Lemonade, Inc. (LMND)

Business overview

Business 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 ever better at delighting customers and evaluating risk. 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 reducing the impact on our gross margin.

Our Business Model At the foundation of our business model is a direct, digital, customer-centric experience that enables rapid growth and strong retention. Our customer-centricity runs deep, and our underlying business model is designed to align interests between us and our customers. This technology-first customer acquisition and retention strategy, combined with our unconflicted business model, results in a highly attractive financial model. We leverage technology in everything we do. AI Maya and our APIs sell 98% of Lemonade's policies. Homeowners insurance policies in the United States are sold primarily via agents, making a platform that finds, onboards, and digitally serves consumers end-to-end very much an outlier.

Our digital substrate enables us to integrate marketing and onboarding with underwriting and claims processing, collecting and deploying data throughout, to constantly drive efficient customer acquisition, enhance the customer experience, and mitigate risk. This approach results in significant, rapid scaling coupled with high customer satisfaction. To align our interests with those of our customers, encourage good behavior and build a long-term relationship based on mutual trust, we endeavor to decouple our financial incentives from variability in claims. Unlike many of our competitors, we work to minimize incentives to deny legitimate claims as we aim to give back, rather than keep the remaining monies. Our reinsurance contracts lessen the volatility in our operating results, as a portion of claims are borne by our reinsurance partners.

See "Risk Factors - Risks Relating to Our Business”. In the future, reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could have a material effect on our results of operations and financial condition. After our customers purchase a policy, we ask them to designate a charitable cause for us to support. As a result, we believe customers are less inclined to embellish claims as they could be hurting a nonprofit they care about, rather than an insurance company they do not.

Strong retention rates and a subscription-based model create highly-recurring and naturally-growing revenue streams, and provide visibility into our topline results. Our reinsurance construct, in turn, mitigates the volatility inherent in traditional insurance companies, where profits quite literally depend on the weather. With our reinsurance agreements reducing the impact of excess claims, and our Giveback policy, we have two powerful ballasts that reduce volatility, while creating an aligned, trustful, and values-rich relationship with our customers. 5 This combination of a customer-focused onboarding experience, a customer-aligned business model, and a revenue stream that grows along with our customers' insurance needs, has created a sustainable financial model that we are proud of. Over time, we believe our platform will continue to efficiently acquire new customers and give us the ability to service their growing needs at a lower cost, and with higher satisfaction levels, than the industry at large. Our Technology Data Advantage Our proprietary and entirely integrated technology stack is a key enabler of our strategy and business model. […]

Management discussion and analysis

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. Regulation of our Business Insurance Regulation Our U. S. insurance subsidiaries are regulated by insurance regulatory authorities in the states in which we operate. State insurance laws and regulations generally are designed to protect the interests of customers, consumers, and claimants rather than stockholders or other investors. State regulators generally have broad administrative power with respect to all aspects of the insurance business.

The regulatory requirements and restrictions include, among others, the following: • approval of policy forms and premium rates; • approval for intercompany service agreements; • advertising, marketing, and trade practices; and • restrictions on the ability of our regulated insurance subsidiaries to pay dividends to us or enter into certain related party transactions Regulation of insurance companies constantly changes as governmental agencies and legislatures react to real or perceived issues. 15 Required Licensing Our regulated U. S. insurance subsidiaries are domiciled and admitted in the states of New York and Delaware. Under a provision of the California Insurance Code, MIC is deemed “commercially domiciled” in California, meaning that the California Department of Insurance is entitled to regulate certain aspects of MIC’s business as if it were actually domiciled in California.

LIC, MIC, Lemonade Insurance Agency, LLC, Lemonade Life Insurance Agency, LLC, Lemonade E&S Insurance Agency, LLC and Metromile Insurance Services LLC must apply for and maintain licenses to provide and sell insurance in those jurisdictions in which they transact insurance businesses. Our insurance company and insurance producer subsidiaries are required to adhere to myriad laws and regulatory requirements. The insurance regulators in the states in which our subsidiaries do the business of insurance are empowered to conduct on-site visits and examine the financial affairs and market conduct practices of those entities. Insurance regulators have broad administrative powers to impose monetary penalties and/or restrict or revoke licenses to transact business for violations of applicable laws and regulations.

