Lemonade, Inc.

Hello everyone and welcome to the Lemonade Q3 2023 earnings call. We will begin shortly. If you'd like to register a question ready for the Q&A, please press star followed by one on your telephone keypad. Hello everyone and welcome to the Lemonade Q3 2023 earnings call. My name is Charlie and I'll be coordinating the call today. You'll have the opportunity to ask a question at the end of the presentation. If you'd like to register a question, please press star followed by one on your telephone keypad. I'll now hand over to our host, Yael Wisner-Levy, the VP of Communications at Lemonade to begin. Yael, please go ahead.

Good morning and welcome to Lemonade's third quarter 2023 earnings call. My name is Yael Wisner-Levy and I'm the VP Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, co-CEO and co-founder, Shai Winninger, co-CEO and co-founder, and Tim Bixby, our chief financial officer. A letter to shareholders covering the company's third quarter 2023 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 meanings 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 our Form 10-K filed with the SEC on March 3rd, 2023, our Form 10-Q filed with the SEC on August 4th, 2023, and our 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 gross 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 performance indicators, including customers, in-force premium, premium per customer, annual dollar retention, gross earned premium, Gross Loss Ratio, Gross Loss Ratio XCAT, and Net Loss Ratio, and 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 for some opening remarks. Daniel?

Good morning, and thank you for joining us to discuss Lemonade's Q3 results and our updated outlook for the full year. We are very pleased by this quarter's results. top line, bottom line, and the intervening lines. Starting at the top, we saw continued growth, with Inforce Premium growing 18% year-on-year, boosted by strong marketing efficiencies and rising prices. At the same time, we also saw our gross loss ratio improve 11 percentage points, both quarter-on-quarter and year-on-year, to 83%, continuing the trend we had seen in recent quarters and which was so rudely interrupted in Q2. Our operating expense similarly declined by 11%, since our third quarter last year. As a result of all this, our gross profit increased 170% year-on-year and our adjusted EBITDA loss contracted by 39%. We are, as I say, pleased with the results this quarter. In other news, this month we expect to pass the 2 million customer mark. The comparison of our business today to our business when we hit the 1 million customer mark is instructive. Today, with double the number of customers, we have three and a half times as much gross earned premium as our premium per customer jumped by 70% in the intervening years. At the same time, net loss as a percentage of gross earned premium roughly halved. Taken together, these improvements show strong progression of the business in recent years, and they sketch a robust path to profitability. This month, we also mark the anniversary of our first investor day. In our shareholder letter, you'll find significant updates to the projections and models we shared a year ago, and I do encourage you to peruse it. One notable highlight, we expect to become cash flow positive by end of year 2025 and to reach that point with hundreds of millions of unencumbered dollars in the bank. We expect to become adjusted EBITDA positive by year end 2026. Towards that end, we anticipate accelerating our pace of growth considerably in 2024. We previously communicated the reasons for our slowdown this year, and as inflation subsides and rates come online, we can see our path clear to re-engaging our clusters in 2024. In our investor day, we spoke of 25% compounded annual growth rate as our target growth rate, and we anticipate our growth rates in 2024 will be at or around this target. Continuous and strong growth are key to fully harnessing the benefits of automation, and indeed the combined impact of both automation and growth are key to our profitability. To expand on our generative AI efforts and their contribution to our automation, let me hand over to Shai. Shai?

