10q10k10q10k.net

What changed in Root, Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of Root, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+498 added−467 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-22)

Top changes in Root, Inc.'s 2023 10-K

498 paragraphs added · 467 removed · 391 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

94 edited+27 added−27 removed77 unchanged
Biggest changeTo date no inspection has occurred. Statutory Accounting Principles A licensed insurance carrier’s financial statements must be completed in accordance with statutory accounting principles, or SAP. SAP was developed by U.S. insurance regulators as a method of accounting used to monitor and regulate the solvency of insurance companies.
Biggest changeIn addition, Root Re, our Cayman Islands subsidiary, is subject to inspections by the Cayman Islands Monetary Authority, or CIMA, on an ad-hoc basis and typically every three to five years. To date no inspection has occurred. Statutory Accounting Principles A licensed insurance carrier’s financial statements must be completed in accordance with statutory accounting principles, or SAP.
We believe we compete favorably across many of these factors and have developed a platform and business model based on behavioral data collection and machine learning that we believe will be difficult for incumbent insurance providers to emulate. Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
We believe that we compete favorably across many of these factors and have developed a platform and business model based on behavioral data collection and machine learning that will be difficult for incumbent insurance providers to emulate. Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
We have an open-door policy that allows employees to reach out to leaders, our People team, our Legal team and/or Compliance/Internal Audit teams to ensure that their concerns are communicated and addressed. 6 Hiring and Retaining Talent We are continually working on building a culture of attraction and retention of key talent.
We have an open-door policy that allows employees to reach out to leaders, our People team, our Legal team, our Compliance team and/or Internal Audit teams to ensure that their concerns are communicated and addressed. 6 Hiring and Retaining Talent We are continually working on building a culture of attraction and retention of key talent.
The CCPA and CPRA give California residents the right to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed disclosures about how their personal information is used and shared.
The CCPA and CPRA give California residents the right to access and require deletion of certain of their personal information, opt out of certain personal information sharing, and receive detailed disclosures about how their personal information is used and shared.
The National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, or NCOIL, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five U.S. territories, and from time to time promulgate model rules and regulations that often are the basis for insurance rules and regulations adopted by such jurisdictions.
The National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five U.S. territories, and from time to time promulgate model rules and regulations that often are the basis for insurance rules and regulations adopted by such jurisdictions.
We may selectively pursue additional investments, acquisitions and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products. 4 Investments Our portfolio of investable assets is primarily held in cash, cash equivalents and available-for-sale fixed maturity securities, including U.S.
We may selectively pursue additional investments, acquisitions and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products. Investments Our portfolio of investable assets is primarily held in cash, cash equivalents and available-for-sale fixed maturity securities, including U.S.
Data Privacy The use of non-public personal information in the insurance industry is subject to regulation under the privacy provisions of the Gramm-Leach Bliley Act and the NAIC Insurance Information and Privacy Act, as adopted and implemented by the various state legislatures and insurance regulators, including through the California Financial Information Privacy Act.
Data Privacy and Cybersecurity The use of non-public personal information in the insurance industry is subject to regulation under the privacy provisions of the Gramm-Leach Bliley Act and the NAIC Insurance Information and Privacy Act, as adopted and implemented by the various state legislatures and insurance regulators, including through the California Financial Information Privacy Act.
See the section 9 titled “Risk Factors—Risks Related to this Offering and Ownership of Our Class A Common Stock—Applicable insurance laws may make it difficult to effect a change of control.” ORSA Pursuant to the Own Risk and Solvency Assessment, or ORSA, an insurance company with gross written and unaffiliated assumed premium of more than $500 million or that is part of an insurance group with gross written and unaffiliated assumed premium of more than $1 billion must maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.
See the section 9 titled “Risk Factors—Risks Related to Ownership of Our Class A Common Stock—Applicable insurance laws may make it difficult to effect a change of control.” ORSA Pursuant to the Own Risk and Solvency Assessment, or ORSA, an insurance company with gross written and unaffiliated assumed premium of more than $500 million or that is part of an insurance group with gross written and unaffiliated assumed premium of more than $1 billion must maintain a risk management framework to assist the insurer with identifying, assessing, monitoring, managing, and reporting on its material and relevant risks.
Though we rely in part upon these legal and contractual protections, we believe that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our platform are larger contributors to our success in the marketplace.
Though we rely in part upon these legal and contractual 5 protections, we believe that factors such as the skills and ingenuity of our employees and the functionality and frequent enhancements to our platform are larger contributors to our success in the marketplace.
Regulations to which our licensed insurance carriers and producer subsidiaries are subject include, but are not limited to: • prior approval of transactions resulting in a change of “control” (as such term is defined under the Insurance Holding Company System Regulatory Act of Ohio, or the Ohio Holding Company Act, and the Delaware Insurance Holding Company System Registration Act, and together with the Ohio Holding Company Act, the Holding Company Acts); • approval of policy forms and premiums; • approval of intercompany service agreements; • statutory and risk-based capital solvency requirements, including the minimum capital and surplus our regulated insurance subsidiaries must maintain; • establishing minimum reserves that insurance carriers must hold to pay projected insurance claims; • required participation by our regulated insurance subsidiaries in state guaranty funds; • restrictions on the type and concentration of our regulated insurance subsidiaries’ investments; • restrictions on the advertising and marketing of insurance; • restrictions on the adjustment and settlement of insurance claims; • restrictions on the use of rebates to induce a policyholder to purchase insurance; • restrictions on the sale, solicitation and negotiation of insurance; • restrictions on the sharing of insurance commissions and payment of referral fees; • prohibitions on the underwriting of insurance on the basis of race, sex, religion and other protected classes; 7 • restrictions on our ability to use telematics to underwrite and price insurance policies, particularly in California; • restrictions on the ability of our regulated insurance subsidiaries to pay dividends to us or enter into certain related party transactions without prior regulatory approval; • rules requiring the maintenance of statutory deposits for the benefit of policyholders; • privacy regulation and data security; • regulation of corporate governance and risk management; • periodic examinations of operations, finances, market conduct and claims practices; and • required periodic financial reporting.
Regulations to which our licensed insurance carriers and producer subsidiaries are subject include, but are not limited to: • prior approval of transactions resulting in a change of “control” (as such term is defined under the Insurance Holding Company System Regulatory Act of Ohio, or the Ohio Holding Company Act); • approval of policy forms and premiums; • approval of intercompany agreements; • statutory and risk-based capital solvency requirements, including the minimum capital and surplus our regulated insurance subsidiaries must maintain; • establishing minimum reserves that insurance carriers must hold to pay projected insurance claims; • required participation by our regulated insurance subsidiaries in state guaranty funds; • restrictions on the type and concentration of our regulated insurance subsidiaries’ investments; • restrictions on the advertising and marketing of insurance; • restrictions on the adjustment and settlement of insurance claims; • restrictions on the use of rebates to induce a policyholder to purchase insurance; • restrictions on the sale, solicitation and negotiation of insurance; • restrictions on the sharing of insurance commissions and payment of referral fees; • prohibitions on the underwriting of insurance on the basis of race, sex, religion and other protected classes; • restrictions on our ability to use telematics to underwrite and price insurance policies, particularly in California; 7 • restrictions on the ability of our regulated insurance subsidiaries to pay dividends to us or enter into certain related party transactions without prior regulatory approval; • rules requiring the maintenance of statutory deposits for the benefit of policyholders; • privacy regulation and data security; • regulation of corporate governance and risk management; • periodic examinations of operations, finances, market conduct and claims practices; and • required periodic financial reporting.
The guarantee remains in effect until such time as the Superintendent may release Root, Inc. in writing. As of December 31, 2022, both Root Insurance Company and Root Property & Casualty’s risk-based capital levels are above any of these regulatory action level thresholds and our guaranteed threshold.
The guarantee remains in effect until such time as the Superintendent may release Root, Inc. in writing. As of December 31, 2023, both Root Insurance Company and Root Property & Casualty’s risk-based capital levels are above any of these regulatory action level thresholds and our guaranteed threshold.
Insurance regulatory authorities have broad administrative powers to regulate all aspects of an insurance carrier or producer’s business, including the powers to restrict or revoke licenses to transact business, and to levy fines and monetary penalties against insurers and insurance producers found to be in violation of applicable laws and regulations.
Insurance regulatory authorities have broad authority to regulate all aspects of an insurance carrier or producer’s business, including the powers to restrict or revoke licenses to transact business, and to levy fines and monetary penalties against insurers and insurance producers found to be in violation of applicable laws and regulations.
The Ohio DOI and the Delaware DOI may in the future adopt statutory provisions more restrictive than those currently in effect. Reserves Our domestic insurance subsidiaries are required to hold admitted assets as reserves to cover projected losses under its policies, in accordance with actuarial principles.
The Ohio DOI may in the future adopt statutory provisions more restrictive than those currently in effect. Reserves Our domestic insurance subsidiaries are required to hold admitted assets as reserves to cover projected losses under its policies, in accordance with actuarial principles.
In particular, many of these competitors offer consumers the ability to purchase multiple other types of insurance coverage and “bundle” them together into one policy and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.
In particular, many of these competitors offer consumers the ability to purchase multiple other lines of insurance coverage and “bundle” them together into one policy and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.
As of December 31, 2022, Ohio adopted the model legislation, which will become effective June 1, 2025 for those insurance holding company systems that do not write business outside the United States, like us.
As of December 31, 2023, Ohio adopted the model legislation, which will become effective June 1, 2025 for those insurance holding company systems that do not write business outside the United States, like us.
Our model, supported by proprietary technology, allows us to be more adaptive across the value chain, provides complete design and feature discretion and we believe frees us to innovate and iterate more quickly than any of our major competitors. We view this flexibility as absolutely critical to introducing new capabilities, reinforcing customer centricity and driving growth.
Our model, supported by proprietary technology, allows us to be more adaptive across the value chain, provides complete design and feature discretion and we believe frees us to innovate and iterate more quickly than any of our major competitors. We view this flexibility as absolutely critical to introducing new capabilities, responding to macroeconomic trends, reinforcing customer centricity and driving growth.
Under the Holding Company Acts, all inter-affiliate transactions within a holding company system must meet the following conditions: (i) the terms must be fair and reasonable; (ii) charges or fees for services performed must be fair and reasonable; and (iii) expenses incurred and payments received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
Under the Ohio Holding Company Act, all inter-affiliate transactions within a holding company system must meet the following conditions: (i) the terms must be fair and reasonable; (ii) charges or fees for services performed must be fair and reasonable; and (iii) expenses incurred and payments received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
Under these rules and regulations, insurance companies and producers must also establish a program of administrative, technical, and physical safeguards designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of customer information, and protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to the customers.
Under these rules and regulations, insurance companies and producers must also establish a program of administrative, technical, and physical safeguards designed to address the security and confidentiality of customer information, protect against anticipated threats or hazards to the security or integrity of customer information, and protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to the customers.
We expect this growing proportion of renewal premiums will bring an increasing mix of lower loss ratio premiums and premiums without associated acquisition costs . 1 Our Industry Insurance is one of the oldest and largest markets in the world, touching every corner of the world and protecting many of our most important assets.
We expect this growing proportion of renewal premiums will bring an increasing mix of lower loss ratio premiums and premiums with lower associated acquisition costs . Our Industry Insurance is one of the oldest and largest markets in the world, touching every corner of the world and protecting many of our most important assets.
Treasury securities, corporate debt securities, mortgage back securities and other debt obligations. We manage the portfolio in accordance with investment policies and guidelines approved by our board of directors. We have designed our investment policy and guidelines to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations.
Treasury securities, corporate debt securities, mortgage-backed securities, municipal securities and other debt obligations. We manage the portfolio in accordance with investment policies and guidelines approved by our board of directors. We have designed our investment policy and guidelines to provide a balance between current yield, conservation of capital, and liquidity requirements of our operations.
We accomplish this by meeting our customers within platforms they use extensively such as Facebook and Google or select marketplace platforms where consumers are actively shopping for insurance. We deploy dynamic data science models to optimize targeting and bidding strategies across our digital platforms, aligning customer acquisition cost to expected lifetime value of the potential customer. • Channel Media.
We accomplish this by meeting our customers within platforms they use extensively such as Google or select marketplace platforms where consumers are actively shopping for insurance. We deploy dynamic data science models to optimize targeting and bidding strategies across our digital platforms, aligning customer acquisition cost to expected lifetime value of the potential customer. ◦ Referral .
These rules are subject to change as state legislatures and regulatory agencies update their laws and regulations to address real and perceived issues and concerns. These laws and regulations are also subject to interpretation by courts.
These laws and regulations are subject to change as state legislatures and regulatory agencies update their authority to address real and perceived issues and concerns. These laws and regulations are also subject to interpretation by courts.
As of December 31, 2022, neither Root Insurance Company nor Root Property & Casualty were permitted to pay any dividends to us without approval of the superintendent of the supervisory DOI.
As of December 31, 2023, neither Root Insurance Company nor Root Property & Casualty were permitted to pay any dividends to us without approval of the superintendent of the supervisory DOI.
Change of Control Pursuant to the Holding Company Acts, a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of a domestic insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer.
Change of Control Pursuant to the Ohio Holding Company Act, a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of a domestic insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer.
On October 24, 2017, the NAIC adopted the Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws.
In 2017, the NAIC adopted the Insurance Data Security Model Law, intended to serve as model legislation for states to enact in order to govern the cybersecurity and data protection practices of insurers, insurance agents, and other licensed entities registered under state insurance laws.
Insurance Holding Company Regulation As the ultimate controlling person in the “insurance holding company system” under the Holding Company Acts, we are required to file annual enterprise risk reports, corporate governance disclosures and own risk solvency assessments with our domiciliary regulators.
Insurance Holding Company Regulation As the ultimate controlling person in the “insurance holding company system” under the Ohio Holding Company Act, we are required to file annual enterprise risk reports, corporate governance disclosures and own risk solvency assessments with our domiciliary regulators.
Furthermore, we continue to invest in the technology and data science behind our distribution with A/B tests, dynamic bidding models, and rapid updates and iterations, supporting differentiated cost of customer acquisition over the long term. Capital Management As a full-stack insurance company, we operate a “capital-efficient” business model which utilizes elevated levels of reinsurance.
Furthermore, we continue to invest in the technology and data science behind our distribution with A/B tests, dynamic bidding models, and rapid updates and iterations, supporting differentiated cost of customer acquisition over the long term. 3 Capital Management As a full-stack insurance company, we operate a “capital-efficient” business model which utilizes a variety of reinsurance structures.
Our primary addressable market today is U.S. personal lines insurance. This market exceeded $397 billion in 2021 premiums and has grown at a 4% compound annual growth rate, or CAGR, since 2016. Over the past century, there have been only a few waves of innovative disruption within insurance.
Our primary addressable market today is U.S. personal lines 1 insurance. This market exceeded $428 billion in 2022 premiums and has grown at a 4% compound annual growth rate, or CAGR, since 2016. Over the past century, there have been only a few waves of innovative disruption within insurance.
The annual assessments required in any one year will vary from state to state and are subject to various maximum assessments per line of insurance. Investment Regulation Root Insurance Company is subject to Ohio’s rules and regulations governing the investment of its assets. Similarly, Root Property & Casualty is subject to Delaware’s rules and regulations governing invested assets.
The annual assessments required in any one year will vary from state to state and are subject to various maximum assessments per line of insurance. Investment Regulation Root Insurance Company and Root Property & Casualty are subject to Ohio’s rules and regulations governing the investment of its assets.
Our Strategy We are focused on the following strategies to continue penetrating the $273 billion U.S. auto insurance market. In the near term, our primary focus is to execute on the auto opportunity at hand.
