UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

________________________

FORM 10-Q

________________________

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 001-39367

________________________

Lemonade, Inc.

(Exact name of registrant as specified in its charter)

________________________

Delaware	32-0469673
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5 Crosby Street, 3rd Floor New York, New York	10013
(Address of principal executive offices)	(Zip Code)

(844) 733-8666

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	LMND	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  o    No x   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

As of August 12, 2020, the registrant had 56,576,808 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets at June 30, 2020 (Unaudited) and December 31, 2019	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months ended June 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78
Item 3.	Defaults Upon Senior Securities	78
Item 4.	Mine Safety Disclosures	78
Item 5.	Other Information	78
Item 6.	Exhibits	79
	Signatures	81

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our future results of operations and financial position, our ability to attract, retain and expand our customer base, our ability to operate under and maintain our business model, our ability to maintain and enhance our brand and reputation, our ability to effectively manage the growth of our business, the effects of seasonal trends on our results of operations, our ability to attain greater value from each customer, our ability to compete effectively in our industry, the future performance of the markets in which we operate, and our ability to maintain reinsurance contracts, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

2

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in millions, except share and per share amounts)

(Unaudited)

	As of
	June 30,		December 31,
	2020		2019
Assets
Investments
Fixed maturities available-for-sale, at fair value (amortized cost: $6.5 million and $5.8 million as of June 30, 2020 and December 31, 2019)	$	6.7	$	5.9
Short-term investments	29.9		54.7
Total investments	36.6		60.6
Cash, cash equivalents and restricted cash	258.8		270.3
Premium receivable, net of allowance for doubtful accounts of $0.4 million and $0.2 million as of June 30, 2020 and December 31, 2019	64.9		54.1
Reinsurance recoverable	26.2		20.3
Prepaid reinsurance premium	—		1.0
Deferred acquisition costs	2.5		1.8
Property and equipment, net	4.3		3.1
Intangible assets	0.6		0.6
Other assets	6.0		2.5
Total assets	$	399.9	$	414.3
Liabilities, Convertible Preferred Stock and Stockholders' Deficit
Unpaid losses and loss adjustment expense	$	35.3	$	28.2
Unearned premium	86.9		68.0
Trade payables	0.6		0.7
Other liabilities and accrued expense	18.5		19.7
Total liabilities	141.3		116.6
Commitments and contingencies (Note 15)
Convertible preferred stock (Series Seed, A, B, C and D), $0.00001 par value; 31,557,107 shares authorized, issued and outstanding as of June 30, 2020 and December 31, 2019, respectively; aggregate liquidation preference of $480.8 million as of June 30, 2020	480.2		480.2
Stockholders' deficit:
Common stock, $0.00001 par value, 52,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively; 12,369,701 shares and 11,784,765 shares issued and 12,369,701 shares and 11,271,228 shares outstanding as of June 30, 2020 and December 31, 2019, respectively	—		—
Additional paid-in capital	33.9		15.7
Accumulated deficit	(255.8)		(198.3)
Accumulated other comprehensive income	0.3		0.1
Total stockholders' deficit	(221.6)		(182.5)
Total liabilities, convertible preferred stock and stockholders' deficit	$	399.9	$	414.3

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

($ in millions, except share and per share amounts)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue
Net earned premium	$	29.2	$	13.3	$	54.5	$	23.8
Ceding commission income	0.4		—		0.4		—
Net investment income	0.2		0.5		1.1		1.0
Commission income	0.1		—		0.1		—
Total revenue	29.9		13.8		56.1		24.8
Expense
Loss and loss adjustment expense, net	20.5		9.9		38.7		17.8
Other insurance expense	4.0		2.2		7.3		4.1
Sales and marketing	16.1		19.0		35.3		37.4
Technology development	4.2		2.1		7.7		3.6
General and administrative	5.8		3.6		24.0		6.4
Total expense	50.6		36.8		113.0		69.3
Loss before income taxes	(20.7)		(23.0)		(56.9)		(44.5)
Income tax expense	0.3		0.1		0.6		0.2
Net loss	$	(21.0)	$	(23.1)	$	(57.5)	$	(44.7)
Other comprehensive income, net of tax
Unrealized gain on investments	0.2		—		0.2		—
Comprehensive loss	$	(20.8)	$	(23.1)	$	(57.3)	$	(44.7)
Per Share Data:
Net loss per share attributable to common stockholders—basic and diluted	$	(1.77)	$	(2.09)	$	(4.89)	$	(4.05)
Weighted average common shares outstanding—basic and diluted	11,891,979		11,072,985		11,750,198		11,028,667

