What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-26 · 145 added, 142 removed, 423 unchanged (40% of the section changed)

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Root is a technology insurance company founded on the idea that car insurance rates should be based primarily on driving behaviors, not demographics.

We are revolutionizing the archaic car insurance industry using mobile technology and data science to offer drivers fair, personalized rates.

We believe the Root advantage is derived from our unique ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk to price better drivers more fairly.

We are revolutionizing the archaic car insurance industry by using modern technology, telematics, and data science to offer fair, personalized rates to good drivers.

We believe our competitive advantage is derived from our ability to efficiently and effectively bind auto insurance policies quickly, through direct and partnership channels, aided by segmenting individual risk to price better drivers more fairly.

Our customer experience is built for ease of use and a product offering made possible with our full-stack insurance structure.

These are all uniquely integrated into a single cloud-based technology platform that captures the entire insurance value chain—from customer acquisition to underwriting to claims administration to ongoing customer engagement.

To scale the business, we aim to drive new customer growth and optimize unit economics by capitalizing on our two distribution channels:

This unified platform enhances pricing accuracy, strengthens operating efficiency, and supports a more seamless customer experience, while creating a defensible, technology- and data-driven advantage that compounds over time.

To scale the business, we aim to drive new customer growth and optimize unit economics via our two distribution channels:

direct and partnership.

The direct channel efficiently drives volume for high intent customers, meeting customers in platforms that they use extensively such as search engines or select marketplace platforms while actively shopping for insurance.

The data science model seeks to optimize bidding strategies that fine tunes our prices to strike a balance between offering a competitive price and achieving target unit economics.

The direct channel efficiently drives volume from high-intent customers by reaching them where they are already shopping for insurance, such as search engines or select marketplaces they actively use.

The data science model continuously seeks to optimize bidding strategies that fine tunes our prices to strike a balance between offering a competitive price and achieving target unit economics.

The partnership channel provides differentiated access to high intent customers, primarily in the automotive, financial services, and independent agent sectors.

We build upon or within the mobile and web customer experiences of distribution partners to reach a captive customer base with an embedded solution, which can even remove the need for the customer to ever visit a Root website to purchase and bind a policy.

We use technology to drive efficiency across all functions, including distribution, underwriting, policy administration and claims in particular.

We believe our data- and technology-driven approach to pricing and underwriting allows for rapid response to macroeconomic trends through quick, appropriate rate actions.

Through continued development of machine-learning loss models, which allow us to respond more quickly to changes in the market, we expect improvement in pricing segmentation.

We believe this allows us to operate with a cost-to-acquire and cost-to-serve advantage.

We believe that through prudent investment in and diversification of our distribution channels, including leveraging proprietary data science and technology and a focus on partnerships with automotive, financial services, and independent agents, will position us for sustainable, long-term and profitable growth.

We use technology to drive efficiency across the organization within distribution, underwriting, policy administration, and claims.

Although we believe we are priced adequately in a majority of the states in which we operate, our technology- and data-driven approach to pricing and underwriting allows for rapid response to macroeconomic trends and competitive dynamics through quick, timely, and appropriate rate actions.

We continue to release iterations of our pricing models that incorporate enhanced telematics features, new rating variables, upgraded loss models, and improved risk segmentation.

These enhancements strengthen our ability to select risks more precisely and maintain pricing accuracy as conditions evolve.

Claims operations remain a critical driver of our unit economics and long-term competitiveness.

We continue to invest in automation, workflow optimization, and advanced analytical tools designed to improve accuracy, speed, and consistency in claims handling.

Improvements to the claim process not only supports customer satisfaction but also reinforces the stability of loss ratios and improves long-term cost efficiency by reducing operating expenses.

Through continued investment in and diversification of our distribution channels, leveraging our proprietary technology and data science and focusing on partnerships with automotive, financial services, and independent agents, we believe this will position us for a sustainable, long-term and profitable path for growth.

As a full-stack insurance company, we currently employ a “capital-efficient” model, which utilizes a variety of reinsurance structures.

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We leverage technology to help manage risk.

For instance, we leverage machine learning to “clean” behavioral data obtained through a customer’s mobile device, and we use advanced statistical methods to model that data into usable behavior scores.

For instance, we leverage machine learning to “clean” behavioral data obtained through a customer’s mobile device, and we use advanced statistical methods to model data into usable behavior scores.

We leverage intelligent chat functions and various forms of machine learning and advanced automation to help power our claims function.

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Additionally, our proprietary dataset will continue to scale as we grow, enabling us to enhance our predictive models to further improve pricing and attract potential new customers.

We will also continue to target attractive potential customer segments through diverse distribution strategy, which includes direct and partnership channels.

We will also continue to target attractive potential customer segments through a diverse distribution strategy, which includes direct and partnership channels.

Our ability to attract new customers will depend on a number of factors, including the pricing of our products, offerings of our competitors, success of our partnership channel and the effectiveness of our marketing efforts, and our ability to expand into new markets.

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Our ability to retain customers will depend on a number of factors, including our customers’ satisfaction with our products, offerings of our competitors and pricing of products.

Our Ability to be Licensed in All States in the U.S.