Our Strategy We are focused on the following strategies to continue penetrating the more than $300 billion U.S. auto insurance market. In the near term, our primary focus is to execute on the auto opportunity at hand.
The Holding Company Acts provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.
The Ohio Holding Company Act provides that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.
Root, Inc. filed its first ORSA summary report with the Ohio DOI on December 30, 2021 and its second ORSA summary report with the Ohio DOI on December 30, 2022. Restrictions on Paying Dividends We are a holding company that transacts a majority of its business through operating subsidiaries.
Root, Inc. filed its first ORSA summary report with the Ohio DOI on December 30, 2021, and has filed annually thereafter. Restrictions on Paying Dividends We are a holding company that transacts a majority of its business through operating subsidiaries.
We believe innovation has been slow within the P&C insurance industry, in part, because legacy systems are difficult to build upon and nearly impossible to replace.
We believe innovation has been slow within the property and casualty insurance industry, in part, because legacy systems are difficult to build upon and nearly impossible to replace.
We build upon the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution. Through our proprietary and fully-integrated application programming interfaces, or APIs, we are able to engage prospective customers in contextually relevant third-party applications.
We build upon the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution. With varying levels of connectivity, including our proprietary and fully-integrated application programming interfaces, or APIs, we are able to engage high intent prospective customers in contextually relevant third-party applications.
As of December 31, 2022, we had five issued patents with four non-provisional patent applications and four continuation applications pending examination in the United States. We continually review our development efforts to assess the existence and patentability of new intellectual property.
As of December 31, 2023, we had eight issued patents, six non-provisional patent applications and four continuation applications pending examination in the United States. We continually review our development efforts to assess the existence and patentability of new intellectual property.
Employees As of December 31, 2022, we had 765 full-time employees. None of our employees are represented by a labor union or covered by collective bargaining agreements.
Employees As of December 31, 2023, we had 680 full-time employees. None of our employees are represented by a labor union or covered by collective bargaining agreements.
We cannot predict precisely whether or when regulatory actions may be taken that could adversely affect us or the operations of our regulated insurance subsidiaries. Interpretations of regulations by regulators may change and statutes, regulations and interpretations may be applied with retroactive effect, particularly in areas such as accounting or reserve requirements.
We cannot predict precisely whether or when regulatory actions may be taken that could adversely affect us, the operations of our regulated insurance subsidiaries, or our ability to expand our operations into new markets. Interpretations by regulators may change and laws, regulations and interpretations may be applied with retroactive effect, particularly in areas such as accounting or reserve requirements.
For example, Root Insurance Company is Ohio-domiciled and subject to a financial condition examination by the Ohio DOI at least every three to five years, during which the Ohio DOI reviews the Company’s financials, governance, and operations, including its relationships and transactions with affiliates.
Root Insurance Company and Root Property & Casualty are domiciled in Ohio and subject to a financial condition examination by the Ohio DOI at least every three to five years, during which the Ohio DOI reviews the Company’s financials, governance, and operations, including its relationships and transactions with affiliates.
Our primary tool for improvement is to continue applying data science. Over time, we hope that we can replace all correlation-related inputs to our pricing model, such as credit scores, with a fully behavioral pricing model. We would view this as the ultimate achievement in customer transparency and fairness. ◦ Expand embedded experience.
Our primary tool for improvement is to continue applying data science. Over time, we hope that we can replace most correlation-related inputs to our pricing model, such as credit scores, with a fully behavioral pricing model. We would view this as the ultimate achievement in customer transparency and fairness. 4 ◦ Enhance marketing efficiency.
Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in 44 states and the District of Columbia, which excludes California, Florida, Massachusetts, Minnesota and New York. Root Lone Star Insurance Agency, LLC currently holds a resident managing general agency license in Texas.
Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the District of Columbia and 45 states, which does not include California, Florida, Massachusetts and New York. Root Lone Star Insurance Agency, LLC currently holds a resident managing general agency license in Texas.
Also impacting the pace of innovation is institutional friction generated by the cost and perceived risk of a requisite ground-up technology rebuild, disruption of carrier-agent relationships and the business model implications of replacing broad pool-based pricing.
Also impacting the pace of innovation is institutional friction generated by the cost and perceived risk of a requisite ground-up technology rebuild, disruption of carrier-agent relationships and the business model implications of replacing broad pool-based pricing. Our proprietary technology and business model enable us to bypass these challenges.
For additional information, see the sections titled “Risk Factors—Risks Related to Our Business—Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.” 5 People at Root As a tech-enabled insurance company, we view talent as one of our differentiating factors.
For additional information, see the section titled “Risk Factors—Risks Related to Our Business—Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.” People Team As a technology company, we view talent as one of our differentiating factors.
Several of these established national insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital, and more types of insurance coverage to offer, such as health and life, than we currently do.
Several of these established national insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital, and more lines of insurance coverage to offer.
As a result, the values for assets, liabilities, and equity reflected in financial statements prepared in accordance with GAAP may be different from those reflected in financial statements prepared under SAP.
Other assets such as goodwill are accounted for under GAAP financial statements but not SAP. As a result, the values for assets, liabilities, and equity reflected in financial statements prepared in accordance with GAAP may be different from those reflected in financial statements prepared under SAP.
Root Property & Casualty, a Delaware-domiciled insurer, was subject to a similar financial condition examination by the Delaware DOI, which covered the period of January 1, 2016 through December 31, 2020 and was completed on 11 February 2, 2022. The Ohio DOI and Delaware DOI examination reports are available to the public and contained no formal findings.
Root Property & Casualty, which was redomiciled to Ohio in 2023, was initially a Delaware-domiciled insurer, and was subject to a similar financial condition examination by the Delaware DOI, which covered the period of January 11 1, 2016 through December 31, 2020 and was completed on February 2, 2022.
The Root app is available for both iOS and Android operating systems making it available to 99% of U.S. smartphone users. By simply scanning a driver’s license, a prospective customer can nearly complete a profile, part of an on-boarding process that is possible to complete in as little as 47 seconds and with no keyboard interaction. • Embedded.
The Root app is available for both iOS and Android operating systems making it available to 99% of U.S. smartphone users. By simply scanning a driver’s license, a prospective customer can nearly complete a profile, part of an on-boarding process that takes mere minutes and minimal keyboard interaction. • Underwriting .
As the ratio of an insurer’s total adjusted capital and surplus decreases relative to its risk-based capital, the risk-based capital laws provide for increasing levels of regulatory scrutiny and intervention. 10 Both Ohio and Delaware have adopted the model legislation promulgated by the NAIC pertaining to risk-based capital and require annual reporting by insurers domiciled within such states to confirm that the insurer is meeting its risk-based capital requirements.
As the ratio of an insurer’s total adjusted capital and surplus decreases relative to its risk-based capital, the risk-based capital laws provide for increasing levels of regulatory scrutiny and intervention. 10 Ohio has adopted the model legislation promulgated by the NAIC pertaining to risk-based capital and requires annual reporting by insurers to confirm that the insurers are meeting their risk-based capital requirements.
An insurer’s ability to adjust its rates in response to competition or to changing costs depends on an insurer’s ability to demonstrate to the regulator that its rates or proposed rating plan meet the requirements of the rating laws.
Under all three types of rating laws, the regulator has the authority to disapprove a rate filing. An insurer’s ability to adjust its rates in response to competition or to changing costs depends on an insurer’s ability to demonstrate to the regulator that its rates or proposed rating plan meet the requirements of the rating laws.
We have implemented a performance development process to ensure that employees receive timely and actionable feedback and can improve their performance and voice their career aspirations. In addition, we seek to provide competitive pay and benefits through a combination of fixed and variable compensation programs.
Our performance development process aims to ensure that employees receive timely and actionable feedback, enables performance improvement where necessary, and providing employees the opportunity to voice their career aspirations. In addition, we seek to provide competitive pay and benefits through a combination of fixed and variable compensation programs.
We also utilize a wholly-owned, Cayman Islands-based reinsurer, Root Reinsurance Company, Ltd., or Root Re. Behavioral Data and Proprietary Telematics We use technology to measure risk based on transparent collection and analysis of individual driving performance, which we believe is the most powerful predictor of accidents and the leading variable in our underwriting model.
Behavioral Data and Proprietary Telematics Models We use technology to measure risk based on transparent collection and analysis of individual driving performance, which we believe is the most powerful predictor of accidents and the leading variable in our underwriting model.
Our recruiting approach has moved from a Columbus-centric approach to a National landscape in order to attract the best talent to innovate and meet the needs of our customers in a multitude of ways. Our focus on employee engagement continues with employee surveys and feedback opportunities to create action plans to address needs.
We recruit nationally to attract the best talent to innovate and meet the needs of our customers in a multitude of ways. Our focus on employee engagement continues with employee surveys and feedback opportunities to create action plans to address needs.
As part of profile setup, our app pre-populates with a customer’s owned automobiles and existing or prior coverage terms, allowing easy and seamless selection of policy terms. • Policy Management .
For this reason, we view telematics as a better and more fair approach to underwriting. • Coverage Selection. As part of profile setup, our app pre-populates with a customer’s owned automobiles and existing or prior coverage terms, allowing easy and seamless selection of policy terms. • Policy Management.
Our capital management strategy has three core objectives: (1) prioritize revenue and targeted profitable customer growth while also maintaining regulatory capital requirements; (2) source efficient capital to support customer acquisition costs; and (3) mitigate impact of large losses or tail events.
These reinsurance structures deliver three core objectives: (1) prioritize revenue and targeted profitable customer growth while also maintaining regulatory capital requirements; (2) source efficient capital to support customer acquisition costs; and (3) mitigate impact of large losses or tail events. Together these strategies serve to maximize efficient use of capital as we grow.
We believe our employees’ knowledge, skills, and the way they work provide a competitive advantage allowing us to innovate, move with speed and bring subject matter expertise to the market for our customers and shareholders.
We believe our employees’ knowledge, skills, and the way they work provide a distinct competitive advantage allowing us to innovate, move with speed and bring subject matter expertise to the market for our customers and shareholders. Our mission is to fundamentally reinvent insurance through a commitment to technology and data science. We aim to empower better lives through better insurance.
Our mobile engagement extends across the customer experience and value chain: • Engagement. Many of our new customers come through our digital or embedded channels, which are largely mobile. We continue to diversify the ways we reach our customers. We believe meeting customers in the moment of need creates better customer engagement and yields better business results. • Profile Creation.
Our mobile engagement extends across the customer experience and value chain: • Engagement. Many of our new customers come through our two distribution channels: direct and partnerships. We continue to diversify the ways we reach our customers. We believe meeting customers in the moment of need creates better customer engagement and access to a differentiated customer base. • Profile Creation.
Our benefit offering covers medical, dental, vision, prescription drug benefits along with a robust employee assistance program, life insurance, short- and long-term disability, paid time off and paid parental leave.
We believe this strongly supports a long-term view and pay for performance that is aligned with our shareholders. Our benefit offering includes medical, dental, vision, prescription drug benefits along with a robust employee assistance program, life insurance, short- and long-term disability, paid time off and paid parental leave.
We currently have products on file and approved in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin. 12 The speed with which an insurer can change rates in response to competition or increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use or (iii) use-and-file laws.
In certain cases, such rating plans, policy forms, or both must be approved prior to use. 12 We currently have products on file and approved in the following states: Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin.
We are also subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, and the California Privacy Rights Act, or CPRA, which took effect on January 1, 2023.
Certain collection and processing of personal information makes us subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, and the California Privacy Rights Act, or CPRA, which took effect on January 1, 2023.
We continue to invest in a product to bring the speed and ease of our technology to the independent agency channel. This channel provides access to a larger demographic of customers and we believe it has staying power.
We continue to invest in a product to bring the speed and ease of our technology to the independent agency channel. This channel provides access to a larger demographic of customers and we believe it has staying power. We developed an efficient quote and bind process through our agent platform that enables simplified distribution from agents to their customers.
Employees are encouraged to report any unusual behavior or any non-compliant activities through a variety of vehicles to include our anonymous reporting system. On an annual basis, we provide compliance training to, and require acknowledgement of our Code of Conduct and other key policies by, every employee. We strive to ensure our new employees know how and what to report.
On an annual basis, we provide compliance training to, and require acknowledgement of our Code of Conduct and other key policies by, every employee. We strive to ensure our new employees know how and what to report.
We encourage our existing customers to spread our value proposition. Our referral channel compensates existing customers who refer new customers who subsequently receive a quote. This channel facilitates community-based growth to those who value our fair and transparent approach to insurance. This is our lowest cost acquisition channel and an important aspect of our ongoing distribution strategy. • Agency .
We encourage our existing customers to spread our value proposition. Our referral channel compensates existing customers who refer new customers who subsequently complete a test drive. This channel facilitates community-based growth to those who value our fair and transparent approach to insurance.
In states having prior approval laws, the regulator must approve a rate before the insurer may use it. In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used.
In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used. A use-and-file law requires an insurer to file rates within a certain period of time after the insurer begins using them.
Distribution We distribute largely through the mobile, web and embedded channels. Mobile is the fastest growing retail channel in the United States, as customers spend less time in front of computers and utilize smart phones for more convenient shopping.
Mobile is the fastest growing retail channel in the United States, as customers spend less time in front of computers and utilize smart phones for more convenient shopping. To further differentiate access to our products we are continuing to develop our partnership channel.
We believe the $273 billion U.S. auto insurance market is ripe for disruption. Traditional methods of pooled risk assessment are not personalized and inherently less precise given individual behavioral data is underutilized or not measured as a component of the insurance risk assessment process.
Traditional methods of pooled risk assessment are not personalized and inherently less precise given individual behavioral data is underutilized or not measured as a component of the insurance risk assessment process. We believe traditional systems and processes have become outdated and are increasingly disconnected from the needs of consumers.
Once bound, customers can perform all policy management functions seamlessly from our app, including profile or coverage adjustments, obtaining proof of insurance or chatting with a bot or human. • Claims.
Once bound, customers can perform all policy management functions seamlessly from our app, including profile or coverage adjustments, obtaining proof of insurance or chatting with a bot or human. • Claims. We make it easy to file a claim and track processing status through to settlement via the app, allowing us to pay out claims rapidly.
We believe traditional systems and processes have become outdated and are increasingly disconnected from the needs of consumers. Our initial focus on auto insurance was motivated by how well-suited we believe the product to be for fundamental improvement through technology. We believe Root is the innovator to drive this transformation.
Our initial focus on auto insurance was motivated by how well-suited we believe the product to be for fundamental improvement through technology. We believe Root is the innovator to drive this transformation. Auto insurance is required for the vast majority of drivers in the U.S. and we believe it is typically the first insurance policy purchased by consumers.
A number of states have adopted versions of the Insurance Data Security Model Law, each with a different effective date.
A number of states have adopted versions of the Insurance Data Security Model Law, each with a different effective date. Additional state laws impose notification requirements in the event of cybersecurity breaches affecting their residents.
In instances where a prospective customer solicits a quote in a state where we do not currently underwrite, we retain their contact information, with permission, and re-engage upon state entry.
We will continue to focus on domestic growth by diversifying distribution channels, becoming active in more states while improving brand awareness. In instances where a prospective customer solicits a quote in a state where we do not currently underwrite, we retain their contact information, with permission, and re-engage upon state entry.
We have set salary ranges, based on our defined competitive markets, and annual short and long term incentives aligned to each of our positions as we believe are appropriate.
We have set salary ranges, based on our defined competitive markets, and our annual short-term incentive and discretionary long-term incentive programs are aligned to each of our positions as we believe are appropriate. Our executives and senior leadership roles, along with several identified roles throughout the business participate in a long-term equity-based incentive program.
