LEMONADE, INC. – 10-K – Management report and analysis of the financial situation and operating results

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The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and the accompanying notes and other information included elsewhere
in this Annual Report. This discussion and analysis below include
forward-looking statements that are subject to risks, uncertainties and other
factors described in "Risk Factors" that could cause actual results to differ
materially from such forward-looking statements. Additionally, our historical
results are not necessarily indicative of the results that may be expected for
any period in the future. A discussion of the year ended December 31, 2020
compared to the year ended December 31, 2019 has been reported previously under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our Annual Report on Form 10-K for the year ended December 31,
2020 filed with the SEC on March 8, 2021.

In this Annual Report, unless we indicate otherwise or the context requires,
"Lemonade, Inc.," "Lemonade," "the company," "our company," "the registrant,"
"we," "our," "ours" and "us" refer to Lemonade, Inc. and its consolidated
subsidiaries, including Lemonade Insurance Company and Lemonade Insurance
Agency, LLC

Overview

Lemonade is rebuilding insurance from the ground up on a digital substrate and
an innovative business model. By leveraging technology, data, artificial
intelligence, contemporary design, and behavioral economics, we believe we are
making insurance more delightful, more affordable, more precise, and more
socially impactful. To that end, we have built a vertically-integrated company
with wholly-owned insurance carriers in the United States and Europe, and the
full technology stack to power them.

A brief chat with our bot, AI Maya, is all it takes to get covered with renters,
homeowners, pet, car or life insurance, and we expect to offer a similar
experience for other insurance products over time. Claims are filed by chatting
with another bot, AI Jim, who pays claims in as little as three seconds. This
breezy experience belies the extraordinary technology that enables it: a
state-of-the-art platform that spans marketing to underwriting, customer care to
claims processing, finance to regulation. Our architecture melds artificial
intelligence with the human kind, and learns from the prodigious data it
generates to become ever better at delighting customers and quantifying risk.

In addition to digitizing insurance end-to-end, we also reimagined the
underlying business model to minimize volatility while maximizing trust and
social impact. In a departure from the traditional insurance model, where
profits can literally depend on the weather, we typically retain a fixed fee,
currently 25% of premiums, and our gross margin is expected to change little in
good years and in bad. At Lemonade, excess claims are generally offloaded to
reinsurers, while excess premiums are usually donated to nonprofits selected by
our customers as part of our annual "Giveback". These two ballasts, reinsurance
and Giveback, reduce volatility, while creating an aligned, trustful, and
values-rich relationship with our customers. See "Business - Our Business Model"
and "Business - Our Product Offerings - Giveback Feature."

Lemonade's cocktail of delightful experience, aligned values, and great prices
enjoys broad appeal, while over indexing on younger and first time buyers of
insurance. As these customers progress through predictable lifecycle events,
their insurance needs typically grow to encompass more and higher-value
products: renters regularly acquire more property and frequently upgrade to
successively larger homes; home buying often coincides with a growing household
and a corresponding need for life or pet insurance, and so forth. These
progressions can trigger orders-of-magnitude increases in insurance premiums.

The result is a business with highly-recurring and naturally-growing revenue
streams; a level of automation that we believe delights consumers while
collapsing costs; and an architecture that generates and employs data to price
and underwrite risk with ever-greater precision to the benefit of our company,
our customers and their chosen nonprofits.



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On November 8, 2021, Lemonade entered into a definitive agreement ("Metromile
Agreement") to acquire Metromile, Inc. ("Metromile'). Pursuant to the terms of
the Metromile Agreement, the Company will acquire 100% of the equity of
Metromile, through an all-stock transaction that implies a fully diluted equity
value of $500.0 million, or over $200.0 million net of cash (based upon the
conversion ratio of 19 shares of Metromile for 1 share of Lemonade). The
transaction is expected to close in the second quarter of 2022 subject to
customary closing conditions and approvals.

Metromile is a leading digital insurance platform in the United States. With
data science at its foundation, Metromile offers real-time, personalized auto
insurance policies by the mile instead of the industry's reliance on
approximations that have historically made prices unfair. Metromile's digitally
native offering is built around the modern driver's needs, featuring automated
claims and complementary smart driving features. In addition, through Metromile
Enterprise, Metromile licenses its technology platform to insurance companies
around the world. Metromile's cloud-based software as a service enables carriers
to operate with greater efficiency, automate claims to expedite resolution,
reduce losses associated with fraud, and unlock the productivity of employees.

IPO and follow-on offering

On July 7, 2020, we completed our initial public offering of common stock, or
IPO, which resulted in the issuance and sale of 12,650,000 shares of common
stock at the IPO price of $29.00, including the exercise of the underwriters'
option to purchase additional shares, and generated net proceeds of $335.6
million after deducting underwriting discounts and other offering costs.

On January 14, 2021, we completed a follow-on offering of common stock (the
"Follow-on Offering"), which resulted in the issuance and sale of 3,300,000
shares of common stock by us and 1,524,314 shares of common stock by certain
selling shareholders, and generated net proceeds to us of $525.7 million after
deducting underwriting discounts and other offering costs. On February 1, 2021,
the underwriters exercised their option to purchase additional shares, which
resulted in the issuance and sale of an additional 718,647 shares of common
stock by us, and generated additional net proceeds of $114.6 million to us after
deducting underwriting discounts.

Key Factors and Trends Affecting Our Results of Operations

Our financial condition and results of operations have been and will continue
be, affected by a number of factors, including the following:

Seasonality

Advertising

Seasonal trends can impact both our customer acquisition rate and the
occurrence of claims and losses.

Based on historical experience, existing and potential customers move more
frequently in the third quarter, compared to the rest of the calendar year. As a
result, we may see greater demand for new or expanded insurance coverage, and
increased online engagement resulting in proportionately more growth during the
third quarter. We expect that as we grow our customers, expand geographically
and launch new products, the impact of seasonal variability on our rate of
growth may decrease.

Additionally, seasonal weather patterns impact the level and amount of claims we
receive. These patterns include hurricanes, wildfires, and coastal storms in the
fall, cold weather patterns and changing home heating needs in the winter, and
tornados and hailstorms in the spring and summer. The mix of geographic exposure
and products within our customer base impacts our exposure to these weather
patterns.

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COVID-19 Impact

In December 2019, COVID-19 was reported to have surfaced in Wuhan, China and was
subsequently recognized as a pandemic by the World Health Organization. The
global pandemic has severely impacted businesses worldwide, including many in
the insurance sector. Insurers of travel, events or business interruption may be
directly and adversely affected by claims from COVID-19 or the lock-down it
engendered. Other insurers, in lines of business that are not directly impacted
by COVID-19, may nevertheless be dependent on office-based brokers, in-person
inspections, or teams that are poorly equipped to work from home - all of which
can translate into value erosion. Finally, the broader financial crisis may hurt
insurers in other ways, too. With interest rates at all-time lows, many insurers
may see their return on capital drop; while those selling premium or
discretionary products may see an increase in churn and a decrease in demand.

