Root : 1Q 2023 Letter to Shareholders

Q1 2023

Shareholder

Letter

Letter to Shareholders: Q1 2023

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Key quarterly metrics:

Gross premiums written ($M)

Gross premiums earned ($M)

$202.5

$187.2

$134.7

$160.2

$174.7

$130.1

Q1 2021

Q1 2022

Q1 2023

Q1 2021

Q1 2022

Q1 2023

Gross accident period loss		Gross LAE ratio
	ratio
75.7%	81.5%	9.8%	11.2%
9.1%
69.3%

Q1 2021

Q1 2022

Q1 2023

Q1 2021

Q1 2022

Q1 2023

	Gross profit ($M)			Direct contribution ($M)
			$26.6
$6.3		$5.5				$18.6
					$6.4
	$(12.3)
Q1 2021	Q1 2022	Q1 2023		Q1 2021	Q1 2022	Q1 2023

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Letter to Shareholders: Q1 2023

____________________________________________________________________________________________________________

Dear Root Shareholders:

In Q1 2023, we continued to drive the company toward profitability while accelerating new writings:

• Recognized a 69% gross accident period loss ratio, a 13 point improvement year-over-year. This was driven by our ability to rapidly detect and respond to changes in the inflationary environment and improve segmentation via our technology.
• Grew total new writings 25% over Q4 2022.
• Improved our net loss 47% or $37 million, operating loss 59% or $42 million, and adjusted EBITDA 78% or $41 million compared with Q1 2022.
• Furthered our embedded offering by finalizing a third partnership agreement to create another unique acquisition channel that is highly scalable.

The work we did in 2022 built a foundation to uniquely position Root to profitably scale new writings. We expect continued improvements in our operating loss throughout 2023 and believe the actions we are taking in pricing and underwriting, as well as strategically deploying marketing dollars, scaling our embedded partnerships, and reducing expenses will drive the Company to profitability with the capital we have.

Q1 2023 highlights:

All figures are compared to Q1 2022 unless otherwise stated.

• Gross premiums written decreased 28% to $135 million
• Gross premiums earned decreased 26% to $130 million
• Renewal premium % of gross premiums earned increased to 79%

90%

80%

70%

60%

50%

40%

30%

20%

10%

-%

Renewal premium % of gross premiums earned

71% 75% 79% 81% 79%

62%

59%

60%

63%

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

• Accident period severity increased 12% and frequency decreased 7% (tenure mix adjusted bodily injury, collision and property damage)
• Gross LAE ratio increased to 11% driven by approximately one point of prior year adverse development

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Letter to Shareholders: Q1 2023

____________________________________________________________________________________________________________

• Gross profit increased by $18 million to $6 million
• Direct contribution increased 191% to $19 million
• Gross combined ratio improved 13 points to 123%

Growth

We believe meeting customers in the moment of need creates better customer experiences and better business results. As we continue to differentiate our embedded product and make progress on the product integration of our second embedded partner-a national digital financial services provider-we are thrilled to announce a third embedded partnership. We are in the early stages of building this embedded product, and will share more details in the quarters ahead.

Through our embedded partnerships, we are discovering ways to incorporate telematics into the customer journey. Our differentiated telematics product allows us to tailor the experience to the embedded partners, customers, and product. This ability is key to our competitive advantage in the embedded space and is something we are looking forward to launching with each of our partners.

The early progress of the embedded channel and the strong profile of the customers adds credence to our belief that Root is at the forefront of a secular shift in insurance distribution. We are excited to continue building differentiated access to customers with our three embedded partners and the potential of the platform to incorporate future partners.

Embedded as a Percentage of New Writings

60%
40%			38%	41%
			33%
		27%
20%	14%
-%
Q1 2022	Q2 2022	Q3 2022	Q4 2022	Q1 2023

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Letter to Shareholders: Q1 2023

____________________________________________________________________________________________________________

Our direct channel saw material growth in new writings in Q1 quarter-over-quarter. As our loss ratios and pricing continue to improve, we are able to deploy additional marketing dollars at or above our profitability targets. This is creating valuable diversification in our distribution channels and providing multiple avenues for growth. We continue to see a favorable environment driven by our superior loss ratio position and we will continue our measured approach to opening up geographies as we continue to see loss ratios trend toward our long-term lifetime target of 65%.

Pricing and Underwriting

Our accident period loss ratio trended down year-over-year as a result of our quick and decisive actions throughout 2022. In Q1 2023, we had 84% of our addressable market hit our 65% loss ratio target. The drivers behind this progress are rate increases, strengthened underwriting, and improved segmentation models. We utilize a combination of telematics data along with traditional underwriting factors to more accurately price our customers. As Root's business continues to mature, we are constantly enriching our data sets allowing us to iterate upon our segmentation models and improve our pricing and underwriting. With our flexible data science and technology, we can immediately detect new signals in our data, retrain our loss models, and generate the required regulatory filings to change prices with minimal human intervention. This allows us to quickly improve our pricing accuracy and drive growth in the segments and geographies we believe to be most profitable.

Gross accident period loss ratio

*Renewal gross accident period loss ratio for auto only

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