Thank you, Daniel. Before I get to some of the exciting work we've been doing with generative AI, I wanted to say a few words about our Israel-based team members. The horrors of the attacks of October 7th are hard to overstate, And the days since have been challenging for many of our team members, and especially so for our Israel-based team. I want to acknowledge the extraordinary resilience and strength of our Israeli team and send them our collective appreciation and wishes. I also wanted to assure our investors that throughout this period of unprecedented heartbreak and upheaval in Israel, Lemonade has continued to operate without interruption. It helps that the overwhelming majority of our team is based outside of Israel, in the U.S. and Europe, Thanks to the resilience of our distributed team and the level of automation we already have in our operations, our productivity remained high and our business continued to operate. Speaking of automation, I'd like to provide some more color on the advances we've made implementing generative AI into business processes across our organization. It's been an exciting few months working on multiple initiatives with our dedicated generative AI squads. and preliminary impact is already reflected in our shrinking expense ratio. For example, we've recently introduced large language models into our customer support process, where our generative AI-powered automation handles customer emails from start to finish. This initiative is just a few weeks old and is already handling more than 7% of our incoming customer service emails. This, of course, is on top of requests handled by AI Maya in our mobile and web app. and AI Maya now handles a third of all customer interactions on these platforms. This is just the tip of the iceberg. There are dozens more initiatives in progress, and we believe the percentage of generative AI-handled processes, such as answering customer tickets, will increase substantially. We're focusing our efforts on automating manual intensive work, such as underwriting property inspections, by leveraging the latest generative AI image analysis technology. we're now able to substitute human involvement in many underwriting processes with systems powered by generative AI. For example, we recently introduced a self-inspection feature that guides customers through a house tour and automatically analyzes captured images to reduce both risk and cost. Using the new generative AI vision capabilities, we're able to determine construction quality, materials, finishes, and levels of disrepair. We can even read labels on water heaters and other equipment to determine their age and level of risk. These are just some examples, and we're working on dozens more with new capabilities going live every few days. What allows us to move so fast in incorporating these new technologies is the fact that our system was built from start to finish by Lemonade. We have zero reliance on third-party providers, and in the last few years have built a modular and expensive platform that can seamlessly and easily integrate with new technologies like generative AI. As Daniel mentioned, our shareholder letter this quarter is worth a close read. One statistic from the letter that's worth highlighting is that in just two years, our gross earned premium more than doubled, while our operating expenses only grew by 19%. This speaks volumes about our growing efficiency and bodes well for the coming years. As we expand the scope and depth of our automation efforts, we expect to accelerate our top-line growth while improving our bottom line. AI and automation play a starring role in enabling this dynamic, and hence in charting our path to profitability and beyond. And with that, I'll turn things over to Tim.

