Root Inc. can expand throughout all 50 states and Washington, D.C., after an acquisition, the digital insurer reported with its first quarterly results as a public company.
Root Insurance Co. had $471 million in direct written premium as of Sept. 30, a 53% increase over last year.
The loss ratio – claims expenses as a proportion of premiums – declined to 85% from 101% the same time last year. Adjusted gross profit, which the company uses to measure performance, was $10 million for the quarter ended Sept. 30, a turnaround from a $27 million loss in the same period last year.
“We’re able to outperform growth expectations while bringing down loss ratios considerably,” Timm said in an interview. “I’m very happy with the quarter. I think it’s a very strong quarter.”
In GAAP terms, Root reported a $229.7 million loss through the first nine months of the year, $32 million more than the same period of 2019. Total revenue of $295.9 million was up from $197 million in the first nine months of 2019.
The company made a fundamental change starting July 1, ceding a large portion of premium – and claims risk – to reinsurance companies. Its first shareholder letter describes the move as digging a "moat" to protect Root's core identity as an artificial intelligence and data analytics company.
Parent Root Inc. raised $1.2 billion through an IPO and private placement in October, valuing the 5-year-old company at $7 billion. The shares debuted at a higher-than-expected $27, but closed $10 lower at $17 on Tuesday before the earnings release.
On its own the Columbus insurer expanded to 30 states, but since inception co-founder and CEO Alex Timm was looking for a shell company with nationwide licenses. They are rare and expensive, Timm said Tuesday before the third-quarter conference call with analysts.
Now Root has found such a company, although its name was not disclosed in the shareholder letter. Acquisition terms were not disclosed.
Approval by the shell company's home state of Delaware transfers the licenses, but Root still needs approval from each state insurance agency for its plans and rates.
“It substantially reduces the timeline and gives us a massive lever for growth,” Timm said. “We’re going to start work on those launches immediately. We’re going to do it methodically, one state at a time.”
