Lemonade, an artificial intelligence-driven digital insurer, has signed a commercial financing agreement with Hannover Re (Ireland) DAC, under which the reinsurer will provide up to $250 million to fund Lemonade’s sales and marketing expenses from January 1, 2027 to December 31, 2028.
Under the terms of this new agreement, the funding has outstanding capital caps of $150 million in 2027 and $250 million in 2028. Hannover Re can fund up to 80% of Lemonade’s sales and marketing costs at the beginning of each monthly growth period, subject to a cap of $20 million per reference cohort.
Lemonade will then repay the funds over time based on a percentage of premiums collected from the customer base associated with the sponsored marketing. The announcement explains that this includes the original funding amount “plus a rate of return determined based on the counterparty cap amount, which is defined as the sum of the higher of (a) (i) 0% or (ii) the three-year U.S. Treasury bill rate, plus (b) 5.8%.”
Once Hannover Re reimburses a group of customers in full, Lemonade will retain all future premiums from those customers.
“This Agreement contains the parties’ standard practice representations, warranties and covenants and will survive unless terminated by either party in accordance with its terms,” ​​Lemonade said in a filing with the Securities and Exchange Commission.
We reported back in 2023 that the insurance company partnered with venture capital firm General Catalyst, an early investor in Lemonade, to create Synthetic Agents, a financial structure that enables growth without running out of cash. This agreement with Hannover Re is essentially an extension of Lemonade’s synthetic agency strategy as the company targets capital efficient growth.
