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Lemonade (NYSE: LMND)
Q3 2024 Earnings Call
Oct 31, 2024, 8:00 a.m. ET
Table of Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Opening Statements from Management
Operator
Welcome to Lemonade’s Q3 2024 earnings call. I’m Maxine, your coordinator for today’s discussion. [Operator instructions] Now, I’ll hand it over to Yael Wissner-Levy, VP of Communications, who will kick things off. Yael, please proceed.
Yael Wissner-Levy — Vice President, Communications
Good morning, and thank you for joining us for Lemonade’s third quarter of 2024 earnings call. I’m Yael Wissner-Levy, and alongside me today are Daniel Schreiber, CEO and co-founder; Shai Wininger, president and co-founder; and Timothy Bixby, our chief financial officer. A shareholder letter detailing our financial results for Q3 2024 can be found on our investor relations website, investor.lemonade.com.
As we begin, please note that our discussion may include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are subject to risks that could cause actual results to differ from those mentioned. For more information, refer to the Risk Factors in our 2023 Form 10-Q, which we submitted to the SEC on May 1, 2024. We will also discuss certain non-GAAP financial measures, which we believe are important for assessing our operational performance.
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Our shareholder letter provides reconciliations for these non-GAAP measures, along with key performance indicators such as customer metrics, in-force premiums, retention rates, and loss ratios. This information is critical for understanding our business performance. Now, I’ll turn it over to Daniel for some opening remarks. Daniel?
Daniel Schreiber — Co-Founder and Chief Executive Officer
Thank you for joining us today. It is always a pleasure to discuss our results. Before we dive into the financials, I’d like to remind everyone about our upcoming investor day on November 19. Whether you’re attending in person in New York or online, we hope you can join us for enlightening updates on our vision and our use of AI technology.
Now, regarding our Q3 results, I’m pleased to report that we achieved solid growth across the board. Our in-force premium increased by 24%, and crucially, we achieved cash flow positivity. Our net cash flow rose by $48 million, marking our strongest cash flow quarter since our inception. Our positive free cash flow reached $14 million, though we believe net cash flow more accurately reflects our operations, given its inclusion of our synthetic agents program.
By the end of this quarter, we held $979 million in cash and investments, a figure we expect to continue increasing, with the exception of the next quarter. Despite higher catastrophic losses industry-wide, our business proved remarkably resilient. We recorded a gross loss ratio of 73%, our best in four years. This ongoing improvement is not a fluke; we have now seen four consecutive quarters with double-digit enhancements in this ratio compared to the same period last year.
This success stems from our consistent strategy of diversifying our portfolio and diligently aligning rates with the underlying risk. As a result, we have significantly improved our gross margins in Q3. Our gross profit of $37 million reflects a remarkable year-over-year increase of 71%. Such strong revenue growth, along with rising gross profit and record cash flow, made this a remarkable quarter for our company. We eagerly anticipate sustaining this momentum into 2025 and beyond.
Now, I will hand over the microphone to Shai, who will elaborate on how our technological advancements have led to recent efficiencies. Shai?
Shai Wininger — Co-Founder and President
Thank you, Daniel. As we’ve stated in recent quarters, technology is at the heart of our operations, and it has positively influenced our financial metrics. I want to highlight the strides we have made in automation, which have been a significant contributor to our cash flow success.
We have now improved our in-force premiums per employee for 11 consecutive quarters, achieving a figure surpassing $700,000, with a compound annual growth rate exceeding 30%. We are nearing the productivity levels of leading tech companies outside the insurance sector. When we review our operating expenses, excluding growth-related spending—80% of which is funded through our Synthetic Agents program—operating costs have remained stable year over year.
Strong Q3 Performance: Growth and Profitability Metrics Impress Investors
Future Prospects Highlighted by Continued AI Advancements
I believe the impact we’re seeing is just the beginning.
As we implement new AI capabilities daily, numerous opportunities for further efficiency improvements lie ahead. Now, I’ll turn the call over to Tim, who will discuss our financial outcomes. Tim?
