Business Context and Reporting Period
Lemonade, Inc. filed a Form 8-K on June 21, 2023, reporting the entry into a Material Definitive Agreement. The filing details a new reinsurance program effective July 1, 2023, and expiring June 30, 2024.
Key Financial Metrics
This filing does not report revenue, profit, cash flow, margins, debt, or liquidity metrics. It focuses exclusively on the terms of reinsurance contracts.
Material Changes and Contract Terms
The Company entered into a comprehensive Reinsurance Program with Hannover Ruck SE, MAPFRE Re, and Swiss Reinsurance America Corporation. Key terms include:
- Proportional Reinsurance: Approximately 55% of premiums are ceded to reinsurers across all products and geographies.
- Ceding Commission: Reinsurers pay a ceding commission on ceded premiums and fund corresponding claims.
- Per Risk Cap: Set at $750,000 under the proportional contracts.
- Excess of Loss Coverage:
- PPR Contract: Claims exceeding $750,000 are 100% ceded up to a maximum recovery of $2.25 million.
- Automatic Facultative PPR Contract: Claims exceeding $3 million are 100% ceded with a potential recovery of at least $10 million.
- Alignment Mechanisms: Contracts include loss ratio caps and variable commission levels.
Guidance, Outlook, and Risks
The filing does not provide financial guidance or management commentary on future performance. The primary risk mitigation strategy described is the transfer of underwriting risk to third-party reinsurers. The full text of the contracts, containing standard representations and warranties, is expected to be filed as exhibits to the Form 10-Q for the quarter ended June 30, 2023, with certain provisions redacted.
Investor Verification Checklist
- Verify the impact of the 55% cession rate on future gross written premiums and net income.
- Review the specific loss ratio caps and variable commission formulas in the full contract exhibits.
- Confirm the financial stability and credit ratings of the reinsurers (Hannover, MAPFRE, Swiss Re, Arch Re).
- Monitor the upcoming Form 10-Q for the redacted confidential provisions of the agreements.