ROOT, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSecurities and Exchange Commission , orSEC , onMarch 4, 2021 , or the 2020 10-K. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Special Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q and in the 2020 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Our Business Root is a technology company revolutionizing personal insurance with a pricing model based upon fairness and a modern customer experience. We operate primarily a direct-to-consumer model in which we currently acquire the majority of our customers through mobile applications. We believe the$260 billion U.S. auto insurance market is ripe for disruption. Auto insurance is required for the vast majority of drivers inthe United States and we believe it is typically the first insurance policy purchased by consumers. 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. As part of our strategy, we have also established the technological foundation for an enterprise software offering, diversifying our revenue streams over time. The Root advantage is derived from our unique ability to segment individual risk based on complex behavioral data and proprietary telematics, a customer experience 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 and administration to ongoing customer engagement. Our model benefits from portfolio maturity. As we scale the business rapidly our results are disproportionately weighted towards new customers compared to traditional insurance carriers. As we build an underlying base of recurring customers, we expect the following financial impacts: •Improved loss ratio. Renewal premiums, referring to premiums from a customer's second term and beyond, have lower loss ratios as compared to new premiums in the customer's first term. As we grow our business, we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals driving down the total loss ratio across our portfolio. •Reduced marketing as a percentage of premium. Recurring customer premiums have no associated customer acquisition costs and minimal underwriting costs, driving profitability. As we grow our business, we anticipate, consistent with industry norms, that a greater proportion of our premiums will be from customer renewals without associated marketing costs. •Improved retention. As a young insurance carrier weighted towards new customers, we naturally have a higher percentage of more frequent shoppers. As our business tenures and our flywheel spins allowing us to increase our pricing advantage, we will have the opportunity to acquire more long-standing customers and retain those that might naturally shop frequently. In addition to our pricing advantage, we anticipate our expanding relationships with customers through product bundling will demonstrate further improvement in retention. 21 -------------------------------------------------------------------------------- •Increased revenue per customer. Our product expansion provides an opportunity to generate additional premium and fee income per customer without material incremental marketing cost. We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular. This allows us to operate with a cost to acquire and cost to serve advantage. We efficiently acquire customers directly through multiple channels, including digital (performance), strategic partnerships, channel media and referrals. Our marketing costs have historically been well below industry averages. Today, we acquire the vast majority of our customers through our mobile app and mobile website. We believe that continued investment in and diversification of our marketing channels, including a focus on embedded insurance through our strategic partnership channel, and leveraging proprietary data science and technology to scale our internal sales agent program and build out independent agent products and relationships, will position us for more sustainable, long-term and profitable growth. Additionally, we are realizing operating efficiencies as we scale against our fixed expense base. Our claims management expenses, as represented by our loss adjustment expenses, or LAE, are in line with peers within only three years of bringing claims management in-house and are expected to improve as we further embed machine learning into our processes. We also use our proprietary technology to measure long-term benefits to our business. When a state reaches certain maturation thresholds, we refer to it as a seasoned state. A seasoned state is defined as a state where (1) the regulator has approved our data science-driven telematics and pricing models and (2) we have been writing policies in the state for a minimum of one year with a minimum of two pricing filings. As a rapidly growing full-stack insurance company, we currently employ a "capital light" model, which utilizes a variety of reinsurance structures at elevated levels of reinsurance. These reinsurance structures deliver three core objectives: (1) top-line growth without a commensurate increase in regulatory capital requirements, (2) support of customer acquisition costs and (3) protection from outsized losses or tail events. We expect to maintain an elevated level of third-party quota share reinsurance while rapidly growing our business in order to operate a capital light business model. As our business scales, we expect to have the flexibility to reduce our quota share levels to maximize the return to shareholders. InAugust 2021 , we commenced a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier. We route all of our new auto policies and, over time, expect to route certain renewal auto policies, inTexas through the fronting carrier and we assume 100% of the related premium and losses on those policies. Through this fronting arrangement, we have greater rating and underwriting flexibility that we believe will allow us to more accurately segment risk inTexas to improve profitability. Given the significant impact of reinsurance on our results of operations, we use certain gross basis key performance indicators to manage and measure our business operations and enhance investor understanding of our business model prior to reinsurance. We believe our long-term success will be determined by the progression of our gross metrics. Results of operations on a gross basis alone are not achievable under our regulatory landscape given our top-line growth and resulting capital requirements, which are relieved, in part, by obtaining reinsurance. The gross basis metrics include gross written premium, gross earned premium, direct contribution, ratio of direct contribution to total revenue, ratio of direct contribution to gross earned premium, gross loss ratio, gross LAE ratio and gross accident period loss ratio. For additional information, including definitions of these metrics, see "- Key Performance Indicators" and for a reconciliation of direct contribution to the most directly comparable generally accepted accounting principles inthe United States , or GAAP, metric, see "- Non-GAAP Financial Measures." Recent Developments Affecting Comparability COVID-19 Impact InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic. The pandemic and related measures taken to contain the spread of COVID-19, such as government-mandated business closures, "shelter in place" orders, or SIPs, and travel and transportation restrictions, have negatively affected theU.S. and global economies, disrupted global supply chains, and led to unprecedented levels of unemployment. We, and other businesses within the insurance industry, have been impacted by certain individual state bulletins that were issued in 2020 and outlined COVID-19 premium relief efforts, including restrictions on the ability to cancel policies for non- 22 -------------------------------------------------------------------------------- payment, requirements to defer insurance premium payments for up to 60 days and restrictions on increasing policy premiums. The COVID-19 pandemic has impacted and may further impact the broader economic environment, including negatively impacting unemployment levels, economic growth, the proper functioning of financial and capital markets and interest rates. As a result of the SIPs that started to occur toward the end ofMarch 2020 , our customers drove less and we had a resulting decline in loss costs during the first quarter of 2020. Most parts of the country eased COVID-19 related restrictions and began to return to customary levels of business activity during the second quarter of 2021. We are now seeing miles driven exceed pre-COVID-19 levels, especially in the latter part of the second quarter. As a result of the increase in average miles driven, claims frequency has rebounded proportionally. In addition, the economic instability caused by the COVID-19 pandemic has led to acute inflationary pressures and supply chain disruptions, which have increased the value of used vehicles and replacement parts in 2021. These cost increases have resulted in greater claims severity while being partially offset by higher salvage and subrogation recoveries on damaged vehicles. The American Rescue Plan Act became law inMarch 2021 and provided a third round of stimulus payments from the federal government to many American consumers. The easing of COVID-19 SIPs and these stimulus payments have led to an unexpected surge in interest in vehicle and auto insurance purchases. This elevated interest has resulted in a significant increase in customer acquisition and advertising campaigns in digital channels on the part of our competitors, increasing our customer acquisition costs. With the recent surge of the Delta variant of COVID-19 acrossthe United States and increasing rates of COVID-19 cases and hospitalizations, it is unclear what the impact of the pandemic will be on future operations. As the COVID-19 pandemic continues, there is ongoing uncertainty around the severity and duration of the pandemic and the pandemic's potential impact on our business and our financial performance. See the section titled "Risk Factors" in the 2020 10-K for more details. Comprehensive Reinsurance We expect to continue to utilize reinsurance in the future, and our diversified approach to reinsurance allows us to be flexible in response to changes in market conditions or our own business changes, which allows us to strategically fuel growth and technology investment by optimizing the amount of capital required. Components of Our Results of Operations Revenue We generate revenue primarily from the sale of auto insurance policies withinthe United States and, to a lesser extent, from the sale of renters insurance policies. We have agency operations that generate commission revenue by selling homeowners insurance policies on behalf of third-party insurance companies. We distribute website and app policy inquiry leads in geographies where we do not have a presence to third parties in exchange for fee revenue. We also generate revenue through fee income from our customers paying on installment and from net investment income earned on our investment portfolio. Net Premiums Earned Premiums written are deferred and earned pro rata over the policy period. Net premiums earned represents the earned portion of our gross written premium, 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 fixed maturity and short-term investments and cash and cash equivalents less investment expenses. Net investment income is directly correlated with the overall size of our investment portfolio and with the market level of interest rates. Net investment income will vary with both the size of our investment portfolio and the investment strategy. Net Realized Gains on Investments Net realized gains on investments represents the net positive difference between the amount received by us on the sale of an investment as compared to the investment's cost basis. 23 -------------------------------------------------------------------------------- Fee and Other Income For those policyholderswho pay premiums on an installment basis, we charge a flat fee for each installment related to the additional administrative costs associated with processing more frequent billing. We recognize this fee income in the period in which we process each installment. Other income is primarily comprised of revenue earned from distributing website and app policy inquiry leads in geographies where we do not have a presence, recognized when we generate the lead; commissions earned for homeowners policies placed with third-party insurance companies where we have no exposure to the insured risk, recognized on the effective date of the associated policy; and sale of enterprise technology products to provide telematics-based data collection and trip tracking, recognized ratably as the service is performed. Operating Expenses Our operating expenses consist of loss and loss adjustment expenses, sales and marketing, other insurance expense, technology and development, and general and administrative expenses. Loss and Loss Adjustment Expenses Loss and LAE include an amount determined using adjuster determined case-base estimates for reported claims and actuarial determined unpaid claim estimates using past experience and historical emergence patterns for unreported losses and loss adjustment expenses. These reserves are a liability established to cover the estimated ultimate cost to settle insured losses. The unpaid loss estimates consider loss trends, mix of business, and other risk factors impacting claims settlement. The method used to estimate unpaid LAE liability is based on claims transaction data, including the relative cost of adjusting and settling a range of claim types from express material damage claims to more complex injury cases. Loss and LAE is net of amounts ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential losses as well as to provide additional capacity for growth. These expenses are a function of the size and term of the insurance policies we write and the loss experience associated with the underlying risks. Loss and LAE may be paid out over a period of years. Various other expenses incurred during claims processing are allocated to LAE. These amounts include claims salaries, health benefits, bonuses, employee