In this context, it should be noted that our activity has continued to grow,
and the main drivers of our business continued to develop positively,
despite the pandemic.

•Lemonade writes insurance in lines that have so far been largely unaffected by
COVID-19, or, historically, by the recession.

•Our systems are entirely cloud based and accessible to our teams from any
browser anywhere in the world. Customers' phone calls are routed to our team's
laptops, and answered and logged from wherever they happen to be. Internal
communication has been via Slack and Zoom since our founding. The upshot is that
while we all enjoy each other's company, our teams are able to access systems,
support customers and collaborate with each other from anywhere, much as they
did before the pandemic.

• Our customers’ experience with Lemonade is also unaffected by the
the bustle, as AI Maya and AI Jim chat with customers wherever they are,
without triggering social distancing concerns.

This resilience is reflected in our results. As of December 31, 2021, our in
force premium, or IFP, was about 78% higher than it was on December 31, 2020,
and December 31, 2020 was 87% higher in comparison to December 31, 2019, the
comparable pre-pandemic period. For information regarding how we calculate IFP,
see "Key Operating and Financial Metrics - In Force Premium."

While the global economy began to reopen in the first quarter of 2021 and
continues to show positive economic growth in the U.S. as the vaccination
roll-out has reduced the spread and severity of COVID-19 and variants of the
virus, there remains to be an uncertainty about the duration and ultimate impact
of COVID-19 and variants of the virus, including the length of time needed to
vaccinate significant segment of the global population and effectiveness of the
vaccines with respect to the new variants of the virus. Management continues to
monitor and cannot definitively determine the ultimate financial impact of
COVID-19 and variants of the virus, and the related economic conditions at this
time.

With respect to our investment portfolio which showed a diversified mix in
securities beginning in the third quarter of 2021, and given the conservative
nature of our portfolio and investment in high-quality securities, we do not
expect a material adverse impact in the value of our investment portfolio, or
long-term negative impact on our financial condition, results of operations or
cash flows as it relates to COVID-19 and variants of the virus.

See "Risk Factors - Risks Relating to our Industry - Severe weather events and
other catastrophes, including the effects of climate change and global
pandemics, are inherently unpredictable and may have a material adverse effect
on our financial results and financial condition."

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Reinsurance

We obtain reinsurance to help manage our exposure to property and casualty
insurance risks. Although our reinsurance counterparties are liable to us
according to the terms of the reinsurance policies, we remain primarily liable
to our policyholders as the direct insurers on all risks reinsured, see "Risk
Factors - Risks Relating to Our Business" and "Risks Relating to Our Industry."
As a result, reinsurance does not eliminate the obligation of our insurance
subsidiaries to pay all claims, and we are subject to the risk that one or more
of our reinsurers will be unable or unwilling to honor its obligations, that the
reinsurers will not pay in a timely fashion, or that our losses are so large
that they exceed the limits inherent in our reinsurance contracts, each of which
could have a material effect on our results of operations and financial
condition. Furthermore, reinsurance may be unavailable at current levels and
prices, which may limit our ability to write new business.

Through June 30, 2021, we had proportional reinsurance covering 75% of our
business. Under the proportional reinsurance contracts, which cover all of our
products and geographies, we transferred, or "ceded," 75% of our premium to our
reinsurers ("Proportional Reinsurance Contracts"). In exchange, these reinsurers
paid us a ceding commission of 25% for every dollar ceded, in addition to
funding all of the corresponding claims, or 75% of all our claims. This
arrangement mirrors our fixed fee, and hence shields most of our gross profit
margin from the volatility of claims, while boosting our capital efficiency
dramatically. We have opted to manage the remaining 25% of our business with
alternative forms of reinsurance.

A portion of Lemonade's proportional reinsurance program expired on June 30,
2021. We renewed the majority of the expiring reinsurance contracts at terms
that are very similar to the prior agreements. As the business continued to grow
and diversify, and with stability in our insurance results, we decreased the
overall share of proportional reinsurance from 75% of premium to 70%. In
addition, we purchased a new reinsurance program to protect us against natural
catastrophe risk in the U.S. that exceed $60 million in losses. Other
non-proportional reinsurance contracts were renewed with terms similar to the
expiring contracts.

Components of our operating results

Income

Gross written premium

Gross written premium is the amount received, or to be received, for insurance
policies written by us during a specific period of time without reduction for
premiums ceded to reinsurance. The volume of our gross written premium in any
given period is generally influenced by new business submissions, binding of new
business submissions into policies, renewals of existing policies, and average
size and premium rate of bound policies.

Ceded written bonus

Ceded written premium is the amount of gross written premium ceded to
reinsurers. We enter into reinsurance contracts to limit our exposure to
potential losses as well as to provide additional capacity for growth. Ceded
written premium is earned over the reinsurance contract period in proportion to
the period of risk covered. The volume of our ceded written premium is impacted
by the level of our gross written premium and any decision we make to increase
or decrease in reinsurance limits, retention levels and co-participation. Our
ceded written premium can also be impacted significantly in certain periods due
to changes in reinsurance agreements. In periods where we start or stop ceding a
large volume of our premium, ceded written premium may increase or decrease
significantly compared to prior periods and these fluctuations may not be
indicative of future trends.

Gross Earned Premium

Gross earned premium represents the earned portion of our gross written premium.
Our insurance policies generally have a term of one year and premium is earned
pro rata over the term of the policy.

Premium earned ceded

The premium earned ceded corresponds to the amount of gross earned premium ceded to reinsurers.

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Net Earned Premium

Net earned premium represents the earned portion of our gross written premium,
less the earned portion that is ceded to third-party reinsurers under our
reinsurance agreements. Premium is earned pro rata over the term of the policy,
which is generally one year.

Ceding Commission Income

Ceding commission income is commission we receive based on the premium ceded to
third-party reinsurers to reimburse us for acquisition and underwriting
expenses. We earn commissions on reinsurance premium ceded in a manner
consistent with the recognition of the earned premium on the underlying
insurance policies, on a pro-rata basis over the terms of the policies
reinsured. The portion of ceding commission income which represents
reimbursement of successful acquisition costs related to the underlying policies
is recorded as an offset to other insurance expense.

Net investment income

Net investment income represents interest earned from fixed maturity securities,
short term securities and other investments, and the gains or losses from the
sale of investments, net of investment fees paid to the Company's investment
manager. Our cash and invested assets are primarily comprised of fixed-maturity
securities, and may also include cash and cash equivalents, equity securities,
and short-term investments. The principal factors that influence net investment
income are the size of our investment portfolio and the yield on that portfolio.
As measured by amortized cost (which excludes changes in fair value, such as
changes in interest rates), the size of our investment portfolio is mainly a
function of our invested equity capital along with premium we receive from our
customers less payments on customer claims. Over time, we expect that net
investment income will represent a more meaningful component of our results of
operations.

