Lemonade, Inc. (LMND)

Results of Operations

Comparison of the Three Months Ended June 30, 2026 and 2025

Net Earned Premium

Net earned premium increased $139.5 million, or 124%, to $252.0 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to the earning of increased gross written premium and the impact of the reduced cession rate from the Company's reinsurance program as discussed in more detail in the "Reinsurance" section above.

Gross written premium increased $95.5 million, or 34%, to $380.0 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily due to a 23% increase in customers year over year driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings. In addition, we also saw a 8% increase in premium per customer year over year due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies. Assumed premium related to car insurance policies written in Texas through our fronting arrangement with a third party carrier in Texas also contributed to the increase in gross written premium during the period.

Ceded written premium decreased $75.2 million, or 48%, to $81.9 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to the impact of the reduced cession rate from the Company's reinsurance program, offset by growth in business across all products. See "Reinsurance" above for further information.

Net written premium increased $170.7 million, or 134%, to $298.1 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.

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The table below shows the amount of premium we earned on a gross and net basis. Ceded earned premium as a percentage of gross earned premium is at 24% and 55% for the three months ended June 30, 2026 and 2025, respectively, consistent with the change in our participation rate from our reinsurance contracts as discussed in more detail in the "Reinsurance" section above.

Ceding Commission Income

Ceding commission income decreased $10.0 million, or 33%, to $20.4 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, consistent with the reduction in cession rate from the reinsurance program.

Net Investment Income

Net investment income increased $0.3 million, or 3% to $9.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was primarily driven by the diversification of the Company's investment portfolio with higher returns offset by investment expenses. We mainly invest in cash, money market funds, U.S. Treasury bills, corporate debt securities, asset-backed securities, notes and other obligations issued or guaranteed by the U.S. Government and Non-U.S. Government.

Commission and Other Income

Commission and other income increased $0.5 million, or 4%, to $12.3 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily due to installment fees and continued growth on premium placed with third-party insurance companies during the period.

Loss and Loss Adjustment Expense, Net

Loss and LAE, net increased $76.5 million, or 99%, to $154.0 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase was due to growth in premium and impact of the reduced cession rate from the reinsurance program, offset by reserve releases due to better than expected loss reserve emergence on homeowners multi-peril line of business and car.

Insurance Expense

Other insurance expense increased $5.3 million, or 25%, to $26.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Amortization of deferred acquisition costs, net of ceding commissions increased $3.3 million, or 85% as compared to the three months ended June 30, 2025 as a result of growth in business across all products. Credit card processing fees increased $2.0 million, or 35%, as compared to the three months ended June 30, 2025 as a result of the increase in customers and associated premium. Employee-related expense decreased $1.1 million or 18%, as compared to the three months ended June 30, 2025.

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Sales and Marketing

Sales and marketing expense increased $18.1 million, or 30%, to $77.7 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 primarily due to brand and performance advertising, which is the largest component of our sales and marketing expenses. Expense related to advertising, other customer acquisition channels and partner payments increased $14.7 million, or 30%, as compared to the three months ended June 30, 2025 consistent with growth in our business. Employee-related expense, including stock-based compensation, increased $1.5 million, or 21%, as compared to three months ended June 30, 2025.

Technology Development

Technology development expense increased $7.6 million, or 34%, to $30.0 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Employee-related expense, including stock-based compensation, and net of capitalized costs for the development of internal-use software, increased $5.7 million, or 31%, as compared to the three months ended June 30, 2025 primarily due to increase in headcount. Software expense increased $1.5 million, or 125%, as compared to the three months ended June 30, 2025.

General and Administrative

General and administrative expense increased $22.0 million, or 85%, to $47.8 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Employee-related expense, including stock-based compensation, increased $7.7 million, or 50%, as compared to three months ended June 30, 2025. Interest expense related to borrowings from financing agreement with GC increased $3.0 million, or 75%, as compared to three months ended June 30, 2025 due to increased borrowings during the period. Bad debt expense increased by $2.1 million or 49%, as compared to three months ended June 30, 2025. Depreciation and amortization decreased by $2.3 million, or 49% as compared to three months ended June 30, 2025. During the three months ended June 30, 2025, we also recorded $11.7 million of tax refund received under the ERC program.

Income Tax Expense

Income tax expense slightly increased by $0.3 million, or 23%, to $1.6 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025, primarily driven by increase in foreign income tax expense and unrecognized tax benefits.

