Root : 2Q 2023 Letter to Shareholders

Q2 2023

Shareholder

Letter

Letter to Shareholders: Q2 2023

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Key quarterly metrics:

Gross premiums written ($M)

$177.1

$140.1 $145.0

Q2 2021

Q2 2022

Q2 2023

Gross accident period loss

ratio

90.1% 84.8%

68.2%

Gross premiums earned ($M)

$180.7 $170.8

$131.5

Q2 2021

Q2 2022

Q2 2023

Gross LAE ratio

10.6% 9.9% 10.0%

Q2 2021

Q2 2022

Q2 2023

Q2 2021

Q2 2022

Q2 2023

Gross profit ($M)

$12.7

$(7.5)

$(18.9)

Q2 2021

Q2 2022

Q2 2023

Direct contribution ($M)

$29.3

$(3.8)	$(0.2)
Q2 2021	Q2 2022	Q2 2023

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Letter to Shareholders: Q2 2023

____________________________________________________________________________________________________________

Dear Root Shareholders:

In Q2 2023, we saw continued momentum in our bottom line and returned to growing our customer base.

• Total new writings grew 65% over Q1 2023, driven by our superior loss ratio position.
• Gross accident period loss ratio was 68%, a 17-point improvement year-over-year, driven by our pricing and underwriting advancements.
• Gross expense ratio improved 12 points compared to Q2 2022, driven by a continued focus on operating efficiency.
• Net loss improved 62% to $37 million, operating loss improved 71% to $25 million, and adjusted EBITDA improved 81% to a loss of $12 million compared with Q2 2022.

The second quarter of 2023 marked a return to growth as policies in force increased quarter-over-quarter. We remain vigilant on pricing and underwriting as we cautiously scale our marketing spend. We believe the actions we have taken-and that we continue to take-put the company on a path to profitability.

Q2 2023 highlights:

All figures are compared to Q2 2022 unless otherwise stated.

• Gross premiums written increased 3% to $145 million
• Gross premiums earned decreased 23% to $132 million
• Renewal premium % of gross premiums earned decreased to 72% as a result of new business growth

90%

80%

70%

60%

50%

40%

30%

20%

10%

-%

Renewal premium % of gross premiums earned

71%	75%	79%	81%	79%	72%

59% 60% 63%

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

Q1 2023

Q2 2023

• Accident period severity increased 8% and frequency decreased 6% (tenure mix adjusted bodily injury, collision, and property damage)
• Gross LAE ratio remained level at 10%
• Gross profit increased by $20 million to $13 million
• Direct contribution increased $30 million to $29 million
• Gross combined ratio improved 34 points to 118%

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Letter to Shareholders: Q2 2023

____________________________________________________________________________________________________________

Growth

Root is uniquely positioned in the industry to drive profitable growth. Thanks to our data science and technology advantages, we believe we are able to respond to the inflationary environment faster than our competitors. This has resulted in pricing that supports the achievement of our profit targets, enabling us to drive growth while many in the industry have significantly reduced marketing spend. We monitor the ever-changing inflationary environment with machine-learning-based reserving models that leverage claims-level information to make granular predictions. We believe that with this capability, we are able to more accurately and responsively monitor our reserves and respond to inadequate pricing quickly with our flexible, automated rating technology. We are diligently and consistently monitoring the profitability of our growth and are encouraged by the improved loss ratio results.

We achieved two important milestones in our embedded product offering by launching our second partner and going live with telematics capabilities. We are seeing strong interest in the platform driven by the early success with our first partner, Carvana, where we have tripled the customer adoption rate.

Due to our rapid growth in direct new writings, embedded as percentage of new writings decreased in the quarter.

Embedded as a Percentage of New Writings

60%

40%		38%	41%
		33%
27%
20%					17%
-%
Q2 2022	Q3 2022	Q4 2022	Q1 2023	Q2 2023

For the second consecutive quarter, our direct channel saw material growth in new writings. Our advancements in segmentation and loss ratio improvement have allowed us to expand our underwriting appetite and deploy marketing spend while exceeding profitability targets on new business. We believe this growth is aided by the current competitive environment. As such, we are cautious in extrapolating these growth levels going forward.

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Letter to Shareholders: Q2 2023

____________________________________________________________________________________________________________

Pricing and Underwriting

Our Q2 2023 gross accident period loss ratio was 68%, a 17-point improvement from Q2 2022 and a one-point improvement from the prior quarter.

At the end of the quarter, we launched our newest segmentation model that leverages data collected from policyholders to improve pricing accuracy. This new pricing model is significantly more advanced, utilizing nearly twice as much proprietary data and outperforms prior models in its ability to segment risk. It is estimated to be 17% more predictive than our previous model. By the end of 2023, we expect this model to be filed in states representing 75% of new business.

We believe pricing and underwriting will continue to be a key competitive advantage for Root. As our technology allows us to rapidly detect changes in the loss cost environment and quickly respond with underwriting and pricing changes, we can better control our loss ratios. This has been demonstrated through our recent superior loss ratio performance versus the industry. We believe we are still in the very early stages of realizing the benefits of this technology and that over the long term, this will provide substantial value to our customers and shareholders.

Gross accident period loss ratio

*Renewal gross accident period loss ratio for auto only

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