We make it easy to file a claim and track processing status through to settlement via the app, allowing us to pay out claims rapidly. 2 Auto insurance is a product most people use every day, reinforcing the importance of our mobile-first engagement strategy for both customer experience and data collection.
Auto insurance is a product most people use every day, reinforcing the importance of our mobile-first engagement strategy for both customer experience and data collection. 2 Distribution We opportunistically distribute largely through the mobile, web and partnership channels.
A two-to-four week test drive gathers and analyzes data from smartphone sensors measuring braking, consistency, turning, time of day and other performance and contextual data. We are continuing to develop underwriting models and products that vary the level of reliance on telematics and the point at which telematics are used in underwriting. • Coverage Selection.
The test drive is a key component of the underwriting process. A two-to-four week test drive gathers and analyzes data from smartphone sensors measuring braking, consistency, turning, time of day and other performance and contextual data.
In developing SAP, insurance regulators were primarily concerned with evaluating an insurer’s ability to pay all its current and future obligations to customers. As a result, statutory accounting focuses on conservatively valuing the assets and liabilities of insurers, generally in accordance with standards specified by the insurer’s domiciliary jurisdiction.
SAP was developed by U.S. insurance regulators as a method of accounting used to monitor and regulate the solvency of insurance companies. In developing SAP, insurance regulators were primarily concerned with evaluating an insurer’s ability to pay all its current and future obligations to customers.
Auto insurance is required for the vast majority of drivers in the United States and we believe it is typically the first insurance policy purchased by consumers. As a result, our auto-first strategy establishes the foundation for an expansive lifetime relationship with the opportunity to add other personal insurance lines as customer needs evolve.
As a result, our auto-first strategy establishes the foundation for an expansive lifetime relationship with the opportunity to add other personal insurance lines as customer needs evolve. The Root advantage is derived from our technology-enabled approach to the customer lifecycle.
Market conduct examinations examine an insurer’s conduct toward policyholders, including complaint handling, marketing, claims, policyholder notice, rate and form filing, and customer service. These examinations can result in fines and other monetary penalties, as well as other regulatory orders requiring remedial, injunctive, or other corrective action.
These examinations can result in fines and other monetary penalties, as well as other regulatory orders requiring remedial, injunctive, or other corrective action.
Root takes steps to comply with financial industry cybersecurity regulations and believes it complies in all material respects with their requirements but the patchwork nature of the laws in this area currently can make it more costly and difficult to ensure compliance.
Root takes steps to comply with applicable cybersecurity regulations, but the patchwork nature of the laws in this area currently can make it more costly and difficult to ensure compliance. Federal Regulation The regulation of insurance companies is principally a matter of state law, and the federal government does not directly regulate the transaction of insurance.
This is the mantra that drives our mobile engagement strategy and underpins both our user experience and our fundamental business model. App installation and initial engagement are designed to be intuitive so that customers can easily identify the coverage they need in everyday language, including offering bundling options which clearly lay out associated cost savings.
Our Business Model Customer Experience We strive to meet customers where they are with a user-friendly interface and convenient, efficient experience. This is the mantra that drives our user experience and our business model. App installation and initial engagement are designed to be intuitive so that customers can easily identify the coverage they need.
As a full-stack insurance carrier, we have the infrastructure to design products and distribute, underwrite, administer and pay claims on all of our policies.
We engage with customers at a point of high intent across various channels, offer a product with significant ease of use and utilize data science to fairly price our policies. As a full-stack insurance carrier, we have the infrastructure and flexibility to design products and distribute, underwrite, administer and pay claims.
Uniform statutory accounting practices are established by the NAIC and generally adopted by regulators in the various U.S. jurisdictions. These accounting principles and related regulations differ somewhat from generally accepted accounting principles in the United States, or GAAP, which are designed to measure a business on a going-concern basis.
These accounting principles and related regulations differ somewhat from generally accepted accounting principles in the United States, or GAAP, which are designed to measure a business on a going-concern basis. GAAP gives consideration to matching of revenue and expenses and, as a result, certain expenses are capitalized when incurred and then amortized over the life of the associated policies.
Renewal premiums, referring to premiums from a customer’s second term and beyond, have lower loss ratios as compared to new premiums in the customer’s first term. We anticipate, consistent with industry norms, that our portfolio will mature and a greater proportion of our premiums will be from customer renewals.
This, paired with our ability to continually enhance underwriting and segmentation capabilities has contributed to improvement in our gross loss ratios. Over time we anticipate, consistent with industry norms, that our portfolio will mature and a greater proportion of our premiums will be from customer renewals.
Since Root Insurance Company is our regulated insurance subsidiary with the largest premium volume, Ohio is considered our primary state insurance regulator. We have a reinsurance captive subsidiary, Root Re, domiciled in the Cayman Islands.
Root Property & Casualty is also domiciled in Ohio and licensed in all 50 states and the District of Columbia to transact certain lines of property and casualty insurance. Ohio is our primary state insurance regulator. We also have a reinsurance captive subsidiary, Root Re, domiciled in the Cayman Islands.

… 68 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

169 edited+45 added−12 removed370 unchanged
Biggest changeThere can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend, or at all. As industry practices and legal, judicial, social, and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.
Biggest changeUnexpected changes in the interpretation of our coverage or provisions, including loss limitations and exclusions, in our policies could have a material adverse effect on our financial condition and results of operations. There can be no assurances that specifically negotiated loss limitations or exclusions in our policies will be enforceable in the manner we intend, or at all.
The CCPA gives California residents expanded rights to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used.
The CCPA gives California residents expanded rights to access and require deletion of certain of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used.
Regardless of whether we can successfully enforce our rights against the operators of these websites or mobile apps, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition.
Regardless of whether we can successfully enforce our rights against the operators of these websites or mobile apps, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations or financial condition.
Reinsurers may become financially unsound by the time that they are called upon to pay amounts due, which may not occur for many years, in which case we may have no legal ability to recover what is due to us under our agreement with such reinsurer.
Reinsurers may become financially unsound by the time that they are called upon to pay amounts due, which may not occur for many years, in which case we may have no legal ability to recover what is due to us under our agreement with such reinsurer.
The process of acquiring a business, product or technology can also cause us to incur various expenses and create unforeseen operating difficulties, expenditures and other challenges, whether or not those acquisitions are consummated, such as: • intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms; • inadequacy of reserves for losses and LAE; • failure or material delay in closing a transaction, including as a result of regulatory review and approvals; • regulatory conditions attached to the approval of the acquisition and other regulatory hurdles; • a need for additional capital that was not anticipated at the time of the acquisition; • anticipated benefits not materializing or being lower than anticipated; • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • transition of the acquired company’s customers; • difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; • retention of employees or business partners of an acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s accounting, management information, human resources and other administrative systems; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • coordination of product development and sales and marketing functions; • theft of our trade secrets or confidential information that we share with potential acquisition candidates; • risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business; • adverse market reaction to an acquisition; • liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
The process of acquiring a business, product or technology can also cause us to incur various expenses and create unforeseen operating difficulties, expenditures and other challenges, whether or not those acquisitions are consummated, such as: • intense competition for suitable acquisition targets, which could increase prices and adversely affect our ability to consummate deals on favorable or acceptable terms; • inadequacy of reserves for losses and LAE; • failure or material delay in closing a transaction, including as a result of regulatory review and approvals; • regulatory conditions attached to the approval of the acquisition and other regulatory hurdles; • a need for additional capital that was not anticipated at the time of the acquisition; • anticipated benefits not materializing or being lower than anticipated; • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • transition of the acquired company’s customers; • difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; 51 • retention of employees or business partners of an acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s accounting, management information, human resources and other administrative systems; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • coordination of product development and sales and marketing functions; • theft of our trade secrets or confidential information that we share with potential acquisition candidates; • risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business; • adverse market reaction to an acquisition; • liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
Our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for the following claims or causes of action under Delaware statutory or common law: • any derivative claim or cause of action brought on our behalf; • any claim or cause of action for breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; • any claim or cause of action against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; • any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; • any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and • any claim or cause of action against us or any of our current or former directors, officers or other employees that is governed by the internal-affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties named as defendants.
Our amended and restated certificate of incorporation provide that the Court of Chancery of the State of Delaware (or, if and only if the Court of Chancery of the State of Delaware lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware) is the exclusive forum for the following claims or causes of action under Delaware statutory or common law: • any derivative claim or cause of action brought on our behalf; • any claim or cause of action for breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders; • any claim or cause of action against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws; 49 • any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws; • any action or proceeding as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; and • any claim or cause of action against us or any of our current or former directors, officers or other employees that is governed by the internal-affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties named as defendants.
A security breach or other cybersecurity incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage our reputation and brand; reduce demand for our insurance products; disrupt normal business operations; require us to expend significant capital and resources to investigate and remedy the incident and prevent recurrence; and subject us to litigation, regulatory enforcement action, fines, penalties, and other liability, which could have a material adverse effect on our business, financial condition and results of operations.
A security breach or other cybersecurity incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage our reputation and brand; reduce demand for our insurance products; disrupt normal business operations; require us to expend significant capital and resources to investigate and remedy the incident and prevent recurrence; and subject us to litigation, regulatory enforcement action, fines, penalties, and other liability, which could have a material adverse effect on our business, financial 26 condition and results of operations.
Our ability to accurately price our policies is subject to a number of risks and uncertainties, including: • insufficient or unreliable data; • incorrect or incomplete analysis of available data; • uncertainties generally inherent in estimates and assumptions; • our failure to implement appropriate actuarial projections and rating formulas or other pricing methodologies; • incorrect or incomplete analysis of the competitive environment; • regulatory constraints on rate increases; and • our failure to accurately estimate investment yields and the duration of our liability for loss and LAE, as well as unanticipated court decisions, legislation or regulatory action.
Our ability to accurately price our policies is subject to a number of risks and uncertainties, including: • insufficient or unreliable data; 34 • incorrect or incomplete analysis of available data; • uncertainties generally inherent in estimates and assumptions; • our failure to implement appropriate actuarial projections and rating formulas or other pricing methodologies; • incorrect or incomplete analysis of the competitive environment; • regulatory constraints on rate increases; and • our failure to accurately estimate investment yields and the duration of our liability for loss and LAE, as well as unanticipated court decisions, legislation or regulatory action.
If we fail to comply with applicable rules or requirements for the payment methods we accept, including the Payment Card Industry Data Security Standard, a self-regulatory standard that requires companies that process payment card data to implement certain data security measures, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments 41 may be impaired.
If we fail to comply with applicable rules or requirements for the payment methods we accept, including the Payment Card Industry Data Security Standard, a self-regulatory standard that requires companies that process payment card data to implement certain data security measures, or if payment-related data are compromised due to a breach of data, we may be liable for significant costs incurred by payment card issuing banks and other third parties or subject to fines and higher transaction fees, or our ability to accept or facilitate certain types of payments may be impaired.
Any failure or perceived failure by us or third parties we work with to comply with these policies, disclosures, and obligations to customers or other third parties, or privacy or data security laws may result in governmental or regulatory investigations, enforcement actions, regulatory fines, criminal compliance orders, litigation or public statements against us by consumer advocacy groups or others, and could cause customers to lose trust in us, all of which could be costly and have an adverse effect on our business.
Any failure or perceived failure by us or third parties we work with to comply with privacy policies, disclosures, and obligations to customers or other third parties, or privacy or data security laws may result in governmental or regulatory investigations, enforcement actions, regulatory fines, criminal compliance orders, litigation or public statements against us by consumer advocacy groups or others, and could cause customers to lose trust in us, all of which could be costly and have an adverse effect on our business.
The Alliance of Automobile Manufacturers and Global Automakers established their Consumer Privacy Protection Principles to provide member automobile manufacturers with a framework with which to consider 19 privacy and build privacy into their products and services while the National Automobile Dealers Association has partnered with the Future of Privacy Forum to produce consumer education guidelines that explain the kinds of information that may be collected by consumers’ cars, the guidelines that governs how it is collected and used, and the options consumers may have to protect their vehicle data.
The Alliance of Automobile Manufacturers and Global Automakers established their Consumer Privacy Protection Principles to provide member automobile manufacturers with a framework with which to consider privacy and build privacy into their products and services while the National Automobile Dealers Association has partnered with the Future of Privacy Forum to produce consumer education guidelines that explain the kinds of information that may be collected by consumers’ cars, the guidelines that governs how it is collected and used, and the options consumers may have to protect their vehicle data.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for: • any breach of the director’s duty of loyalty to the corporation or its stockholders; • any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; • unlawful payments of dividends or unlawful stock repurchases or redemptions; or 47 • any transaction from which the director derived an improper personal benefit.
Delaware law provides that directors of a corporation will not be personally liable for monetary damages for any breach of fiduciary duties as directors, except liability for: • any breach of the director’s duty of loyalty to the corporation or its stockholders; • any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; • unlawful payments of dividends or unlawful stock repurchases or redemptions; or • any transaction from which the director derived an improper personal benefit.
If we are unable to conclude that our internal control over financial reporting is effective in the future, or if our independent registered public accounting firm determines that we have additional material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
If we are unable to conclude that our internal control over financial reporting is effective in the future, or if our independent registered public accounting firm determines that we have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
In order to accurately price our policies, we must: • collect and properly analyze a substantial volume of data from our customers; 34 • develop, test and apply appropriate actuarial projections and rating formulas; • review and evaluate competitive product offerings and pricing dynamics; • closely monitor and timely recognize changes in trends; and • project both frequency and severity of our customers’ losses with reasonable accuracy.
In order to accurately price our policies, we must: • collect and properly analyze a substantial volume of data from our customers; • develop, test and apply appropriate actuarial projections and rating formulas; • review and evaluate competitive product offerings and pricing dynamics; • closely monitor and timely recognize changes in trends; and • project both frequency and severity of our customers’ losses with reasonable accuracy.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation provides that the 48 federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation provides that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
Would-be acquirers may find these requirements burdensome, which could deter potential acquisition proposals and may serve to delay or prevent change of control transactions, including transactions that some or all of the stockholders might consider to be desirable. These requirements may also inhibit our ability to acquire an insurance company should we wish to do so in the future.
Would-be acquirers may 45 find these requirements burdensome, which could deter potential acquisition proposals and may serve to delay or prevent change of control transactions, including transactions that some or all of the stockholders might consider to be desirable. These requirements may also inhibit our ability to acquire an insurance company should we wish to do so in the future.
For example, California’s Bolstering Online Transparency Act, effective as of July 2019, makes it unlawful for any person to use a bot to communicate with a person in California online with the intent to 28 mislead the other person about the bot’s artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase of goods or services in a commercial transaction.
For example, California’s Bolstering Online Transparency Act, effective as of July 2019, makes it unlawful for any person to use a bot to communicate with a person in California online with the intent to mislead the other person about the bot’s artificial identity for the purpose of knowingly deceiving the person about the content of the communication in order to incentivize a purchase of goods or services in a commercial transaction.
In addition, efforts to comply with new or existing cybersecurity regulations could 25 impose significant costs on our business, which could materially and adversely affect our business, financial condition or results of operations. Additionally, we are subject to the terms of our privacy policies, privacy-related disclosures, and contractual and other privacy-related obligations to our customers and other third parties.
In addition, efforts to comply with new or existing cybersecurity regulations could impose significant costs on our business, which could materially and adversely affect our business, financial condition or results of operations. Additionally, we are subject to the terms of our privacy policies, privacy-related disclosures, and contractual and other privacy-related obligations to our customers and other third parties.
