Lemonade, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a clear standalone fourth-quarter income statement or cash flow comparison.
Business context
Lemonade operates digitally distributed insurance businesses in the U.S. and Europe, offering renters, homeowners, pet, car and life products. Its model relies on automation, data-driven underwriting and reinsurance; it generally retains a fixed fee—then 25% of premiums—and may donate residual funds through its customer-selected Giveback program.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $128.4 million | $94.4 million |
| Net earned premium | $77.0 million | $77.3 million |
| Net loss | $241.3 million | $122.3 million |
| Adjusted EBITDA (non-GAAP) | $(184.2) million | $(97.9) million |
| Gross profit margin | 24% | 26% |
| Adjusted gross profit margin (non-GAAP) | 36% | 33% |
| Gross / net loss ratio | 90% / 93% | 71% / 71% |
| Operating cash flow | $(144.6) million | $(91.7) million |
Gross written premium rose 75% to $375.7 million; customers increased 43% to 1.43 million. In-force premium grew 78% to $380.1 million, and premium per customer rose to $266 from $213. Annual dollar retention improved to 82% from 79%.
Revenue increased 36%, mainly from higher ceding commission income ($44.9 million versus $15.3 million) and commission and other income. Net earned premium was nearly flat as ceded premiums rose with the reinsurance program. Total expenses increased 68% to $362.0 million, including sales and marketing of $141.6 million and technology development of $51.8 million. Net loss nearly doubled, reflecting higher growth investment and expenses as well as increased claims.
At year-end, cash and cash equivalents were $270.6 million and investments were $801.8 million, totaling $1,072.4 million. Total assets were $1,510.5 million, liabilities $522.3 million and stockholders’ equity $988.2 million. The filing does not present a material funded-debt balance; disclosed contractual obligations include $97.9 million of gross unpaid losses and loss adjustment expenses and $24.6 million of lease commitments. Cash and short-term investments held by regulated insurance entities were $184.2 million and are subject to restrictions. The insurer’s risk-based capital ratio was 546%.
Material changes, outlook and risks
- Reinsurance: Proportional coverage was reduced from 75% to 70% of premium in 2021. The company added U.S. catastrophe protection for losses exceeding $60 million. Certain reinsurance agreements were due for renewal in 2022; the filing warns that availability, cost, counterparty performance and coverage limits may affect growth and results.
- Claims and reserves: The gross loss ratio rose to 90%. 2021 net losses included an estimated $6.9 million from Winter Storm Uri and $0.8 million from Colorado wildfires. Gross unpaid loss and LAE reserves were $97.9 million, including $53.1 million of IBNR estimates. The auditor identified IBNR valuation as a critical audit matter, citing judgment and limited operating experience in some lines.
- Spending and profitability: Management expects continued investment in marketing, headcount, technology and public-company compliance, and says net losses may increase in the near term. The company has a history of losses and does not provide quantified earnings guidance in the supplied filing text.
- Metromile: A proposed all-stock acquisition announced in November 2021 implied a fully diluted equity value of $500 million, or more than $200 million net of cash. Closing was expected in Q2 2022, subject to approvals and other conditions. Risks include completion, integration costs, dilution and failure to realize anticipated benefits.
- Other risks and unusual items: The business is exposed to catastrophe losses, insurance regulation, pricing and reserve uncertainty, AI bias or restrictions, privacy and cybersecurity risks, customer acquisition costs and competition. California, New York and Texas represented approximately 57% of 2021 gross written premium. The company recorded $3.5 million of Metromile-related transaction costs. The 2021 Giveback totaled $2.3 million. Management and the auditor reported effective internal control over financial reporting; the financial statement audit opinion was unqualified.
- Liquidity: The company reported cash and investments sufficient for at least the next 12 months, while continuing to use cash in operations. It raised $640.3 million net from its 2021 follow-on offering. Insurance-subsidiary funds and dividends are regulated, limiting access to some cash at the parent level.
Most important facts for investors to verify
- Whether worsening loss ratios stabilize, and whether IBNR reserves and catastrophe estimates prove adequate.
- Terms and availability of 2022 reinsurance renewals, reinsurer credit quality, and the company’s retained catastrophe exposure.
- Whether growth in customers and premium per customer translates into improved underwriting economics and reduced cash burn.
- Metromile closing status, share issuance, integration costs and realized operating or strategic benefits.
- Liquidity accessible to the parent versus capital restricted within regulated insurers, including continued RBC compliance.