Tim Bixby — Chief Financial Officer
Thank you, Shai. I will outline key highlights from our Q3 results and present our expectations for Q4 and the entire year. Overall, it was another strong quarter, with results meeting or exceeding expectations and marked improvements in our loss ratios.
In-force premium rose by 24% to $889 million, accompanied by a 17% increase in customer count to 2.3 million. Premium per customer increased by 6% from last year, reaching $384, mainly due to rate increases. Our annual dollar retention (ADR) stood at 87%, up 2 percentage points from last year, though slightly down from 88% in the previous quarter. This slight decline aligns with our strategy to minimize the less profitable sections of our home book in the latter half of this year.
Gross earned premium for Q3 went up by 23% to $213 million, reflecting our IFP growth. Revenue for the quarter increased by 19% to $137 million, driven by higher gross earned premium, a marginally improved effective ceding commission rate from our quota share reinsurance, and a notable 27% jump in investment income. Our gross loss ratio was 73% for Q3, a significant improvement from 83% the same quarter last year and 79% in Q2 of this year.
When excluding the full impact of catastrophes this quarter, which added roughly 5 percentage points, our adjusted gross loss ratio stood at 68%. The impact of natural disasters stemmed mainly from named storms and hurricanes and showed a positive trend compared to the prior year and sequentially. Total prior period development contributed approximately 3% favorably, with about 1% attributable to catastrophes and 2% to non-catastrophe events. Our trailing 12-month loss ratio stands at 77%, which represents an 11-point improvement year-on-year and a 2-point betterment sequentially. All these insurance metrics and more can be found in our updated insurance supplement at the end of this quarter’s shareholder letter.
Gross profit surged 71% year-on-year, boosted by premium growth and improvements in the loss ratio, while adjusted gross profit rose by 55%. Operating expenses, excluding loss and loss adjustment costs, increased by 27% to $125 million in Q3 compared to last year. The increase of $26 million was primarily due to higher acquisition spending in sales and marketing, which accounted for approximately $27 million, counterbalanced by fixed cost savings. Without the added growth spending, operating expenses remained stable year-on-year.
Other insurance expenses climbed 31% in Q3 compared to the prior year, slightly outpacing earned premium growth. Total sales and marketing costs rose by $27 million, largely driven by higher growth expenditures but somewhat offset by reduced personnel-related costs due to efficiency gains. This quarter, total growth spending amounted to $40 million, a significant rise from $13 million in the previous year. Since the beginning of the year, we have financed 80% of our growth expenditure through our synthetic agents growth funding program.
It’s important to note that 100% of our growth spending appears in the P&L as usual, while the effects of the synthetic agents strategy are reflected in the cash flow statement and the balance sheet, where net financing as of September 30 totaled approximately $67 million. Technology development expenses remained constant year-on-year at $22 million, mainly due to ongoing cost efficiencies. In contrast, general and administrative (G&A) expenses fell by 15% to $31 million, influenced by lower personnel and insurance costs alongside one-time impacts in both quarters. Excluding these nonrecurring effects, the G&A decline was still notable at about 7%.
Our focus on managing personnel expenses and headcount remains strong. Total headcount decreased by 7% year-on-year, now at 1,216, while in-force premium grew by 24%. Including outsourced personnel costs, our overall expense reduction mirrors this trend. In Q3, we reported a net loss of $68 million, equating to a loss of $0.95 per share, a 10% decrease from Q3 last year, primarily due to increased growth investments.
The adjusted EBITDA loss for Q3 was $49 million, versus a loss of $40 million in the previous year. Ending cash, cash equivalents, and investments showed remarkable growth, reaching approximately $979 million, an increase of $48 million compared to the last quarter, indicating a strong positive cash flow trend.
With these figures in consideration, I will now present our specific financial expectations for Q4 and the full year.
We are raising our projections for full-year revenue and gross earned premium, while other guidance metrics remain unchanged. Historically, we’ve seen significant seasonal variations between Q3 and Q4 results. Specifically, Q3 typically involves our highest growth spending, which boosts sales and marketing costs and often leads to a higher expected loss ratio compared to Q4. This year’s Q3 loss ratio experience, especially concerning catastrophes, was notably favorable, influencing our stronger than anticipated performance.
