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What changed in Root, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Root, Inc.'s 2024 and 2025 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 2025 report.

+526 added−502 removedSource: 10-K (2026-02-25) vs 10-K (2025-02-26)

Top changes in Root, Inc.'s 2025 10-K

526 paragraphs added · 502 removed · 441 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

110 edited+26 added−20 removed68 unchanged
Biggest changeRegulations 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.
Biggest changeRegulations 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 Ohio or Florida law); • approval of policy forms, underwriting rules/guidelines, rates 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; 7 • requirements imposed by non-domiciliary regulators to maintain additional statutory capital and surplus, deposits, or other financial security in excess of domiciliary standards as a condition of transacting business in their jurisdictions; • required 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 servicing and management of policies; • 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 or to operate our telematics program to underwrite and price insurance policies consistently across jurisdictions, particularly in California, which prohibits any use of telematics, as well as other jurisdictions, which impose unique telematics-related requirements, some of which we have elected not to meet at this time; • 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 regulations, model governance, and data security regulations; • regulations on data and records storage and retention; • regulation of corporate governance and risk management; • consumer protection regulations, including regulations on management of consumer grievances; • periodic examinations of operations, finances, market conduct and claims practices; and • required periodic financial reporting.
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 Ownership of Our Class A Common Stock—Applicable insurance laws may make it difficult to effect a change of control.” 10 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.” 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.
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.
We set business conduct policies to make claims adjusters aware of these prohibitions and to require them to conduct their activities in compliance with these statutes. Commission Sharing Insurance producers cannot share insurance commissions with any person for selling, soliciting or negotiating insurance unless such person holds an insurance producer license in the lines of insurance that are being transacted.
We set business conduct policies to make claims adjusters aware of these prohibitions and to require them to conduct their activities in compliance with these statutes. 14 Commission Sharing Insurance producers cannot share insurance commissions with any person for selling, soliciting or negotiating insurance unless such person holds an insurance producer license in the lines of insurance that are being transacted.
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.
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.
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.
Further, in response to the growing threat of cybersecurity attacks and cybersecurity incidents 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.
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.
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.
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.
The DOI will grant approval of an application to acquire control of a domestic insurer unless the DOI 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.
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.
Moreover, as we expand into new lines of business and offer additional products, we could face 5 intense competition from traditional insurance companies that are already established in such markets and product offerings.
By collecting and synthesizing massive amounts of rich, sensory behavioral data across thousands of driving variables, including distracted driving, we strive to price auto insurance based more on causality than correlation. While the notion of telematics has been around for decades, only recently has mobile technology made the concept adoptable at large scale.
By collecting and synthesizing massive amounts of rich, sensory behavioral data across thousands of driving variables, including distracted driving and braking patterns, we strive to price auto insurance based more on causality than correlation. While the notion of telematics has been around for decades, only recently has mobile technology made the concept adoptable at large scale.
Our domestic insurance subsidiaries are therefore subject to certain capital restrictions and requirements including risk-based capital, or RBC, developed by the NAIC and adopted by state insurance regulators to support their overall business operations and minimize the risk of insolvency. RBC is calculated using a series of factors applied against financial balances and activity.
Our domestic insurance subsidiaries are therefore subject to certain capital restrictions and requirements of their domiciliary states, including risk-based capital, or RBC, developed by the NAIC and adopted by state insurance regulators to support their overall business operations and minimize the risk of insolvency. RBC is calculated using a series of factors applied against financial balances and activity.
These laws generally require that an insurance company invest in a diverse portfolio and limit their investments in certain asset categories. 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 those investments.
These laws generally require that an insurance company invest in a diverse portfolio and limit its investments in certain asset categories. 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 those investments.
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.
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 their reserves are reasonable. Risk-Based Capital and Group Capital State insurance regulators establish and monitor compliance with capital and surplus requirements.
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.
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 and expectations of modern consumers.
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
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 or our LinkedIn account is not incorporated into this Annual Report on Form 10-K or other securities filings. 16
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.
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 assets, while Root Florida is subject to Florida’s rules and regulations.
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 accomplish this by meeting our customers within platforms they use extensively such as search engines 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 .
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.
The FIO has the ability to make a recommendation to the FSOC to designate an insurer as “systemically important,” subjecting the insurer to regulation by the Federal Reserve as a bank holding company, which in some cases could lead to higher capital requirements.
Root Florida was incorporated in early 2025 and is a wholly-owned subsidiary of Root Property & Casualty. The Ohio Department of Insurance, or the Ohio DOI, is the primary state insurance regulator for Root Insurance Company and Root Property & Casualty and Root Florida’s primary regulator is the Florida Office of Insurance Regulation, or the FOIR.
Root Florida was incorporated in early 2025 and is a wholly-owned subsidiary of Root Property & Casualty. The Ohio Department of Insurance, or the Ohio DOI, is the primary state insurance regulator for Root Insurance Company and Root Property & Casualty and Root Florida’s primary regulator is the Florida Office of Insurance Regulation, or the Florida OIR.
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.
While we currently operate in 36 states, we would need to obtain regulatory approval, including with respect to the regulations described above, before offering our products in new markets.
We expect increased penetration of this channel over time as we seek to grow embedded relationships with other automotive and financial service technology companies with relevant customer bases. ◦ Agency . We continue to invest in a product to bring the speed and ease of our technology to the independent agency channel.
We expect increased penetration of this channel over time as we seek to grow relationships with other automotive and financial service companies with relevant customer bases. ◦ Independent Agent . We continue to invest in a product to bring the speed and ease of our technology to the independent agent channel.
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.
Behavioral Data and Proprietary Data Models For certain 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 National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five U.S. territories, and from time to time promulgate model rules and regulations that often are the basis for insurance rules and regulations adopted by such jurisdictions.
The 8 National Association of Insurance Commissioners, or NAIC, and the National Council of Insurance Legislators, are the principal organizations tasked with establishing standards and best practices across the various states, the District of Columbia and five United States territories, and from time to time promulgate model rules and regulations that often are the basis for insurance rules and regulations adopted by such jurisdictions.
We 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.
We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the United States 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.
Item 1. Business Overview Root is a technology insurance company founded on the idea that car insurance rates should be based primarily on driving behaviors, not demographics. We are revolutionizing the archaic car insurance industry using mobile technology and data science to offer fair, personalized rates to good drivers.
Item 1. Business. Overview Root is a technology insurance company founded on the idea that car insurance rates should be based primarily on driving behaviors, not demographics. We are revolutionizing the archaic car insurance industry by using modern technology, data science, and telematics to offer fair, personalized rates to good drivers.
Root Insurance Company, an Ohio-domiciled insurer, is admitted in the state of Ohio to transact certain lines of property and casualty insurance, maintains licenses to transact insurance in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and West Virginia.
Root Insurance Company, an Ohio-domiciled insurer, is licensed to transact certain lines of property and casualty insurance in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington and West Virginia.
Uniform statutory accounting practices are established by the NAIC and generally adopted by regulators in the various U.S. jurisdictions. These accounting principles and related regulations differ somewhat from generally accepted accounting principles in the U.S., or GAAP, which are designed to measure a business on a going-concern basis.
Uniform statutory accounting practices are established by the NAIC and generally adopted by regulators in the various United States jurisdictions. These accounting principles and related regulations differ somewhat from generally accepted accounting principles in the United States, or GAAP, which are designed to measure a business on a going-concern basis.
In addition, the FIO serves as an advisory member of the Financial Stability Oversight Council, or FSOC, assists the Secretary of the U.S. Department of the Treasury with administration of the Terrorism Risk Insurance Program, monitors trends in the insurance industry and advises the secretary of the U.S. Department of the Treasury on important national and international insurance matters.
In addition, the FIO serves as an advisory member of the Financial Stability Oversight Council, or FSOC, assists the Secretary of the United States Department of the Treasury with administration of the Terrorism Risk Insurance Program, monitors trends in the insurance industry and advises the Secretary of the United States Department of the Treasury on important national and international insurance matters.
As part of this Form A application, the entity acquiring control (as well as any controlling shareholders of such entity) will need to submit, along with other documents and disclosures, its financial statements, organizational charts and biographical affidavits for any officers, directors and controlling shareholders of each applicable entity.
As part of this Form A application, the entity acquiring control (as well as any controlling shareholders of such entity) must submit, along with other documents and disclosures, its financial statements, organizational charts and biographical affidavits for any officers, directors and controlling shareholders of each applicable entity.
We view this flexibility as absolutely critical to introducing new capabilities, responding to macroeconomic trends, reinforcing customer centricity and driving growth at favorable unit economics. In practice this means we own and control an end-to-end insurance experience and have near complete operating autonomy, subject to regulation and agreements with our partners, to grow our business.
We see this flexibility as critical to introducing new capabilities, responding to macroeconomic conditions, reinforcing customer centricity and driving growth at favorable unit economics. In practice this means we own and control an end-to-end insurance experience and have near complete operating autonomy, subject to regulation and agreements with our partners, to grow our business.
Pursuant to these laws and regulations, among other things, an insurance carrier or producer must disclose its privacy policies to all of its applicants and policyholders and must also provide either an opt-in or opt-out, depending on the state, to the sharing of non-public personal information with unaffiliated third parties.
Pursuant to these laws and regulations, among other things, an insurance carrier or producer must disclose its consumer privacy notice to all of its applicants and policyholders and must also provide either an opt-in or opt-out, depending on the state, to the sharing of non-public personal information with unaffiliated third parties, where applicable.
Investments Our portfolio of investable assets is primarily held in cash, cash equivalents and available-for-sale fixed maturity securities, including U.S. Treasury securities, corporate debt securities, asset-backed securities, and municipal securities. We manage the portfolio in accordance with investment policies and guidelines approved by our board of directors.
Investments Our portfolio of investable assets is primarily held in cash, cash equivalents, and available-for-sale fixed maturity securities, including United States Treasury and agency securities, corporate debt securities, asset-backed securities, and municipal securities. We manage the portfolio in accordance with investment policies and guidelines approved by our board of directors.
We primarily reach customers through two channels: our Direct channel, where we target consumers with what we believe to be a great insurance product at a great price, and through our partnership channel, where we meet consumers with our offering at contextually relevant times such as the car purchasing experience.
We primarily reach customers through two channels: our direct channel, where we target consumers with what we believe to be a great insurance product at a great price, and through our partnership channel, where we meet consumers at contextually relevant times, such as during the car purchasing experience or through independent insurance agents.
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 .
We utilize these media channels to drive awareness when launching in new markets and to target prospective customers in active states. • Partnership: a wide array of integrations, spanning early-stage marketing partnerships through fully embedded user experiences . ◦ Automotive & Financial Services .
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.
The Ohio DOI or Florida OIR 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 their policies, in accordance with actuarial principles.
Our Business Model Customer Experience We strive to meet customers where they are with a user-friendly interface and convenient, efficient experience. This is the mantra that drives our user experience and our business model. App installation and initial engagement are designed to be intuitive so that customers can easily identify the coverage they need.
