Q4 2023 Lemonade Inc Earnings Call

Participants

Yael Wissner-Levy; VP, Communications; Lemonade Inc

Daniel Schreiber; Chief Executive Officer; Lemonade Inc

Shai Wininger; President & Co-Founder; Lemonade Inc

Timothy Bixby; Chief Financial Officer; Lemonade Inc

Jason Helfstein; Analyst; Oppenheimer & Co. Inc.

Yaron Kinar; Analyst; Jefferies

Presentation

Operator

Hello, everyone, and welcome to the Lemonade fourth-quarter 2023 financial results call. And thank you for standing by. My name is Davey, and I'll be coordinating your call today. (Operator Instructions)
And I would now like to hand the call over to your host, Yael Wissner-Levy, the VP of Communications from Lemonade, to begin. So Yael, please go ahead.

Yael Wissner-Levy

Good morning, and welcome to Lemonade's fourth-quarter 2023 earnings call. My name is Yael Wissner-Levy, and I'm the VP Communications here at Lemonade. Joining me today to discuss our results are Daniel Schreiber, CEO and Co-Founder; Shai Wininger, President and Co-Founder; and Tim Bixby, our Chief Financial Officer. A letter to shareholders covering the company's fourth quarter 2023 financial results is available on our Investor Relations website, investor dot Lemonade.com.
Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10 K filed with the SEC on March third, 2023, our Form 10 Q filed with the SEC on November third, 2023, and our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. And we will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our Letter to Shareholders also includes information of our key performance indicators, including customers, in-force premium premium per customer, annual dollar retention, gross earned premium growth, loss ratio, gross loss ratio, ex-cat and net loss ratio and the definition of each metric why each is useful to investors and how we use each to monitor and manage our business.
With that, I'll turn the call over to Daniel for some opening remarks. Daniel?

Daniel Schreiber

Good morning, and thank you for joining us to discuss Lemonade Q4 results and offer some perspective both on the outgoing year and on the year ahead. As you will have seen, Q4 was an excellent quarter, capping off a year of dramatic progress eliminate our top line grew 20% to 747 million of in-force premium, while our quarterly loss ratio came in at 77%, down 12 points from Q4 22 and down 19 points from Q4 21. Since Q4 last year, our adjusted gross profit had nearly doubled while our adjusted EBITDA loss nearly halved. As I say, dramatic progress.
Moving from the income statement to the cash flow statement, it's noteworthy that we ended this quarter with a total of $945 million in cash cash equivalents and investments. That is the very same level we reported at the end of the last quarter and it is up since our report of two quarters ago. While we expect this level to dip somewhat in 2024. We expect our total cash and investments to turn positive again in the first half of 2025, and we expect it to dip by less than 10% before reaching that point, underpinning our results with a steady stream of improvements in our ability to match rate to risk as well as in our operational efficiencies, all these mediated by a singular integrated system that improves and is improved by all our customer interactions in many ways. Therefore, 2023 was the year when the plan came together the year when the thesis of Lemonade transition from being a hypothesis to being more evidence-based, this isn't a mission accomplishment, not by a long shot, but the progress in 2023 was tangible and material, and it increases our confidence that we're on track, not only to turn cash flow positive next year with plenty of cash in the bank, but to build a large, enduring and profitable business thereafter, we hope our latest results please feel confidence alongside our own 2020 three's results.
All the more noteworthy for the turbulent times in which they materialized the last couple of years with some of the toughest for both established insurance companies and for up-and-coming tech companies and dual citizens, we were buffeted by the storms that affected both insurance and technology. As we reflect back on this tumultuous period, we find regiments in the famous words of nature or Kelly Clarkson, if you prefer that what doesn't kill you makes you stronger. We are quite sure that we are emerging from these shocks, the better for having enjoyed them. We are, we believe, leaner and more focused stronger and more resilient with better unit economics and with fewer competitors than would have been the case, had a turbulent never come at the African problems as smooth seas never made a skillful sailors. As we look forward to 2024, there's reason for optimism that the worst of the storms may be behind us. Inflation appears to be receding cost of capital may have peaked and rates of finally catching up with risks if the headwinds indeed become tailwinds in 2024, that will, of course, be good news that set of piloting with tailwinds comes with its own set of challenges.
And to explore these, let me hand over to Shai.

