Root, Inc. 4Q 2021 Letter to Shareholders

Letter to Shareholders: FY 2021

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Key annual metrics:

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Letter to Shareholders: FY 2021

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Dear Shareholders:

2021 was a challenging year for insurtechs and auto insurer capital market investors as inflationary pressures led to rapidly accelerating loss trends. Despite the challenges of our new environment, Root's technology has enabled us to not only recognize the trends early, but take swift action to proactively address these environmental pressures.

While we've learned from and adjusted to these challenges, our underlying belief in our business has not changed. By focusing on data science and technology, we continue to drive increased efficiencies and segmentation. With our transformational Carvana partnership, we are reinventing how and when insurance products are purchased. We believe these investments will meaningfully build better customer experiences and a path to profit.

Furthermore, we're excited to say that our beliefs are backed by our data, as seen in our results:

• Stabilized loss ratios versus Q3 despite auto insurance peers continuing to report sequential increases in Q4. This was a result of improved underwriting, segmentation, and state management efforts. The speed at which we responded to trend was only possible because our data science and technology allowed us to spot the trend early and act quickly. To do this while also shipping the next generation of our segmentation models is our strategy in action.
• Shipped and iterated on the Carvana embedded product, increasing weekly new writings from our platform by 3.5x and setting the groundwork for further expansion.
• Reduced direct operating loss from $172 million in Q2 to $92 million in Q4.
• Materially reduced our cash buin response to the loss environment by cutting marketing spend by 62% in Q4 and run-rate fixed expenses by roughly $48 million annually from peak 2021 levels. This material, decisive action shows our agility and ability to optimize for profit when the environment calls for it.
• Closed our BlackRock term loan facility of $300 million with a 5-year duration in Q1'22. This is both longer duration and larger than any facility we have secured to date, providing new capital for us to focus on our long-term path to profit.

When scaling an insurance company, there are high fixed costs upfront-product development, acquisition costs, and the cost to acquire data to train our algorithms. Over the last six years, we have borne many of these costs as we strengthen the competitive advantage that comes from our data science and technology. As we mature and our environment has shifted, the focus on the profitability of the business we're writing has improved significantly over the last few quarters. We believe we have line of sight to profitable unit economics and capital to execute on the strategic priorities to get us there.

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Letter to Shareholders: FY 2021

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Q4 2021 highlights:

All figures are compared to Q4 2020 unless otherwise stated.

• Gross written premium increased 9% to $158 million
• Gross earned premium increased 22% to $189 million; Gross earned premium from seasoned states was 77%

Gross earned premium by seasoned versus

unseasoned

• Renewal premium % of gross earned premiums remained roughly steady over Q4 2020 at 63%.

Renewal premium % of gross earned premium

• Gross profit decreased by $17 million to $(23) million as our results remain pressured by the current loss cost environment

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Letter to Shareholders: FY 2021

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Customer Experience

We fight every day to meet a customer's evolving needs by leveraging our technology to dramatically improve the customer experience. Our unique ability to meet consumers where they are with embedded products enables us to cost-efficiently address a pressing auto insurance need at the point it arises. The combination of convenience, fair pricing, and unparalleled customer service from binding through claims are the building blocks of long-term customer loyalty.

Carvana update

Our exclusive partnership with Carvana is the first step to building an industry-leading embedded experience with the ideal partner that is the fastest-growing auto seller in the United States and shares our passion for the customer experience. This product provides attractive customer acquisition costs to high-retaining customers. We announced the partnership in August and got to work with our Carvana counterparts immediately. Through our shared commitment to build the very best technology, the quality and effectiveness of what we've been able to develop in less than six months has surpassed expectations on both sides. We are openly collaborating so we can rapidly iterate on the product.

Fast-follow improvements in the first version of the embedded product include a quote presented as part of the Carvana workflow, automated proof of insurance, pre-filled bind flow, and less than our average 47 seconds needed for the customer to obtain a "Carvana Insurance, Built with Root" policy. Additionally, Carvana's reconditioning centers allow for full knowledge of the condition of the car before a quote is presented to a customer, driving more accuracy for us and less disruption to the customer. While it's early, and we're adding new states to the embedded footprint each week, the metrics around attach rate, loss ratio, and retention look extremely positive. We expect that Carvana customers will represent a material percentage of our new writings in Q1 and continue to build throughout the year.

As we have driven product market fit, Carvana decided to increase our share of traffic. This shift took place months ahead of what was committed to in our initial agreement, reflecting both the success of the partnership and Carvana's enthusiasm over the level of interest their customers have shown in our embedded offering. We expect to continue to improve customer adoption as we dramatically improve customer experience, leamore around what drives bind rates, and continue testing.

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