Our Business Model Customer Experience We strive to meet customers where they are while delivering a user-friendly interface and convenient, efficient experience. This is the mantra that drives our user experience and our business model. Initial engagement, which may include app installation, is designed to be intuitive so that customers can easily identify the coverage they need.
Credit for Reinsurance Our wholly-owned regulated U.S. insurance subsidiaries, primarily Root Insurance Company and Root Property & Casualty, are currently parties to a number of reinsurance agreements under which they have ceded a portion of their risk they are insuring to various reinsurers, including but not limited to Root Re.
Credit for Reinsurance Our wholly-owned regulated United States insurance subsidiaries, Root Insurance Company, Root Property & Casualty and Root Florida, are currently parties to a number of reinsurance agreements under which they have ceded a portion of their risk they are insuring to various reinsurers, including but not limited to Root Re.
State insurance laws permit U.S. insurance companies, as ceding insurers, to take financial statement credit for reinsurance that is ceded, so long as the assuming reinsurer satisfies the state’s credit for reinsurance laws.
State insurance laws permit United States insurance companies, as ceding insurers, to take financial statement credit for reinsurance that is ceded, so long as the assuming reinsurer satisfies the state’s credit for reinsurance laws.
Under the Ohio Holding Company Act, all inter-affiliate transactions within a holding company system must meet the following conditions: (i) the terms must be fair and reasonable; (ii) charges or fees for services performed must be fair and reasonable; and (iii) expenses incurred and payments received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
These laws also mandate that all inter-affiliate transactions within a holding company system meet the following conditions: (i) the terms must be fair and reasonable; (ii) charges or fees for services performed must be fair and reasonable; and (iii) expenses incurred and payments received must be allocated to the insurer in conformity with customary insurance accounting practices consistently applied.
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.
Required Licensing We have three wholly-owned regulated United States 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.
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.
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 United States.
Root Property & Casualty is also domiciled in Ohio and licensed in all 50 states and the District of Columbia to transact certain lines of property and casualty insurance. Root Florida is domiciled in Florida and was formed to transact certain lines of property and casualty insurance.
Root Property & Casualty is also domiciled in Ohio and licensed in all 50 states and the District of Columbia to transact certain lines of property and casualty insurance. Root Florida is domiciled in Florida and was formed to transact certain lines of property and casualty insurance and maintains a license to transact insurance in the state of Florida only.
The Ohio Holding Company Act provides that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.
State insurance holding company laws provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the domestic insurer.
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.
The direct channel includes mobile, which is one of the fastest growing retail channels 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.
As a result, our auto-first strategy establishes the foundation for an expansive lifetime relationship with the opportunity to add other personal insurance lines as customer needs evolve. The Root advantage is derived from our technology-enabled approach to the customer lifecycle.
As a result, our auto-first strategy establishes the foundation for an expansive lifetime relationship with the opportunity to add other personal insurance lines as customer needs evolve. Our technology platform is scalable and supports future product expansion. Our advantage is derived from our technology-enabled approach to the customer lifecycle.
Given the relatively short operating history of our insurance subsidiaries, certain state insurance regulators require our insurance subsidiaries to maintain RBC levels in excess of 200% of its authorized control level. As of December 31, 2024, both Root Insurance Company and Root Property & Casualty’s RBC levels are above the company action levels.
Given the relatively short operating history of our insurance subsidiaries, certain state insurance regulators require our insurance subsidiaries to maintain RBC levels in excess of 200% of its authorized control level. As of December 31, 2025, Root Insurance Company, Root Florida, and Root Property & Casualty had RBC levels above the company action levels.
Our model, supported by proprietary technology, allows us to be more adaptive across the value chain, provides design and feature discretion and we believe frees us to innovate and iterate more quickly than any of our major competitors.
Our model, supported by proprietary technology, allows us to adapt more quickly across the value chain, provides design and feature discretion, and we believe enables us to innovate and iterate with more speed than any of our major competitors.
Reinsurance is a cornerstone of our capital management framework. We utilize a wholly-owned, Cayman Islands-based reinsurer, Root Reinsurance Company, Ltd., or Root Re. Several leading global reinsurers participate in our external reinsurance program.
We utilize a wholly-owned, Cayman Islands-based reinsurer, Root Reinsurance Company, Ltd., or Root Re. Several leading global reinsurers participate in our external reinsurance program.
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.
As of December 31, 2025, we had 13 issued patents, four non-provisional patent applications and six continuation applications pending examination in the United States. We continually review our development efforts to assess the existence and patentability of new intellectual property.
These examinations can result in fines and other monetary penalties, as well as other regulatory orders requiring remedial, injunctive, or other corrective action. Previously, we have been subject to such fines, although the amounts have been immaterial.
These examinations can result in fines and other monetary penalties, as well as other regulatory orders requiring remedial, injunctive, or other corrective action. Previously, we have been subject to such fines, although the amounts have been immaterial, and are subject to consent orders concerning certain of our business practices.
The partnership channel emphasizes ease of use and minimal separation between intent and 2 bind while leveraging the platforms of our strategic partners.
The partnership channel emphasizes ease of use and minimal separation between intent and bind while leveraging the platforms of our strategic partners or network of independent agents.
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.
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 12 complaint handling, marketing, claims, policyholder notice, rate and form filing, and customer service.
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.
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 independent agent platform that enables simplified distribution from independent agents to their customers.
While these partnerships take time to onboard and launch, over the long term, we believe our flexible technology stack and investment in our platform seeks to optimize a seamless bind experience, creating a differentiated customer experience in this channel.
While these partnerships take time to onboard and launch, over the long term, we believe our platform will deliver a seamless bind experience, creating a differentiated customer experience in this channel.
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.
However, the definition of “personal information” in each of these laws 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.
Our initial focus on auto insurance was motivated by how well-suited we believe the product to be for fundamental improvement through technology. We believe Root is the innovator to drive this transformation. Auto insurance is required for the vast majority of drivers in the U.S. and we believe it is typically the first insurance policy purchased by consumers.
Our initial focus on auto insurance reflects how well-suited we believe the product is for fundamental improvement through technology and we believe Root is the innovator best positioned to drive this transformation. Auto insurance is required for the vast majority of United States drivers, and we believe it is typically the first insurance product purchased by consumers.
We engage with customers at a point of high intent across various channels, offer a product with significant ease of use and utilize data science to fairly price our policies. As a full-stack insurance carrier, we have the infrastructure and flexibility to design products and distribute, underwrite, administer and pay claims.
We engage customers at a point of high intent across multiple channels, provide a seamless and intuitive product experience, and utilize sophisticated data science to fairly price our policies. As a full-stack insurance carrier, we have the infrastructure and flexibility to design products and to distribute, underwrite, administer, and pay claims.
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.
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.” Human Capital Management As a technology company, our people are central to our success and differentiation.
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.
Our primary addressable market today is United States personal lines insurance. This market exceeded $552 billion in 2024 premiums and has grown at a 6% compound annual growth rate, or CAGR, since 2016. Over the past century, there have been only a few waves of innovative disruption within insurance.
In addition, Root Re, our Cayman Islands subsidiary, is subject to inspections by the Cayman Islands Monetary Authority, or CIMA, on an ad-hoc basis and typically every three to five years. An inspection is scheduled for the first quarter of 2025.
In addition, Root Re, our Cayman Islands subsidiary, is subject to inspections by the Cayman Islands Monetary Authority, or CIMA, on an ad-hoc basis and typically every three to five years. An inspection of Root Re was completed in 2025 and resulted in no formal findings or financial statement adjustments.
As we mature as an insurance company, a more significant portion of our premiums are expected to be earned from customer renewals. Renewal premiums, referring to premiums from a customer’s second term and beyond, generally have lower loss ratios as compared to new premiums in the customer’s first term.
As we continue to mature, we expect an increasing proportion of our premiums to be earned from customer renewals. Renewal premiums, referring to premiums from a customer’s second term and beyond, generally have lower loss ratios as compared to new premiums in the customer’s first term. As a young insurance company, our results are disproportionately weighted toward new customers.
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.
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.
We continuously evaluate our utilization of third-party reinsurance in order to operate a capital-efficient business model. As our gross loss ratios have stabilized we strategically reduced the utilization of external quota share to balance the cost of reinsurance with capital-efficiency. Over the long-term, we expect to maintain the flexibility to modify our reinsurance program.
As our gross loss ratios have stabilized we strategically reduced the utilization of external quota share to balance the cost of reinsurance with capital-efficiency. Over the long-term, we expect to maintain the flexibility to modify our reinsurance program. Reinsurance is a cornerstone of our capital management framework.
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.
Integrating our auto insurance solutions into partner platforms allows us to engage prospective customers at contextually relevant times. 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, and affinity channels.
We will continue to focus on domestic growth by diversifying distribution channels and launching additional states. We may selectively pursue additional investments, acquisitions and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products.
We may selectively pursue additional investments, acquisitions and partnerships to accelerate any of our growth and profitability objectives or to improve our competitive positioning within existing and new products.
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.
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. The collection of the high quantity of differentiated data paired with our internally developed claims infrastructure contributes to our data advantage, which continues to iterate over time.
The CCPA and CPRA exempt certain information that is collected, processed, sold or disclosed pursuant to the California Financial Information Privacy Act, the Gramm-Leach-Bliley Act or the federal Driver’s Privacy Protection Act, which also apply to us.
These state consumer privacy laws often exempt certain information that is collected, processed, or disclosed pursuant to the California Financial Information Privacy Act, the Gramm-Leach-Bliley Act, the federal Driver’s Privacy Protection Act or the Fair Credit Reporting Act, which also apply to us.
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.
Root Insurance Agency, LLC currently holds a resident insurance producer license in Ohio and a non-resident license in the District of Columbia and 48 states, which does not include Massachusetts and New York. In Florida, Root Insurance Agency, LLC holds an agency license and an independent adjusting firm license and is appointed as a managing general agent for Root Florida.
Change of Control Pursuant to the Ohio Holding Company Act, a person must seek regulatory approval from the superintendent of the supervisory DOI prior to acquiring direct or indirect “control” of a domestic insurer by filing a Form A Statement Regarding the Acquisition of Control of or Merger with a Domestic Insurer.
Change of Control Pursuant to the insurance holding company laws of the states in which our insurance subsidiaries are domiciled, including Ohio and Florida, a person must obtain regulatory approval from 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.
Certain collection and processing of personal information makes us subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, and the California Privacy Rights Act, or CPRA, which took effect on January 1, 2023.
Certain collection and processing of personal information makes us subject to the California Consumer Privacy Act, or CCPA, which took effect on January 1, 2020, as amended by the California Privacy Rights Act, or CPRA, effective January 1, 2023, and numerous other comprehensive consumer privacy laws that have gone into effect since then.
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.
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, social media, and digital media. We conduct experimental structured tests across media channels and geographies through a disciplined test-and-learn approach to evaluate new tactics.
Statutory Accounting Principles A licensed insurance carrier’s financial statements must be completed in accordance with statutory accounting principles, or SAP. SAP was developed by U.S. insurance regulators as a method of accounting used to monitor and regulate the solvency of insurance companies.