Shai Wininger

Hi, thank you, Daniel. In 2023, we intentionally slowed our growth to minimize sales of product in areas where we're underpriced at nearly 20% annual growth. We outpaced most of the industry yet for us. It was a slowdown compared to previous years. And if things goes to plan to coming years as well and as more rate updates come into effect, we'll have more product and more areas where we can accelerate our growth. To be clear, though our 77 loss ratio this quarter should not be taken as an indication that our work on rate adequacy is done. We still await significant further rate approvals. And so for much of 2024, we will continue to constrain sales of two products with the highest average premium and the largest markets home and car. In other words, we will continue to throttle growth this year, too. That said, the tide has definitely turned with every passing month. We are seeing more and more opportunities for profitable growth across our portfolio, including home and car, can we'll be relaxing these growth constraints accordingly. This is great news, and it's the reason we're projecting to begin to accelerate growth this year. Growth may be a virtue in its own right? But for us, it's a necessity. Our business is still subscale. And so we need to continue growth and so in 2024, we plan to accelerate our growth rate, but beyond being a welcome sign of improving conditions, accelerated growth also presents challenges. We want you to be aware of specifically in order to accelerate growth, we were planning to significantly increase our marketing spend in 2024 versus last year, doubling it. Actually, we believe that we'll generate about a three times return on the additional EUR55 million plan for marketing this year. But it's important to remember that this ROI won't materialize within the same accounting period in other words, we'll be spending dollars that will positively boost our EBITDA over time, but will be a drag on it in 2024. In the past, that drag translated into a cash flow gap, but our synthetic agent still has largely taken care of that, thanks to synthetic agents, most gross dollars spent in 2024 won't impact our cash during the year. Nevertheless, as GAAP accounting doesn't always follow the cash, our increased growth spend will be registered as a 55 million expense in 2020 four's EBITDA. All else being equal, that could have translated into year-over-year EBITDA deterioration, but we believe that not all else will be equal. We expect our loss ratio to continue to improve in 2024 and that our new generative AI stack, as well as many other technology innovations currently in the pipeline would allow us to grow faster with minimal impact to our OpEx. We believe these improvements will more than offset our growing marketing expenses during the year. Indeed, growing the top line, while improving the bottom line is a tricky balancing act, but we plan to pull it off in 2024 to give a better sense of what 2024 might look like and to share more specifics about the outgoing quarter and the year let me hand it over to Tim.

