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 September 30, 2021

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  x    No  ☐

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 November 8, 2021, the registrant had 61,627,462 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents

		Page
	Cautionary Note Regarding Forward-Looking Statements	2
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020	5
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and 2020	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	48
Item 6.	Exhibits	49
	Signatures	50

1

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the "Quarterly Report") 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:

•We have a history of losses and we may not achieve or maintain profitability in the future.

•Our success and ability to grow our business depend on retaining and expanding our customer base. If we fail to add new customers or retain current customers, our business, revenue, operating results and financial condition could be harmed.

•The "Lemonade" brand may not become as widely known as incumbents' brands or the brand may become tarnished.

•Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects.

•Our future revenue growth and prospects depend on attaining greater value from each user.

•The novelty of our business model makes its efficacy unpredictable and susceptible to unintended consequences.

•We could be forced to modify or eliminate our Giveback, which could undermine our business model and have a material adverse effect on our results of operations and financial condition.

•Our limited operating history makes it difficult to evaluate our current business performance, implementation of our business model, and our future prospects.

•We may not be able to manage our growth effectively.

•Intense competition in the segments of the insurance industry in which we operate could negatively affect our ability to attain or increase profitability.

•Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business. Furthermore, reinsurance subjects us to counterparty risk and may not be adequate to protect us against losses, which could have a material effect on our results of operations and financial condition.

•Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business.

2

•If we are unable to expand our product offerings, our prospects for future growth may be adversely affected.

•Our proprietary artificial intelligence algorithms may not operate properly or as we expect them to, which could cause us to write policies we should not write, price those policies inappropriately or overpay claims that are made by our customers. Moreover, our proprietary artificial intelligence algorithms may lead to unintentional bias and discrimination.

•Regulators may limit our ability to develop or implement our proprietary artificial intelligence algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have a material adverse effect on our financial condition and results of operations.

•New legislation or legal requirements may affect how we communicate with our customers, which could have a material adverse effect on our business model, financial condition, and results of operations.

•We rely on artificial intelligence and our digital platform to collect data points that we evaluate in pricing and underwriting our insurance policies, managing claims and customer support, and improving business processes, and any legal or regulatory requirements that restrict our ability to collect this data could thus materially and adversely affect our business, financial condition, results of operations and prospects.

•We depend on search engines, social media platforms, digital app stores, content-based online advertising and other online sources to attract consumers to our website and our online app, which may be affected by third-party interference beyond our control and as we grow our customer acquisition costs will continue to rise.

•We may require additional capital to grow our business, which may not be available on terms acceptable to us or at all.

•Security incidents or real or perceived errors, failures or bugs in our systems, website or app could impair our operations, result in loss of personal customer information, damage our reputation and brand, and harm our business and operating results.

•We are periodically subject to examinations by our primary state insurance regulator, which could result in adverse examination findings and necessitate remedial actions. In addition, insurance regulators of other states in which we are licensed to operate may also conduct examinations or other targeted investigations, which may also result in adverse examination findings and necessitate remedial actions.

•We collect, process, store, share, disclose and use customer information and other data, and our actual or perceived failure to protect such information and data, respect customers' privacy or comply with data privacy and security laws and regulations could damage our reputation and brand and harm our business and operating results.

•We may be unable to prevent or address the misappropriation of our data.

•If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our customers, our business, results of operations and financial condition will be adversely affected.

•Our product development cycles are complex and subject to regulatory approval, and we may incur significant expenses before we generate revenues, if any, from new products.

•Our expansion within the United States and any future international expansion strategy will subject us to additional costs and risks and our plans may not be successful.

•The insurance business, including the market for renters and homeowners insurance, is historically cyclical in nature, and we may experience periods with excess underwriting capacity and unfavorable premium rates, which could adversely affect our business.

•We are subject to extensive insurance industry regulations.

•State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.

3

•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.

•We expect our results of operations to fluctuate on a quarterly and annual basis. In addition, our operating results and operating metrics are subject to seasonality and volatility, which could result in fluctuations in our quarterly revenues and operating results or in perceptions of our business prospects.