Our guidance for Q4 reflects our typical expectations. From a spending perspective, we project approximately $35 million in investment for Q4, nearly three times the spending from the same quarter last year to attract profitable customers with a robust lifetime value. Last quarter, we noted plans to eliminate around $25 million of homeowners’ in-force premium from our books in the latter half of 2024, with about two-thirds of that occurring in Q3. This strategy aims to soften growth in the short term while enhancing cash flow and profitability in the long run.
Nonetheless, our in-force premium guidance for the year reflects these necessary plans without any downward adjustments. For Q4 2024, we anticipate in-force premium between $940 million and $944 million, gross earned premium of $222 million to $225 million, revenue of $144 million to $146 million, and an adjusted EBITDA loss between $29 million and $25 million. We project stock-based compensation to be around $16 million, capital expenditures of about $3 million, and a weighted average share count of around 72 million shares.
For the full year 2024, we expect similar figures, with year-end in-force premium projected at $940 million, gross earned premium between $823 million and $826 million, and revenue of between $522 million and $524 million. The adjusted EBITDA loss is expected to range between $155 million and $151 million, with stock-based compensation approximately $64 million, a capital expenditure estimate of around $10 million, and a weighted average share count of approximately 71 million shares for the year.
Now, I will hand the discussion back to Shai, who will answer questions from our retail investors.
Shai Wininger — Co-Founder and President
Thanks, Tim. Now we’ll respond to shareholder questions submitted via the safe platform. Timothy inquired about Lemonade Auto Insurance’s expansion plans. Thank you for your question, Timothy. We have positioned ourselves for remarkable growth in this area, focusing on car insurance.
In 2025, we plan to launch car insurance in several new states. Our strategy is to prioritize states with favorable lifetime value dynamics and regulatory conditions that allow for quick rate approvals. We anticipate that growth will come from both cross-selling to our existing customers and attracting new ones. Next, Ben asked about the timeline for providing Lemonade insurance services in all 50 states. Thank you, Ben.
We already offer some products in all 50 states and serve a majority of the U.S. population with our more established products. However, 2025 will be a pivotal year for expanding our car insurance offerings, and we hope to continue this trend in 2026, adding states where we can achieve profitable growth.
Paperbag asked about our view on insurers that outsource data science and AI tasks, and if this poses a risk to our business model. Thank you for your insightful question, Paperbag. Many traditional insurers have been outsourcing these functions for over a decade, but consumers still do not see significant improvements in their experiences or insurance pricing.
This stagnation often results from the difficulty in changing longstanding processes and cultures at conservative organizations. Those who have worked for large corporations know how resistant they can be to change. The adoption of AI and automation is especially complex because it threatens job security and requires new skills from existing employees. Traditional insurers were not established as tech companies and often rely on external vendors for their fundamental systems.
Since no single system manages every aspect of an insurance company, these insurers work with numerous third-party providers. To create a seamless AI-driven experience that enhances customer interactions, boosts efficiency, and improves underwriting and pricing, a comprehensive system with AI at its center is required. Unlike conventional insurers, Lemonade’s platform was developed and is managed internally, which I believe gives us a competitive edge. Our integrated insurance operating system, called Blender, connects every part of our business — from customer engagement through our app or website to pricing, underwriting, and claims management.
This level of internal control, combined with a team dedicated to innovation and progress, provides us an advantage that is difficult for others to replicate. With that, I’ll hand it back to the operator to continue with questions from our colleagues at The Street.
Questions & Answers:
Operator
Thank you [Operator instructions]. Our first question comes from Jack Matten from BMO. Your line is now open.
Jack Matten — BMO Capital Markets — Analyst
Good morning. Thanks for taking my question. Regarding cash flow, it was encouraging to see positive operating cash flow this quarter. Can you share your expectations for cash flow improvement next year? If we exclude the synthetic agent financing benefit, when do you anticipate consistently positive operating cash flow?
Tim Bixby — Chief Financial Officer
Absolutely. We generated significant cash flow this quarter across various measures, including operating cash flow and free cash flow. Looking ahead to next year, we expect net cash flow to be consistently positive moving forward. By the end of next year, we anticipate that operating cash flow will also be positive.