Great. Thanks, Shai. I'll review highlights of our Q3 results and provide our expectations for the fourth quarter and the full year, and then we'll take some questions. It was a strong quarter across the board with excellent loss ratio improvement coupled with rigorous cost control. resulting in strong results exceeding our own expectations. In-force premium, or IFP, grew 18% in Q3 as compared to the prior year to $719 million. As a reminder, the third quarter is the first quarter where year-on-year comparisons include metromile impact in both the current and the prior year results as the acquisition closed in July of 2022. Customer count increased by 12% to just shy of 2 million as compared to the prior year. Premium per customer increased 6% versus the prior year to $362, driven in roughly equal parts by rate increases and mixed shift to higher priced products. Annual dollar retention, or ADR, was 85%. We measure ADR on an annual cohort basis and include the impact of changes in policy value, additional policy purchases, and churn. There was some modest downward pressure on ADR this quarter from the addition of former Metromile customers in the current quarter metric calculation for the first time. Gross earned premium in Q3 increased 27% as compared to the prior year to $173 million, a bit faster than IFP growth due to the partial quarter impact of Metromile results in Q3 of 2022. Revenue in Q3 increased 55% from the prior year to $115 million. The growth in revenue is driven by the increase in gross earned premium as well as 169% increase in investment income and a decline in the proportion of premium ceded to reinsurers. Our gross loss ratio was 83% for Q3 as compared to 94% in both Q3 2022 and in Q2 of 2023. The impact of CATs in aggregate in Q3 was roughly 10 percentage points within the gross loss ratio, about equal to the average quarterly CAT impact over the last couple of years. Absent the total CAT impact, the underlying gross loss ratio XCAT was in line with the prior quarter and nearly 15 percentage points better than the prior year. Prior period development was roughly 3.8% favorable impact in the quarter. primarily due to pet reserve adjustments. Operating expenses excluding loss and loss adjustment expense decreased 11% to $98 million in Q3 as compared to the prior year. A bit of detail on the unique entries in the quarter, both one-off expenses related to the Metro Mile acquisition. We had a notable non-recurring expense in the quarter related to a successful sublet of excess office space in San Francisco. a lease acquired in conjunction with the Metromile acquisition. I'd consider the sublease of the space as a positive outcome in a very difficult West Coast real estate market. The current prevailing rents are well below the market peak of 2019, and as a result, we've written down approximately $3.7 million in the quarter in relation to this transaction. We've also reserved $3 million for other potential liabilities related to Metromile operations pre-acquisition. based on facts known now that were not apparent at the time of the acquisition. These expenses are included in G&A expense. They impact our net operating loss and earnings per share and have been excluded from our adjusted EBITDA calculation, given their unique nature in relation to activities pre-acquisition. The San Francisco office lease was our only material excess real estate obligation. We're comfortable with our other existing lease obligations relative to our space needs in all of our physical locations. Other insurance expense grew 25% in Q3 versus the prior year, a bit ahead of the growth of earned premium, primarily in support of our aggressive investment in our rate filing capacity. Total sales and marketing expense declined by $11 million, or 32%, primarily due to lower growth acquisition spending to acquire new customers. Total growth spend in the quarter was $12.6 million, down from $23 million in the prior year quarter. Growth spend was about 15% more efficient in Q3 versus a year ago, in part due to lower absolute spend, but also due to better results in certain marketing channels. In July, we began to draw down on our loan facility, our synthetic agents program, and financed about 50% of our Q3 growth spend. As a reminder, you'll see 100% of our growth spent flow through the P&L as always, while the impact of the new financing mechanism is visible on the cash flow statement and the balance sheet. Technology development expense increased just 2% close to flat versus the prior year. G&A expense decreased 9% as compared to the prior year. Personnel expense and headcount continued to be quite stable despite continued growth in customers and premiums. Total headcount is actually down about 5% as compared to the prior year at 1,304. Net loss was $62 million in Q3, or a loss of 88 cents per share, as compared to the $91 million loss we reported in the third quarter of 2022, or a loss of $1.37 per share. While adjusted EBITDA loss was $40 million in Q3 as compared to $66 million of adjusted EBITDA loss in the third quarter of 2022. Our total cash, cash equivalents, and investments ended the quarter at approximately $945 million, reflecting primarily a use of cash for operations of $103 million since year end 2022. And worth noting that that total cash and equivalents and investments balance was essentially unchanged versus the prior quarter. With these goals and metrics in mind, I'll outline our specific financial expectations for the fourth quarter and the full year. For the fourth quarter, we expect in-force premium at December 31 between $726 and $729 million. Gross earned premium between $174 and $176 million. Revenue between 107 and $109 billion and adjusted EBITDA loss between 44 and $42 million. Stock-based compensation of approximately $16 million, CapEx of approximately $3 million, and a weighted average share count of approximately 70 million shares. And for the full year, this would result in in-force premium again at $726 to $729 million. gross earned premium between $665 and $667 million, revenue between $421 and $423 million, adjusted EBITDA loss between $188 and $186 million, stock-based compensation of approximately $62 million, capital expenditures of approximately $10 million, and again, weighted average share count for the full year of approximately 70 million shares. All in all, a really strong quarter. It's worth summarizing the main headlines. Cash flow positive expected by year end 2025. Adjusted EBITDA positive following by year end 2026. Continued progress on loss ratio. Rate filings and approvals earning in with more to come. Impressive efficiency and nearly flat headcount. We can look back to almost two years ago when we first spoke about our expected peak loss quarter happening in Q3 2022. Now, A year out from that date, not only was that quarter indeed our peak loss quarter, but just one year later, our adjusted EBITDA loss has shrunk by nearly 40%. Taken together, our results give us confidence that we are on the path to creating a sizable, defensible, and profitable business, and we hope you see them similarly. With that, I'd like to hand things back over to Shai to answer some questions for our retail investors.