Final market conduct examinations are public records and can be found on examining state websites. Statutory Accounting Principles A United States licensed insurance carrier’s financial statements must be completed in accordance with statutory accounting principles, or SAP. SAP was developed by United States insurance regulators as a method of accounting used to monitor and regulate the solvency of insurance companies.
The Root app is available for both iOS and Android operating systems making it available to 99% of U.S. smartphone users. A prospective customer can quickly and easily complete a profile, part of an on-boarding process that takes mere minutes to complete. • Underwriting . The test drive is a key component of the underwriting process in certain channels.
A prospective customer can quickly and easily complete a profile, part of an on-boarding process that takes mere minutes to complete. • Underwriting . The test drive is a key component of the underwriting process for certain channels.
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 certain states in which we operate, insurance claims adjusters are also required to be licensed, appointed and fulfill annual continuing education requirements. 9 Insurance Holding Company Regulation As the ultimate controlling person in the “insurance holding company system” under state insurance holding company laws, we are required to file annual enterprise risk reports, corporate governance disclosures and Own Risk and Solvency Assessments, or ORSAs, with our domiciliary regulators.
Similarly, any of our employees who sell, solicit or negotiate insurance must be licensed and appointed insurance producers and must fulfill annual continuing education requirements. In certain states in which we operate, insurance claims adjusters are also required to be licensed and fulfill annual continuing education requirements.
Similarly, any of our employees who sell, solicit or negotiate insurance must be licensed and appointed insurance producers and must fulfill annual continuing education requirements.
This data advantage, combined with the machine learning approach to core elements of our technology stack, allows us to quickly identify loss trends and reflect this information faster in our rate filings. The resulting segmentation benefit allows for a better risk profile of our book over time, while delivering consistent value to our customers.
This data advantage, combined with the machine learning approach to core elements of our technology stack, allows us to quickly identify loss trends and reflect this information faster in our rate filings.
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 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. 13 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.
We are subject to financial condition examinations in any state in which one of our insurance company subsidiaries is domiciled.
Periodic Examinations Our insurance subsidiaries are subject to on-site visits and financial and/or market conduct examinations by state insurance regulatory authorities. We are subject to financial condition examinations in any state in which one of our insurance company subsidiaries is domiciled.
The state regulators, however, may also find that “control” exists in circumstances in which a person owns or controls less than ten percent of the voting securities of the domestic insurer.
The state regulators, however, may also find that “control” exists in circumstances in which a person owns or controls less than ten percent of the voting securities of the domestic insurer. Moreover, in both Ohio and Florida, any person divesting control of an insurer must provide 30 days’ notice to the regulator and the insurer.
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.
These state consumer privacy laws give residents of certain states the right to access and require correction and/or deletion of certain of their personal information, opt out of certain personal information sharing and other processing activities, and receive detailed disclosures about how their personal information is used and shared.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs 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.
Biggest changeAs 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. 40 We are also subject to the risk that, under applicable insurance laws and regulations, we may not be able to take credit for the reinsurance on our financial statements and instead would be required to hold separate admitted assets as reserves to cover claims on the risks that we have ceded to the reinsurer.
In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business We have a history of net losses and could incur substantial net losses in the future. We may not be able to grow or achieve or maintain profitability in the future.
In that case, the trading price of our Class A common stock could decline, and you may lose all or part of your investment. Risks Related to Our Business We have a history of net losses and could incur substantial net losses in the future. We may not be able to grow, achieve or maintain profitability in the future.
If legislation or judicial or regulatory intervention were to restrict our ability to collect or use driving behavior data, it would impair our capacity to underwrite insurance cost effectively, negatively impacting our revenue and earnings.
If legislation, judicial or regulatory intervention were to restrict our ability to collect or use driving behavior data, it would impair our capacity to underwrite insurance cost effectively, negatively impacting our revenue and earnings.
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.
These errors could cause us to select an uneconomic mix of customers or 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.
A security breach or other cybersecurity incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform and damage our reputation and brand; reduce demand for our insurance products; disrupt normal business operations; require us to expend significant resources to investigate and remedy the incident and prevent recurrence; and subject us to litigation, regulatory enforcement action, fines, costs, penalties, and other liability, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
A security breach or other cybersecurity incident, or the perception that one has occurred, could result in a loss of customer confidence in the security of our platform; damage our reputation and brand; reduce demand for our insurance products; disrupt normal business operations; require us to expend significant resources to investigate and remedy the incident and prevent recurrence; and subject us to litigation, regulatory enforcement action, fines, costs, penalties, and other liability, which could have a material adverse effect on our business, results of operations, financial condition and prospects.
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.
Our future success depends on 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.
For instance, on August 24, 2020, the NAIC adopted guiding principles on artificial intelligence developed by the NAIC’s AI Working Group to provide guidance to regulators on the use of artificial intelligence in the insurance industry, and on December 4, 2023, the NAIC issued a model bulletin on artificial intelligence, Use of Artificial Intelligence Systems by Insurers, which is intended to be used by state departments of insurance to set forth regulatory expectations as to how insurers should govern the development, acquisition, and use of artificial intelligence.
For instance, on August 24, 2020, the NAIC adopted guiding principles on AI developed by the NAIC’s AI Working Group to provide guidance to regulators on the use of AI in the insurance industry, and on December 4, 2023, the NAIC issued a model bulletin on AI, Use of Artificial Intelligence Systems by Insurers, which is intended to be used by state departments of insurance to set forth regulatory expectations as to how insurers should govern the development, acquisition, and use of AI.
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.
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.
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.
For example, an insurance holding company system’s ultimate controlling person is required to annually submit an “enterprise risk report” to its primary state insurance regulator 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.
Internal factors are considered including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix, state mix, contractual terms, industry payment and reporting patterns, and changes in claim reporting, and settlement practices.
Internal factors are considered including our experience with similar cases, actual claims paid, historical trends involving claim payment patterns, pending levels of unpaid claims, loss management programs, product mix, state mix, contractual terms, industry payment and reporting patterns, changes in claim reporting, and settlement practices.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect. Any return to stockholders will therefore be limited to the appreciation of their stock. As a public company, we are subject to more stringent federal and state law requirements.
State insurance regulatory authorities that have jurisdiction over the payment of dividends by our regulated insurance subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect. Any return to stockholders will therefore be limited to any appreciation of their stock. As a public company, we are subject to more stringent federal and state law requirements.
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.
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; 54 • failure or material delay in closing a transaction, including as a result of regulatory review and approvals; • regulatory conditions attached to the approval of the acquisition and other regulatory hurdles; • a need for additional capital that was not anticipated at the time of the acquisition; • anticipated benefits not materializing or being lower than anticipated; • diversion of management time and focus from operating our business to addressing acquisition integration challenges; • transition of the acquired company’s customers; • difficulties in integrating the technologies, operations, existing contracts and personnel of an acquired company; • retention of employees or business partners of an acquired company; • cultural challenges associated with integrating employees from the acquired company into our organization; • integration of the acquired company’s accounting, management information, human resources and other administrative systems; • the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies; • coordination of product development and sales and marketing functions; • theft of our trade secrets or confidential information that we share with potential acquisition candidates; • risk that an acquired company or investment in new offerings cannibalizes a portion of our existing business; • adverse market reaction to an acquisition; • liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and • litigation or other claims in connection with the acquired company, including claims from terminated employees, users, former stockholders or other third parties.
In addition to other risk factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, factors that may contribute to the variability of our quarterly and annual results include: • our ability to attract new customers and retain existing customers, including in a cost-effective manner; • our ability to accurately forecast revenue and losses and appropriately plan our expenses; • the effects of changes in search engine placement and prominence; • the effects of increased competition on our business; • our ability to successfully maintain our position in and expand in existing markets as well as successfully enter new markets; • our ability to protect our existing intellectual property and to create new intellectual property; • our ability to maintain an adequate rate of growth and effectively manage that growth; • our ability to keep pace with technology changes in the insurance, mobile and automobile industries; 55 • the success of our sales and marketing efforts; • the success of our partnership channel, including our embedded insurance platform; • the success of our agency channel, including our independent agent platform; • costs associated with defending claims, including accident and coverage claims, intellectual property infringement claims, misclassifications and related judgments or settlements; • the impact of, and changes in, governmental or other regulation affecting our business; • the attraction and retention of qualified employees and key personnel; • our ability to choose and effectively manage third-party service providers; • our ability to identify and engage in joint ventures and strategic partnerships; • the impact of litigation or other losses; • the effect of increasing interest rates on our available cash; • the effects of natural or man-made catastrophic events, including those caused by global climate change; • the effectiveness of our internal controls; and • changes in our tax rates or exposure to additional tax liabilities.
In addition to other risk factors discussed in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K, factors that may contribute to the variability of our quarterly and annual results include: • our ability to attract new customers and retain existing customers, including in a cost-effective manner; • our ability to accurately forecast revenue and losses and appropriately plan our expenses; • the effects of changes in search engine placement and prominence; • the effects of increased competition on our business; • our ability to successfully maintain our position in and expand in existing markets as well as successfully enter new markets; • our ability to protect our existing intellectual property and to create new intellectual property; • our ability to maintain an adequate rate of growth and effectively manage that growth; • our ability to keep pace with technology changes in the insurance, mobile and automobile industries; • the success of our sales and marketing efforts; • the success of our partnership channel, including our embedded insurance platform; • the success of our agency channel, including our independent agent platform; • costs associated with defending claims, including accident and coverage claims, intellectual property infringement claims, misclassifications and related judgments or settlements; • the impact of, and changes in, governmental or other regulation affecting our business; • the attraction and retention of qualified employees and key personnel; • our ability to choose and effectively manage third-party service providers; • our ability to identify and engage in joint ventures and strategic partnerships; • the impact of litigation or other losses; • the effect of increasing interest rates on our available cash; • the effects of natural or man-made catastrophic events, including those caused by global climate change; • the effectiveness of our internal controls; and • changes in our tax rates or exposure to additional tax liabilities.
Moreover, our countrywide expansion has taken a substantial number of years to date, and may not be successful for a variety of reasons, including because of: • one or more states could revoke our license to operate, or implement additional regulatory or financial requirements that could preclude or inhibit our ability to obtain or maintain our license in such state; • failures in identifying and entering into joint ventures with strategic partners, or entering into joint ventures that do not produce the desired results; • challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax, litigation and local regulatory restrictions; • difficulty in recruiting and retaining licensed (where required), talented and capable employees; 23 • competition from local incumbents that already own market share and better understand the local market, may operate more effectively and may enjoy greater local affinity or awareness with customers; • differing demand dynamics, which may make our product offerings less successful; and • limitations on the repatriation and investment of funds.
Moreover, our countrywide expansion has taken a substantial number of years to date, and may not be successful for a variety of reasons, including: 23 • one or more states could revoke our license to operate, or implement additional regulatory or financial requirements that could preclude or inhibit our ability to obtain or maintain our license in such state; • failures in identifying and entering into joint ventures with strategic partners, or entering into joint ventures that do not produce the desired results; • challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax, litigation and local regulatory restrictions; • difficulty in recruiting and retaining licensed (where required), talented and capable employees; • competition from local incumbents that already own market share and better understand the local market, may operate more effectively and may enjoy greater local affinity or awareness with customers; • differing demand dynamics, which may make our product offerings less successful; and • limitations on the repatriation and investment of funds.