For example, if our loss ratio compares favorably to that of the industry, state or provincial regulatory authorities may impose rate rollbacks, require us to pay premium refunds to policyholders, or challenge or otherwise delay our efforts to raise rates even if the property and casualty industry generally is not experiencing regulatory challenges to rate increases.
For example, as our loss ratio compares favorably to that of the industry, state or provincial regulatory authorities may impose rate rollbacks, require us to pay premium refunds to policyholders, or challenge or otherwise delay our efforts to raise rates even if the property and casualty industry generally is not experiencing regulatory challenges to rate increases.
Root is a party to a five-year term loan agreement by and among Root, Caret Holdings, Inc., or Caret, as borrower, and other subsidiary loan parties, the lenders party thereto, or the Lenders, and Acquiom Agency Services LLC, as the administrative agent for the Lenders, or the Credit Agreement, pursuant to which, Caret has borrowed a principal amount of $300 million, all of which is currently outstanding.
Root is a party to a five-year term loan agreement by and among Root, Caret Holdings, Inc., or Caret, as borrower, and other subsidiary loan parties, the lenders party thereto, or the Lenders, and Acquiom Agency Services LLC, as the administrative agent for the Lenders, or the Term Loan, pursuant to which, Caret has borrowed a principal amount of $300 million, all of which is currently outstanding.
These errors could cause us to select an uneconomic mix of customers, encounter customer dissatisfaction, which could lead customers to cancel or fail to renew their insurance policies with us or make it less likely that prospective customers obtain new insurance policies, underprice policies or overpay claims, or incorrectly deny policyholder claims and become subject to liability.
These errors could cause us to select an uneconomic mix of customers, encounter customer dissatisfaction, which could lead customers to cancel or fail to renew their insurance policies with us or make it less likely that prospective customers obtain new insurance policies, underprice policies or overpay claims, or incorrectly 22 deny policyholder claims and become subject to liability.
This concentration of ownership 44 limits the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This control may adversely affect the market price of our Class A common stock.
This concentration of ownership limits the ability of other stockholders to influence corporate matters and may cause us to make strategic decisions that could involve risks to you or that may not be aligned with your interests. This control may adversely affect the market price of our Class A common stock.
Stockholder activism, the current political environment and the current high level of U.S. government intervention 45 and regulatory reform may also lead to substantial new regulations and disclosure obligations, which may in turn lead to additional compliance costs and impact the manner in which we operate our business in ways we do not currently anticipate.
Stockholder activism, the current political environment and the current high level of U.S. government intervention and regulatory reform may also lead to substantial new regulations and disclosure obligations, which may in turn lead to additional compliance costs and impact the manner in which we operate our business in ways we do not currently anticipate.
The marketing of our insurance products depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with digital app stores, in particular, those operated by Google and Apple. As we grow, we may struggle to maintain cost-effective marketing strategies, and our customer acquisition costs could rise 21 substantially.
The marketing of our insurance products depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with digital app stores, in particular, those operated by Google and Apple. As we grow, we may struggle to maintain cost-effective marketing strategies, and our customer acquisition costs could rise substantially.
This rating, however, may not be a reliable indicator of our customer satisfaction relative to other companies who are rated on the Apple App Store since, to date, we have received a fraction of the number of reviews of some of the companies we benchmark against, and thus our number of positive reviews may not be as meaningful.
This rating, however, may not be a reliable indicator of our customer satisfaction relative to other companies who are rated on the Apple App Store since, to date, we have received a fraction of the number of 21 reviews of some of the companies we benchmark against, and thus our number of positive reviews may not be as meaningful.
We believe that the speed at which our technology-based claims processing platform allows us to process and pay claims is a differentiating factor for our business relative to our competitors, and an increase in the average time to process claims could lead to customer dissatisfaction and undermine our reputation and position in the insurance marketplace.
We believe that the speed at which our technology-based claims processing platform allows us to process and pay claims is a differentiating factor for our business relative to our competitors, and an increase in the average time to process claims could lead to customer dissatisfaction and undermine our reputation and position in the insurance 28 marketplace.
It identifies insurers that may be inadequately capitalized by looking at certain risk factors, including asset risk, credit risk and underwriting risk with respect to the insurer’s business in order to determine an insurer’s authorized control level 29 risk-based capital. An insurer’s risk-based capital ratio measures the relationship between its total adjusted capital and its authorized control level risk-based capital.
It identifies insurers that may be inadequately capitalized by looking at certain risk factors, including asset risk, credit risk and underwriting risk with respect to the insurer’s business in order to determine an insurer’s authorized control level risk-based capital. An insurer’s risk-based capital ratio measures the relationship between its total adjusted capital and its authorized control level risk-based capital.
If we invest substantial time and resources to expand our operations while our revenues from those additional operations do not exceed the expense of establishing 22 and maintaining them, or if we are unable to manage these risks effectively, our business, results of operations and financial condition could be adversely affected.
If we invest substantial time and resources to expand our operations while our revenues from those additional operations do not exceed the expense of establishing and maintaining them, or if we are unable to manage these risks effectively, our business, results of operations and financial condition could be adversely affected.
There is no assurance that such acquisitions or investments will perform as expected or will be 49 successfully integrated into our business or generate substantial revenue, and we may overestimate cash flow, underestimate costs or fail to understand the risks of or related to any investment or acquired business.
There is no assurance that such acquisitions or investments will perform as expected or will be successfully integrated into our business or generate substantial revenue, and we may overestimate cash flow, underestimate costs or fail to understand the risks of or related to any investment or acquired business.
If we fail to remain competitive on customer experience, pricing, and insurance coverage options, our ability to grow our business may also be adversely affected. 17 There are many other factors that could negatively affect our ability to maintain or grow our customer base, including if: • we fail to offer new and competitive products, or fail to obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as underwriting and rating requirements); • we fail to realize profits, retain customers, contract with additional partners to utilize products, or achieve other benefits from our embedded insurance offering; • we fail to effectively use search engines, social media platforms, digital app stores, content-based online advertising, and other online sources for generating traffic to our website and our mobile app; • our digital platform experiences disruptions; technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; we fail to provide effective updates to our existing products or to keep pace with technological improvements in our industry; or customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • we suffer reputational harm to our brand including from negative publicity, whether accurate or inaccurate; • customers are unable or unwilling to adopt or embrace new technology or the perception emerges that purchasing insurance products online is not as effective as purchasing those products through traditional offline methods; or • we are unable to address customer concerns regarding the content, privacy, and security of our digital platform.
If we fail to remain competitive on customer experience, pricing, and insurance coverage options, our ability to grow our business may also be adversely affected. 17 There are many other factors that could negatively affect our ability to maintain or grow our customer base, including if: • we fail to offer new and competitive products, or fail to maintain or obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as underwriting and rating requirements); • we fail to realize profits, retain customers, contract with additional partners to utilize products, or achieve other benefits related to our partnerships, including our embedded insurance offering; • we fail to effectively use search engines, social media platforms, digital app stores, content-based online advertising, and other online sources for generating traffic to our website and our mobile app; • our digital platform experiences disruptions; technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; we fail to provide effective updates to our existing products or to keep pace with technological improvements in our industry; or customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • we suffer reputational harm to our brand including from negative publicity, whether accurate or inaccurate; • customers are unable or unwilling to adopt or embrace new technology or the perception emerges that purchasing insurance products online is not as effective as purchasing those products through traditional offline methods; or • we experience cybersecurity events or are unable to address customer concerns regarding the content, privacy, and security of our digital platform.
We have experienced the effects of the current competitive labor market and our workforce reductions and have responded by increasing wages and/or benefits in certain circumstances and provided cash and equity to retain certain employees in order to attract and retain employees, all of which may continue to negatively impact our results of operations.
We have experienced the effects of the current competitive labor market and our workforce reductions and have responded by increasing wages and/or benefits in certain circumstances and provided cash and equity to certain employees in order to attract and retain them, all of which may continue to negatively impact our results of operations.
We cannot assure you that our cash and equity incentives and other compensation and benefits will provide adequate incentives to attract, retain and motivate employees in the future, particularly if the market price of our Class A common stock does not increase or declines further.
We cannot assure you that our cash and equity incentives and other compensation and benefits will provide adequate incentives to attract, retain and motivate employees in the future, particularly if the market price of our Class A common stock does not increase or 27 declines further.
These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock. Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock. 48 Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Cybersecurity incidents have in the past resulted in 26 unauthorized access to certain personal information that we handle, and may in the future result in unauthorized, unlawful or inappropriate use, destruction or disclosure of, access to, or inability to access the sensitive, proprietary and confidential information that we handle. These incidents may remain undetected for extended periods of time.
Cybersecurity incidents have in the past resulted in unauthorized access to certain personal information that we handle, and may in the future result in unauthorized, unlawful or inappropriate use, destruction or disclosure of, access to, or inability to access the sensitive, proprietary and confidential information that we handle. These incidents may remain undetected for extended periods of time.
The loss of trade secret protection could make it easier for third parties to compete with our products and services by copying functionality. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret and intellectual property rights.
The loss of trade secret protection could make it easier for third parties to compete with our products and services by copying functionality. In addition, any changes in, or unexpected interpretations of, intellectual 31 property laws may compromise our ability to enforce our trade secret and intellectual property rights.
Other changes include the requirement that a controlling person submit prior notice to its supervisory insurance regulator of a divestiture of control, having detailed minimum requirements for 40 cost sharing and management agreements between an insurer and its affiliates and expansion of the agreements between an insurer and its affiliates to be filed with its supervisory insurance regulator.
Other changes include the requirement that a controlling person submit prior notice to its supervisory insurance regulator of a divestiture of control, having detailed minimum requirements for cost sharing and management agreements between an insurer and its affiliates and expansion of the agreements between an insurer and its affiliates to be filed with its supervisory insurance regulator.
The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.
The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value 43 (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.
We use telematics, mobile technology and our digital platform to collect data points that we evaluate in pricing and underwriting certain of our insurance policies, managing claims and customer support, and improving business processes. Our business model is dependent on our ability to collect driving behavior data and utilize telematics.
We use telematics, mobile technology and our digital platform to collect data points that we evaluate in pricing and underwriting certain of our insurance policies, managing claims and customer support, and improving business processes. Our business model is dependent on our ability to collect or use driving behavior data and utilize telematics.
We entered into a commercial agreement with Carvana on October 1, 2021, in which the parties agreed to develop an integrated automobile insurance solution for Carvana’s online car buying platform, and we will pay commissions to Carvana for insurance policies purchased by Carvana customers.
We entered into a commercial agreement with Carvana on October 1, 2021, in which the parties agreed to develop an integrated automobile insurance solution for Carvana’s online car buying platform, and we pay commissions to Carvana for insurance policies purchased by Carvana customers.
The regulations implementing these laws require insurance 24 companies to disclose their privacy practices to consumers, allow them to opt-in or opt-out, depending on the state, of the sharing of certain personal information with unaffiliated third parties, and maintain certain security controls to protect their information.
The regulations implementing these laws require insurance companies to disclose their privacy practices to consumers, allow them to opt-in or opt-out, depending on the state, of the sharing of certain personal information with unaffiliated third parties, and maintain certain security controls to protect their information.
While we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with our third-party providers and strategic partners, we cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our products and proprietary information.
While we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with our third-party providers and strategic partners, we cannot assure you that these agreements will be effective in controlling access to, and use and distribution of, our products and proprietary 32 information.
Our regulated insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, obtain reinsurance to help manage exposure to property and casualty insurance risks. Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured.
Our regulated insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, obtain reinsurance to help manage exposure to property and casualty insurance risks. 37 Although our reinsurance counterparties are liable to us according to the terms of the reinsurance policies, we remain primarily liable to our policyholders as the direct insurers on all risks reinsured.
In addition, any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. Our 38 inability to collect a material recovery from a reinsurer could have a material effect on our results of operations and financial condition.
In addition, any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly, and uncertain of success. Our inability to collect a material recovery from a reinsurer could have a material effect on our results of operations and financial condition.
Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific 39 constituency rather than a range of constituencies. State insurance laws and regulations are generally intended to protect the interests of purchasers or users of insurance products, rather than the holders of securities that we issue.
Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. State insurance laws and regulations are generally intended to protect the interests of purchasers or users of insurance products, rather than the holders of securities that we issue.
If we become aware of such websites or mobile apps, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites or mobile apps in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations.
If we become aware of such websites or mobile apps, we intend to employ technological or legal measures in an 25 attempt to halt their operations. However, we may be unable to detect all such websites or mobile apps in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations.
If we were to be involved in litigation and it was determined adversely, it could require us to pay significant damages or to change aspects of our operations, either of which could have a material adverse effect on our financial results.
If we were to be involved in litigation and it was determined adversely, it could require us to pay significant damages or to change aspects of our operations, either of which could have a material adverse effect on 35 our financial results.
Future acquisitions or investments could also result in dilutive 50 issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill in our consolidated balance sheet, any of which could seriously harm our business.
Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses, increased interest expenses or impairment charges against goodwill in our consolidated balance sheet, any of which could seriously harm our business.
In addition to other risk factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, factors that may contribute to the variability of our quarterly and annual results include: • our ability to attract new customers and retain existing customers, including in a cost-effective manner; • our ability to accurately forecast revenue and losses and appropriately plan our expenses; • the effects of changes in search engine placement and prominence; • the effects of increased competition on our business; • our ability to successfully maintain our position in and expand in existing markets as well as successfully enter new markets; • our ability to protect our existing intellectual property and to create new intellectual property; • our ability to maintain an adequate rate of growth and effectively manage that growth; • our ability to keep pace with technology changes in the insurance, mobile and automobile industries; • the success of our sales and marketing efforts; • the success of our embedded insurance platform; • costs associated with defending claims, including accident and coverage claims, intellectual property infringement claims, misclassifications and related judgments or settlements; • the impact of, and changes in, governmental or other regulation affecting our business; • the attraction and retention of qualified employees and key personnel; • our ability to choose and effectively manage third-party service providers; • our ability to identify and engage in joint ventures and strategic partnerships; • the impact of litigation or other losses; • the effect of increasing interest rates on our available cash; • the effects of natural or man-made catastrophic events; • the effectiveness of our internal controls; and 51 • changes in our tax rates or exposure to additional tax liabilities.
In addition to other risk factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, factors that may contribute to the variability of our quarterly and annual results include: • our ability to attract new customers and retain existing customers, including in a cost-effective manner; • our ability to accurately forecast revenue and losses and appropriately plan our expenses; • the effects of changes in search engine placement and prominence; 52 • the effects of increased competition on our business; • our ability to successfully maintain our position in and expand in existing markets as well as successfully enter new markets; • our ability to protect our existing intellectual property and to create new intellectual property; • our ability to maintain an adequate rate of growth and effectively manage that growth; • our ability to keep pace with technology changes in the insurance, mobile and automobile industries; • the success of our sales and marketing efforts; • the success of our partnership channel, including our embedded insurance platform; • costs associated with defending claims, including accident and coverage claims, intellectual property infringement claims, misclassifications and related judgments or settlements; • the impact of, and changes in, governmental or other regulation affecting our business; • the attraction and retention of qualified employees and key personnel; • our ability to choose and effectively manage third-party service providers; • our ability to identify and engage in joint ventures and strategic partnerships; • the impact of litigation or other losses; • the effect of increasing interest rates on our available cash; • the effects of natural or man-made catastrophic events; • the effectiveness of our internal controls; and • changes in our tax rates or exposure to additional tax liabilities.
