ROOT - Earnings call transcript Q2 2021

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Operator

Welcome to the Root Incorporated Second Quarter 2021 Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] And I will now turn the call over to Christine Patrick. begin. may you Christine,

Christine Patrick

co-Founder thank call joining quarter to on Alex results. and Chief Dan is Officer. Financial XXXX today. hosting Participating Timm, are call this discuss today's CEO; you morning and us Rosenthal, for Root earnings and Good it's second

announcing the answer Officer. and Officer; letter the a Frank Chief Insurance portion During evening, call, be Root will shareholder Analytics presenters question Science financial Matt by and and Last issued joined Bonakdarpour, of results. our its Chief Data Palmer,

this call items to XX-K. as reflect also financial will for well more discussed Form you document, While performance, within complete read encourage our as XXXX, that our XX-Q, information about our we

forward-looking undertake to you operating on the I our matters this as and this business begin, performance, developments financial assumptions. call, reflect our want of result we occur. goals, Please opinions Before beliefs that we obligation which these management's statements remind current new may note date related of forward-looking on as a no statements are and based of to will that to include that outlook, discussed and information today's call revise

other are and results various to statements uncertainties, that those risks, actual Forward-looking cause could described our to and from subject materially differ factors expected today.

subject In risks that number and are a addition, may we business of to results. significantly impact financial our

Relations remind we measures that discuss our available call conference also during the about like our this of actual see as please non-GAAP website materially again, Company's shareholder once to detailed of be these differ review you replay A XX-K, factors, would cause today. more under some of discussion talking performance. as a Investor will the I from released risk Root's factors where on section. to well Form in a you will call, description that our For results statements, the letter our could will

our and Root's measures released our You can the shareholder nearest now of Timm, GAAP to today will those Co-Founder which on I with over will call each at the the CEO. find and measures SEC, our posted comparable ir.joinroot.com. in of reconciliation website on the Alex turn to filings letter historical be

Alex Timm

Thank Christine. call. will call a summary provide our then quarter the our business deeper I us for and on of Good financials. thank you, morning, I quarter will you Today, into our joining Dan a second over for second everyone, dive second quarter results, to turn

share exclusive touching Before that to we further topics, with our partnership extremely on those on announced Carvana I'm excited night. detail last

companies opportunity shared platforms, of this other by two got has before, our find made other's companies and our initial respect Our are delivering beyond businesses partnership to other for two This experience empowering sense it ways and customer on build accelerating each built industry-first success to with expanding customers. after through has solution as fully or technology Carvana each integrated goes partnership the deepened to aggregator done a know insurance Root any relationship. what partnership, carrier we has focused understand best have and as values. the Mutual been

the the with bindable attractive with capital. Root the at company they commitment full-stack personal likely an is of positioned and natural deliver onboarding into Root Carvana's to to creates quotes point insurance profile meaningful costs. customer is their experience a partnership lines, acquisition sale where Company that to providing underscores while in uptake in are with attractive ownership tech result investment additional a car carrier, a As customers' Meeting the experience. embedded best

at with hard new are to and share along will life work way. the the We Carvana progress bringing our partnership

resulting how in management our drivers, latest XX this increasingly giving We model This and metrics. proprietary to the these market in out coming increasing states apparent of our three that to times model, powerful concept at with states, worst is first, extreme and the drivers to of XX% and now pricing X.X. competitive display will Through have X.X a allowing on rollout enabled and with our have and customer renew. brings decreasing risks the the of central us just The segment not among of than customer better continue us, risk, highlighted the business, uniquely UBI of as operate how loss. a binds we better quotes of give enhancements the more they retention underwriting deployment and commensurate us further of algorithms, our and datasets months. half our of key when power scaling the to milestone Now, drivers we're current advantage by release to of improving the increased drivers scale; while that advantages predictive seasoned over shops advantages achieve telematics; UBI the that identify policy data key technology continued position also third, pricing The retention allowing risks, leverages accurately and in investment over profitability. model, contribute running our deserve. turning rates allows our validates been fairness. our we the is more to customers the the XX% predict utilize to our beginning capital of sense manage A second we our to second, risk best to the quarter, it's to on our us their the year; that model best able simultaneously This to with was X prior technology

that of months, Wisconsin path the capabilities most believe a able were year. State the down than were be effort takes Washington to science we entrance in removed from filing ban data an Through entry altogether. able during excess having rate-setting quarter. to our insurance less bias launched We research should in the also score, move into use competitors into from expansion commissioner's we accelerate to credit two a our our national We second following of the of on continued

