Root, Inc. Q1 FY2026 earnings call

Alex mentioned Q1 2026 was the most profitable quarter with 47% annualized ROE, driven by improvements in pricing, underwriting, and capital allocations. Growth strategy includes creating lowest prices, launching product in every state, expanding independent agency channel, scaling embedded insurance, and leveraging AI. Distribution highlights: partnerships grew new writings 30% YoY, over 15,000 independent agents across 5,000 agencies, launched partnership with Freeway Insurance, Carvana had over 200,000 policies sold. Direct channel had difficult growth environment but managed prudently. AI efforts to build automated insurance company. Megan discussed financial results, refinanced $200 million debt facility, authorized $75 million share repurchase program, focused on high return growth and market expansion, maintained flexibility across underwriting cycles, and invested in product and technology innovation.

Root saw policies in force grow 9% year over year. Gross premiums written were $389 million, with gross premiums earned at $370 million, a 8% year-over-year growth. Net income was a record $36 million, up $18 million YoY. Operating income was $41 million and adjusted EBITDA was $57 million, increasing $17 million and $25 million YoY respectively. Partnerships and independent agent new writing grew over 30% year over year. Carvana surpassed 200,000 policies sold in the embedded insurance offering.

Expect 2026 net income to be stronger than 2025. Continue to be opportunistic in direct marketing investment based on return thresholds. Loss ratios expected to remain within 60-65% range throughout the year, with seasonal factors considered. Will be flexible in capital allocation based on relative return, continuing to invest in organic growth and technology while having option to repurchase shares when trading at a discount to intrinsic value.

Forward-looking statements subject to various risks, uncertainties, and factors that could cause actual results to differ materially. Macro environment challenges impacting growth, competition impacts on direct channel, potential changes in frequency and severity of claims due to macro factors like gas prices and supply chains, and risks related to achieving expected return thresholds across distribution channels.

Q: What's Root's approach to rate side and rate adequacy?

A: Price to optimize lifetime value of customer, improved pricing in quarter with mix shift to lower premium good risk segments, mild decreases in average premiums expected to continue.

Q: Appetite for direct channel?

A: Focus on meeting return thresholds, be patient in tough macro environment, continue to invest in direct marketing if meeting return hurdles, excited about partnership and independent agent channels, will invest through other insurance expense and direct R&D.

Q: PIF growth trending and OPEX leverage?

A: If environment stays, expect similar to Q1, OPEX leverage relative to gross earned premium to remain stable.

Q: Gross accident period loss ratio and implications?

A: Favorable development related to 2025 accident years and subrogation opportunities, loss ratio targets 60-65%, seasonality plays a role with Q1 being lowest.

Q: Impact of macro factors on frequency/severity and loss ratio expectations?

A: Mileage slightly down but not massively, inflation in low single digits, monitoring daily, loss ratio expectations include macro factors.

Q: Competition on direct side and share repurchase?

A: Competition may intensify, but prepared, $75 million share repurchase for flexibility to return capital when stock is at discount to intrinsic value while continuing to invest in business.