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

($ in millions, except share amounts) (Unaudited)

	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Deficit
	Shares	Amount		Shares	Amount
Balance as of December 31, 2019	31,557,107	$	480.2	11,271,228	$	—	$	15.7	$	(198.3)	$	0.1	$	(182.5)
Exercise of stock options	—	—		54,374	—				—		—		—
Stock-based compensation	—	—		—	—		2.2		—		—		2.2
Contribution to the Lemonade Foundation	—	—		500,000	—		12.2		—		—		12.2
Net loss	—	—		—	—		—		(36.5)		—		(36.5)
Other comprehensive income	—	—		—	—		—		—		—		—
Balance as of March 31, 2020	31,557,107	480.2		11,825,602	—		30.1		(234.8)		0.1		(204.6)
Exercise of stock options	—	—		30,562	—		0.1		—		—		0.1
Stock-based compensation	—	—		—	—		2.4		—		—		2.4
Release of shares upon repayment	—	—		513,537	—		1.3		—		—		1.3
Net loss	—	—		—	—		—		(21.0)		—		(21.0)
Other comprehensive income	—	—		—	—		—		—		0.2		0.2
Balance as of June 30, 2020	31,557,107	$	480.2	12,369,701	$	—	$	33.9	$	(255.8)	$	0.3	$	(221.6)
Balance as of December 31, 2018	24,445,555	$	180.8	10,983,684	$	—	$	10.7	$	(89.8)	$	—	$	(79.1)
Exercise of stock options	—	—		3,125	—		—		—		—		—
Issuance of Series C Preferred stock, net of issuance costs of $0 million	3,622	—		—	—		—		—		—		—
Release of shares upon repayment	—	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		0.4		—		—		0.4
Net loss	—	—		—	—		—		(21.6)		—		(21.6)
Other comprehensive income	—	—		—	—		—		—		—		—
Balance as of March 31, 2019	24,449,177	180.8		10,986,809	—		11.1		(111.4)		—		(100.3)
Exercise of stock options	—	—		97,625	—		0.3		—		—		0.3
Issuance of Series D Preferred stock, net of issuance costs of $0.6 million	4,146,294	174.4		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		0.4		—		—		0.4
Net loss	—	—		—	—		—		(23.1)		—		(23.1)
Other comprehensive income	—	—		—	—		—		—		—		—
Balance as of June 30, 2019	28,595,471	$	355.2	11,084,434	$	—	$	11.8	$	(134.5)	$	—	$	(122.7)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited)

	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(57.5)	$	(44.7)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	0.7		0.1
Stock-based compensation	4.6		0.8
Amortization of discount on bonds	(0.3)		—
Bad debt expense	0.9		—
Noncash interest	—		(0.3)
Common share contribution to the Lemonade Foundation	12.2		—
Changes in operating assets and liabilities:
Premium receivable	(11.6)		(13.0)
Reinsurance recoverable	(5.9)		(5.4)
Prepaid reinsurance premium	1.0		1.5
Deferred acquisition costs	(0.7)		(0.2)
Other assets	(3.5)		(2.9)
Unpaid loss and loss adjustment expense	7.1		7.6
Unearned premium	18.9		16.2
Trade payables	0.1		(0.2)
Other liabilities and accrued expense	(1.3)		2.8
Net cash used in operating activities	(35.3)		(37.7)
Cash flows from investing activities:
Proceeds from short-term investments sold or matured	40.0		6.0
Proceeds from bonds sold or matured	2.2		—
Cost of short-term investments acquired	(14.9)		(14.8)
Cost of bonds acquired	(2.9)		(2.3)
Purchases of property plant and equipment	(1.9)		(1.4)
Net cash provided by (used in) investing activities	22.5		(12.5)
Cash flows from financing activities:
Proceeds from release of shares upon repayment	1.3		—
Issuance of Preferred stock, net	—		174.4
Proceeds from stock exercises	0.1		0.3
Net cash provided by financing activities	1.4		174.7
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.1)		—
Net (decrease) increase in cash, cash equivalents and restricted cash	(11.5)		124.5
Cash, cash equivalents and restricted cash at beginning of period	270.3		102.4
Cash, cash equivalents and restricted cash at end of period	$	258.8	$	226.9
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	0.8	$	—

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

6

LEMONADE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.Nature of the Business