Our long-term growth opportunity will benefit from our ability to provide insurance across more states in the U.S.

Today, we are currently licensed in 50 states (48 states for personal auto) and the District of Columbia and operate in 35 of those states.

Our Ability to be Licensed in All States in the United States

Our long-term growth opportunity will benefit from our ability to provide insurance across more states in the United States.

Today, we are currently licensed in 50 states and the District of Columbia and operate in 36 of those states.

Our state expansion has unlocked a large total addressable market for sustained growth, made our direct targeted marketing more efficient and created an opportunity to build a national brand, supporting our marketing holistically.

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We have also observed that bundling products with auto insurance improves retention as the relationship with our customer expands.

Our success in expanding revenues through cross-sales and greater fee income per policy depends on our marketing efforts with new products, continuous state expansion of these offerings and the pricing of our bundled products and continuing to refine the fee schedules in our policyholder

contracts to be more consistent with industry norms.

The success of our renters insurance offering is also subject to our ability to develop underwriting capabilities to adequately price renters risk.

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General Macroeconomic Factors

Economic instability has led to acute inflationary pressures, supply chain disruptions, changes in interest rates and changes in equity markets.

There remains uncertainty around the future of inflation;

Changing global economic conditions has resulted in inflationary pressures, supply chain disruptions, changes in interest rates and changes in equity markets.

In addition, economic uncertainty has developed as a result of changes in tariff policy, including the imposition of new, increased or retaliatory tariffs.

There remains uncertainty around the future of inflation, including as a result of evolving tariffs and trade policy;

elevated levels of inflation for an extended period could cause claims and claim expenses to increase, impact the performance of our investment portfolio, increase nonpayment cancellations or have other adverse effects, including variability in the competitive environment.

We have also seen an increase in vehicle repair and medical costs.

We have also seen an increase in vehicle repair and medical costs, which are affected by inflation.

These cost increases have resulted in greater claims severity.

We continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends.

Additionally, we continue to file in multiple states to establish rates that more closely follow the evolving loss cost trends.

Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.

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We regularly review a number of metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

We believe these non-GAAP and operational measures are useful in evaluating our performance, in addition to our financial results prepared in accordance with GAAP.

In addition to our financial results prepared in accordance with accounting principles generally accepted in the United States, or GAAP, we believe these non-GAAP and operational measures are useful in evaluating our performance.

See the section titled “—Non-GAAP Financial Measures” for additional information regarding our use of direct contribution and adjusted EBITDA and their reconciliations to the most directly comparable GAAP measures.

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Gross premiums earned $ 1,466.0 $ 1,231.0 $ 635.8

Gross profit (loss)

$ 337.1 $ 76.1 $ (32.2)

Gross profit $ 386.6 $ 337.1 $ 76.1

Net income (loss)

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Premiums in force is not a forecast of future revenue nor is it a reliable indicator of revenue expected to be earned in any given period.

We believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of

fluctuations in customers and premiums per policy at the end of each reported period, without adjusting for known or projected policy updates, cancellations and non-renewals.

believe that our calculation of premiums in force is useful to investors and analysts because it captures the impact of fluctuations in customers and premiums per policy at the end of each reported period, without adjusting for known or projected policy updates, cancellations and non-renewals.

Gross Premiums Written

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We view gross premiums written as an important metric because it is the metric that most closely correlates with changes in gross premiums earned.

We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, to manage our business because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross LAE) are the key drivers of our future profit opportunities.

We use gross premiums written, which excludes the impact of premiums ceded to reinsurers, to manage our business because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross loss adjustment expense, or LAE), are the key drivers of our future profit opportunities.

Additionally, premiums ceded to reinsurers can change significantly based on the type and mix of reinsurance structures we use, and, as such, we have the optionality to fully retain the premiums from customers acquired in the future.

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As with gross premiums written, we use gross premiums earned, which excludes the impact of premiums ceded to reinsurers to manage our business, because we believe that it reflects the business volume and direct economic benefit generated by our customer acquisition activities, which along with our underlying underwriting and claims operations (gross loss ratio and gross LAE), are the key drivers of our future profit opportunities.

Gross Profit (Loss)

We define gross profit (loss) as total revenue minus net loss and LAE and other insurance expense (benefit).

We view gross profit (loss) as an important metric because we believe it is informative of the financial performance of our core insurance business.

We define gross profit as total revenue minus net loss and LAE and other insurance expense.

We view gross profit as an important metric because we believe it is informative of the financial performance of our core insurance business.

Direct Contribution

We define direct contribution, a non-GAAP financial measure, as gross profit (loss) excluding net investment income, net realized gains on investments, acquisition costs which include report costs and refunds related to these expenses and commission expenses related to our partnership channel, fixed costs which include certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, overhead allocated based on headcount, or Overhead, and salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, licenses, professional fees and other expenses.

Further, impacts related to reinsurance are excluded, these consist of ceded premiums earned, ceded loss and LAE, and net ceding commission and other.

Net ceding commission and other is comprised of ceding commission received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission, and other impacts of reinsurance ceded which are included in other insurance expense (benefit).