•We rely on data from our customers and third parties for pricing and underwriting our insurance policies, handling claims and maximizing automation, the unavailability or inaccuracy of which could limit the functionality of our products and disrupt our business.

•Our results of operations and financial condition may be adversely affected due to limitations in the analytical models used to assess and predict our exposure to catastrophe losses.

•Our actual incurred losses may be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.

•Our insurance subsidiaries are subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

•We are subject to assessments and other surcharges from state guaranty funds, and mandatory state insurance facilities, which may reduce our profitability.

•As a public benefit corporation, our focus on a specific public benefit purpose and producing a positive effect for society may negatively impact our financial performance.

•Our directors have a fiduciary duty to consider not only our stockholders' interests, but also our specific public benefit and the interests of other stakeholders affected by our actions. If a conflict between such interests arises, there is no guarantee such a conflict would be resolved in favor of our stockholders.

•A joint investment committee consisting of our Co-Founders and an executive of SoftBank will have sole voting and dispositive control over the shares owned by the entities affiliated with SoftBank Group Corp. This joint investment committee further concentrates voting power with our Co-Founders, which could limit your ability to influence the outcome of important transactions, including a change in control.

•The factors described under the sections "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Quarterly Report.

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.

4

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	As of
	September 30,		December 31,
	2021		2020
	(Unaudited)
Assets
Investments
Fixed maturities available-for-sale, at fair value (amortized cost: $698.6 million and    $6.4 million as of September 30, 2021 and December 31, 2020)	$	697.6	$	6.6
Short-term investments (cost: $107.5 million)	107.5		—
Total investments	805.1		6.6
Cash, cash equivalents and restricted cash	319.6		571.4
Premium receivable, net of allowance for doubtful accounts of $1.0 million and $0.5 million as of September 30, 2021 and December 31, 2020	129.2		86.1
Reinsurance recoverable	70.8		49.0
Prepaid reinsurance premium	150.2		91.3
Deferred acquisition costs	6.0		3.5
Property and equipment, net	10.8		5.7
Intangible assets	0.6		0.6
Other assets	29.4		14.5
Total assets	$	1,521.7	$	828.7
Liabilities and Stockholders' Equity
Unpaid loss and loss adjustment expense	$	74.0	$	46.3
Unearned premium	203.2		123.8
Trade payables	3.0		1.4
Funds held for reinsurance treaties	97.1		62.1
Deferred ceding commission	36.1		22.4
Ceded premium payable	24.8		13.0
Other liabilities and accrued expenses	35.5		18.7
Total liabilities	473.7		287.7
Commitments and contingencies (Note 14)
Stockholders' equity
Common stock, $0.00001 par value, 200,000,000 shares authorized; 61,615,624 and 56,774,294 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	1,539.5		859.8
Accumulated deficit	(491.6)		(320.6)
Accumulated other comprehensive income	0.1		1.8
Total stockholders' equity	1,048.0		541.0
Total liabilities and stockholders' equity	$	1,521.7	$	828.7

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

5

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue
Net earned premium	$	21.5	$	10.5	$	51.6	$	65.0
Ceding commission income	12.3		7.0		31.9		7.4
Net investment income	0.6		0.2		1.0		1.3
Commission and other income	1.3		0.1		2.9		0.2
Total revenue	35.7		17.8		87.4		73.9
Expense
Loss and loss adjustment expense, net	17.5		6.7		47.0		45.4
Other insurance expense	6.3		3.5		16.3		10.8
Sales and marketing	42.2		22.2		104.4		57.5
Technology development	14.3		5.3		35.4		13.0
General and administrative	19.6		10.6		49.5		34.6
Total expense	99.9		48.3		252.6		161.3
Loss before income taxes	(64.2)		(30.5)		(165.2)		(87.4)
Income tax expense	2.2		0.4		5.8		1.0
Net loss	$	(66.4)	$	(30.9)	$	(171.0)	$	(88.4)
Other comprehensive income, net of tax
Unrealized (loss) gain on investments	(0.8)		0.4		(1.2)		0.6
Foreign currency translation adjustment	—		—		(0.5)		—
Comprehensive loss	$	(67.2)	$	(30.5)	$	(172.7)	$	(87.8)
Per share data:
Net loss per share attributable to common stockholders   —basic and diluted	$	(1.08)	$	(0.57)	$	(2.80)	$	(3.41)
Weighted average common shares outstanding—basic   and diluted	61,580,145		53,997,315		61,086,238		25,935,362

