Root Inc., the parent company of Root Insurance, has published a letter to shareholders outlining the company’s financial results for the quarter and year ended December 31, 2023.
In the 25-page letter seen by Insurance Business, Root reported the following numbers:
|
Metric |
Q4 2023 |
Q4 2022 |
FY 2023 |
FY 2022 |
|---|---|---|---|---|
|
Total revenues |
$194.8 million |
$71.3 million |
$455 million |
$310.8 million |
|
Total operating expenses |
$207.1 million |
$119 million |
$556.3 million |
$573.9 million |
|
Operating loss |
$12.3 million |
$47.7 million |
$101.3 million |
$263.1 million |
|
Net loss |
$24 million |
$58.3 million |
$147.4 million |
$297.7 million |
Root told shareholders: “We continue to be laser-focused on reaching profitability with our existing capital. 2023 results show meaningful progress on this front. We continued our diligent growth trajectory at attractive target unit economics while leveraging our fixed expense base.
“In the fourth quarter 2023, net loss improved 59% year-over-year to $24 million and adjusted EBITDA improved 99% year-over-year to a loss of $0.3 million. This meaningful progress is driven by loss ratio improvement and fixed expense management that sets the foundation for scalable growth.
“Last quarter, we communicated an evolution in our reinsurance strategy, which continues to benefit net results through increased retention and lower reinsurance costs. Consistent with prior guidance, in Q4 2023, our gross earned premium cession rate was 18%, and the gap between gross and net loss and LAE ratios was reduced to single digits.”
The company went on to say: “As we have achieved our target loss ratio and established a scalable expense base, reaching profitability now largely depends on the level of our discretionary marketing investments. As Root grows, our marketing spend may elevate near-term losses as we do not defer the majority of customer acquisition cost over the life of our customers. Acquisition expenses in our direct channel will vary, and will be deployed at attractive expected returns over the customer lifecycle.
“It’s important to note that we believe we could achieve profitability in the near term if we determined reducing our marketing investments was the best approach to drive shareholder value. However, this would require us to forgo significant amounts of accretive business, reduce our share of market, and ultimately come at the expense of building long-term shareholder value.
“We ended the year with $507 million in unencumbered capital, reflecting an annual unencumbered cash consumption of $52 million in 2023, compared to $179 million in 2022, net of proceeds from the issuance of debt. We are energized and committed to future growth as we start 2024 from a position of strength.”
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