retirement plan related expenses and share-based compensation expense, or Personnel Costs; software expense; internally developed software amortization; and overhead allocated based on headcount, or Overhead. Sales and Marketing Sales and marketing expense includes spend related to performance and partnership channels, channel media, advertising, branding, public relations, consumer insights and referral fees. These expenses also include related Personnel Costs and Overhead. We incur sales and marketing expenses for all product offerings. Sales and marketing are expensed as incurred. We plan to continue investing in and diversifying our marketing channels to attract and acquire new customers, increase our brand awareness, and expand our product offerings. We expect that in the long term, our sales and marketing will decrease as a percentage of revenue as the proportion of renewals to our total business increases. Other Insurance Expense Other insurance expense includes underwriting expenses, credit card and policy processing expenses, premium write-offs, insurance license expenses, and Personnel Costs and Overhead related to actuarial and certain data science activities. Other insurance expense also includes amortization of deferred acquisition costs like premium taxes and report costs related to the successful acquisition of a policy. Other insurance expense is expensed as incurred, except for costs related to deferred acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned. These expenses are also recognized net of ceding commissions earned. 24 -------------------------------------------------------------------------------- Technology and Development Technology and development expense consists of software development costs related to our mobile app and homegrown information technology systems; third-party services related to infrastructure support; Personnel Costs and Overhead for engineering, product, technology, and certain data science activities; and amortization of internally developed software. Technology and development is expensed as incurred, except for development and testing costs related to internally developed software that are capitalized and subsequently amortized over the expected useful life. We expect technology and development to increase in absolute dollars and as a percentage of total revenue as we continue to devote significant resources to enhance our customer experience and continually improve our integrated technology platform. Over time, we expect technology and development to decrease as a percentage of revenue. General and Administrative General and administrative expenses primarily relate to external professional service expenses; Personnel Costs and Overhead for corporate functions; and depreciation expense for computers, furniture and other fixed assets. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to continue to increase in the near term, both in absolute dollars and as a percentage of total revenue, and then decrease as a percentage of revenue over time. Interest Expense Interest expense is not an operating expense; therefore, we include these expenses below operating expenses. Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of debt issuance costs. In addition, changes in the fair value of warrant liabilities that were associated with our long-term debt are recorded as interest expense. 25 -------------------------------------------------------------------------------- Key Performance Indicators We regularly review a number of metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. 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 adjusted gross profit/(loss) and direct contribution and their reconciliations to the most directly comparable GAAP measures. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in millions, except Premiums per Policy) Policies in Force Auto 380,836 322,423 380,836 322,423 Renters 9,143 7,367 9,143 7,367 Premiums per Policy Auto $ 986$ 929 $ 986$ 929 Renters $ 140$ 139 $ 140$ 139 Premiums in Force Auto$ 751.0 $ 599.1 $ 751.0 $ 599.1 Renters $ 1.3$ 1.0 $ 1.3$ 1.0 Gross Written Premium(1)$ 204.6 $ 164.6 $ 584.2 $ 471.1 Gross Earned Premium(1)$ 189.4 $ 154.4 $ 530.3 $ 450.2 Gross Profit/(Loss)$ (16.1) $ 0.7 $ (28.7) $ (7.7) Gross Margin (17.2) % 1.4 % (11.4) % (2.6) % Adjusted Gross Profit/(Loss) $ (2.7)$ 9.7 $ 10.5$ 17.1 Direct Contribution$ (10.5) $ (5.5) $ 12.3$ 5.5 Ratio of Adjusted Gross Profit/(Loss) to Total Revenue (2.9) % 19.2 % 4.2 % 5.8 % Ratio of Adjusted Gross Profit/(Loss) to Gross Earned Premium (1.4) % 6.3 % 2.0 % 3.8 % Ratio of Direct Contribution to Total Revenue (11.2) % (10.9) % 4.9 % 1.9 % Ratio of Direct Contribution to Gross Earned Premium (5.5) % (3.6) % 2.3 % 1.2 % Gross Loss Ratio 92.7 % 89.8 % 85.2 % 84.2 % Gross LAE Ratio 10.6 % 9.9 % 10.3 % 9.7 % Gross Accident Period Loss Ratio 91.3 % 79.6 % 87.1 % 74.9 %
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(1) Includes premiums assumed from the fronting carrier that commenced inAugust 2021 . Assumed written premium for the three and nine months endedSeptember 30, 2021 was$7.6 million . Assumed earned premium for the three and nine months endedSeptember 30, 2021 was$0.9 million . Prior to the three months endedSeptember 30, 2021 we did not assume any premiums. Policies in Force We define policies in force as the number of current and active policyholders underwritten by us as of the period end date. We view policies in force as an important metric to assess our financial performance because policy growth drives our revenue growth, expands brand awareness, deepens our market penetration, and generates additional data to continue to improve the functioning of our platform. 26 -------------------------------------------------------------------------------- Premiums per Policy We define premiums per policy as the ratio of gross written premium on policies in force divided by policies in force. We view premiums per policy as an important metric since the higher the premiums per policy the greater the amount of earned premium we expect from each policy. As discussed below in gross written premium, this key performance indicator has been updated to include assumed written premiums beginning during the period endedSeptember 30, 2021 . There is no impact to any prior periods for this change. Premiums in Force We define premiums in force for our auto policies as premiums per policy multiplied by policies in force multiplied by two. We view premiums in force as an estimate of annualized run rate of gross written premium as of a given period. Since our auto policies are six-month policies, we multiply this figure by two in order to determine an annualized amount of premiums in force. We define premiums in force for our renters policies as premiums per policy multiplied by policies in force. We view this as an important metric because it is an indicator of the size of our portfolio of policies as well as an indicator of expected earned premium over the coming 12 months. Premiums in force is not a forecast of future revenue nor is it a reliable indicator of revenue expected to