Among other things, these provisions: • establish a classified board of directors such that not all members of the board are elected at one time; • allow the authorized number of our directors to be changed only by resolution of our board of directors; • limit the manner in which stockholders can remove directors from the board; • establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; • prohibit our stockholders from calling a special meeting of our stockholders; • authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and • require the approval of the holders of at least 66 2⁄3% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
Among other things, these provisions: • establish a classified board of directors such that not all members of the board are elected at one time; • allow the authorized number of our directors to be changed only by resolution of our board of directors; • limit the manner in which stockholders can remove directors from the board; • establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors; • require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent; • prohibit our stockholders from calling a special meeting of our stockholders; • authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock 51 ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and • require the approval of the holders of at least 66 2⁄3% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.
Any failure or perceived failure by us or third parties we work with to comply with privacy policies, disclosures, and obligations to customers or other third parties, or privacy or data security laws may result in governmental or regulatory investigations, enforcement actions, regulatory fines, criminal compliance orders, private litigation or public statements against us by consumer advocacy groups or others, and could cause customers to lose trust in us, any of which could materially and adversely affect on our business, results of operations, financial condition and prospects.
Any failure or perceived failure by us or third parties we work with to comply with privacy policies, disclosures, and obligations to customers or other third parties, or privacy or data security laws may result in governmental or regulatory investigations, enforcement actions, regulatory fines, criminal compliance orders, private litigation or public statements against us by consumer advocacy groups or others, and could cause customers to lose trust in us, any of which could materially and adversely affect our business, results of operations, financial condition and prospects.
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.
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.
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.
If, as a result of examinations, our regulators determine that our financial condition, capital resources or other aspects of any of our operations are not satisfactory, or that we have violated applicable laws or regulations, such regulator may subject us to fines or other penalties and/or require us to take one or more remedial actions or otherwise subject us to regulatory scrutiny, such as an enforcement action or, in the case of regulatory capital, require us to maintain additional capital.
The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and Nasdaq have imposed various 49 requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.
In recent years, interest rates have been at or near historic lows although rates have been slightly higher of late. A protracted low interest rate environment would place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results.
In recent years, interest rates have been at or near historic lows although rates 46 have been slightly higher of late. A protracted low interest rate environment would place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results.
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.
Would-be acquirers may find these requirements burdensome, which could deter potential acquisition proposals and may serve to delay or prevent change of control transactions, including transactions that some or all of the stockholders might consider to be desirable. These requirements may also inhibit our ability to acquire an insurance company should we wish to do so in the future.
A determination by federal or state regulators that the data points we collect or obtain and the process we use for collecting or obtaining data unfairly discriminates against a protected class of people could subject us to fines and 20 other sanctions, including, but not limited to, disciplinary action, revocation and suspension of licenses, regulatory fines and other sanctions, and withdrawal of product forms.
A determination by federal or state regulators that the data points we collect or obtain, and the process we use for collecting or obtaining data, unfairly discriminates against a protected class of people could subject us to fines and other sanctions, including, but not limited to, disciplinary action, revocation and suspension of licenses, regulatory fines and other sanctions, and withdrawal of product forms.
Although we take measures to protect our intellectual property, if we are unable to prevent the unauthorized use or exploitation of our intellectual property, the value of our brand, content, and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused, and our ability to attract customers may be adversely affected.
Although we take measures to protect our intellectual property, if we are unable to prevent the unauthorized use or exploitation of our intellectual property, the value of our brand, content, and other intangible assets may be diminished, competitors may be able to more effectively mimic our service and methods of operations, the perception of our business and service to customers and potential customers may become confused, and our ability 34 to attract customers may be adversely affected.
As a result, the holders of our Class B common stock are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.
As a result, the holders of our Class B common stock are able to exercise considerable influence over matters requiring stockholder approval, including the election of directors and approval 48 of significant corporate transactions, such as a merger or other sale of our company or our assets, even if their stock holdings represent less than 50% of the outstanding shares of our capital stock.
Future loss experience substantially in excess of established reserves could also have a material adverse effect on future earnings and liquidity and financial rating, which would affect our ability to attract new business or to retain existing customers. Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Future loss experience substantially in excess of established reserves could also have a material adverse effect on future earnings and liquidity and financial rating, which could affect our ability to attract new business or to retain existing customers. Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Additionally, limitations on our ability to collect, obtain or use telematics and other data derived from customer activities on smartphones, as well as new technologies that block our ability to collect or use such data, would 22 significantly diminish the value of our platform and have an adverse effect on our business, operating results, financial condition and prospects.
Additionally, limitations on our ability to collect, obtain or use telematics and other data derived from customer activities on smartphones, as well as new technologies that block our ability to collect or use such data, would significantly diminish the value of our platform and have an adverse effect on our business, operating results, financial condition and prospects.
Further, to the extent that our business grows, we will need to attract and retain additional qualified management personnel in a timely manner, and we may not be able to do so. Our success depends on our continuing to identify, hire, develop, motivate, retain and integrate highly skilled personnel in all areas of our business.
Further, to the extent that our business grows, we will 29 need to attract and retain additional qualified management personnel in a timely manner, and we may not be able to do so. Our success depends on continuing to identify, hire, develop, motivate, retain and integrate highly skilled personnel in all areas of our business.
For example, as explained above, the matters involving certain automobile manufacturers’ and third-party brokers’ collection and sharing of telematics data may prompt changes in the quality and availability of telematics data for use by us and others in the insurance industry, as well as changes to existing laws and regulations and their interpretation or implementation.
For example, as explained above, the matters involving certain automobile manufacturers’ and third-party brokers’ collection and sharing of telematics data may prompt changes in the quality and availability of telematics data for use by us and others in the insurance industry, as well as changes to existing laws and regulations 24 and their interpretation or implementation.
New or changing technologies, including those impacting personal transportation, could cause a disruption in our business model, which may materially impact our results of operations and financial condition. If we fail to anticipate the impact on our business of changing technology, including automotive technology, our ability to successfully operate may be materially impaired.
New or changing technologies, including those impacting personal transportation, could cause a disruption in our business model, which may materially impact our results of operations and financial condition. 56 If we fail to anticipate the impact on our business of changing technology, including automotive technology, our ability to successfully operate may be materially impaired.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial 50 reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud.
There are many other factors that could negatively affect our ability to maintain or grow our customer base, including if: • we fail to offer new and competitive products, or fail to maintain or obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as underwriting and rating requirements); • we fail to realize profits, retain customers, contract with additional partners to utilize products, or achieve other benefits related to our partnership channel, including our embedded insurance offering and our independent agent platform; • we fail to effectively use search engines, social media platforms, digital app stores, content-based online advertising, and other online sources for generating traffic to our website and our mobile app; • our digital platform experiences disruptions; technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; we fail to provide effective updates to our existing products or to keep pace with technological improvements in our industry; or customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • we suffer reputational harm to our brand including from negative publicity, whether accurate or inaccurate; • customers are unable or unwilling to adopt or embrace new technology or the perception emerges that purchasing insurance products online is not as effective as purchasing those products through traditional offline methods; or • we experience cybersecurity incidents or are unable to address customer concerns regarding the content, privacy, and security of our digital platform and our customers’ information.
There are many other factors that could negatively affect our ability to maintain or grow our customer base, including if: • we fail to offer new and competitive products, or fail to maintain or obtain regulatory approvals necessary for expansion into new markets or in relation to our products (such as underwriting and rating requirements); • we fail to realize profits, retain customers, contract with additional partners to utilize products, or achieve other benefits related to our partnership channel, including our embedded insurance offering and our independent agent platform; • we fail to effectively use search engines, social media platforms, digital app stores, content-based online advertising, and other online sources for generating traffic to our website and our mobile app; • our digital platform experiences disruptions; • technical or other problems frustrate the customer experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; • we fail to provide effective updates to our existing products or to keep pace with technological improvements in our industry, including generative AI and machine learning technology; • customers have difficulty installing, updating or otherwise accessing our app or website on mobile devices or web browsers as a result of actions by us or third parties; • we suffer reputational harm to our brand including from negative publicity, whether accurate or inaccurate; • customers are unable or unwilling to adopt or embrace new technology or the perception emerges that purchasing insurance products online is not as effective as purchasing those products through traditional offline methods; or • we experience cybersecurity incidents or are unable to address customer concerns regarding the content, privacy, and security of our digital platform and our customers’ information.
Alternatively, if we are unable to satisfy applicable state licensing requirements, we may be subject to additional regulatory oversight, have our 42 license suspended, or be subject to the seizure of assets. Any such events could adversely affect our business, results of operations, financial condition and prospects.
Alternatively, if we are unable to satisfy applicable state licensing requirements, we may be subject to additional regulatory oversight, have our license suspended, or be subject to the seizure of assets. Any such events could adversely affect our business, results of operations, financial condition and prospects.
The successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, results of operations, financial condition and prospects.
The 28 successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, results of operations, financial condition and prospects.
For free search listings, if search engines on which 21 we rely for algorithmic listings modify their algorithms, our website may appear less prominently or not at all in search results, which could result in reduced traffic to our website and our mobile app and fewer new customers.
For free search listings, if search engines on which we rely for algorithmic listings modify their algorithms, our website may appear less prominently or not at all in search results, which could result in reduced traffic to our website and our mobile app and fewer new customers.
In May 2018, South Carolina passed a cybersecurity bill requiring, among other things, any insurance entity operating in the state to establish and implement a cybersecurity program protecting their business and their customers from a data breach, to investigate data breaches and to notify regulators of a cybersecurity event.
In May 2018, South Carolina passed a cybersecurity bill requiring, among other things, any insurance entity operating in the state to establish and implement a cybersecurity program 26 protecting their business and their customers from a data breach, to investigate data breaches and to notify regulators of a cybersecurity event.
As another example, the federal government could pass a law expanding its authority to regulate the insurance industry, expanding federal regulation over our business to our detriment. These laws and regulations may limit our ability to grow, raise additional capital or improve the profitability of our business.
As another example, the federal government could pass a law expanding its authority to regulate the insurance industry, expanding federal regulation over our business 42 to our detriment. These laws and regulations may limit our ability to grow, raise additional capital or improve the profitability of our business.
As part of this Form A application, the entity acquiring control (as well as any controlling shareholders of such entity) will need to submit, along with other documents and disclosures, its financial statements, organizational charts and biographical affidavits for any officers, directors and controlling shareholders of each applicable entity.
As part of this Form A, the entity acquiring control (as well as any controlling shareholders of such entity) will need to submit, along with other documents and disclosures, its financial statements, organizational charts and biographical affidavits for any officers, directors and controlling shareholders of each applicable entity.
Because of the competitive nature of the insurance industry, there can be no assurance that we will continue to compete effectively within our industry, or that competitive pressures will not have a material effect on our business, results of operations, financial condition and prospects.