EBITDA should follow suit and be positive by the end of 2026.
Jack Matten — BMO Capital Markets — Analyst
I noticed you maintained your full-year guidance for adjusted EBITDA despite a slight beat in Q3. Is there anything notable behind the lower implied guidance for Q4? It seems like you might be anticipating higher growth spending.
Tim Bixby — Chief Financial Officer
Yes, there are a few notable factors to consider for the second half of the year. In general, Q3 usually delivers stronger growth than Q4. This year, we’ve significantly boosted our growth spending, investing approximately three times more in Q3 compared to the previous year. Q4 typically sees slightly reduced growth spending but still represents a modest decline. We anticipate spending around $35 million in Q4 compared to $40 million in Q3.
Another important element is our expectations regarding the loss ratio and the impact of catastrophic events. Typically, Q3 faces the highest cat impact, but this year, we experienced less impact than expected, contributing to our better-than-anticipated Q3 performance. However, for Q4, we are implementing our usual conservative assumptions regarding loss ratios.
Combining all these factors leads us to believe that the fundamentals of the second half are unchanged, with only minor timing adjustments from Q4 to Q3.
Jack Matten — BMO Capital Markets — Analyst
That clarifies things, thank you. Lastly, I noticed the delta between the net and gross loss ratios was around 8 points this quarter, which seems higher than normal. Could you explain what influenced this variance and what you’d consider a typical run rate for these metrics moving forward?
Tim Bixby — Chief Financial Officer
Yes, this quarter’s delta was indeed wider than average. There have been instances where it was narrower. The usual variance falls somewhere in between. This quarter, several factors contributed to the wider delta. For example, our quota share applies to some, but not all, of our business. Therefore, most of the catastrophic events this quarter involved named storms and hurricanes, which are excluded from our quota share agreements. Although our overall experience was positive and numbers were low, we bore more of the impact, resulting in a 4-point difference between our gross and net figures.
Additionally, a significant loss in our auto business from the pre-acquisition Metromile affected our gross loss ratio by about 2 points. Without this one-time adjustment, we would have seen a gross result of 73%, which is 2 points better, and this also contributed about 2 points to the net loss ratio.
The overall figures are 73 points gross and 81 net, with the difference attributed to these three factors. I expect the delta to remain in the low single digits moving forward.
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AI Innovations Drive Financial Growth: Insights from Leadership
Jack Matten — BMO Capital Markets — Analyst
Great. Thank you very much.
Operator
Thank you. The next question comes from Jason Helfstein from Oppenheimer. Your line is now open.
Jason Helfstein — Analyst
Hey, everyone. Thanks for taking my questions. First, are there any updates on advancements in technical AI, such as chips or cloud capabilities that may affect your business in the upcoming 12 to 18 months? Secondly, I appreciate the expanded details in your release. Looking at the IFP breakdown and considering the percentages and trends, how do you foresee the mix changing over the next year?
Daniel Schreiber — Co-Founder and Chief Executive Officer
Hi Jason, good morning. I’ll answer the first part and then pass the second to Tim. In short, yes, we’re seeing progress. We’re excited about our upcoming investor day where we’ll showcase many of our AI advancements. We’ve emphasized our commitment to AI since our founding in 2015. Our company has thrived on this AI-driven infrastructure. Over the past couple of years, we’ve achieved around 50% top-line growth while managing to reduce operational costs and headcount. It’s impressive to grow by such a margin without increasing expenses. Our customer satisfaction remains high, indicating that we are not cutting back on quality.
Looking ahead, as AI capabilities continue to develop, we’re well-positioned to leverage these advancements. I’ll leave in-depth insights for the investor day presentation, where we’ll dive deeper into our metrics and technologies. Tim, can you address the mix change?
Tim Bixby — Chief Financial Officer
Sure, I’ll give some context on the market coverage. We’re expanding our reach significantly in both the U.S. and Europe. We currently cover between 60% and 90% of the U.S. population across most products, and we’re achieving 50% coverage in Europe, where we’re seeing promising growth. Over time, the mix will adjust as the market evolves. Our current mix reflects past performance, but going forward, we expect to see a shift, particularly in the automotive sector.