be earned in any given period. We believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of growth 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. Gross Written Premium We define gross written premium as the total amount of gross premium on policies that were bound during the period less the prorated impact of policy cancellations. Gross written premiums includes direct premiums and premiums that are assumed from the fronting carrier. We began assuming premium during the three months endedSeptember 30, 2021 , therefore there is no impact to this key performance indicator for any prior periods. We view gross written premium as an important metric because it is the metric that most closely correlates with our growth in our earned premium. We use gross written premium, 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. Additionally, premiums ceded to reinsurers can change significantly based on the type and mix of reinsurance structures we use, and as such we have the optionality to fully retain the premiums from customers acquired in the future. Gross Earned Premium We define gross earned premium as the amount of gross premium that was earned during the period. Premiums are earned over the period in which insurance protection is provided, which is typically six months. Gross earned premium includes direct premiums and premiums that are assumed from the fronting carrier. We began assuming premium during the three months endedSeptember 30, 2021 ; therefore, there is no impact to this key performance indicator for any prior periods. We view gross earned premium as an important metric as it allows us to evaluate our growth prior to the impacts of reinsurance. It is the primary driver of our consolidated GAAP revenues. As with gross written premium, we use gross earned premium, 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. Gross Profit/(Loss) We define gross profit/(loss) as total revenue minus net loss and LAE expense and other insurance expense inclusive of depreciation and amortization. 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/(loss) margin is equal to gross profit/(loss) divided by revenue. 27 -------------------------------------------------------------------------------- Adjusted Gross Profit/(Loss) We define adjusted gross profit/(loss), a non-GAAP financial measure, as gross profit/(loss) excluding net investment income, net realized gains (losses) on investments, report costs, Personnel Costs, allocated Overhead, licenses, professional fees and other expenses, which are included in other insurance (benefit) expense. After these adjustments, the resulting calculation is inclusive of only those variable costs of revenue incurred on the successful acquisition of business. We view adjusted gross profit/(loss) as an important metric because we believe it measures our progress towards profitability for our core insurance business. The ratio of adjusted gross profit/(loss) to total revenue is equal to adjusted gross profit/(loss) divided by total revenue. See the section titled "- Non-GAAP Financial Measures" for a reconciliation of total revenue to adjusted gross profit/(loss). Direct Contribution We define direct contribution, a non-GAAP financial measure, as adjusted gross profit/(loss) excluding ceded earned premium, ceded loss and LAE, and net ceding commission and other. Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by related sliding scale commission adjustments and amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance (benefit) expense. After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business, but exclusive of net ceding commission, ceded loss and LAE and other impacts of reinsurance ceded. We view direct contribution as an important metric because we believe it measures progress towards the profitability of our total policy portfolio prior to the impact of reinsurance. The ratio of direct contribution to total revenue is equal to direct contribution divided by total revenue. See the section titled "- Non-GAAP Financial Measures" for a reconciliation of total revenue to direct contribution. Ratio of Adjusted Gross Profit/(Loss) to Gross Earned Premium The ratio of adjusted gross profit/(loss) to gross earned premium measures the relationship between the underlying business volume and gross economic benefit generated by our underwriting operations, on the one hand, and our underlying profitability trends, on the other. We rely on this measure, which supplements our gross profit/(loss) ratio as calculated in accordance with GAAP, because it provides management with insight into our underlying profitability trends with respect to our customer base. We use gross earned premium as the denominator in calculating this ratio because it reflects business volume free of elective capital efficiency choices related to our reinsurance programs. As discussed above in gross written premium, this key performance indicator has been updated to include assumed earned premiums in the calculation of ratio of adjusted gross profit/(loss) to gross 28 --------------------------------------------------------------------------------
earned premium during the period ended
any prior periods for this change.
Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020
(dollars in millions)
Numerator: Adjusted Gross Profit/(Loss) $ (2.7)
$ 17.1 Denominator: Total Gross Earned Premium$ 189.4 $ 154.4 $ 530.3 $ 450.2 Ratio of Adjusted Gross Profit/(Loss) to Gross Earned Premium (1.4) % 6.3 % 2.0 % 3.8 % Ratio of Direct Contribution to Gross Earned Premium The ratio of direct contribution to gross earned premium measures the relationship between the underlying business volume and gross economic benefit generated by our underwriting operations, on the one hand, and our underlying profitability trends, on the other, without contemplating the impacts of reinsurance. We rely on this measure, which supplements our gross margin as calculated in accordance with GAAP, because it provides management with insight into our underlying profitability trends with respect to our total policy portfolio. We use gross earned premium as the denominator in calculating this ratio because it reflects business volume free of elective capital efficiency cession or commission structures choices from our reinsurance ceded programs. As discussed above in gross written premium, this key performance indicator has been updated to include assumed earned premiums in the calculation of ratio of direct contribution to gross earned premium during the period endedSeptember 30, 2021 . There is no impact to any prior periods for this change. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in millions) Numerator: Direct Contribution$ (10.5) $ (5.5) $ 12.3$ 5.5 Denominator: Total Gross Earned Premium$ 189.4 $ 154.4 $ 530.3 $ 450.2 Ratio of Direct Contribution to Gross Earned Premium (5.5) % (3.6) % 2.3 % 1.2 % Gross Loss Ratio We define gross loss ratio expressed as a percentage, as the ratio of gross losses to gross earned premium. Gross loss ratio excludes LAE. We view gross loss ratio as an important metric because it allows us to evaluate incurred losses and LAE separately prior to the impact of reinsurance. As discussed above in gross written premium, this key performance indicator has been changed to include assumed losses and assumed earned premiums in the calculation of gross loss ratio beginning during period endedSeptember 30, 2021 . There is no impact to any prior periods for this change. Gross LAE Ratio We define gross LAE ratio expressed as a percentage, as the ratio of gross LAE to gross earned premium. We view gross LAE ratio as an important metric because it allows us to evaluate incurred losses and LAE separately. Currently, we do not cede any of our LAE on our third-party quota share reinsurance treaties; therefore, we actively monitor LAE ratio as it has a direct impact on our results regardless of our reinsurance strategy. As discussed above in gross written premium, this key performance indicator has been changed to include assumed LAE and assumed earned premium in the calculation of gross LAE ratio beginning during the period endedSeptember 30, 2021 . There is no impact to any prior periods from this change. 29 -------------------------------------------------------------------------------- Gross Accident Period Loss Ratio Gross accident period loss ratio, expressed as a percentage, represents all losses and claims expected to arise from insured events that occurred during the applicable period regardless of when they are reported and finally settled divided by gross earned premiums for the same period. Changes to our loss reserves are the primary driver of the difference between our gross accident period loss ratio and gross calendar period loss ratio. We believe that gross accident period loss ratio is useful in evaluating expected losses prior to the impact of reinsurance. As discussed above in gross written premium, this key performance indicator has been changed to include assumed accident period losses and assumed earned premiums in the calculation of gross accident period loss ratio beginning during the period endedSeptember 30, 2021 . There is no impact to any prior periods from this change. Results of Operations Comparison of the Three Months EndedSeptember 30, 2021 and 2020
The following table presents our results of operations for the periods
indicated:
Three Months Ended
2021 2020 $ Change % Change (dollars in millions) Revenues: Net premiums earned$ 85.1 $ 44.9 $ 40.2 89.5 % Net investment income 1.0 1.1 (0.1) (9.1) % Net realized gains on investments - 0.1 (0.1) (100.0) % Fee and other income 7.7 4.4 3.3 75.0 % Total revenues 93.8 50.5 43.3 85.7 % Operating expenses: Loss and loss adjustment expenses 114.4 76.1 38.3 50.3 % Sales and marketing 65.4 36.9 28.5 77.2 % Other insurance benefit (4.5) (26.3) 21.8 82.9 % Technology and development 18.0 12.9 5.1 39.5 % General and administrative 27.4 16.6 10.8 65.1 % Total operating expenses 220.7 116.2 104.5 89.9 % Operating loss (126.9) (65.7) (61.2) N.M. Interest expense (6.1) (19.5) 13.4 (68.7) % Loss before income tax expense (133.0) (85.2) (47.8) N.M. Income tax expense - - - - % Net loss (133.0) (85.2) (47.8) N.M. Other comprehensive income: Changes in net unrealized gains on investments (0.5) 0.1 (0.6) (600.0) % Comprehensive loss$ (133.5) $ (85.1) $ (48.4) N.M. ______________
N.M. - Percentage change not meaningful
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Revenue
Net Premiums Earned Net premiums earned increased$40.2 million , or 89.5%, to$85.1 million for the three months endedSeptember 30, 2021 , compared to the same period ended in 2020. The increase was primarily due to a decrease in cession rate as well as growth in gross earned premium between the periods. During the three months endedSeptember 30, 2021 and 2020, we ceded approximately 55.1% and 70.9% of our gross earned premiums to third-party reinsurers, respectively. The change in ceding percentage between the periods was driven by our evolving approach to our reinsurance structure, in an effort to produce a capital efficient model with reinsurance terms available to us in the market. The following table presents gross written premium, ceded written premium, net written premium, gross earned premium, ceded earned premium and net earned premium for the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 $ Change % Change (dollars in millions) Gross written premium$ 204.6 $ 164.6 $ 40.0 24.3 % Ceded written premium (107.5) (189.1) 81.6 (43.2) % Net written premium 97.1 (24.5) 121.6 496.3 % Gross earned premium 189.4 154.4 35.0 22.7 % Ceded earned premium (104.3) (109.5) 5.2 (4.7) % Net earned premium$ 85.1 $ 44.9 $ 40.2 89.5 % Gross earned premium growth was primarily due to a 24.3% increase in gross written premium from deeper market penetration across ourU.S. state footprint. We also saw a 6.1% increase in Premium per Policy for automobile insurance primarily resulting from pricing increases in several states between the periods. Fee and Other Income Fee income increased$3.3 million , or 75.0%, to$7.7 million for the three months endedSeptember 30, 2021 compared to the same period ended in 2020. The increase was primarily due to fee revenue from distributing web and app policy inquiry leads in geographies where we do not have a presence to third parties and an increase in customers making payments in installments. Operating Expenses Loss and Loss Adjustment Expenses Loss and LAE increased$38.3 million , or 50.3%, to$114.4 million for the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily due to higher claims volume, increased claim severity and greater reserves related to the growth in policies in force for the three months endedSeptember 30, 2021 compared to the prior year period. Gross accident period loss ratios increased to 91.3% from 79.6% for the three months endedSeptember 30, 2021 and 2020, respectively. This change corresponds with the increase in our calendar period gross loss ratio to 92.7% from 89.8%, for the three months endedSeptember 30, 2021 and 2020, respectively. The change in the loss ratios was driven by elevated claims frequency as miles driven during the period exceeded pre-COVID-19 levels and higher loss costs as severity per claim has increased. This increase in loss costs was partially offset by greater salvage and subrogation as well as growth in average premium per policy. 