Root : Q4 2024 Shareholder Letter
ROOT
Q4 2024
Shareholder
Letter
Dear Root Shareholders
2024 was a landmark year for Root. Within 10 years of our founding, we achieved a gross combined ratio of 94.7% on $1.3 billion of gross premiums written, generating GAAP net income of $31 million and adjusted EBITDA of $112 million.
In 2024, we delivered our first profitable year in our company's history. We grew policies in force 21%. We more than doubled our new writings in our Partnerships channel. We delivered a best-in-class gross loss ratio of 58.9%. We dramatically reduced our reinsurance costs and we cut our interest expense approximately 50% on a run rate basis. This was an excellent year.
This year was only possible because of the hard decisions we made in 2022 and 2023 to control our own financial destiny. These years created the foundation for 2024's incredible results. With this foundation in place, we drove significant growth at our target unit economics while accelerating our investments in our pricing and underwriting technology and delivering increased operating efficiency. This has created momentum that we intend to continue.
Ten years ago, we believed that modern quantitative methods would allow us to grow at better loss ratios than the industry. Today our loss ratio is among the best in the industry, and our pricing algorithms are increasingly predictive, allowing us to accelerate profitable growth across distribution channels.
Ten years ago, we believed that engineering and automation would allow us to reduce prices for customers by operating more efficiently. Today, our proprietary technology has propelled us to net income profitability, with a lot of room for growth given we still operate in small portion of the overall market.
Ten years ago, we believed that by meeting consumers where they were with delightful experiences -either through a mobile phone or an embedded experience -we would create the most loved car insurance in the nation. Today, we benefit from an enviable telematics adoption rate and can offer a 3-click binding purchase experience.
Now, we have a goal to become the largest and most profitable company in the industry. We are in the early days, but we are ready to steadfastly pursue our vision. Our convictions have been tested, no doubt, along the first ten years of our journey. These trials have only made us stronger, and this grit is what we lean on to carry us through to victory.
Q4 2024 Highlights
All figures are compared to Q4 2023 unless otherwise stated.
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Letter to Shareholders: FY 2024
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90%
80%
70%
60%
50%
40%
30%
20%
10%
-%
•
•
•
•
Renewal premium % of gross premiums earned
81%
79%
72%
56%
54%
56%
42%
39%
45%
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Gross accident period loss ratio improved 2 points to 61.4%; Gross LAE ratio improved 2 points to 6.9% driven primarily by favorable prior period reserve development
Estimated accident period severity was up 2% while frequency decreased 2% (tenure mix adjusted bodily injury, collision, and property damage coverages)
Gross combined ratio improved 19 points to 90.6%; net combined ratio improved 20 points to 91.5% Net income of $22 million, operating income of $35 million, and adjusted EBITDA of $43 million-all significant improvements from the prior-year period
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Letter to Shareholders: FY 2024
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Key quarterly metrics
Gross premiums
Gross premiums
Gross accident
written ($M)
earned ($M)
period loss ratio
$330.5
$331.0
77.3%
63.7%
61.4%
$279.2
$214.4
$142.8
$122.0
Q4 2022
Q4 2023
Q4 2024
Q4 2022
Q4 2023
Q4 2024
Q4 2022
Q4 2023
Q4 2024
Gross LAE ratio
Gross profit ($M)
$103.6
12.2%
$46.7
8.6%
6.9%
$(4.1)
Q4 2022
Q4 2023
Q4 2024
Q4 2022
Q4 2023
Q4 2024
FY 2024 highlights
All figures are compared to FY 2023 unless otherwise stated.
Direct contribution
($M)
$115.8
$65.8
$9.9
Q4 2022
Q4 2023
Q4 2024
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Letter to Shareholders: FY 2024
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Renewal premium as a % of gross earned
premium
76%
59%
49%
2022
2023
2024
Key annual metrics
Gross premiums
Gross premiums
Gross accident
written ($M)
earned ($M)
period loss ratio
$1,301.1
$1,231.0
80.3%
$783.1
64.0%
59.9%
$643.6
$635.8
$600.0
2022
2023
2024
2022
2023
2024
2022
2023
2024
Gross LAE ratio
10.3% 9.6% 8.6%
2022 2023 2024
Gross profit ($M)
$337.1
$76.1
$(32.2)
2022 2023 2024
Direct contribution
($M)
$394.0
$150.7
$27.6
2022 2023 2024
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Letter to Shareholders: FY 2024
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Growth
We achieved the milestone of annual profitability in 2024 by both growing our business and delivering an impressive loss ratio. For the year, gross premiums written increased 66% and gross earned premiums nearly doubled while the gross loss ratio and LAE ratio improved seven points to 67.5%. This growth was not the product of having the largest teams or the biggest marketing budget-it was a product of superior technology and data science.
Our Direct channel continues to see strong results from measured investments across the customer acquisition funnel. This is despite only being active in a limited number of marketing channels. We are continuing to make targeted R&D investments utilizing our data-science-driven marketing machine. This machine is showing promising results in new marketing channels and we will grow or jettison these channels as we continue to see results mature, only scaling channels that meet or exceed our unit economic targets. This channel is supported by our mobile-first telematics product, creating delightful experiences for customers at better prices.
Our Partnership channel has seen new writings increase 115% year-over-year as our pipeline continues to expand across the automotive, financial services, and agent sub-channels. This progress is driven by a modern technology stack that can seamlessly integrate into existing partner platforms, all with a focus on minimal separation between the need for insurance and the purchase of a policy. This includes a wide array of integrations, and enables fully embedded insurance purchasing experiences at point of sale.
