10q10k10q10k.net

What changed in Root, Inc.'s 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Root, Inc.'s 2023 and 2024 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 2024 report.

+638 added−657 removedSource: 10-K (2025-02-26) vs 10-K (2024-02-21)

Top changes in Root, Inc.'s 2024 10-K

638 paragraphs added · 657 removed · 542 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

118 edited+19 added−19 removed61 unchanged
Biggest changeRenewal 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 a young insurance company, our results are disproportionately weighed toward new customers. Our data- and technology-driven approach allows for rapid response to macroeconomic trends through quick, appropriate rate actions.
Biggest changeAs a young insurance company, our results are disproportionately weighted toward new customers. Our data- and technology-driven approach allows for rapid response to macroeconomic trends through quick, appropriate rate actions. This, paired with our ability to continually enhance underwriting and segmentation to price better drivers more fairly has contributed to stability in our gross loss ratios.
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.
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; 7 • 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; • 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 superintendent of the DOI will grant approval of an application to acquire control of a domestic insurer unless, after a public hearing, the superintendent finds that any of the following apply: (i) after the change of control, the domestic insurer would not be able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed; (ii) the effect of the merger or other acquisition of control would be substantially to lessen competition in insurance in the applicable state or tend to create a monopoly; (iii) the financial condition of any acquiring party is such as might jeopardize the financial stability of the domestic insurer, or prejudice the interests of its policyholders; (iv) the plans or proposals that the acquiring party has to liquidate the domestic insurer, sell its assets, or consolidate or merge it with any person, or to make any other material change in its business or corporate structure or management, are unfair and unreasonable to policyholders of the domestic insurer and not in the public interest; (v) the competence, experience and integrity of the persons that would control the operation of the domestic insurer are such that it would not be in the interest of policyholders of the domestic insurer and of the public to permit the merger or other acquisition of control; or (vi) the acquisition is likely to be hazardous or prejudicial to the insurance-buying public.
The superintendent of the DOI will grant approval of an application to acquire control of a domestic insurer unless, after a public hearing, the superintendent finds that any of the following apply: (i) after the change of control, the domestic insurer would not be able to satisfy the requirements for the issuance of a license to write the line or lines of insurance for which it is presently licensed; (ii) the effect of the merger or other acquisition of control would be substantially to lessen competition in insurance in the applicable state or tend to create a monopoly; (iii) the financial condition of any acquiring party is such as might jeopardize the financial stability of the domestic insurer, or prejudice the interests of its policyholders; (iv) the plans or proposals that the acquiring party has to liquidate the domestic insurer, sell its assets, or consolidate or merge it with any person, or to make any other material change in its business or corporate 9 structure or management, are unfair and unreasonable to policyholders of the domestic insurer and not in the public interest; (v) the competence, experience and integrity of the persons that would control the operation of the domestic insurer are such that it would not be in the interest of policyholders of the domestic insurer and of the public to permit the merger or other acquisition of control; or (vi) the acquisition is likely to be hazardous or prejudicial to the insurance-buying public.
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.
See the section 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.
See the section titled “Risk Factors—Risks Related to Our Business— Failure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business.” In addition, insurance regulators have broad powers to prevent a reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted.
See the section titled “Risk Factors—Risks Related to Our Business— Failure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business.” 10 In addition, insurance regulators have broad powers to prevent a reduction of statutory surplus to inadequate levels, and there is no assurance that dividends of the maximum amount calculated under any applicable formula would be permitted.
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 .
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 advertising, targeting and bidding strategies across our digital platforms, aligning customer acquisition cost to expected lifetime value of the potential customer. ◦ Referral .
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.
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 reinvent insurance through a commitment to technology and data science. We aim to empower better lives through better insurance.
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.
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 strong talent as one of our differentiating factors.
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 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. 5 Intellectual Property We believe that our intellectual property rights are valuable and important to our business.
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.
Traditional methods of pooled risk assessment are not personalized and inherently less precise given individual behavioral data is underutilized or not widely 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.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after the reports are filed with or furnished to the SEC.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after the reports are 15 filed with or furnished to the SEC.
We utilize these media channels to drive awareness when launching in new markets and to actively target customers in active states. • Partnerships: a wide array of integrations, spanning early-stage marketing partnerships through fully embedded user experiences . ◦ Embedded .
We utilize these media channels to drive awareness when launching in new markets and to actively target customers in active states. • Partnership: a wide array of integrations, spanning early-stage marketing partnerships through fully embedded user experiences . ◦ Embedded .
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.
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.
State insurance regulators use risk-based capital to set capital requirements, based on the size and degree of risk taken by the insurer, taking into account various risk factors including asset risk, credit risk, underwriting risk, and interest rate risk.
State insurance regulators use RBC to set capital requirements, based on the size and degree of risk taken by the insurer, taking into account various risk factors including asset risk, credit risk, underwriting risk, and interest rate risk.
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 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 14 disclosures about how their personal information is used and shared.
Unfair claims practices include, but are not limited to, misrepresenting pertinent facts or insurance policy provisions, failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies, failing to adopt reasonable standards for the investigation and settlement of a claim and attempting to settle a claim for less than the amount to which a reasonable person would have believed such person was entitled.
Unfair claims practices include, but are not limited to, misrepresenting pertinent facts or insurance policy provisions, failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies, failing to adopt reasonable standards for the investigation and adjustment of a claim and attempting to settle a claim for less than the amount to which a reasonable person would have believed such person was entitled.
Our team members achieve this mission with a focus on customer value, experimentation and invention, disciplined thinking, and operational excellence. These four principles form the basis of our management approach and performance review model, ensuring clear expectations, meaningful mentorship and powerful growth. We strive to create an empowering work environment and experience for each of our team members.
Our team members achieve this mission with a focus on customer value, experimentation and innovation, disciplined thinking, and operational excellence. These four principles form the basis of our management approach and performance review model, ensuring clear expectations, meaningful mentorship and powerful growth. We strive to create an empowering work environment and experience for each of our team members.
We set business conduct policies and provide training to make our employee-agents and other customer service personnel aware of these prohibitions and require them to conduct their activities in compliance with these statutes. 13 Unfair Claims Practices Insurance companies, third-party administrators and individual claims adjusters are generally prohibited by state statutes from engaging in unfair claims practices.
We set business conduct policies and provide training to make our employee-agents and other customer service personnel aware of these prohibitions and require them to conduct their activities in compliance with these statutes. Unfair Claims Practices Insurance companies, third-party administrators and individual claims adjusters are prohibited by state statutes from engaging in unfair claims practices.
In particular, auto insurers have come under increasing pressure because of inflation and other macroeconomic factors. Whether this pressure continues to exist depends on the macroeconomic environment. State regulators may interpret existing law or rely on future legislation or regulations to impose new restrictions that adversely affect profitability or growth.
In recent years, auto insurers in particular have come under increasing pressure because of inflation and other macroeconomic factors. Whether this pressure continues to exist depends on the macroeconomic environment. State regulators may interpret existing law or rely on future legislation or regulations to impose new restrictions that adversely affect profitability or growth.
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.
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 to ensure that their concerns are communicated and addressed. Hiring and Retaining Talent We are continually working on building a culture of attraction and retention of key talent.
Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, circumvented, or challenged.
Despite our efforts to protect our intellectual property rights, they may not be respected in the future or may be invalidated, infringed, circumvented, or challenged.
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.
Our performance development process aims to ensure that employees receive timely and actionable feedback, enables performance improvement where necessary, and provides 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.
In addition, our website allows investors and other interested persons to sign up to automatically receive email alerts when we post news releases and financial information on our website. Information contained on our website is not incorporated into this Annual Report on Form 10-K or other securities filings. 15
In addition, our website allows investors and other interested persons to sign up to automatically receive email alerts when we post news releases and financial information on our website. Information contained on our website is not incorporated into this Annual Report on Form 10-K or other securities filings. 16
The partnership channel emphasizes ease of use and minimal separation between intent and bind while leveraging the platforms of our strategic partners.
The partnership channel emphasizes ease of use and minimal separation between intent and 2 bind while leveraging the platforms of our strategic partners.
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.
Insurance regulatory authorities have broad authority to regulate all aspects of an insurance carrier or producer’s business in each state, 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.
However, federal regulation and initiatives do have an impact on the insurance industry. In particular, the Federal Insurance Office, or FIO, was established within the U.S. Department of the Treasury by the Dodd-Frank Act in July 2010 to monitor and coordinate the regulation of the insurance industry across the United States.
However, federal regulation and initiatives do have an impact on the insurance industry. In particular, the Federal Insurance Office, or FIO, was established within the U.S. Department of the Treasury by the Dodd-Frank Act in July 2010 to monitor and coordinate the regulation of the insurance industry across the U.S.
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.
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 and Solvency Assessments, or ORSAs, with our domiciliary regulators.
In those states that significantly restrict an insurer’s discretion in selecting the business that it wants to underwrite, an insurer can manage its risk of loss by charging a rate that reflects the cost and expense of providing the insurance.
In those states that significantly restrict an insurer’s discretion in selecting the business that it wants to underwrite, an insurer can manage its risk of loss by charging a rate to reflect the cost and expense of providing the insurance.
An insurance company with total adjusted capital that is less than 200% of its authorized control level risk-based capital is at a company action level, which would require the insurance company to file a risk-based capital plan that, among other things, contains proposals of corrective actions the Company intends to take that are reasonably expected to result in the elimination of the Company action level event.
An insurance company with total adjusted capital that is less than 200% of its authorized control level RBC is at a company action level, which would require the insurance company to file a RBC plan that, among other things, contains proposals of corrective actions the Company intends to take that are reasonably expected to result in the elimination of the company action level event.
“Extraordinary dividend” is defined under the Code as: (i) any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (a) ten percent of an insurer’s policyholder surplus as of December 31 of the preceding year, or (b) an insurer’s net income for the twelve-month period ending December 31 of the preceding year or (ii) any dividend or distribution paid by an insurer from a source other than earned surplus.
“Extraordinary dividend” is defined under applicable state law as: (i) any dividend or distribution of cash or other property whose fair market value, together with that of other dividends or distributions made within the preceding twelve months, exceeds the greater of (a) ten percent of an insurer’s policyholder surplus as of December 31 of the preceding year, or (b) an insurer’s net income for the twelve-month period ending December 31 of the preceding year or (ii) any dividend or distribution paid by an insurer from a source other than earned surplus.