Commission and Other Income

Commission income consists of commissions earned for policies placed with
third-party insurance companies where we have no exposure to the insured risk.
Such commission is recognized on the effective date of the associated policy.
Other income consists of fees collected from policyholders relating to
installment premiums. These fees are recognized at the time each policy
installment is billed.

Costs

Claims and claims adjustment expenses, net

Loss and loss adjustment expense ("LAE"), net represent the costs incurred for
losses net of amounts ceded to reinsurers. We enter into reinsurance contracts
to limit our exposure to potential losses as well as to provide additional
capacity for growth. These expenses are a function of the size and term of the
insurance policies we write and the loss experience associated with the
underlying risks. Loss and LAE are based on an actuarial analysis of the
estimated losses, including losses incurred during the period and changes in
estimates from prior periods. Loss and LAE may be paid out over a period of
years. Certain policies we write are subject to catastrophe losses. Catastrophe
losses are losses resulting from events involving claims and policyholders,
including earthquakes, hurricanes, floods, storms, terrorist acts or other
aggregating events that are designated by internationally recognized
organizations, such as Property Claims Services, that track and report on
insured losses resulting from catastrophic events.

Other insurance costs

Other insurance expense consists primarily of amortization of commissions costs
and premium taxes incurred on the successful acquisition of business written on
a direct basis, and credit card processing fees not charged to our customers.
Other insurance expense also includes employee compensation, including
stock-based compensation and benefits, of our underwriting teams as well as
allocated occupancy costs and related overhead based on headcount. Other
insurance expense is offset by the portion of ceding commission income which
represents reimbursement of successful acquisition costs related to the
underlying policies.
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Sales and Marketing

Sales and Marketing includes third-party marketing, advertising, branding,
public relations and sales costs. Sales and Marketing also includes
employee-related compensation, including stock-based compensation and
benefits, as well as allocated occupancy costs and related overhead based on
effective. Sales and marketing costs are expensed as incurred.

We plan to continue to invest in sales and marketing to attract and acquire new
customers and increase our brand awareness. We expect that sales and marketing
costs will increase in absolute dollars in future periods and vary from
period-to-period as a percentage of revenue in the near-term. We expect that, in
the long-term, our sales and marketing costs will decrease as a percentage of
revenue as we continue to drive customer acquisition efficiencies and as the
proportion of renewals to our total business increases.

Technology development

Technology development consists of employee compensation, including stock-based
compensation and benefits, and expenses related to vendors engaged in product
management, design, development and testing of our websites and products.
Technology development also includes allocated occupancy costs and related
overhead based on headcount. We expense technology development costs as
incurred, except for costs that are capitalized related to internal-use software
development projects and subsequently depreciated over the expected useful life
of the developed software.

We expect product technology development costs, a portion of which will be
capitalized, to continue to grow in the foreseeable future as we identify
opportunities to invest in the development of new products and internal tools
and enhancement of our existing products and technologies that we believe will
drive the long-term profitability of the business.

General and administrative

General and administrative includes employee compensation, including stock-based
compensation and benefits for executive, finance, accounting, legal, business
operations, and other administrative personnel. In addition, general and
administrative includes outside professional services, non-income based taxes,
insurance, charitable donations, and allocated occupancy costs and related
overhead based on headcount. Depreciation and amortization expense is recorded
as a component of general and administrative.

We expect to incur incremental general and administrative costs to support our
global operational growth and enhancements to support our reporting and planning
functions.

We have incurred and expect to continue to incur significant additional general
and administrative expense as a result of operating as a public company,
including expenses related to compliance with the rules and regulations of the
SEC and the listing standards of the NYSE, additional corporate, director and
officer insurance expenses, greater investor relations expenses and increased
legal, audit and consulting fees. We also expect to increase the size of our
general and administrative function to support our increased compliance
requirements and the growth of our business. As a result, we expect that our
general and administrative expense will increase in absolute dollars in future
periods and vary from period-to-period as a percentage of revenue.

income tax expense

Our provision for income taxes consists primarily of foreign income taxes
related to income generated by our subsidiaries organized under the laws of the
Netherlands and Israel. As we expand the scale of our international business
activities, any changes in the U.S. and foreign taxation of such activities may
increase our overall provision for income taxes in the future.

We have a valuation allowance for our U.S. deferred tax assets, including
federal and state net operating losses. We expect to maintain this valuation
allowance until it becomes more likely than not that the benefit of our federal
and state deferred tax assets will be realized through expected future taxable
income in the United States.
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Main operational and financial indicators

We regularly review a number of metrics, including the following key operating
and financial metrics, to evaluate our business, measure our performance,
identify trends in our business, prepare financial projections and make
strategic decisions. We believe these non-GAAP and operational measures are
useful in evaluating our performance, in addition to our financial results
prepared in accordance with GAAP. See "- Non-GAAP Financial Measures" for
additional information on non-GAAP financial measures and a reconciliation to
the most comparable GAAP measures.

The following table sets forth these metrics as of and for the periods
presented:

                                                                            Year Ended
                                                                           December 31,
                                                                      2021              2020
                                                                         ($ in millions,
                                                                   except Premium per customer)
Customers (end of period)                                           1,427,481         1,000,802
In force premium (end of period)                                $       380.1     $       213.0
Premium per customer (end of period)                            $         266     $         213
Annual dollar retention (end of period)                                    82   %            79  %
Total revenue                                                   $       128.4     $        94.4
Gross earned premium                                            $       292.0     $       158.7
Gross profit                                                    $        31.2     $        24.8
Adjusted gross profit                                           $        45.6     $        31.2
Net loss                                                        $      (241.3)    $      (122.3)
Adjusted EBITDA                                                 $      (184.2)    $       (97.9)
Gross profit margin                                                        24   %            26  %
Adjusted gross profit margin                                               36   %            33  %
Ratio of Adjusted Gross Profit to Gross Earned Premium                     16   %            20  %
Gross loss ratio                                                           90   %            71  %
Net loss ratio                                                             93   %            71  %



Customers

We define customers as the number of current policyholders underwritten by us or
placed by us with third-party insurance partners (who pay us recurring
commissions) as of the period end date. A customer that has more than one policy
counts as a single customer for the purposes of this metric. We view customers
as an important metric to assess our financial performance because customer
growth drives our revenue, expands brand awareness, deepens our market
penetration, creates additional upsell and cross-sell opportunities and
generates additional data to continue to improve the functioning of our
platform.