Because of the competitive nature of the insurance industry, there can be no assurance that we will continue to compete effectively within our industry, or that competitive pressures will not 18 have a material effect on our business, results of operations, financial condition and prospects.
Further, as compared to our competitors who operate on a wider geographic scale, any adverse changes in the legal and regulatory environment affecting property and casualty insurance in Texas , Georgia or Florida may expose us to more significant risks.
Further, as compared to our competitors who operate on a wider geographic scale, any adverse changes in the legal and regulatory environment affecting property and casualty insurance in Texas , Georgia, Florida, or California may expose us to more significant risks.
We are subject to statutory property and casualty guaranty fund assessments in many states in which we do business. The purpose of a guaranty fund is to protect customers in a particular state by requiring that solvent property and casualty insurers pay the insurance claims of insolvent insurers in such state.
We are subject to statutory property and casualty guaranty fund assessments in many states in which we do business. The purpose of a guaranty fund is to protect customers in a particular state by requiring that solvent 37 property and casualty insurers pay the insurance claims of insolvent insurers in such state.
In addition, a variety of organizations have developed ratings to measure the performance of companies on environmental, social and governance topics, and the results of some of these assessments are widely publicized. Such ratings are used by some investors to inform their investment and voting decisions.
In addition, a variety of organizations have developed ratings to measure the performance of companies on environmental, social and governance topics, and the results of some of these assessments are widely publicized. Such ratings are used by certain investors to inform their investment and voting decisions.
They may not have adequate security measures and could experience a cybersecurity incident that compromises the confidentiality, integrity or availability of the systems they operate for us or the information they process on our behalf. Some of our vendors have experienced cybersecurity breaches and other incidents.
They may not have adequate security measures and may experience a cybersecurity incident that compromises the confidentiality, integrity or availability of the systems they operate for us or the information they process on our behalf. Some of our vendors have experienced cybersecurity breaches and other incidents.
External factors are also considered, such as court decisions, changes in law and litigation imposing unintended coverage. We also consider benefits, such as requiring the availability of multiple limits for a single loss occurrence. Regulatory requirements and economic conditions are also considered.
External factors are also considered, such as court decisions, as well as changes in law and litigation imposing unintended coverage. We also consider benefits, such as requiring the availability of multiple limits for a single loss occurrence. Regulatory requirements and economic conditions are also considered.
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 incidents, or real or perceived errors, failures or bugs in our or our vendors’ systems, or our website or mobile 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.
These agreements may not adequately protect our trade secrets, these agreements may be breached, or this intellectual property, including trade secrets, may otherwise be disclosed or become known to our competitors, which would likely cause us to lose any competitive advantage resulting from this intellectual property.
These agreements may not adequately 33 protect our trade secrets, these agreements may be breached, or this intellectual property, including trade secrets, may otherwise be disclosed or become known to our competitors, which would likely cause us to lose any competitive advantage resulting from this intellectual property.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and 33 failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, financial condition and prospects.
Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, financial condition and prospects.
If such laws or regulations were enacted federally or in a large number of states in which we operate, it would impact the integrity and quality of our pricing and underwriting processes, as it already has in California.
If such laws or regulations were enacted federally or in a large number of states in which we operate, it would impact the integrity and quality of our pricing and underwriting processes, as it already has in California and Maryland.
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.
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.
Moreover, changing climate conditions, whether due to global climate change or other causes, may increase how often severe weather events and other natural disasters occur, how long they last, and how much insured damage they cause, and may change where the events occur.
Moreover, changing climate conditions, whether due to global climate change or other causes, may increase how often severe weather events and other natural disasters occur, how long they last, and how much insured damage they cause, and may change where events occur.
These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our Audit, Risk and Finance Committee and Compensation Committee, and qualified executive officers.
These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our Audit, Risk and Finance Committee, on our Compensation Committee, and as qualified executive officers.
The marketing of our insurance products depends on our ability to cultivate and maintain cost-effective and otherwise satisfactory relationships with digital app stores, in particular, those operated by Google and Apple.
The marketing of our insurance products depends on our ability to cultivate and maintain rapid, cost-effective and otherwise satisfactory relationships with digital app stores, in particular, those operated by Google and Apple.
Our results may vary from period to period as a result of fluctuations in the number of customers purchasing our insurance products and renewing their agreements with us as well as fluctuations in the timing and amount of our expenses.
Our results may vary from period to period as a result of fluctuations in the number of customers purchasing our insurance products and renewing their agreements with us as well as fluctuations in the timing and amount of our 55 expenses.
When we become aware of such websites or mobile apps, we have employed technological or legal measures in an attempt to halt their operations and intend to do so in the future.
When we become aware of such 27 websites or mobile apps, we have employed technological or legal measures in an attempt to halt their operations and intend to do so in the future.
For example, attempts to fraudulently induce our personnel into disclosing usernames, passwords or other 27 information that can be used to access our systems and the information in them have increased.
For example, attempts to fraudulently induce our personnel into disclosing usernames, passwords or other information that can be used to access our systems and the information in them have increased.
Changing expectations, including from governmental organizations, investors, employees and clients, on environmental, social and governance matters such as environmental stewardship, climate change, diversity, equity and inclusion, pay equity, racial justice, workplace conduct and cybersecurity and data privacy, may result in increased costs (including but not limited to increased costs related to compliance and stakeholder engagement), impact our reputation, or otherwise affect our business performance.
Changing expectations, including from governmental organizations, investors, advisory firms, employees and clients, on environmental, social and governance matters, such as environmental stewardship, climate change, diversity, equity and inclusion, pay equity, racial justice, workplace conduct and cybersecurity and data privacy, may result in increased costs (including but not limited to increased costs related to compliance and stakeholder engagement), impact our reputation, or otherwise affect our business performance.
Insurers with a ratio falling below certain calculated thresholds may be subject to varying degrees of regulatory action, including heightened supervision, examination, rehabilitation or liquidation.
Insurers with a ratio falling below certain calculated thresholds may be 31 subject to varying degrees of regulatory action, including heightened supervision, examination, rehabilitation or liquidation.
We 17 may choose to preserve capital, change our focus areas of growth, reinvest in the business, or encounter unforeseen or unpredictable factors, which may, and in some cases will, result in increased operating expenses, other losses, complications or delays slowing demand for our services, increasing competition, a decrease in the growth of our overall market, and our failure to capitalize on growth opportunities or the maturation of our business.
We 17 may choose to preserve capital, change our focus areas of growth, reinvest in the business, or encounter unforeseen or unpredictable factors, which may, and in certain cases will, result in increased operating expenses, other losses, complications or delays slowing demand for our services, increasing competition, a decrease in the growth of our overall market, and our failure to capitalize on growth opportunities or the maturation of our 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.
Complaints or negative publicity, whether accurate or inaccurate, 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.
We have settled claims related to allegations that we did not timely or accurately pay claims and have been assessed market conduct fines and penalties by regulatory authorities.
We have settled claims and actions related to allegations that we did not timely or accurately pay claims and have been assessed market conduct fines and penalties by regulatory authorities.
Many potential litigants, including some of our competitors and patent-holding companies, have the ability to dedicate substantial resources to the assertion of their intellectual property rights.
Many potential litigants, including some of our competitors and patent-holding companies, have the ability to dedicate substantial resources to the assertion of their 35 intellectual property rights.
These guaranty associations generally pay these claims by assessing solvent insurers proportionately based on each insurer's share of voluntary premiums written in the state. During the year ended December 31, 2024, the amounts we contributed to such funds were immaterial; however, as we enter new markets the amounts we are required to contribute may increase materially.
These guaranty associations generally pay these claims by assessing solvent insurers proportionately based on each insurer's share of voluntary premiums written in the state. During the year ended December 31, 2025, the amounts we contributed to such funds were immaterial; however, as we enter new markets, the amounts we are required to contribute may increase materially.
If we fail to remain 18 competitive on customer experience, pricing, and insurance coverage options, our ability to grow our business will also be adversely affected.
If we fail to remain competitive on customer experience, pricing, and insurance coverage options, our ability to grow our business will also be adversely affected.
Furthermore, because many of our customers access our insurance products through a mobile app, we depend on the Apple App Store and the Google Play Store to distribute our mobile app.
Because many of our customers access our insurance products through a mobile app, we depend on the Apple App Store and the Google Play Store to distribute our mobile app.
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.
For example, the proposed Designing Accounting Safeguards to Help Broaden Oversight and Regulations on Data 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 such data.
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.
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, including Texas, Georgia, Florida, and California.
Expanding into new geographic markets takes time, places us in unfamiliar competitive and regulatory environments, requires us to navigate and comply with extensive regulations and may occur more slowly than we expect and we may be unsuccessful at expanding nationwide. Further, the insurance industry in which we operate is highly competitive.
Expanding into new geographic markets takes time, requires investment in technology, places us in unfamiliar competitive and regulatory environments, requires us to navigate and comply with extensive regulations and may occur more slowly than we expect and we may be unsuccessful at expanding nationwide. Further, the insurance industry in which we operate is highly competitive.
To the extent that our employees, independent contractors or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
To the extent that our employees, independent contractors, contract counterparties or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
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.
Most 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.
Rather, reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In our industry, there is always the risk that reserves may prove inadequate or redundant since we will likely misestimate the cost of claims and claims administration.
Rather, reserves represent an estimate of what the expected ultimate settlement and administration of claims will cost, and the ultimate liability may be greater or less than the current estimate. In our industry, there is always a risk that reserves may prove inadequate or redundant since we will likely misestimate the exact cost of claims and claims administration.
For paid search listings, if one or more of the search engines or other online sources on which we rely modifies or terminates its relationship with us, we have to pay a higher price for such listings or if the alternatives we find are more expensive, our expenses have in the past and would again rise, or we could lose consumers and traffic to our website, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.
For paid search listings, if one or more of the search engines or other online sources on which we rely modifies or terminates its relationship with us, we have to pay a higher price for such listings or if the alternatives we find are more expensive, our expenses have in the past and may again in the future rise, or we could lose consumers and traffic to our website, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.
From time to time (including in 2024), competition for limited and/or high-value advertising space from our competitors or other companies can result in increases in the costs we incur in our marketing efforts. Our customer acquisition costs can vary by channel mix, by state, due to seasonality, or due to the competitive environment.
From time to time (including in 2025), competition for limited and/or high-value advertising space from our competitors or other companies can result in increases in the costs we incur in our marketing efforts. Our customer acquisition costs can vary by channel mix, by state, due to seasonality, or due to the competitive environment.
Security incidents could also damage our IT systems and our ability to make the financial reports and other public disclosures required of public companies. These risks are likely to increase as we continue to grow and process, store and transmit an increasingly large volume of data.
Cybersecurity incidents could also damage our IT systems and our ability to make the financial reports and other public disclosures required of public companies. These risks are likely to increase as we continue to grow and process, store and transmit an increasingly large volume of data.
In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business would be harmed. Our brand may not become as widely known or accepted as incumbents’ brands or the brand may become tarnished. Many of our competitors have brands that are well-recognized.
In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business would be harmed. Our brand may not become as widely known or accepted as our competitors’ brands or our brand may become tarnished. Many of our competitors have brands that are well-recognized.
