Lemonade : Q4 2021 Earnings Conference Call Letter to Shareholders

Shareholder Letter

Q4 2021

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Dear Shareholders,

2021 was a very productive year for us, and we ended it materially larger, more diversified, and strategically stronger than ever.

The year kicked off with a substantial capital raise that we expect will set our business up for years of sustained growth, and indeed we saw 100% revenue growth in Q4 '21, as compared with Q4 '20, and we ended the year with over $1B in cash and investments, almost double where we started it.

We also diversified our book by scaling our recently launched higher- premium products, while using our expanded portfolio to increase bundling, cross selling and upselling. These combined to grow Premium per customer by $53 in 2021, significantly outpacing the prior year's $36, itself a record year. We expect to beat this record again and again in the coming years as our newer products, and the resultant bundles we can now offer, buoy this metric.

Speaking of newer products, 2021 saw us begin and complete the development of Lemonade Car, a monumental undertaking, as well as signing an agreement to acquire Metromile, and with it the data, talent, and technology needed to propel Lemonade Car forward. We entered the year with no auto insurance assets, and exited it with the makings of the most delightful, seamless, fair, and precise offering on the market. More on the early results from Lemonade Car below.

Looking to 2022, having rounded out the major product categories (in 18 months we moved from a monoline underwriter, to offering pet, life, and car in addition to home and renters), we expect that this will be the year we shift much of our firepower to the next phase of our growth.

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Win With Technology

Grow With Our Customers

Our strategy, as laid out in our S-1, has always been twofold: 'win with technology' and 'grow with our customers,' and our investments in recent years have therefore largely been in creating the technological infrastructure needed to 'win with technology,' and creating the suite of products needed to 'grow with our customers.'

While we will continue to develop new products and new technologies for many years to come, for the first time we believe we've achieved a critical mass of both, enabling us to shift resources to harnessing our technology and products in new ways. This means leveraging our technology to lower expense ratio through automation, and loss ratio through machine learning, while growing LTV/CAC through cross selling and bundling.

None of this is entirely new - we've been investing in all these for years - but in prior years those investments took a backseat to new product launches and technology build out. We expect that the balance will now shift, and over the coming quarters and years this shift will take our business to new levels

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of efficiency, growth, and profitability. Indeed, 2022 is expected to be our year of peak losses.

Our two-pronged strategy -'win with technology' and 'grow with our customers' - is reflected in the structural difference between us and the rest of the industry, and we believe these differences highlight the tremendous opportunity that lies before us:

• In contrast with insurtechs:
  At first approximation, every other 'insurtech' company is a single- product business, offering either car, or home, or life, or pet or renters coverage. Uniquely, Lemonade offers all five on a unified platform. While specialization has its advantages, a monoline strategy can increase concentration risk, cap LTV, preclude bundling, force customers to engage with competitors, and mean that growth comes primarily from adding customers, rather than growing with them. In contrast, we believe our 360° strategy dampens volatility, lowers CAC and dramatically boost LTV.
• In contrast with incumbents:
  Incumbents typically have complete insurance product suites, but lack the technological foundations needed to lower expense ratio through automation, and to move from proxy-based pricing to precision pricing. While the wheels of insurance move slowly, we believe our technology offers Lemonade a strategic advantage that will manifest ever more with every turn of the flywheel. We expect this to express itself in loss ratio and expense ratio trend lines already in the second half of 2022, and for this advantage to compound in the years that follow.

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