Premium in force

We define In-Place Premium (“IFP”) as the aggregate annualized premium for
customers at the period end date. At each period end date, we calculate the IFP
as the sum of:

i) In-force written premium – the annualized premium for in-force policies
underwritten by us; and

ii)In force placed premium - the annualized premium of in force policies placed
with third party insurance companies for which we earn a recurring commission
payment. In force placed premium currently reflects approximately 2% of IFP.
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The annualized value of premiums is a legal and contractual determination made
by assessing the contractual terms with our customers. The annualized value of
contracts is not determined by reference to historical revenues, deferred
revenues or any other GAAP financial measure over any period. IFP is not a
forecast of future revenues nor is it a reliable indicator of revenue expected
to be earned in any given period. We believe that our calculation of IFP is
useful to analysts and investors because it captures the impact of growth in
customers and premium per customer at the end of each reported period, without
adjusting for known or projected policy updates, cancellations, rescissions and
non-renewals. We use IFP because we believe it gives our management useful
insight into the total reach of our platform by showing all in force policies
underwritten and placed by us. Other companies, including companies in our
industry, may calculate IFP differently or not at all, which reduces the
usefulness of IFP as a tool for comparison.

Premium per customer

We define premium per customer as the average annualized premium customers pay
for products underwritten by us or placed by us with third-party insurance
partners. We calculate premium per customer by dividing IFP by customers. We
view premium per customer as an important metric to assess our financial
performance because premium per customer reflects the average amount of money
our customers spend on our products, which helps drive strategic initiatives.

Annual dollar retention

We define Annual Dollar Retention ("ADR"), as the percentage of IFP retained
over a twelve month period, inclusive of changes in policy value, changes in
number of policies, changes in policy type, and churn. To calculate ADR we first
aggregate the IFP from all active customers at the beginning of the period and
then aggregate the IFP from those same customers at the end of the period. ADR
is then equal to the ratio of ending IFP to beginning IFP. We believe that our
calculation of ADR is useful to analysts and investors because it captures our
ability to retain customers and sell additional products and coverage to them
over time. We view ADR as an important metric to measure our ability to provide
a delightful end-to-end customer experience, satisfy our customers' evolving
insurance needs and maintain our customers' trust in our products. Our customers
become more valuable to us every year they continue to subscribe to our
products. Other companies, including companies in our industry, may calculate
ADR differently or not at all, which reduces the usefulness of ADR as a tool for
comparison.

Gross Earned Premium

Gross earned premium is the earned portion of our gross written premium.

We use this operating metric as we believe it gives our management and other
users of our financial information useful insight into the gross economic
benefit generated by our business operations and allows us to evaluate our
underwriting performance without regard to changes in our underlying reinsurance
structure. See ''- Components of Our Results of Operations - Revenue - Gross
Earned Premium.''

Unlike net earned premium, gross earned premium excludes the impact of premiums
ceded to reinsurers, and therefore should not be used as a substitute for net
earned premium, total revenue, or any other measure presented in accordance with
GAAP.

Gross Profit

Gross profit is calculated in accordance with GAAP as total revenue less loss
and loss adjustment expense, net, other insurance expense, and depreciation and
amortization (allocated to cost of revenue).

Adjusted gross profit

We define adjusted gross profit, a non-GAAP financial measure, as:

• Gross profit, excluding net investment income, plus

• Employee costs, plus

• Professional and other fees, plus

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• Amortization and depreciation (allocated to the cost of income)

See “- Non-GAAP Financial Measures” for a reconciliation of total revenue with
adjusted gross margin.

Adjusted EBITDA

We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding
the impact of interest expense, income tax expense, depreciation, amortization,
stock-based compensation, net investment income and other transactions that we
consider to be unique in nature. See "- Non-GAAP Financial Measures" for a
reconciliation of net loss to adjusted EBITDA in accordance with GAAP.

Gross margin

We define gross profit margin, expressed as a percentage, as the ratio of the
profit to total revenue.

Adjusted Gross Profit Margin

We define adjusted gross profit margin, a non-GAAP financial measure, expressed
as a percentage, as the ratio of adjusted gross profit to total revenue. See "-
Non-GAAP Financial Measures."

Ratio of adjusted gross margin to earned gross premium

We define Ratio of Adjusted Gross Profit to Gross Earned Premium, a non-GAAP
financial measure, expressed as a percentage, as the ratio of adjusted gross
profit to gross earned premium. Our Ratio of Adjusted Gross Profit to Gross
Earned Premium provides management with useful insight into our operating
performance. See ''- Non-GAAP Financial Measures.''

Gross loss rate

We define the gross loss ratio, expressed as a percentage, as the loss ratio
and claims adjustment expenses to gross premiums earned.

Net loss ratio

We define the net loss ratio, expressed as a percentage, as the ratio between losses and
claims adjustment expense, less amounts ceded to reinsurers, to net income
premium.

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Operating results

The following table presents our results of operations for the periods
indicated:
                                                         Years Ended December 31,
                                                          2021                2020             Change              % Change
                                                                      ($ in millions)
Revenue
Net earned premium                                  $        77.0          $   77.3          $   (0.3)                     -  %
Ceding commission income                                     44.9              15.3              29.6                    193  %
Net investment income                                         1.9               1.5               0.4                     27  %
Commission and other income                                   4.6               0.3               4.3                   1433  %
Total revenue                                               128.4              94.4              34.0                     36  %
Expense
Loss and loss adjustment expense, net                        71.9              54.7              17.2                     31  %
Other insurance expense                                      24.1              14.4               9.7                     67  %
Sales and marketing                                         141.6              80.4              61.2                     76  %
Technology development                                       51.8              19.4              32.4                    167  %
General and administrative                                   72.6              46.3              26.3                     57  %
Total expense                                               362.0             215.2             146.8                     68  %
Loss before income taxes                                   (233.6)           (120.8)           (112.8)                    93  %
Income tax expense                                            7.7               1.5               6.2                    413  %
Net loss                                            $      (241.3)         $ (122.3)         $ (119.0)                    97  %


Comparison of the years ended December 31, 2021 and 2020

Net Earned Premium

Net earned premium decreased slightly by $0.3 million, to $77.0 million for the
year ended December 31, 2021 compared to the year ended December 31, 2020
primarily due to the earning of increased gross written premium, offset by the
earning of increased ceded written premium under our Proportional Reinsurance
Contracts as discussed in detail above under "Reinsurance."

                             Years Ended
                             December 31,
                          2021         2020        Change       % Change
                                  ($ in millions)
Gross written premium   $ 375.7      $ 214.4      $ 161.3           75  %

Written premium ceded (273.4) (171.7) (101.7) 59%
Net written premium $102.3 $42.7 $59.6 140%

Gross written premium increased $161.3 million, or 75%, to $375.7 million for
the year ended December 31, 2021 compared to the year ended December 31, 2020.
The increase was primarily due to a 43% increase in net added customers year
over year driven by the success of our digital advertising campaigns. We also
continued to expand our geographic footprint and product offerings. In addition,
we saw a 25% increase in premiums per customer year over year due to our
diversified book of business by scaling recently launched higher-premium
products and using our expanded portfolio to increase bundling, cross selling
and upselling.
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Ceded written premium increased $101.7 million, or 59%, to $273.4 million for
the year ended December 31, 2021 compared to the year ended December 31, 2020. A
portion of the Company's proportional reinsurance program expired on June 30,
2021. The Company renewed a majority of the reinsurance contracts that expired
on June 30, 2021 at terms that are very similar to the prior agreements, and
decreased the overall share of proportional reinsurance from 75% of premium to
70%. The Company also purchased a new reinsurance program to protect against
natural catastrophe risk in the U.S. Other non-proportional reinsurance
contracts were renewed with terms similar to expiring contracts.