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.
The DGCL 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.
Our amended and restated bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law.
Our amended and restated bylaws also provide that, on satisfaction of certain conditions, we will advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of the DGCL.
Our common stock trades on Nasdaq. Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders. If we fail to meet these continued listing requirements, Nasdaq may take steps to delist our Class A common stock.
Nasdaq rules impose certain continued listing requirements, including the minimum $1 bid price, corporate governance standards and number of public stockholders. If we fail to meet these continued listing requirements, Nasdaq may take steps to delist our Class A common stock.
While our revenue has grown in some recent periods and contracted in others, our historic growth rate may not be sustainable. With changes to our focus areas of growth, our historic growth rates should not be considered indicative of future performance, and we may not realize sufficient revenue to maintain profitability.
While our revenue has grown in certain recent periods and contracted in others, our historic growth rate may not be sustainable. With changes to our focus areas of growth, our historic growth rates should not be considered indicative of future performance, and we may not realize sufficient revenue to maintain profitability.
If federal or state legislators pass laws limiting our ability to collect or obtain driver data, particularly through driver’s smartphones, such legislation would have a material adverse effect on our business, results of operations, financial condition and prospects.
If federal or state legislators pass laws limiting our ability to collect or obtain driver data, particularly through drivers’ smartphones, such legislation would have a material adverse effect on our business, results of operations, financial condition and prospects.
Some regulators have expressed interest in the use of external data sources, algorithms and/or predictive models in insurance underwriting or rating. Specifically, regulators have raised questions about the potential for unfair discrimination, adequacy of consent and lack of transparency associated with the use of external consumer data.
Certain regulators have expressed interest in the use of external data sources, algorithms and/or predictive models in insurance underwriting or rating. Specifically, regulators have raised questions about the potential for unfair discrimination, adequacy of consent and lack of transparency associated with the use of external consumer data.
To the extent either of these occur, our business, results of operations, financial condition and prospects would be adversely affected. Further, one of the factors we use to evaluate our customer satisfaction and market position is our Apple App Store ratings.
To the extent either of these occur, our business, results of operations, financial condition and prospects would be adversely affected. Further, one of the factors we use to evaluate our customer satisfaction and market position is our Apple App Store and Google Play Store ratings.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

10 edited+0 added−0 removed10 unchanged
Biggest changeAs 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.
Biggest changeAs of the filing of this Annual Report on Form 10-K, however, we are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have occurred that have materially affected, or are reasonably likely to materially affect, the Company, including its business strategy, results of operations or financial condition.
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.
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 mobile 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 Company has engaged third parties to perform information security risk assessments and testing on a periodic basis. It also has engaged third parties to provide a variety of services, including providing hosted security products as well as services to support security incident detection and response activities.
The Company has engaged third parties to perform information security risk assessments and testing on a periodic basis. It also has engaged third parties to provide a variety of services, including providing hosted security products as well as services to support cybersecurity incident detection and response activities.
The breadth and depth of the assessment activities are designed to be commensurate with the nature and scope of the services provided by the third party. The oversight of the Company’s cybersecurity risk management processes are integrated into the Company’s enterprise risk management process.
The breadth and depth of the assessment activities are designed to be commensurate with the nature and scope of the services provided by the third party. The Company’s cybersecurity risk management processes are integrated into the Company’s enterprise risk management process.
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.
We have previously 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.
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
Senior members of our Information Security, Internal Audit and Legal functions also provide detailed, regular reports on information security and privacy to the Audit, Risk and Finance Committee . 60
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.
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 significant cybersecurity incidents, as needed, by the Computer Security Incident Response Team, which is led by the Company’s General Counsel.
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.
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, security tabletop exercises and regular phishing simulation and exercises. In addition, the Company engages third parties as necessary in connection with these processes.
Sandy has an extensive background in cybersecurity, technology, and risk management across a variety of industries, including financial services, healthcare, and technology. Additionally, Ms. Sandy holds various information security certifications. The Information Security group, senior leadership and the CISO are informed about and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents through the Information Security Program.
Srinivasan has an extensive background in cybersecurity, technology, and risk management across a variety of industries, including financial services, healthcare, retail, e-commerce and technology. Additionally, Mr. Srinivasan holds various information security certifications. The Information Security group, senior leadership and the CISO are informed about and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents through the Information Security Program.
The 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.
The 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. Srini Srinivasan is the Company’s CISO and reports directly to the Company’s President and Chief Technology Officer. Mr.

Item 2. Properties

Properties — owned and leased real estate

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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.
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 suitable additional or alternative space will be available through a lease or purchase to accommodate our operations.
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.
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 currently own any real property.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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.
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, if concluded adversely, could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flows. 62 Item 4.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs 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.
Biggest changeAs of February 18, 2026, Root had 28 common stockholders of record of Class B common stock. Dividend Policy We have never declared or paid cash dividends on our stock.
Holders 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.
Holders of Record As of February 18, 2026, Root had 33 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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeUpon extinguishment of debt, the remaining unamortized discount and debt issuance costs are recognized as expense. 74 Results of Operations Comparison of the Years Ended December 31, 2024 and 2023 The following table presents our results of operations for the periods indicated: For the Years Ended December 31, 2024 2023 $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 1,070.9 $ 399.9 $ 671.0 167.8 % Net investment income 35.9 30.2 5.7 18.9 % Fee income 66.0 23.4 42.6 182.1 % Other income 3.7 1.5 2.2 146.7 % Total revenues 1,176.5 455.0 721.5 158.6 % Operating expenses: Loss and loss adjustment expenses 733.0 331.3 401.7 121.2 % Sales and marketing 135.8 49.3 86.5 175.5 % Other insurance expense 106.4 47.6 58.8 123.5 % Technology and development 53.3 44.8 8.5 19.0 % General and administrative 69.5 83.3 (13.8) (16.6) % Total operating expenses 1,098.0 556.3 541.7 97.4 % Operating income (loss) 78.5 (101.3) 179.8 177.5 % Interest expense (42.2) (46.1) 3.9 (8.5) % Loss on extinguishment of debt (5.4) — (5.4) 100.0 % Income (loss) before income tax expense 30.9 (147.4) 178.3 121.0 % Income tax expense — — — — % Net income (loss) 30.9 (147.4) 178.3 121.0 % Other comprehensive income: Changes in net unrealized gains on investments 0.2 3.3 (3.1) (93.9) % Comprehensive income (loss) $ 31.1 $ (144.1) $ 175.2 121.6 % Revenue Net Premiums Earned Net premiums earned increased due to an increase in policies in force as a result of increased direct performance marketing spend, continued growth in our partnership channel, reduced external quota share cessions of gross premiums earned to reinsurers between periods and greater premium per policy resulting from rate actions.
Biggest changeOther Comprehensive Income Changes in Net Unrealized Gains on Investments Changes in net unrealized gains on investments increased primarily due to declining market interest rates during the year, which resulted in higher fair values for fixed maturity securities, particularly those with longer durations, as well as the replacement of lower yielding securities with higher coupon investments. 77 Comparison of the Years Ended December 31, 2024 and 2023 The following table presents our results of operations for the periods indicated: For the Years Ended December 31, 2024 2023 $ Change % Change (dollars in millions) Revenue: Net premiums earned $ 1,070.9 $ 399.9 $ 671.0 167.8 % Net investment income 35.9 30.2 5.7 18.9 % Fee income 66.0 23.4 42.6 182.1 % Other income 3.7 1.5 2.2 146.7 % Total revenue 1,176.5 455.0 721.5 158.6 % Operating expenses: Loss and loss adjustment expenses 733.0 331.3 401.7 121.2 % Sales and marketing 135.8 49.3 86.5 175.5 % Other insurance expense 106.4 47.6 58.8 123.5 % Technology and development 53.3 44.8 8.5 19.0 % General and administrative 69.5 83.3 (13.8) (16.6) % Total operating expenses 1,098.0 556.3 541.7 97.4 % Operating income (loss) 78.5 (101.3) 179.8 177.5 % Interest expense 42.2 46.1 (3.9) (8.5) % Loss on extinguishment of debt 5.4 — 5.4 100.0 % Income (loss) before income tax expense 30.9 (147.4) 178.3 121.0 % Income tax expense — — — — % Net income (loss) 30.9 (147.4) 178.3 121.0 % Other comprehensive income: Changes in net unrealized gains on investments 0.2 3.3 (3.1) (93.9) % Comprehensive income (loss) $ 31.1 $ (144.1) $ 175.2 121.6 % The December 31, 2024 and 2023 results of operations discussion can be found in the section titled “Results of Operations” Part II, Item 7.
Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure. These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to underwriting to claims administration to ongoing customer engagement.
Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure. These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to underwriting to claims administration and ongoing customer engagement.
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.
We 69 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.
Further, impacts related to reinsurance are excluded, these consist of ceded premiums earned, ceded loss and LAE, and net ceding commission and other.
Further impacts related to reinsurance are excluded, and these consist of ceded premiums earned, ceded loss and LAE, and net ceding commission and other.
We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums and believe it is useful for investors to evaluate those separately from other operating expenses.
We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums, and we believe it is useful for investors to evaluate those separately from other operating expenses.
We view report costs and refunds related to these expenses and commission expenses related to our partnership channel as acquisition costs. We view premium taxes, credit card and policy processing expenses and premium write-offs as variable costs.
We view report costs and refunds related to these expenses and commission expenses related to our partnership channel as acquisition costs. We view premium taxes, credit card and policy processing expenses and premium write-offs as variable expenses.
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.
Direct Contribution We define direct contribution, a non-GAAP financial measure, as gross profit excluding net investment income, net realized gains on investments, acquisition expenses which include report costs and refunds related to these expenses and commission expenses related to our partnership channel, and fixed expenses, which include certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, or Integrated 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.
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.
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.
Liquidity and Capital Resources General Since inception, we have financed operations primarily through sales of insurance policies and the net proceeds we have received from our issuance of stock and debt and from sales of investments. Cash generated from operations is highly dependent on being able to efficiently acquire and maintain customers while pricing our insurance products appropriately.
Liquidity and Capital Resources General Since inception, we have financed operations primarily through sales of insurance policies and the net proceeds we have received from our issuance of stock and debt. Cash generated from operations is highly dependent on being able to efficiently acquire and maintain customers while pricing our insurance products appropriately.
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.
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.
There is considerable uncertainty associated with the actuarial estimates, and therefore the actual losses and LAE paid in the future may differ materially from the reserves we have recorded. Our loss estimates are continually reviewed by management and adjusted as necessary; with adjustments included in the period determined.
There is considerable uncertainty associated with the 83 actuarial estimates, and therefore the actual losses and LAE paid in the future may differ materially from the reserves we have recorded. Our loss estimates are continually reviewed by management and adjusted as necessary; with adjustments included in the period determined.
For instance, we leverage machine learning to “clean” behavioral data obtained through a customer’s mobile device, and we use advanced statistical methods to model that data into usable behavior scores. We leverage intelligent chat functions and various forms of machine learning and advanced automation to help power our claims function.
