Lemonade, Inc.

Thank you. THE END Good day and welcome to the Lemonade, Inc. Q3 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note, today's event is being recorded. I would now like to turn the conference over to Yael Wissner-Levy.

Please go ahead. Good morning, and welcome to Lemonade's third quarter 2020 earnings call. My name is Yael Wissner-Levy, and I am the VP Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, CEO and co-founder, Shai Winninger, COO and co-founder, John Peters, Lemonade's chief underwriting officer, and Tim Bixby, our chief financial officer. A letter to shareholders covering the company's third quarter 2020 financial results is available on our investor relations website, investor.lemonade.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of Reform 10-Q for the three months that ended June 30, 2020, and their other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted growth profit, which we believe may be important to investors to assess their operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key operating metrics, including a definition of each metric, why each is useful to investors, and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel, who will begin with a few opening remarks. Daniel?

Good morning. I'm happy to report that our third quarter returned strong results along all key performance indicators. Despite concerns that the pandemic might disrupt migratory patterns and within our seasonably strongest quarter, we in fact saw robust growth and sustained improvements across our unit economics. Year-on-year, our in-force premium, or IFP, doubled. Our adjusted gross profit jumped 138%, while our losses per dollar of gross earned premium halved. Tim will elaborate on all our numbers shortly. Perhaps the most noteworthy thing that happened this quarter, though, is something that didn't happen. The dog that didn't bark, to borrow a phrase from Sherlock Holmes. In Q3, we had a major non-event which is easily missed and which I'd like to highlight. Wildfire season in the western United States started early this year, and the fires in Q3 alone made this year California's most destructive fire season ever. Hurricane season was equally ferocious. The National Hurricane Center named storms alphabetically, starting with A, but by mid-September they had literally run out of letters and had to start over, this time with the Greek alphabet. That has never happened so early. These unprecedented disasters hit the most populous states in the Union, which are also home to the majority of Lemonade's customers. Against this devastating backdrop, we see the significance of the dog that didn't bark. Our loss ratio for Q3 remained perfectly healthy. In fact, at 72%, it was more than 7% lower than the corresponding quarter last year. As a reminder, below 75% loss ratio, our reinsurers make money, our 25% take is safe even without reliance on reinsurance, and there's typically leftover money for a giveback. If our annual growth loss ratio occasionally topped 75%, that would also be okay, and our economics would be largely unchanged because our reinsurers would finance most of those excess losses. But the fact that our loss ratio didn't spike, even as catastrophes did, is a non-event of note. To put it into perspective, the industry is forecasting that home insurance companies will put the bill for about $10 billion of catastrophic or cat losses for Q3. If our underwriting was merely industry average, based on our market share, we could have expected cat losses of about $17 million. and a gross loss ratio of about 100%. Our actual cat losses, though, were some 75% lower than our pro-rata would have predicted, and our loss ratio declined year on year. This, I believe, is testament to our cautious approach to underwriting in wildfire zones and hurricane-prone parts of the country, and it shows that we're not growing by loading up on tail risk. Speaking of tails and dogs and barking, the second thing of note this quarter was a launch of pet health insurance. It's our first foray into an insurance sector beyond homeowners, and it's off to a roaring start. About 40% of pet policies were sold to first-time lemonade customers. These newcomers alone delivered about nine times more IFP than we generated from newcomers to Lemonade in the three months following our initial launch four years ago. And we did that at a rate of marketing efficiency that it took us three years to achieve with our renters' products. Not only has Pet Insurance provided an additional on-ramp to Lemonade, but about 5% of these newcomers added a renter's or homeowner's policy within their first quarter with us. And as compelling as the metrics look for newcomers, they are better yet for existing customers who comprise the majority of our pet insurance buyers. Each of these added an average of $450 to their premium, an almost fourfold jump in their median premiums, without us incurring any costs at all to acquire the incremental premiums. Pets may be our first step beyond homeowner's insurance, but as you will soon hear, it won't be our last. Our experience three months post-launch affirms our strategy of acquiring customers young when their needs are modest and ensuring they get a fabulous experience with lemonade so that as they progress through predictable lifecycle events, their insurance needs grow, often by orders of magnitude, and they do that growing with us. This significant upsell and cross-sell phenomena continues to gain steam within our homeowners business too. About 12% of our condo policyholders in Q3 started as renters at Lemonade and then graduated to become homeowners with Lemonade. In fact, while our overall IFP doubled year on year in the third quarter, our IFP from customers graduating from renting to owning grew by over 300% during the same three months. That's significant. The premiums of these graduates grew six-fold on average, from $150 before their graduation to $900 after, again, with no incremental cost to acquire the incremental premium. We believe these trends both within homeowners and between product lines have tremendous runway. We hope to give them a further boost by adding more products And on that note, let me hand over to Shai to update you on what's coming next. Shai?