LMND Q4 2025: Record 52% Loss Ratio, 1 Signal Upgraded — Thesis Holds

Lemonade reported Q4 2025 revenue of $228M (+53% YoY), a record-low gross loss ratio of 52%, and in-force premium of $1.24B (+31% YoY) — the ninth consecutive quarter of accelerating IFP growth. EBITDA loss narrowed to just $5M (from $24M prior year). Our five-lens committee re-evaluated nine signal classifications against the new data. Result: 1 signal upgraded, 7 confirmed. Two forecast markets resolved with an average Brier score of 0.17. Thesis maintained at Price Above Value, MEDIUM confidence.

The Numbers

52%

Gross Loss Ratio

Record low (61% ex-PYD)

$228M

Revenue

+53% YoY

$1.24B

In-Force Premium

+31% YoY, 9th acceleration

-$5M

EBITDA

Near breakeven (from -$24M)

Signal Change: Funding Fragility Upgraded

The most consequential finding: FUNDING_FRAGILITY de-escalated from STRETCHED to ADEQUATE. Three converging data points eliminated the operational cash drain that previously amplified compound scenario risk:

EBITDA near breakeven: Q4 loss of only $5M (vs $24M prior year)
Sustained positive FCF: $37M adjusted free cash flow, positive 6 of last 7 quarters
Growing cash position: $1.1B in cash and investments, up ~$100M YoY

The prior STRETCHED assessment was driven by the concern that ~$200M parent cushion could be consumed by compound adverse scenarios while the company was burning cash. With cash flow now positive and EBITDA near zero, the buffer math changes fundamentally. Remaining risks (untested 20% quota share through a full CAT cycle, unconfirmed Synthetic Agents renewal, opaque captive reinsurer) prevent further upgrade to STRONG.

Market Resolutions + Active Markets

Two of eight forecast markets resolved from the earnings data. Six markets have resolution dates in H2 2026 or later and remain active.

Q4 gross loss ratio below 65%Resolved YESBrier 0.12

Q4 IFP growth above 30% YoYResolved YESBrier 0.23

Car insurance loss ratio below 70% (2 consecutive quarters)20% unchanged

Multi-product bundling rate above 10%15% unchanged

Q3 2026 revenue growth above 25% YoY53% unchanged

Synthetic Agents $200M renewal confirmed73% unchanged

EBITDA breakeven by Q4 202667% unchanged

Data breach settlement below $20M35% unchanged

Why Thesis Unchanged Despite Strong Beat

Q4 execution was unambiguously strong — record loss ratio, near-breakeven EBITDA, accelerating growth. But the structural thesis constraints remain: car insurance profitability unproven (20% odds of sub-70% GLR), bundling critically weak at >5% vs 30-40% industry (15% odds of reaching 10%), and the revenue/IFP gap actually widened to 22pp (from 12-19pp estimated), amplifying the H2 2026 normalization risk. The FUNDING_FRAGILITY upgrade reduces tail risk severity but does not change whether the valuation premium is justified.

Revenue Inflation Gap Widens

The largest emerging concern from Q4: headline revenue grew 53% while underlying IFP grew 31% — a 22pp gap (vs 12-19pp estimated in our original analysis). 2026 guidance implies an even wider 28pp gap (60% revenue growth vs 32% IFP growth). When the reinsurance transition fully laps in H2 2026, this inflation disappears, potentially creating an optical deceleration shock even if organic growth remains healthy. Our ensemble assigns 53% probability that normalized Q3 2026 revenue growth stays above 25%.

Full thesis assessment with all 8 markets, resolved scores, and updated signal classifications

LMND Full Thesis Assessment