We define direct contribution, a non-GAAP financial measure, as gross profit excluding net investment income, net realized gains on investments, acquisition expenses which include report costs and refunds related to these expenses and commission expenses related to our partnership channel, and fixed expenses, which include certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, or Integrated Platform, overhead allocated based on headcount, or Overhead, and salaries, health benefits, bonuses, employee retirement plan-related expenses and employee share-based compensation expense, or Personnel Costs, licenses, professional fees and other expenses.

Further impacts related to reinsurance are excluded, and these consist of ceded premiums earned, ceded loss and LAE, and net ceding commission and other.

After these adjustments, the resulting calculation is inclusive of only those gross variable costs of revenue incurred on the successful acquisition of business.

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Adjusted EBITDA

We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, loss on extinguishment of debt, warrant compensation expense, restructuring charges, write-off of prepaid marketing expenses, legal fees and other items that do not reflect our ongoing operating performance.

We define adjusted EBITDA, a non-GAAP financial measure, as net income (loss) excluding interest expense, income tax expense, depreciation and amortization, share-based compensation, loss on extinguishment of debt, warrant compensation expense, restructuring charges, legal fees and other items that do not reflect our ongoing operating performance.

After these adjustments, the resulting calculation represents expenses directly attributable to our operating performance.

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We define net loss and LAE ratio, expressed as a percentage, as the ratio of net loss and LAE to net premiums earned.

We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums and believe it is useful for investors to evaluate those separately from other operating expenses.

We view net loss and LAE ratio as an important metric because it allows us to evaluate loss trends as a percentage of net premiums, and we believe it is useful for investors to evaluate those separately from other operating expenses.

Net Expense Ratio

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Gross accident period loss ratio, expressed as a percentage, represents all losses and claims expected to arise from insured events that occurred during the applicable period regardless of when they are reported and finally settled divided by gross premiums earned for the same period.

Changes to our loss reserves are the primary driver of the difference between our gross accident period loss ratio and gross loss ratio.

The gross accident period loss ratio is remeasured each reporting period to reflect updated estimates of ultimate losses as they develop.

Changes to our loss reserves are the primary driver of differences between our gross accident period loss ratio and gross loss ratio.

We believe that gross accident period loss ratio is useful in evaluating expected losses prior to the impact of reinsurance.

Components of Our Results of Operations

We generate revenue from net premiums earned, net investment income, net realized gains on investments, fee income and other income.

We generate revenue from net premiums earned, net investment income, fee income and other income.

Net Premiums Earned

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Net Investment Income

Net investment income represents interest earned from our cash and cash equivalents, fixed maturities, and short-term investments less investment expenses.

Net investment income represents interest earned from our cash, cash equivalents, restricted cash and restricted cash equivalents, fixed maturities, and short-term investments less investment expenses.

Investment expenses include costs associated with the management of our investment portfolio, including Personnel Costs.

Net investment income also includes impairments related to low income housing tax credits investments in limited liability entities to offset certain state premium taxes.

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Net investment income will vary with the size and composition of our investment portfolio, market returns and the investment strategy.

Net Realized Gains on Investments

Net realized gains on investments represents the difference between the amount received by us on the sale of an investment as compared to the investment’s amortized cost basis.

Fee income consists primarily of the flat fee we charge for installment payments which relates to the additional administrative costs associated with processing more frequent billings.

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Operating Expenses

Our operating expenses consist of loss and LAE, sales and marketing, other insurance expense (benefit), technology and development, and general and administrative expenses.

Our operating expenses consist of loss and LAE, sales and marketing, other insurance expense, technology and development, and general and administrative expenses.

Loss and Loss Adjustment Expenses

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Various other expenses incurred during claims processing are considered LAE.

These amounts include Personnel Costs for claims-related employees;

vendor expenses;

software expense;

internally developed software amortization;

and Overhead.

These amounts include Personnel Costs for claims-related employees, vendor expenses, software expense, internally developed software amortization, and Overhead.

Sales and Marketing

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We view direct performance marketing, experimental marketing, channel media, advertising and referral fees as acquisition expenses.

We view sponsorship, certain non-commission expenses related to the partnership channel, Personnel Costs and Overhead related to our brand strategy, creative and business development activities, and certain data science activities as fixed costs.

We incur sales and marketing expenses for all product offerings.

We view sponsorship, Personnel Costs and Overhead related to our brand strategy, creative and business development activities, and certain data science activities as fixed expenses.

Sales and marketing are expensed as incurred.

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Over the long-term we expect it will decrease as a percentage of revenue as the proportion of renewals to our total business increases.

Other Insurance Expense (Benefit)

Other insurance expense (benefit) includes expenses primarily related to insurance and underwriting operations of the business, it is comprised of acquisition, variable and fixed expenses.

Other Insurance Expense

Other insurance expense includes expenses primarily related to insurance and underwriting operations of the business and is comprised of acquisition, variable and fixed expenses.

We view report costs and refunds related to these expenses and commission expenses related to our partnership channel as acquisition costs.

We view premium taxes, credit card and policy processing expenses and premium write-offs as variable costs.

We view insurance license expenses, certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, low income housing tax credits which offset certain state premium taxes, Personnel Costs and Overhead related to actuarial and certain data science activities as fixed costs.