Moreover, as we expand into new lines of business and offer additional products, we could face intense competition from traditional insurance companies that are already established in such markets.
Moreover, as we expand into new lines of business and offer additional products, we could face intense competition from traditional insurance companies that are already established in such markets and product offerings.
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.
Root takes steps to comply with applicable cybersecurity regulations, but the patchwork nature of the laws in this area currently makes 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.
Competition is based on many factors, including the reputation and experience of the insurer, coverages offered, pricing and other terms and conditions, customer service, size, and financial strength ratings, among other considerations.
Competition is based on many factors, including the reputation and experience of the insurer, coverages offered, pricing and other terms and conditions, customer service, claims experiences, size, and financial strength ratings, among other considerations.
In the longer-term, we plan to continue to develop additional growth opportunities through the expansion of product offerings. • Execute the Auto Opportunity ◦ Better, fairer pricing. We will never stop working to improve our ability to segment risk by increasing the influence of behavioral factors in our underwriting and pricing models.
In the longer-term, we plan to continue to develop additional growth opportunities through the expansion of product offerings. • Execute the Auto Opportunity ◦ Accurate pricing. We will never stop working to improve our ability to segment risk by increasing the influence of behavioral factors in our underwriting and pricing models.
While we currently operate in 34 states, we would need to obtain regulatory approval, including with respect to the regulations described above, before offering our products in new markets.
While we currently operate in 35 states, we would need to obtain regulatory approval, including with respect to the regulations described above, before offering our products in new markets.
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.
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 reserves to cover projected losses under its policies, in accordance with actuarial principles.
We believe that through a diverse and opportunistic customer acquisition strategy we can meet customers at a high point of intent. • Direct: seamless experiences driven by performance marketing and organic traffic connecting consumers directly to the product. ◦ Digital . Our direct digital channel is designed to drive volume by efficiently capturing high-intent customers.
We believe that through a diverse customer acquisition strategy we can meet customers at a high point of intent with a pleasant experience. • Direct: seamless experiences driven by performance marketing and organic traffic connecting consumers directly to the product. ◦ Digital . Our direct digital channel is designed to drive volume by efficiently capturing high-intent customers.
The FIO has the ability to make a recommendation to the FSOC to designate an insurer as “systemically significant,” subjecting the insurer to regulation by the Federal Reserve as a bank holding company, which could lead to higher capital requirements.
The FIO has the ability to make a recommendation to the FSOC to designate an insurer as “systemically significant,” subjecting the insurer to regulation by the Federal Reserve as a bank holding company, which in some cases could lead to higher capital requirements.
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 mobile engagement extends across the customer experience and value chain: • Engagement. Most of our new customers come through our two distribution channels: direct and partnership. 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.
In addition, the NAIC has developed a group capital calculation covering all entities in our insurance company group for us in solvency monitoring activities. The group capital calculation provides regulators with an additional analytical tool for conducting supervisory activities.
In addition, the NAIC has developed a group capital calculation covering all entities in our insurance company group. The group capital calculation provides regulators with an additional analytical tool for conducting supervisory activities.
We match miles tracked, on an individual basis, with actual claims and identify a set of driving performance factors that cause, or on a relative basis are more likely to cause, accidents. We use an internally developed claims infrastructure to capture comprehensive structured data, contributing to our data advantage when combined with telematics experience and iterated over time.
We match miles tracked, on an individual basis, with actual claims and identify a set of driving performance factors that cause, or on a relative basis are more likely to cause, losses. We use an internally developed claims infrastructure to capture comprehensive structured data, contributing to our data advantage when combined with the telematics experience and iterate over time.
Once an insurance carrier has received credit for reinsurance it does not need to hold separate admitted assets as reserves to cover claims on the risks that it has ceded to the reinsurer.
Once an insurance carrier has received credit for reinsurance it does not need to hold separate reserves to cover claims on the risks that it has ceded to the reinsurer.
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.
Many of these competitors offer consumers the ability to purchase multiple other lines of insurance coverage and “bundle” them together for discounts and, in certain circumstances, include an umbrella liability policy for additional coverage at competitive prices.
We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the United States. We also have registered domain names for websites that we use in our business. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective.
We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the U.S. and Canada. We also have registered domain names for websites that we use in our business. We intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective.
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.
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 Reinsurance As a full-stack insurance company, we currently employ a “capital-efficient” model, which utilizes a variety of reinsurance structures.
These arrangements involve varying degrees of integration, including our fully integrated embedded product utilized with some partners, such as Carvana. Over time, we expect increased penetration of this channel as we seek to partner across automotive, financial services and additional affinity channels, offering access to additional customer bases. ◦ Grow national auto insurance presence.
These arrangements involve varying degrees of integration, including our fully integrated embedded product utilized with some partners, such as Carvana. Over time, we expect increased penetration of this channel as we seek to partner across additional automotive, financial services, affinity, and independent agency channels. ◦ Grow national auto insurance presence.
Although the FIO has limited direct regulatory authority over insurance companies or other insurance industry participants, it does represent the United States on prudential aspects of international insurance matters, including at the International Association of Insurance Supervisors, or IAIS.
Although the FIO has limited direct regulatory authority over insurance companies or other insurance industry participants, it does represent the U.S. on prudential aspects of international insurance matters, including at the International Association of Insurance Supervisors, or IAIS.
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 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 through market analysis. Our executives and senior leadership roles, along with several identified roles throughout the business participate in a long-term equity-based incentive program.
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.
Behavioral Data and Proprietary Telematics Models For the majority of our customers, 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 losses and the leading variable in our underwriting model.
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.
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. 13 Investment Regulation Root Insurance Company and Root Property & Casualty are subject to Ohio’s rules and regulations governing the investment of its assets, while Root Florida is subject to Florida’s rules and regulations.
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 believe this strongly supports a long-term view and pay for performance that is aligned with our shareholders’ expectations. Our benefit offering includes medical, dental, vision, prescription drug benefits, an employee assistance program, life insurance, short- and long-term disability, paid time off and paid parental leave.
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.
As of December 31, 2024, we had eight issued patents, six non-provisional patent applications and four continuation applications pending examination in the U.S. We continually review our development efforts to assess the existence and patentability of new intellectual property.
However, the definition of “personal information” in the CCPA is broad and encompasses other information that we process beyond the scope of this exemption. In addition, we are subject to multiple state requirements pertaining to how insurers handle their customers’ non-public personal information.
However, the definition of “personal information” in the CCPA is broad and encompasses other information that we process beyond the scope of this exemption. In addition, we are subject to multiple state requirements pertaining to how insurers handle their customers’ non-public personal information, including but not limited to in Virginia, Montana, and Nevada.
We understand that a team with diverse backgrounds and perspectives delivers better insights and outcomes, enables innovation, and fosters a greater understanding of our customers. Our efforts to create a diverse and inclusive workspace, particularly in the tech sector, are focused on talent acquisition and development, education and training, feedback and collaboration, and strategic planning aimed at consistent growth.
We understand that a team with diverse backgrounds and perspectives delivers better insights and outcomes, enables creativity, and fosters a greater understanding of our customers. Our efforts to create an inclusive workspace are focused on talent acquisition and development, education and training, feedback and collaboration, and strategic planning aimed at consistent growth.
Our model revolves around using integrated data and technology to create a pricing advantage through segmentation and has allowed us to respond quickly to macroeconomic trends.
Our model uses integrated data and technology to create a pricing advantage through segmentation and has allowed us to respond quickly to macroeconomic trends.
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.
As of December 31, 2024, Ohio adopted the model legislation, which will become effective June 1, 2025 for those insurance holding company systems that do not write business outside of the U.S., like us.
This is our lowest cost acquisition channel and an important aspect of our ongoing distribution strategy. ◦ Channel Media . We build consideration and drive intent through household-level targeted media channels including direct mail, billboards, and regional TV and radio.
This is our lowest cost acquisition channel and an important aspect of our ongoing distribution and brand strategy. ◦ Channel Media . We build consideration and drive intent through household-level targeted media channels including direct mail and social media.
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.
Employees As of December 31, 2024, we had 1,021 full-time employees. None of our employees are represented by a labor union or covered by collective bargaining agreements.
We ensure that all of Root Insurance Company’s reinsurers qualify for credit for reinsurance so that Root Insurance Company is able to take full financial statement credit for its reinsurance. Rate Regulation Most states require personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority.
We ensure that all of our insurance subsidiaries’ reinsurers qualify for credit for reinsurance so that they are able to take full financial statement credit for reinsurance. 12 Rate Regulation Most states require personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority.
We are also subject to market conduct examinations in any state in which one of our insurance subsidiaries issues policies. Market conduct examinations examine an insurer’s conduct toward policyholders, including complaint handling, marketing, claims, policyholder notice, rate and form filing, and customer service.
There were no formal findings or financial statement adjustments. We are also subject to market conduct examinations in any state in which one of our insurance subsidiaries issues policies. 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 include excess of loss and quota share reinsurance. Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes. Quota share provides, among other advantages, regulatory surplus relief for growing companies.
These include excess of loss and quota share reinsurance. Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes. Quota share provides, among other advantages, regulatory surplus relief for growing companies. We primarily utilize reinsurance to mitigate the impact of large losses or tail events .
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.
Once purchased, customers can perform all policy management functions seamlessly from our app, including profile or coverage adjustments, obtaining proof of insurance or chatting with an automated assistant or human. • Claims. We make it easy to file a claim and track adjusting status through to settlement via the app, allowing us to administer claims more rapidly.
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.
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.
Many of our primary competitors have well-established national brands and market similar products. Our competitors include large national insurance companies such as Geico, Progressive and Allstate, as well as up-and-coming companies and new market entrants in the insurtech industry, some of which also utilize telematics and offer forms of usage-based insurance.
Our competitors include large national insurance companies such as GEICO, Progressive and Allstate, as well as new market entrants in the insurtech industry, some of which also utilize telematics and offer forms of usage-based insurance.
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.
Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the District of Columbia and 47 states, which does not include Florida, Massachusetts and New York.
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 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, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, and Wisconsin.
Insurance Regulation We are subject to insurance regulation in the jurisdictions in which we transact insurance through our licensed insurance carriers and producer subsidiaries in the United States.
