Charlie Rodgers

Charlie Rodgers, on behalf of Andrew Anderson at Jefferies LLC, asked about the differences in new business penalty, frequency, and severity between the direct and partnership channels. He also inquired if the demand pull-forward from Q1 reversed in Q2 and asked for an update on the company's state expansion pipeline following the approval in Washington.

Answer

Co-Founder and CEO Alex Timm explained that the new business penalty is slightly higher in the direct channel but the difference is not massive. He noted the partnership channel's mix is more preferred, leading to slightly elevated severity, but not enough to materially impact the blended loss ratio. Timm confirmed the Q1 demand pull-forward created some headwinds in Q2. He clarified that while the product filing in Washington was approved, the state has not yet launched, and other state filings are pending in the public domain.

Charlie Rodgers, on behalf of Andrew Andersen at Jefferies, questioned the expected contribution from new partnerships like Hyundai Capital America and Experian, and sought clarity on the drivers behind recent frequency and severity trends.

Answer

CEO Alex Timm explained that new partnerships typically take time to ramp up and that Root is in the early stages with its newest partners, promising more details as they progress. On loss trends, Timm noted that recent frequency and severity figures were within their expectations. He attributed some of the dynamics to a mix shift toward more preferred customers, particularly from the partnership channel, which tends to have lower frequency and higher severity, a factor he stated is accounted for in their pricing models.

Charlie Rodgers of Jefferies, on for Andrew Andersen, questioned the 2025 advertising spend strategy, which channel offers better returns between direct and embedded, and whether channel dynamics will remain consistent amid rising competition.

Answer

CEO Alex Timm explained that increased acquisition spend is moving to more mid- to upper-funnel channels like YouTube and direct mail, but with the same rigorous, data-driven ROI discipline as lower-funnel efforts, not for general brand awareness. He noted both direct and embedded channels operate at target returns, with different cost and retention profiles. Timm expects the dynamics between the channels to remain consistent through 2025, anticipating a fairly stable competitive environment despite a slight increase in Q4.

Charlie Rodgers, on behalf of Andrew Anderson at Jefferies, asked for color on the slowdown in submission flows and any changes in conversion ratios, as well as an update on the commercial auto portfolio remediation.

Answer

CEO Andrew Robinson advised not to over-interpret the submission flow moderation, stating it reflects normal quarterly fluctuations and that they are not concerned. He reported no notable changes in quote or bind ratios. He also confirmed that the remediation of the commercial auto portfolio will be complete by the end of Q1 2025.

Charlie Rogers asked for clarification on the embedded expectations for Hurricane Milton losses in the Q4 guidance. He also requested the catastrophe and prior year development figures on a net basis and asked for a premium breakdown within the 'home multi-peril' line.

Answer

CFO Timothy Bixby stated that the impact from Hurricane Milton has been nominal and is not a material concern for Q4. He provided the net figures, noting a CAT impact of ~11% and a favorable prior period development of ~1%. While declining to break out the home line quarterly, he gave order-of-magnitude premium per customer figures: ~$1,500 for home/condo and ~$170 for renters.