Lemonade, Inc. is a public benefit corporation organized under Delaware law on June 17, 2015. It provides certain personnel, facilities and services to each of its subsidiaries (together with Lemonade, Inc., the “Company”), all of which are 100% owned, directly or indirectly, by Lemonade, Inc. The Company consists of the following entities, which support Lemonade, Inc.’s U.S. and E.U. operations: (1) Lemonade Insurance Company, an insurance corporation organized under New York law; this company issues insurance policies and pays claims; it is licensed and regulated as a stock property and casualty insurance company in New York and in all other states where the Company’s insurance products are available; (2) Lemonade Insurance Agency, LLC, a limited liability company organized under New York law; this company is licensed as an insurance agent in New York and in all other states where the Company’s insurance products are available and it acts as the distribution and marketing agent for Lemonade Insurance Company and provides certain underwriting and claims services, and receives a fixed percentage of premium for doing so; it also acts as agent for other insurance companies in distributing their insurance, for which it receives various percentages of premium; (3) Lemonade Ltd., a company organized under the laws of Israel; this company provides technology, research and development, management, marketing and other services to the companies in the group, charged on a ‘‘cost plus’’ basis; (4) Lemonade Insurance N.V., a public limited company organized under the laws of the Netherlands; (5) Lemonade Agency B.V., a Netherlands private limited liability company; (6) Lemonade B.V., a Netherlands private limited liability company; and (7) Lemonade Life Insurance Agency, LLC, a limited liability company formed in Delaware to act as the distribution and marketing agent for the sale and servicing of life insurance products.

2.Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned subsidiaries. All material inter-company transactions and balances have been eliminated upon consolidation. All foreign currency amounts in the statement of operations and comprehensive loss have been translated using an average rate for the reporting period. The Company translates all monetary assets and liabilities denominated in foreign currencies into U.S. dollars using the exchange rates in effect at the balance sheet dates and other assets and liabilities using historical exchange rates. All figures expressed, except share amounts, are represented in U.S. dollars in millions.

Risk and Uncertainties

The global pandemic resulting from the disease known as COVID-19, caused by a novel strain of coronavirus, SARS-CoV-2, has caused national and global economic and financial market disruptions and may adversely impact our business. Although the Company did not see a material impact on its net earned premium in the three and six month periods ended June 30, 2020 due to the COVID-19 pandemic, the Company cannot predict the duration or magnitude of the pandemic or the full impact that it may have on the Company’s financial condition and results of operations, business operations, and workforce.

Unaudited interim financial information

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in stockholders’ equity (deficit) and cash flows. The condensed consolidated balance sheet at December 31, 2019, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2019 contained in the Company’s final prospectus for its initial public offering of its common stock ("IPO") dated as of July 1, 2020 and filed with the SEC pursuant to Rule 424(b)(4) on July 2, 2020.

7

3.Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates estimates, including those related to contingent assets and liabilities as of the date of the financial statements as well as the reported amounts of revenue and expense during the reporting period. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in the Company’s condensed consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, reinsurance recoverables on unpaid losses, and the fair values of investments.

4.Summary of Significant Accounting Policies

Cash, cash equivalents and restricted cash

The following represents the Company’s cash, cash equivalents and restricted cash as of June 30, 2020 and December 31, 2019 ($ in millions):

	As of
	June 30,		December 31,
	2020		2019
Cash and cash equivalents	$	258.5	$	270.0
Restricted cash	0.3		0.3
Total cash, cash equivalents and restricted cash	$	258.8	$	270.3

Cash consists primarily of cash on hand and bank deposits. Cash equivalents consist primarily of money market accounts with maturities of three months or less at the date of acquisition and are stated at cost, which approximates fair value. The Company’s restricted cash relates to security deposits for office leases in Israel. The carrying value of restricted cash approximates fair value.

Deferred offering costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of stockholders' equity (deficit) as a reduction of additional paid-in capital generated as a result of such offering. Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the condensed consolidated statements of operations and comprehensive loss. As of June 30, 2020, the Company recorded deferred offering costs of $2.8 million within other assets in the accompanying condensed consolidated balance sheets.

Recent accounting pronouncements

The Company currently qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Accordingly, the Company is provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies.

The Company has elected to adopt new or revised accounting guidance within the same time period as private companies, unless, as indicated below, management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance.

8

Recently issued accounting pronouncements

In February 2016, the FASB issued Leases (Topic 842) (“ASU 2016-02”), whereby lessee will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. ASU 2016-02 is effective for the Company’s annual periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The adoption of the new standard is expected to result in the recognition of additional lease liabilities and right-of-use assets as of January 1, 2022. The Company is evaluating the potential impact of this pronouncement.