Net Loss

Net loss slightly decreased by $0.5 million, or 1%, to $43.4 million for the three months ended June 30, 2026 compared to the three months ended June 30, 2025 due to the factors described above.

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Comparison of the Six Months Ended June 30, 2026 and 2025

Net Earned Premium

Net earned premium increased $247.8 million, or 114%, to $464.6 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to the earning of increased gross written premium and impact of the reduced cession rate from the Company's reinsurance program as discussed in more detail in the "Reinsurance" section above.

Gross written premium increased $185.2 million, or 34%, to $723.9 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase was primarily due to a 23% increase in customers year over year driven by the success of our digital advertising campaigns and partnerships. We also continued to expand our geographic footprint and product offerings. We also saw a 8% increase in premium per customer year over year primarily due to an increasing prevalence of multiple policies per customer, growth in the overall average policy value, and continued shift in the mix of underlying products toward higher value policies. Assumed premium related to car insurance policies written in Te

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, the accompanying notes and other information included elsewhere in this Annual Report. This discussion and analysis below includes forward-looking statements that are subject to risks, uncertainties and other factors described in the “Risk Factors” section that could cause actual results to differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. A discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023 has been reported previously under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 26, 2025 (the “2024 Annual Report”).

In this Annual Report, unless we indicate otherwise or the context requires, "Lemonade, Inc.," "Lemonade," "the Company," "we," "our," "ours" and "us" refer to Lemonade, Inc. and its consolidated subsidiaries, including Lemonade Insurance Company, Lemonade Insurance Agency, LLC, and Metromile, Inc.

Overview

Lemonade is rebuilding insurance from the ground up on a digital substrate and an innovative business model. By leveraging technology, data, artificial intelligence, contemporary design, and social impact, we believe we are making insurance more delightful, more affordable, and more precise. To that end, we have built a vertically-integrated company with wholly-owned insurance carriers in the United States and Europe, including the UK and the full technology stack to power them.

A brief chat with our bot, AI Maya, is all it takes to get covered with renters, homeowners, pet, car or life insurance, and we expect to offer a similar experience for other insurance products over time. Claims are filed by chatting with another bot, AI Jim, who pays claims in as little as two seconds. This breezy experience belies the extraordinary technology that enables it: a state-of-the-art platform that spans marketing to underwriting, customer care to claims processing, finance to regulation. Our architecture melds artificial intelligence with the human kind, and learns from the prodigious data it generates to become even better at delighting customers and evaluating risks.

In addition to digitizing insurance end-to-end, we also reimagined the underlying business model to minimize volatility while maximizing trust and social impact. To lessen the volatility inherent in an industry directly impacted by the weather, we utilize several forms of reinsurance, with the goal of dampening the impact on our gross margin. The result is that excess claims are generally offloaded to reinsurers, while excess premiums can be donated to nonprofits selected by our customers as part of our "Giveback". These two ballasts, reinsurance and Giveback, reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers. See “Business - Our Business Model” and “Business - Our Product Offerings - Giveback Feature.”

Customer Investment Agreement

On June 28, 2023, we entered into a Customer Investment Agreement (the “Agreement”), with GC Customer Value Arranger, LLC (a General Catalyst company) ("GC") under which GC agreed to provide up to $150 million of financing for our sales and marketing growth efforts through December 31, 2024. Under the Agreement, subject to certain terms and conditions specified therein, at the start of each growth period, an Investment Amount of up to 80% of our growth spend (the "Investment Amount") will be advanced by GC. During each growth period, we repay each Investment Amount including a 16% rate of return based upon an agreed schedule. Once fully repaid, we retain all future reference income related to each respective Investment Amount.

The Agreement has been amended and restated on several occasions to extend the commitment period and increase the financing agreement. On January 8, 2024, the Agreement was amended and restated to provide up to an additional $140 million of financing December 31, 2025. On February 3, 2025, the Agreement was further amended to provide up to an additional $200 million of financing from January 1, 2026 through December 31, 2026 for our sales and marketing growth efforts. In addition, the Agreement was amended in April 2024, June 2024 and December 2025 to clarify certain provisions with no changes to material terms. The Agreement, as amended and restated (the “Amended and Restated Agreement”) contains standard customary representations, warranties and covenants by the parties, and will continue in effect unless terminated by any party pursuant to its terms.