Automotive currently contributes about 15% of our business, and we anticipate that will increase as we continue to improve our loss ratios. Our latest data indicates that, without our proactive steps, our loss ratios could have been 40% worse this quarter. We are confident about the automotive segment and will provide further insights at the investor day.
Jason Helfstein — Analyst
Thank you.
Operator
Thank you. The next question comes from Katie Sakys from Autonomous. Your line is now open.
Katie Sakys — Autonomous Research — Analyst
Thank you. Good morning. First, I’d like to ask about the reunderwriting actions in the homeowners segment. How did those impact your cat load this quarter? If it’s too soon to assess the effects, how do you see your cat load for next year based on the exposure shifts?
Tim Bixby — Chief Financial Officer
Currently, the impact this quarter was modest. However, we anticipate seeing greater effects over time. We expect approximately $25 million of IFP removals by year-end, with around two-thirds occurring in Q3 and the rest in Q4. Our proactive measures are expected to significantly improve our overall loss ratio down the line. If we hadn’t begun our reunderwriting actions, our loss ratios would have faced substantial declines.
Katie Sakys — Autonomous Research — Analyst
Great, thank you. Now, regarding the automotive segment, could you clarify the nature of the improvements in the car gross loss ratio? What portions stem from frequency, and how does the cat exposure compare to homeowners?
Tim Bixby — Chief Financial Officer
For automotive, the cat exposure is minimal. While it isn’t zero, it’s much less of a concern than in the homeowners sector. The primary factor behind the improvement in the loss ratio is increased rates, particularly in California, where there was about a 50% rate hike. This will gradually affect our renewal rates, positively impacting our overall performance.
Katie Sakys — Autonomous Research — Analyst
Got it, thank you.
Daniel Schreiber — Co-Founder and Chief Executive Officer
Thank you.
Operator
Thank you. The next question comes from Tommy McJoynt from KBW. Your line is now open.
Tommy McJoynt-Griffith — Analyst
Hey, good morning, everyone. Thanks for taking my questions. When you look at the transition from…
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From Negative to Positive: Company on Track for Profitable EBITDA by 2026
Recent Insights on Drivers of Improvement
Tommy, good morning. Let me start with a broad overview, and then Tim can fill in any details I’ve missed. We’re observing a consistent trend in our financial health over the last few years, one that we believe will continue into the next couple of years. Our EBITDA margin, expressed as a fraction of gross earned premium, has shown significant improvement.
To put it into perspective, five years ago, our EBITDA losses were around 50 cents for every dollar of gross earned premium. This has improved by about 10% each year, bringing it down to the 20 cent range this year. We anticipate crossing into the teens next year and reaching single digits by the following year. By the end of 2026, we expect to turn EBITDA positive.
To clarify, this has been a stable and predictable path towards profitability, which we first predicted three or four years ago. Our expectation of becoming EBITDA positive by 2026 dates back to 2021. This growth pattern is becoming more reliable, with cash flow positivity coming ahead of EBITDA profitability – and eventually, we expect significant net profitability in the future. This projection stems from maintaining a stable expense line while growing our top line at a healthy gross margin.
Operational Efficiency and Financial Growth
Tim, would you like to add anything to that?
Tim Bixby — Chief Financial Officer
Yes, I have a couple of key points that reinforce Shai’s comments. A few years ago, we expected our resources, including personnel and fixed costs, to grow at rates of 10% to 20%. Instead, we have seen a decrease in overhead expenses over nearly two years.
We anticipate that fixed costs may increase eventually but at a much slower rate than previously expected—around 2% to 6%. Over the next few years, this will make a substantial difference in our financial trajectory.
From the top-line perspective, gross profit has shown remarkable growth—70% this year alone. If we maintain this trend, we will continue to see improvements in our EBITDA margin and overall profitability. Improved loss ratios and operational efficiency will further enhance this positive outlook.
Cross-Selling Updates and Customer Metrics
Tommy McJoynt-Griffith — Analyst
Thank you for the insights. Could you share information on the success of cross-selling? Specifically, how has the number of policies per customer trended in recent years?
