When investors bring up Lemonade’s decreasing book value, there are generally three concerns: regulatory risks, growth constraints, and valuation. I am going to address all three.

1. Regulatory risks

The risk-based capital ratio is the single formula that insurance regulators care most about. Risk-based capital is the regulator’s shorthand for how much capital an insurer is required to have on hand. The “risk-based” part of this title is important: it is risk-adjusted. All things being equal, a riskier insurance company requires more capital.

At yearend 2025, Lemonade’s US risk-based capital was $38.6 million. If an insurer’s statutory capital falls to 200% of its risk-based capital (so $77.2 million in Lemonade’s case), the insurer must submit an action plan on how it will fix its capital position. If the risk-based capital ratio continues to fall, regulators get more involved and will take control of the insurer if its ratio drops to 70%.

With that in mind, let’s see how Lemonade’s risk-based capital ratio has trended since IPO.

Continue reading “Lemonade’s Book Value: Regulatory Risks, Growth Constraints, and Valuation” →