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

6

LEMONADE, INC. AND SUBSIDIARIES

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

($ in millions, except share amounts)

(Unaudited)

	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2020	—	$	—	56,774,294	$	—	$	859.8	$	(320.6)	$	1.8	541.0
Issuance of common stock upon closing of   Follow-on Offering, net of underwriting   discounts and commissions and offering   costs of $22.8 million	—	—		4,018,647	—		640.3		—		—		640.3
Exercise of stock options	—	—		577,162	—		6.1		—		—		6.1
Stock-based compensation	—	—		—	—		6.1		—		—		6.1
Net loss	—	—		—	—		—		(49.0)		—		(49.0)
Other comprehensive loss	—	—		—	—		—		—		(0.8)		(0.8)
Balance as of March 31, 2021	—	$	—	61,370,103	$	—	$	1,512.3	$	(369.6)	$	1.0	$	1,143.7
Exercise of stock options	—	—		162,024	—		1.7		—		—		1.7
Stock-based compensation	—	—		—	—		11.9		—		—		11.9
Net loss	—	—		—	—		—		(55.6)		—		(55.6)
Other comprehensive loss	—	—		—	—		—		—		(0.1)		(0.1)
Balance as of June 30, 2021	—	$	—	61,532,127	$	—	$	1,525.9	$	(425.2)	$	0.9	$	1,101.6
Exercise of stock options and distribution of restricted stock units	—	—		83,497	—		0.9		—		—		0.9
Stock-based compensation	—	—		—	—		12.7		—		—		12.7
Net loss	—	—		—	—		—		(66.4)		—		(66.4)
Other comprehensive loss	—	—		—	—		—		—		(0.8)		(0.8)
Balance as of September 30, 2021	—	$	—	61,615,624	$	—	$	1,539.5	$	(491.6)	$	0.1	$	1,048.0

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

7

LEMONADE, INC. AND SUBSIDIARIES

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

($ in millions, except share amounts)

(Unaudited)

	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders' Equity (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)
Conversion of convertible preferred stock to common stock upon closing of Initial Public Offering (IPO)	(31,557,107)	(480.2)		31,557,107	—		480.2		—		—		480.2
Issuance of common stock upon closing of IPO, net of issuance costs and underwriting fees of $28.9 million	—	—		12,650,000	—		338.0		—		—		338.0
Exercise of stock options	—	—		7,221	—		0.2		—		—		0.2
Stock-based compensation	—	—		—	—		2.7		—		—		2.7
Net loss	—	—		—	—		—		(30.9)		—		(30.9)
Other comprehensive income	—	—		—	—		—		—		0.4		0.4
Balance as of September 30, 2020	—	$	—	56,584,029	$	—	$	855.0	$	(286.7)	$	0.7	$	569.0

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

8

LEMONADE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)