31 -------------------------------------------------------------------------------- Sales and Marketing Sales and marketing expense increased$28.5 million , or 77.2%, to$65.4 million for the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily due to increased investment in performance marketing of$15.1 million and branding and advertising of$8.1 million due to increased customer acquisition and advertising campaign expense. During the three months endedSeptember 30, 2021 we incurred an additional$3.3 million of content development and partnership marketing expense compared to the prior year period. We have focused on diversifying our marketing channels, including prioritization of our partnership marketing channel, and evolving marketing investments to drive growth and deeper market penetration in the states in which we operate. These changes include a decline in performance marketing spend during the three months endedSeptember 30, 2021 as we navigate the exposure to significant cost increases we experienced earlier in the year. During the three months endedSeptember 30, 2020 , marketing expense was reduced as we navigated the uncertainty surrounding the ongoing COVID-19 pandemic. Other Insurance Benefit Other insurance benefit decreased$21.8 million , or 82.9%, to a benefit of$4.5 million for the three months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily driven by lower ceding commission contra-expense of$18.2 million due to greater commissions earned on unearned premiums on ceded policies at the inception of the reinsurance agreement onJuly 1, 2020 . Underwriting costs increased by$2.7 million driven by growth in the core insurance business for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . Technology and Development Technology and development expense increased$5.1 million , or 39.5%, to$18.0 million for the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily driven by an additional$2.7 million in share-based compensation expense compared to the same period in 2020 relating to our equity incentive plan. In addition we made incremental investments in personnel and overhead resulting from growth of engineering and product teams of$1.7 million for the three months endedSeptember 30, 2021 compared to the same period in 2020, as we continue to invest in developing and improving our technology platforms and infrastructure. General and Administrative General and administrative increased$10.8 million , or 65.1%, to$27.4 million for the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase was driven by$4.5 million in personnel costs as a result of an increase in headcount. In addition, we incurred an additional$3.2 million in share-based compensation expense. Also, we incurred an additional$2.1 million of corporate insurance expense for the three months endedSeptember 30, 2021 compared to the same period in 2020. Non-Operating Expenses Interest Expense Interest expense decreased$13.4 million , or 68.7%, to$6.1 million for the three months endedSeptember 30, 2021 compared to the same period ended in 2020. The decrease was primarily due to the warrant fair value adjustment of$13.7 million that we recognized during the three months endedSeptember 30, 2020 . 32 --------------------------------------------------------------------------------
Comparison of the Nine Months Ended
The following table presents our results of operations for the periods
indicated:
Nine Months Ended
2021 2020 $ Change % Change (dollars in millions) Revenues: Net premiums earned$ 225.4 $ 278.4 $ (53.0) (19.0) % Net investment income 2.6 4.3 (1.7) (39.5) % Net realized gains on investments 2.4 0.2 2.2 1100.0 % Fee and other income 21.8 13.0 8.8 67.7 % Total revenues 252.2 295.9 (43.7) (14.8) % Operating expenses: Loss and loss adjustment expenses 284.5 303.3 (18.8) (6.2) % Sales and marketing 245.5 90.1 155.4 172.5 % Other insurance (benefit) expense (3.6) 0.3 (3.9) (1300.0) % Technology and development 49.3 40.2 9.1 22.6 % General and administrative 69.8 58.8 11.0 18.7 % Total operating expenses 645.5 492.7 152.8 31.0 % Operating loss (393.3) (196.8) (196.5) N.M. Interest expense (17.9) (32.9) 15.0 (45.6) % Loss before income tax expense (411.2) (229.7) (181.5) N.M. Income tax expense - - - - % Net loss (411.2) (229.7) (181.5) N.M. Other comprehensive income (loss): Changes in net unrealized gains (losses) on investments (4.0) 5.0 (9.0) (180.0) % Comprehensive loss$ (415.2) $ (224.7) $ (190.5) N.M. ______________ N.M. - Percentage change not meaningful Revenue Net Premiums Earned Net premiums earned decreased$53.0 million , or 19.0%, to$225.4 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily due to greater cessions of gross earned premium as a result of a change in reinsurance structure, partially offset by growth in gross written premium between the periods. During the nine months endedSeptember 30, 2021 and 2020, we ceded approximately 57.5% and 38.2% of our gross earned premiums to third-party reinsurers, respectively. The change in ceding percentage between the periods was driven by our evolving approach to reinsurance structure, in an effort to produce a capital efficient model with reinsurance terms available to us in the market. 33 --------------------------------------------------------------------------------
The following table presents gross written premium, ceded written premium, net
written premium, gross earned premium, ceded earned premium and net earned
premium for the nine months ended
Nine Months Ended September 30, 2021 2020 $ Change % Change (dollars in millions) Gross written premium$ 584.2 $ 471.1 $ 113.1 24.0 % Ceded written premium (306.8) (274.7) (32.1) 11.7 % Net written premium 277.4 196.4 81.0 41.2 % Gross earned premium 530.3 450.2 80.1 17.8 % Ceded earned premium (304.9) (171.8) (133.1) 77.5 % Net earned premium$ 225.4 $ 278.4 $ (53.0) (19.0) % Gross earned premium growth was primarily due to a 24.0% increase in gross written premium from deeper market penetration across ourU.S. state footprint. We also saw a 6.1% increase in Premium per Policy for automobile insurance primarily resulting from pricing increases in several states between the periods. Fee and Other Income Fee income increased$8.8 million , or 67.7%, to$21.8 million for the nine months endedSeptember 30, 2021 compared to the same period ended in 2020. The increase was primarily due to fee revenue from distributing web and app policy inquiry leads in geographies where we do not have a presence to third parties and an increase in customers making payments in installments. Operating Expenses Loss and Loss Adjustment Expenses Loss and LAE decreased$18.8 million , or 6.2%, to$284.5 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily due to higher cessions of incurred losses as a result of a change in reinsurance structure for the nine months endedSeptember 30, 2021 compared to the prior year period, which more than offset the higher claims volume, increased claim severity, and greater reserves related to the growth in policies in force during the first nine months of 2021. Gross accident period loss ratios increased to 87.1% from 74.9% for the nine months endedSeptember 30, 2021 and 2020, respectively. The change in the ratios was driven by higher loss costs due to elevated claims frequency as miles driven exceeded pre-COVID-19 and increased severity per claim as a result of higher replacement parts cost and growth in used car values that outpaced expected inflation. This increase in loss costs was partially offset by greater salvage and subrogation as well as growth in average premium per policy. In addition, loss and LAE for the nine months endedSeptember 30, 2021 includes a decrease in incurred losses and LAE attributable to accident periods prior to 2021 of$9.3 million . This decrease relates to lower-than-expected reported losses on bodily injury claims from 2020. In addition, recoveries from subrogation and salvage from 2020 