Restrictions on Paying Dividends We are a holding company that transacts a majority of our business through operating subsidiaries. Consequently, our ability to pay dividends to stockholders and meet our debt payment obligations is largely dependent on dividends and other distributions from our subsidiaries. Applicable insurance laws restrict the ability of our regulated insurance subsidiaries to declare stockholder dividends. Applicable insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Insurance regulators have broad powers to prevent reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amounts calculated under any applicable formula would be permitted to be made by our insurance subsidiaries.

State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiaries may in the future adopt statutory provisions more restrictive than those currently in effect. Investment Regulation LIC is subject to New York’s insurance laws and MIC is subject to Delaware and California’s laws regarding the composition of their investments. Those laws generally require diversification of their investment portfolios and limits on the amount of their investments in certain categories. Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in some instances, would require those companies to sell those investments.

Licensing of Our Employees and Adjusters In most states in which we operate, insurance claims adjusters are required to be licensed and some must fulfill annual continuing education requirements. In most instances, our employees who are negotiating coverage terms are underwriters and are not required to be licensed agents. As of December 31, 2025, 382 employees were required to maintain and did maintain requisite licenses for these activities as required by the states in which we operate. Enterprise Risk, Cybersecurity, and Other Recent Developments The National Association of Insurance Commissioners (“NAIC”) has engaged in a concerted effort to strengthen the ability of U. S. state insurance regulators to monitor U.

S. insurance holding company groups. Among other things, the NAIC’s model, when adopted, requires the ultimate controlling person of an insurance company to submit an annual enterprise risk management report that describes the risk that an activity, circumstance, event, or series of events involving one or more affiliates of an insurer will, if not remedied promptly, be likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. […]

Key risk disclosures

“Risk Factors” in this Annual Report. You should carefully consider these risks and uncertainties, together with all of the other information contained in this Annual Report, when investing in our common stock. The principal risks and uncertainties affecting our business include the following: • We have a history of losses and we may not achieve or maintain profitability in the future. • Our success and ability to grow our business depend on retaining and expanding our customer base. • Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects. • Our future revenue growth depends on our ability to increase the lifetime value of our customers and attaining greater value from each customer.

• Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability. • Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers. • Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiaries to maintain regulatory authority to conduct our business. • If we are unable to maintain and implement relationships with third-party service providers, or renew contracts with them on favorable terms, or if those parties are adversely impacted by financial, reputational, regulatory and other tasks, our prospects for future growth and our business may be adversely affected.

• If we are unable to expand our product offerings, or penetrate new markets, our future growth may be limited. • We rely on artificial intelligence, telematics, mobile technology, and our digital platforms to collect data and any legal or regulatory requirements that prohibit or restrict our ability to collect or use this data could adversely affect our business. • If we are unable to underwrite risks accurately and charge competitive yet profitable rates our business will be adversely affected . • Our pricing model for self-driving technologies and reliance on direct vehicle telemetry may not function as expected. • We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.

• Interruptions or delays in the services provided by our sole provider of third-party data centers could impair the operability of our website. • Security incidents or real or perceived errors, failures or bugs in our systems could impair our operations. • We are periodically subject to examinations by our primary state insurance regulators, which could result in adverse examination findings and necessitate remedial actions. • Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business and impact our capital needs. • We may face particular privacy, data security, and data protection risks as we continue to expand into Europe and the UK in connection with the GDPR and other data protection regulations.

• We may be unable to prevent or address the misappropriation of our data. • If our customers were to claim that the policies they purchased failed to provide adequate or appropriate coverage, we could face claims. 3 • Our product development cycles are complex and subject to regulatory approval, and we may incur significant expenses before we generate revenues. • Litigation and legal proceedings filed by or against us and our subsidiaries could have a material adverse effect. • The "Lemonade" brand may not become as widely known as incumbents' brands or the brand may become tarnished. • Our expansion within the United States and any future international expansion strategy will subject us to additional costs and risks.

• There may be an adverse impact of the Customer Investment Agreement. • We are subject to extensive insurance industry regulations. • Severe weather events and other catastrophes are inherently unpredictable and may have a material adverse effect on our financial results and financial condition. • We rely on data from our customers and third parties for pricing and underwriting our insurance policies handling claims and maximizing automation, the unavailability or inaccuracy of which could limit the functionality of our products and disrupt our business. • Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses. […]

Source and methodology

Review the latest Form 10-K document for the complete filing and its full context. Extraction is automated and is not a substitute for reading the original filing.

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