Timothy Bixby

Great. Thanks, Joe. I'll review highlights of our Q4 and full year results and provide our expectations for the first quarter and the full year 2024 for the first time, and then we'll take some questions. It was a strong quarter across the board with excellent loss ratio improvement, coupled with rigorous cost control, resulting in strong results exceeding our own expectations.
Zooming out, as noted in our shareholder letter, our actual IFP. results in 2023 came in nearly $50 million, better than our initial expectations shared a year ago, while EBITDA came in nearly $70 million better. Zooming back in in-force premium IFP. grew 20% in Q4 as compared to the prior year to 747 million. Customer count increased by 12% to just over $2 million as compared to the prior year. Premium per customer increased 7% versus the prior year to $369, driven in roughly equal parts by rate increases as well as mix shift to higher-priced products, annual dollar retention or ADR was 87%, up one percentage point since this time last year. We measure ADR on an annual cohort basis and include the impact of changes in policy value additional policy purchases and churn.
Gross earned premium in Q4 increased 20% as compared to the prior year to 181 million, in line with IFP. growth. Revenue in Q4 increased 31% from the prior year to $116 million. The growth in revenue is driven by the increase in gross earned premium, a slightly lower rate of ceded premium under our quota share reinsurance structure and a near doubling of investments. And our gross loss ratio was 77% for Q4 as compared to 89% in Q4 2022 and 83% in Q3 2023. The impact of cats in the fourth quarter was roughly five percentage points within the gross loss ratio in nearly all driven by winter storm activity. Absent this total cat impact, the underlying gross loss ratio ex-cat was in line with the prior quarter and roughly six percentage points better than the prior year. Prior-period development was roughly 1.5 percentage points favorable in the quarter. Notably prior period development from cats was about 1.5% unfavorable, while non-cat prior period development was about 3% favorable. Given the notable ups and downs of the quarterly loss ratio is all the more useful to also consider the rolling four quarter view of loss ratio or TTM loss ratio that we included in our shareholder letter to get a feel for the longer term positive trend for loss ratio that we're experiencing from a product perspective, loss ratios improved across the business with the loss ratios of each of the four products we underwrite, renters, home car and pet, all improving between nine and 18 percentage points year over year.
Gross profit and adjusted gross profit has shown a notable improvement over time, driven by continued premium growth, coupled with loss ratio and investment income improvement.
Q4 gross profit increased by 165% to 34 million versus the prior year, while adjusted gross profit increased by 97% over the same period. Zooming out a bit quarterly gross profit has more than quadrupled in just two years, while quarterly adjusted gross profit has nearly tripled if loss ratio improvement continues as expected. This recent trend of adjusted gross profit growing faster than our top line may well continue for some time.
Operating expenses, excluding loss and loss adjustment expense decreased 5% to 90 million in Q4 as compared to the prior year. Other insurance expense grew 18% in Q4 versus the prior year, a bit less than the growth of earned premium and is primarily in support of our increased investment in rate filing capacity.
If I had to summarize the financial performance year on year, I would highlight this top line up 20% adjusted gross profit up 97%, operating expenses down 5% and EBITDA loss 44% improved an impressive combination. We saw a consistent improvement across the other three expense lines, sales and marketing, technology development and G&A all coming in lower than the prior year. In absolute terms, during a year of notable growth, total sales and marketing expense declined by 3 million or 10%, primarily due to lower personnel costs related to efficiency gains. Total gross spend in the quarter was $13 million in line with the prior year quarter in July, we began to use our synthetic agents program, which financed about 50% of our Q3 and Q4 gross spend, and we've upped that ratio to 80% since January first, 2024. As a reminder, you'll see 100% of our gross spend flows through the P&L. As always, while the impact of the new growth mechanism is visible on the cash flow statement and balance sheet. And the net total impact is roughly 15 million at year end 2023. Staying with the synthetic agents program a moment longer We're pleased to share that we've extended our agreement with General Catalyst by another year and added $140 million to this program. The agreement that was due to renew at the end of this year is now set to come for renewal only at the end of 2025.
Back to costs, technology development expense decreased 10% to 20 million due primarily to a reduction in personnel-related costs, while G&A expense decreased 7% as compared to the prior year to 29 million.
Personnel expense and head count control continued to be a high priority. Total headcount is down about 8% as compared to the prior year at 1,258, while the top line IFP., as noted, grew about 20%. Net loss was 42 million in Q4 or a loss of about $0.61 per share, about 35% better best compared to the 64 million loss or $0.93 per share we reported in the fourth quarter of 2022. Our adjusted EBITDA loss was 29 million in Q4 as compared to the CAD52 million adjusted EBITDA loss in the fourth quarter of 2020 to about 44% better. Our total cash, cash equivalents and investments ended the quarter at approximately 945 million, reflecting primarily a use of cash for operations of 119 million since year end 2022. While total cash equivalents and investments is down only $92 million in that same period. And as Daniel noted, total cash and investments actually increased by about $3 million since June 30th, 2023.
Now with these goals and metrics in mind, I'll outline our specific financial expectations for the first quarter and for the full year of 2024 please note, our approach to guidance this year is measured as always, but it's realistic and it's in line with our own internal expectations. While we certainly delivered excellent results in 2023, particularly when compared to our original guidance for the year. And we don't currently expect that same magnitude of overachievement in 2024. While there is always the aspiration for outperformance, especially this early in the year. We would urge listeners caution about assuming that our guidance is overly conservative. It is not for the first quarter of 2024 we expect in-force premium at March 31st of between 789 and $791 million, gross written premium of between 183, $185 million, revenue between 111 and $113 million and adjusted EBITDA loss of between 43 and 41 million. We also expect stock-based compensation expense of approximately $15 million in the quarter. Capital expenditures of approximately $2 million in the quarter with a weighted average share count of approximately 70 million shares.
Now for the full year of 2024, we expect in force premium at December 31st of between 938 and $942 million, gross earned premium between 815 and $820 million, revenue between 505 and 510 million and an adjusted EBITDA loss between 160 and 155 million. Stock-based compensation expense. For the full year, we estimate to be approximately $60 million capital expenditures, approximately $10 million and a weighted average share count for the full year of approximately 71 million shares.
And finally, I note that we've published a handy deep dive guide to a couple of more detailed accounting topics. In conjunction with our shareholder letter, you'll find a supplementary information on our Investor Relations website as well. It gives some additional detail on our cash flow, our synthetic agents accounting program in reinsurance. It's worth the read. And with that, I would like to hand things back over to Daniel to answer some questions from our retail investors. Daniel?

