Root, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain interest and credit rate risks as part of our ongoing business operations. Interest Rate Risk We are exposed to interest rate risk on our investment portfolio. Our fixed maturity investments include U.S. Treasury securities, municipal securities, corporate debt securities, residential mortgage-backed securities, and commercial mortgage-backed securities, most of which are exposed to changes in prevailing interest rates. We monitor this exposure through periodic reviews of investment portfolio by our management. We are also exposed to the impact of interest rate changes through our term loan facility that closed in January 2022 and incurs interest at floating rates based on changes in the Secured Overnight Financing Rate, or SOFR. We did not have any long-term debt outstanding at December 31, 2021. Credit Risk We are exposed to credit risk on our investment portfolio and our reinsurance contracts. We manage the exposure to credit risk in our U.S. Treasury securities, municipal securities, corporate debt securities, residential mortgage-backed securities, and commercial mortgage-backed securities by investing in high quality securities and diversifying our holdings. We manage the exposure to credit risk in our reinsurance contracts by obtaining reinsurance from a diverse group of reinsurers and monitoring concentration as well as financial strength ratings of the reinsurers to minimize counterparty credit risk. Additionally, all reinsurance contracts provide for indemnification against loss or liability relating to insurance risk and have been accounted for as reinsurance. We monitor our investment portfolio to ensure that credit risk does not exceed prudent levels. The majority of our investment portfolio is invested in high credit quality, investment grade fixed maturity securities. As of December 31, 2021, none of our fixed maturity portfolio was unrated or rated below investment grade. 84