Lemonade : Q4 2020 Earnings Conference Call Letter to Shareholders

Shareholder Letter

Q4 2020

$213M87% YOY IN FORCE PREMIUM (IFP)

$50M92% YOY GROSS EARNED PREMIUM

113%

2

Dear Shareholders,

In recent quarters we attempted to walk and chew gum at the same time, and we're happy to report that we seem to have mastered this feat without too much drama.

Back in July, at the time of our IPO, we were a monoline business, as we had been since our inception. Yet, a couple of quarters later, we offer three very different types of insurance (property & casualty, pet health, term life) and have more in the works. In parallel to this significant expansion of our product roster, we grew our core business dramatically while improving our underlying economics, all while turning on new countries and states. In fact, while Lemonade was available in 27 states at the time of our IPO, we now offer at least one of our products in all 50 of the United States.

Zooming in on the fourth quarter adds some color to our qualitative, as well as quantitative, progress.

In force premium ("IFP") increased 87% year-on-year, to $213 million. We concluded 2020 with over one million customers, a milestone reached after just four years in business. It took USAA 47 years. This 5-10X acceleration - relative to the biggest and best incumbents - emboldens us to lean in to the opportunities we've identified.

We concluded 2020 with premium per customer of $213. This is a 20% increase year-on-year, and marks our third sequential quarter of accelerating growth. This metric is important as it captures two areas of ​

focus: (1) diversifying our mix of new business across a broader suite of products, and (2) expanding coverage within our existing customer base.

We also completed a successful follow-on offering in Q1 2021, raising net proceeds of approximately $640 million, leaving us with a cash balance ofabout $1.2 billion. We pursued this transaction because of the positive trends we're seeing across the business that suggest we can accelerate the realization of our vision by leaning into different growth investments.

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Product Mix

We continue to focus on diversifying our product mix, with non-renters accounting for ~⅓ of total IFP in Q4 2020 compared to ~¼ at the end of 2019.

Indeed, throughout 2020, the growth of our homeowners business handily outpaced the rest of our book.

This diversification is primarily driven by a shift in the mix of new business ​

we acquire. Homeowners and pet insurance represented more than 40% of our new business in Q4 2020, up from ~⅓ in Q4 2019.

We continue to love the renters insurance business due to the strategic benefit of acquiring customers cheaply and driving Lifetime Value (LTV) upward over time via cross sales, upsells, and graduation.

Happily, we have demonstrated that we are a​ lso a​ ble to acquire customers upfront on higher premium products at Customer Acquisition Costs (CAC) that are compelling. Indeed, even as our new business mix shifted quite meaningfully over the course of 2020, we have simultaneously observed a significant increase in marketing efficiency. Each dollar we invested in advertising in 2020 delivered 8​ 8% more IFP growth​ than in 2019. This was largely due to stronger brand awareness and a technology-driven conversion funnel that continues to get smarter.

We are especially encouraged by pet insurance in this context, as it represents our first new product launch since we launched homeowners and renters in late 2016. Within just six months, we have been able to achieve