Lemonade offers renters, home, auto, pet & life insurance in the USA and parts of Europe. The company’s tech-and-AI-native foundation cuts out hefty fixed costs associated with legacy models to lower cost of service. This enables it to routinely outcompete substitutes on price. It builds on this edge by obsessively iterating on its underwriting algorithms to ensure accurate underwriting. This has enabled brisk top-line scaling with stable fixed costs for a couple of years now. For a detailed review of its latest investor day, click here.

Lemonade has now accelerated Y/Y IFP growth for 9 straight quarters. As I talk about constantly, it truly is a growth and margin puppet master. Its AI-native business model allows this insurance disruptor to rapidly scale with virtually no fixed cost growth. That frees it from reliance on a web of 3rd-party vendors built on ancient technology, which ensures it’s innovating faster than others – in AI and everywhere else. This is like the SoFi of insurance in terms of creating durable cost advantages in a sector where that has been traditionally hard to do.

Its marketing precision is reliably excellent, allowing it to predictably deploy dollars at a great 3X LTV/CAC. Its opportunity is so large that it hasn't come close to diminishing returns on these investments. And? Its product is so good that margin-accretive growth always follows more dollars spent. That’s how it has accelerated growth so consistently following the period of rampant inflation that forced it to slow down (to await rate change approvals). As soon as those changes came, Lemonade’s financials reacted.

Note that a lower Y/Y rate of ceded premiums to reinsurers is currently propping up revenue growth. Lemonade’s rising confidence in its underwriting, profitability and liquidity all gave it the confidence to keep a larger portion of its overall demand. This means more revenue on the same base of premiums and, if done well in terms of pricing risk, should be a profit dollar accelerant as well. IFP and GEP growth both were strong and offer a better sense of demand right now, as both exclude that reinsurance comp noise.

Lemonade continues to impressively control cost growth. Overall OpEx for Q4 grew by 33% Y/Y, which was 20 points slower than revenue. That facilitated ongoing margin improvements. Excluding loss adjustment expenses (LAE; costs to handle claims), OpEx rose by 24% Y/Y. That was almost entirely related to a 48% Y/Y boost to variable growth spend, which again continues to come with excellent returns.

And impressively, it has rapidly expanded while controlling fixed cost growth since 2022. OpEx excluding variable growth spend over the last 3 years has compounded at just a 5% clip; headcount fell by 6% during that time as well. It's a growth company. It's going to aggressively pursue more growth opportunities in 2026 and beyond. It will continue to favor investing more in new customers and plans if it enjoys better-than-expected efficiency. But? It will spend while ensuring cost growth greatly lags demand growth, allowing continued rapid operating leverage and a 2026 inflection. It’s a balancing act… and it’s an act Lemonade is performing masterfully.

GLR and NLR can get noisy from quarter to quarter, which makes trailing 12-month (TTM) loss ratio data more valuable. Encouragingly, TTM GLR has improved for nine straight quarters. 

Finally, FCF is noisy here. As a reminder, Lemonade uses something called synthetic agents. These synthetic agents effectively finance its growth spend, which means the cash drain other companies would incur from marketing isn't immediately incurred by Lemonade. Instead, it pays an interest expense gradually over time. That makes Lemonade's FCF metric different from how most other companies calculate it. For this reason, I like to focus on income statement profitability, which also looks inevitable at this point. It felt inevitable a few years ago, but now that once polarizing take seems like it's the consensus view.