(Unaudited)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(171.0)	$	(88.4)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2.5		1.1
Stock-based compensation	30.7		7.3
Amortization of discount on bonds	(1.5)		(0.4)
Provision for bad debts	3.8		1.4
Common shares contribution to the Lemonade Foundation	—		12.2
Changes in operating assets and liabilities:
Premium receivable	(46.9)		(30.1)
Reinsurance recoverable	(21.8)		(21.9)
Prepaid reinsurance premium	(58.9)		(85.2)
Deferred acquisition costs	(2.5)		(1.5)
Other assets	(15.0)		(11.4)
Unpaid loss and loss adjustment expense	27.7		11.5
Unearned premium	79.4		47.3
Trade payables	1.6		0.3
Funds held for reinsurance treaties	35.0		52.4
Deferred ceding commissions	13.7		20.9
Ceded premium payable	11.8		14.0
Other liabilities and accrued expenses	16.7		(0.5)
Net cash used in operating activities	(94.7)		(71.0)
Cash flows from investing activities:
Proceeds from short-term investments sold or matured	—		55.0
Proceeds from bonds sold or matured	7.9		2.2
Cost of short-term investments acquired	(107.5)		(14.9)
Cost of bonds acquired	(700.1)		(2.9)
Purchases of property and equipment	(7.4)		(3.1)
Net cash (used in) provided by investing activities	(807.1)		36.3
Cash flows from financing activities:
Proceeds from Initial Public Offering and Follow-on Offering, net of underwriting discounts and commissions and offering costs	640.3		338.0
Proceeds from release of shares upon repayment	—		1.3
Proceeds from stock exercises	8.7		0.3
Net cash provided by financing activities	649.0		339.6
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1.0		0.5
Net (decrease) increase in cash, cash equivalents and restricted cash	(251.8)		305.4
Cash, cash equivalents and restricted cash at beginning of period	571.4		270.3
Cash, cash equivalents and restricted cash at end of period	$	319.6	$	575.7
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	2.1	$	1.1

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

9

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. For the list of the Company's US and EU subsidiaries, see Note 1 - Nature of the Business, of the audited consolidated financial statements and related notes thereto for the year ended December 31, 2020 as contained in the Company's Annual Report on Form 10-K for the year ending December 31, 2020 (the "Annual Report on Form 10-K") for more complete descriptions and discussions.

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 intercompany transactions and balances have been eliminated upon consolidation. All foreign currency amounts in the condensed consolidated statement of operations and comprehensive loss have been translated using an average rate for the reporting period. All foreign currency balances in the balance sheet have been translated using the spot rate at the end of the reporting period. All figures expressed, except share amounts, are 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 results of operations for the three and nine months ended September 30, 2021 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 the 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, 2020, 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, 2020 contained in the Company’s Annual Report on Form 10-K.

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, valuation allowance on deferred tax assets and valuation on stock-based compensation prior to the Company's Initial Public Offering (the "IPO").

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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 September 30, 2021 and December 31, 2020 ($ in millions):

	September 30,		December 31,
	2021		2020
Cash and cash equivalents	$	319.4	$	570.8
Restricted cash	0.2		0.6
Total cash, cash equivalents and restricted cash	$	319.6	$	571.4

Cash and cash equivalents consist primarily of bank deposits and 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, 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. In connection with the IPO, the Company incurred total offering costs of $32.4 million, of which $28.9 million was recorded as a reduction to gross proceeds, and $3.5 million was recognized as a component of general and administrative expense in 2019. On January 14, 2021, the Company completed a Follow-on Offering of common stock, as defined and discussed in detail in Note 9, which generated net proceeds of $525.7 million, after deducting underwriting discounts and offering costs. On February 1, 2021, the underwriters exercised their option to purchase additional shares, and generated additional net proceeds to us of $114.6 million. Deferred offering costs from the Follow-on Offering amounted to $0.4 million.

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.

ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, simplifies the various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifies and amends the existing guidance to improve consistent application. The adoption of ASU 2019-12 beginning January 1, 2021 did not have a material impact on our condensed consolidated financial statement and related disclosures.

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In February 2016, the FASB issued Leases (Topic 842) (“ASU 2016-02”), whereby a 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.

Reclassification

Certain accounts in the prior period financial statements were reclassified to conform with the current period presentation.

5.Investments

Unrealized gains and losses

The following tables present cost or amortized cost and fair values of investment in fixed maturities as of September 30, 2021 and December 31, 2020 ($ in millions):

	Cost or Amortized Cost		Gross Unrealized				Fair Value
			Gains		Losses
September 30, 2021
Corporate debt securities	$	588.0	$	—	$	(0.9)	$	587.1
U.S. Government obligations	110.0		0.1		(0.2)		109.9
Municipal securities	0.6		—		—		0.6
Total	$	698.6	$	0.1	$	(1.1)	$	697.6
December 31, 2020
Corporate debt securities	$	—	$	—	$	—	$	—
U.S. Government obligations	6.4		0.2		—		6.6
Municipal securities	—		—		—		—
Total	$	6.4	$	0.2	$	—	$	6.6

Gross unrealized losses amounted to $1.1 million as of September 30, 2021 and less than $0.1 million as of December 31, 2020. Gross unrealized gains and losses were recorded as a component of accumulated other comprehensive income.