Question and Answer Session

Daniel Schreiber

Thanks, Tim. We'll now turn to questions submitted and voted by our community of engaged and extremely thoughtful shareholders. And the first one comes from a paper bag who are with core loss ratios improving, how aggressively will Lemonade expand this product? What percentage of IOP is gone now and what might it be in a year?
So as he is into 2023, car represents about 15% of our total IFP., and we expect it to roughly maintain that share in 2024. And begin to expand significantly in 2025 and beyond. But definitely, car is going from losing share in 2023 to really carrying its own weight and maintaining its share in 2024 to growing its share thereafter.
In terms of how aggressively we plan to expand, let me say the following. The first is that you're right, of course, as the loss ratio of car comes down to our target range. We will be seeing opportunities to invest much more aggressively in growing the book. That process has begun and it will step up in 2024, but it won't really hit its stride until 2025. But as I say, it has begun. In fact, in 2023 k. actually grew significantly in places where profitability was attractive. Now that wasn't true for our largest markets like California and New Jersey. But outside of those states book is relatively small, but it grew at 55 0% growth rate in 2023. So where opportunities present, we can grow pretty aggressively. And this foray into growing car has given us data experience confidence and time to adjust rates in those other places. So we will be increasing growth investments in 2024 and we're expecting car to account for 10% to 15% of newly written premiums this year. And that's still the breakout. We expect car to deliver in due course, when the engine is finely tuned and revved up. But we're definitely gearing up towards that. There are this year's several exciting technology advancements that should help with cross-selling and win even further refinement of our telemetry and the data science behind that, those will be released in 2024 and will really enable us to accelerate growth with car growth further in 2025. And given that that's the case, we'd currently project that the share of newly written car premiums next year will probably be double what it is this year. I hope that addresses your question.
And the next one comes from Darren. Darren and last two questions that are kind of related. So I'm going to bundle them together 37, Q1 23 and eliminate had mentioned that generative AI. was meaningfully improving cost structure was expected to over the course of 18 months. And once the room now 12 months or so into those 18 months, are there any financial benefits that have been realized any evidence for how it generated a I can can help. And he also asked if we could elaborate on how much IFP. and customers the current headcount could support. And particularly if we had a $10 billion or when we have $10 billion of IFPM., how much larger would our employee base needs to be so darn those are really great questions. It's exactly the kinds of things that preoccupy us and that we focus on.
Amit, let me start by giving you can the rearview mirror of what's been achieved so far because we've delivered significant operating leverage in recent years. So over the last two years, headcount has grown by 8% and compounded annual growth while IFP. has grown by 40% kegger during the same time. So you can see those dramatic divergence between an 8% headcount expense or payroll expense and 40% top line. I think that speaks volumes about the financial benefits that we've realized and continue to realize. I'm in fact of payroll expense was down in 2023 year on year, even though our business grew at 20%. Again, I think very strong indicators that you're looking for. I'm giving you a little bit more context and color when we think about the scalability of our employee base. We tend to think about it as split roughly half. Our employees are what we think of as a variable cost. So those are the customer facing teams that customer support the claims that you would typically expect to grow more or less in line with customer growth twice as many customers will usually mean twice as many customer support queries and twice as many claims. So that would naturally and all else being equal, grow, more or less linear fashion. And then there's everything else, the engineering, the finance, the legal, et cetera, where we wouldn't have that expectation.
The really outstanding historical operating leverage that I've mentioned just now was really delivered both by an ever improving pretty dramatic improvement in our automation rates, placing very significant downward pressure on the growth of variable headcount, plus a lot of Smart Expense Management and targeted automation initiatives that keep the rest of the organization, more or less stable size, marketing and other teams that are using generative AI coding and teams that are using generative, AI, et cetera. Just two months ago, we referenced the fact that some of our brand, new generative AI tools were handling 7% of incoming customer service e-mails. And to be clear, that's distinct from the roughly third of in app interactions that Maiia handles unaided e-mails are much harder. They usually come without contacts. You don't necessarily know which customer you're talking to, which policies they have. Unlike the app where all the context is already there. So that's been a harder nut to crack. And anyway, I'm happy to report that just one quarter later, that 7% has pretty much tripled roughly 20% as of now. So we've seen a very notable acceleration. You can see the trajectory that's on. And we think of what we've done so far is really just the early innings, the tip of the iceberg or how the metaphor you want. We see no reason why we can't ultimately automate the overwhelming majority of our customer interactions and to deliver them as we do today with at least the level of customer satisfaction as we generate by human interactions, we're seeing very similar levels of net promoter score, and I see certain other indicators. I'm shifting to look forward for kind of how far can this go.
