Will LMND report Q4 2025 gross loss ratio below 65%?

Q3 2025 GLR hit record-low 62% and the comparable Q4 2024 was 63% — both below the 65% threshold. The clean-the-book homeowners non-renewal program completing by year-end 2025 removes high-risk policies, providing structural tailwind. Prior period development ($18.9M favorable YTD) provides additional cushion. However, Q4 is the heaviest weather quarter with FL/CA/TX exposure, and management's shift toward 'gross profit optimization' may allow slightly higher LR than Q3's 62% for better conversion. Base case: LR in the 61-66% range with the 65% threshold sitting near the upper end.

The loss ratio decomposition problem is material: industry improved 3-4pp concurrently, so LMND-specific improvement is ~11pp out of 15pp. Under the new 20% quota share (vs prior 55%), LMND retains more risk, meaning Q4 weather events hit the reported GLR harder than under the old structure. The comparable Q4 2024 (63%) was under the old 55% QS which ceded more risk to reinsurers. If no major CAT event occurs, the structural trend strongly supports sub-65%, but the untested regime and seasonal risk warrant caution.

The comparable Q4 2024 achieved 63% under the old 55% QS structure, and Q3 2025 hit 62% under a transitional mix. The clean-the-book program removes high-risk homeowner policies — proven during CA wildfires (double-digit millions in avoided losses) — and its completion by end-2025 means the Q4 book is structurally cleaner than Q4 2024's. Ex-CAT loss ratios of 59-60% provide meaningful buffer below 65%. Management's 'gross profit optimization' shift may push LR toward 64-65% rather than 62%, but still likely below threshold absent a significant CAT event.

The data is clear: Q3 2025 at 62% and Q4 2024 at 63% are both below 65%. The ex-CAT loss ratios (59-60%) show the underlying business runs well below the threshold. The clean-the-book program completing removes tail risk exposure. The only realistic path above 65% is a significant Q4 CAT event — normal seasonal winter weather appears manageable given the structural buffer. The Q1 2025 78% result was specifically California wildfire-driven, not normal seasonal variation.

The 20% quota share is the wildcard — Q4 is the first full quarter under this structure. Under 55% QS, reported GLR was smoothed by reinsurance; under 20% QS, claims experience shows up more directly. Q4 winter storms with FL/CA/TX concentration create genuine seasonal risk. However, the clean-the-book program specifically targets high-risk homeowners — exactly the policies that drive weather-related claims. Management's gross profit optimization stance actually supports sub-65% rather than undermining it; they're optimizing around 64%, not 70%.

Base rate from recent quarters: 2 of 5 below 65%, but the two most recent non-CAT quarters (Q3 2025, Q4 2024) are both below threshold, and the trajectory is strongly improving. The question reduces to CAT event probability: historical base rate for a single-quarter CAT event severe enough to swing GLR 3+ points is roughly 20-25% in a Q4 winter quarter. Structural improvements (clean-the-book, AI underwriting, ex-CAT ratios of 59-60%) provide buffer, but car insurance at 76% LR and Europe at 83% remain drags on the blended ratio.

Q3 2025 GLR was 62% (record low), Q4 2024 was 63% — both well below 65%. Ex-CAT ratios of 59-60% provide meaningful buffer. Clean-the-book program removing high-risk homeowner policies completes by year-end 2025, structurally improving the Q4 book. Prior period development consistently favorable at $18.9M YTD. The improving trend is strong and the threshold is generous.

The structural improvement is compelling — record Q3 at 62%, ex-CAT ratios of 59-60%, clean-the-book completing. But Q4 seasonal weather risk is real with FL/CA/TX exposure, and the 20% QS means retained risk is higher than under the old structure. Management's willingness to accept higher LR for growth adds modest uncertainty. The 65% threshold still allows 3 points of buffer from Q3's 62%, but Q4 seasonal patterns historically push ratios higher.

Two of the last three non-CAT quarters were below 65%. The loss ratio trend is strongly downward (82% to 67% TTM). Clean-the-book removes tail risk exposure and was proven during CA wildfires. The 65% threshold provides adequate buffer from the ex-CAT baseline of 59-60%. Even accounting for Q4 seasonal weather and management's gross profit optimization, sub-65% is more likely than not.