Tim Bixby — Chief Financial Officer
Absolutely. Currently, we have about 4.6% of our customers as multi-policy customers. Although this number remains stable, it has significant absolute growth, especially as we expand our business by 25% to 30% each year.
In states where we offer a broader range of policies, the dynamics improve—retention rates are better, and customers are more likely to purchase additional policies. These developments support a more favorable risk profile and enhance overall performance.
Examining Loss Ratios and Opportunities
Operator
Thank you. Our next question comes from Andrew Stein from FT Partners. Please go ahead.
Andrew Stein — FT Partners — Analyst
Good morning and thank you for the quarter update. You mentioned that diversification across various factors led to improved gross loss ratios. Could you explain the impact of these areas? Where do you see the most potential for improvement moving forward?
Tim Bixby — Chief Financial Officer
I don’t have specific numbers for each area, but overall, I can say that there’s no single factor responsible. Our home insurance segment has had a significant impact—$25 million in six months is substantial. We’ve consistently focused on identifying and minimizing unprofitable risks.
This quarter, our exposure in home insurance has been relatively low risk, helping us navigate large catastrophes more effectively. While no area stands out alone, each contributes to the ongoing improvement in our loss ratios.
Andrew Stein — FT Partners — Analyst
Understood. Thank you.
Shai Wininger — Co-Founder and President
To further elaborate, as Tim noted, while I don’t have exact figures at the moment, it’s vital to consider the collaborative impact of operational decisions on our overall performance.
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Loss Ratios Improve Across the Insurance Industry: A Closer Look
Our loss ratio has shown improvement across all products and regions. It’s important to note that these enhancements are not due to a single factor; rather, they result from coordinated efforts across the company.
All geographies and product lines, including those in Europe and the U.S. for home, renters, and pet insurance, have experienced growth. The overall loss ratio has significantly improved, with an impressive year-on-year enhancement of 10 to 11 percentage points, totaling a 20-point drop over the last two years. Such progress is noteworthy by industry standards.
When examining our auto insurance loss ratio, we see a clear decline as well. This reduction is somewhat understated due to an isolated claim resulting from a lengthy legal matter that occurred before our acquisition of Metromile. Excluding this claim, our auto loss ratio appears in the 80s range, which is considerably better than where it was just a few quarters ago.
Improved loss ratios pave the way for enhanced cross-selling opportunities. With our auto loss ratio nearing satisfactory levels, we can effectively market our auto insurance to existing renters policyholders. This strategy is expected to positively influence annual dollar retention and boost our multiproduct offerings.
Andrew Stein — FT Partners — Analyst
Thank you. Could you discuss how upselling renters to auto policies is progressing?
Shai Wininger — Co-Founder and President
Certainly. We will share more about this during our upcoming investor day. We’ve been carefully evaluating our cross-sell approach, waiting until we believe a product is profitable before promoting it. Now that our auto insurance is performing well, we are exploring various methods to introduce this product to our renters.
Andrew Stein — FT Partners — Analyst
Looking forward to it. Thanks!
Operator
Thank you. The next question will come from Charlie Rodgers at Jefferies. Please proceed.
Charlie Rodgers — Jefferies — Analyst
Good morning, and thanks for taking my question. I understand there are conservative estimates associated with Hurricane Milton in your fourth-quarter guidance. Could you elaborate on the anticipated losses from this event?
Tim Bixby — Chief Financial Officer
Our experiences with natural catastrophes, including Hurricane Milton, have been fairly minor so far. While there’s always a possibility that these situations can evolve, we don’t anticipate any significant impacts at this time. Historically, Q4 has had better loss ratios compared to the other quarters, although we’ve had exceptions like freeze storms. Therefore, we’re cautiously optimistic.
We also anticipate that our growth expenses will continue to be a contributing factor, which aligns with our consistent upward trajectory in growth rates this year. We expect Q4 figures to reflect these trends or exceed them.
Charlie Rodgers — Jefferies — Analyst
Great, thank you. Could you provide the cat and prior period development figures on a net basis?
Tim Bixby — Chief Financial Officer
On a gross basis, the catastrophe impact was about 6%. On a net basis, it was around 11%. The prior period development was approximately 3% gross, translating to 1% net, which reflects favorable outcomes.