Thanks, Stephen. We'll now turn to our shareholders' questions submitted through the SAVE platform. And by the way, I also saw some recurring questions on Twitter, specifically from Neil, and tried to address many of those questions in the letter, our comments this morning, and again in the following answers. William asked the most upvoted question about when meaningful profitability is expected. The letter and our comments earlier in the call answered that clearly. so I'm going to use the time to get to additional upvoted questions. Matthew asked about the lemonade stock, specifically what steps are being taken to raise the value and maintain the stock. Matthew, we get this question quite often, and we understand why. The share price is not at the place we'd like it to be, though, as mentioned in previous calls, we're not focused on the short-term performance of the stock, but look towards the long-term and encourage our investors to do the same. We have high conviction in the long-term prospect for Lemonade and the value we can create for shareholders. Quarter after quarter, we are delivering underlying improvements that are meaningful and significant to our business. And as we head closer to profitability, we are optimistic that the true value of Lemonade will be reflected more fully in our stock price over time. Our next couple of questions were around Lemonade Car. Darren asks, what's hindering the process of Lemonade Car? And Paperbag2 asks, for a similar update. As with any of our products, we're only interested in growing profitably, expanding our book of business with healthy sales. That is contingent upon our loss ratio getting to where we want it to be as we increase rates to keep up with rising inflation. As a reminder, the increase in car repair and part costs had led to an industry-wide challenge. I'm happy to report that California approved a 51% rate increase for our car products. This is especially significant as approximately 50% of our car premium come from California. As these new rates earn in, we expect to become rate adequate. We believe that this can yield a healthy loss ratio, allowing us to grow car faster in the coming years. Paperbag also asks about cost-cutting measures citing other insurance companies taking measures to cut operating expenses. I appreciate the question here, and it's important to note that we apply great scrutiny to every single initiative we're working on and to the resources at our disposal. That has allowed us to steadily iterate as needed rather than undertake sudden and drastic changes. Over the last two years, gross earned premium grew six times faster than operating expenses. This quarter alone, exemplifies the ability to grow while cost cutting, with IFP growing 18% year-on-year, gross loss ratio improving by 11 percentage points to 83%, and operating expenses declining by 11%. And you can see that in our headcount as well. We'll end 2023 with roughly the same number of full-time employees as the start, even as our business will have grown considerably. And with that, Let me hand the call over to the operator so we can take some questions from our friends on the street.

Thank you. If you'd like to ask a question, please press star followed by 1 on your telephone keypad. If you'd like to withdraw your question, please press star followed by 2. When preparing to ask your question, please ensure you're unmuted locally. As a reminder, that's star followed by 1 on your telephone keypad now. Our first question comes from Matt Smith of Holzer Ferguson. Matt, your line is open. Please go ahead.

Hi, thanks, and congrats, guys, on a great quarter. Yeah, and please know also about our support and prayers for the team in Israel. I know it's been a very chaotic little bit of time, so just wanted to let you know that we're supporting you as well. I wanted to touch on your LTV to CAC ratio. You mentioned pretty significant improvement getting to greater than four in recent quarters. It looks like this is related in part to the more efficient marketing spend that Tim touched on. But can you give some additional color on what things the AI is picking up on to drive the LTV component of that equation higher?

Yeah. I think you kind of hit on the two key drivers there. One is, yes, when you're spending somewhat less over time, you tend to spend it on the more productive channels with a higher ROI. So there is that aspect and probably worth kind of reminding of our pace of spend and pace of growth. As we highlighted in the letter, we've been growing sort of in the mid to upper teens over the course of this year by choice, by design. we can really set our own growth pace by the amount of growth spend we deploy. And with the addition of our synthetic agents program, our improving loss ratios, we're now getting to the point, as we've talked about for a few quarters, where we're much more comfortable leaning in and upping that growth spend over time. And so we gave a little indication of that in the letter that we see as we head into 2024, that all those pieces are now coming together, where we'll have the ability to spend more, to keep the ROI strong, and return to growth rates that look more like our long-term target in the mid-20s or above. The balance of the impact is definitely more efficiency. There are some highlights in the letter around our LTV to CAC, our LTV6, LTV7, LTV8 models that are now continue to evolve consistently, and what that enables us to do is be much more granular around the channels that are working, the channels that are not working, and adapt and adjust more quickly. And so it's really a combination of those two things that give us the uptick in marketing efficiency, about a 15% improvement this quarter in marketing efficiency dollar for dollar versus the prior year.

Matt, if I could just add a quick comment on that. Yeah.

Matt, sorry, I'll take your follow-up in a second. Two quick comments for you. First of all, really appreciate your comments of support. Thanks very much. To underline one of the things that Tim said and then to add one as I mentioned further. So definitely this is one of our lower spend quarters and the systems are very good at cherry picking. So the incremental dollar will be spent as close as possible to the incremental LTV to CAC. The fewer dollars we spend, the greater the LTV to CAC ratio at cutoff. If we kept spending, we'd be getting the next slightly less efficient customer and further down the curve, if you follow my meaning. So I just want to, we think that the systems that we have in place are incredibly powerful to allow us to do that. But don't extrapolate necessarily that if we doubled or tripled spend, we would see exactly the same LTV to CACs. A byproduct of that kind of efficient and highly targeted spend of dollars is what I just said. The second thing to bear in mind, which also may or may not play out the same in the coming quarters, is at a macro level, the insurance industry has suffered a great deal. We referenced this somewhat in our letter. We've seen some of the largest players either totally exit large markets or certainly stop spending in them. And we have seen a precipitous decline in competitors deploying dollars in order to acquire acquisitions. So the last quarter also had perhaps an unusual dynamic, time will tell, where customers were there for the taking. And I don't know how much that will sustain itself as others eventually dust themselves off and start spending dollars again. So a couple of things to bear in mind. And sorry, you had a follow-on question as well.