For instance, we leverage machine learning to “clean” behavioral data obtained through a customer’s mobile device, and we use advanced statistical methods to model data into usable behavior scores. We leverage intelligent chat functions and various forms of machine learning and advanced automation to help power our claims function.
Additionally, our proprietary dataset will continue to scale as we grow, enabling us to enhance our predictive models to further improve pricing and attract potential new customers. We will also continue to target attractive potential customer segments through diverse distribution strategy, which includes direct and partnership channels.
Additionally, our proprietary dataset will continue to scale as we grow, enabling us to enhance our predictive models to further improve pricing and attract potential new customers. We will also continue to target attractive potential customer segments through a diverse distribution strategy, which includes direct and partnership channels.
Over the long-term we expect it will decrease as a percentage of revenue as the proportion of renewals to our total business increases. Other Insurance Expense (Benefit) Other insurance expense (benefit) includes expenses primarily related to insurance and underwriting operations of the business, it is comprised of acquisition, variable and fixed expenses.
Over the long-term we expect it will decrease as a percentage of revenue as the proportion of renewals to our total business increases. Other Insurance Expense Other insurance expense includes expenses primarily related to insurance and underwriting operations of the business and is comprised of acquisition, variable and fixed 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.
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, cash equivalents, restricted cash and restricted cash equivalents, fixed maturities, and short-term investments less investment expenses.
Gross Profit (Loss) We define gross profit (loss) as total revenue minus net loss and LAE and other insurance expense (benefit). We view gross profit (loss) as an important metric because we believe it is informative of the financial performance of our core insurance business.
Gross Profit We define gross profit as total revenue minus net loss and LAE and other insurance expense. We view gross profit as an important metric because we believe it is informative of the financial performance of our core insurance business.
The ceding commission provides for reimbursement of both direct and other periodic acquisition costs, including certain underwriting and marketing costs, and is presented as a reduction of other insurance expense (benefit).
The ceding commission provides for reimbursement of both direct and other periodic acquisition costs, including certain underwriting and marketing costs, and is presented as a reduction of other insurance expense.
Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement. These expenses are recognized net of ceding commissions earned from our quota share reinsurance agreements.
Warrant compensation expense is recognized on a pro-rata basis considering progress toward 73 achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement. These expenses are recognized net of ceding commissions earned from our quota share reinsurance agreements.
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.
Material Cash Requirements from Contractual and Other Obligations As of December 31, 2025, 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.
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.
This Management’s Discussion and Analysis does not discuss 2023 performance or a comparison of 2024 versus 2023 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.
Interest is payable quarterly and is determined on a floating interest rate calculated on the Secured Overnight Financing Rate, or SOFR, with a 1.0% floor, plus an applicable margin ranging from 5.25% to 6.00%, based upon the debt-to-capital ratio, payable quarterly.
Interest is payable quarterly and determined on a floating interest rate calculated on the Secured Overnight Financing Rate with a 1.0% floor, plus an applicable margin ranging from 5.25% to 6.00%, based upon the debt-to-capital ratio payable quarterly.
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.
Legal and other fees net of recoveries related to the 2022 misappropriation of funds by a former senior marketing employee of $(0.2) million, $(1.1) million and $3.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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.
We believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due. Critical Accounting Estimates Our financial statements are prepared in accordance with GAAP.
We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, to manage our business because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross LAE) are the key drivers of our future profit opportunities.
We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, to manage our business because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross loss adjustment expense, or LAE), are the key drivers of our future profit opportunities.
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.
Regulatory Considerations We are organized as a holding company, but our primary operations are conducted by three of 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.
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.
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.
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.
The omitted information may be found in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission, or the SEC, on February 26, 2025. Overview Root is a technology insurance company founded on the idea that car insurance rates should be based primarily on driving behaviors, not demographics.
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.
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, legal fees and other items that do not reflect our ongoing operating performance.
(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.
(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, 2025, 2024 and 2023: For the Years Ended December 31, 2025 2024 2023 (dollars in millions) Net income (loss) $ 40.3 $ 30.9 $ (147.4) Adjustments: Interest expense 20.3 39.7 43.2 Income tax expense 0.5 — — Depreciation and amortization 11.7 14.5 12.2 Share-based compensation 40.1 18.5 16.9 Loss on extinguishment of debt — 5.4 — Warrant compensation expense 19.2 3.8 17.4 Restructuring costs (1) 0.1 0.2 11.2 Other (2) (0.2) (1.1) 3.6 Adjusted EBITDA $ 132.0 $ 111.9 $ (42.9) ______________ (1) Restructuring costs consist of employee costs, real estate exit costs, and other.
We are revolutionizing the archaic car insurance industry using mobile technology and data science to offer drivers fair, personalized rates. We believe the Root advantage is derived from our unique ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk to price better drivers more fairly.
We are revolutionizing the archaic car insurance industry by using modern technology, telematics, and data science to offer fair, personalized rates to good drivers. We believe our competitive advantage is derived from our ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk to price better drivers more fairly.
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.
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 Changing global economic conditions has resulted in inflationary pressures, supply chain disruptions, changes in interest rates and changes in equity markets.
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.
Through continued investment in and diversification of our distribution channels, leveraging our proprietary technology and data science and focusing on partnerships with automotive, financial services, and independent agents, we believe this will position us for a sustainable, long-term and profitable path for growth. 66 As a full-stack insurance company, we currently employ a “capital-efficient” model, which utilizes a variety of reinsurance structures.
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.
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.
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.
Other insurance expense 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.
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.
This includes zero, zero and $0.4 million of share-based compensation for the years ended December 31, 2025, 2024 and 2023, respectively. This also includes $0.1 million, $0.4 million and $0.4 million of depreciation and amortization for the years ended December 31, 2025, 2024 and 2023, respectively.
We continuously evaluate our utilization of third-party reinsurance in order to operate a capital-efficient business model. As our gross loss ratios have stabilized we strategically reduced the utilization of external quota share to balance the cost of reinsurance with capital-efficiency.
We continuously evaluate our utilization of third-party reinsurance in order to operate a capital-efficient business model. As our gross loss ratios have stabilized we strategically reduced the utilization of external quota share to balance the cost of reinsurance with capital-efficiency. Over the long-term, we expect to maintain the flexibility to modify our reinsurance program.
Direct Contribution For the definition of direct contribution and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.” The following table provides a reconciliation of total revenue to direct contribution for the years ended December 31, 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.
Direct Contribution For the definition of direct contribution and why management believes this measure provides useful information to investors, see “—Key Performance Indicators.” The following table provides a reconciliation of total revenue to direct contribution for the years ended December 31, 2025, 2024 and 2023: For the Years Ended December 31, 2025 2024 2023 (dollars in millions) Total revenue $ 1,517.1 $ 1,176.5 $ 455.0 Loss and loss adjustment expenses (924.2) (733.0) (331.3) Other insurance expense (206.3) (106.4) (47.6) Gross profit 386.6 337.1 76.1 Net investment income (33.7) (35.9) (30.2) Adjustments from other insurance expense (1) 135.8 66.5 76.3 Ceded premiums earned 64.3 160.1 235.9 Ceded loss and loss adjustment expenses (30.5) (97.7) (144.5) Net ceding commission and other (2) (16.6) (36.1) (62.9) Direct contribution $ 505.9 $ 394.0 $ 150.7 ______________ (1) Adjustments from other insurance expense consists of acquisition expenses, including report costs and refunds related to these expenses and commission expenses related to our partnership channel of $101.8 million, $49.7 million and $50.8 million for the years ended December 31, 2025, 2024 and 2023, respectively.
During the years ended December 31, 2024 and 2023, we ceded approximately 13.0% and 37.1% of our gross premiums earned, respectively.
During the years ended December 31, 2025 and 2024, we ceded approximately 4.4% and 13.0% of our gross premiums earned, respectively.
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.
Cash Flows The following table summarizes our cash flow data for the periods presented: For the Years Ended December 31, 2025 2024 2023 (dollars in millions) Net cash provided by (used in) operating activities $ 206.5 $ 195.7 $ (33.6) Net cash used in investing activities (91.7) (154.4) (45.7) Net cash used in financing activities (25.2) (120.7) (4.1) Comparison of Years Ended December 31, 2025 and 2024 Net cash provided by operating activities for the year ended December 31, 2025 was $206.5 million compared to $195.7 million of net cash provided by operating activities for the year ended December 31, 2024.
Reinsurance Recoverable and Receivable We also estimate the amount of reinsurance recoverable and receivable from reinsurance contracts. Reinsurance assets include reinsurance recoverable and receivable on unpaid loss and LAE reserves, which are estimated as part of our loss reserving process and are subject to similar judgments and uncertainties.
Reinsurance assets include reinsurance recoverable and receivable on unpaid loss and LAE reserves, which are estimated as part of our loss reserving process and are subject to similar judgments and uncertainties.
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.
For the Years Ended December 31, 2025 2024 2023 (dollars in millions, except premiums per policy) Policies in force 481,869 414,862 341,764 Premiums per policy $ 1,531 $ 1,584 $ 1,423 Premiums in force $ 1,475.5 $ 1,314.3 $ 972.7 Gross premiums written $ 1,505.8 $ 1,301.1 $ 783.1 Gross premiums earned $ 1,466.0 $ 1,231.0 $ 635.8 Gross profit $ 386.6 $ 337.1 $ 76.1 Net income (loss) $ 40.3 $ 30.9 $ (147.4) Direct contribution $ 505.9 $ 394.0 $ 150.7 Adjusted EBITDA $ 132.0 $ 111.9 $ (42.9) Net loss and LAE ratio 65.9 % 68.5 % 82.8 % Net expense ratio 32.3 % 27.9 % 50.4 % Net combined ratio 98.2 % 96.4 % 133.2 % Gross loss ratio 58.0 % 58.9 % 65.2 % Gross LAE ratio 7.1 % 8.6 % 9.6 % Gross expense ratio 32.0 % 27.2 % 41.6 % Gross combined ratio 97.1 % 94.7 % 116.4 % Gross accident period loss ratio 59.3 % 58.2 % 64.1 % Policies in Force We define policies in force as the number of current and active auto insurance policyholders underwritten by us as of the period end date.
Over the long-term, we expect to maintain the flexibility to modify our reinsurance program. 66 Key Factors and Trends Affecting our Operating Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Our Ability to Manage and Price Risk We leverage technology to help manage risk.
Key Factors and Trends Affecting our Operating Performance Our financial condition and results of operations have been, and will continue to be, affected by a number of factors, including the following: Our Ability to Manage and Price Risk We leverage technology to help manage risk.
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.
We expect general and administrative expenses to decrease as a percentage of total revenue over time. Non-Operating Expenses Our non-operating expenses consist of interest expense, loss on extinguishment of debt, and income tax expense. Interest Expense Interest expense is not an operating expense; therefore, we include these expenses below operating expenses.
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.
We utilize reinsurance arrangements to mitigate the impact of large losses or catastrophic events. 80 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 business in the future.
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.
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, 81 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.
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.
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.