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As of December 31, 2025, we had $158.1 million of outstanding borrowings under the Amended and Restated Agreement. We incurred interest expense of $17.3 million for the year ended December 31, 2025.

Key Factors and Trends Affecting our Operating Results

Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following:

Seasonality

Seasonal patterns can impact both our rate of customer acquisition and the incurrence of claims and losses.

Based on historical experience, existing and potential customers move more frequently in the third quarter, compared to the rest of the calendar year. As a result, we may see greater demand for new or expanded insurance coverage, and increased online engagement resulting in proportionately more growth during the third quarter. We expect that as we grow our customers, expand geographically and launch new products, the impact of seasonal variability on our rate of growth may decrease.

Additionally, seasonal weather patterns impact the level and amount of claims we receive. These patterns include hurricanes, wildfires, and coastal storms in the fall, cold weather patterns and changing home heating needs in the winter, and tornados and hailstorms in the spring and summer. The mix of geographic exposure and products within our customer base impacts our exposure to these weather patterns. For additional information, see "Risk Factors — Risks Relating to our Industry — Severe weather events and other catastrophes, including the effects of climate change and global pandemics, are inherently unpredictable and may have a material adverse effect on our financial results and financial condition."

Current Macroeconomic Environment

Changing U.S. and global conditions may impact our business. Evolving U.S. trade policy, including tariffs imposed on imported goods in 2025, could affect our claims costs. In February 2026, the United States Supreme Court ruled that the use of the International Emergency Economic Powers Act ("IEEPA") to impose tariffs was not authorized by Congress, invalidating a significant portion of tariffs that had been in effect since April 2025. While the ruling struck down the IEEPA-based tariffs, it does not prevent the administration from imposing tariffs using other legal authorities. Following the ruling, the administration invoked alternative statutory authorities imposing a global tariff, and the administration has indicated its intention to continue to pursue alternative statutory mechanisms to reinstate or impose new tariffs. Tariffs on building materials may increase home repair costs, tariffs on automotive parts may increase vehicle repair and replacement costs, and tariffs on consumer goods may increase the cost of replacing covered personal property. To the extent tariff-driven cost increases are sustained, we may seek premium rate adjustments, subject to regulatory approval in applicable states; however, there may be a lag between when we experience increased claims costs and when we are able to implement corresponding rate increases, which could negatively impact our loss ratios in the interim. More broadly, inflation, whether driven by tariffs, supply chain disruptions, labor market conditions, or other factors, if any, has impacted and could continue to our claims costs, product pricing and investment yield, among other impacts. Capital market volatility may also affect our investment portfolio and access to capital. The actual effects of these macroeconomic factors on our results remains to be unknown and cannot be estimated with precision.

We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability and conflict in Israel and the surrounding region. There is still uncertainty regarding the extent to which the war and its broader macroeconomic implications will impact our operations in Israel. We will continue to evaluate the extent to which this may impact our business, financial condition, or results of operations. These and other uncertainties could result in changes to our current expectations. For additional information, see “Risk Factors - Risks Relating to our Business - We conduct certain of our operations in Israel and therefore our results may be adversely affected by political, economic and military instability in Israel and the surrounding region.”

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Reinsurance

We obtain reinsurance to help manage our exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured, see "Risk Factors - Risks Relating to Our Business” and “Risks Relating to Our Industry.” As a result, reinsurance does not eliminate the obligation of our insurance subsidiaries to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts, each of which could have a material effect on our results of operations and financial condition. Furthermore, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business.

We maintain proportional reinsurance contracts which cover all of the Company's products and geographies, and transfer, or “cede,” a specified percentage of the premium to reinsurers. We also manage the remaining percentage of the business with alternative forms of reinsurance through non-proportional reinsurance contracts.

We agreed to the terms of our reinsurance program effective July 1, 2024 through June 30, 2025 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, LIC, MIC and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE ("Hannover"), MAPFRE Re Compania De Reaseguros S.A. ("MAPFRE"), and Swiss Reinsurance America Corporation (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," approximately 55% of premium to the Reinsurers. In exchange, these Reinsurers pay us a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $10,000,000 per occurrence for non-hurricane catastrophe losses. The Per Risk Cap across the contracts is $750,000. Additionally, these contracts are subject to loss ratio caps and variable ceding commission, which align our interests with those of our Reinsurers and is settled primarily on a funds withheld basis.

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