Net written premium increased $59.6 million, or 140%, to $102.3 million for the
year ended December 31, 2021 compared to the year ended December 31, 2020. The
increase was primarily due to the $161.3 million, or 75% increase in gross
written premium offset by the increase in ceded written premiums for the year
ended December 31, 2021, as compared to year ended December 31, 2020.

The table below shows the amount of premium we earned on a gross and net basis.
Ceded earned premium as a percentage of gross earned premium increased to 74%
for the year ended December 31, 2021, as compared to 51.3% for the year ended
December 31, 2020 primarily due to the new Proportional Reinsurance Contracts.

                             Years Ended
                             December 31,
                          2021         2020        Change       % Change
                                  ($ in millions)
Gross earned premium    $ 292.0      $ 158.7      $ 133.3           84  %
Ceded earned premium     (215.0)       (81.4)      (133.6)         164  %
Net earned premium      $  77.0      $  77.3      $  (0.3)           -  %



Ceding Commission Income

Disposal of commission income from $44.9 million was recognized for the year ended
December 31, 2021 on earned premiums ceded to third-party reinsurers during
period.

Net Investment Income

Net investment income increased $0.4 million, or 27%, to $1.9 million for the
year ended December 31, 2021 compared to the year ended December 31, 2020. The
increase was primarily driven by the diversification of the Company's investment
portfolio with higher returns in comparison to prior year, offset by investment
expenses of $0.1 million. We mainly invest in cash, money market funds, U.S.
Treasury bills, corporate debt securities, notes and other obligations issued or
guaranteed by the U.S. Government.

Commissions and other income

Commission and other income of $4.6 million was recognized for the year ended
December 31, 2021 based on premium placed with third-party insurance companies
during the period and installment fees billed.

Claims and claims adjustment expenses, net

Loss and LAE, net increased $17.2 million, or 31%, to $71.9 million for the year
ended December 31, 2021 compared to the year ended December 31, 2020. The
increase was primarily due to increased claims in line with premium volume
growth and net incurred losses of $6.9 million relating to Winter Storm Uri that
affected our customers in the states of Texas and Oklahoma at the beginning of
2021, and $0.8 million relating to wildfires in Colorado and large losses with
unfavorable prior period development during the last quarter of 2021.
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Other insurance costs

Other insurance expense increased $9.7 million, or 67%, to $24.1 million for the
year ended December 31, 2021 compared to the year ended December 31, 2020.
Employee-related expense, including stock based compensation, increased by $5.2
million, or 127%, as compared to the year ended December 31, 2020, driven by an
increase in underwriting staff to support our continued growth. Credit card
processing fees increased $2.2 million, or 50%, as a result of the increase in
customers and associated premium. Professional fees, and other increased by $2.6
million, or 79% primarily in support of growth and expansion initiatives during
the year ended December 31, 2021. These increases were offset by $0.3 million
decrease in amortization of deferred acquisition costs, net of ceded
commissions.

Sales and Marketing

Sales and marketing expenses increased $61.2 million, or 76%, to $141.6 million
for the year ended December 31, 2021 compared to the year ended December 31,
2020, primarily due to expense related to brand and performance advertising, the
largest component of our sales and marketing expenses, which increased by $46.9
million, or 81%, as a result of more spending on search advertising and other
customer acquisition channels. Employee-related expense, including stock based
compensation, increased $12.3 million, or 75%, as compared to the prior year
period, driven by an increase in sales and marketing headcount to support our
continued growth and expansion into new markets.

Technology development

Technology development expenses increased $32.4 million, or 167%, to $51.8
million for the year ended December 31, 2021 compared to the year ended
December 31, 2020. Employee-related expense, including stock based compensation,
net of capitalized costs for the development of internal-use software, increased
$29.0 million, or 180%, as compared to the year ended December 31, 2020, driven
by an increase in payroll expense for product, engineering, design and quality
assurance personnel to support our continued growth and product development
initiatives, including automation, improvement in machine learning, new
products, and geographic expansion. Technology tools and software expense
increased by $1.9 million, or 100%.

General and administrative

General and administrative expenses increased $26.3 million, or 57%, to $72.6
million for the year ended December 31, 2021 compared to the year ended
December 31, 2020. After taking into account the impact of the $12.2 million
non-cash expense recognized in prior year in connection with a contribution to
the Lemonade Foundation of 500,000 shares of common stock with a fair market
value of $24.36 per share (see Note 20 - Related Party Transactions in the Notes
to Consolidated Financial Statements included in this Annual Report), general
and administrative expense increased by $38.5 million, or 113% during the year
ended December 31, 2021 compared to the year ended December 31, 2020. Employee
related expense, including stock-based compensation, increased by $21.8 million,
or 165%, as we increased finance, legal, business operations and administrative
personnel. Insurance obtained for operating as a public company increased by
$4.7 million, or 92%. Bad debt expense increased by $4.0 million, or 182%.
Non-recurring transaction costs of $3.5 million primarily relating to legal and
other professional fees were incurred relating to the Metromile acquisition.
Donations made through the annual Lemonade Giveback increased by $1.2 million,
or 109%. Depreciation and amortization increased by $2.0 million or 118% and
software costs increased by $1.9 million, or 190%.

Income tax

Income tax expense increased $6.2 millioni.e. 413%, at $7.7 million for the year
ended December 31, 2021 compared to the year ended December 31, 2020 due to
increase in the tax burden related to income generated by our subsidiaries
organized under the laws of the Netherlands and Israel.

Net loss

Net loss increased $119.0 millioni.e. 97%, at $241.3 million for the year ended
December 31, 2021 compared to the year ended December 31, 2020 Due to
factors described above.

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Non-GAAP Financial Measures

The non-GAAP financial measures below have not been calculated in accordance
with GAAP and should be considered in addition to results prepared in accordance
with GAAP and should not be considered as a substitute for, or superior to, GAAP
results. In addition, adjusted gross profit and adjusted gross profit margin,
ratio of adjusted gross profit to gross earned premium, and adjusted EBITDA
should not be construed as indicators of our operating performance, liquidity or
cash flows generated by operating, investing and financing activities, as there
may be significant factors or trends that they fail to address. We caution
investors that non-GAAP financial information, by its nature, departs from
traditional accounting conventions. Therefore, its use can make it difficult to
compare our current results with our results from other reporting periods and
with the results of other companies.