We view premium taxes, credit card and policy processing expenses and premium write-offs as variable expenses.

We amortize a portion of our deferred policy acquisition costs including certain commissions related to our partnership channel, premium taxes, and report costs related to the successful acquisition of a policy.

Tax credits are recognized when utilized.

Other insurance expense (benefit) is expensed as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.

Certain warrant compensation expense is recognized on a pro-rata basis considering progress toward achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement.

Other insurance expense is expensed as incurred, except for costs related to deferred policy acquisition costs that are capitalized and subsequently amortized over the same period in which the related premiums are earned.

Warrant compensation expense is recognized on a pro-rata basis considering progress toward

achieving milestones for policies originated through the Integrated Platform as defined under the Carvana commercial agreement.

These expenses are recognized net of ceding commissions earned from our quota share reinsurance agreements.

The ceding commission provides for reimbursement of both direct and other periodic acquisition costs, including certain underwriting and marketing costs, and is presented as a reduction of other insurance expense (benefit).

Technology and Development

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Non-Operating Expenses

Our non-operating expenses consist of interest expense, loss on extinguishment of debt, and income tax expense.

Interest Expense

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Interest expense primarily relates to interest incurred on our long-term debt, certain fees that are expensed as incurred and amortization of discount and debt issuance costs.

In addition, changes in the fair value of warrant liabilities that are associated with our long-term debt are recorded as interest expense.

Loss on Extinguishment of Debt

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Upon extinguishment of debt, the remaining unamortized discount and debt issuance costs are recognized as expense.

Income Tax Expense

Income tax expense consists primarily of state income taxes in the United States.

We have recorded United States federal and state net deferred tax assets for which we provide a full valuation allowance, which includes net operating loss carryforwards and tax credits.

Results of Operations

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Total operating expenses 1,455.3 1,098.0 357.3 32.5 %

Operating income (loss) 78.5 (101.3) 179.8 177.5 %

Operating income 61.8 78.5 (16.7) (21.3) %

Interest expense 21.0 42.2 (21.2) (50.2) %

Loss on extinguishment of debt — 5.4 (5.4) (100.0) %

Income (loss) before income tax expense 30.9 (147.4) 178.3 121.0 %

Income before income tax expense 40.8 30.9 9.9 32.0 %

Income tax expense 0.5 — 0.5 100.0 %

Net income (loss) 30.9 (147.4) 178.3 121.0 %

Net income 40.3 30.9 9.4 30.4 %

Other comprehensive income:

Changes in net unrealized gains on investments 6.2 0.2 6.0 3000.0 %

Comprehensive income (loss) $ 31.1 $ (144.1) $ 175.2 121.6 %

Comprehensive income $ 46.5 $ 31.1 $ 15.4 49.5 %

Net Premiums Earned

Net premiums earned increased due to an increase in policies in force as a result of increased direct performance marketing spend, continued growth in our partnership channel, reduced external quota share cessions of gross premiums earned to reinsurers between periods and greater premium per policy resulting from rate actions.

Net premiums earned increased due to an increase in policies in force as a result of continued growth in our partnership channel and reduced cessions of premiums earned to reinsurers between periods, partially offset by a decrease in premiums per policy resulting from a shift in customer and state mix.

During the years ended December 31, 2025 and 2024, we ceded approximately 4.4% and 13.0% of our gross premiums earned, respectively.

The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements in 2023.

The change in cessions between periods was primarily driven by a strategic reduction of quota share reinsurance.

The following table presents gross premiums written, ceded premiums written, net premiums written, gross premiums earned, ceded premiums earned and net premiums earned for the years ended December 31, 2025 and 2024:

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Net premiums earned $ 1,401.7 $ 1,070.9 $ 330.8 30.9 %

Gross premiums written increased due to growth in new writings as a result of increased direct performance marketing spend and continued growth in our partnership channel compared to 2023.

The increase in gross premiums earned was primarily due to greater policies in force and an 11.3% increase in premium per policy primarily attributable to rate actions.

Net Investment Income

Net investment income increased due to a $7.3 million increase in interest and dividends received primarily due to a higher average cash balance and a larger investment portfolio.

This was partially offset by a $2.2 million increase in impairment related to low income housing tax credit utilization.

Fee income increased due to a $24.4 million increase in policy fees and a $15.4 million increase in installment fees due to increased policies in force.

Gross premiums written increased due to growth in new writings as a result of continued growth in our partnership channel.

The increase in gross premiums earned was primarily due to greater policies in force compared to 2024.

Fee income increased primarily due to greater policies in force, resulting in an increase of $5.9 million in policy fees and $4.2 million in installment fees.

Operating Expenses

Loss and Loss Adjustment Expenses

Loss and LAE increased due to additional losses incurred on increased gross premiums earned volume and reduced cessions of losses to reinsurers driven by a strategic reduction of quota share reinsurance and commutations of certain reinsurance agreements.

Gross accident period loss ratios decreased to 59.9% for the year ended December 31, 2024, from 64.0% for 2023.

The change in the ratios was driven by growth in average premium per policy primarily attributable to rate actions.

This was partially offset by business tenure mix and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs.