As market model struggle with of disrupted all we to change, score incumbent pricing enter that to states elimination the the carriers reflects reflect credit the a across variables. will in able the be

flexible to bias future Our in best nationally. this win where consistently a is platform positions Root eliminated

environment become consumer to saw the our challenge. virtually digital increase be second a trend substantially, we documented quarter, all product cost proved marketing channels, since placement Across During the of across which our has ad landscape. entire a

customer more we got in certain in ramping beyond the flattening prices began ramping acquisition, were spend we and quarter, levels. standards down later seeing, process or simply were the we While the particularly in of acceptable channels to our

magnitude agent we we data the relevant through our consumer untapped recognize diversifying science, network largely in increase We verticals our enormous and quarter, and expand of cost partners. creating insurance for insurance customer acquisition Given this embedded value expanding of opportunity channels in see independent product. building the partnerships as offerings our the technology and bespoke

full-stack in As owns a integrated, position company with the unique that digitally tech a a native insurance to experience, fully experience. we a carrier are offer end-to-end consumer

has our making in a of agency to with in look a with value product. decade, sharing partnership more stayed to exclusive the quarters To Our shop an over extend the area, we to value channels. Carvana our Nearly ahead. progress in rise for forward the forward is continue even this customers past proposition out this channel independent customers, in are significant demonstrating steady we third and we this direct of step with agent insurance build the number and our

acquisition work this We your we'll are leveraging over is us channels our in share for on our more and customer technology capital manage and space consumers. term. transparency our coming convenience Broadening the And the create to long quarters. for both to to critical agents approach in

onto the within will to on for into unique you these term. team, right our believe We our With these channels capital using the our and continued we advantage opportunities conscious we're I to support and your us more and cost to are can't our enormous efficiently the in bringing technology right of over of Dan. the I'm long that, tap positions for We investors, turn wait update path opportunities over believe deploy the the call quarters. to book truly the customers. thankful coming to risks

Dan Rosenthal

Thanks, everyone. Alex, and good morning,

auto of environmental the XXXX experienced. second industry reflected the The changes that quarter insurance

GAAP find yesterday in contained wanted we a You give evening, few to our financial results published but of the highlights. shareholder letter we full will key the

premium over $XXX On year the year written direct XX% grew we top-line, million.

Our premium million. to increased $XXX year-over-year direct earned XX%

quarter, earned a against Our environment total XX% direct with earned ratio second the year-over-year XX% premium XX% profitability, the from during year seasoned loss states premiums. loss was Shifting increase increased when accident the the low for in previous pandemic. period compared XXXX QX direct to of to

been was has bringing ratio above. improved levels primarily iteration proprietary million right contribution I pre-pandemic to performance, recorded on a the loss XX contribution accomplished The cost. as demonstrating XX Direct as driven to in $X XX of how increase and The XXXX, launch further the point we the the seasoning models improvement state pandemic. importantly, from at of impact pricing away attention This right risks and of stripping year-over-year we've More algorithms, in through our UBI of related for severity points rose loss of and the quarter. new ratio increased pressures primarily decline in book. QX driven the by miles costs and by inflationary direct points loss and frequency, covered was was above the driven margin our direct a significantly

to continue progress the faced the included, make business this we on quarter, While ourselves overall. industry, headwinds

around uncertainty rate While allowing that we loss underwriting with from loss quickly. inflation, frequently update and cost ability the impact our model actions planned ongoing to react is coupled the remains Root to cost believe our

rate will to saw prior the we the earn increases into taken as emerging book. these believe we Additionally, trends continue

channels, embedded on As product. focusing diversifying independent Alex our are we insurance particularly through offering, agent and distribution our detailed,

the brings is largely opportunity unlocking the Our first technology that with to enormous step and untapped our platform partnership significant in partnership Carvana the channel.

sustained channels position about partners growth, am for renew We our Alex's growth attractive to on our create our announce for we are drive echo multi-year partnership of effective both on capital the our excited with better also taking whole, a actions all strengthen The now we efficiently the embedded July but not successfully and stage an a are time, oversubscribed X. insurance advantage. There demand improved and a at competitive strength to additional prospects treaties basis. multi-year our our was drive terms. Over expect placed remain of relationship only to I long-term quota component we I your Root excitement about to significant partnership. of set this over the a our economics pleased long as capital as the as to is fronts placed key interest have more the shareholders. share structure. reinsurance stability open Reinsurer deploy with unit ability and value position strong that actions Carvana the term. Company a and our As liquidity marketing quarter at for

efficiency are and We customer growth positioning significantly but laser-focused our strategy. reduce expect into near-term more impacting current on and spend, acquisition our reallocate We, growth, differentiation efficient future. for marketing and higher the us to therefore, in

now top-line in in expect We result, for premium we to mid-single and a revenues guidance low expect are to Also, and As QX. in a QX grow and XXXX. decline direct we premium for the QX. by to written low-double profitability decline in digits basis, a direct a revising earned followed our digits GAAP QX on high-single year-over-year year-over-year growth

new in we out spend channels of and expect significantly Looking currently lower periods marketing high top-line spend. XXXX, while we higher declines lap to at measures prioritize we as growth building ahead

direct expect pricing adjustments be term position in to industry we make as in modest environment. the to near current We match the loss a contribution

quarterly in efficient include XXXX to our that QX most range in the we marketing the our we materially expect operating in from announced exclusive with today. focus as Noteworthy our high QX resulting not line We a then loss in elevated stay guidance full-year any initial loss does XXXX, million. operating decline unfavorable channels, to Carvana on of end that of $XXX partnership outlook updated to impact slightly is

appreciation about to support. of before that, Alex's I forward your questions. we excited us. look continued your We With opportunities echo the are

Operator

first the question-and-answer Matt begin JMP. question Instructions] now session. Thank Carletti from [Operator you, will is Our from

Matt Carletti

outlook performance I morning. sure they make growth thanks. acquisition purely wanted the Dan, more the have just that but related pressures to on behind of is and to with on kind and Good loss been changes cost-focused term kind ratio, not of to customer hearing going the of near Hey, I'm you happened related the through that marketing to are cost what reasons just right the in directly that channels.

