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Root Q3 net loss jumps by 56% to $133mn as ex-cat AY loss ratio jumps 11 points to 91%

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Auto InsurTech Root’s net loss widened by 56% to $133mn in the third quarter, from $85.2mn last year, as its direct loss ratio climbed to 92.7% from 89.8% a year earlier.

Root said the higher loss figure was driven by a rise in industry-wide claims frequency and severity trends, as well as inflationary pressures. The company also pointed to a surge in miles driven, which it said are now above pre-pandemic levels.

The higher loss came despite Root saying it had cut its marketing spend by 40% in the quarter, “in response to record-high inflation caused by supply-chain issues.”

“This allows us to prudently manage capital, reduce customer acquisition costs, and drive a $45 million quarter-over-quarter improvement in operating loss,” the company said. “We expect further reduction in sales and marketing spend in the coming quarters.”

The company also said it repaid both its term loans, term loan A and term loan B, and is also in the final stages of negotiating a larger loan facility with asset manager BlackRock that has a longer maturity than its previous agreements.

The company’s policyholder retention ratio slipped to 60%, from 64% a year ago and a high of 66% in the fourth quarter.

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Underwriting: The direct loss ratio rose by three points to 92.7%, quarter-to-quarter. The company’s gross accident period loss ratio increased by 12 points to 91% compared to Q3 2020.

The auto insurer reported an operating loss of $126.9mn during the three month period, higher than the $65.7mn loss posted a year before. In addition to the higher overall gross loss ratio, Root said the loss ratio on renewal business increased to 80%, from 71% last year.

The company’s total operating expenses spiked to $220.7mn, up from $116.2mn last year, while overall losses and loss adjustment expenses jumped to $114.4mn from $76.1mn last year.

Premiums: Direct written premiums rose by 24% to $205mn, which Root said came from a “halo effect” of previously committed marketing dollars. The auto InsurTech recorded net premiums earned of $85mn, marking a 88.9% climb from the prior year.

Auto and renters policies-in-force increased 18% and 24%, respectively.

Investments: The carrier reported a net investment income drop of 9.1% to $1mn.

Commentary: Root co-founder and CEO Alex Timm and CRO, COO and CFO Daniel Rosenthal said: We are as excited as ever about Root’s future and remain committed to leveraging our technology to go after opportunities ahead.”

They continued: “We will continue investing in our business, improving our insurance operations, strengthening our competitive advantages, pursuing new and innovative ways to connect with customers by utilizing our technology-first and customer-centric approaches, and prudently managing capital.”

“Our ability to quickly iterate and implement changes to our approach makes us stronger as we build an infrastructure that is made to last. In quarters ahead, our success can be measured through improvement in underwriting results over time, contribution to the top line from increasingly diverse channels, and a technology advantage that is reflected in our bottom-line results.”

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