We experienced a 5% increase in severity per claim and a 4% decrease in claim frequency for the year ended December 31, 2024 compared to 2023 across our bodily injury, collision, and property damage coverages.

The claim frequency estimates are tenure mix adjusted.

This volume-driven increase was partially offset by a reduction of loss and LAE reserves on prior periods due to lower-than-expected reported activity.

Gross accident period loss ratios increased to 59.3% for the year ended December 31, 2025, from 58.2% for 2024.

The change in the ratios was driven by geographic and channel mix shift and higher loss costs as a result of increased severity per claim due to higher vehicle repair and medical costs.

This was partially offset by rate actions, favorable weather-related losses, and business tenure mix.

We observed a mid-single-digit increase in estimated ultimate severity per claim and a low-single-digit decrease in estimated ultimate claim frequency for the year ended December 31, 2025 compared to 2024 across our bodily injury, collision, and property damage coverages.

Sales and Marketing

Sales and marketing increased due to greater acquisition expense as we invested in growing our business to drive accretive growth and deeper market penetration in the states in which we operate.

This resulted in a $76.7 million increase in direct performance marketing spend.

We also experienced a $6.7 million increase in experimental marketing spend as part of our efforts to diversify our distribution channels.

Sales and marketing increased primarily due to a $26.9 million increase in direct performance marketing spend, reflective of our investments to drive accretive growth and deeper market penetration in the states in which we operate.

We also saw a $9.5 million increase in experimental marketing spend as part of our efforts to diversify our distribution channels.

While acquisition expenses increased due to heightened competition in the marketing environment, we remained disciplined in our deployment of direct marketing spend, operating within our estimated return targets.

Other Insurance Expense

Other insurance expense increased from growth of our earned premium and policies in force, this resulted in greater variable expense including premium write-offs of $21.6 million, premium taxes of $11.9 million and policy processing fees of $6.1 million.

We also saw a $28.9 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance initiated in 2023 and continued in 2024.

Our acquisition expenses increased due to greater commissions paid related to the continued growth in our partnership channel, including amortization of deferred policy acquisition costs, of $15.8 million.

While acquisition expenses increased overall, report costs decreased $3.5 million primarily driven by enhanced efficiency and reduced costs for reports related to new business.

Additionally, we recorded a $10.9 million sales tax refund related to multiple prior years.

Fixed expenses decreased due to a reduction of $13.4 million in Carvana warrant expense, as all short-term warrant expense has been recognized upon vesting.

Additionally, we recorded an additional $2.5 million of low income housing tax credit utilization that reduces premium taxes.

Technology and Development

Technology and development increased due to a $5.0 million increase in Personnel Costs.

We also experienced a $2.1 million increase in amortization primarily driven by accelerated amortization of internally developed software and a $1.5 million increase in software development expense as we continue to invest in developing and improving our technology platforms and infrastructure.

Other insurance expense increased primarily due to a $35.1 million increase in our acquisition expenses driven by greater commissions paid related to the continued growth in our partnership channel, including amortization of

deferred policy acquisition costs.

In addition, acquisition expenses increased due to a $10.9 million sales tax refund that decreased acquisition expenses in the prior year.

Acquisition expenses also increased due to a $4.0 million increase in report costs as a result of growth in new writings.

We also saw a $19.1 million decrease in net ceding commission contra-expense as a result of a decline in ceded premiums written, largely attributable to a strategic reduction of quota share reinsurance.

Fixed expenses increased primarily due to a $15.3 million increase in Carvana warrant expense, including a cumulative expense catch-up, related to our outstanding warrant structure with Carvana.

Variable expenses increased primarily due to a $6.6 million increase in premium taxes, as a result of growth of our earned premium and policies in force.

General and Administrative

General and administrative decreased due to a $5.9 million decrease in corporate insurance due to maturation as a public company and a $5.7 million decrease in legal and professional fees, of which $2.7 million relates to the 2022 misappropriation of funds by a former senior marketing employee.

General and administrative increased due to a $18.6 million increase in Personnel Costs mainly driven by share-based compensation expenses relating to our equity incentive plan.

Non-Operating Expenses

Interest Expense

Interest expense decreased primarily due to a $19.5 million decrease in debt interest expense as a result of reduced principal and a more favorable interest rate in connection with the Amended Term Loan.

In addition, interest expense benefited from $4.6 million lower debt discount amortization as a result of changes in our debt structure following the amendment.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was due to unamortized discount and debt issuance costs being expensed as a result of extinguishing the Term Loan.

Loss on extinguishment of debt was due to unamortized discount and debt issuance costs being expensed as a result of extinguishing the prior term loan in 2024.

Other Comprehensive Income

Changes in Net Unrealized Gains on Investments

Changes in net unrealized gains on investments increased primarily due to declining market interest rates during the year, which resulted in higher fair values for fixed maturity securities, particularly those with longer durations, as well as the replacement of lower yielding securities with higher coupon investments.

