Lemonade : Q2 2021 Earnings Conference Call Letter to Shareholders

Shareholder Letter

Q2 2021

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Dear Shareholders,

We're happy to report that Q2 saw positive trends and metrics across the board. With healthy unit economics and robust customer demand, the overarching theme of Q1 21 was leaning in to growth investment, and this happily characterized Q2 21 too.

We saw accelerating IFP growth for the second consecutive quarter, with IFP increasing by 91% year-over-year (relative to 89% in Q1 21 and 87% in Q4 20). We concluded Q2 21 with IFP of $297 million, and about 1.2 million customers.

Separately, for the fourth consecutive quarter, we saw accelerating growth in premium per customer. This metric increased year-over-year by an all- time record of 29% to $246. This acceleration reflects the sustained diversification of our business mix to higher premium products, and the increasing prevalence of Lemonade customers with multiple policies. We'll discuss these concepts in more detail in an upcoming section of this letter.

As we look ahead, from our vantage point, it's all systems go for a second half with similar dynamics. During this high-growth phase of our business, if growth investment opportunities present themselves that demonstrate attractive long-term unit economics, we intend to make those investments and prioritize long term value maximization over near-term EBITDA optimization.

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Lemonade Car

Last quarter, we announced the upcoming launch of Lemonade Car, and it has been gratifying to see how much our community - shareholders and customers alike - appear to share our excitement. In the intervening months, we've made real strides on all aspects of our car roadmap: product, technology, recruiting, and regulatory approvals.

As it relates to product and technology, we've been co-creating with our prospective customers. We recently sent a survey out to our rapidly growing Lemonade Car waitlist, and nearly 10,000 customers shared what's most important to them in a car insurance experience. With such rich input from existing Lemonade customers, we've swiftly completed the development (from scratch) of an end to end, digital-first car policy management system. In all aspects of our product strategy, we have stayed true to our values and have prioritized the delivery of a delightful customer experience that is simple, fast, and - wherever possible - automated. We'll use telematics data to implement a nuanced and segmented pricing structure that will provide a fair price for safe drivers, and ensure we build a strong, low-risk book of business.

The Lemonade Car team continues to grow considerably. We have recruited some of the best talent in the industry to lead our car insurance operation and have started staffing up our customer-facing teams in preparation for launch.

Notwithstanding our good progress on the development of Lemonade Car, given our dependency on regulatory approvals - the timing of which is hard to tie down - we are not at this stage announcing a concrete launch date, nor are we including anticipated IFP associated with Lemonade Car in our guidance for FY 21.

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Product Mix

As we look ahead to the long-term, we expect our product mix to continue to gradually shift and increasingly diversify. While we love renters as a great point of entry to Lemonade, we continue to invest in other product verticals that provide large and growing addressable markets, cross sell opportunities to existing customers, and incremental on-ramps to the Lemonade experience.

For the second consecutive quarter, renters represented a healthy ~50% of our new business in Q2 21, down from ~75% in Q2 20. This is primarily enabled by the shifting mix of first-time Lemonade customers to higher- premium products (pet, home, life), but further amplified by Lemonade renters graduating to become homeowners, and buying life and/or pet policies.

These dynamics have a tangible impact on our overall business mix. A year ago, at the end of Q2 20, we only sold renters and homeowners products, with renters representing ~75% of our IFP. By the end of Q2 21, our IFP breakdown1 evolved considerably -

In his book Aleph, Brazilian novelist Paulo Coelho wrote that "in a forest of a hundred thousand trees, no two leaves are alike. And no two journeys along the same path are alike." We feel this sentiment increasingly applies to customer journeys at Lemonade. Each product demonstrates unique characteristics - from conversion rates, to retention rates, to loss ratios, to cross sale

• We expect to periodically update the mix breakdown when we believe it is helpful to understand our product growth strategy and results.

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