We regularly monitor reserves using new information on reported claims and a variety of statistical techniques to update our current estimate. Our estimates could prove to be inadequate, and this underestimation could have a material adverse effect on our financial condition.
We regularly monitor reserves using new information on reported claims and a variety of statistical techniques to update our current estimate. Our estimates 42 could prove to be inadequate, and this underestimation could have a material adverse effect on our financial condition.
Being a public company and the associated rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain adequate coverage.
Being a public company and the associated rules and regulations make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain adequate coverage.
Our ability to attract and retain customers depends, in part, on our ability to successfully expand geographically, grow our business in the markets we currently serve, expand into new lines of business and offer additional products beyond automobile, renters and homeowners insurance.
Further, our ability to attract and retain customers depends, in part, on our ability to successfully expand geographically, grow our business in the markets we currently serve, expand into new lines of business and offer additional products beyond automobile, renters and homeowners insurance.
The impact of the pandemic may also exacerbate the other risks described in these Risk Factors, and additional impacts may arise that we are not currently aware of, any of which could have a material effect on us.
The 53 impact of the pandemic may also exacerbate the other risks described in these Risk Factors, and additional impacts may arise that we are not currently aware of, any of which could have a material effect on us.
As we expand our product offerings and 27 enter new markets, we will need to establish our reputation with new customers, and to the extent we are not successful in creating positive impressions, our business in these newer markets could be adversely affected.
As we expand our product offerings and enter new markets, we will need to establish our reputation with new customers, and to the extent we are not successful in creating positive impressions, our business in these newer markets could be adversely affected.
In the event of a mandatory control level event (triggered when an insurer’s total adjusted capital falls below 70% of its authorized control level risk-based capital), an insurer’s primary regulator is required to take steps to place the insurer into receivership.
In the event of a mandatory control level event (triggered when an 29 insurer’s total adjusted capital falls below 70% of its authorized control level risk-based capital), an insurer’s primary regulator is required to take steps to place the insurer into receivership.
A failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies. We currently hold various domain names relating to our brand, including root.com, rootinsurance.com and root-enterprise.com.
A failure to timely seek patent protection on products or technologies generally precludes us from seeking future patent protection on these products or technologies. We currently hold various domain names relating to our brand, including root.com, joinroot.com, rootinsurance.com and root-enterprise.com.
A protracted low interest rate environment would continue to place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results.
A protracted low interest rate environment would place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results.
These laws and regulations are complex and subject to change. Changes may sometimes lead to additional expenses, increased legal exposure, increased required reserves or capital and surplus, and additional limits on our ability to grow or to achieve targeted profitability.
These laws and regulations are complex and subject to change. Changes may sometimes lead to additional expenses, increased legal 38 exposure, increased required reserves or capital and surplus, and additional limits on our ability to grow or to achieve targeted profitability.
Data security breaches, or real or perceived errors, failures or bugs in our systems, website or app could impair our operations, compromise our confidential information or our customers’ personal information, damage our reputation and brand, and harm our business and operating results.
Data security breaches, or real or perceived errors, failures or bugs in our or our vendors’ systems or our website or app could impair our operations, compromise our confidential information or our customers’ personal information, damage our reputation and brand, and harm our business and operating results.
Certain information or technology that we endeavor to protect as trade secrets may not be eligible for 31 trade secret protection in all jurisdictions, or the measures we undertake to establish and maintain such trade secret protection may be inadequate.
Certain information or technology that we endeavor to protect as trade secrets may not be eligible for trade secret protection in all jurisdictions, or the measures we undertake to establish and maintain such trade secret protection may be inadequate.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to capital markets.
Failure to remedy any material weakness in our internal control over financial reporting, 47 or to implement or maintain other effective control systems required of public companies, could also restrict our future access to capital markets.
Data security standards for merchants and service providers that accept credit card payments are prescribed by the PCI Security Standards Council, or PCI, an independent body formed by an association of the major credit card vendors.
Data security standards for merchants and service providers that accept credit card payments are prescribed by the PCI Security Standards Council, or PCI, an 41 independent body formed by an association of the major credit card vendors.
If, as a result of examinations, our regulators determine that our financial condition, capital resources or other aspects of any of our operations are not satisfactory, or that we have violated applicable laws or regulations, such regulator may subject us to fines or other penalties and/or require us to take one or more remedial actions or otherwise subject us to regulatory scrutiny, such as pursuant to an enforcement action or, in the case of regulatory capital, require us to maintain additional capital.
If, as a result of ongoing or future examinations, our regulators determine that our financial condition, capital resources or other aspects of any of our operations are not satisfactory, or that we have violated applicable laws or regulations, such regulator may subject us to fines or other penalties and/or require us to take one or more remedial actions or otherwise subject us to regulatory scrutiny, such as pursuant to an enforcement action or, in the case of regulatory capital, require us to maintain additional capital.
It is possible that the pandemic and governmental responses thereto will cause increased inflation, an economic slowdown of potentially extended duration, as well as a global recession.
It is possible that a pandemic and governmental responses thereto will cause increased inflation, an economic slowdown of potentially extended duration, as well as a global recession.
As a new entrant to the insurance industry, we may face additional capital and surplus requirements as compared to those of our larger and more established competitors. Failure to maintain adequate risk-based capital at the required levels could result in increasingly onerous reporting and examination requirements and could adversely affect our ability to maintain regulatory authority to conduct our business.
As a newer entrant to the insurance industry, we may face additional capital and surplus requirements as compared to those of our larger and more established competitors. Failure to maintain adequate risk-based capital at the required levels could result in increasingly onerous reporting and examination requirements and could adversely affect our ability to maintain regulatory authority to conduct our business.
It is at times not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the internet and the use of mobile applications in particular, as the vast majority of these laws were adopted prior to the advent of the internet and the use of mobile applications and do not contemplate or address the unique issues raised by the internet.
It is at times not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the internet and the use of mobile apps in particular, as the vast majority of these laws were adopted prior to the advent of the internet and the use of mobile apps and do not contemplate or address the unique issues raised by the internet.
From time to time (including in 2022), competition for limited and/or high-value advertising space from our competitors or other companies can result in increases in the costs we incur in our marketing efforts. These increases to our customer acquisition costs depend on a number of factors outside of our control and can negatively affect our business and operating results.
From time to time (including in 2023), competition for limited and/or high-value advertising space from our competitors or other companies can result in increases in the costs we incur in our marketing efforts. These increases to our customer acquisition costs depend on a number of factors outside of our control and can negatively affect our business and operating results.
Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business and decrease the use of our mobile application or website by consumers and suppliers and may result in the imposition of monetary liability.
Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business and decrease the use of our mobile app or website by consumers and suppliers and may result in the imposition of monetary liability.
While actuarial models for pricing and reserving typically include an expected level of inflation, unanticipated increases in claim severity can arise from events that are inherently difficult to predict such as inflationary shocks or surges in health care costs.
While actuarial models for pricing and reserving typically include an expected level of inflation (including social inflation), unanticipated increases in claim severity can arise from events that are inherently difficult to predict such as inflationary shocks or surges in health care costs.
It is possible that general business regulations and laws, or those specifically governing the internet and the use of mobile applications in particular, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
It is possible that general business regulations and laws, or those specifically governing the internet and the use of mobile apps in particular, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.
Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders. If we fail to meet these continued listing requirements, Nasdaq may take steps to delist our Class A common stock.
Our common stock trades on Nasdaq. Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders. If we fail to meet these continued listing requirements, Nasdaq may take steps to delist our Class A common stock.
During the year ended December 31, 2022, the amounts we contributed to such funds were immaterial; however, as we enter new states the amount we are required to contribute may increase materially. Maximum contributions required by law in any one year vary by state.
During the year ended December 31, 2023, the amounts we contributed to such funds were immaterial; however, as we enter new states the amount we are required to contribute may increase materially. Maximum contributions required by law in any one year vary by state.
While we maintain insurance coverage to protect us against such loss, our coverage is less than the amount of that loss and may be insufficient or inadequate to cover future losses. We rely on our mobile application to execute our business strategy.
While we maintain insurance coverage to protect us against such loss, our coverage is less than the amount of that loss and may be insufficient or inadequate to cover future losses. We rely on our mobile app to execute our business strategy.
As the ultimate controlling person in the insurance holding company system, we are required to file an annual enterprise risk report. On behalf of Root Insurance Company and Root Property & Casualty Insurance Company, Root Inc. submitted its annual enterprise risk report with Ohio on June 1, 2022.
As the ultimate controlling person in the insurance holding company system, we are required to file an annual enterprise risk report. On behalf of Root Insurance Company and Root Property & Casualty Insurance Company, Root Inc. submitted its annual enterprise risk report with Ohio on June 1, 2023.
We may lose existing customers or fail to acquire new customers, including through our embedded insurance channel, and our future growth and profitability depend in part on our ability to successfully operate in an insurance industry that is highly competitive.
We may lose existing customers or fail to acquire new customers, including through our partnership channel, and our future growth and profitability depend in part on our ability to successfully operate in an insurance industry that is highly competitive.
As a result of this concentration, if a significant catastrophe event or series of catastrophe events occur, and cause material losses in Texas, Georgia or Colorado, our business, financial condition and results of operation could be materially adversely affected.
As a result of this concentration, if a significant catastrophic event or series of catastrophic events occur, and cause material losses in Texas, Georgia or Colorado, our business, financial condition and results of operation could be materially adversely affected.
From time to time, we are subject to allegations, and may be party to litigation and legal proceedings relating to our business operations. Litigation and other proceedings may include complaints from or litigation by customers or reinsurers, related to alleged breaches of contract or otherwise.
From time to time, we are subject to allegations, and are party to litigation and legal proceedings relating to our business operations. Litigation and other proceedings include complaints from or litigation by customers or reinsurers, related to alleged breaches of contract or otherwise.
Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustments expenses, or LAE, and other costs.
Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses, or LAE, and other costs.
The CPRA gives California residents the ability to: limit use of precise geolocation information and other categories of information classified as “sensitive”; add e-mail addresses and passwords to the list of personal information that, if lost or breached, would entitle affected individuals to bring private lawsuits; and establish the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines.
The CPRA, effective January 1, 2023, gives California residents the ability to: limit use of precise geolocation information and other categories of information classified as “sensitive”; add e-mail addresses and passwords to the list of personal information that, if lost or breached, would entitle affected individuals to bring private lawsuits; and establish the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines.
If such customers were to bring a claim or claims alleging that we failed in our responsibilities to provide them with the type or amount of coverage that they sought to purchase, we could be found liable for amounts significantly in excess of the policy limit, resulting in an adverse effect on our business, results of operations and financial condition.
If such customers were to bring a claim or claims alleging that we or our appointed insurance producers failed in their responsibilities to provide them with the type or amount of coverage that they sought to purchase, we could be found liable for amounts significantly in excess of the policy limit, resulting in an adverse effect on our business, results of operations and financial condition.
Root Insurance Company is Ohio-domiciled and has completed, its first financial examination with the Ohio DOI, which includes a review of the Company’s financials, governance, and operations, including its relationships and transactions with affiliates, and a specific examination of our pricing and underwriting methodologies and our regulatory capital.
Root Insurance Company is Ohio-domiciled and has completed its first financial examination with the Ohio DOI, which includes a review of the Company’s financials, governance, and operations, including its relationships and transactions with affiliates, and a specific examination of our pricing and underwriting methodologies and our regulatory capital, and is currently undergoing its second review.

… 146 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed1 unchanged
Biggest changeWe believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations. For additional information regarding our leases, refer to Note 8, “Leases,” in the Notes to Consolidated Financial Statements. 54
Biggest changeWe believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations. For additional information regarding our leases, refer to Note 8, “Leases,” in the Notes to Consolidated Financial Statements. 58

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

2 edited+0 added−0 removed1 unchanged
Biggest changeWhile the outcome of all legal actions is not presently determinable, except as noted in Note 13, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements, we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flow. 55 Item 4.
Biggest changeWhile the outcome of all legal actions is not presently determinable, except as noted in Note 13, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements, we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flows. 59 Item 4.
Mine Safety Disclosures Not applicable. 56 PART II
Mine Safety Disclosures Not applicable. 60 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 56 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 57 Item 6 . [Reserved] 58 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 59 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 81 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 60 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 61 Item 6 . [Reserved] 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 63 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed4 unchanged
Biggest changeHolders of Record As of February 16, 2023, Root had 40 common stockholders of record of Class A common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Biggest changeHolders of Record As of February 15, 2024, Root had 38 common stockholders of record of Class A common stock. Because many of our shares of Class A common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Issuer Purchases of Equity Securities None. 57
Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Issuer Purchases of Equity Securities None. 61
As of February 16, 2023, Root had 46 common stockholders of record of Class B common stock. Dividend Policy We have never declared or paid cash dividends on our capital stock.
As of February 15, 2024, Root had 43 common stockholders of record of Class B common stock. Dividend Policy We have never declared or paid cash dividends on our capital stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

119 edited+35 added−37 removed79 unchanged
Biggest changeThe decrease was driven by $15.9 million of accelerated amortization of unamortized discount and debt and warrant issuance costs from the extinguishment of our $100.0 million term loan, or Term Loan B, which was early extinguished in 2021. 71 Comparison of the Years Ended December 31, 2021 and 2020 The following table presents our results of operations for the periods indicated: Years Ended December 31, 2021 % of Total Revenue 2020 % of Total Revenue $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 310.3 89.8 % $ 322.5 93.0 % $ (12.2) (3.8) % Net investment income 5.0 1.4 % 5.4 1.6 % $ (0.4) (7.4) % Net realized gains on investments 2.4 0.7 % 0.3 0.1 % $ 2.1 700.0 % Fee income 20.9 6.1 % 17.4 5.0 % $ 3.5 20.1 % Other income 6.8 2.0 % 1.2 0.3 % $ 5.6 466.7 % Total revenue 345.4 100.0 % 346.8 100.0 % (1.4) (0.4) % Operating expenses: Loss and loss adjustment expenses 392.3 113.6 % 362.8 104.6 % 29.5 8.1 % Sales and marketing 270.2 78.2 % 139.7 40.3 % 130.5 93.4 % Other insurance expense (benefit) 5.0 1.4 % (1.8) (0.5) % 6.8 377.8 % Technology and development 65.5 19.0 % 52.9 15.3 % 12.6 23.8 % General and administrative 97.6 28.3 % 78.5 22.6 % 19.1 24.3 % Total operating expenses 830.6 240.5 % 632.1 182.3 % 198.5 31.4 % Operating loss (485.2) (140.5) % (285.3) (82.3) % (199.9) 70.1 % Interest expense (20.0) (5.8) % (77.7) (22.4) % 57.7 (74.3) % Loss on early extinguishment of debt (15.9) (4.6) % — — % (15.9) 100.0 % Loss before income tax expense (521.1) (150.9) % (363.0) (104.7) % (158.1) 43.6 % Income tax expense — — % — — % — — % Net loss (521.1) (150.9) % (363.0) (104.7) % (158.1) 43.6 % Other comprehensive (loss) income: Changes in net unrealized (losses) gains on investments (5.2) (1.5) % 5.0 1.5 % (10.2) (204.0) % Comprehensive loss $ (526.3) (152.4) % $ (358.0) (103.2) % $ (168.3) 47.0 % The December 31, 2021 and 2020 results of operations discussion can be found in Part II, Item 7, “Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Biggest changeUpon extinguishment of debt, the remaining unamortized discount and debt and warrants issuance costs are recognized as expense. 71 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table presents our results of operations for the periods indicated: For the Years Ended December 31, 2023 2022 $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 399.9 $ 285.9 $ 114.0 39.9 % Net investment income 30.2 6.2 24.0 387.1 % Net realized gains on investments — 0.5 (0.5) (100.0) % Fee income 23.4 16.5 6.9 41.8 % Other income 1.5 1.7 (0.2) (11.8) % Total revenues 455.0 310.8 144.2 46.4 % Operating expenses: Loss and loss adjustment expenses 331.3 351.0 (19.7) (5.6) % Sales and marketing 49.3 48.0 1.3 2.7 % Other insurance expense (benefit) 47.6 (8.0) 55.6 695.0 % Technology and development 44.8 55.5 (10.7) (19.3) % General and administrative 83.3 127.4 (44.1) (34.6) % Total operating expenses 556.3 573.9 (17.6) (3.1) % Operating loss (101.3) (263.1) 161.8 (61.5) % Interest expense (46.1) (34.6) (11.5) 33.2 % Loss before income tax expense (147.4) (297.7) 150.3 (50.5) % Income tax expense — — — — % Net loss (147.4) (297.7) 150.3 (50.5) % Other comprehensive income (loss): Changes in net unrealized gains (losses) on investments 3.3 (6.2) 9.5 153.2 % Comprehensive loss $ (144.1) $ (303.9) $ 159.8 (52.6) % Revenue Net Premiums Earned Net premiums earned increased $114.0 million, or 39.9%, to $399.9 million for the year ended December 31, 2023 compared to 2022.