As the Partnership channel grows, we plan to continue to eliminate friction in the purchase experience by moving partners to fully embedded experiences. This allows for experiences like Goosehead Insurance and Carvana Insurance, Built With Root, that offer a 3-click binding purchase experience on partner platforms consumers know and trust. Building differentiated access to customers remains a core pillar of our company strategy.
Partnerships as a Percentage of New Writings
40%
30%
20%
10%
-%
31%
24%
17%
12%
9%
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
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Letter to Shareholders: FY 2024
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We remain confident in our long-term growth avenues via both Direct and Partnership channels and remain focused on our three primary levers to continue to drive growth in the near term:
Pricing and Underwriting
Our proprietary technology platform and data science algorithms are foundational to continued strong underwriting performance, as evidenced by our 58.9% gross loss ratio in 2024. We strive to set prices accurately and afford the best savings to the best drivers. This means we aim to achieve our target returns with minimal variation.
Root's high telematics adoption rate and data-science acumen allow for effective segmentation and sufficient pricing across customer segments. While we target an upfront telematics informed quote, some customers need insurance before the test drive period is completed and a telematics score can be created. In these instances, we offer an immediate insurance product that utilizes traditional rating variables until the test drive period is complete and the policy is adjusted. As such, this allows us to enhance the customer experience while still achieving a high telematics adoption across our policies-in-force. As we continually collect data and train our models, our models expand and we believe ultimately benefit our policyholders.
To that end, we have made great strides toward our next generation of traditional and behavioral-based pricing models. We continue to see important gains in our ability to match price to risk, furthering competitiveness and underwriting appetite. We have recently launched the sixth version of our pricing model into market-with an expected 7% improvement in predictive power versus the prior iteration-continuing our historical pattern of foundational improvements to pricing every year. By rapidly iterating on our pricing models, we can continue to increase discounts for our best drivers.
We also continue efforts to leverage automation in our underwriting processes, empowering us to swiftly identify rate actions, seek regulatory approval, and ultimately earn through our book. In an increasingly uncertain macroeconomic environment, this allows us to leverage our real-time actuarial reviews to continually offer the
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Letter to Shareholders: FY 2024
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best prices to our best drivers. We are currently seeing loss trends moderate and as adequate pricing is achieved, we see continued opportunities to reduce rates while achieving our target unit economics.
Gross accident period loss ratio
*Renewal gross accident period loss ratio for auto only
Financial
We are thrilled that we posted net income for a second consecutive quarter-generating $22 million of net income in the fourth quarter, a $46 million improvement year-over-year. For the full year 2024, we generated net income of $31 million, an improvement of $178 million from 2023, exemplifying our path of stability. For the full year 2024, we also delivered operating income of $79 million and adjusted EBITDA of $112 million, a $180 million and $155 million improvement year-over-year, respectively. Our growth paired with consistently strong underwriting drove the improvement, with a gross combined ratio of 94.7% for the full year 2024 also illustrating the efficiency of acquisition investment and fixed expenses.
We were pleased with our strong 21% growth in policies in force, particularly despite the relative youth of our book following a hyper-growth period early in the year. As mentioned in our last quarterly letter, periods of lower policy retention typically immediately follow rapid growth. We have seen this impact normalize heading into 2025 and believe our current level of marketing investment and diversified distribution initiatives through the Partnership channel will result in stronger growth in policies in force in the new year.
Our gross earned premium cession rate was 13% in 2024, and the gap between gross and net loss and LAE ratios was 1%. As our underwriting results have improved, we have evolved our quota share reinsurance strategy to retain such profitable underwriting results and focus our reinsurance program on volatility covers that protect against a portion of large individual losses and an aggregation of losses from catastrophes.
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Letter to Shareholders: FY 2024
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As Root grows, our marketing spend may impact the degree of profitability in any given calendar quarter as we do not defer the majority of customer acquisition cost over the life of our customers. Acquisition expenses in our Direct channel will vary, and will be deployed at attractive expected returns over the customer lifecycle. We also plan to continue to test into new areas of the marketing funnel.
We ended the year with $333 million in unencumbered capital. As a result of our debt refinance in October 2024, we expect to lower interest expense on a run rate basis by approximately 50% going into 2025. We are energized and committed to future growth as we start 2025 from a position of strength.
Net Income (Loss) and Adjusted EBITDA ($M)
$50
$25
$-
$(25)
$42
$43
$23
$22
$15
$12
$-
$(6)
$(8)
$(24)
Q4 2023
Q1 2024
Q2 2024
Q3 2024
Q4 2024
Net Income (Loss)
Adjusted EBITDA
*Reconciliation from Net Income (Loss) to Adjusted EBITDA disclosed below.
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Letter to Shareholders: FY 2024
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Looking ahead
We are extremely proud of our progress in 2024, achieving GAAP net income profitability while also adequately capitalized for future growth. Our differentiation, particularly among public companies, is a relentless focus on the long term. Our approach to running the business is grounded in a unit-economic framework over the life of the customer. We believe this approach-including the ongoing investment in our business, infrastructure and growth -ultimately translates to strong calendar period results as we gain scale; however, it may impact the degree of profitability in any given quarter. We believe our patience and foundation in data science will continue to bear fruit that will ultimately accrue to long-term stakeholders.
We remain grateful to our employees for their hard work, to our customers for their trust, and to our shareholders for their support.
Alex Timm
Co-Founder & CEO
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Disclaimer
Root Inc. published this content on February 26, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on February 26, 2025 at 21:18:04.127.