Insurance Regulation We are subject to insurance regulation in the jurisdictions in which we hold licenses and transact insurance through our licensed insurance carriers and producer subsidiaries in the U.S.
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.
Distribution We distribute largely through our direct and partnership channels. The direct channel includes mobile, which is the fastest growing retail channel in the U.S., 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.
In 2023, we focused on retaining the talent required to execute our plan, improving our operating efficiency and operating costs, prioritizing our resources to further strengthen our pricing and underwriting foundation and continuing development and distribution of our insurance products.
In 2024, we focused on retaining the talent required to execute our strategic plan, improving our operating efficiency and operating costs, prioritizing our resources to further strengthen our pricing and underwriting foundation and continuing development and distribution of our insurance products. Furthermore, we implemented several training initiatives to help support our employees.
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.
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.
In accordance with NAIC’s property and casualty statement instructions, they must submit an annual Statement of Actuarial Opinion from a qualified actuary appointed by the Company, certifying that its reserves are reasonable.
In accordance with NAIC’s property and casualty statement instructions, they must submit an annual Statement of Actuarial Opinion from a qualified actuary appointed by the Company, certifying that its reserves are reasonable. Risk-Based Capital and Group Capital State insurance regulators establish and monitor compliance with capital and surplus requirements.
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.
Root, Inc. has filed its ORSA summary reports with the Ohio DOI annually since 2021, and will file its 2024 ORSA summary report by the end of the first quarter in 2025. Restrictions on Paying Dividends We are a holding company that transacts a majority of its business through operating subsidiaries.
Required Licensing We have two wholly-owned regulated U.S. insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, or Root Property & Casualty.
Required Licensing We have three wholly-owned regulated U.S. insurance subsidiaries, Root Insurance Company, Root Property & Casualty Insurance Company, or Root Property & Casualty, and Root Florida Insurance Company, or Root Florida. Collectively, these are our insurance subsidiaries.
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.
A two-to-four week test drive gathers and analyzes an individual’s data from smartphone sensors measuring braking, consistency, turning, time of day, driver attentiveness and other performance and contextual data.
This would include, but is not limited to, ordering the insurer to: (i) increase its capital and surplus, (ii) suspend payments of dividends, (iii) limit or withdraw from certain investments, (iv) correct corporate governance deficiencies and (v) take any other action necessary to cure the hazardous condition.
This would include, but is not limited to, ordering the insurer to: (i) increase its capital and surplus, (ii) suspend payments of dividends, (iii) limit or withdraw from certain investments, (iv) correct corporate governance deficiencies and (v) take any other action necessary to cure the hazardous condition. 11 Periodic Examinations Our insurance subsidiaries are subject to on-site visits and financial and/or market conduct examinations by state insurance regulatory authorities.
While telematics is core to our value proposition, some of our customers have an immediate insurance need, and as such, we are able to utilize traditional underwriting variables at policy origination, when needed.
While telematics is core to our value proposition, some of our customers have an immediate insurance need, and as such, we are able to utilize traditional underwriting variables at policy origination, when needed. With this approach, we leverage both traditional underwriting variables and the power of our proprietary telematics platform to offer good prices to our best customers.
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.
This market exceeded $488 billion in 2023 premiums and has grown at a 6% compound annual growth rate, or CAGR, since 2016. 1 Over the past century, there have been only a few waves of innovative disruption within insurance.
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.
Employees are encouraged to report any unusual behavior or any non-compliant activities through 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.
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.
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. The technology driven approach makes this an appealing platform for agents and an efficient acquisition channel for us.
In addition to these states, Nevada provides its residents with the right to request a website operator not to sell their information. 14 Further, in response to the growing threat of cyber-attacks in the insurance industry, several jurisdictions have adopted, or have begun to consider adopting, cybersecurity regulations that establish requirements and standards for safeguarding non-public personal information, including the New York Department of Financial Services.
Further, in response to the growing threat of cybersecurity-attacks in the insurance industry, several jurisdictions have adopted, or have begun to consider adopting, cybersecurity regulations that establish requirements and standards for safeguarding non-public personal information, including the New York Department of Financial Services.

… 76 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

302 edited+50 added−26 removed256 unchanged
Biggest changeWe are required to have sufficient capital and surplus in order to comply with insurance regulatory requirements, support our business operations and minimize our risk of insolvency. The NAIC has developed a system to test the adequacy of statutory capital and surplus of U.S.-based insurers, known as risk-based capital, that all states have adopted.
Biggest changeFailure to maintain our risk-based capital at the required levels could adversely affect our ability to maintain regulatory authority to conduct our business. We are required to maintain sufficient capital and surplus in order to comply with insurance regulatory requirements, support our business operations and minimize our risk of insolvency.
Our business, financial condition, results of operations or prospects could be materially and adversely affected by any of these risks or uncertainties, as well as by risks or uncertainties not currently known to us, or that we do not currently believe are material.
Our business, results of operations, financial condition or prospects could be materially and adversely affected by any of these risks or uncertainties, as well as by risks or uncertainties not currently known to us, or that we do not currently believe are material.
Any such event could, in turn, materially and adversely affect our business, financial condition, results of operations and prospects.
Any such event could, in turn, materially and adversely affect our business, results of operations, financial condition and prospects.
Our success depends on our ability to attract consumers to our website and convert them into customers in a rapid and cost-effective manner through our mobile app.
Our success depends on our ability to attract consumers to our website and mobile app and convert them into customers in a rapid and cost-effective manner through our mobile app.
Government regulation of the internet and the use of mobile apps in particular is evolving, and unfavorable changes could seriously harm our business. We rely on our mobile app to execute our business strategy.
We rely on our mobile app to execute our business strategy. Government regulation of the internet and the use of mobile apps in particular is evolving, and unfavorable changes could seriously harm our business. We rely on our mobile app to execute our business strategy.
Several states have also adopted legislation prohibiting unfair methods of competition and unfair or deceptive acts and practices in the business of insurance as well as unfair claims practices. Prohibited practices include, but are not limited to, misrepresentations, false advertising, coercion, disparaging other insurers, unfair claims settlement procedures, and discrimination in the business of insurance.
Several states have also adopted legislation prohibiting unfair methods of competition and unfair or deceptive acts and practices in the business of insurance as well as prohibiting unfair claims practices. Prohibited practices include, but are not limited to, misrepresentations, false advertising, coercion, disparaging other insurers, unfair claims settlement procedures, and discrimination in the business of insurance.
Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact use of our website and mobile app. We use technology and intellectual property licensed from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property in the future.
Moreover, negative publicity arising from these types of disruptions could damage our reputation and may adversely impact the use of our website and mobile app. We use technology and intellectual property licensed from unaffiliated third parties in certain of our products, and we may license additional third-party technology and intellectual property in the future.
In either case, we would be required either to attempt to redesign our products to function with technology and intellectual property available from other parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and the release of new product offerings.
In either case, we would be required to attempt to redesign our products to function with technology and intellectual property available from other parties or to develop these components ourselves, which would result in increased costs and could result in delays in product sales and the release of new product offerings.
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.
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; 54 • 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.
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.
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; 51 • 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.
As an example, an insurance holding company system’s ultimate controlling person is required to submit annually to its primary state insurance regulator an “enterprise risk report” that identifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole.
For example, an insurance holding company system’s ultimate controlling person is required to submit annually to its primary state insurance regulator an “enterprise risk report” that identifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole.
As an insurance company, we are subject to extensive laws and regulations in every jurisdiction in which we conduct business, and any such issuances of equity or convertible debt securities to secure additional funds may be impeded by regulatory approvals or requirements imposed by such regulatory authorities if such issuances are deemed to result in a person acquiring “control” of our company under applicable insurance laws and regulations.
As an insurance company, we are subject to extensive laws and regulations in every jurisdiction in which we conduct business, and any such issuances of equity or convertible debt securities to secure additional funds may be impeded by regulatory approvals or requirements imposed by such regulatory authorities if such issuances are deemed to result in a person 19 acquiring “control” of our company under applicable insurance laws and regulations.
Applicable law provides for a rebuttable presumption of “control” by any person which owns or acquires, directly or indirectly, 10% or more of the voting stock of the insurance company, and 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, or Form A.
Applicable law provides for a rebuttable presumption of “control” by any person which owns or acquires, directly or indirectly, 10% or more of the voting stock of the insurance company, and a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of an insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer, or Form A.
For example, the proposed Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data, or DASHBOARD, Act 20 would mandate annual disclosure to the SEC of the type and “aggregate value” of user data used by harvesting companies, such as Facebook, Google and Amazon, including how revenue is generated by user data and what measures are taken to protect the data.
For example, the proposed Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data, or DASHBOARD, Act would mandate annual disclosure to the SEC of the type and “aggregate value” of user data used by harvesting companies, such as Facebook, Google and Amazon, including how revenue is generated by user data and what measures are taken to protect the data.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns (including marketing affiliations or partnerships), our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers or business partners, data privacy and security issues, and other aspects of our business, whether real or perceived, could diminish confidence in our brand, which could adversely affect our reputation and business.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns (including marketing affiliations or partnerships), our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers or business partners, data privacy and security issues, and other aspects of our business, whether real or perceived, could diminish confidence in our brand, which would adversely affect our reputation and business.
These funds periodically assess losses against all insurance companies doing business in the state. Our results of operations and financial condition could be adversely affected by any of these factors. State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
These funds periodically assess losses against all insurance companies doing business in the state. Our business, results of operations, financial condition and prospects could be adversely affected by any of these factors. State insurance regulators impose additional reporting requirements regarding enterprise risk on insurance holding company systems, with which we must comply as an insurance holding company.
Although these capital requirements are generally less constraining than U.S. capital requirements, failure to satisfy these requirements could result in regulatory actions from the CIMA or loss of or modification of Root Re’s Class B(iii) insurer license, which could adversely impact our ability to improve our overall capital efficiency and support our “capital-efficient” model.
Although these capital requirements are generally less constraining than U.S. capital requirements, failure to satisfy these requirements could result in regulatory actions from the CIMA or loss of or modification of Root Re’s Class B(iii) insurer license, which would adversely impact our ability to improve our overall capital efficiency and support our “capital-efficient” model.