Yeah, you actually touched on kind of what I was getting at in the follow up is just the sustainability of that ratio. So, I mean, it sounds like in the longer term, you might expect something closer to the historical levels of LCB to CAC of three. Is that maybe a fair statement as ad spend picks up and you kind of get through this unusual period that you've seen?

I think we've been reasonably good at getting, you know, sharpening our pencil, systems getting better. The more markets we deploy and the more products we launch, the more optionality the system has in order to cherry pick. So I do hope that we'll be able to continue to improve. But, yeah, my comments were aimed at saying don't draw a straight line from where we are this last quarter. Certainly for our own internal planning purposes, we'd want to see that materialize before we bank on it.

Great. Thanks and congrats again.

Thank you. As a reminder, if you wish to submit a question, please press star followed by 1 on your telephone keypad. Our next question comes from Tommy McJoint of KBW. Tommy, your line is open. Please go ahead.

Hey, good morning, guys. Thanks for taking my questions. Can you help bridge what changed in terms of the timing of the cash flow and EBITDA turning profitable a bit sooner than you expected? Just what were the inputs exactly that drove that change?

Yeah, so maybe a comment on the short-term cash flow, perhaps part of your question, but perhaps not, but worth noting that in the short term, our cash flow in the quarter was pretty interesting, essentially zero change quarter to quarter. naturally a timing impact due to our new reinsurance structure. And you can kind of see the different pieces on the balance sheet. That should normalize somewhat over time, but a notable cash flow benefit for the current quarter. In terms of the longer-term view, a couple things have changed, and the comparison point is probably our investor day from a year ago where we really got into a fair amount of detail in our different modeling scenarios and assumptions. One thing, two things have really changed fundamentally. One is enough time has passed and enough rate has earned in and enough rates have been approved where we just have much more clarity on how that loss ratio is likely to play out. There are certain aspects of loss ratio that you can't know in terms of weather, but the pieces that we can know, the dollars earned in, the dollars expected to earn in, and the rate approvals, we just have you know, with four, almost five more quarters of data, much more clarity around that. And that's a key driver. Second thing of note is if you look at our both the cost lines and our head count reporting that we do quarter to quarter, you can see the real impact of automation and leverage and scale in the model. And this is something we've, you know, known and planned for for many years, but has not been really evident externally in until the last three or four quarters where you can really see it in those ratios. Premium growing at a very healthy clip. Operating expenses growing at a much slower pace. And in some cases, some operating expense lines are flat or even down. And so those are the two primary drivers. There's a little bit of benefit from the synthetic agents program we put in place that obviously has a cash flow advantage. benefit where you're spreading out cash flow over a somewhat longer period of time and that's really the combination of those enabled us to solidify our models with much more granularity, much more confidence, four more quarters of hard data versus projections and gives us an expected cash cushion in the trough years, roughly double what it was when we looked at it a year ago. So all around good stuff.

Thanks. And then my second question is, with the large rate increase improved in auto in California, can you talk about the trajectory of how you see that book of business, the auto book of business, diversifying over time. You know, obviously there's a lot of concentration in California now and you're continuing to roll out new states, but you get a big premium bump in California. So can you just talk through how you see the diversification on a geographic basis playing out going forward in auto?

Yeah, so I would think of it as an opportunistic approach. Obviously the California rate of approval and our concentration in that state is a is a pretty dramatic change in our ability to grow generally in car. Uh, it's also notable, um, that we can see a loss ratio, uh, even before that rate increase, uh, continuing to, to improve higher than our target, but certainly continuing to improve. And so I think in the same way that we're able to pick and choose among marketing channels, this will enable us to pick and choose among not only States, but also regions. And you can get quite granular in terms of where and how we grow. With five products, CAR is not the only game in town, and we'll be fairly thoughtful about how we grow the renter's book, the home book, the pet book continues to really perform nicely in terms of marketing efficiency, in terms of growth, and certainly in terms of loss ratio. So CAR certainly looks a little – our ability to grow within CAR, that data has come much closer with these. recent changes, but we'll continue to really look to build out all of the products.