Gross Profit/(Loss) We define gross profit/(loss) as total revenue minus net loss and LAE and other insurance (benefit) expense. We view gross profit/(loss) as an important metric because we believe it is informative of the financial performance of our core insurance business.
Gross Profit/(Loss) We define gross profit/(loss) as total revenue minus net loss and LAE and other insurance expense (benefit). We view gross profit/(loss) as an important metric because we believe it is informative of the financial performance of our core insurance business.
Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance (benefit) expense.
Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance expense (benefit).
Operating Expenses Our operating expenses consist of loss and LAE, sales and marketing, other insurance (benefit) expense, technology and development, and general and administrative expenses.
Operating Expenses Our operating expenses consist of loss and LAE, sales and marketing, other insurance expense (benefit), technology and development, and general and administrative expenses.
Ceding commissions earned in connection with reinsurance ceded have been accounted for as a reduction of other insurance (benefit) expense in the consolidated statements of operations and comprehensive loss. Some of our reinsurance agreements provide for amount of coverage based on loss experience referred to as loss corridors and loss ratio caps.
Ceding commissions earned in connection with reinsurance ceded have been accounted for as a reduction of other insurance expense (benefit) in the consolidated statements of operations and comprehensive loss. Some of our reinsurance agreements provide for the amount of coverage based on loss experience, referred to as loss corridors and loss ratio caps.
For additional information, including definitions of these key metrics, see “— Key Performance Indicators” and for reconciliations of Direct Contribution and adjusted EBITDA to the most directly comparable generally accepted accounting principles in the United States, or GAAP, metric, see “— Non-GAAP Financial Measures.” Key Factors and Trends Affecting our Operating Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Our Ability to Manage Risk We leverage technology to help manage risk.
For additional information, including definitions of these key metrics, see “—Key Performance Indicators” and for reconciliations of Direct Contribution and adjusted EBITDA to the most directly comparable generally accepted accounting principles in the United States, or GAAP, metric, see “—Non-GAAP Financial Measures.” Key Factors and Trends Affecting our Operating Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Our Ability to Manage and Price Risk We leverage technology to help manage risk.
In evaluating the need for a valuation allowance we consider many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) the timing of expected reversal; (4) taxable income in prior carry back years as well as projected taxable earnings exclusive of reversing temporary differences and carry forwards; (5) the length of time that carryovers can be used; (6) unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that we would employ to avoid a tax benefit expiring unused. 80 We may be unable to fully use our net operating losses, or NOLs, if at all.
In evaluating the need for a valuation allowance we consider many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) the timing of expected reversal; (4) taxable income in prior carry back years as well as projected taxable earnings exclusive of reversing temporary differences and carry forwards; (5) the length of time that carryovers can be used; (6) unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that we would employ to avoid a tax benefit expiring unused. 83 We may be unable to fully use our net operating losses, or NOLs, if at all.
After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it provides management and other users of our financial information useful insight into our results of operations and underlying business 64 performance.
After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance. We use adjusted EBITDA as an internal performance measure in the management of our operations because we believe it provides management and other users of our financial information useful insight into our results of operations and underlying business performance.
Our Ability to Expand Premiums Through Cross-Sell and Fee Income Per Policy We are in the early stages of cross-selling non-auto products across our customer base. In 2019, we began offering renters insurance and, in May 2020, we launched our homeowners insurance product in partnership with Homesite Insurance, or Homesite.
Our Ability to Expand Premiums Through Cross-Sell and Fee Income Per Policy We are in the early stages of cross-selling non-auto products across our customer base. In 2019, we began offering renters insurance and, in May 2020, we launched our homeowners insurance product in partnership with Homesite Insurance.
In general, the longer the time span between the incidence of a loss and the settlement of the claim, the more the ultimate settlement amount can vary. Because actual experience can differ from key assumptions used in establishing reserves, there is potential for significant variation in the development of loss reserves.
In general, the longer the time span between the incidence of a loss and the settlement of the claim, the more the ultimate settlement amount can vary. 80 Because actual experience can differ from key assumptions used in establishing reserves, there is potential for significant variation in the development of loss reserves.
We view net loss and LAE ratio as important metric because it allows us to evaluate loss trends as a percentage of net premiums and believe it is useful for investors to evaluate those separately from other operating expenses.
We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums and believe it is useful for investors to evaluate those separately from other operating expenses.
We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due. d Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP.
We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due. d 79 Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP.
Gross Loss Ratio We define gross loss ratio expressed as a percentage, as the ratio of gross losses to gross premiums earned. Gross loss ratio excludes LAE. We view gross loss ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance.
We view gross loss ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance. Gross LAE Ratio We define gross LAE ratio expressed as a percentage, as the ratio of gross LAE to gross premiums earned.
We view gross combined ratio as important because it allows us to evaluate financial performance and establish targets that we believe more closely reflects the underlying performance and profitability of the business prior to reinsurance. Further, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our gross underwriting performance.
We view gross combined ratio as important because it allows us to evaluate financial performance and establish targets that we believe more closely reflect the underlying performance and profitability of the business prior to reinsurance. Further, we believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our gross underwriting performance.
Material Cash Requirements from Contractual and Other Obligations As of December 31, 2022, our material cash requirements from known contractual and other obligations consisted of purchase commitments, as discussed in Note 13, “Commitments and Contingencies,”, operating leases, as discussed in Note 8, “Leases,” and a Term Loan, as discussed in Note 7, “Long-Term Debt,” in the Notes to Consolidated Financial Statements.
Material Cash Requirements from Contractual and Other Obligations As of December 31, 2023, our material cash requirements from known contractual and other obligations consisted of purchase commitments, as discussed in Note 13, “Commitments and Contingencies,” operating leases, as discussed in Note 8, “Leases,” and a Term Loan, as discussed in Note 7, “Long-Term Debt,” in the Notes to Consolidated Financial Statements.
This Management’s Discussion and Analysis does not discuss 2020 performance or a comparison of 2021 versus 2020 performance for select areas where we have determined the omitted information is not necessary to understand our current period financial condition, changes in our financial condition, or our results.
This Management’s Discussion and Analysis does not discuss 2021 performance or a comparison of 2022 versus 2021 performance for select areas where we have determined the omitted information is not necessary to understand our current period financial condition, changes in our financial condition, or our results.
Ceding 79 commissions relating to reinsurance agreements are recorded as a reimbursement for both deferrable and non-deferrable acquisition costs. The portion of the ceding commission that is equal to the pro rata share of acquisition costs based on quota share percentage is recorded as an offset to the gross deferred acquisition costs.
Ceding commissions relating to reinsurance agreements are recorded as a reimbursement for both deferrable and non-deferrable acquisition costs. The portion of the ceding commission that is equal to the pro rata share of acquisition costs based on quota share percentage is recorded as an offset to the gross deferred policy acquisition costs.
A premium deficiency reserve is recognized as a reduction of deferred acquisition costs and, if necessary, by accruing an additional liability for the deficiency, with a corresponding charge to operations. We did not record a premium deficiency reserve in 2022 or 2021.
A premium deficiency reserve is recognized as a reduction of deferred policy acquisition costs and, if necessary, by accruing an additional liability for the deficiency, with a corresponding charge to operations. We did not record a premium deficiency reserve in 2023, 2022 or 2021.
We believe the Root advantage is derived from our unique ability to efficiently and effectively bind auto insurance policies quickly, through direct and embedded channels, aided by segmenting individual risk based on complex behavioral data and proprietary telematics. Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure.
We believe the Root advantage is derived from our unique ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk based on complex behavioral data and proprietary telematics models. Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure.
Technology is a key differentiator in managing risk across our key functions. Our success depends on our ability to adequately and competitively price risk. 60 Our Ability to Attract New Customers Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform.
Technology is a key differentiator in managing risk across our key functions. Our success depends on our ability to adequately and competitively price risk. 64 Our Ability to Attract New Customers Our long-term growth will depend, in large part, on our continued ability to attract new customers to our platform.
Comparison of Years Ended December 31, 2021 and 2020 The December 31, 2021 and 2020 net cash discussion can be found in Part II, Item 7, “Liquidity and Capital Resources,” of our Annual Report on Form 10-K.
Comparison of Years Ended December 31, 2022 and 2021 The December 31, 2022 and 2021 net cash discussion can be found in Part II, Item 7, “Liquidity and Capital Resources,” of our Annual Report on Form 10-K.
The methods used to 77 estimate ultimate loss reserves by accident month include reported loss development, paid loss development, expected loss ratio, or ELR, frequency-severity, premium based Bornhuetter/Ferguson, or B/F, and exposure based B/F using frequency-severity.
The methods used to estimate ultimate loss reserves by accident month include reported loss development, paid loss development, expected loss ratio, frequency-severity, premium based Bornhuetter/Ferguson, or B/F, and exposure based B/F using frequency-severity.
Due to a variety of factors, certain premiums billed may not be collected, for which we establish an allowance for doubtful accounts based primarily on an analysis of historical collection experience, adjusted for current economic conditions. Allowance for credit losses was $2.8 million and $5.4 million as of December 31, 2022 and 2021, respectively, on the consolidated balance sheets.
Due to a variety of factors, certain premiums billed may not be collected, for which we establish an allowance for doubtful accounts based primarily on an analysis of historical collection experience, adjusted for current economic conditions. Allowance for credit losses was $4.0 million and $2.8 million as of December 31, 2023 and 2022, respectively, on the consolidated balance sheets.
We expect that in the long-term, our sales and marketing will decrease as a percentage of revenue as the proportion of renewals to our total business increases. 67 Other Insurance (Benefit) Expense Other insurance (benefit) expense includes underwriting expenses, credit card and policy processing expenses, premium write-offs, insurance license expenses, certain warrant compensation expense related to our embedded channel, and Personnel Costs and Overhead related to actuarial and certain data science activities.
We expect that in the long-term, our sales and marketing will decrease as a percentage of revenue as the proportion of renewals to our total business increases. 70 Other Insurance Expense (Benefit) Other insurance expense (benefit) includes underwriting expenses, commission expenses related to our partnership channel, premium taxes, credit card and policy processing expenses, premium write-offs, insurance license expenses, certain warrant compensation expense related to our embedded channel, and Personnel Costs and Overhead related to actuarial and certain data science activities.
In August 2021, we commenced a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier. We route all of our new auto policies and, over time, expect to route certain renewal auto policies, in Texas through the fronting carrier whereby we assume 100% of the related premium and losses on those policies.
We have a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier. We route all of our new auto policies, and, over time, expect to route certain renewal auto policies, in Texas through the fronting carrier whereby we assume 100% of the related premium and losses on those policies.
As we grow our business, we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals without associated marketing costs. • Increased revenue per customer. Over time we expect to refine our fee schedules to be more consistent with industry norms.
As we grow our business, we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals with lower associated acquisition costs. • Increased revenue per customer. Over time we expect to refine our fee schedules to be more consistent with industry norms.
Policy acquisition costs, which consists of premium taxes, certain marketing costs and underwriting expenses, and certain commissions, net of ceding commissions, related to the successful acquisition of new or renewal business, are deferred and amortized over the same period in which the related premiums are earned.
Deferred policy acquisition costs, which consists of premium taxes, certain marketing costs and underwriting expenses, and commission expenses related to our partnership channel, net of ceding commissions, related to the successful acquisition of new or renewal business, are deferred and amortized over the same period in which the related premiums are earned.
A policy is generally considered past due on the first day after its due date and policies greater than 90 days past due are written-off. We recognized premium write-offs, or bad debt expense, of $17.4 million, $20.9 million and $23.6 million for the years ended December 31, 2022, 2021 and 2020 respectively.
A policy is generally considered past due on the first day after its due date and policies greater than 90 days past due are written-off. We recognized premium write-offs, or bad debt expense, of $12.5 million, $17.4 million and $20.9 million for the years ended December 31, 2023, 2022 and 2021 respectively.
We are continuously evaluating alternatives for efficiently funding our ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities.
We are continuously evaluating alternatives for efficiently funding our ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of stock and debt.
The omitted information may be found in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission, or the SEC, on February 23, 2022. Overview Root is a tech-enabled insurance company revolutionizing personal insurance with a pricing model based upon fairness and a modern customer experience.
The omitted information may be found in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission, or the SEC, on February 22, 2023. Overview Root is a technology company revolutionizing personal insurance with a pricing model based upon fairness and a modern customer experience.
There is a risk of inflation remaining elevated for an extended period, which could cause claims and claim expenses to increase, impact the performance of our investment portfolio or have other adverse effects. Rising interest rates and reduced equity values have increased the cost of capital and may limit our ability to raise additional capital.
There is a risk of inflation remaining elevated for an extended period, which could cause claims and claim expenses to increase, impact the performance of our investment portfolio or have other adverse effects. Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.
Gross premiums written includes direct premiums and assumed premiums. We view gross premiums written as an important metric because it is the metric that most closely correlates with changes in gross premiums earned.
We view gross premiums written as an important metric because it is the metric that most closely correlates with changes in gross premiums earned.
Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies. 72 Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the operating performance of our management team; (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the operating performance of our management team; (5) analyze and evaluate financial and strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments.
Cash Flows The following table summarizes our cash flow data for the periods presented: Years Ended December 31, 2022 2021 2020 (in millions) Net cash used in operating activities $ (210.6) $ (403.4) $ (287.2) Net cash (used in) provided by investing activities (16.6) 76.9 (114.1) Net cash provided by (used in) financing activities 283.3 (80.3) 1,098.5 Comparison of Years Ended December 31, 2022 and 2021 Net cash used in operating activities for the year ended December 31, 2022 was $210.6 million compared to $403.4 million of net cash used in operating activities for the year ended December 31, 2021.
Cash Flows The following table summarizes our cash flow data for the periods presented: For the Years Ended December 31, 2023 2022 2021 (in millions) Net cash used in operating activities $ (33.6) $ (210.6) $ (403.4) Net cash (used in) provided by investing activities (45.7) (16.6) 76.9 Net cash (used in) provided by financing activities (4.1) 283.3 (80.3) Comparison of Years Ended December 31, 2023 and 2022 Net cash used in operating activities for the year ended December 31, 2023 was $33.6 million compared to $210.6 million of net cash used in operating activities for the year ended December 31, 2022.
We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, premium write-offs, and valuation allowance on our deferred tax assets.