Our management uses these non-GAAP financial measures, in conjunction with GAAP
financial measures, as an integral part of managing our business and to, among
other things: (i) monitor and evaluate the performance of our business
operations and financial performance; (ii) facilitate internal comparisons of
the historical operating performance of our business operations;
(iii) facilitate external comparisons of the results of our overall business to
the historical operating performance of other companies that may have different
capital structures and debt levels; (iv) review and assess the operating
performance of our management team; (v) analyze and evaluate financial and
strategic planning decisions regarding future operating investments; and
(vi) plan for and prepare future annual operating budgets and determine
appropriate levels of operating investments.

Adjusted gross profit and adjusted gross profit margin

We define adjusted gross profit, a non-GAAP financial measure, as gross profit
excluding net investment income plus fixed cost and overhead associated with our
underwriting operations including employee-related expense and professional fees
and other, and depreciation and amortization allocated to cost of revenue. After
these adjustments, the resulting calculation is inclusive of only those variable
costs of revenue incurred on the successful acquisition of business and without
the volatility of investment income. We use adjusted gross profit as a key
measure of our progress towards profitability and to consistently evaluate the
variable contribution to our business from underwriting operations from period
to period.

We define adjusted gross profit margin, a non-GAAP financial measure, expressed
as a percentage, such as the ratio of adjusted gross margin to total revenue.

The following table provides a reconciliation of total revenue to adjusted gross
profit and the related adjusted gross profit margin for the periods presented:
                                                            Year Ended December 31,
                                                           2021                    2020
                                                                ($ in millions)
Total revenue                                        $      128.4                $ 94.4
Adjustments:
Loss and loss adjustment expense, net                       (71.9)                (54.7)
Other insurance expense                                     (24.1)                (14.4)
Depreciation and amortization                                (1.2)                 (0.5)
Gross profit                                         $       31.2                $ 24.8
Gross profit margin (% of total revenue)                       24   %                26  %
Adjustments:
Net investment income                                $       (1.9)               $ (1.5)
Employee-related costs                                        9.2                   4.1
Professional fees and other                                   5.9                   3.3
Depreciation and amortization                                 1.2                   0.5
Adjusted gross profit                                $       45.6                $ 31.2
Adjusted gross profit margin (% of total revenue)              36   %       

33%

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Ratio of adjusted gross margin to earned gross premium

The Ratio of Adjusted Gross Profit to Gross Earned Premium measures the
relationship between the underlying business volume and gross economic benefit
generated by our underwriting operations, on the one hand, and our underlying
profitability trends, on the other. We rely on this measure, which supplements
our gross profit ratio as calculated in accordance with GAAP, because it
provides management with insight into our underlying profitability trends over
time.

We use gross earned premium as the denominator in calculating this ratio, which
excludes the impact of premiums ceded to reinsurers, because we believe that it
reflects the business volume and the gross economic benefit generated by our
underlying underwriting operations, which in turn are the key drivers of our
future profit opportunities. We exclude the impact of ceded premiums from the
denominator because ceded premiums can change rapidly and significantly based on
the type and mix of reinsurance structures we use and, therefore, add volatility
that is not indicative of our underlying profitability. For example, a shift to
a proportional reinsurance arrangement would result in an increase in ceded
premium, with offsetting benefits to gross profit from ceded losses and ceding
commissions earned, resulting in a nominal overall economic impact. This shift
would result in a steep decline in total revenue with a corresponding spike in
gross margin, whereas we expect that the Ratio of Adjusted Gross Profit to Gross
Earned Premium would remain relatively unchanged. We expect our reinsurance
structure to evolve along with our costs and capital requirements, and we
believe that our reinsurance structure at a given time does not reflect the
performance of our underlying underwriting operations, which we expect to be the
key driver of our costs of reinsurance over time.

On the other hand, the numerator, which is adjusted gross profit, includes the
net impact of all reinsurance, including ceded premiums and the benefits of
ceded losses and ceding commissions earned. Because our reinsurance structure is
a key component of our risk management and a key driver of our profitability or
loss in a given period, we believe this is meaningful.

Therefore, by providing this Ratio of Adjusted Gross Profit to Gross Earned
Premium for a given period, we are able to assess the relationship between
business volume and profitability, while eliminating the volatility from the
cost of our then-current reinsurance structure, which is driven primarily by the
performance of our insurance underwriting platform rather than our business
volume.

The following table presents our calculation of the adjusted gross profit ratio
Profit on Gross Earned Premium for the periods presented:

                                                                Year Ended
                                                               December 31,
                                                            2021          2020
                                                             ($ in millions)
Numerator: Adjusted gross profit                         $  45.6       $  

31.2

Denominator: Gross earned premium                        $ 292.0       $ 

158.7

Ratio of adjusted gross margin to earned gross premium 16% 20%


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Adjusted EBITDA

We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding
interest expense, income tax expense, depreciation, amortization, stock-based
compensation, net investment income, and other transactions that we would
consider to be unique in nature. We exclude these items from adjusted EBITDA
because we do not consider them to be directly attributable to our underlying
operating performance. We use adjusted EBITDA as an internal performance measure
in the management of our operations because we believe it gives our management
and other customers of our financial information useful insight into our results
of operations and our underlying business performance. Adjusted EBITDA should
not be viewed as substitute for net loss calculated in accordance with GAAP, and
other companies may define adjusted EBITDA differently.

The following table provides a reconciliation of adjusted EBITDA to net loss for
the periods presented.

                                                 Year Ended
                                                December 31,
                                             2021          2020
                                              ($ in millions)
Net loss                                  $ (241.3)     $ (122.3)
Adjustments:
Income tax expense                             7.7           1.5
Depreciation and amortization                  3.7           1.7
Stock-based compensation                      44.1          10.6
Contribution to the Lemonade Foundation          -          12.2
Transaction costs                              3.5             -
Interest income                                  -          (0.1)
Net investment income                         (1.9)         (1.5)
Adjusted EBITDA                           $ (184.2)     $  (97.9)


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Cash and capital resources

As of December 31, 2021, we had $270.6 million in cash and cash equivalents and
$801.8 million in investments. From the date we commenced operations, we have
generated negative cash flows from operations, and we have financed our
operations primarily through private sales of equity securities. On January 14,
2021, we issued and sold 3,300,000 shares of common stock, and generated net
proceeds to us of $525.7 million after deducting underwriting discounts and
other offering costs. On February 1, 2021, the underwriters exercised their
option to purchase additional shares, which resulted in the issuance and sale of
an additional 718,647 shares of common stock by us, and generated additional net
proceeds of $114.6 million. Excluding capital raises, our principal sources of
funds are insurance premiums, investment income, reinsurance recoveries and
proceeds from maturity and sale of invested assets. These funds are primarily
used to pay claims, operating expenses and taxes. We believe our cash and cash
equivalents as of December 31, 2021 will be sufficient to meet our working
capital and capital expenditures needs over at least the next 12 months.