If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected. Any of these factors could lead to an adverse effect on our business, results of operations and financial condition. Retention of business written by us or through our Texas county mutual arrangement could expose us to potential losses.
If we cannot underwrite insurance at appropriate rates, our ability to transact business will be materially and adversely affected. Any of these factors could lead to an adverse effect on our business, results of operations, financial condition and prospects. Retention of business written by us or through our Texas county mutual arrangement could expose us to potential losses.
Our future success depends on our continuing ability to identify, hire, develop, motivate and retain highly skilled and experienced personnel and, if we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to maintain or implement our current initiatives, or our business may contract and we may lose market share.
Our future success depends on our continuing to identify, hire, develop, motivate and retain highly skilled and experienced personnel and, if we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to maintain or implement our current initiatives, or our business may contract and we may lose market share.
Under insurance laws, the insurer typically has the burden of proving an exclusion applies and any ambiguities in the terms of a loss limitation or exclusion provision are typically construed against the insurer. These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the frequency or severity of claims.
Under insurance laws, the insurer typically has the burden of proving an exclusion applies and any ambiguities in the terms of a loss limitation or exclusion provision are typically construed against the insurer. These issues may adversely affect our business by either broadening coverage beyond our underwriting intent, by increasing the frequency or severity of claims or both.
If these third parties change their listings or increase their pricing, if our relationships with them deteriorate or terminate, or if other factors related to these third parties arise which are beyond our control, we may be unable to attract new customers rapidly and cost-effectively, which would adversely affect our business and results of operations.
If these third parties change their listings or increase their pricing, if our relationships with them deteriorate or terminate, or if other factors related to these third parties arise which are beyond our control, we may be unable to attract new customers rapidly and cost-effectively, which would adversely affect our business, results of operations and prospects.
The maximum percentage and types of securities we may invest in are subject to insurance laws and regulations, which may change. Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in certain circumstances, we would be required to dispose of such investments.
The maximum percentage and types of securities we may invest in are subject to insurance laws and regulations, which may and do change. Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets for purposes of measuring statutory surplus and, in certain circumstances, we would be required to dispose of such investments.
Until an overarching federal privacy law is passed, however, it is anticipated that individual states will continue to adopt or amend state laws and regulations governing data privacy and cybersecurity, which could increase the cost and complexity of our compliance efforts and could impact the integrity and quality of our pricing and underwriting processes.
Until an overarching federal privacy law is passed, however, it is anticipated that individual states will continue to adopt or amend state laws and regulations governing data privacy and cybersecurity, which will increase the cost and complexity of our compliance efforts and impact the integrity and quality of our pricing and underwriting processes.
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.
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.
For example, state insurance laws are generally prescriptive with respect to the content and timeliness of notices we must provide policyholders. Failure to comply with other state insurance laws and regulations in the future could also have a material adverse effect on our business, operating results and financial condition.
For example, state insurance laws are generally prescriptive with respect to the content and timeliness of notices we must provide policyholders. Failure to comply with other state insurance laws and regulations in the future could also have a material adverse effect on our business, operating results, financial condition and prospects.
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 40 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.
Noncompliance with any of such state statutes may subject us to regulatory action by the relevant state insurance regulator, and possibly private litigation. States also regulate various aspects of the contractual relationships between insurers and independent agents as well as, in certain states, insurers and third-party administrators.
Noncompliance with any of such state statutes may subject us to legal and regulatory action by the relevant state insurance regulator, and possibly private litigation. States also regulate various aspects of the contractual relationships between insurers and independent agents as well as, in certain states, insurers and third-party administrators.
A repayment of our debt would materially reduce our cash position and may cause insurance regulators to review our financial condition and require us to take actions to raise additional funds via equity or debt, which may be at less favorable terms than under the Term Loan.
A repayment of our debt would materially reduce our cash position and may cause insurance regulators to review our financial condition and require us to take actions to raise additional funds via equity or debt, which may be at less favorable terms than under the Amended Term Loan.
Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming and could divert the attention of our board of directors and senior management from the management of our operations and the pursuit of our business strategies. As a result, stockholder campaigns could adversely affect our results of operations and financial condition.
Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming and could divert the attention of our board of directors and senior management from the management of our operations and the pursuit of our business strategies. As a result, stockholder campaigns could adversely affect our business, results of operations, financial condition and prospects.
For example, existing laws, such as the CCPA, which became effective January 1, 2020, future laws, and evolving attitudes about privacy protection may impair our ability to collect, use, and maintain data points of sufficient type or quantity to develop and train our algorithms.
For example, existing laws, such as the CCPA, which became effective January 1, 2020, future laws, and evolving attitudes about privacy protection may impair our ability to collect, obtain, use, and maintain data points of sufficient type or quantity to develop and train our algorithms.
Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, financial condition and operating results. Claims by others that we infringed proprietary technology or other intellectual property rights could harm our business.
Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business, operating results, financial condition and prospects. Claims by others that we infringed proprietary technology or other intellectual property rights could harm our business.
Alternatively, we could elect to pay higher than reasonable rates for reinsurance coverage, which could have a material adverse effect upon our profitability unless policy premium rates could be raised, in most cases subject to approval by state regulators, to offset this additional cost.
Alternatively, we could elect to pay higher than reasonable rates for reinsurance coverage, which would have a material adverse effect upon our profitability unless policy premium rates could be raised, in most cases subject to approval by state regulators, to offset this additional cost.
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.
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.
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 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, obtain or use driving behavior data and utilize telematics.
If we fail to grow our geographic footprint or geographic growth occurs at a slower rate than expected, our business, results of operations and financial condition could be materially and adversely affected. Our technology platform may not operate properly or as we expect it to operate.
If we fail to grow our geographic footprint or geographic growth occurs at a slower rate than expected, our business, results of operations, financial condition and prospects could be materially and adversely affected. Our technology platform may not operate properly or as we expect it to operate.
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.
Cybersecurity incidents have in the past resulted in unauthorized access to certain personal information that we handle, and may again 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 31 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 property laws may compromise our ability to enforce our trade secret and intellectual property rights.
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, financial condition or prospects.
Additionally, various factors outside our control pose a threat to our intellectual property rights, as well as to our products, services and technologies. For example, we may fail to obtain effective intellectual property protection, or effective intellectual property protection may not be available in every country in which our products and services are available.
Additionally, various factors outside our control pose a threat to our intellectual property rights, as well as to our products, services and technologies. For example, we may fail to obtain effective intellectual property protection, or effective intellectual property protection may not be available in every country in which our products and services are accessible.
Companies in the internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased, or have otherwise obtained.
Companies in the telematics, internet and technology industries are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. In addition, certain companies and rights holders seek to enforce and monetize patents or other intellectual property rights they own, have purchased, or have otherwise obtained.
The results of the examinations are a matter of public record, and our reputation may also be harmed by such penalties. For more information regarding our financial condition examinations, see the section titled “Periodic Examinations” in the “Insurance Regulation” section of Item 1. Business.
The results of the examinations are a matter of public record, and our reputation may also be harmed by penalties. For more information regarding our financial condition examinations, see the section titled “Periodic Examinations” in the “Insurance Regulation” section of Item 1. Business.
We are subject to market conduct examinations by state insurance regulatory authorities in any state in which our domestic insurance subsidiaries issue insurance policies, which could result in adverse examination findings and necessitate remedial actions. Our domestic insurance subsidiaries are also subject to other investigations or inquiries, including market conduct examinations, in any state in which they issue policies.
We are subject to market conduct examinations by state insurance regulatory authorities in any state in which our insurance subsidiaries issue insurance policies, which could result in adverse examination findings and necessitate remedial actions. Our insurance subsidiaries are also subject to other investigations or inquiries, including market conduct examinations, in any state in which they issue policies.
If we lose the services of one or more of our senior management and other key personnel, including as a result of our workforce reductions or our business results, we may not be able to successfully manage our business, meet competitive challenges or achieve our business objectives.
If we lose the services of one or more of our senior management or other key personnel, including as a result of our workforce reductions or our business results, we may not be able to successfully manage our business, meet competitive challenges or achieve our business objectives.
We are subject to general business regulations and laws as well as federal and state regulations and laws specifically governing the internet and the use of mobile apps in particular. Existing and future laws and regulations may impede the growth of the internet or other online services 30 and increase the cost of providing online services.
We are subject to general business regulations and laws as well as federal and state regulations and laws specifically governing the internet and the use of mobile apps in particular. Existing and future laws and regulations may impede the growth of the internet or other online services and increase the cost of providing online services.
Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect 36 when the NOLs are expected to be utilized. This limitation on use of NOLs may significantly impact our ability to utilize our NOLs to offset taxable income in the future.
Deferred tax assets for NOLs will need to be measured at the applicable tax rate in effect when the NOLs are expected to be utilized. This limitation on use of NOLs may significantly impact our ability to utilize our NOLs to offset taxable income in the future.
If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations and financial condition.
If we fail to adequately control fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures, and significantly higher credit card-related costs, each of which could harm our business, results of operations, financial condition and prospects.
Our failure to comply with covenants contained in the Term Loan may result in acceleration of our repayment obligations, which could harm our liquidity, financial condition, operating results, business and prospects and cause the price of our Class A common stock to decline.
Our failure to comply with covenants contained in the Amended Term Loan may result in acceleration of our repayment obligations, which could harm our liquidity, financial condition, operating results, business and prospects and cause the price of our Class A common stock to decline.
Our continued success depends on our systems, applications, and software continuing to operate and to meet the changing needs of our customers and users. We rely on our technology and engineering staff and vendors to successfully implement changes to and maintain our systems and services in an efficient and secure manner.
Our success depends on our systems, applications, and software continuing to operate and to meet the changing needs of our customers and users. We rely on our technology and engineering staff and vendors to successfully implement changes to and maintain our systems and services in an efficient and secure manner.
As a newer entrant into the insurance market, we have spent, and expect that we will for the foreseeable future continue to spend, considerable amounts of money and other resources on creating brand awareness and building our reputation.
As a newer entrant into the insurance market, we have spent, and expect that we will for the foreseeable future continue to spend, considerable amounts of money and 28 other resources on creating brand awareness and building our reputation.
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.
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 and renters insurance.
We may also be required to disclose our proprietary software to regulators, putting our intellectual property at risk, in order to receive regulatory approval to use such artificial intelligence in the underwriting of insurance and/or the payment of claims.