In June 2016, the FASB issued Financial Instruments — Credit Losses, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, premium receivables, and reinsurance recoverable. The valuation allowance is a measurement of expected losses that is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This methodology is referred to as the current expected credit loss model. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets, as well as available for sale securities, and that they be presented on the financial statements net of the valuation allowance. ASU 2016-13 is effective for the Company’s annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-13 on its financial condition and results of operations, with a primary focus on its reinsurance recoverable.

5.Investments

Unrealized gains and losses

The following tables present cost or amortized cost and fair values of investments as of June 30, 2020 and December 31, 2019 ($ in millions):

	Cost or Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
June 30, 2020
U.S. Government obligations	$	6.5	$	0.2	$	—	$	6.7
Total	$	6.5	$	0.2	$	—	$	6.7
December 31, 2019
U.S. Government obligations	$	5.8	$	0.1	$	—	$	5.9
Total	$	5.8	$	0.1	$	—	$	5.9

Gross unrealized gains for U.S. Government obligations were $0.2 million and $0.1 million, as of June 30, 2020 and December 31, 2019, respectively. There were no gross unrealized losses as of June 30, 2020. Gross unrealized losses were less than $0.1 milion as of December 31, 2019. Gross unrealized gains and losses were recorded as a component of accumulated other comprehensive income.

9

Contractual maturities of bonds

The following table presents the cost or amortized cost and estimated fair value of bonds as of June 30, 2020 by contractual maturity ($ in millions). Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of
	June 30, 2020
	Cost or Amortized Cost		Fair Value
Due in one year or less	$	0.1	$	0.1
Due after one year through five years	6.4		6.6
Due after five years through ten years	—		—
Due after ten years	—		—
Total	$	6.5	$	6.7

Net investment income

An analysis of net investment income follows ($ in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Interest on cash and cash equivalents	$	0.1	$	0.4	$	0.8	$	0.8
Short-term investments	0.1		0.1		0.3		0.2
Total net investment income	$	0.2	$	0.5	$	1.1	$	1.0

Investment gains and losses

The Company did not have any pre-tax net realized capital gains or losses for the three and six months ended June 30, 2020 and 2019.

Aging of gross unrealized losses

There were no gross unrealized losses and related fair values for the Company's available-for-sale bond securities as of June 30, 2020. The following table presents the gross unrealized losses and related fair values for the Company’s available-for-sale bond securities, grouped by duration of time in a continuous unrealized loss position, as of December 31, 2019 ($ in millions):

	Less than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
December 31, 2019
U.S. Government obligations	$	0.2	$	—	$	2.2	$	—	$	2.4	$	—
Total	$	0.2	$	—	$	2.2	$	—	$	2.4	$	—

There were no gross unrealized losses incurred for U.S. Government Bonds for twelve months or more as of June 30, 2020. Gross unrealized losses for U.S. Government Bonds was less than $0.1 million for twelve months or more as of December 31, 2019.

10

The gross unrealized investment losses as of June 30, 2020 and December 31, 2019, were deemed to be temporary, based on, among other things:

•the duration of time and the relative magnitude to which fair values of these investments have been below their amortized cost was not indicative of an other than temporary impairment loss;

•the absence of compelling evidence that would cause the Company to call into question the financial condition or near-term prospects of the issuer of the investment; and

•the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery.

The Company may ultimately record a realized loss after having originally concluded that the decline in value was temporary. Risks and uncertainties are inherent in the methodology the Company uses to assess other-than-temporary declines in value. Risks and uncertainties could include, but are not limited to, incorrect assumptions about financial condition, liquidity or future prospects, inadequacy of any underlying collateral, and unfavorable changes in economic conditions or social trends, interest rates or credit ratings.

As of June 30, 2020, the Company held a total of 7 debt securities, none of which were in an unrealized loss position continuously for 12 months or more. As of December 31, 2019, the Company held a total of 9 debt securities, 4 of which were in an unrealized loss position, continuously for 12 months or more.

6.Fair Value Measurements

The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured as of June 30, 2020 and December 31, 2019 ($ in millions):

	Fair Value Measurements as of
	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:
U.S. Government obligations	$	—	$	6.7	$	—	$	6.7
Total	$	—	$	6.7	$	—	$	6.7

	Fair Value Measurements as of
	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
U.S. Government obligations	$	—	$	5.9	$	—	$	5.9
Total	$	—	$	5.9	$	—	$