Comparison of the Years Ended December 31, 2024 and 2023

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Net investment income 35.9 30.2 5.7 18.9 %

Net realized gains on investments — 0.5 (0.5) (100.0) %

Fee income 66.0 23.4 42.6 182.1 %

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Sales and marketing 135.8 49.3 86.5 175.5 %

Other insurance expense (benefit) 47.6 (8.0) 55.6 695.0 %

Other insurance expense 106.4 47.6 58.8 123.5 %

Technology and development 53.3 44.8 8.5 19.0 %

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Total operating expenses 1,098.0 556.3 541.7 97.4 %

Operating loss (101.3) (263.1) 161.8 (61.5) %

Operating income (loss) 78.5 (101.3) 179.8 177.5 %

Interest expense 42.2 46.1 (3.9) (8.5) %

Loss before income tax expense (147.4) (297.7) 150.3 (50.5) %

Loss on extinguishment of debt 5.4 — 5.4 100.0 %

Income (loss) before income tax expense 30.9 (147.4) 178.3 121.0 %

Income tax expense — — — — %

Net loss (147.4) (297.7) 150.3 (50.5) %

Other comprehensive income (loss):

Changes in net unrealized gains (losses) on investments 3.3 (6.2) 9.5 153.2 %

Comprehensive loss $ (144.1) $ (303.9) $ 159.8 (52.6) %

The December 31, 2023 and 2022 results of operations discussion can be found in Part II, Item 7, “Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Net income (loss) 30.9 (147.4) 178.3 121.0 %

Other comprehensive income:

Changes in net unrealized gains on investments 0.2 3.3 (3.1) (93.9) %

Comprehensive income (loss) $ 31.1 $ (144.1) $ 175.2 121.6 %

The December 31, 2024 and 2023 results of operations discussion can be found in the section titled “Results of Operations” Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2024.

Non-GAAP Financial Measures

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Loss and loss adjustment expenses (924.2) (733.0) (331.3)

Other insurance (expense) benefit

(106.4) (47.6) 8.0

Gross profit (loss)

337.1 76.1 (32.2)

Other insurance expense (206.3) (106.4) (47.6)

Gross profit 386.6 337.1 76.1

Net investment income (33.7) (35.9) (30.2)

Net realized gains on investments — — (0.5)

Adjustments from other insurance (expense) benefit (1)

Adjustments from other insurance expense (1)

135.8 66.5 76.3

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(1) Adjustments from other insurance (expense) benefit consists of acquisition costs including report costs and refunds related to these expenses and commission expenses related to our partnership channel of $49.7 million, $50.8 million and $18.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Fixed expenses including certain warrant compensation expense related to policies originating through the integrated automobile insurance solution for Carvana’s online buying platform, Personnel Costs, Overhead, licenses, professional fees and other of $16.8 million, $25.5 million and $19.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

(1) Adjustments from other insurance expense consists of acquisition expenses, including report costs and refunds related to these expenses and commission expenses related to our partnership channel of $101.8 million, $49.7 million and $50.8 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Adjustments from other insurance expense also consists of fixed expenses, including warrant compensation expense related to policies originating through the Integrated Platform, Personnel Costs, Overhead, licenses, professional fees and other of $34.0 million, $16.8 million and $25.5 million for the years ended December 31, 2025, 2024 and 2023, respectively.

(2) Net ceding commission and other is comprised of ceding commissions received in connection with reinsurance ceded, partially offset by amortization of excess ceding commission and other impacts of reinsurance ceded .

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(0.2) (1.1) 3.6

Write-offs and other (2)

(1.1) 3.6 9.5

Adjusted EBITDA $ 132.0 $ 111.9 $ (42.9)

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(1) Restructuring costs consist of employee costs, real estate exit costs, and other.

This includes zero, $0.4 million and $5.3 million of share-based compensation for the years ended December 31, 2024, 2023 and 2022, respectively.

This includes zero, zero and $0.4 million of share-based compensation for the years ended December 31, 2025, 2024 and 2023, respectively.

This also includes $0.1 million, $0.4 million and $0.4 million of depreciation and amortization for the years ended December 31, 2025, 2024 and 2023, respectively.

For further information on restructuring costs, see Note 10, “Restructuring Costs,” in the Notes to Consolidated Financial Statements.

(2) Write-offs and other primarily reflects legal costs, write-off prepaid marketing expense and other items that do not reflect our ongoing operating performance.

This includes write-off of prepaid marketing expenses of $10.2 million for the year ended December 31, 2022.

(2) Other primarily reflects legal costs and other items that do not reflect our ongoing operating performance.

Legal and other fees net of recoveries related to the 2022 misappropriation of funds by a former senior marketing employee of $(0.2) million, $(1.1) million and $3.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.

Liquidity and Capital Resources

Since inception, we have financed operations primarily through sales of insurance policies and the net proceeds we have received from our issuance of stock and debt and from sales of investments.

Since inception, we have financed operations primarily through sales of insurance policies and the net proceeds we have received from our issuance of stock and debt.

Cash generated from operations is highly dependent on being able to efficiently acquire and maintain customers while pricing our insurance products appropriately.

We also receive cash dividends from our insurance subsidiaries, whose ability to declare and issue dividends is subject to regulatory restrictions and approval.

We are continuously evaluating alternatives for efficiently funding our ongoing operations and reducing our cost of capital.

We expect, from time to time, to engage in a variety of financing transactions for such purposes, including the issuance of stock and debt.