Well, in terms of our and fixed teams, if you like what I was referring to as engineering and finance and marketing and others. We do think that that is massively scalable. We think we've got very strong teams well staffed and conceptually, we could double and triple and perhaps even Ten-X our business without seeing any significant growth in those teams as we choose to launch new markets and new products, we may have to introduce a bit more headcount. But I think even then what I said is broadly true, we are pretty much staffed to the levels that we see ourselves needing in those departments for the foreseeable future. In terms of the variable, we do expect to have to grow those teams as we grow. But given the massive automation drive the generative, AI and other tools, and we do think that this divergence will continue. Our top line will grow significantly faster and the growth of these teams will be a fraction of the book's growth rate. And that's really where the scalability and the financial results come from.
So in summary, as all of these kind of anecdotes that I said or statistics or historical successes that we've had, all of those are indicators of operating leverage, how much it's been a focus and will continue to be and how the sustained scalability of our team is a key driver for how we're focusing on our business. And ultimately that will deliver the EBITDA breakeven point that we've been speaking about in 2026 as we continue to grow our denominator, holding the numerator as close to steady as possible is really the key that and we think we're doing exactly that and Okay.
The next question comes from both Darren and paper bag and pretty much the same question, they asked about how things are going with Chewy. So talking about our own results in some detail is something we're very comfortable doing. We are far more cautious about disclosing Partners' results and they have not made these numbers public. So we are also going to be circumspect. I will say that we are thrilled by a nationwide launch and by the collaboration between the companies and it's very much expanded our reach. We remain very bullish about our ability to continue to leverage that platform. And I will also say that the results have so far been broadly aligned with the modeling that we and our partner Chewy has done. So without getting too specific, this is pretty much in line also with what we had as planned. So beyond the quantity, I'll just share that the quality of the book has been very good, really on par with our own book in terms of premiums in terms of retention, loss rate, bond rate, et cetera. So all of this reinforces our aspirations for this partnership going forward.
Finally, some paper bag. We've got a duopoly of questions today. And so paper bag asks the following. In Q2 2020 to 21% of non-core sales were cross-sells and upsells in Illinois with CAR, it reached 36%, what's the current cross-sell upsell rate with car and without also at Investor Day, 3.7% of U.S. customers was up were multi-line, what's the current percentage?
Okay, great. Focused questions. Let me trying to address them so and I'm happy to report that all the metrics that you referenced are up since the numbers that you gave in your questions have all improved. And over the course of 2023, in the past year, about 25% of our non car sales were cross-sales. So in all of our other products combined about a quarter of the sales came from existing customers. If I include car, then we get closer to 30% on a nationwide basis, even though car is not available in all that many states. On a nationwide basis, we're at 30%. And all told today, about 4.5% of our customers have more than one product and that's up about 20% of our fleet from the number that you quoted for my Investor Day. It's important to note that in Illinois, we have continued to see good progress so we talk about Illinois because it's the first state we'll have our products were available. So it's a great indicator of where this might go on a nationwide basis. I don't know it, Illinois has more than 9% of customers. Customers have been with us a couple of years, two years or more, not more than 9%, almost 10% of them have more than one products that's twice the average that we have elsewhere. So it will take time for us to grow multi-line customer across the entire book. And but that might be an indicator of where we might go over the course of the next couple of years in places where we have all the products. We do not allow the box to mature. We do need to continue to expand product availability nationwide, but that gives you some indication in the near term this year our focus in growth will be more on pet and renters.
Then on car and homeowners, I mentioned cause percentages. And then earlier question, excuse me. So I'm we'll see the customer growth come mainly from pet and renters rather than from the other products. And that won't be a huge boon to the numbers that you're asking about in terms of multi-line customers. But as car gets to home profitability in different states. And as we lean into that, as we've indicated, probably later this year and into next year, then we would expect that to also have a pretty significant effect on the multi-line customer numbers in 2025 and beyond.
And with that, I'll hand the call back to the operator to take some questions from our friends on Wall Street and Keith, if you would like to register a question, please press star followed by one on your time.