Alex Timm

good more question. Dan That's This and a I'll is Alex, let detail add here.

time think well as quarter-over-quarter, capital. deploying just efficient And ratio that as we would we -- when see saw better that increase in inflation, loss actually deploy we marketing loss increase it's to much be acquisition. Dan, you we a sense sense in in what have we actually add better that when near we the for in where the and better we an spike capital, anything? us, for channels, from longer-term to when be, For those marketing have with ratios as to the a term don't costs want

Dan Rosenthal

Thanks I'd Yes. what Thanks, question. Matt. Look, said. morning, the for good and Alex echo

back those We're insurance Carvana. that And of fix we of we're channels time. what those couple And going talked to new is, You and right see not that having keep both. right a you should ones about some as shift. or investing given what really to to with channels we with channels, of channels, some have the hope a utilizing in environment, Across will is partnerships, either think as at channels, new marketing use trajectory embedded the on of more our we're is are partnership and we combined about. help loss ratio the working going us thrilled what we massive the well those are multiple It's This channels. are working, do And we're a and this like those first then, partnerships, prudent current some as will marketing embedded stop the growth strategy of Matt saying the other things. the feel current capital industry not. the be get with things

Matt Carletti

talk working And if of you a little your I bit a about follow-up Great. I heard could. agents. kind just with

and it. guys industry news, I RootReady I've about remember were you I us kind about we and little for is LEFTLANE within just tell There the embedded a think and you about quarter are is there with how the cars or seen Can what from what should of kind you think can't during it bit your some tech was of manufacturers. name if a doing press that? announcement

Alex Timm

or that really much to been as what Company And it. we to they already where better a we as we the vehicle a providing can we're consumer we RootReady our and will data. vehicles few information, of program case, provide connected if vehicle And a we immediate and working become years increasingly see is, some we've have comes driving when allows that effectively that so we've future improve access for previously technologies we basic which is leveraging are to vehicle for our us telematics a is they and actually do website data. And effectively, app had gotten Absolutely, do actually position a on have continue proud to in it have connected or databases quote actually in what currently connected. the

data you Now, we and still data. obviously data, from behavioral want because vehicle other texting and driving don't the cellphone get

six provide after allows following than that to there on in data-informed incorporate to renewal. more quote really an much data new data has we But that the us the months over -- So, much still otherwise. this is more basically that binds collect instant will consumer

Matt Carletti

Great. Thank for you color. the

Operator

next Elyse Our Fargo. Wells question from Greenspan from

Elyse Greenspan

out and Hi, your thanks. topic, mean, Good product. upon well independent on give acquisition relationships, just bringing a guys as big is I be of new first as Can My endeavors time? guess, sense, just these ultimately, the could and question, mentioned you over channels morning. building you partner last diversifying building some how agent expand I us

Alex Timm

Absolutely.

an in they're purchase. be a better and that the to And have that have much It think product insurance headache. much having is for. it our seamless, makes consumers more where through a less is makes much necessarily included not of a much vehicle to fundamental consumer consumer insurance, embedded experience a purchasing there towards effectively vehicle just sense insurance what Auto more is really that found is shopping technology, to So, shift we to variety we love tech a while a And for us major with the it going very built playing allows seamlessly last we is to very we nimble over partners. to have really of for stack flexible that and five that think We the company disrupt Carvana a scratch we opportunity from that obviously integrate We've years, with and feel to here. lots them the aligned in. gotten think of know they're company them well. that there partner culturally space continue is very insurance

meaningful. that's we so, think And that

very market they've terms been market relatively XX years. They the direct Now, shift have in shown at XX%. weathered really of has Their agents, resilience independent the about share stable over well. last

there and an are consumers prefer be know there believe do to consumers continue will we that we many independent to to that many so, go And and agent.

believe or much and but independent an need can we've quote them setting. that mobile agent consumers get a agent carriers. for phone also, somebody the to with Now, in the then, their a allows those allows better our simple quote. device you're into so just XX seamless not early that better we and that agent, insurance technology found R&D on And agents that we actually and easily enjoys, testing that to also the a products onto auto build the that to mobile And from get XX minutes for agent

we And customer a $XXX our extend And a we and these that so over there in there's think that they total be but right more and I'd things, in noises won't in very be of the think few terms will And really to serve be then acquisition say. customer customers be think plus we also technology And market of now market as price we've found be to much at and that's only will marketing channels will channels. very of predictable, I the all think opportunity. some of efficient exposed that large billion I not long so is we term. digital may right acquiring nearly the too. the the so, two, can short-term a One, clearly as costs, seeing XX% those it's right

Elyse Greenspan

just a into Do there be sense sense how have just Root? have of the as much you I that you you to guys of but That's helpful. agreed time with relationship the enter a and relationship, announced of TAM it, this could Carvana? recognize guys you opportunity for an over