Certain events may impact our liquidity such as the economic instability resulting in acute inflationary pressures, supply chain disruptions, changes in interest rates, new or increased tariffs, changes in equity markets and our utilization of reinsurance.

Certain events may impact our liquidity, such as the economic instability resulting in inflationary pressures, supply chain disruptions, changes in interest rates, new or increased tariffs, changes in equity markets and our utilization of reinsurance.

There remains uncertainty around the future of inflation;

elevated levels of inflation for an extended period could cause claims and claim expenses to increase, impact the performance of our investment portfolio or have other adverse effects.

Fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.

We utilize reinsurance arrangements to grow our business in a capital-efficient manner and mitigate risk.

Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more or less of our

business in the future.

Conditions in the capital and credit markets, including instability and uncertainty, as well as broader economic factors such as changes in tariff policy, including the imposition of new, increased or retaliatory tariffs, can also influence the returns, liquidity, valuation, and types of our investments.

Additionally, fluctuations in interest rates could impact our cost of capital and may limit our ability to raise additional capital.

We utilize reinsurance arrangements to mitigate the impact of large losses or catastrophic events.

Over time, our strategy continues to evolve and we may choose to amend, commute, and/or non-renew certain third-party reinsurance agreements, which may result in us retaining more or less of our business in the future.

To the extent we retain a larger share of our book of business, our capital requirements may increase.

Regulatory Considerations

We are organized as a holding company, but our primary operations are conducted by our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies and Root Florida Insurance Company, a Florida-domiciled insurance company.

The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and Florida.

To date, our domestic insurance subsidiaries have not paid any dividends, and as of December 31, 2024, they were not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director.

We are organized as a holding company, but our primary operations are conducted by three of our wholly-owned insurance subsidiaries, Root Insurance Company and Root Property & Casualty Insurance Company, both Ohio-domiciled insurance companies, and Root Florida Insurance Company, a Florida-domiciled insurance company.

The payment of dividends by our insurance subsidiaries is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio and the State of Florida.

Our domestic insurance subsidiaries are not permitted to pay any dividends without approval of the applicable superintendent, commissioner and/or director.

During the year ended December 31, 2025, the Ohio Department of Insurance approved Root Insurance Company to distribute four extraordinary dividends.

As a result, over the period, $45.0 million was distributed to Caret Holdings, Inc., its parent company, net of capital contributions made by Caret Holdings, Inc.

to our regulated insurance entities.

If our insurance subsidiaries’ business grows, the amount of capital we are required to maintain to satisfy our risk-based capital requirements may increase significantly.

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Our wholly-owned, Cayman Islands-based reinsurance subsidiary, Root Reinsurance Company, Ltd., or Root Re, maintains a Class B(iii) insurer license under Cayman Islands Monetary Authority, or CIMA.

At December 31, 2024, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio of 15:1, which we maintained as of December 31, 2024.

At December 31, 2025, Root Re was subject to compliance with certain capital levels and a net premiums earned to capital ratio up to 15:1, which we maintained as of December 31, 2025.

The capital ratio can fluctuate at Root Re’s election, subject to regulatory approval.

Root Re’s primary sources of funds are capital contributions from the holding company, assumed insurance premiums and net investment income.

Root Re’s primary sources of funds are assumed insurance premiums and net investment income.

These funds are primarily used to pay claims and operating expenses and to purchase investments.

Root Re must notify CIMA before it can pay any dividend to the holding company.

During the year ended December 31, 2025, Root Re paid dividends of $60.0 million to Caret Holdings, Inc.

Financing Arrangements

On January 26, 2022, we closed on a $300.0 million five-year term loan, or Term Loan.

In October 2024, we entered into the second amendment to the Term Loan, or Amended Term Loan, that resulted in extinguishment of $237.1 million of the Term Loan, modification of $62.9 million of the Term Loan, and new borrowings of $137.1 million from new BlackRock participation.

The resulting principal amount under the Amended Term Loan is $200.0 million and has a maturity date of October 29, 2030.

Interest is payable quarterly and is determined on a floating interest rate calculated on the Secured Overnight Financing Rate, or SOFR, with a 1.0% floor, plus an applicable margin ranging from 5.25% to 6.00%, based upon the debt-to-capital ratio, payable quarterly.

In October 2024, we entered into the Amended Term Loan with the principal amount due and payable upon maturity on October 29, 2030.

Interest is payable quarterly and determined on a floating interest rate calculated on the Secured Overnight Financing Rate with a 1.0% floor, plus an applicable margin ranging from 5.25% to 6.00%, based upon the debt-to-capital ratio payable quarterly.

As of December 31, 2025, we had $669.3 million in cash and cash equivalents, of which $312.1 million was held outside of regulated insurance entities.

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Our cash and cash equivalents primarily consist of bank deposits and money market funds.

Our marketable securities primarily consist of U.S.

Treasury securities and agencies, municipal securities, corporate debt securities, and asset-backed securities.

Our marketable securities primarily consist of United States Treasury and agency securities, municipal securities, corporate debt securities, and asset-backed securities.

We believe that our existing cash and cash equivalents, marketable securities and cash flow from operations will be sufficient to support short-term working capital and capital expenditure requirements for at least the next 12 months and for the foreseeable future thereafter.

