Root posts $15mn adjusted operating profit for Q1 in major milestone

Root posted its first ever operating profit as it generated $15mn in adjusted Ebitda in the first quarter, with its gross combined ratio improving by 23 points to 99.7 percent and policies in force doubling compared with a year ago to 401,255.

  • Root posts first operating profit in company history with $15mn in adj Ebitda
  • Gross AY LR falls to 61.2% from 65.6% in Q1 ’23
  • GWP +146% to $331mn
  • Renewal premiums down to 39% of writing from 79% YoY

In its earnings release after markets closed on Tuesday, Root co-founder and CEO Alex Timm said the insurtech is “pleased to share that our strong momentum continued in the first quarter” as it posted positive operating income for the first time in its history.

Root – which has publicly said it is now targeting profitable growth after extensive remediation actions in recent years – more than doubled gross premiums written (GPW) in the quarter to $331mn compared with $135mn in the prior-year period.

Gross premiums earned (GPE) also more than doubled to $275mn from $130mn as the firm slashed the cession percentage of its premiums to reinsurers to 16 percent from 54 percent.

New business growth in the quarter meant that the percentage of renewal premiums written in the quarter fell to 39 percent of its writings, down from 42 percent in the fourth quarter, and 79 percent in 2023’s first quarter.

Root improved its gross accident period loss ratio to 61.2 percent from 65.6 percent in 2023’s first quarter, while the firm’s gross loss adjustment expense (LAE) ratio fell to 9.9 percentage points from 11.2 percentage points.

The insurtech said that accident period severity was up 11 percent – versus 6 percent in Q4 2023 – while frequency fell by 3 percent. The net combined ratio improved over 59 points to 102 percent.

Timm highlights disciplined execution, ability to profitability scale

CEO and co-founder Timm said Root’s operating profit in the quarter “is a testament to our disciplined execution and our ability to achieve profitability and scale”.

“The vision we had when we started Root was to fundamentally transform insurance using technology and data science,” he said.

“In doing so, we believed we would create more accurate pricing while giving consumers more transparency and control over their financial lives, and ultimately deliver a delightful customer experience,” the executive added.

Timm reiterated Root’s goal of building the biggest personal lines carrier in the US.

“Make no mistake, we are still in the very early stages of achieving our vision and are far from our ultimate aspirations,” he commented.

“We know this journey won’t be linear. With our conviction deeply battle tested, we continue to forge ahead and push the boundaries of our technology to continue to deliver for our customers,” Timm continued.

A statutory analysis by The Insurer has shown that Root has outperformed all of its major incumbent competitors in each of the last three quarters.

Timm said that Root’s steady run of strong results give the insurtech the “flexibility to focus on the long term while remaining nimble as opportunities arise”.

“Most importantly, we continued to advance our strategy in the quarter by improving our pricing algorithms, investing in our data and technology, launching multiple new partnerships, and enhancing our customer experience,” Timm said.

Timm said that much of the first quarter growth was driven by Root’s direct channel, where it focused on delivering target returns for each policy while creating “a delightful experience” for its customers.

The insurtech founder also said his company’s technology advantage grows as its collects more data.

“This data powers our rapid advancements in risk pricing and classification through machine learning,” Timm said.

“Mobile sensor data tied to granular claims data creates what we believe to be the most predictive proprietary algorithms and supports fair, accurate rates for all customers,” he added.

He also disclosed that Root’s latest traditional and behavioural pricing models have rolled out to markets representing more than 80 percent of new writings, and said that early results are consistent with expectations of shifting its business toward a better diversified mix of policyholders

“By investing in our differentiated technology across our three strategic pillars – pricing and automation, differentiated distribution, and building a product customers know and love – we are confident in our ability to realise profitability with existing capital and build meaningful market share long term,” Timm said.

“We are pleased by our strong start to 2024, and our disciplined focus on building profitable market share remains,” he concluded.