Unpaid Loss and Loss Adjustment Expense

6 Months Ended

Jun. 30, 2026

Insurance [Abstract]

Unpaid Loss and Loss Adjustment Expense

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 six months ended June 30, 2026 and 2025 ($ in millions):

	June 30,
	2026		2025
Unpaid loss and LAE at beginning of period	$	303.1	$	298.1
Less: Reinsurance recoverable at beginning of period (1)	133.8		149.5
Net unpaid loss and LAE at beginning of period	169.3		148.6
Add: Incurred loss and LAE, net of reinsurance, related to:
Current year	303.7		175.5
Prior years	(16.4)		(12.6)
Total incurred	287.3		162.9
Deduct: Paid loss and LAE, net of reinsurance, related to:
Current year	197.0		101.0
Prior years	68.7		54.5
Total paid	265.7		155.5
Unpaid loss and LAE, net of reinsurance recoverable, at end of period	190.9		156.0
Reinsurance recoverable at end of period (1)	116.6		153.8
Unpaid loss and LAE, gross of reinsurance recoverable, at end of period	$	307.5	$	309.8

(1) Reinsurance recoverable in this table includes only ceded unpaid loss and LAE.

Unpaid loss and LAE includes anticipated salvage and subrogation recoverable.

Considerable variability is inherent in the estimate of the reserve for losses and LAE. Although management believes the liability recorded for losses and LAE is adequate, the variability inherent in this estimate could result in changes to the ultimate liability, which may be material to stockholders' equity. Additional variability exists due to accident year allocations of ceded amounts in accordance with the reinsurance agreements, which is not expected to result in any changes to the ultimate liability. Other factors that can impact loss reserve development may also include trends in general economic conditions, including the effects of inflation. The Company had prior year favorable development on net loss and LAE reserves of $16.4 million for the six months ended June 30, 2026, and prior year favorable development on net loss and LAE reserves of $12.6 million for the six months ended June 30, 2025. No additional premiums or returned premiums have been accrued as a result of prior year effects.

For the six months ended June 30, 2025, current accident year net incurred loss and LAE included $16.9 million related to the January 2025 California Wildfires, excluding the impact of the aggregate catastrophe cap limits, and represented the Company's best estimates based upon available information, including but not limited to industry data, reported claims, reinsurance recoveries and subrogation.

In March 2025, the Company entered into the Participation of Recovery Rights Agreements to sell its subrogation rights related to the January 2025 California wildfires resulting in a reduction of $4.2 million in net unpaid losses.

Reinsurance

In the ordinary course of business, the Company cedes losses and LAE to reinsurance companies to reduce the potential net loss exposure from large losses or catastrophic risks, and to manage regulatory capital requirements. Certain of these arrangements consist of excess of loss and catastrophe contracts, which protect against losses exceeding stipulated amounts. The ceding of risk through reinsurance does not relieve the Company from its obligations to policyholders, and the

Company remains primarily liable with respect to ceded losses and LAE in the event that any reinsurer does not meet obligations assumed under the reinsurance agreements. The Company does not have any significant unsecured recoverable for losses, paid and unpaid including Incurred But Not Reported ("IBNR"), loss adjustment expenses, and unearned premium with any individual reinsurer.

The Company maintains proportional reinsurance contracts which cover all of the Company's products and geographies, and transfers, or “cedes,” a specified percentage of the premium to reinsurers. The Company also opted to manage a portion of the remaining business with non-proportional reinsurance contracts.

Whole Account Quota Share Reinsurance Contracts

The Company agreed to the terms of a reinsurance program effective July 1, 2025 through June 30, 2026 which included Whole Account Quota Share Reinsurance Contracts by and among the Company, Lemonade Insurance Company ("LIC"), Metromile Insurance Company ("MIC") and Lemonade Insurance N.V. ("LINV"), and each of Hannover Ruck SE ("Hannover") and MAPFRE Re Compania De Reaseguros S.A. ("MAPFRE") (collectively referred to as “Reinsurers”) ("Reinsurance Program"). Under the Reinsurance Program, which covers all products and geographies, the Company transfers, or "cedes," approximately 20% of premium to the Reinsurers. In exchange, these Reinsurers pay the Company a ceding commission on all premiums ceded to the Reinsurers, in addition to funding the corresponding claims, subject to certain limitations, including but not limited to, the exclusion of hurricane losses, and a limit of $10,000,000 per occurrence for non-hurricane catastrophe losses. The Per Risk Cap across the contracts is $750,000. Additionally, the contracts are subject to loss ratio caps and variable ceding commission levels, which align the Company's interests with those of its Reinsurers, and is settled primarily on a funds-withheld basis. The Reinsurance Program was renewed effective July 1, 2026 and will expire on June 30, 2027, with a reduced effective cession rate of approximately 18% of premiums to Reinsurers. The renewed terms include a $40,000,000 limit per loss occurrence and $100,000,000 in aggregate, including catastrophe losses. Other terms are similar to the contracts that expired on June 30, 2026.

Property Per Risk Excess of Loss Reinsurance Contract

LIC and MIC entered into a Property Per Risk Excess of Loss Reinsurance Contract with a panel of reinsurance companies (the "PPR Contract") which was effective July 1, 2025 and expired on June 30, 2026. Under the PPR Contract, claims in excess of $750,000 were 100% ceded up to a maximum recovery of $2,250,000, and further subject to certain limitations. The PPR Contract was not renewed.

Captives

LIC and MIC entered into an Excess of Loss ("XOL") Reinsurance Contract with a captive in Bermuda in which the Company has variable interest. This XOL reinsurance contract primarily covers catastrophe risk on property and car business underwritten by LIC and MIC over the initial $50,000,000 limit for each loss occurrence, and further subject to a limit of $80,000,000 for each loss occurrence and in aggregate. This XOL reinsurance contract which was effective July 1, 2025 expired on June 30, 2026. The XOL reinsurance contract between the captive and LIC was renewed effective July 1, 2026 and will expire on June 30, 2027, with a limit of liability of $50,000,000 for each loss occurrence and in aggregate. The XOL reinsurance contract between the captive and MIC was not renewed.

The Company is also exposed to some risks on property, car and pet insurance underwritten by LIC and MIC ceded through Quota Share ("QS") Reinsurance Contracts which is retained in an offshore captive subsidiary, Lemonade Re SPC. The MIC QS reinsurance contract which became effective July 1, 2025 was terminated and the parties agreed to a new QS reinsurance contract effective July 1, 2026 with an increase in cession rate from 35% to 40%. The MIC QS reinsurance contract shall remain effective for an indefinite period until terminated by either party. The LIC QS reinsurance contract was renewed effective July 1, 2026 through June 30, 2027 with an increase in cession rate from 15% to 25%.

Through the captives, the Company is exposed to the risk of natural catastrophe events and other covered risks under the reinsurance contracts from policies underwritten by LIC and MIC.