We view insurance license expenses, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, low income housing tax credits which offset certain state premium taxes, Personnel Costs and Overhead related to actuarial and certain data science activities as fixed costs. 73 We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel, premium taxes, and report costs related to the successful acquisition of a policy.
We view insurance license expenses, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, low income housing tax credits which offset certain state premium taxes, Personnel Costs and Overhead related to actuarial and certain data science activities as fixed expenses.
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.
There remains uncertainty around the future of inflation, including as a result of evolving tariffs and trade policy; 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 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 view sponsorship, Personnel Costs and Overhead related to our brand strategy, creative and business development activities, and certain data science activities as fixed expenses. Sales and marketing are expensed as incurred.
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.
Liquidity As of December 31, 2025, we had $669.3 million in cash and cash equivalents, of which $312.1 million was held outside of regulated insurance entities. We also had $387.0 million in marketable securities. Our cash and cash equivalents primarily consist of bank deposits and money market funds.
Fixed expenses including certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, Personnel Costs, Overhead, licenses, professional fees and other of $16.8 million, $25.5 million and $19.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Adjustments from other insurance expense also consists of fixed expenses, including warrant compensation expense related to policies originating through the Integrated Platform, Personnel Costs, Overhead, licenses, professional fees and other of $34.0 million, $16.8 million and $25.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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.
Investment expenses include costs associated with the management of our investment portfolio, including Personnel Costs. 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.
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.
For further information on restructuring costs, see Note 10, “Restructuring Costs,” in the Notes to Consolidated Financial Statements. (2) Other primarily reflects legal costs and other items that do not reflect our ongoing operating performance.
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.
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.
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.
We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of stock and debt. Certain events may impact our liquidity, such as the economic instability resulting in inflationary pressures, supply chain disruptions, changes in interest rates, new or increased tariffs, changes in equity markets and our utilization of reinsurance.
Operating Expenses Loss and Loss Adjustment Expenses Loss and LAE increased due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements.
Operating Expenses Loss and Loss Adjustment Expenses Loss and LAE increased due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers driven by a strategic reduction of quota share reinsurance. This volume-driven increase was partially offset by a reduction of loss and LAE reserves on prior periods due to lower-than-expected reported activity.
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.
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. 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.
Estimating these amounts involves significant judgment, with key considerations including: • paid and unpaid amounts recoverable; • any balances in dispute or subject to legal collection; • the financial well-being of a reinsurer; and • the likelihood of collection of the reinsurance recovery considering factors such as, amounts outstanding and length of collection periods. 84 Recoverability of Net Deferred Tax Assets We calculate the tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities in accordance with Accounting Standards Codification 740, Income Taxes, or ASC 740.
Estimating these amounts involves significant judgment, with key considerations including: • paid and unpaid amounts recoverable; • any balances in dispute or subject to legal collection; • the financial well-being of a reinsurer; and • the likelihood of collection of the reinsurance recovery considering factors such as, amounts outstanding and length of collection periods.
The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and Florida.
The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and the State of Florida. Our domestic insurance subsidiaries are not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director.
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.
The decrease in cash used in investing activities was primarily due to lower purchases of investments and higher proceeds from maturities, calls and pay downs of investments for the year ended December 31, 2025 compared to 2024.
We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular. We believe our data- and technology-driven approach to pricing and underwriting allows for rapid response to macroeconomic trends through quick, appropriate rate actions.
We use technology to drive efficiency across the organization within distribution, underwriting, policy administration, and claims. Although we believe we are priced adequately in a majority of the states in which we operate, our technology- and data-driven approach to pricing and underwriting allows for rapid response to macroeconomic trends and competitive dynamics through quick, timely, and appropriate rate actions.
These fees are recognized in the period in which we process the late payment. 72 Other Income Other income is primarily comprised of revenue earned from distributing website and mobile application policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead.
Other Income Other income is primarily comprised of revenue earned from distributing website and mobile application policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead. 72 Operating Expenses Our operating expenses consist of loss and LAE, sales and marketing, other insurance expense, technology and development, and general and administrative expenses.
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).
The following table summarizes this sensitivity analysis: Scenarios for Changes in Loss Reserves for all Accident Years (10)% (5)% —% 5% 10% (dollars in millions) Bodily injury liability $ 206.0 $ 217.4 $ 228.9 $ 240.3 $ 251.8 Uninsured and underinsured bodily injury 35.8 37.8 39.7 41.8 43.7 Property damage 69.6 73.5 77.4 81.2 85.1 All other coverages 45.4 45.4 45.4 45.4 45.4 Total loss reserves—net of reinsurance $ 356.8 $ 374.1 $ 391.4 $ 408.7 $ 426.0 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). 84 Reinsurance Recoverable and Receivable We also estimate the amount of reinsurance recoverable and receivable from reinsurance contracts.
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.
The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance. 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, 2025 and 2024: For the Years Ended December 31, 2025 2024 $ Change % Change (dollars in millions) Gross premiums written $ 1,505.8 $ 1,301.1 $ 204.7 15.7 % Ceded premiums written (45.4) (137.0) 91.6 (66.9) % Net premiums written 1,460.4 1,164.1 296.3 25.5 % Gross premiums earned 1,466.0 1,231.0 235.0 19.1 % Ceded premiums earned (64.3) (160.1) 95.8 (59.8) % Net premiums earned $ 1,401.7 $ 1,070.9 $ 330.8 30.9 % Gross premiums written increased due to growth in new writings as a result of continued growth in our partnership channel.
Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance expense (benefit).
Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance expense. After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business.
Components of Our Results of Operations Revenue We generate revenue from net premiums earned, net investment income, net realized gains on investments, fee income and other income. Net Premiums Earned Premiums written are deferred and earned pro rata over the policy period.
We believe that gross accident period loss ratio is useful in evaluating expected losses prior to the impact of reinsurance. Components of Our Results of Operations Revenue We generate revenue from net premiums earned, net investment income, fee income and other income. Net Premiums Earned Premiums written are deferred and earned pro rata over the policy period.
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 view direct contribution as an important metric because we believe it measures profitability of our total policy portfolio prior to the impact of reinsurance.
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.
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. 67 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.
Our acquisition expenses increased due to greater commissions paid related to the continued growth in our partnership channel, including amortization of deferred policy acquisition costs, of $15.8 million. While acquisition expenses increased overall, report costs decreased $3.5 million primarily driven by enhanced efficiency and reduced costs for reports related to new business.
Other Insurance Expense Other insurance expense increased primarily due to a $35.1 million increase in our acquisition expenses driven by greater commissions paid related to the continued growth in our partnership channel, including amortization of 76 deferred policy acquisition costs.
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.
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.
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.
Cross-sales of renters policies will allow us to generate additional premiums without material incremental marketing spend, and ultimately higher revenue per customer. We have also observed that bundling products with auto insurance improves retention as the relationship with our customer expands.
We experienced a 5% increase in severity per claim and a 4% decrease in claim frequency for the year ended December 31, 2024 compared to 2023 across our bodily injury, collision, and property damage coverages. The claim frequency estimates are tenure mix adjusted.
This was partially offset by rate actions, favorable weather-related losses, and business tenure mix. We observed a mid-single-digit increase in estimated ultimate severity per claim and a low-single-digit decrease in estimated ultimate claim frequency for the year ended December 31, 2025 compared to 2024 across our bodily injury, collision, and property damage coverages.
Sales and Marketing Sales and marketing increased due to greater acquisition expense as we invested in growing our business to drive accretive growth and deeper market penetration in the states in which we operate. This resulted in a $76.7 million increase in direct performance marketing spend.
Sales and Marketing Sales and marketing increased primarily due to a $26.9 million increase in direct performance marketing spend, reflective of our investments to drive accretive growth and deeper market penetration in the states in which we operate. We also saw a $9.5 million increase in experimental marketing spend as part of our efforts to diversify our distribution channels.
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.
We have also seen an increase in vehicle repair and medical costs, which are affected by inflation. These cost increases have resulted in greater claims severity. Additionally, we continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends.
Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of discount and debt issuance costs. In addition, changes in the fair value of warrant liabilities that are associated with our long-term debt are recorded as interest expense.
Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of discount and debt issuance costs. Loss on Extinguishment of Debt Loss on extinguishment of debt is not an operating expense; therefore, we include these expenses below operating expenses.
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.
Our debt covenants require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million. 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 also saw a $28.9 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance initiated in 2023 and continued in 2024.
We also saw a $19.1 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance. Fixed expenses increased primarily due to a $15.3 million increase in Carvana warrant expense, including a cumulative expense catch-up, related to our outstanding warrant structure with Carvana.
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.
Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital. 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.
This was partially offset by change in premiums not yet earned due to growth, timing of reinsurance receipts and the impact of commuting certain agreements with reinsurers in 2023. Net cash used in investing activities for the year ended December 31, 2024 was $154.4 million, compared to $45.7 million for the year ended December 31, 2023.
The increase in cash provided by operating activities was due to a strategic reduction of quota share reinsurance and timing of reinsurance and premium receipts. This was partially offset by a change in loss and LAE reserves and premiums not yet earned due to greater growth in policies in force in the year ended December 31, 2024 compared to 2025.
Our wholly-owned, Cayman Islands-based reinsurance subsidiary, Root Reinsurance Company, Ltd., or Root Re, maintains a Class B(iii) insurer license under Cayman Islands Monetary Authority, or CIMA. At December 31, 2024, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio of 15:1, which we maintained as of December 31, 2024.
As of December 31, 2025, 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. Our wholly-owned, Cayman Islands-based reinsurance subsidiary, Root Reinsurance Company, Ltd., or Root Re, maintains a Class B(iii) insurer license under Cayman Islands Monetary Authority, or CIMA.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeRising interest rates could have an adverse impact on the cost of debt and results in less cash available to utilize in our operations, and could have a material adverse effect on our business and financial condition.
Biggest changeRising interest rates could increase our cost of debt, reduce cash available for operations, and have a material adverse effect on our business and financial condition. As of December 31, 2025, a 100-basis-point increase or decrease in SOFR would not have a significant impact on our interest expense during 2026.
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.
We manage the exposure to credit risk in our United States Treasury and agency securities, municipal securities, corporate debt securities, and asset-backed securities portfolio by investing in high credit quality, investment grade securities and diversifying our holdings.
A 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.
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.
The fair market value of a portfolio of debt securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in debt securities increases or decreases along with interest rates. We monitor this exposure through periodic reviews of investment portfolio by our management.
The fair market value of a portfolio of debt securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in debt securities increases or decreases along with 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.
Our fixed maturity investments include United States Treasury and agency securities, municipal securities, corporate debt securities, and asset-backed securities, most of which are sensitive to changes in prevailing interest rates and may experience moderate fluctuations in fair value as a result.
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.
We monitor this exposure through periodic reviews of investment portfolio conducted by management. 85 We are also exposed to interest rate risk through our Amended Term Loan, which bears interest at floating rates based on changes in the SOFR.
Interest rate risk is the risk that we will incur losses due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets and liabilities. Our fixed maturity investments include U.S.
Interest rate risk represents the potential for losses resulting from adverse changes in market interest rates affecting our interest-bearing assets and liabilities.

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