12

Contractual maturities of bonds

The following table presents the cost or amortized cost and estimated fair value of investments in fixed maturities as of September 30, 2021 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.

	September 30, 2021
	Cost or Amortized Cost		Fair Value
Due in one year or less	$	31.0	$	31.0
Due after one year through five years	667.6		666.6
Due after five years through ten years	—		—
Due after ten years	—		—
Total	$	698.6	$	697.6

Net investment income

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest on cash and cash equivalents	$	0.1	$	0.1	$	0.4	$	0.9
Fixed maturities	0.6		0.1		0.7		0.1
Short-term investments	—		—		—		0.3
	0.7		$	0.2	1.1		1.3
Investment expense	0.1		—		0.1		—
Net investment income	$	0.6	$	0.2	$	1.0	$	1.3

Investment gains and losses

The Company had pre-tax net realized capital losses of $0.2 million for the three and nine months ended September 30, 2021. There were no pre-tax net realized capital gains or losses for the three and nine months ended September 30, 2020.

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Aging of gross unrealized losses

The following table presents the gross unrealized losses and related fair values for the Company’s investment in fixed maturities, grouped by duration of time in a continuous unrealized loss position as of September 30, 2021 and December 31, 2020 ($ 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
September 30, 2021
Corporate debt securities	$	504.8	$	(0.9)	$	—	$	—	$	504.8	$	(0.9)
U.S. Government obligations	103.9		(0.2)		—		—		103.9		(0.2)
Municipal securities	—		—		—		—		—		—
Total	$	608.7	$	(1.1)	$	—	$	—	$	608.7	$	(1.1)

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, 2020

Corporate debt securities

$

—

$

—

$

—

$

—

$

—

$

—

U.S. Government obligations

—

—

—

—

—

—

Municipal securities

—

—

—

—

—

—

Total

$

—

$

—

$

—

$

—

$

—

$

—

Gross unrealized losses for investment in fixed maturities for twelve months or more was less than $0.1 million for both September 30, 2021 and December 31, 2020.

The gross unrealized investment losses as of September 30, 2021 and December 31, 2020, 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 September 30, 2021, one of the investments in fixed maturities was held in unrealized loss position for 12 months or more, and none as of December 31, 2020.

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6.     Fair Value Measurements

The following tables present the Company’s fair value hierarchy for financial assets and liabilities measured as of September 30, 2021 and December 31, 2020 ($ in millions):

	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Corporate debt securities	$	—	$	587.1	$	—	$	587.1
U.S. Government obligations	—		109.9		—		109.9
Municipal securities	—		0.6		—		0.6
Fixed maturities	—		$	697.6	—		$	697.6
Short term investments	—		107.5		—		107.5
Total	$	—	$	805.1	$	—	$	805.1

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Corporate debt securities	$	—	$	—	$	—	$	—
U.S. Government obligations	—		6.6		—		6.6
Municipal securities	—		—		—		—
Fixed maturities	—		6.6		—		6.6
Short term investments	—		—		—		—
Total	$	—	$	6.6	$	—	$	6.6

The fair value of all our different classes of Level 2 fixed maturities and short-term investments are estimated by using quoted prices from a third-party valuation service provider to gather, analyze and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments.

There were no transfers between Level 1, Level 2, or Level 3 during September 30, 2021 and December 31, 2020, respectively.

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7.Unpaid Loss and Loss Adjustment Expense

The following table presents the activity in the liability for unpaid loss and loss adjustment expense ("LAE") for the nine months ended September 30, 2021 and 2020 ($ in millions):

	Nine Months Ended September 30,
	2021		2020
Unpaid loss and LAE at beginning of period	$	46.3	$	28.2
Less: Reinsurance recoverable at beginning of period (1)	36.3		18.5
Net unpaid loss and LAE at beginning of period	10.0		9.7
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year	47.3		44.1
Prior years	(0.3)		1.3
Total incurred