Thanks. And then just my last question, just from a modeling perspective, do you guys have an expectation for what your kind of annual cat load would be, either on like a percentage or probably a percentage basis? The dollar's tough with how much you guys are growing. Not sure if you guys have just kind of a baseline number that you guys think of.

Yeah, so we don't guide to that by design, but we certainly think and model it. Probably the best way to think about it is to look back over the last eight, maybe nine quarters, and you'll see an average catload of roughly between 9.5% and 10.5%. There's obviously a spike in Q2 of this year, which skews that number, but actually not a whole lot when you're looking over the course of a couple years or so. So I would think of that as sort of a normalized cap load. Obviously, that may change somewhat as the mix of business grows over time, but that's been relatively consistent. So if you're looking at the course of a year, that's a pretty reasonable number. Obviously, quarter to quarter will have fluctuations, and they won't always be as expected. Q2 and Q3 this year are notable examples where if you were just looking at weather patterns historically, you would have probably swapped the two quarters in some ways, but over the course of a year, that's a reasonable assumption to make.

Makes sense. Thanks, Tom. Thank you. Our next question comes from Jason Esatan of Oppenheimer. Jason, your line is open. Please proceed.

Hey, guys. So, Ann, just before the last question, I just want to you know, send our, our support, um, to, to everyone in Israel, uh, dealing with the current situation. So thinking of everybody, um, to two questions and they kind of both tied a cat. So, so just Tim, can you clarify, like, what was the cat impact this quarter? Just want to make sure we heard it right. And then to the extent that it's, you know, it sounds like this was a light quarter for cat. So he sent a fourth quarter comes in light. Do you think about like reinvesting that, that back in the business, either, How would you think about if the next, let's say, four quarters just happen to be meaningfully less capped than what we've kind of gone through? Does that change how you think about where those dollars go?

Sure, yeah. Great question. In terms of the impact in the quarter, it was roughly 10 points from all CAT combined in the quarter. And it was a little skewed, slightly skewed more to what we call a major storm, not a named storm, but a major storm versus just general CAT, maybe a 60-40 split. But 10 points in aggregate in line with the historical average for a couple of years, quarterly average, as I noted, and about half what it was in Q2. Q3 is, from a hurricane and a home product perspective, a seasonally higher expected order that actually came in somewhat better. We saw that in the numbers. Q4, that seasonal impact diminishes somewhat. If we were to see a reputation of Q3 and Q4 where the expected pattern is a little bit better, yeah, you would see that flow through in terms of Our choice or our ability to redeploy that upside or that incremental margin or cash flow, it's a little tricky. You don't know as you go through a quarter, you don't know until you know, right? You can have a cat on the last day of the quarter or the first day of the quarter, and they can have a similar impact. But I would say from a macro view, if we had several quarters in a row as you as in your example, sure. That's a, that's a benefit. I mean, one of the things we're striving towards is, you know, visibility into long-term cashflow or cashflow cushion and, uh, growing faster helps that. And so we're balancing all of those things. And if we see some upsides to benefit in the coming quarters, that enables us to, to, to nudge that growth. And that's been up a bit, which gets to scale faster. So it's, it's a little bit of a, I would call it sort of a virtuous cycle, and we'd love to see that pattern evolve. I don't know that it would be every single dollar you push back in, but certainly it would give us the ability to be more thoughtful and lean in a bit more on growth. We're already planning to do that based on what we know now, but that could certainly help a bit.

Hey, Jason, just a couple of afterthoughts. Sorry about that. Just two things. First of all, thank you for your kind warm wishes. They are warmly received as well. A couple of funny kind of comments about CAT. One is the quarters may be slightly less randomly distributed than you might expect. What I mean by that is there was some speculation in Q2 when we saw very severe storms in Q2 at a time that we didn't expect and in some places that didn't expect. California, for example, was very severely hit. There was some speculation at the time that that might result in a lighter wildfire season, which would have been around now because so much of the timber, so much of the fuel is dampened by it. So we do see perhaps that Tim's earlier comment about the quarters being swapped around, there may be some actual basis for that rather than it being entirely random. But it is an opportune time to say, These storms and wildfires and other catastrophes come basically in a way that we can't predict. And we do encourage everybody to look at the long-term trends. We do have reassurance that buffets are from the worst of the shocks, at least in terms of EBITDA impact. By the same token, if we have one or two good quarters, we don't necessarily bank that on the assumption that that trend will continue. We always prepare ourselves for the notion that the next quarter may be different. We try to take a zoomed-out, long-term perspective on this. You had another question, Jason?

