to pick up where it is based on all of the other dynamics in ADR, customer retention, and other improved dynamics. We noted the car loss ratio at renewal. Those are the kinds of things that push that number up. So I would expect that to be more visible as we come out of the back half of this year in the ADR number.

And that is not the only impact on the ADR number but it is a more notable impact in this period.

Thank you.

I would expect the ADR to have the opposite dynamic where it was.

We have no further questions. This will conclude today's Q&A session and thus concludes today's cool. Thank you very much for your attendance you may now disconnect your lines.

To be stable and then start to tick upwards based on all of the other dynamics in ADR customer retention.

Other improved dynamics, we noted the <unk> loss ratio at renewal and those are the kinds of.

That pushed that number up so I'd expect that.

To be more visible as we come out of the back half of this year and AVR number.

Daniel Schreiber: Maybe just to state the obvious, Katie, but in addition to dampening annual dollar retention numbers, this program also dampens our top line, our revenue, and our invoice premium. We are really growing faster than the numbers that we reported would indicate because we have also got this counteraction of non-renewing parts of the book, cleaning the book. As Tim Bixby said, we will get through the bulk of that by the end of this year. Then there will be, I think, something of an unleash not only of annual dollar retention metrics, but also a bit of a tailwind to our top line metrics as well. Of course, we are doing all of this in service of our bottom line metrics, which is we have always been pretty disciplined.

Maybe just to state the obvious Casey, but in addition to dampening.

Annual dollar retention numbers.

This program also Dampens, our topline revenue in our in force premium.

We're really growing faster than the.

The number that we reported would indicate because we've also got this counter action of non renewing parts of the book cleaning the book So.

As Tim said, we will get through the bulk of that by the end of this year and then there will be I think something unleash not only of.

Annual dollar retention metrics, but also a bit of a.

Tailwind.

Top line metrics as well and of course, we're doing all of this in service of our bottom line metrics, which is we've always been pretty disciplined.

Daniel Schreiber: As our data comes in and we get smarter about what we should and should not be underwriting, we decide to apply our new kind of insights retroactively wherever we can as well. That is what you are seeing happening here. The fruits of that have already manifested several times. Our loss ratio is a testament to that. Our Q1 loss ratio during the wildfires in California were very strong evidence of why this is all a price worth paying. But we do pay for it in a couple of currencies, ADR being one and top line metrics being another.

Data comes in and we get smarter.

About what we should and should not be underwriting.

Sides to apply on new kind of insights retroactively wherever we can as well and thats, what youre seeing happening ahead, the fruits of that and have already manifested.

Several times our loss ratio is testament to that of Q1.

Loss ratio during the wildfires in California were very strong evidence of why this is all <unk>.

Rice was paying but we do paid you pay for it in a couple of currencies operating one and top line metrics thinking about that.

Katie Sakys: Thank you.

Thank you.

Tim Bixby: We have no further questions. This will conclude today's Q&A session and thus conclude today's call. Thank you very much for your attendance. You may now disconnect your lines.

We have no further questions. This will conclude today's Q&A session and does conclude today's call. Thank you very much for your attendance you may now disconnect your lines.

Yeah.

[music].

Yes.

[noise].

Q2 2025 Lemonade Inc Earnings Call

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