Charlie Rodgers — Jefferies — Analyst
That was prior-period development, not prior-year development, correct?
Tim Bixby — Chief Financial Officer
Correct. Prior-period development figures will show about a $6 million favorable outcome year-to-date, but in the current quarter, we observed a slight unfavorable development of about $2 million.
Charlie Rodgers — Jefferies — Analyst
Thanks for the clarification. Lastly, could you differentiate between renters, condos, and traditional homeowners in the multi-peril segment, especially regarding premium per policy and loss ratios?
Tim Bixby — Chief Financial Officer
The newly shared disclosures should be enlightening. Generally, we combine home and condo data, which sees a price per customer around $1,500, while renters stand at about $170. These distinctions highlight the significant differences in our offerings.
Charlie Rodgers — Jefferies — Analyst
Thanks again for your responses.
Operator
Thank you. Our next question comes from Matt Smith at Halter Ferguson Financial. You may proceed.
Matt Smith — Halter Ferguson Financial — Analyst
Thank you, and congratulations on a strong quarter. Your current strategy seems to focus on reducing exposure in home insurance while enhancing your auto sector. Looking ahead, do you foresee home insurance being a smaller part of your overall business, or do you plan to reignite growth in that area as conditions improve?
Shai Wininger — Co-Founder
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Lemonade Discusses Homeowners Insurance Strategy in Recent Earnings Call
Maintaining a Consumer-Centric Approach to Home Insurance
In a recent earnings call, CEO Daniel Schreiber emphasized the importance of home insurance in Lemonade’s overall offering to customers. He stated, “Home is important. It’s an important part of every consumer’s purchase and insurance needs.” However, he acknowledged areas of volatility in home insurance, which the company has been working to manage.
Shifting Strategies Amidst Market Challenges
Schreiber noted that Lemonade’s approach has evolved over the years to reduce exposure to home insurance risks. Historically, the company relied heavily on reinsurance, but they have since diversified geographically and explored other methods, including offering homeowners’ policies through third-party insurance partners. “If it makes sense to write that home policy on our paper, we do that,” he explained, highlighting the flexible strategies being employed.
Competitive Advantages in Other Insurance Products
Despite these adjustments, Schreiber indicated that Lemonade’s strengths lie in other areas. He pointed out that the company enjoys considerable advantages in car insurance, pet insurance, and renters insurance, with more insights to come during the upcoming investor day. “In homeowners insurance, where it is so exposed to the weather, that does mute some of the capabilities that we bring to bear on other products,” he added, reminding analysts that the competitive edge may not be as pronounced in this sector.
Global Expansion Efforts
In an interesting development, Lemonade has entered the homeowners insurance market in France and the U.K. Schreiber highlighted that the catastrophic exposure in these regions is significantly lower—less than one-tenth of what is found in the U.S. This has allowed the company to expand its offerings more securely in these international markets.
Future Directions
Schreiber’s closing remarks pointed towards a calculated approach to risk management. While Lemonade will continue to provide homeowners insurance, the company is mindful of the exposure it carries when writing policies on its own balance sheet. “In areas where it affords unreasonable exposure, we’re shrinking the footprint at least when we write on our own paper,” he confirmed, reiterating the company’s commitment to prudent financial practices.
Matt Smith — Halter Ferguson Financial — Analyst
Thanks for the color and looking forward to seeing you guys in a few weeks.
Operator
[Operator signoff]
Duration: 0 minutes
Call Participants:
Yael Wissner-Levy — Vice President, Communications
Daniel Schreiber — Co-Founder and Chief Executive Officer
Shai Wininger — Co-Founder and President
Tim Bixby — Chief Financial Officer
Jack Matten — BMO Capital Markets — Analyst
Jason Helfstein — Analyst
Katie Sakys — Autonomous Research — Analyst
Tommy McJoynt-Griffith — Analyst
Tommy McJoynt — Analyst
Andrew Stein — FT Partners — Analyst
Charlie Rodgers — Jefferies — Analyst
Matt Smith — Halter Ferguson Financial — Analyst
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