Our long-term capital requirements depend on many factors, including our insurance premium growth rate, rate adequacy, level of marketing spend, renewal activity, the timing and the amount of cash received from customers, the performance of our products, including the success of our partnership channel, loss cost trends, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, operating costs, and the ongoing uncertainty in global markets.

Under the Amended Term Loan, our debt covenants require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million at all times.

We continue to have the same available capital under the Amended Term Loan as we did in the Term Loan.

This belief is based on management’s current assumptions and is subject to changes in market or regulatory conditions affecting the insurance industry, and other general economic, financial, competitive and other factors that are beyond our control.

the performance of our products, including the success of our partnership channel, loss cost trends, the timing and extent of spending to support development efforts, the introduction of new and enhanced products, the continuing market adoption of offerings on our platform, operating costs, and the ongoing uncertainty in global markets.

Tax withholding obligations arise upon vesting of shares of service-based restricted stock units, or RSUs, performance-based restricted stock units, and market-based restricted stock units, and these obligations must be satisfied at the time they arise through cash payments remitted to the relevant tax authorities.

To the extent we satisfy our tax withholding obligations with respect to these equity compensation awards by withholding shares and remitting cash to the relevant tax authorities, the amount of cash payments due for taxes upon the vesting of such equity compensation awards is dependent on the price of our Class A common stock on the applicable vesting dates and could be substantial.

Accordingly, increases in the price of our Class A common stock could increase the amount of cash required to satisfy these tax withholding obligations, which could have a negative impact on our liquidity and ability to use funds for operational purposes.

Our debt covenants require cash and cash equivalents held in entities other than our insurance subsidiaries to be at least $50.0 million.

Through prudent deployment of capital we believe we have sufficient resources, and access to additional debt and equity capital, to adequately meet our obligations as they come due.

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2025 2024 2023

(in millions)

(dollars in millions)

Net cash provided by (used in) operating activities $ 206.5 $ 195.7 $ (33.6)

Net cash used in investing activities (91.7) (154.4) (45.7)

Net cash (used in) provided by financing activities (120.7) (4.1) 283.3

Net cash used in financing activities (25.2) (120.7) (4.1)

Comparison of Years Ended December 31, 2025 and 2024

Net cash provided by operating activities for the year ended December 31, 2024 was $195.7 million compared to $33.6 million of net cash used in operating activities for the year ended December 31, 2023.

The change in operating activities was due to higher net income between periods, an increase in the net loss and LAE reserves as a result of growth in policies in force and timing of premium receipts and reinsurance payments.

This was partially offset by change in premiums not yet earned due to growth, timing of reinsurance receipts and the impact of commuting certain agreements with reinsurers in 2023.

Net cash provided by operating activities for the year ended December 31, 2025 was $206.5 million compared to $195.7 million of net cash provided by operating activities for the year ended December 31, 2024.

The increase in cash provided by operating activities was due to a strategic reduction of quota share reinsurance and timing of reinsurance and premium receipts.

This was partially offset by a change in loss and LAE reserves and premiums not yet earned due to greater growth in policies in force in the year ended December 31, 2024 compared to 2025.

Net cash used in investing activities for the year ended December 31, 2025 was $91.7 million, compared to $154.4 million for the year ended December 31, 2024.

The increase in cash used in investing activities was primarily due to purchases of investments which was partially offset by proceeds from maturities, calls and pay downs of investments.

The decrease in cash used in investing activities was primarily due to lower purchases of investments and higher proceeds from maturities, calls and pay downs of investments for the year ended December 31, 2025 compared to 2024.

Net cash used in financing activities for the year ended December 31, 2025 was $25.2 million, compared to $120.7 million for the year ended December 31, 2024.

The increase in cash used in financing activities was primarily due to a partial repayment of the extinguished Term Loan and tax withholding obligations arising from the vesting of equity awards.

This was partially offset by net proceeds from the Amended Term Loan.

The decrease in cash used in financing activities was primarily a result of extinguishing the prior term loan and entering into the Amended Term Loan in 2024, which was partially offset by higher tax withholding obligations arising from the vesting of shares of RSUs and market-based RSUs during the year ended December 31, 2025.

Comparison of Years Ended December 31, 2024 and 2023

The December 31, 2023 and 2022 net cash discussion can be found in Part II, Item 7, “Liquidity and Capital Resources,” of our Annual Report on Form 10-K.

The December 31, 2024 and 2023 net cash discussion can be found in the section titled “Liquidity and Capital Resources” in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2024.

Material Cash Requirements from Contractual and Other Obligations

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Because actual experience can differ from key assumptions used in establishing reserves, there is potential for significant variation in the development of loss reserves.

There is considerable uncertainty associated with the actuarial estimates, and therefore the actual losses and LAE paid in the future may differ materially from the reserves we have recorded.

There is considerable uncertainty associated with the

actuarial estimates, and therefore the actual losses and LAE paid in the future may differ materially from the reserves we have recorded.

Our loss estimates are continually reviewed by management and adjusted as necessary;

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(10)% (5)% —% 5% 10%

(dollars in millions)

Bodily injury liability $ 206.0 $ 217.4 $ 228.9 $ 240.3 $ 251.8

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis