Root, Inc. 4Q 2022 Letter to Shareholders

Letter to Shareholders: FY 2022

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2020 2021 20222020 2021 2022

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Letter to Shareholders: FY 2022

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Dear Root Shareholders

In 2022, we made substantial progress on our most important objectives:

• Finished 2022 with a Q4 gross accident period loss ratio of 77%, down from 94% in Q4 2021, by leveraging our technology platforms to identify and rapidly respond to rising inflation, while the auto insurance industry has been experiencing an overall increase.
• Reduced our fixed expenses on a run rate basis from $197 million per year in 2021 to $123 million per year in 2022, a 38% improvement.
• Improved net loss 43%, operating loss 46% and adjusted EBITDA 58% compared to 2021.
• Reduced our operating capital consumption by $193 million compared to 2021.
• Grew our embedded new writings to 41% of our new writings in Q4 2022, compared to 3% of new writings in Q4 2021.
• Executed a commercial agreement with a national digital financial services company to further expand our embedded platform, and are continuing to see momentum in the funnel for future partners.

We believe we have positioned the Company to drive profitable new writings growth while continuing our loss ratio and expense trajectory. We expect continued improvements in 2023 and believe the actions we continue to take in pricing, underwriting, and expense reduction put the Company on a path to be capital self-sufficient.

Q4 2022 highlights

All figures are compared to Q4 2021 unless otherwise stated.

• Gross premiums written decreased 23% to $122 million
• Gross premiums earned decreased 25% to $143 million
• Renewal premium % of gross premiums earned increased to 81%

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Letter to Shareholders: FY 2022

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• Accident period severity increased 10% and frequency decreased 12%
• Gross profit increased by $19 million to $(4) million
• Direct contribution increased 336% to $10 million
• Gross combined ratio improved 12 points to 132%

Growth

We believe meeting customers in the moment of need creates better customer experiences and better business results. We see embedded insurance as the next large secular trend in distribution and through our flexible tech stack and insurance product, we believe we have a leading advantage to build and scale differentiated access to customers in this growing channel. In 2022, we grew our embedded new writings more than 8x. Carvana, our first embedded partner, grew to 41% of our new writings in Q4 2022. This growth was largely driven by rapid product iteration, allowing us to further streamline the purchase process. We continue to see opportunities to increase new writings from Carvana, as well as scale the platform to new partners.

Embedded as a Percentage of New Writings

We signed a commercial agreement with a national digital financial services company to further expand our embedded platform, and are continuing to see momentum in the funnel for additional partners. We believe our early embedded success demonstrates our differentiation and serves as a strong proof point for future partners.

In our direct channel, as our loss ratios continue to trend towards our long-term target of 65%, we are offering our product more broadly in certain markets. This includes allowing customers to purchase a policy immediately versus requiring a test drive before purchase, underwriting out fewer policies, and opportunistically deploying marketing dollars in the states and segments anticipated to be most profitable.

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Letter to Shareholders: FY 2022

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Pricing and Underwriting

We have responded to the worst auto insurance cost inflation in history with a combination of rate increases, strengthened underwriting and meaningful segmentation improvements through new loss models, additional underwriting rules, and new fee structures to lower the impact of increased claims costs. We continue to see our accident period loss ratio trend down quarter-over-quarter as a result of our quick and decisive actions over the past year. In 2022, we implemented 53 rate filings with an average increase of 37% across our total book. In addition, we have filed revised policyholder contracts in 33 markets. In Q4 2022, we had 63% of our addressable market hit our 65% loss ratio target. Our on-level loss ratio for the quarter was 62% reflecting additional rate expected to eainto our book throughout 2023.

We also continue to see large improvements in our segmentation. This rapid improvement in segmentation is core to our business-we get more data, which allows us to improve pricing, which in tuallows us to target profitable new business. Leveraging our modetechnology stack and our data driven approach to pricing, we can quickly retrain our predictive models, generate the necessary regulatory filings, and ship these into the market at a pace we believe to be the best in the industry.

Gross accident period loss ratio

*Renewal gross accident period loss ratio for auto only

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