Operator

Thank you. (Operator Instructions) Jason Helfstein, Oppenheimer.

Jason Helfstein

Thanks. I have two questions. Just the first, you talked in the release about using AI with third party agents. Is this going to be something that will be financially material in 24 or it's really more of a test and then it becomes more material in 25 and beyond.
And the second question, Tom, you talked about shifting away the mix shifted away from home and how much of that is due to learnings from the newest LTV model as opposed to just it's taking longer to get rate increases in certain states?

Shai Wininger

Thank you. Hey, Jason, good morning. I'm not exactly sure what you meant by that first question, which is about a I said, party agents and what we did fan, and I'm not sure if that's what you're asking about what we said that within Home, which touches on your second question, we will be testing selling third party policies in states where we don't currently offer home. Is that what you're asking about?

Jason Helfstein

Yes.

Shai Wininger

So yes, that's what I was referring to. Sorry. Okay. So can you just refine what that first question was regarding that?

Jason Helfstein

Yes. Is that something that could move the needle in 24 or is that like more of a test. And if it works, we'll see the impact in 24 hours.

Daniel Schreiber

It is the latter. The last I mean, these things can take off and move quickly, but it is a test it will be rolling out just in a few states. So and it won't be rolling out until next quarter. So I would not expect it to have a significant impact on this year. It's certainly not baked into the numbers that we provided in our guidance. It's a test. It could go well, it's the kind of thing that we've done episodically all along. So yes, earthquake insurance has worked this way. Our term life insurance has work this way and in areas where we haven't yet got rate adequacy or other things. We're going to test having these alternatives that we can offer to our customers in order capture a lot of the pent-up demand that we are seeing and that ties into your second question about rate adequacy from home. So we do find more have found that it's taken quite a long time to get to rate adequacy in many states. And this is not just about LTV. nine coming through that has allowed us to refine as it does with every generation to understand, we have a greater Nuance exactly where and which customers and lifetime values, but frankly, the issues with homeowners insurance in states like California have been. And so based industry wide as in referencing the largest insurance companies in the nation pulling out of the state. So there have been much larger forces at play secular shift, which we've been responding to and our tools of precision and LTD. are doing a fabulous job. But if regulators aren't approving rates that are reflective of those AI insights that we're not going to sell insurance in those markets until they do, and we're just seeing a time lags. I think we have very good understanding of which customers we want, how to select for them, how to price for them. We're waiting waiting for those rates to come online. So we can do exactly that.

