Root : 1Q 2022 Letter to Shareholders

Q1 2022

Shareholder Letter

Key quarterly metrics:

Gross written premium ($M)

Gross earned premium ($M)Gross accident period loss ratio

Gross LAE ratioGross profit ($M)

Direct contribution ($M)

Dear Shareholders:

We took aggressive actions in the first quarter of 2022 to reposition and restructure the company so we can continue to weather one of the most difficult times we've seen as a young company and in the personal auto industry. Through the worst inflation in 40 years and a war in Europe that further threatened the supply chain, we pressed forward to preserve our capital through all means necessary. This included dramatically reducing fixed expenses, adjusting prices more rapidly than we've ever done in the company's history, tamping down growth and marketing spend, and further tightening underwriting on the least profitable segments of our business.

Nevertheless, we drove progress on what makes us special - our ability to build world class products through the very best technology. At the heart of this is our technology moat. In Q1, we made substantial progress on our pricing tooling, with over 85% of our pricing workflows automated. This allows our actuaries to change prices with very little engineering support and move faster than our competitors. In addition, we began researching our UBI 5.0 score, which is showing early stages of significant segmentation improvements.

We shipped further improvements to our Carvana flow, driving our attach rates up while laying the foundation for a highly defensible growth channel. We see this as just the beginning of a growing trend to transform the insurance purchasing experience to moments that work better for customers - meeting them in their time of need with a seamless, frictionless, simple experience. Equally important is the developer experience we are creating. We have a clear vision and path forward to make our embedded offering something that any developer can implement in less than an hour with zero friction integrations. This strengthens our technology differentiation as we invest in our systems to empower flexible, partner agnostic integrations with one click purchases.

We believe that as we continue to push through this historic period, we will emerge stronger and more focused.

This transformation will no doubt take hard work and tenacity, but we have every conviction that through our relentless focus on building industry-leading customer products through better technology, we will move faster than our competitors and win in the long run.

Our strategic priorities have resulted in further improvement in our results:

• • Delivered on 13% of Root's new premiumvolume from Carvana partnership; expectation for V2 of our fully embedded product to roll out in the second quarter

• • Leveraged technology capabilities to respond to inflationary trends and implement 19 points of rate year-to-date in addition to the 14 points cumulatively since the beginning of 2021 discussed with Q4'21

• • Reduced accident period loss ratio 12 points sequentially through a combination of rate increases earning in, underwriting actions, tenure mix, and favorable seasonality trends

• • Operational changes have resulted in a 23% sequential reduction in non-loss and LAE expenses, or 42% compared with Q1'21

• • Improved operating loss25% and adjusted EBITDA 43% when compared with Q1'21

As we continue to focus on our financial discipline, we are pleased to announce that Rob Bateman has joined our executive team as Chief Financial Officer. His significant experience building and leading teams across the insurance industry and deep financial expertise will be pivotal in driving our company's success while building a solid financial foundation.

Q1 2022 highlights:

All figures are compared to Q1 2021 unless otherwise stated.

• • Gross written premium decreased 8% to $187 million

• • Gross earned premium increased 9% to $175 million; Gross earned premium from seasoned states increased to 80%

  Gross earned premium by seasoned versus unseasoned

• • Renewal premium % of gross earned premiums increased significantly over Q4 2021 to 71%.

Renewal premium % of gross earned premium

• • Gross profit decreased by $19 million to $(12) million as our results remain pressured by the current loss cost environment

Below, we'll provide performance highlights for each of our key business drivers: Carvana, distribution/expansion, underwriting, and path to profit.

Leading Insurance Product & Technology

Our operating performance in Q1 demonstrated Root's ability to leverage our technology and respond quickly to macroeconomic market conditions. As we drive pricing adequacy through our rate changes, we intend to grow our premium levels through our direct marketing strategy and the development of our embedded insurance product.

Root's embedded insurance product is building a competitive advantage in distribution and growth. This is a relatively new market in personal auto insurance, but one that is expected to experience significant growth to a roughly $20 billion market by 2026. That does not include adjacent market opportunities. Our embedded insurance product brings us closer to our customers, meeting them at a relevant point in time with an offering that is simply presented and provides an industry leading quote-to-bind experience. We offer a fully embedded product built on our experience as a carrier, which drives better customer segmentation and improved unit economics.

Our exclusive embedded partnership with Carvana, the fastest-growing auto retailer in the United States, continues to progress rapidly. Through open collaboration and a mutual desire to build the very best technology, we are jointly developing the first truly embedded auto insurance offering. At the end of the first quarter, less than six months after announcing our exclusive partnership, V1 of the embedded product was available to roughly 65% of Carvana retail sales nationally.

We continue to iterate on the product and customer experience. In combination with increased share of traffic early in the first quarter, roughly13% of Root's new premium volume this quarter came from our partnership with Carvana. We expect the attach rate to increase in the second half of the year as V2 of our Carvana product is launched, which is expected in Q2'22. V2 will allow customers to quote and bind Carvana Insurance Built with Root without leaving Carvana's platform, creating a fully embedded auto insurance product offered at the exact time the need arises. Other V2 improvements include streamlining the bind process by requiring less information from customers, decreasing the number of screens before checkout from the initial 24 down to six, and now to three with this version, delivering a more integrated and elevated customer experience overall. Looking ahead, we continue to explore the integration of telematics information to create the best technology driven embedded offering in the market.