Our cash flows used in operations may differ significantly from our net loss due
non-cash charges or changes in balance sheet accounts.

The timing of our cash flows from operating activities can also vary among
periods due to the timing of payments made or received. Some of our payments and
receipts, including loss settlements and subsequent reinsurance receipts, can be
significant. Therefore, their timing can influence cash flows from operating
activities in any given period. The potential for a large claim under an
insurance or reinsurance contract means that our insurance subsidiaries may need
to make substantial payments within relatively short periods of time, which
would have a negative impact on our operating cash flows.

We are a holding company that transacts a majority of our business through
operating subsidiaries. Consequently, our ability to pay dividends to
stockholders, meet debt payment obligations and pay taxes and operating expenses
is largely dependent on dividends or other distributions from our subsidiaries
and affiliates, whose ability to pay us is highly regulated.

Our U.S. and Dutch insurance company subsidiaries, and our Dutch insurance
holding company, are restricted by statute as to the amount of dividends that
they may pay without the prior approval of their respective competent regulatory
authorities. As of December 31, 2021, cash and short-term investments held by
these companies was $184.2 million.

Insurance companies in the United States are also required by state law to
maintain a minimum level of policyholder's surplus. Insurance regulators in the
states in which we operate have a risk-based capital standard designed to
identify property and casualty insurers that may be inadequately capitalized
based on inherent risks of the insurer's assets and liabilities and its mix of
net written premium. Insurers falling below a calculated threshold may be
subject to varying degrees of regulatory action. As of December 31, 2021, the
total adjusted capital of our U.S. insurance subsidiary was in excess of its
respective prescribed risk-based capital requirements.

The following table summarizes our cash flow data for the periods presented:
                                                            Year Ended
                                                           December 31,
                                                         2021         2020
                                                          ($ in millions)
Net cash used in operating activities                 $ (144.6)     $ 

(91.7)

Net cash (used) from investing activities $(804.8) $50.1
Net cash provided by financing activities

             $  649.6      $ 341.1


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Operational activities

Cash used in operating activities was $144.6 million for the year ended
December 31, 2021, an increase of $52.9 million from $91.7 million for the year
ended December 31, 2020. This reflected the $119.0 million increase in our net
loss, primarily offset by increases in unearned premium, funds held, and unpaid
loss and loss adjustment expense that exceeded the increase in prepaid
reinsurance premium, premiums receivable and amounts expected to be recovered
from our reinsurance partners. The increase in cash used in operating activities
from year ended December 31, 2021 compared to year ended December 31, 2020 was
primarily due to claims payments, settlements, settlements with our reinsurance
partners, and increased spend related to growth and expansion.

Cash used in operating activities was $91.7 million for the year ended
December 31, 2020. This reflected the $13.8 million increase in our net loss,
including the $12.2 million one-time non-cash share contribution expense,
partially offset by increases in funds held for reinsurance treaties, unearned
premium, unpaid losses and loss adjustment expenses and deferred ceding
commission included in other liabilities that outpaced the increases in premiums
receivable, prepaid reinsurance premiums and amounts expected to be recovered
from our reinsurance partners.

Investing activities

Cash used in investing activities was $804.8 million for the year ended
December 31, 2021 primarily due to purchases of U.S. government obligations,
corporate debt securities, short term investments and purchases of property and
equipment during the year.

Cash flows from investing activities were $50.1 million for the year ended
December 31, 2020 primarily due to sales proceeds or maturities
excess purchases of short-term investments.

Fundraising activities

Cash from financing activities was $649.6 million for the year ended
December 31, 2021 mainly due to the product received from our follow-up offer
as indicated above and comes from stock market exercises.

Cash from financing activities was $341.1 million for the year ended
December 31, 2020 primarily due to the proceeds received from our IPO.

We do not have any current plans for material capital expenditures other than
current operating requirements. We believe that we will generate sufficient cash
flows from operations to satisfy our liquidity requirements for at least the
next 12 months and for the foreseeable future. The following table summarizes
the Company's contractual obligations and commitments as of December 31, 2021,
and the effect of such obligations are expected to have on our liquidity and
cash flows in the future periods.

                                                                      Payments Due by Period
                                                         Less than           1 to 3             4 to 5            More than
                                        Total              1 Year             Years             Years              5 Years
                                                                         ($ in millions)
Unpaid losses and loss adjustment
expense(1)                           $   97.9          $     78.4          $   17.3          $     1.4          $      0.8
Operating lease commitments              24.6                 4.9              18.1                1.6                   -
Total                                $  122.5          $     83.3          $   35.4          $     3.0          $      0.8


___________
(1)The reserve for losses and loss adjustment expenses represent management's
estimate of the ultimate cost of settling losses. As more fully discussed in
"- Critical Accounting Policies and Estimates - Unpaid loss and loss adjustment
expenses", the estimation of the unpaid losses and loss adjustment expenses is
based on various complex and subjective judgments. Actual losses paid may
differ, perhaps significantly, from the reserve estimates reflected in our
consolidated financial statements. Similarly, the timing of payment of our
estimated losses is not fixed and there may be significant changes in actual
payment activity. The assumptions used in estimating the likely payments due by
period are based on our historical claims payment experience and industry
payment patterns, but due to the inherent uncertainty in the process of
estimating the timing of such payments, there is a risk that the amounts paid
can be significantly different from the amounts disclosed.
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The amounts in the above table represent our gross estimates of known
liabilities as of December 31, 2021 and do not include any allowance for claims
for future events within the time period specified. Accordingly, we expect that
the total amounts of obligations paid by us in the time periods shown will be
greater than those indicated in the table.

To the extent our future operating cash flows are insufficient to cover our net
losses from catastrophic events, we had $1,072.4 million in cash and investment
securities available at December 31, 2021. We also have the ability to access
additional capital through pursuing third-party borrowings, sales of our equity,
issuance of debt securities or entrance into new reinsurance arrangements.

Significant Accounting Policies and Estimates

Our financial statements are prepared in accordance with GAAP in the United
States. The preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires our
management to make a number of estimates and assumptions relating to the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the period. We evaluate our
significant estimates on an ongoing basis, including, but not limited to,
estimates related to unpaid loss and loss adjustment expense, reinsurance
assets, stock-based compensation, income tax assets and liabilities, including
recoverability of our net deferred tax asset, income tax provisions and certain
non-income tax accruals. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results could differ from those estimates.

We believe that the accounting policies described below involve a significant
degree of judgment and complexity. Accordingly, we believe these are the most
critical to aid in fully understanding and evaluating our consolidated financial
condition and results of operations. For further information, see Note 4 -
Summary of Significant Accounting Policies in the Notes to Consolidated
Financial Statements included in this Annual Report.

Unpaid Losses and Claims Adjustment Expenses

The reserves for loss and LAE represent management's best estimate of the
ultimate cost of all reported and unreported losses and LAE incurred through the
balance sheet date. Unpaid losses and LAE are based on the assumption that past
developments are an appropriate indicator of future events. The incurred but not
reported portion of unpaid losses and LAE is based on past experience and other
factors.