Dan Rosenthal

we this reasons believe -- consumers we and companies, like-minded both least we for at the autos we've is know we've to Alex transformational about, each digital-first, a and a year, together mentioned excited seen opportunity. This worked put for are the for news really days of We're is is the Alex Root and good in the early and auto partnership partnership for Dan, articulated. Yes. significant now of that our insurance. other. gotten We've

as of far having you I to the a other As proven some model their TAM, disclosure would Carvana's embedded with of point services.

they've as they to sale. not as disclosed, and of customers They consumers to example batteries has don't Alex a service choose them. have point think, finance also their For insurance with opportunity said, XX% included purchase with car that And warranty because embedded. today we to about buy of at go offer the

together think And so can the massive. is we TAM we with here Carvana that unlock

down, split provide Carvana way for this agreement going our We're with way we've them a a we better time, that build to invest at sure get and at to to consumers. provide ultimately we those player not an vertically to and are that's we going more And in economics will Now, lead as that we're think detail At incredible time. same that structured to with work, least, more a hunker works consumers. any the product fair. product with the and build integrated to in making right re

Elyse Greenspan

down year, And said down you there the where half these second of be as XXXX? be right, given some see one great. that Is next top-line that That's like, the things you to quarters, in this growth of to expect one, to perhaps some in last premiums guys recognizing you would that start impact growth all or growth XXXX. half is year, you to has would today second dynamics four been then, should something of going return strong are it

Dan Rosenthal

that our the It's marketing lapping year you're In Elyse. Yes. half channels forward, good make of put focus as and are We for right, same that's on investing this that to of year our And going be year. our we not to you into talked as focusing our this question, going some it we've guidance alluded the about, the a especially we the marketing tail on we've look the in as think And early year, suggested. well existing marketing the that we are us to the of sure Alex working. disciplined at channels the that the guide second spend, in we're keep quarter on resources new are that working. are that spend as reason is trajectory, first going growth the to next conserve channels you at and that exactly first that and end of

plan the the out those that we then, be is that build come market to we And So as will to channels, back excited new the see about talk and move we opportunities beyond. growth we forward. as

Elyse Greenspan

for Okay. color. Thanks the

Operator

Fitzgerald. from Cantor next is question Our [indiscernible] from

Unidentified Analyst

actual quote, that process regarding after will will certain have experience presented are taking my Hi, a describe Carvana telematic Can with you Thanks question. Root? customer a the adjusted receive of they the in rate they good time? the and morning. any for When amount

Alex Timm

of the and product developing the the we we now, test experience, way stage it in we're seamless early and learn along the consumers. going And make the are for in really to will we a we're but lot. product very to going think Right embedding

this closer with of integrated and partnership actually some through data that even to vehicle sources to will new the app the be, closer the In at terms and we even we expect we Carvana do of telematics, be telematics of will time. this

the into So, you. the we'll be excited all develop to future of we product with share as

Unidentified Analyst

like about be like prior partnerships, partnerships, on the little the Great, of or expect partnerships additional now? may bit And of exclusive with Do you kind of right partnerships? speak a some pipeline to can look that's future you deal more this then helpful. Carvana speaking your

Alex Timm

seen we we we've think in even sense of other and auto We've are that in more partners. sense consumers while, in intercepting times lots both but that think had that to makes them, and the on and success well, we partners, for and want service is, quite various the what work space, product that companies, down is really best do where partnerships do going broadly in don't. have place degrees tested to consumers. we a with I the And with of think important we out really then some some really forward for where focus partners double is those makes really financial

so to know another, that team And think in want as Dan of of see focus as really technology, we're we sure we the also most and a pipeline. really really the getting it one really make now, Carvana aligned healthy terms in is we consumer where to see: we on culture, have to, partnership we to very focused. create ability of that terms but that's the differentiated And a intimately because experience. And right alluded one, terms the in

Dan Rosenthal

that the have of sale. Google or are cost vertical at a would does buy frankly not experience, our that thing sale. our only These a believe demographic a not does retaining I And customer met search but acquisition of but going the customer longer will for more meeting us to point And on having consumer not we attractive at who a just are with briefly by so These for are perspective insurance. only also car them point the compared channels, customer it to efficient us. performance consumers is, add only create from really consumers differentiated

on we're the So experience, focused what between really I real excited I we're and we Alex think have overestimate teams that the to come. creating the Root about and bond consumer and Carvana, what's excited had ultimate very cannot echo said, really

Unidentified Analyst

Thank helpful. That's very it. much. very Got you

Operator

Jones from from is Nick Citi. question next Our

Nick Jones

Great. auto And just Root, other exclusive Thanks insurers changing Can the you can only questions. platform? on can technology they a you or of and or out Thanks. this embed are remind guess drivers changing maybe the transactions? for Just clarity I Carvana Carvana. that then, exclusivity, how describe maybe an taking you my insurance partner us of agreement offer mean one maybe the swapping the cars, during does kind there. those over time are can also little or auto used into many cars consider nature

Dan Rosenthal

I in can something Nick, about. excited The it first then, exclusivity is Alex. the turn and we're question, partnership take the really over to

product first We Carvana to working integrated the exclusively really on vertically are build exclusive going basis. for embedded insurance and them with an

the business energy partnering another And with embedded thing carrier in to North or product are for we the lot build Star are out and exclusive partnership Alex? some we time this are where is right that that what us writing states the we broker an and there have consumer, really for Now, recognize resources is here going you. the of insurance do perhaps to really insurance aspects for are where there investing right be the in not to but thing other yet and consumer differentiated people a order is, to Carvana. to your where point,

Alex Timm

Yes.