We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, valuation allowance on our deferred tax assets, premium write-offs and allowance for expected credit losses on premium receivables and reinsurance recoverables.
To recognize this risk of credit loss, we have established an allowance for credit losses based on the probability of default and the expected loss given default as influenced by factors such as the reinsurer’s credit rating and average life of our reinsurance recoverables. Allowance for credit losses was $0.2 million as of December 31, 2022 and 2021.
To recognize this risk of credit loss, we have established an allowance for credit losses based on the probability of default and the expected loss given default as influenced by factors such as the reinsurer’s credit rating and average life of our reinsurance recoverables.
A premium deficiency, as measured on a gross basis, is recorded when the sum of expected losses, LAE, unamortized acquisition costs and maintenance costs exceed the recorded unearned premium reserve and anticipated investment income.
Unearned premium is established to cover the unexpired portion of premiums written. A premium deficiency, as measured on a gross basis, is recorded when the sum of expected losses, LAE, unamortized acquisition costs and maintenance costs exceed the recorded unearned premium reserve and anticipated investment income.
We view net expense ratio as important because it allows us to analyze our expense and acquisition trends, net of fee income, and allows investors to evaluate these expenses exclusive of our loss and LAE expenses.
We view net expense ratio as important because it allows us to analyze our expense and acquisition trends, net of fee income, and allows investors to evaluate these expenses exclusive of our loss and LAE. Net Combined Ratio We define net combined ratio expressed as a percentage, as the sum of net loss and LAE ratio and net expense ratio.
Non-Operating Expenses Interest Expense Interest expense is not an operating expense; therefore, we include these expenses below operating expenses. Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of debt issuance costs.
We expect general and administrative expenses to decrease as a percentage of total revenue over time. Non-Operating Expenses Interest Expense Interest expense is not an operating expense; therefore, we include these expenses below operating expenses. Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of debt issuance costs.
Direct Contribution For the definition of direct contribution and why management believes this measure provides useful information to investors, see “— Key Performance Indicators.” The following table provides a reconciliation of total revenue to direct contribution for the years ended December 31, 2022, 2021 and 2020: Years Ended December 31, 2022 2021 2020 (dollars in millions) Total revenue $ 310.8 $ 345.4 $ 346.8 Loss and loss adjustment expenses (351.0) (392.3) (362.8) Other insurance benefit (expense) 8.0 (5.0) 1.8 Gross profit/(loss) (32.2) (51.9) (14.2) Net investment income (6.2) (5.0) (5.4) Net realized gains on investments (0.5) (2.4) (0.3) Adjustments from other insurance benefit (expense) (1) 38.4 56.0 40.9 Ceded premiums earned 357.7 409.3 282.7 Ceded loss and loss adjustment expenses (243.7) (302.5) (194.8) Net ceding commission and other (2) (85.9) (95.4) (90.0) Direct contribution $ 27.6 $ 8.1 $ 18.9 ______________ (1) Adjustments from other insurance benefit (expense) includes report costs, personnel costs, allocated overhead, licenses, net commissions, professional fees and other .
Direct Contribution For the definition of direct contribution and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.” The following table provides a reconciliation of total revenue to direct contribution for the years ended December 31, 2023, 2022 and 2021: For the Years Ended December 31, 2023 2022 2021 (dollars in millions) Total revenue $ 455.0 $ 310.8 $ 345.4 Loss and loss adjustment expenses (331.3) (351.0) (392.3) Other insurance (expense) benefit (47.6) 8.0 (5.0) Gross profit/(loss) 76.1 (32.2) (51.9) Net investment income (30.2) (6.2) (5.0) Net realized gains on investments — (0.5) (2.4) Adjustments from other insurance (expense) benefit (1) 76.3 38.4 56.0 Ceded premiums earned 235.9 357.7 409.3 Ceded loss and loss adjustment expenses (144.5) (243.7) (302.5) Net ceding commission and other (2) (62.9) (85.9) (95.4) Direct contribution $ 150.7 $ 27.6 $ 8.1 ______________ (1) Adjustments from other insurance (expense) benefit includes report costs, commission expenses related to our partnership channel, certain warrant compensation expense related to our embedded channel, Personnel costs, Overhead, licenses, professional fees and other .
Direct Contribution We define direct contribution, a non-GAAP financial measure, as gross profit/(loss) excluding net investment income, net realized gains (losses) on investments, report costs, salaries, health benefits, bonuses, employee retirement plan related expenses and employee share-based compensation expense, allocated overhead, licenses, net commissions, professional fees and other expenses, ceded earned premium, ceded loss and LAE, and net ceding commission and other.
Direct Contribution We define direct contribution, a non-GAAP financial measure, as gross profit/(loss) excluding net investment income, net realized gains on investments, report costs, commission expenses related to our partnership channel, certain warrant compensation expense related to our embedded channel, overhead allocated based on headcount, or Overhead, and salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, licenses, professional fees and other expenses, ceded premiums 67 earned, ceded loss and LAE, and net ceding commission and other.
We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support short-term working capital and capital expenditure requirements for at least the next 12 months and the foreseeable future thereafter.
Treasury securities and agencies, municipal securities, corporate debt securities, residential and commercial mortgage-backed securities, and other debt obligations. We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support short-term working capital and capital expenditure requirements for at least the next 12 months and for the foreseeable future thereafter.
(2) Net ceding commission and other is comprised of ceding commissions received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission and other impacts of reinsurance ceded . 73 Adjusted EBITDA For the definition of adjusted EBITDA and why management believes this measure provides useful information to investors, see “— Key Performance Indicators.” The following table provides a reconciliation of net loss to adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020: Years Ended December 31, 2022 2021 2020 (dollars in millions) Net loss $ (297.7) $ (521.1) $ (363.0) Adjustments: Interest expense 31.9 14.4 69.1 Income tax expense — — — Depreciation and amortization 12.1 16.6 15.6 Share-based compensation 25.2 19.3 3.7 Tender offer — — 25.1 Loss on early extinguishment of debt — 15.9 — Warrant compensation expense 14.5 8.8 — Restructuring costs (1) 18.6 — — Write-off (2) 9.5 — — Adjusted EBITDA $ (185.9) $ (446.1) $ (249.5) ______________ (1) Restructuring costs consist of severance, benefits, related costs and real estate exit costs comprising of accelerated amortization of certain right-of-use assets, leasehold improvements, furniture and fixtures.
(2) Net ceding commission and other is comprised of ceding commissions received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission and other impacts of reinsurance ceded . 76 Adjusted EBITDA For the definition of adjusted EBITDA and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.” The following table provides a reconciliation of net loss to adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021: For the Years Ended December 31, 2023 2022 2021 (dollars in millions) Net loss $ (147.4) $ (297.7) $ (521.1) Adjustments: Interest expense 43.2 31.9 14.4 Income tax expense — — — Depreciation and amortization 12.2 12.1 16.6 Share-based compensation 16.9 25.2 19.3 Loss on early extinguishment of debt — — 15.9 Warrant compensation expense 17.4 14.5 8.8 Restructuring costs (1) 11.2 18.6 — Write-offs and other (2) 3.6 9.5 — Adjusted EBITDA $ (42.9) $ (185.9) $ (446.1) ______________ (1) Restructuring costs consist of employee costs, real estate exit costs, and other.
Other Income Other income is primarily comprised of revenue earned from distributing website and app policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead; commissions earned for homeowners policies placed with third-party insurance companies where we have no exposure to the insured risk, recognized on the effective date of the associated policy; and sale of enterprise technology products to provide telematics-based data collection and trip tracking, recognized ratably as the service is performed.
Other Income Other income is comprised of revenue earned from distributing website and app policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead; and commissions earned for homeowners policies placed with third-party insurance companies where we have no exposure to the insured risk, recognized on the effective date of the associated policy.
Amounts recoverable from and payable to reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured business. Reinsurance premiums, commissions and expense reimbursements related to reinsured business are accounted for on a basis consistent with the basis used in accounting for the original policies issued and the terms of the reinsurance contracts.
Reinsurance premiums, commissions and expense reimbursements related to reinsured business are accounted for on a basis consistent with the basis used in accounting for the original policies issued and the terms of the reinsurance contracts.
Net cash provided by financing activities for the year ended December 31, 2022 was $283.3 million, primarily due to proceeds from our Term Loan.
Net cash used in financing activities for the year ended December 31, 2023 was $4.1 million, compared to $283.3 million of net cash provided by financing activities for the year ended December 31, 2022. The change in net cash (used in) provided by financing activities was primarily due to proceeds from our Term Loan issued in 2022.
Years Ended December 31, 2022 2021 2020 (dollars in millions, except Premiums per policy) Policies in force 220,354 354,371 322,759 Premiums per policy $ 1,220 $ 1,006 $ 939 Premiums in force $ 537.7 $ 713.0 $ 606.1 Gross premiums written $ 600.0 $ 742.6 $ 616.8 Gross premiums earned $ 643.6 $ 719.6 $ 605.2 Gross profit/(loss) $ (32.2) $ (51.9) $ (14.2) Net loss $ (297.7) $ (521.1) $ (363.0) Direct contribution $ 27.6 $ 8.1 $ 18.9 Adjusted EBITDA $ (185.9) $ (446.1) $ (249.5) Net loss and LAE ratio 122.8 % 126.4 % 112.5 % Net expense ratio 72.2 % 134.5 % 78.1 % Net combined ratio 195.0 % 260.9 % 190.6 % Gross loss ratio 82.1 % 86.0 % 82.0 % Gross LAE ratio 10.3 % 10.5 % 10.1 % Gross expense ratio 45.4 % 71.3 % 56.5 % Gross combined ratio 137.8 % 167.8 % 148.6 % Gross accident period loss ratio 80.9 % 88.7 % 76.1 % Policies in Force We define policies in force as the number of current and active auto insurance policyholders underwritten by us as of the period end date.
For the Years Ended December 31, 2023 2022 2021 (dollars in millions, except Premiums per policy) Policies in force 341,764 220,354 354,371 Premiums per policy $ 1,423 $ 1,220 $ 1,006 Premiums in force $ 972.7 $ 537.7 $ 713.0 Gross premiums written $ 783.1 $ 600.0 $ 742.6 Gross premiums earned $ 635.8 $ 643.6 $ 719.6 Gross profit/(loss) $ 76.1 $ (32.2) $ (51.9) Net loss $ (147.4) $ (297.7) $ (521.1) Direct contribution $ 150.7 $ 27.6 $ 8.1 Adjusted EBITDA $ (42.9) $ (185.9) $ (446.1) Net loss and LAE ratio 82.8 % 122.8 % 126.4 % Net expense ratio 50.4 % 72.2 % 134.5 % Net combined ratio 133.2 % 195.0 % 260.9 % Gross loss ratio 65.2 % 82.1 % 86.0 % Gross LAE ratio 9.6 % 10.3 % 10.5 % Gross expense ratio 41.6 % 45.4 % 71.3 % Gross combined ratio 116.4 % 137.8 % 167.8 % Gross accident period loss ratio 66.0 % 80.2 % 88.7 % Policies in Force We define policies in force as the number of current and active auto insurance policyholders underwritten by us as of the period end date.
These expenses are also recognized net of ceding commissions earned. Certain warrant compensation expense is recognized on a pro-rata basis for policies originated from the Integrated Platform towards milestones as defined under the Carvana commercial agreement.
Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement. These expenses are recognized net of ceding commissions earned from our quota share reinsurance agreements.
We view gross expense ratio as important because it allows us to analyze the underlying expense base of the business and establish expense targets, prior to the impact of reinsurance.
We view gross expense ratio as important because it allows us to analyze the underlying expense base of the business and establish expense targets, prior to the impact of reinsurance. We believe gross expense ratio is useful for investors to further evaluate business health and performance, prior to the impact of reinsurance.
We believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of fluctuations in customers and premiums per policy at the end of each reported period, without adjusting for known or projected policy updates, cancellations and non-renewals. 63 Gross Premiums Written We define gross premiums written, as the total amount of gross premium on policies that were bound during the period less the prorated impact of policy cancellations.
We believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of fluctuations in customers and premiums per policy at the end of each reported period, without adjusting for known or projected policy updates, cancellations and non-renewals.
We also issued Carvana eight tranches of warrants to purchase shares of our Class A common stock. In connection with the Investment Agreement, we incurred issuance costs of $19.6 million, $9.0 million of which are contingent upon the success of the Investment Agreement as measured by achievement of certain warrant vesting milestones.
We also issued Carvana eight tranches of warrants to purchase shares of our Class A common stock. In connection with the Investment Agreement, we incurred issuance costs of $19.6 million. As of December 31, 2023, there was $3.0 million of unpaid issuance costs contingent upon certain warrant vesting milestones in connection with the Investment Agreement.
Other insurance (benefit) expense also includes amortization of deferred acquisition costs like certain commissions, premium taxes, and report costs related to the successful acquisition of a policy. Other insurance (benefit) expense is expensed as incurred, except for costs related to deferred acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.
Other insurance expense (benefit) is expensed as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.
Technology and Development Technology and development decreased $10.0 million, or 15.3%, to $55.5 million for the year ended December 31, 2022 compared to 2021. The decrease was primarily driven by a $9.7 million decrease in personnel and overhead related costs as a result of a decrease in headcount, primarily attributable to the involuntary workforce reductions.
Technology and Development Technology and development decreased $10.7 million, or 19.3%, to $44.8 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily driven by an $8.4 million decrease in Personnel Costs as a result of a decrease in headcount, primarily attributable to the involuntary workforce reductions in 2022.
We view policies in force as an important metric to assess our financial performance because policy growth drives our revenue growth, expands brand awareness, deepens our market penetration, and generates additional data to continue to improve the functioning of our platform.
We view policies in force as an important metric to assess our financial performance because policy growth drives our revenue growth, expands brand awareness, deepens our market penetration, and generates additional data to continue to improve the functioning of our platform. 66 Premiums per Policy We define premiums per policy as the ratio of gross premiums written on auto insurance policies in force at the end of the period divided by policies in force.
Net Realized Gains on Investments Net realized gains on investments represents the difference between the amount received by us on the sale of an investment as compared to the investment’s amortized cost basis. 66 Fee Income For those policyholders who pay premiums on an installment basis, we charge a flat fee for each installment related to the additional administrative costs associated with processing more frequent billing.
Net Realized Gains on Investments Net realized gains on investments represents the difference between the amount received by us on the sale of an investment as compared to the investment’s amortized cost basis. 69 Fee Income Fee income consists primarily of the flat fee we charge for installment payments which relates to the additional administrative costs associated with processing more frequent billings.
This, paired with strengthened underwriting, will facilitate the opportunity to generate additional fee revenue per customer. We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular. We believe this allows us to operate with a cost to acquire and cost to serve advantage.
This, paired with targeted marketing, strengthened underwriting and pricing segmentation, will facilitate the opportunity to generate additional fee revenue per customer. 63 We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular.
The capital ratio can fluctuate at Root Re’s election, subject to regulatory approval. Root Re’s primary sources of funds are capital contributions from the holding company, assumed insurance premiums and net investment income. These funds are primarily used to pay claims and operating expenses and to purchase investments.
Root Re’s primary sources of funds are capital contributions from the holding company, assumed insurance premiums and net investment income. These funds are primarily used to pay claims and operating expenses and to purchase investments. Root Re must receive approval from CIMA before it can pay any dividend to the holding company.
Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, warrant compensation expense, restructuring charges, and write-off of prepaid marketing expense and reclassifications of certain sales and marketing expenses, and related legal and other fees, net of anticipated insurance recovery.
Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net loss excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, warrant compensation expense, restructuring charges, write-off of prepaid marketing expenses, legal fees and other items that do not reflect our ongoing operating performance.
We believe that through prudent investment in and diversification of our marketing channels, including a focus on embedded insurance through our current and future strategic partners, and leveraging proprietary data science and technology will position us for more sustainable, long-term and profitable growth.
We believe that through prudent investment in and diversification of our marketing channels, including leveraging proprietary data science and technology and a focus on partnerships with our current and future strategic partners, will position us for more sustainable, long-term and profitable growth. As a full-stack insurance company, we currently employ a “capital-efficient” model, which utilizes a variety of reinsurance structures.
Currently, we do not cede any of our LAE to our third-party quota share reinsurance treaties; therefore, we actively monitor LAE ratio as it has a direct impact on our results regardless of our reinsurance strategy.
We view gross LAE ratio as an important metric because it allows us to evaluate incurred losses and LAE separately. 68 Currently, we do not cede any of our LAE to our third-party quota share reinsurance treaties; therefore, we actively monitor LAE ratio as it has a direct impact on our results regardless of our reinsurance strategy.
Premiums per Policy We define premiums per policy as the ratio of gross premiums written on auto insurance policies in force at the end of the period divided by policies in force. We view premiums per policy as an important metric since the higher the premiums per policy the greater the amount of earned premium we expect from each policy.
We view premiums per policy as an important metric since the higher the premiums per policy the greater the amount of earned premium we expect from each policy. Premiums in Force We define premiums in force as premiums per policy multiplied by policies in force multiplied by two.
As we grow our business, we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals and drive down the loss ratio across our portfolio.
Renewal premiums, referring to premiums from a customer’s second term and beyond, have lower loss ratios as compared to new premiums in the customer’s first term. As we grow our business we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals and drive down the loss ratio across our portfolio.
We operate primarily a direct-to-consumer model in which we currently acquire the majority of our customers through mobile applications. We are also focused on expanding our embedded insurance platform, where we acquire customers through strategic partnerships.
We operate primarily a direct-to-consumer model in which we currently acquire the majority of our customers through mobile apps. We are also focused on expanding our partnership channel, where we acquire customers using various means, including through embedded integrations.
We will also continue to target attractive potential customer segments through our embedded experience and digital marketing channels. Our ability to attract new customers will depend on a number of factors, including the pricing of our products, offerings of our competitors, our ability to expand into new markets, success of our embedded channel and the effectiveness of our marketing efforts.
Our ability to attract new customers will depend on a number of factors, including the pricing of our products, offerings of our competitors, success of our partnership channel and the effectiveness of our marketing efforts, and our ability to expand into new markets.
Key Performance Indicators We regularly review a number of metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.
Key Performance Indicators We regularly review a number of metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP.
Upon extinguishment of debt, the remaining unamortized discount and debt and warrants issuance costs are recognized as expense. 68 Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table presents our results of operations for the periods indicated: Years Ended December 31, 2022 % of Total Revenue 2021 % of Total Revenue $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 285.9 92.0 % $ 310.3 89.8 % $ (24.4) (7.9) % Net investment income 6.2 2.0 % 5.0 1.4 % 1.2 24.0 % Net realized gains on investments 0.5 0.2 % 2.4 0.7 % (1.9) (79.2) % Fee Income 16.5 5.3 % 20.9 6.1 % (4.4) (21.1) % Other income 1.7 0.5 % 6.8 2.0 % (5.1) (75.0) % Total revenues 310.8 100.0 % 345.4 100.0 % (34.6) (10.0) % Operating expenses: Loss and loss adjustment expenses 351.0 112.9 % 392.3 113.6 % (41.3) (10.5) % Sales and marketing 48.0 15.5 % 270.2 78.2 % (222.2) (82.2) % Other insurance (benefit) expense (8.0) (2.6) % 5.0 1.4 % (13.0) (260.0) % Technology and development 55.5 17.9 % 65.5 19.0 % (10.0) (15.3) % General and administrative 127.4 41.0 % 97.6 28.3 % 29.8 30.5 % Total operating expenses 573.9 184.7 % 830.6 240.5 % (256.7) (30.9) % Operating loss (263.1) (84.7) % (485.2) (140.5) % 222.1 (45.8) % Interest expense (34.6) (11.1) % (20.0) (5.8) % (14.6) 73.0 % Loss on early extinguishment of debt — — % (15.9) (4.6) % 15.9 (100.0) % Loss before income tax expense (297.7) (95.8) % (521.1) (150.9) % 223.4 (42.9) % Income tax expense — — % — — % — — % Net loss (297.7) (95.8) % (521.1) (150.9) % 223.4 (42.9) % Other comprehensive loss: Changes in net unrealized losses on investments (6.2) (2.0) % (5.2) (1.5) % (1.0) 19.2 % Comprehensive loss $ (303.9) (97.8) % $ (526.3) (152.4) % $ 222.4 (42.3) % Revenue Net Premiums Earned Net premiums earned decreased $24.4 million, or 7.9%, to $285.9 million for the year ended December 31, 2022 compared to 2021.
Comparison of the Years Ended December 31, 2022 and 2021 The following table presents our results of operations for the periods indicated: For the Years Ended December 31, 2022 2021 $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 285.9 $ 310.3 $ (24.4) (7.9) % Net investment income 6.2 5.0 1.2 24.0 % Net realized gains on investments 0.5 2.4 (1.9) (79.2) % Fee income 16.5 20.9 (4.4) (21.1) % Other income 1.7 6.8 (5.1) (75.0) % Total revenue 310.8 345.4 (34.6) (10.0) % Operating expenses: Loss and loss adjustment expenses 351.0 392.3 (41.3) (10.5) % Sales and marketing 48.0 270.2 (222.2) (82.2) % Other insurance (benefit) expense (8.0) 5.0 (13.0) (260.0) % Technology and development 55.5 65.5 (10.0) (15.3) % General and administrative 127.4 97.6 29.8 30.5 % Total operating expenses 573.9 830.6 (256.7) (30.9) % Operating loss (263.1) (485.2) 222.1 (45.8) % Interest expense (34.6) (20.0) (14.6) 73.0 % Loss on early extinguishment of debt — (15.9) 15.9 (100.0) % Loss before income tax expense (297.7) (521.1) 223.4 (42.9) % Income tax expense — — — — % Net loss (297.7) (521.1) 223.4 (42.9) % Other comprehensive loss: Changes in net unrealized losses on investments (6.2) (5.2) (1.0) 19.2 % Comprehensive loss $ (303.9) $ (526.3) $ 222.4 (42.3) % The December 31, 2022 and 2021 results of operations discussion can be found in Part II, Item 7, “Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022. 75 Non-GAAP Financial Measures The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results.
The fronting arrangement allows us to have greater rating and underwriting flexibility. Premiums assumed are deferred and earned pro rata over the policy period. Unearned premium is established to cover the unexpired portion of premiums assumed.
The fronting arrangement allows us to have greater rating and underwriting flexibility. Premiums assumed are deferred and earned pro rata over the policy period. Unearned premium is established to cover the unexpired portion of premiums assumed. Premiums receivable represents premiums written but not yet collected. Generally, premiums are collected prior to providing risk coverage, minimizing our exposure to credit risk.
Recoverability of Net Deferred Tax Assets We calculate the tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities in accordance with Accounting Standards Codification 740, Income Taxes, or ASC 740.
Allowance for credit losses was $1.8 million and $0.2 million as of December 31, 2023 and 2022, respectively. Recoverability of Net Deferred Tax Assets We calculate the tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities in accordance with Accounting Standards Codification 740, Income Taxes, or ASC 740.
The claim severity and frequency estimates are based on bodily injury, collision, and property damage coverages. Sales and Marketing Sales and marketing decreased $222.2 million, or 82.2%, to $48.0 million for the year ended December 31, 2022 compared to 2021.
The claim severity and frequency estimates are based on bodily injury, collision, and property damage coverages, the claim frequency estimates are tenure mix adjusted. 73 Sales and Marketing Sales and marketing increased $1.3 million, or 2.7%, to $49.3 million for the year ended December 31, 2023 compared to 2022.
As such, prior estimates of claim frequency, claim severity, or loss ratio may not be as predictive of future results when the mix of business changes. • Broader macro level economics can have a material impact on loss reserve estimates, such as a rapid change in miles driven, unanticipated inflation, regulatory restrictions, and legal developments as they relate to contract and coverage interpretation and enforceability. 78 Due to the inherent uncertainty in determining our ultimate cost of settling claims, we evaluate what the potential impact on consolidated results of operations, financial position, and liquidity would be based on a hypothetical 5% and 10% increase or decrease in key assumptions described above.
As such, prior estimates of claim frequency, claim severity, or loss ratio may not be as predictive of future results when the mix of business changes. • Broader macro level economics can have a material impact on loss reserve estimates, such as a rapid change in miles driven, unanticipated inflation, regulatory restrictions, and legal developments as they relate to contract and coverage interpretation and enforceability.
This decrease was partially offset by a 21.3% increase in premiums per policy for automobile insurance primarily attributable to rate actions. Fee Income Fee income decreased $4.4 million, or 21.1%, to $16.5 million for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to a decrease in installment fees due to lower policies in force.
Gross premiums earned decreased primarily due to lower average policies in force for the year ended December 31, 2023 compared to 2022. This was partially offset by a 16.6% increase in premium per policy for automobile insurance primarily attributable to rate actions.
General and Administrative General and administrative expenses primarily relate to external professional service expenses; Personnel Costs and Overhead for corporate functions; and depreciation expense for computers, furniture and other fixed assets; write-offs; and restructuring costs associated with the involuntary workforce reductions.
General and Administrative General and administrative expenses primarily relate to external professional service expenses; Personnel Costs and Overhead for corporate functions; and depreciation expense for computers, furniture and other fixed assets; write-offs; and restructuring costs which include employee costs, real estate exit costs and other costs. General and administrative expenses are expensed as incurred.
Our long-term capital requirements depend on many factors, including our insurance premium growth rate, rate adequacy, renewal activity, the timing and the amount of cash received from customers, the performance of our products, including the success of our embedded partnerships, loss cost trends, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, operating costs, and the ongoing uncertainty in the global markets resulting from the global COVID-19 pandemic.
Our long-term capital requirements depend on many factors, including our insurance premium growth rate, rate adequacy, level of marketing spend, renewal activity, the timing and the amount of cash received from customers, the performance of our products, including the success of our partnership channel, loss cost trends, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, operating costs, and the ongoing uncertainty in global markets. 78 A cash expenditure related to employee compensation expense of $8.3 million, which was dependent upon continuous employment for certain employees, occurred in January 2024.
Our evolving acquisition strategy includes utilizing our embedded platform through current and future embedded partners. Traditionally, our marketing costs have historically been well below industry averages, although in any given period, these costs can vary by acquisition strategy, channel mix, by state, or due to 59 seasonality or due to the competitive environment.
Our marketing costs have historically been well below industry averages, although in any given period, these costs can vary by acquisition strategy, channel mix, by state, or due to seasonality or due to the competitive environment. Today, we acquire the vast majority of our customers through mobile apps.
Regulatory Considerations We are organized as a holding company, but our primary operations are conducted by two of our wholly owned insurance subsidiaries, Root Insurance Company, an Ohio-domiciled insurance company, and Root Property & Casualty Insurance Company, a Delaware-domiciled insurance company.
To the extent we retain a larger share of our book of business, our capital requirements may increase. 77 Regulatory Considerations We are organized as a holding company, but our primary operations are conducted by two of our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies.
The below tables present this sensitivity analysis: Scenarios for Changes in Bodily Injury Claim Severity for all Accident Years (10)% (5)% —% 5% 10% Bodily injury liability $ 100.3 $ 105.9 $ 111.4 $ 117.0 $ 122.6 Uninsured and underinsured bodily injury 25.0 26.4 27.8 29.2 30.5 All other coverages 36.1 36.1 36.1 36.1 36.1 Total losses—net of reinsurance $ 161.4 $ 168.4 $ 175.3 $ 182.3 $ 189.2 Our loss and LAE reserves are recorded net of external reinsurance and net of amounts expected to be received from salvage (the amount recovered from the damaged property after the we pay for a total loss) and subrogation (the right to recover payments from third parties).
The below tables present this sensitivity analysis: Scenarios for Changes in Bodily Injury Claim Severity for all Accident Years (10)% (5)% —% 5% 10% Bodily injury liability $ 104.8 $ 110.7 $ 116.5 $ 122.3 $ 128.1 Uninsured and underinsured bodily injury 21.8 23.0 24.2 25.4 26.7 All other coverages 59.0 59.0 59.0 59.0 59.0 Total losses—net of reinsurance $ 185.6 $ 192.7 $ 199.7 $ 206.7 $ 213.8 Our loss and LAE reserves are recorded net of external reinsurance and net of amounts expected to be received from salvage (the amount recovered from the damaged property after we pay for a total loss) and subrogation (the right to recover payments from third parties). 81 Premium Revenue, Fee Income and Related Expenses Premiums written are deferred and earned pro rata over the policy period.
Net Combined Ratio We define net combined ratio expressed as a percentage, as the sum of net loss and LAE ratio and net expense ratio. We view net combined ratio as important because it allows us to analyze our underwriting result trends and is a key indicator of overall profitability and health of the overall business.
We view net combined ratio as important because it allows us to analyze our underwriting result trends and is a key indicator of overall profitability and health of the overall business. We believe it is useful to investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance.
Loss and LAE may be paid out over a period of years. Various other expenses incurred during claims processing are considered LAE.
This includes an allowance for credit losses based on the probability of default and expected loss given default of a reinsurer. Loss and LAE may be paid out over a period of years. Various other expenses incurred during claims processing are considered LAE.
Gross accident period loss ratios decreased to 80.9% from 88.7% for the years ended December 31, 2022 and 2021, respectively. The change in the loss ratios was driven by growth in average premium per policy primarily attributable to rate actions and improved tenure mix as our book of business matures.
Gross accident period loss ratios decreased to 66.0% for the year ended December 31, 2023, from 80.2% for 2022. The change in the ratios was driven by growth in average premium per policy primarily attributable to rate actions.
In addition, we recognized write-off of prepaid marketing expense and reclassifications of certain sales and marketing expenses to general and administrative expenses of $10.2 million, legal and other fees of $1.2 million, partially offset by an anticipated insurance recovery of $1.9 million, related to the purported misappropriation of funds by a former senior marketing employee.
In addition, we experienced a $10.2 million decrease related to the write-off of pre-paid marketing expense recognized in 2022, partially offset by a decrease of $1.9 million in insurance recovery contra-expense related to the misappropriation of funds by a former senior marketing employee recorded in 2022.

… 111 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed7 unchanged
Biggest changeRising interest rates could have an adverse impact on the cost of debt and results in less cash available to utilize in our operations, and could have a material adverse effect on our business and financial condition. A 1% fluctuation in SOFR would not have significantly impacted interest expense during 2022.
Biggest changeRising interest rates could have an adverse impact on the cost of debt and results in less cash available to utilize in our operations, and could have a material adverse effect on our business and financial condition. A 1% fluctuation in SOFR would not have significantly impacted interest expense during 2023.
We manage the exposure to credit risk in our reinsurance contracts by obtaining reinsurance from a diverse group of reinsurers and monitoring concentration as well as financial strength ratings of the reinsurers to minimize counterparty credit risk. 81
We manage the exposure to credit risk in our reinsurance contracts by obtaining reinsurance from a diverse group of reinsurers and monitoring concentration as well as financial strength ratings of the reinsurers to minimize counterparty credit risk. 84

Other ROOT 10-K year-over-year comparisons