The estimate of unpaid losses and claims adjustment expenses is based on several
key judgments:

•the determination of the actuarial models serving as a basis for these
estimates;

•the relative weight given to these models;

•the underlying assumptions used in these models; and

• the determination of appropriate groupings of similar product lines and, in
some cases, the disaggregation of dissimilar losses.

Because actual experience can differ from key assumptions used in establishing
reserves, there is potential for significant variation in the development of
loss reserves.

For property coverage, the nature of loss is usually a short statement
period of volatility resulting from occasional severe events. The process for
estimating and recording unpaid and LAE losses based on history
claims reported, industry insights, claim frequency and latency
reported, and assumptions of current environmental factors.

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The following tables summarize our gross and net reserves for unpaid loss and
LAE as of December 31, 2021 and 2020, respectively:

                                                       December 31, 2021
                                       Gross        % of total       Net    

% of total

                                                        ($ in millions)
Loss and loss adjustment reserves
Case reserve                        $    44.8             46  %    $ 10.9             43  %
IBNR                                     53.1             54  %      14.4             57  %
Total reserves                      $    97.9            100  %    $ 25.3            100  %


                                                       December 31, 2020
                                       Gross        % of total       Net        % of Total
                                                        ($ in millions)
Loss and loss adjustment reserves
Case reserve                        $    24.0             52  %    $  4.9             49  %
IBNR                                     22.3             48  %       5.1             51  %
Total reserves                      $    46.3            100  %    $ 10.0            100  %


We have assessed the impact of potential reserve deviations from our carried
reserve at December 31, 2021. We applied sensitivity factors to incurred losses
for the three most recent accident years and to the carried reserve for all
prior accident years combined. Due to our contractual arrangements with our
reinsurers, the sensitivity analysis results in no change to our previous income
or stockholders' equity.

The amount by which the estimated losses differ from those originally reported for a
period is known as “Development”.

Development is unfavorable when the losses ultimately settle for more than the
amount reserved or subsequent estimates indicate a basis for reserve increases
on unresolved claims. Development is favorable when losses ultimately settle for
less than the amount reserved, or subsequent estimates indicate a basis for
reducing loss reserves on unresolved claims. We reflect favorable or unfavorable
development of loss reserves in the results of operations in the period the
estimates are changed.
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The following tables summarize our Ultimate Gross and LAE Losses, and Net
Ultimate losses and LAE at December 31, 2021 and 2020, respectively.

                Gross Ultimate Losses and LAE
                       ($ in millions)
                        Calendar Year            Development
Accident Year         2021            2020       2020 to 2021
2017             $    5.1           $  5.1      $          -
2018                 23.2             23.0               0.2
2019                 58.4             58.6              (0.2)
2020                121.0            119.6               1.4
2021                262.8                N/A               N/A
                                                $        1.4


                Net Ultimate Losses and LAE
                     ($ in millions)
                      Calendar Year            Development
Accident Year        2021           2020       2020 to 2021
2017            $    1.7           $ 1.7      $          -
2018                13.4            13.4                 -
2019                46.2            46.0               0.2
2020                52.0            53.5              (1.5)
2021                69.4               N/A               N/A
                                              $       (1.3)


Reinsurance assets

The estimation of reinsurance recoverable involves a significant amount of
judgment. Reinsurance assets include reinsurance recoverable on unpaid losses
and loss adjustment expenses that are estimated as part of our loss reserving
process and, consequently, are subject to similar judgments and uncertainties.
This estimate requires significant judgment for which key considerations
include:

•amounts paid and unpaid recoverable;

•if the balance is disputed or subject to judicial recovery;

• the financial situation of a reinsurer (i.e. liquidated, insolvent, in
receivership or otherwise subject to formal or informal regulatory restriction);
and

•the collectability of the reinsurance recovery for factors such as, amounts
outstanding, length of collection periods, disputes, any collateral or letters
of credit held and other relevant factors.

Income tax assets and liabilities, including recoverability of our net deferred charges
tax asset

The evaluation of the recoverability of our deferred tax asset and the need for
a valuation allowance requires us to weigh all positive and negative evidence to
reach a conclusion that it is more likely than not that all or some portion of
the deferred tax asset will not be realized. The weight given to the evidence is
commensurate with the extent to which it can be objectively verified. The more
negative evidence that exists, the more positive evidence is necessary and the
more difficult it is to support a conclusion that a valuation allowance is not
needed.
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We consider a number of factors to reliably estimate future taxable income so we
can determine the extent of our ability to realize NOLs, foreign tax credits,
realized capital loss and other carryforwards. These factors include forecasts
of future income for each of our businesses and actual and planned business and
operational changes, both of which include assumptions about future
macroeconomic and company-specific conditions and events. We subject the
forecasts to stresses of key assumptions and evaluate the effect on tax
attribute utilization.

On December 22, 2017, the President of the United States signed into law the Tax
Act. The legislation significantly changes U.S. tax law by, among other things,
lowering corporate income tax rates from 35% to 21%, effective January 1, 2018.
GAAP requires companies to recognize the effect of tax law changes in the period
of enactment. We evaluated all available information and made reasonable
estimates of the impact of tax reform to substantially all components of our net
deferred tax assets as of December 31, 2017. We finalized our accounting for the
Tax Act during 2018 with no significant impact to earnings or deferred taxes.

Stock-based compensation

We account for stock-based compensation in accordance with ASC Topic 718,
"Compensation - Stock Compensation." Stock options are mainly awarded to
employees and members of our board of directors and measured at fair value at
each grant date. We calculate the fair value of share options on the date of
grant using the Black-Scholes option-pricing model and the expense is recognized
over the requisite service period for awards expected to vest using the
straight-line method. The requisite service period for share options is
generally four years. We recognize forfeitures as they occur.

Prior to the IPO, the fair value of common stock underlying the options was
historically determined by our board of directors, with input from management,
and considered third party valuations of our common stock. Because there was no
public market for our common stock prior to the IPO, our board of directors
determined its fair value at the time of grant of the option by considering a
number of objective and subjective factors, including financing investment
rounds, operating and financial performance, the lack of liquidity of share
capital and general and industry specific economic outlook, among other factors.
Our board of directors determined the fair value of common stock based on
valuations performed using the Option Pricing Method ("OPM") and the Probability
Weighted Expected Return Method ("PWERM") subject to relevant facts and
circumstances for the year ended December 31, 2019.

See Note 17 – Stock-based compensation in the Notes to the consolidated financial statements
Statements included in this annual report for a complete description of the
accounting for stock-based awards.

Recently issued and adopted accounting pronouncements

See “Note 4 – Summary of significant accounting policies” in the Notes to
Consolidated financial statements included in this annual report for a
discussion of recently adopted accounting pronouncements and their impact on our
consolidated financial statements.

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