In terms unique is of of consumer moments shopping behavior, this one truth. of the

change So and moments. do tend you'd as is one, a price does to they that in expect, typically to change consumers trigger shopping current their when see, vehicles, this insurance

within top three this so, that sort this in we if front four there. for easily at the in moment, or is triggers get of you consumer can think insurance a of shopping And that's out

that or referring frequently even and in was Googling these insurance And moments, as insurance Dan these going So necessarily to, Google in it's shop ever. triggers maybe I'll for not get say you access, otherwise they're shop not big. may and because very to also to to also auto consumers

access And that consumers it give more to we may otherwise see funnels. us through also marketing not so traditional

Nick Jones

Great, thank you.

Operator

Our next question is [indiscernible].

Unidentified Analyst

Good morning.

unique mentioned pre-pandemic is You to your should could we're set there auto the insurers data rising levels from a there miles we help for your above using something that book, but is other approaching, levels. driven pre-pandemic or miles you're that that consider driven hearing book bridge is that Is difference?

Frank Palmer

Good perspectives on Frank, morning. I one. take that I've that. got This is, can two

the as what see telematics higher. on in going. we're might customers then, where pre-pandemic to data have able industry Root -- that other looking at very looking at real-time or levels miles traffic And general and that reporting, just also look across First, besides I said and we're there that folks see data those are are being be granular are and we some our

not be of it's versus looking all the the in reading months or to quarter reports that one. last you or that pandemic the like miles that two the they're in the at like over clear at real-time actually in six compared month so driven looking And last might

that the on. we sign So see more state, early other feel and actually are what's tell really have states actually going we so miles can by quickly can granularly also And and warning really versus we where in certain it varies states. up

very into so we've And believe driving we that granular how insights happens. that got

Unidentified Analyst

trend, how long-term the increases in helpful. the describe think get approval ratio Okay, process? targets to need magnitude may you do you to could loss and then, closer rate swiftly response to And how you would that's your loss you really of get through

Alex Timm

Sure, few that. on things

before I'd some we increasing quarter. had seen trend say signs of First, that second the

large we've and think book necessarily some kind we so all the we along, now, we of need sooner think year seeing. in first has the our maybe rate differentiated into And quarter but faster industry the have and second been increases of as what what in inflowing we rate been quarter. as than had Not industry,

months. look we the out As six over next

will able that to competitors we up think of being be I than able what increases most do do. will the rate to more end

Some this sooner been fact of earlier maybe looking real-time see we've of that that that us some again, because just, the start able and our of is to the filing allows to than industry. process

Unidentified Analyst

more limit Okay. that that. right, to I as couple mean Maybe just the filed had trying a quick standpoint you regulatory do ability would of others some for I a And your are follow-up increases. quarters first the rate time? for last it on think you're on

Alex Timm

with increases some states or we They rate have are as to the all. states first first in so those file of filed haven't you states will quarter, regulatory ones states -- So, going into any there be filed used. we there are probably compared those competitors. rate we at be is And took rate to -- to we first, in filer get of those where most that in approval. many In don't increases are that,

smaller And the that the rate fact increases quarter, so back then and way we had will we're it as our increases competitors we in second fourth smaller the quarter, than coming -- looking rate in if third up given will that first we think and bunch for we also be and be took do.

easier So eight it's than say Xs much a get approved an particular state. to in two

Unidentified Analyst

you. Thank Okay, very helpful.

Operator

from is next Our Hughes Truist. from Mark question

Mark Hughes

that is you. these just losses, How frequency. how thank Yes, curious dramatically, but severity those and in going up your much this you been might I'm the not. of much see Good is release temporary it be I'm endure, morning. maybe inflation or to much do used how of how curious transitory? some of you has pricing you spike? Certainly, on think the broader cars, mentioned be may factors

Alex Timm

Sure.

we've only seen this say quarter's we've one where So worth had data first, of spike up. really

to down. really We trying opaque, don't say. those that's we view, still I'd a figure are trends, have bubble going seeing to So are clear a out come

on a back levels. transportation driving. regular transportation. other then, China, after big a moved from had down On came the say bit China pandemic yet we to their miles back down transportation you little down did come when slowed or pre-pandemic driven, hasn't countries, driven back spike And as people the people of to moved public miles to see kind That to look it right at as

see So a bubble. we could

can talked side, -- about down prices, to next levels. the On -- talk can zero used car we you the in severity general back talked economy, you we months that see throughout I XX see don't trend the inflation dropping US

six of months' So we data of to but the so I probably again, hard of worth there. pretty to months XX severity the XX are three to as see part only trends sustained more got tell increase,

Mark Hughes

renewed earlier where around similar that tell economic, had discussed mix you reinsurance think in loss-sharing could Dan, multi-year shifted to element is And also of was on periods? there an time. the what over us the then, agreement, I Yes. the the anything you model

new agreements. any on there those Just updates

Dan Rosenthal

the on positive All reinsurance Mark. Thanks, Yes. front.

size says team we're really As weeks forward. we've we've what and but allocations. positive, to with to months talk terms the we're moving Alex to all appropriate all on with with before, we well treaty. me as pleased nothing managed the to direct the here, but way continued we've the partners more a model, basis, in consistent and and the the multi-year about and their pleased that my and cohort-based XX talked and a manage only about the And terms, and balance then, been see similar the business ahead, not in the Oversubscribed, who doing. can sheet the of very treaty all renewal It increased financial improved is

Mark Hughes

Thank you.