Jason Helfstein

Thank you.

Operator

(Operator Instructions) Yaron Kinar, Jefferies.

Yaron Kinar

Thank you and good morning, everybody. My first question, Tim, it was helpful to hear the update on the loss ratio progression by line. Could you maybe be a little more specific there?
I think you gave a range of nine to 18 point improvement, Tom, across each of the lines, but can maybe give us a little more color on which lines are improving by how much possible even without catastrophes. So we haven't been disclosing exact loss ratios every quarter, but wanted to give some color commentary, significant improvement across all the lines.

Timothy Bixby

And I would say that car showed the most significant improvement sort of at the upper end of that range. And obviously no material cost impact. They're typically so not affecting the number at the lower end of the range, a renter home and Pet and Home tends to be the one where the cat impact is most significant. So good progress across the board on nine 18% will continue to give that sort of color commentary where it's helpful, but it's not something we disclose at very specific numbers QUARTER.

Yaron Kinar

Okay, thanks. And then I just want to make sure I'm thinking about and the strategically correctly, the homeowners business. So and maybe a little less of an appetite to grow there right now, while rates are not quite adequate in all states, but you are so committed to growing in home over time on your on balance sheet in the US, is that correct?

Daniel Schreiber

That is higher and good morning. Yes, we are and we are seeing significant progress in our homeowners business. As Tim indicated, rate adequacy, as you know, has been a challenge for the industry. So in the meantime, the though I say in the meantime, but there will always be certain business that we don't want to underwrite ourselves. We'll have our own underwriting appetite. We do have our own underwriting appetite and even in places where we are very profitable, particularly in those there's always the risk of getting over indexed on those regions and therefore, having an avenue through which when we reach our appetite limits that we can continue to satisfy customer needs, either by writing on our own paper or elsewhere is something that just makes a lot of solid sense. And as you know, is a widely done throughout the industry. So this is not a substitute for us doing our own. It is an augmentation that we're testing it points.

Yaron Kinar

Got it. And then one final one, if I may come on AI. So we've seen some press recently about states that may be scrutinizing the use of AI and insurance a bit more carefully, both on the claims side and the underwriting side, if you're giving the customer acquisition side and you're just looking at some sort of trying to avoid any discriminatory practices that that could arise there or Siemens seemingly discriminatory practices. Can you maybe talk about what you're seeing there, how you avoid maybe these it falls and how much buy-in you're getting from the regulators.

Daniel Schreiber

Yes, with pleasure, it's a great question and we are seeing some of that in the US. Europe is perhaps a step ahead in this regard in passing a related regulation. And I think it's fair to say that we've been pushing encouraging and working with the regulators on this from the get-go. We have been we've had for some years now and P. and AI. status officer I assist we have our data science teams trained on these matters. We've got fairly strict protocols and the old adage about great power requiring great responsibility, I think holds true in the field as we claim to be at the cutting edge of bringing AI to insurance. We also have to be thoughtful about all of those risks that come with that as well. We're quite sure that when it's applied responsibly, the benefits dramatically outweigh the risks, but the risks are not to be ignored. So yes, we do work with regulators on these things. We feel quite comfortable that we are not only within regulation, but in large measure, I'm setting the standard for how this can be done responsibly how this can be tested and on a nationwide basis on a per module basis on a per customer basis. So yes, I think we're feeling pretty comfortable with as we continue to monitor this space, we recently created insure tech coalition that is working with regulators in order to set the tone and help regulators understand these issues. I'm sure you may have significant focus.

Yaron Kinar

Thank you, Frankie.

Operator

This is all the time we have for questions today. So that will conclude today's call. Thank you, everyone, for joining. You may now. Thank you lines and have a lovely day.