We may also be required to disclose our proprietary software to regulators, putting our confidential intellectual property at risk, in order to receive regulatory approval to use such artificial intelligence in the underwriting of insurance and/or the payment of claims.
If our financial condition is deemed by state insurance regulators to meet the Hazardous Financial Conditions Standards, it could subject us to heightened regulatory scrutiny or measures or create uncertainty around the stability of our financial condition, which could harm our business.
If our financial condition is deemed by state insurance regulators to meet the Hazardous Financial Conditions Standards, it could subject us to heightened regulatory scrutiny or measures or create uncertainty around the stability of our financial condition, which would harm our business.
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.
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.
Any regulatory or enforcement action or any regulatory order imposing remedial, injunctive, or other corrective action against us resulting from an examination could have a material adverse effect on our business, reputation, financial condition or results of operations.
Any regulatory or enforcement action or any regulatory order imposing remedial, injunctive, or other corrective action against us resulting from an examination could have a material adverse effect on our business, reputation, financial condition, results of operations or prospects.
We rely on third parties to provide critical services that help us deliver our solutions and operate our business. These third parties may support or operate critical business systems for us or store or process the same sensitive, proprietary and confidential information that we handle.
We rely on third parties to provide critical services that help us deliver our solutions and operate our business. These third parties support or operate critical business systems for us or store or process the same sensitive, proprietary and confidential information that we handle.
If we or, our auditors are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our Class A common stock may decline.
If we or our auditors are unable to 50 conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting and the trading price of our Class A common stock may decline.
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.
Our ability to accurately price our policies is subject to a number of risks and uncertainties, including: • insufficient, inaccurate 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.
If we fail to manage our losses or to grow our revenue sufficiently to keep pace with our investments and other expenses, our business will be seriously harmed and we may not achieve or maintain profitability in future periods.
If we fail to manage our losses or to grow our revenue sufficiently to keep pace with our investments and other expenses, our business will be seriously harmed and we may not maintain profitability in future periods.
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.
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.
Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations, and prospects. Under the terms of our policies, we are required to accurately and timely evaluate and pay claims.
Denial of claims or our failure to accurately and timely pay claims could materially and adversely affect our business, results of operations, financial condition and prospects. Under the terms of our policies, we are required to accurately and timely evaluate and pay covered claims.
If we are unable to access the cash in those accounts as needed, whether due to our own systems difficulties, an institution-specific issue at the bank or financial institution (such as a bank failure, cybersecurity breach, severe weather or other catastrophe impacting their operations), a broader disruption in banking, financial or wire transfer systems, or otherwise, our ability to pay insurance claims and other financial obligations when due and otherwise operate our business could be materially adversely affected.
If we are unable to access the cash in those accounts as needed, whether due to our own systems difficulties, an institution-specific issue at the bank or financial institution (such as a bank failure, cybersecurity incident, severe weather or other catastrophe impacting their operations), a broader disruption in banking, financial or wire transfer systems, or otherwise, our ability to pay insurance claims and other financial obligations when due and otherwise operate our business could be materially adversely affected.
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.
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 govern how it is collected and used, and the options consumers may have to protect their vehicle data.
Moreover, if, for any reason, an unfavorable perception develops that telematics, mobile engagement, a technology-based platform and/or bots are less efficacious than traditional offline methods of purchasing insurance, underwriting, claims processing, and other functions that do not use data automation, artificial intelligence and/or bots, or that our processes lead to unfair outcomes, our business, results of operations and financial condition could be adversely affected.
Moreover, if, for any reason, an unfavorable perception generally develops that telematics, mobile engagement, a technology-based platform, artificial intelligence and/or bots are less efficacious than traditional offline methods of purchasing insurance, underwriting, claims processing, and other functions that do not use data automation, artificial intelligence and/or bots, or that our processes lead to unfair outcomes, our business, results of operations, financial condition and prospects could be adversely affected.
Additionally, existing laws, future laws, and evolving attitudes about privacy protection may impair our ability to collect, use, and maintain data points of sufficient type or quantity to develop and train our algorithms.
Additionally, existing laws, future laws, and evolving attitudes about privacy protection may impair our ability to collect, obtain, use, and maintain data points of sufficient type or quantity to develop and train our algorithms.
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.
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.
A breach of any of these covenants could result in default under our Term Loan, which could prompt lenders to declare all amounts outstanding under the Term Loan to be immediately due and payable.
A breach of any of these covenants could result in default under our Amended Term Loan, which could prompt lenders to declare all amounts outstanding under the Amended Term Loan to be immediately due and payable.
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.
If, as a result of 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 an enforcement action or, in the case of regulatory capital, require us to maintain additional capital.
Our inability to overcome these challenges could impair our ability to attract new customers and retain existing customers and could have a material adverse effect on our business, operating results and financial condition.
Our inability to overcome these challenges will impair our ability to attract new customers and retain existing customers and could have a material adverse effect on our business, operating results and financial condition.
In addition to increasing our compliance costs and potential liability, the CCPA’s restrictions on “sales” of personal information may restrict our use of cookies and similar technologies for advertising purposes.
In addition to increasing our compliance costs and potential liability, the CCPA’s restrictions on “sales” of personal information restrict our use of cookies and similar technologies for advertising purposes.
Although state insurance regulators have primary responsibility for administering and enforcing insurance regulations in the United States, such laws and regulations are further administered and enforced by a number of additional governmental authorities, each of which exercises a degree of interpretive latitude, including state securities administrators; state attorneys general as well as federal agencies including the SEC, the Financial Industry Regulatory Authority, the Federal Reserve Board, the Federal Insurance Office, the U.S.
Although state insurance regulators have primary responsibility for administering and enforcing insurance regulations in the U.S., such laws and regulations are further administered and enforced by a number of additional governmental authorities, each of which exercises a degree of interpretive latitude, including state securities administrators; state attorneys general as well as federal agencies including the SEC, the Financial Industry Regulatory Authority, the Federal Reserve Board, the Federal Insurance Office, the U.S.
Risks Related to Our Indebtedness Our Term Loan includes a floating interest rate that exposes us to interest rate risk, and the terms of our Term Loan place restrictions on our operating and financial flexibility.
Risks Related to Our Indebtedness Our Amended Term Loan includes a floating interest rate that exposes us to interest rate risk, and the terms of our Amended Term Loan place restrictions on our operating and financial flexibility.
These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, electronic signatures and consents, consumer protection and social media marketing.
These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, electronic signatures and 32 consents, consumer protection and social media marketing.
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.
Would-be acquirers may find these 48 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.
As a result, reinsurance does not eliminate the obligation of our regulated insurance subsidiary to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts, limiting recovery.
As a result, reinsurance does not eliminate the obligation of our regulated insurance subsidiary to pay all claims, and we are subject to the risk that one or more of our reinsurers will be unable or unwilling to honor its obligations, that the reinsurers will not pay in a timely fashion, or that our losses are so large that they exceed the limits inherent in our reinsurance contracts.
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.
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 adjust or deny policyholder claims and become subject to liability.
Our intention is to maintain compliance with PCI’s data security standards. The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in payment systems.
Our intention is to maintain compliance with PCI’s data security standards. 44 The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly sophisticated, seeking to obtain unauthorized access to or exploit weaknesses that may exist in payment systems.
For more information regarding our previous and ongoing market conduct examinations, see the section titled “Periodic Examinations” in the “Insurance Regulation” section of Item 1 Business. Our exposure to loss activity and regulation may be greater in states where we currently have most of our customers: Texas, Georgia and Colorado.
For more information regarding our previous and ongoing market conduct examinations, see the section titled “Periodic Examinations” in the “Insurance Regulation” section of Item 1 Business. Our exposure to loss activity and regulation may be greater in states where we currently have most of our customers: Texas, Georgia and Florida.
We rely on telematics, mobile technology and our digital platform to collect data points that we evaluate in pricing and underwriting our insurance policies, managing claims and customer support, and improving business processes. To the extent regulators prohibit or restrict our collection or use of this data, our business could be harmed.
We rely on telematics, mobile technology and our digital platform to collect data points that we evaluate in pricing and underwriting our insurance policies, managing claims and customer support, and improving business processes. To the extent regulators prohibit or restrict our collection or use of this data, our business will be harmed.
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.
There is no guarantee 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.
Any inability or failure to protect our intellectual property could adversely impact our business, results of operations and financial condition.
Any inability or failure to protect our intellectual property could adversely impact our business, results of operations, financial condition and prospects.

… 298 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+0 added−0 removed13 unchanged
Biggest changeThe Information Security group and senior leadership are responsible for assessing and managing risks from cybersecurity threats. The Information Security group is led by the Company’s CISO, who is also responsible for the day-to-day management of the Information Security Program. Katelynn Sandy is the Company’s CISO. Ms.
Biggest changeThe Company’s CISO is responsible for assessing and managing risks from cybersecurity threats. The Company’s CISO also leads the Information Security group and is responsible for the day-to-day management of the Information Security Program. Katelynn Sandy is the Company’s CISO and reports directly to the Company’s President and Chief Technology Officer. Ms.
As of the filing of this Annual Report on Form 10-K, we are not aware of any such incidents that have occurred since the beginning of 2023 that have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
As of the filing of this Annual Report on Form 10-K, we are not aware of any such incidents that have occurred since the beginning of 2024 that have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
As part of the Information Security Program, the Company has implemented an information security and privacy training and awareness program for Root employees, which includes new-hire training, ongoing monthly training and regular phishing simulation and exercises. In addition, the Company has engaged third parties in connection with these processes.
As part of the Information Security Program, the Company has implemented an information security and privacy training and awareness program for Root employees, which includes new-hire training, ongoing periodic training and regular phishing simulation and exercises. In addition, the Company has engaged third parties in connection with these processes.
Senior members of our Information Security and Internal Audit functions also provide detailed, regular reports on information security and privacy to the Audit, Risk and Finance Committee . 57
Senior members of our Information Security and Internal Audit functions also provide detailed, regular reports on information security and privacy to the Audit, Risk and Finance Committee . 60
Risks related to cybersecurity events are detailed in the section of this Annual Report on Form 10-K titled “Risk Factors—Risks Related to Our Business—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.” Cybersecurity Governance While our full board of directors has overall responsibility for risk oversight, it has delegated oversight of certain risks to its committees, including the oversight of risks from cybersecurity threats.
Risks related to cybersecurity events are detailed in the section of this Annual Report on Form 10-K titled “Risk Factors—Risks Related to Our Business—Cybersecurity incidents, 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, financial condition, operating results and prospects.” Cybersecurity Governance While our full board of directors has overall responsibility for risk oversight, it has delegated oversight of certain risks to its committees, including the oversight of risks from cybersecurity threats.
The board of directors and the Audit, Risk and Finance Committee are informed about these risks through regular reports from the Chief Information Security Officer, or CISO, about the Information Security Program. 56 Additionally, the board of directors is informed of material information security incidents, as needed, by the Computer Security Incident Response Team, which is led by the Company’s Chief Legal Officer.
The board of directors and the Audit, Risk and Finance Committee are informed about these risks through regular reports from the Chief Information Security Officer, or CISO, about the Information Security Program. 59 Additionally, the board of directors is informed of material information security incidents, as needed, by the Computer Security Incident Response Team, which is led by the Company’s General Counsel.
We have experienced cybersecurity threats to our information technology infrastructure and have experienced cybersecurity attacks, attempts to breach our systems, fraudulent activity and other similar incidents.
We have experienced cybersecurity threats to our information technology infrastructure and have experienced cybersecurity incidents that have resulted in threat actors obtaining customer personal information, attempts to breach our systems, fraudulent activity and other incidents.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−0 removed0 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. 58
Biggest changeWe also sublease certain office space to the extent we no longer need that space for current and anticipated future needs. We 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.
Item 2. Properties Our corporate headquarters is located in Columbus, Ohio, and consists of 43,228 square feet under a lease agreement that expires in 2027. We lease all of our facilities and do not own any real property. We also sublease certain office space to the extent we no longer need that space for current and anticipated future needs.
Item 2. Properties Our corporate headquarters is located in Columbus, Ohio, and consists of 43,228 square feet that we occupy under a lease agreement that expires in 2027, but which could be terminated early under certain circumstances. We lease all of our facilities and do not own any real property.
Added
For additional information regarding our leases, refer to Note 8, “Leases,” in the Notes to Consolidated Financial Statements. 61

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 flows. 59 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. 62 Item 4.
Mine Safety Disclosures Not applicable. 60 PART II
Mine Safety Disclosures Not applicable. 63 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 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.
Biggest changeItem 4. Mine Safety Disclosures 63 Part II. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 64 Item 6 . [Reserved] 65 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 66 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 85 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 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.
Biggest changeHolders of Record As of February 19, 2025, Root had 37 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. 61
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. 64
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.
As of February 19, 2025, Root had 34 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

101 edited+25 added−70 removed62 unchanged
Biggest changeDirect 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 .
Biggest changeDirect 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, 2024, 2023 and 2022: For the Years Ended December 31, 2024 2023 2022 (dollars in millions) Total revenue $ 1,176.5 $ 455.0 $ 310.8 Loss and loss adjustment expenses (733.0) (331.3) (351.0) Other insurance (expense) benefit (106.4) (47.6) 8.0 Gross profit (loss) 337.1 76.1 (32.2) Net investment income (35.9) (30.2) (6.2) Net realized gains on investments — — (0.5) Adjustments from other insurance (expense) benefit (1) 66.5 76.3 38.4 Ceded premiums earned 160.1 235.9 357.7 Ceded loss and loss adjustment expenses (97.7) (144.5) (243.7) Net ceding commission and other (2) (36.1) (62.9) (85.9) Direct contribution $ 394.0 $ 150.7 $ 27.6 ______________ (1) Adjustments from other insurance (expense) benefit consists of acquisition costs including report costs and refunds related to these expenses and commission expenses related to our partnership channel of $49.7 million, $50.8 million and $18.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.
While fluctuations and improvements in cycle time are expected as we grow, these timing changes can be difficult to discern from normal process risk variability in the data. • For actuarial methods that rely on case reserve data, there is an implicit assumption that the adequacy of case reserve estimates stays relatively constant over time.
While fluctuations and improvements in cycle time are expected as we grow, these timing changes can be difficult to discern from normal process risk variability in the data. 83 • For actuarial methods that rely on case reserve data, there is an implicit assumption that the adequacy of case reserve estimates stays relatively constant over time.
Our success in expanding revenues through cross-sales and greater fee income per policy depends on our marketing efforts with new products, continuous state expansion of these offerings and the pricing of our bundled products and continuing to refine the fee schedules in our policyholder contracts to be more consistent with industry norms.
Our success in expanding revenues through cross-sales and greater fee income per policy depends on our marketing efforts with new products, continuous state expansion of these offerings and the pricing of our bundled products and continuing to refine the fee schedules in our policyholder 67 contracts to be more consistent with industry norms.
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 believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of 69 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.
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.
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.
Adjusted EBITDA should not be viewed as a substitute for net loss calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently. See the section titled “—Non-GAAP Financial Measures” for a reconciliation of net loss to adjusted EBITDA.
Adjusted EBITDA should not be viewed as a substitute for net income (loss) calculated in accordance with GAAP, and other companies may define adjusted EBITDA differently. See the section titled “—Non-GAAP Financial Measures” for a reconciliation of net income (loss) to adjusted EBITDA.
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.
Technology is a key differentiator in managing risk across our key functions. Our success depends on our ability to adequately and competitively price risk. 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.
Net investment income is directly correlated with the overall size of our investment portfolio, market level of interest rates and changes in fair value of our private equity investments. Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.
Net investment income is directly correlated with the overall size of our cash and investment portfolio, market level of interest rates and changes in the fair value of our private equity investments. Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.
Today, we are currently licensed in 50 states (48 states for personal auto) and the District of Columbia and operate in 34 of those states. Our state expansion has unlocked a large total addressable market for sustained growth, made our direct targeted marketing more efficient and created an opportunity to build a national brand, supporting our marketing holistically.
Today, we are currently licensed in 50 states (48 states for personal auto) and the District of Columbia and operate in 35 of those states. Our state expansion has unlocked a large total addressable market for sustained growth, made our direct targeted marketing more efficient and created an opportunity to build a national brand, supporting our marketing holistically.
The success of our renters insurance offering is also subject to our ability to develop underwriting capabilities to adequately price renters risk. Recent Developments Affecting Comparability General Macroeconomic Factors Economic instability has led to acute inflationary pressures, supply chain disruptions, changes in interest rates, changes in equity markets and bank failures.
The success of our renters insurance offering is also subject to our ability to develop underwriting capabilities to adequately price renters risk. Recent Developments Affecting Comparability General Macroeconomic Factors Economic instability has led to acute inflationary pressures, supply chain disruptions, changes in interest rates and changes in equity markets.
After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business. We view direct contribution as an important metric because we believe it measures progress towards the profitability of our total policy portfolio prior to the impact of reinsurance.
After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business. We view direct contribution as an important metric because we believe it measures profitability of our total policy portfolio prior to the impact of reinsurance.
We utilize reinsurance arrangements to grow our business in a capital-efficient manner and mitigate risk. Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more of our business in the future.
We utilize reinsurance arrangements to grow our business in a capital-efficient manner and mitigate risk. Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more or less of our 80 business in the future.
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.
This Management’s Discussion and Analysis does not discuss 2022 performance or a comparison of 2023 versus 2022 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.
Our Ability to Retain Customers Our ability to derive significant lifetime value from our customer relationships depends, in part, on our ability to retain our customers over time. Strong retention allows us to build a recurring revenue base, generating additional premiums term over term without material incremental marketing costs.
Our Ability to Retain Customers Our ability to derive significant lifetime value from our customer relationships depends, in part, on our ability to retain our customers over time. Strong retention allows us to build a recurring revenue base, generating additional premiums term over term without material incremental marketing and underwriting costs.
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.
We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due. d 82 Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP.
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.
Comparison of Years Ended December 31, 2023 and 2022 The December 31, 2023 and 2022 net cash discussion can be found in Part II, Item 7, “Liquidity and Capital Resources,” of our Annual Report on Form 10-K.
This includes $0.4 million, $5.3 million and zero of share-based compensation for the years ended December 31, 2023, 2022 and 2021, respectively. This also includes $0.4 million, $1.7 million and zero of depreciation and amortization for the years ended December 31, 2023, 2022 and 2021, respectively.
This includes zero, $0.4 million and $5.3 million of share-based compensation for the years ended December 31, 2024, 2023 and 2022, respectively. This also includes $0.4 million, $0.4 million and $1.7 million of depreciation and amortization for the years ended December 31, 2024, 2023 and 2022, respectively.
The evaluation and estimation of ultimate losses and LAE requires considerable judgment in understanding how claims mature, how claims differ between lines of business, and how changes in the business impact claims settlement over time.
Loss and LAE Reserves The evaluation and estimation of ultimate losses and LAE requires considerable judgment in understanding how claims mature, how claims differ between lines of business, and how changes in the business impact claims settlement over time.
Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors and pricing of products. Our Ability to be Licensed in all States in the United States Our long-term growth opportunity will benefit from our ability to provide insurance across more states in the United States.
Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors and pricing of products. Our Ability to be Licensed in All States in the U.S. Our long-term growth opportunity will benefit from our ability to provide insurance across more states in the U.S.
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.
General and Administrative General and administrative are fixed expenses that primarily relate to external professional service expenses; Personnel Costs and Overhead for corporate functions; and depreciation expense for computers, furniture and other fixed assets; and restructuring costs which include employee costs, real estate exit costs and other costs. General and administrative expenses are expensed as incurred.
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, including when determining incentive 78 compensation; (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.
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.
We are continuously evaluating alternatives for efficiently funding our ongoing operations and reducing our cost of capital. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of stock and debt.
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.
Material Cash Requirements from Contractual and Other Obligations As of December 31, 2024, 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 an Amended Term Loan, as discussed in Note 7, “Long-Term Debt,” in the Notes to Consolidated Financial Statements.
(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.
(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 . 79 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 income (loss) to adjusted EBITDA for the years ended December 31, 2024, 2023 and 2022: For the Years Ended December 31, 2024 2023 2022 (dollars in millions) Net income (loss) $ 30.9 $ (147.4) $ (297.7) Adjustments: Interest expense 39.7 43.2 31.9 Income tax expense — — — Depreciation and amortization 14.5 12.2 12.1 Share-based compensation 18.5 16.9 25.2 Loss on extinguishment of debt 5.4 — — Warrant compensation expense 3.8 17.4 14.5 Restructuring costs (1) 0.2 11.2 18.6 Write-offs and other (2) (1.1) 3.6 9.5 Adjusted EBITDA $ 111.9 $ (42.9) $ (185.9) ______________ (1) Restructuring costs consist of employee costs, real estate exit costs, and other.
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.
Treasury securities and agencies, municipal securities, corporate debt securities, and asset-backed securities. 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.
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.
Tax credits are recognized when utilized. 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.
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.
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.
We also charge policy fees, which are typically nonrefundable fees that are intended to reimburse a portion of the costs incurred to underwrite the policy. This fee income is recognized ratably over the policy coverage period. In addition, we charge late payment fees that are collected from our policyholders.
We also charge policy fees, which are typically nonrefundable fees that are intended to reimburse a portion of the costs incurred to underwrite the policy. These fees are recognized ratably over the policy coverage period. Fee income also includes late payment fees that are collected from our policyholders.
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.
Cash Flows The following table summarizes our cash flow data for the periods presented: For the Years Ended December 31, 2024 2023 2022 (in millions) Net cash provided by (used in) operating activities $ 195.7 $ (33.6) $ (210.6) Net cash used in investing activities (154.4) (45.7) (16.6) Net cash (used in) provided by financing activities (120.7) (4.1) 283.3 Comparison of Years Ended December 31, 2024 and 2023 Net cash provided by operating activities for the year ended December 31, 2024 was $195.7 million compared to $33.6 million of net cash used in operating activities for the year ended December 31, 2023.
Net investment income also includes impairments related to Low Income Housing Tax Credits, or LIHTC, investments in limited liability entities to offset Georgia premium taxes. These tax credits are recognized when utilized.
Net investment income also includes impairments related to low income housing tax credits investments in limited liability entities to offset certain state premium taxes. These tax credits are recognized when utilized.
Net premiums earned represents the earned portion of our gross premiums written, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. Net Investment Income Net investment income represents interest earned from our cash and cash equivalents and fixed maturity and short-term investments and unrealized gains and losses from our private equity investments less investment expenses.
Net premiums earned represents the earned portion of our gross premiums written, less the earned portion that is ceded to third-party reinsurers under our reinsurance agreements. Net Investment Income Net investment income represents interest earned from our cash and cash equivalents, fixed maturities, and short-term investments less investment expenses.
Certain events may impact our liquidity such as the economic instability resulting in acute inflationary pressures, supply chain disruptions, changes in interest rates, changes in equity markets, bank failures and our utilization of reinsurance.
Certain events may impact our liquidity such as the economic instability resulting in acute inflationary pressures, supply chain disruptions, changes in interest rates, new or increased tariffs, changes in equity markets and our utilization of reinsurance.
Technology and Development Technology and development expense consists of software development costs related to our mobile app and homegrown information technology systems; third-party services related to infrastructure support; Personnel Costs and Overhead for engineering, product, technology, and certain data science activities; and amortization of internally developed software.
Technology and Development Technology and development are fixed expenses that consist of software development costs related to our mobile app and homegrown information technology systems; third-party services related to infrastructure support; Personnel Costs and Overhead for engineering, product, technology, and certain data science activities; and amortization of internally developed software.
These include excess of loss and quota share reinsurance. Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes. Quota share provides, among other advantages, regulatory surplus relief for growing companies.
These include excess of loss and quota share reinsurance. Excess of loss provides us with volatility protection against a portion of large individual losses or an aggregation of losses from catastrophes. Quota share provides, among other advantages, regulatory surplus relief for growing companies. We primarily utilize reinsurance to mitigate impact of large losses or tail events .
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.
We believe that through prudent investment in and diversification of our distribution channels, including leveraging proprietary data science and technology and a focus on partnerships with automotive, financial services, and independent agents, will position us for 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.
For further information on restructuring costs, see Note 10, “Restructuring Costs,” in the Notes to Consolidated Financial Statements. (2) Write-offs and other primarily reflects legal costs, write-off prepaid marketing expense and other items that do not reflect our ongoing operating performance.
For further information on restructuring costs, see Note 10, “Restructuring Costs,” in the Notes to Consolidated Financial Statements. (2) Write-offs and other primarily reflects legal costs, write-off prepaid marketing expense and other items that do not reflect our ongoing operating performance. This includes write-off of prepaid marketing expenses of $10.2 million for the year ended December 31, 2022.
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.
There remains uncertainty around the future of inflation; elevated levels of inflation for an extended period 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 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.
Gross accident period loss ratios decreased to 59.9% for the year ended December 31, 2024, from 64.0% for 2023. The change in the ratios was driven by growth in average premium per policy primarily attributable to rate actions.
The loss reserve range noted below represents a range of reasonably likely reserves, not a range of all possible reserves. Therefore, the ultimate losses could reach levels corresponding to reserve amounts outside of the range provided.
The loss reserve range estimated below represents a range of reasonably likely reserves, not a range of all possible outcomes. Therefore, the ultimate losses could reach levels outside the range provided.
Upon 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.
Non-Operating Expenses Loss on Extinguishment of Debt Loss on extinguishment of debt was due to unamortized discount and debt issuance costs being expensed as a result of extinguishing the Term Loan. 77 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 revenue 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) % The December 31, 2023 and 2022 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, 2023.
Liquidity As of December 31, 2023, we had $678.7 million in cash and cash equivalents, of which $507.3 million was held outside of regulated insurance entities. We also had $166.8 million in marketable securities. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities primarily consist of U.S.
Liquidity As of December 31, 2024, we had $599.3 million in cash and cash equivalents, of which $333.0 million was held outside of regulated insurance entities. We also had $306.8 million in marketable securities. Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities primarily consist of U.S.
As such, any reduction in the deferred tax asset would also result in an offsetting reduction in the valuation allowance. We have experienced an ownership change.
As such, any reduction in the deferred tax asset would also result in an offsetting reduction in the valuation allowance.
These amounts include Personnel Costs for claims-related employees; vendor expenses; software expense; internally developed software amortization; and Overhead. Sales and Marketing Sales and marketing includes expenses related to direct performance marketing, channel media, advertising, sponsorship, referral fees and partnership channel.
These amounts include Personnel Costs for claims-related employees; vendor expenses; software expense; internally developed software amortization; and Overhead. Sales and Marketing Sales and marketing includes both acquisition and fixed expenses. We view direct performance marketing, experimental marketing, channel media, advertising and referral fees as acquisition expenses.
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 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 may choose to amend, commute, and/or non-renew certain third-party reinsurance arrangements in the future, which may result in us retaining more of our business. To the extent we retain a larger share of our book of business, our capital requirements may increase.
We may choose to amend, commute, and/or non-renew certain third-party reinsurance arrangements in the future, which may result in us retaining more or less of our business.
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.
For the Years Ended December 31, 2024 2023 2022 (dollars in millions, except Premiums per policy) Policies in force 414,862 341,764 220,354 Premiums per policy $ 1,584 $ 1,423 $ 1,220 Premiums in force $ 1,314.3 $ 972.7 $ 537.7 Gross premiums written $ 1,301.1 $ 783.1 $ 600.0 Gross premiums earned $ 1,231.0 $ 635.8 $ 643.6 Gross profit (loss) $ 337.1 $ 76.1 $ (32.2) Net income (loss) $ 30.9 $ (147.4) $ (297.7) Direct contribution $ 394.0 $ 150.7 $ 27.6 Adjusted EBITDA $ 111.9 $ (42.9) $ (185.9) Net loss and LAE ratio 68.5 % 82.8 % 122.8 % Net expense ratio 27.9 % 50.4 % 72.2 % Net combined ratio 96.4 % 133.2 % 195.0 % Gross loss ratio 58.9 % 65.2 % 82.1 % Gross LAE ratio 8.6 % 9.6 % 10.3 % Gross expense ratio 27.2 % 41.6 % 45.4 % Gross combined ratio 94.7 % 116.4 % 137.8 % Gross accident period loss ratio 59.9 % 64.0 % 80.3 % 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.
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.
See the section titled “—Non-GAAP Financial Measures” for a reconciliation of total revenue to direct contribution. 70 Adjusted EBITDA We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, loss on extinguishment of debt, warrant compensation expense, restructuring charges, write-off of prepaid marketing expenses, legal fees and other items that do not reflect our ongoing operating performance.
Through prudent deployment of capital we believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.
We continue to have the same available capital under the Amended Term Loan as we did in the Term Loan. Through prudent deployment of capital we believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.
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.
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.
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.
We view policies in force as an important metric to assess our financial performance because policy growth and retention 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 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.
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 continue to develop machine learning loss models, which allow us to respond more quickly to changes in the market, improve pricing segmentation and take appropriate and timely rate actions. We believe this allows us to operate with a cost to acquire and cost to serve advantage.
Through continued development of machine-learning loss models, which allow us to respond more quickly to changes in the market, we expect improvement in pricing segmentation. We believe this allows us to operate with a cost-to-acquire and cost-to-serve advantage.
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.
Direct Contribution We define direct contribution, a non-GAAP financial measure, as gross profit (loss) excluding net investment income, net realized gains on investments, acquisition costs which include report costs and refunds related to these expenses and commission expenses related to our partnership channel, fixed costs which include certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, 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.
See the section titled “—Non-GAAP Financial Measures” for additional information regarding our use of direct contribution and adjusted EBITDA and their reconciliations to the most directly comparable GAAP measures.
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. See the section titled “—Non-GAAP Financial Measures” for additional information regarding our use of direct contribution and adjusted EBITDA and their reconciliations to the most directly comparable GAAP measures.
Legal and other fees of related to the misappropriation of funds by a former senior marketing employee in 2022 of $3.2 million, $1.2 million and zero for the years ended December 31, 2023, 2022 and 2021, respectively, partially offset by an insurance recovery of $1.9 million in 2022.
Legal and other fees net of recoveries related to the 2022 misappropriation of funds by a former senior marketing employee of $(1.1) million, $3.2 million and $(0.7) million for the years ended December 31, 2024, 2023 and 2022, respectively.
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, including variability in the competitive environment. We have seen an increase in vehicle 65 repair and medical costs. These cost increases have resulted in greater claims severity.
There remains uncertainty around the future of inflation; elevated levels of inflation for an extended period could cause claims and claim expenses to increase, impact the performance of our investment portfolio, increase nonpayment cancellations or have other adverse effects, including variability in the competitive environment. We have also seen an increase in vehicle repair and medical costs.
Given our growth from inception in 2015, we believe evaluating sensitivity based on a hypothetical increase or decrease of 5% and 10% is reflective of management’s best estimate and provides an illustrative range of variability in key assumptions.
Given the growth in exposures from inception in 2015, we believe evaluating sensitivity based on a hypothetical increase or decrease of 5% and 10% reflects management’s best estimate and provides a scenario impact on the reserve ranges due to variability in key assumptions.
The changes to the reinsurance program aim to deliver improved economics and capital efficiency. Our diversified approach to reinsurance allows us to optimize capital requirements while remaining flexible in response to changes in market conditions or changes specific to our own business.
Comprehensive Reinsurance We have significantly reduced the utilization of reinsurance through a strategic reduction of external quota share. The changes to the reinsurance program aim to deliver improved economics. Our diversified approach to reinsurance allows us to optimize capital requirements while remaining flexible in response to changes in market conditions or changes specific to our own business.
These expenses also include related Personnel Costs and Overhead related to our brand strategy, creative and business development activities and certain warrant compensation expense related to our embedded channel. We incur sales and marketing expenses for all product offerings. Sales and marketing are expensed as incurred.
We view sponsorship, certain non-commission expenses related to the partnership channel, Personnel Costs and Overhead related to our brand strategy, creative and business development activities, and certain data science activities as fixed costs. We incur sales and marketing expenses for all product offerings. Sales and marketing are expensed as incurred.
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.
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, and the amount of reinsurance recoverable and receivable from reinsurance contracts.
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.
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.
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.
Regulatory Considerations We are organized as a holding company, but our primary operations are conducted by our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies and Root Florida Insurance Company, a Florida-domiciled insurance company.
We continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends. Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital. Comprehensive Reinsurance During the period we reduced the utilization of reinsurance through a strategic reduction of external quota share.
These cost increases have resulted in greater claims severity. We continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends. Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.
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.
The omitted information may be found in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission, or the SEC, on February 21, 2024. Overview Root is a technology insurance company founded on the idea that car insurance rates should be based primarily on driving behaviors, not demographics.
Loss on early extinguishment of debt primarily relates to the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt.
Loss on Extinguishment of Debt Loss on extinguishment of debt is not an operating expense; therefore, we include these expenses below operating expenses. Loss on extinguishment of debt primarily relates to the difference between the reacquisition price of the debt and the net carrying amount of the extinguished debt.
This was partially offset by business tenure mix and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs. We experienced a 7% increase in severity per claim and a 5% decrease in claim frequency for the year ended December 31, 2023 compared to 2022.
This was partially offset by business tenure mix and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs.
Gross Expense Ratio We define gross expense ratio expressed as a percentage as the ratio of gross operating expenses less loss and LAE and less fee income to gross premiums earned.
We view gross LAE ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance. Gross Expense Ratio We define gross expense ratio expressed as a percentage as the ratio of gross operating expenses less loss and LAE and less fee income to gross premiums earned.
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 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. 81 Under the Amended Term Loan, our debt covenants require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million at all times.
The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements. 72 The following table presents gross premiums written, ceded premiums written, net premiums written, gross premiums earned, ceded premiums earned and net premiums earned for the years ended December 31, 2023 and 2022: For the Years Ended December 31, 2023 2022 $ Change % Change (dollars in millions) Gross premiums written $ 783.1 $ 600.0 $ 183.1 30.5 % Ceded premiums written (209.9) (331.2) 121.3 (36.6) % Net premiums written 573.2 268.8 304.4 113.2 % Gross premiums earned 635.8 643.6 (7.8) (1.2) % Ceded premiums earned (235.9) (357.7) 121.8 (34.1) % Net premiums earned $ 399.9 $ 285.9 $ 114.0 39.9 % Gross premiums written increased due to growth in new writings, particularly in the second half of 2023, compared to contraction of policies in force during 2022, as a result of decreased direct performance marketing spend.
The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements in 2023. 75 The following table presents gross premiums written, ceded premiums written, net premiums written, gross premiums earned, ceded premiums earned and net premiums earned for the years ended December 31, 2024 and 2023: For the Years Ended December 31, 2024 2023 $ Change % Change (dollars in millions) Gross premiums written $ 1,301.1 $ 783.1 $ 518.0 66.1 % Ceded premiums written (137.0) (209.9) 72.9 (34.7) % Net premiums written 1,164.1 573.2 590.9 103.1 % Gross premiums earned 1,231.0 635.8 595.2 93.6 % Ceded premiums earned (160.1) (235.9) 75.8 (32.1) % Net premiums earned $ 1,070.9 $ 399.9 $ 671.0 167.8 % Gross premiums written increased due to growth in new writings as a result of increased direct performance marketing spend and continued growth in our partnership channel compared to 2023.
During the years ended December 31, 2023 and 2022, we ceded approximately 37.1% and 55.6% of our gross premiums earned, and 26.8% and 55.2% of our gross premiums written to third-party reinsurers, respectively.
During the years ended December 31, 2024 and 2023, we ceded approximately 13.0% and 37.1% of our gross premiums earned, respectively.
We view this as an important metric because it is an indicator of the size of our portfolio of policies as well as an indicator of expected earned premium over the coming 12 months. Premiums in force is not a forecast of future revenue nor is it a reliable indicator of revenue expected to be earned in any given period.
Since our auto policies are six-month policies, we multiply this figure by two in order to determine an annualized amount of premiums in force. We view this as an important metric because it is an indicator of the size of our portfolio of policies as well as an indicator of expected earned premium over the coming 12 months.
Net cash used in investing activities for the year ended December 31, 2023 was $45.7 million, compared to $16.6 million of net used in investing activities for the year ended December 31, 2022. The increase in cash used in investing activities was primarily due to purchases of investments.
The increase in cash used in investing activities was primarily due to purchases of investments which was partially offset by proceeds from maturities, calls and pay downs of investments. Net cash used in financing activities for the year ended December 31, 2024 was $120.7 million, compared to $4.1 million for the year ended December 31, 2023.
We view premiums in force as an estimate of annualized run rate of gross premiums written as of a given period. Since our auto policies are six-month policies, we multiply this figure by two in order to determine an annualized amount of premiums in force.
Premiums in Force We define premiums in force as premiums per policy multiplied by policies in force multiplied by two. We view premiums in force as an estimate of annualized run rate of gross premiums written as of a given period.
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.
To the extent we retain a larger share of our book of business, our capital requirements may increase. 68 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.
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.
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.
If our insurance subsidiaries’ business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements may increase significantly. To comply with these regulations, we may be required to maintain capital in the insurance subsidiaries that we would otherwise invest in our growth and operations.
To comply with these regulations, we may be required to maintain capital in the insurance subsidiaries that we would otherwise invest in our growth and operations. As of December 31, 2024, our insurance subsidiaries maintained a risk-based capital level that is in excess of an amount that would require any corrective actions on our part.
Gross Combined Ratio We define gross combined ratio expressed as a percentage as the sum of the gross loss ratio, gross LAE ratio and gross expense ratio.
We believe gross expense ratio is useful for investors to further evaluate business health and performance, prior to the impact of reinsurance. 71 Gross Combined Ratio We define gross combined ratio expressed as a percentage as the sum of the gross loss ratio, gross LAE ratio and gross expense ratio.
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.
The following table summarizes this sensitivity analysis: Scenarios for Changes in Loss Reserves for all Accident Years (10)% (5)% —% 5% 10% Bodily injury liability $ 158.6 $ 167.4 $ 176.2 $ 185.0 $ 193.8 Uninsured and underinsured bodily injury 26.6 28.0 29.5 31.0 32.5 Property damage 52.0 54.9 57.8 60.7 63.6 All other coverages 37.4 37.4 37.4 37.4 37.4 Total loss reserves—net of reinsurance $ 274.6 $ 287.7 $ 300.9 $ 314.1 $ 327.3 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).
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 billings. We recognize this fee income in the period which we process each installment.
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. These fees are recognized in the period in which we process the installment.
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.
Our Ability to Expand Premiums Through Cross-Selling and Fee Income Per Policy We are in the early stages of cross-selling non-auto products across our customer base. Cross-sales of renters policies will allow us to generate additional premiums without material incremental marketing spend, and ultimately higher revenue per customer.

… 116 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed3 unchanged
Biggest changeCredit Risk We are exposed to credit risk on our investment portfolio and our reinsurance contracts. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. We manage the exposure to credit risk in our U.S.
Biggest changeA 1% fluctuation in SOFR would not have significantly impacted interest expense during 2024. 85 Credit Risk We are exposed to credit risk on our investment portfolio, reinsurance contracts, and premiums receivable. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels.
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
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.
We are also exposed to interest rate risk through our term loan facility which incurs interest at floating rates based on changes in the SOFR.
We are also exposed to interest rate risk through our Amended Term Loan facility which incurs interest at floating rates based on changes in the SOFR.
Treasury securities, municipal securities, corporate debt securities, residential mortgage-backed securities, commercial mortgage-backed securities, and other debt obligations portfolio, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates.
Treasury securities, municipal securities, corporate debt securities, and asset-backed securities, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates.
Rising 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.
Rising 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.
Treasury securities, municipal securities, corporate debt securities, residential mortgage-backed securities, commercial mortgage-backed securities, and other debt obligations portfolio by investing in high credit quality, investment grade securities and diversifying our holdings.
We manage the exposure to credit risk in our U.S. Treasury securities, municipal securities, corporate debt securities, and asset-backed securities portfolio by investing in high credit quality, investment grade securities and diversifying our holdings.
Added
For certain reinsurance partners who are not rated, we require adequate levels of collateral or letters of credit to be available to us in the event of downside scenarios. We manage the exposure to significant losses on our premiums receivable through strategic initiatives focusing on improved customer communication, policy renewal adjustments, and risk segmentation. 86

Other ROOT 10-K year-over-year comparisons