Operator

Our next Bank of America. Josh question from is Shanker from

Josh Shanker

Yes.

What a follow-up I direct to also quarter of and XQ can they 'XX, your a is quarter of have loss the talk a of you the expenses, a they reinsurance how Are question. LAE like paying ceding taking loss contract? reinsurers? in to and think I that work economics you are ratio where commission want In ratio XXX% sort XXX%. on their plus that own like the their economics about they're

Dan Rosenthal

saw we was different view that segmentation work management. ratio the on through actuarial Yes. long-term showing the obviously, that some our and state loss our up the and in with took of differentiated technology It's I results. Frank is something are use happening that in as the considered the doing of Josh, That's the And pleased, reinsurers we reinsurers. and improvements the a approached, discussions really

talked pay we customers. that business a of the the in value for get the treaty, a The committed long and upfront time. through we've cohort-based then is the the they're for paid reinsurers We the lifetime as term over fact are ceding they securing the cohort-based treaties. in structure about from benefiting these focus same past. commission So the a they ultimately And margin on

was Josh, their month's so the focused as It book, his not renewing well overall are is risk with losses. looking in and that and they Frank know, oversubscribed the much pleased the sector we are So but The next not results. continue I diversification of auto fact personal on approach the and really all to this reinsurers, a are making, in as as at they want as us. our team month's improving only improvements treaty well. results pleased terms with were long-term trend you that And again the or

Josh Shanker

the I talk because still deal? it? Carvana want the possible some it growth yet on may don't you include know for relationship, product think timing growth development in is and benefit not And your clear. outlook I guidance, about Carvana to any growth guidance Carvana so it's about that But How and your whatnot the ex does in should from the and be

Dan Rosenthal

It it. does not in include Carvana

Josh Shanker

include does Carvana? It not any

Dan Rosenthal

Correct.

Josh Shanker

when could prepared cite timing some the we contribution And not to yet? see it you're

Dan Rosenthal

the -- prepared move have fast, We're again, We've works, work. message at partners the excited talked is, getting our these tremendously that Josh, native digital teams, to specific two opportunities starting are about that used the very that that approaches. give Carvana teams in -- The and timeline, to are some but product that and stay and of not in with are tuned. our we're to teams by a are

So to the together stay when market to talk have more we I say about. back we'll would tuned and come

Josh Shanker

you Thank answers. the for

Operator

from Our Deutsche question next is from Bank. Phil Stefano

Phil Stefano

there's Congrats questions partnership. I the good strategy. like morning. a Yes. on Carvana been around number And of the Thanks. feel

apologies just a about rate was housekeeping preferred think on maybe us Was or mentioned quick that the that? a missed way it. there And there if a or coupon a help I on item is that. could you So

Dan Rosenthal

filed the is morning convertible on X-K details. with Phil our no Yes. all coupon this the We of There preferred.

Phil Stefano

flush shareholder help way identification I us that the was I mean you that is independent new this? the to of UBI of saying in or is, hoping Okay, this segments on out you're section, X.X believe, will for that more. to trying noted the the expansion. there talk is a just letter that agent about perfect. segments you you different could little And I when there new Thank a you. In roundabout point markets

Matt Bonakdarpour

Yes. Hi, question. This the thanks is for Matt.

X.X, UBI ability about we're less the score excited that's really data. So something with is with to which drivers referring to far

been conservative scored. make the that fidelity we've criteria to we create data a ensure wanted in to So eligible very had we user We to score. enough high to set be historically, a

we've over score. collected we've data telematics of been that tremendous fine-tune Now, trip able our amount data time, to loss risk and

So basically do more with less.

confidently population drivers drive our up of fair to and rates the unable that much, score to score large don't who predictive because we score. now reasonably a to we're eligibility them open So there was very able And with who rules. getting telematics population were conservative of really score quoted through a

Phil Stefano

of is How conversion this? how more do way And think funnel, into success judge of right a we there the the do as coming evident? I is this it think will technology, the better mean, metric -- UBI's about how iterations to funnel? more is be the people about there to about is through I the it think

Matt Bonakdarpour

Yes.