Oh, just do you have any thoughts just about competitors who've been kind of moving in and out of markets? And obviously, these things take kind of long planning and whatnot, but Have you made any change to kind of your three-year plan based on, or five-year plan, based on competitors moving in and out of markets?

Not so much about competitors moving in and out, but we follow similar forces. Our sales of certain products in certain markets have changed dramatically over recent years. I think it was Tommy who asked earlier about our concentration of car in California. And you will see that we have made concerted efforts in product. And that, by the way, is something that we inherited from Metromile. We have made concerted efforts to rebalance some of our products in that sense, particularly when it comes to cash exposure. So in recent years, our sales of home insurance in general and home insurance in cat exposed areas has dropped off precipitously. And we keep looking at the areas of greatest exposure and try to balance the book accordingly. So we have taken and continue to take measures to avoid the worst of those. The fact that our competitors are pulling out of those markets doesn't make them attractive to us. We're really focused on selling in places that we feel we have price adequacy and certainly a preference for low volatility, particularly given the high cost of reinsurance at the moment.

Thank you.

Thank you. As another reminder, if you wish to submit a question, please dial star followed by one on your telephone keypads. Our next question comes from Andrew Anderson of Jefferies. Andrew, your line is open. Please go ahead.

Hey, good morning. I think you had kind of touched on the XCAT gross loss ratio earlier, but if we go back to it, 73% in the quarter and kind of consistent with first quarter and second quarter results. I'm just thinking there's been a lot of rate taken. Can we kind of get some puts and takes perhaps by line on why we haven't been seeing a little bit of sequential improvement, maybe some seasonality or just the lagging timing of earned rates?

Yeah, I think if you break down the loss ratio, you certainly see a couple of consistent themes. We don't see improvement every single quarter as we move forward, so we saw some ups and downs in Q3. The net impact was a fair bit better, obviously, because of the CAT impact, which is primarily a home dynamic. in terms of specifics, we saw continued improvement in pet quarter to quarter, which obviously is not cat exposed. And we saw a nice improvement in car, even, even obviously before this most recent rate increase from Q2 to Q3 renters nudged up very slightly and, and home was up somewhat. And so this is a, a pretty common theme. We shared the product breakdowns a couple of times over the past year, and you'll see there's some short-term fluctuations in volatility quarter to quarter, and then you'll see the long-term trend reflecting those rates earning in. And I'd refer folks back to the letter where we had some specifics on the dollar impact of rates earning in. So a fair amount, some earned in to date, a good amount in progress. And with the rates just approved in California, obviously that number is going to continue to be a very solid driver of both growth and loss ratio improvement going forward.

Okay. And I think you had mentioned 10 points of gross CAT losses. Do you have net CAT losses handy as well as the 3.8 points of favorable PYD Was that on a net basis as well?

So you'll typically see our gross and net impacts to be very close, not identical, but very consistently similar impacts quarter to quarter, and that's been true for some time. In terms of the prior period development that was driven, there's two numbers there. One is the in-quarter prior period development impact was about 3.8% favorable. That number moves around quarter to quarter, but that was primarily a pet reserve benefit in the quarter. And then there's a prior year number that's disclosed in the queue. Those are two different numbers. The drivers are similar. The numbers are different because prior year is prior year and prior period is all prior periods combined. But the impact was the same, both favorable, primarily driven by pets.

So the prior period was 3.8 points favorable. The PYD was also 3.8 points?

No. The prior year is a dollar number, and that would be a smaller dollar number. And the current quarter, 3.8%, is 3.8% of gross earned premium in the current quarter. So that dollar impact in the current quarter would be about, if you do the math, about $6 million, and the prior year number is about $3 million. So two different numbers, and I would caution you to be careful when you combine those because they are two different analyses, two different numbers, and can lead to some confusing conclusions. But happy to follow up after the call if more detail is helpful.

Great. Thank you.

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