material damage claims were higher than expected. Sales and Marketing Sales and marketing expense increased$155.4 million , or 172.5%, to$245.5 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily due to increased investment in performance marketing of$105.3 million and branding and advertising of$39.2 million as we responded to unexpected changes in consumer behavior and increased customer acquisition and advertising campaigns in digital channels on the part of our competitors. These changes include a decline in performance marketing spend during the three months endedSeptember 30, 2021 as we navigate the exposure to significant cost increases we experienced 34 -------------------------------------------------------------------------------- earlier in the year. We have focused on diversifying our marketing investments to drive growth and deeper market penetration in the states in which we operate. Additionally, marketing spend was lower through much of the nine months endedSeptember 30, 2020 due to uncertainty surrounding the ongoing COVID-19 pandemic. Other Insurance (Benefit) Expense Other insurance (benefit) expense decreased$3.9 million , or 1,300.0%, to a benefit of$3.6 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily driven by greater ceding commission contra-expense due to reinsurance structure changes of$14.6 million and lower premium write-offs of$2.0 million . This was partially offset by greater underwriting costs of$8.6 million due to growth in the core insurance business and$3.4 million in personnel costs as a result of an increase in headcount for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 . Technology and Development Technology and development expense increased$9.1 million , or 22.6%, to$49.3 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily driven by incremental investments in personnel and overhead resulting from growth of engineering and product teams of$6.9 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. In addition, we incurred a$2.0 million increase in software development expense, as we continue to invest in developing and improving our technology platforms and infrastructure. General and Administrative General and administrative increased$11.0 million , or 18.7%, to$69.8 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was driven by$8.6 million in personnel costs as a result of an increase in headcount. In addition, we incurred an additional$6.3 million of corporate insurance expense,$1.9 million of professional services,$1.9 million of support application services and$1.3 million in enterprise costs. This was partially offset by a decrease in share-based compensation expense of$11.2 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily related to the 2020 tender offer. Non-Operating Expenses Interest Expense Interest expense decreased$15.0 million , or 45.6%, to$17.9 million for the nine months endedSeptember 30, 2021 compared to the same period ended in 2020. The decrease was primarily due to the warrant fair value adjustment of$13.7 million that we recognized during the nine months endedSeptember 30, 2020 . Non-GAAP Financial Measures The non-GAAP financial measures below have not been calculated in accordance with GAAP and should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. In addition, adjusted gross profit/(loss) and direct contribution should not be construed as indicators of our operating performance, liquidity or cash flows generated by operating, investing and financing activities, as there may be significant factors or trends that they fail to address. We caution investors that non-GAAP financial information, by its nature, departs from traditional accounting conventions. Therefore, its use can make it difficult to compare our current results with our results from other reporting periods and with the results of other companies. Our management uses these non-GAAP financial measures, in conjunction with GAAP financial measures, as an integral part of managing our business and to, among other things: (1) monitor and evaluate the performance of our business operations and financial performance; (2) facilitate internal comparisons of the historical operating performance of our business operations; (3) facilitate external comparisons of the results of our overall business to the historical operating performance of other companies that may have different capital structures and debt levels; (4) review and assess the operating performance of our management team; (5) analyze and evaluate financial and 35 -------------------------------------------------------------------------------- strategic planning decisions regarding future operating investments; and (6) plan for and prepare future annual operating budgets and determine appropriate levels of operating investments. Adjusted Gross Profit/(Loss) For the definition of adjusted gross profit/(loss) and why management believes this measure provides useful information to investors, see "- Key Performance Indicators." 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 adjusted gross profit/(loss) and direct contribution for the three and nine months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (dollars in millions) Total revenue $ 93.8$ 50.5 $ 252.2 $ 295.9 Loss and loss adjustment expenses (114.4) (76.1) (284.5) (303.3) Other insurance benefit (expense) 4.5 26.3 3.6 (0.3) Gross profit/(loss)$ (16.1) $ 0.7 $ (28.7) $ (7.7) Gross margin (17.2) % 1.4 % (11.4) % (2.6) % Less: Net investment income $ (1.0) $
(1.1) $ (2.6)
Net realized gains on investments
- (0.1) (2.4) (0.2) Adjustments from other insurance expense(1) 14.4 10.2 44.2 29.3 Adjusted gross profit/(loss) (2.7) 9.7 10.5 17.1 Ceded earned premium 104.3 109.5 304.9 171.8 Ceded loss and LAE (81.2) (77.8) (222.0) (119.6) Net ceding commission and other(2) (30.9) (46.9) (81.1) (63.8) Direct contribution (10.5) (5.5) 12.3 5.5 Gross earned premium$ 189.4 $ 154.4 $ 530.3 $ 450.2 Ratio of adjusted gross profit/(loss) to total revenue (2.9) % 19.2 % 4.2 % 5.8 % Ratio of adjusted gross profit/(loss) to gross earned premium (1.4) % 6.3 % 2.0 % 3.8 % Ratio of direct contribution to total revenue (11.2) % (10.9) % 4.9 % 1.9 % Ratio of direct contribution to gross earned premium (5.5) % (3.6) % 2.3 % 1.2 % ______________ (1) Adjustments from other insurance expense includes report costs, personnel costs, allocated overhead, licenses, professional fees and other. (2) Net ceding commission and other is comprised of ceding commissions received in connection with reinsurance ceded, partially offset by sliding scale commission adjustments and amortization of excess ceding commission, and other impacts of reinsurance ceded. Liquidity and Capital Resources 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 36 -------------------------------------------------------------------------------- insurance products appropriately. We are continuously evaluating alternatives for efficiently funding our ongoing operations. We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of securities. InOctober 2021 , upon maturity of our Term Loan A and expiration of the revolving