So in time. proportion the the shareholder driver letter, you will look over at good

dramatic segmenting before on that segmentation of there a is large said their good them this provide a able to segmentation provide were we're provide that another not time we're now, increase on able over bucket were reflect or we we adequate before, experience. drivers because driving see will We and to X.X, to unable rates proportion UBI way, that

Phil Stefano

you. Got it. Thank

Operator

next David Our from is question ISI. Motemaden from Evercore

David Motemaden

a here And Hi. PIF the performance a just whether how of give comes business big just this the and a Good I be shift mix I of partnership? your and Is be? to feels guess morning. like from marketing, sense understand of wanted in how shift your from I side. this direct for book guess, can way big will sort us distribution each of there any it business strategy your much just it'd you of channel,

Alex Timm

strategy as this We a Yes. do not shift. really view

think we that our provide a working know we've and that's a always I the our with as experimenting product We see and with can We to really have believed customers and to the intimately. also our Carvana for for four that us embedded believe is in we've value where disproportionate each have And started well. of really year other our direct proposition years, been wanted And partners. intimately insurance coming really over been last in on various acceleration potential And that as working technology with been through there our channel independent something agents level cultural said, And know well. to a through they got strategy. -- to are we on eventually through Company agents we telematics over got and model. actually to that always we

believe do in and our we emerging. We with makes volume we truly And channels look insurance long the our our the embedded it that consumers are looks term these that will it think term, believe when marketing continue will going in to And most that for we partnerships we won't that and work and it that auto like we're much over are the model to to grow we value. And new would Dan, the efficient add we expect would you direct the efficient. do will best marketing direct in to create sense of long way when a doesn't. grow the better the shareholder there through most platform. are that model And channels channels that invest when the And what future Carvana shift anything? large it to than be distribution does believe we different channels today. of

Dan Rosenthal

think right. that's I No,

find we is it's And said. in multifaceted that us. This for channels that are is right think and forward, Alex really investing see building Facebook's on at of doing their the can investors see that out massive would that car And in we over you working for are where see Carvana channels what not channels channels working can about. that echo long as the ways. and value to earnings, going term. make their that shareholder strategy it's where stewards vertical it capital. are you're we'd different our excited invest prefer doing other a it way move that in to think that for to there, the search we prudent Google carriers not a tremendously new be accretive time is in thing some channels going and buy the I'd I of these us. the what This capital of some about groundbreaking. we're shift really capital We insurance. think consumers with And buy doesn't focus are We and and terms in cars it transformational sense of think change the out This partnership you

learned for And what in year. prioritize important that them us we've to partnership based it's so upon over last with the

build move is this term. out excited and we're really value and beginning to So for that forward only shareholder the the long

David Motemaden

guess shift capital subsidiaries of the wanted And the helpful. one just guess going for also, capital investment -- just that? and That's those there? are you levels be on in those I the Carvana, remind update capital Ohio from Cayman an for guess the then, to then, proceeds of injected do from your into just I to guess your have I debt I And captive? to you October. position. either levels And plans to the Understood. the support just subsidiary I in plans maturing that's there could Could and some you believe me is debt

Dan Rosenthal

for thanks David, Yes. the questions.

in On with question, maturing first the we right $XXX banks, loan million of a do October. funded have a group term

we as update. right come have are we'll in market We to further discussions back now banks with and those the a

and that drive Carvana we those the expectations. we already a important marketing the when our far us going marketing letter from that And will take here. capital us. capital levels gives two the are focus today the and full long-term that important value. there shareholder on the to to are coming then then, in throughout As us our runway shareholder on is, of spend two the advantage are extend spend to levels. really partnership that the It's the partnership, reduction investment aspects that our Carvana several our flexibility of noting is from you front in meaningfully And a on and in call are position to as combine obviously, we're One strong opportunity strategic solidifies financial the going enabler second, quarters, in overall, our investment the reduction things, material

with the then in As we're the in will we reinsurance capital. have forward, to position here $XXX on back debt from we a add coupled And front, marketing and going with unencumbered investment, sit years as XX, the when to of spend the for reduction but have talk what proceeds, our come. position June outside we we million their Carvana entities we're to like more feel front, or of come market, insurance in that you, the good of good you and

David Motemaden

you. thank Great,

Operator

question Dowling Our next from Partners. is Gary from Ransom &

Gary Ransom

there some You were my versus of of I you through answered, Were have Carvana the understand it Most said you with Could you morning. type what partnership, the doing what them. just sales doing to you with rudimentary had Good been technology? help was been before wanted deal? but us working Yes. about more of this what before out questions future? for talked you've were

Alex Timm

Absolutely.

product. take were were what of Root coming just of was could that may was a really it those subset see an displaying be It to subset rates in really not experience. also to and Before, and Carvana the through consumers customers, we how just the testing experience, a interested embedded be customers small

Gary Ransom

Thank retention. other you. And on one question

anything as drivers, driving there outlook? has you frequency drivers, better been know about that within those has come for better change be the better even has back helpful talked you're there retention being the I overall, Just seeing for might any but the come back, and

Dan Rosenthal

that seasonal historically mimics to see We trends. pertains the year's Yes. it this to retention seasonal trend pre-COVID and compare We look as trend. seasonal

So looking the same trend throughout is the the year.

experimentation have We product our through that retention. improvements changes have to shown rigorous implemented

trend shifts those And so, seen while is same, in curves. the some we have the

customer implemented to we improvements on As continue respective see of expect entire top numbers. those changes base, to those our get to

Gary Ransom

all much. Thank you right. All I very have. That's

Operator

is Ryan from Autonomous. from Tunis question next Our

Ryan Tunis

Good morning. thanks. Hey,

couple question to on First distribution it. pieces a of in Carvana,

the And you with underwriting that? Carvana, with some you Carvana, telematics of work kind how would core as Carvana does to more move are mandatory from First, willing I that type think holding acceptance drivers be with rate. of work offering? independent agents would the you also, and/or away then, to kind

what's ability So the flexibility with mix your and underwriting get right the your Carvana? to pricing, get

Alex Timm

vehicles, well. will our in we an underwriting actually And really telematics opportunity through Root the advantage full platform Carvana can see the deployed our data from and or to vehicle. app, we as app data it force closer which get the with it's of the as directly off whether be cellphone Really, as to extend vehicle Carvana supplement the we then data our in

In addition, is with that there crafted no have Carvana. acceptance mandatory ratios we

the in consumer by as as not really and a may their sure of going every for make consumers great that do are funnel. possible underwritten a can Root many consumers experience we that or to address make will sure We that consumers directly that XXX% across mean may insurance those have and what's right situation entity. But be

Ryan Tunis

bit P&L the the maybe little Dan, then of in guidance. would benefited marketing year. And end it. spend, have a the for back I thought Got pullback maybe previous The have of the guide in implies low would still your the half

run elevated not So is more ratio expectation net rate benefit there for I'm still materially? or a improve on it to you relatively else? income there is our something quarterly the advertising Is some higher why would it is wondering expect or be don't that investment, there, color why more tech of just loss

Dan Rosenthal

already the of the -- is we spend already forward. of It's Thanks, the about fact and shareholder then, combination we Yes. we're about sitting in the look marketing and some the letter, in past, losses, as is QX spend committed talked July, that Ryan. and talked midway which a lot through Frank as of marketing just and here obviously a obviously,

sure a ones that. as the focus in takes make transition that decided to we our assessed invested are really and move channels that capital So off not, channels just little a on making to working are bit time the our to and is of do being turning

impact think show start see I that to you'll the of up in really QX. So

guide income for And the so the operating year. impacts that

Ryan Tunis

you. Thank

Operator

is from from next KBW. our Christopher And question Martin

Christopher Martin

taking call. for Hey, guys. Thanks my

kind independent but future, distribution in. of it getting as insurance growth like for the potentials hey, I'm owning last opposed towards questions, stands differentiation, the of this a where technology still, way, the Carvana? of I channels, does then shifting any of a with longer from here's agent also embedded from I'm with work I'm you're and from this sheet your your few the really for, you've claims through the to Root to, channel, and build no the really organization to and all had of so coupling opposed, follow-up all agent, and this Just kind my moving that in done Root, the what In it's customer more getting future types same just that looking getting those the for you thought thoughts economics growth an like as if and it. taking around at the fit then, brand how of balance

Alex Timm

engineering think there do lots strong opportunity data believe us have do brand, that a very see Absolutely. Carvana that experiences value embed great from We Root best our that that and we've see leverages is for is everywhere extension or building to will it We software and really strong necessarily see been we data always and so of out that seamless science of brand that. our or what engineering they able proposition do not being the about, work FinTech which leverages We their brands. the experience. there's for consumer feel consumer, we brand. the we build this and to power think not whether may still companies a precludes consumers, competencies that really an still particularly is science our core And

rates a view do for and also all so, the see technology the a we offerings. from are the us as in can on to provide building exist quite telematics again better that's that's telematics about, to through large makes nimble. in believe in that's agency independent that we going as agency about do independent to for we're it think diversified we're demand-generation believe through to set think but well. going very, going those do to by better gaps be take particularly to we we're not that consumer. way, what We agent we And include to build platform with And consumers platform insurance agent. embedded consumers we going of we and is and business prices technology -- independent of really the we're invest We historically what still independent moves that very grow We what well, the channel frankly better direct away our that that change will because lots we gaps is all believe products that we And in we're and insurance can just when meaningful that going at independent of sense, channel and and a host to really that. continue continue platforms the

Christopher Martin

Thanks. I got you. That for makes sense, now. thanks. That was my only question

Alex Timm

Thank you.

Operator

question Our from Barclays. is from next [indiscernible]

Unidentified Analyst

where just affinity you getting be churn process a at is doesn't mix rehearsal agile desired be period. enter go partner when adequacy, been recognize good that behind okay your same you more to a mark as pretty at repricing taking rate to driver relationships churn/ an have Carvana, question. and Thank think for that rate with I I'm to that So you XX-day through as my thought ability you you the agile? do have next you've get but your like would affinity customer And higher

Alex Timm

drive, through some book with our insured the ever that where Really, us want go can that. means and they what on our see they up a that is take rate telematics, to to you they for being they Matt's folks. earlier test might customers This as might to to Alex. test We because with able clean see earlier what are people than able is could as they it they before way said, points want drive price other we view that a even be or XX-day mean even and get we earlier,

extensible. our view is platform we flexible something and very And that really so telematics as

will are some for affiliate while do believe allowing time, the partners customer most best data with way. still set that what that that us of so we're way. building work data-informed their And possible what is a doing solutions in best build in can customized these over we we is, to leverage the And experiences consumer

Unidentified Analyst

Okay.

be for some So, what of these nuance will relationships? saying you're

Alex Timm

Absolutely.

Unidentified Analyst

Okay, great. Thank you.

Operator

gentlemen. and may ladies you, today's thank you concludes for now And call. you That Thank participating, and disconnect.

Alex Timm

Thank you, everyone.

Root (ROOT) 12 Aug 212021 Q2 Earnings call transcript