loan, we repaid the outstanding Term Loan A principal balance of$98.8 million and accrued interest and fees of$0.2 million . Additionally, inOctober 2021 we received$126 million of gross proceeds from Carvana Group, LLC, or Carvana, from the issuance of approximately 14 million shares of convertible preferred stock and we issued Carvana eight tranches of warrants to purchase shares of the Company's Class A common stock. InNovember 2021 , we repaid the outstanding Term Loan B principal balance of$100.0 million and accrued interest, including PIK interest, and fees of$20.9 million . In November, we signed an exclusive term sheet withBlackRock Financial Management, Inc. , on behalf of funds and accounts under its management, or BlackRock, to put in place a larger term loan facility with a longer maturity than our previous structure. We expect to work in good faith with BlackRock to close the facility before year-end, subject to negotiation and documentation of final terms and the terms and conditions contained in the definitive documentation. As ofSeptember 30, 2021 , we had$834.1 million in cash and cash equivalents, of which$684.6 million was held outside of regulated insurance entities and$130.8 million was held in marketable securities. As ofSeptember 30, 2021 , we had$100.0 million available under our revolving loan, of which there were no borrowings or letters of credit outstanding. The revolving loan expired upon maturity of Term Loan A inOctober 2021 . Our cash and cash equivalents primarily consist of bank deposits and money market funds. Our marketable securities consist ofU.S. treasury securities and agencies, municipal securities, corporate debt securities, residential and commercial mortgage-backed securities, and other debt obligations. We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We are organized as a holding company, but our primary operations are conducted by two of our wholly-owned insurance subsidiaries,Root Insurance Company , anOhio -domiciled insurance company, andRoot Property & Casualty Insurance Company , aDelaware -domiciled insurance company. The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the States ofOhio andDelaware . To date, our insurance subsidiaries have not paid any dividends and, as ofSeptember 30, 2021 , they were not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director. As our insurance subsidiaries' businesses grow, 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. As ofSeptember 30, 2021 , 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 underCayman Islands Monetary Authority . AtSeptember 30, 2021 , Root Re was subject to compliance with certain capital levels and a net earned premium to capital ratio of 15:1, which we maintained. 37 -------------------------------------------------------------------------------- The following table summarizes our cash flow data for the periods presented: Nine Months Ended September 30, 2021 2020 (in millions) Net cash used in operating activities$ (364.3) $ (94.8) Net cash provided by (used in) investing activities 83.3 (103.1) Net cash provided by financing activities 2.3 0.1 Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$364.3 million compared to$94.8 million of net cash used in operating activities for the nine months endedSeptember 30, 2020 . The increase was primarily due to the volume and timing of premium receipts, claims payments, reinsurance activity, sales and marketing, accruals of accounts payable and other expenses. In addition, we incurred greater share-based compensation during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2020 , there was a non-cash impact relating to the tender offer and fair value adjustment of warrants. Net cash provided by investing activities for the nine months endedSeptember 30, 2021 was$83.3 million , primarily due to proceeds from sales, maturities, calls and pay downs of investments. Net cash used in investing activities for the nine months endedSeptember 30, 2020 was$103.1 million primarily due to purchases of corporate debt securities, commercial mortgage-backed securities, residential mortgage-backed securities and other debt obligations, partially offset by sales, maturities, calls and pay downs of investments. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 was$2.3 million , primarily due to proceeds from employees exercising stock options, net of tax proceeds/(withholding), which was offset by a partial repayment of long term debt. Net cash used in financing activities for the nine months endedSeptember 30, 2020 was$0.1 million primarily due to primarily due to proceeds from amending our Term Loan A agreement, which was offset by a partial repayment of Term Loan A. Contractual Obligations There have been no material changes to our contractual obligations from those described in our 2020 10-K. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity or cash flows. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including, but not limited to, estimates related to reserves for loss and LAE, premium write-offs and valuation allowance on our deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our 2020 10-K and the Notes to the Condensed Consolidated Financial Statements - Unaudited appearing elsewhere in this Quarterly Report on Form 10-Q. During the nine months endedSeptember 30, 2021 , there were no material changes to our critical accounting policies from those discussed in our 2020 10-K. 38 -------------------------------------------------------------------------------- New Accounting Pronouncements See Note 2, Basis of Presentation and Summary of Significant Accounting Policies, in the Notes to the Condensed Consolidated Financial Statements - Unaudited included in this Quarterly Report on Form 10-Q for a discussion of accounting pronouncements recently adopted and recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements. Election Under the Jumpstart Our Business Startups Act of 2012 We currently qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act, or JOBS Act. Accordingly, we are provided the option to adopt new or revised accounting guidance either (1) within the same periods as those otherwise applicable to non-emerging growth companies or (2) within the same time periods as private companies. We have elected to adopt new or revised accounting guidance within the same time period as private companies, unless management determines it is preferable to take advantage of early adoption provisions offered within the applicable guidance. Our utilization of these transition periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the transition periods afforded under the JOBS Act. As ofJune 30, 2021 , the market value of our common stock held by non-affiliates exceeded$700 million . Accordingly, we will be deemed a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or Exchange Act, and will no longer qualify as an emerging growth company as ofDecember 31, 2021 . 39
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DOMA HOLDINGS, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
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