Root, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Root, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode, and after the speaker's presentation, there will be a question-and-answer session. For participants to ask a question later, you may need to press star 1 on your telephone keypad. And to cancel your question, you may press the pound key. Thank you. I will now hand over the call to Joe LaRoche, Investor Relations for Root. You may begin, sir.

Good afternoon, and thank you for joining us today. Root is hosting this call to discuss its fourth quarter earnings results for the period ended December 2020. Participating on today's call are Alex Tim, co-founder and CEO, and Dan Rosenthal, chief financial officer. Earlier this afternoon, Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document. For more complete information about our financial performance, we also encourage you to read our annual report on Form 10-K to be filed with the Securities and Exchange Commission next week. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call and we undertake no obligation to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. In addition, we are subject to a number of risks that may significantly impact our business and financial results. For a more detailed description of our risk factors, once again, please review our upcoming Form 10-K, where you will see a discussion of factors that could cause the company's actual results to differ materially from these statements, as well as our shareholder letter released today. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures in talking about Roots Performance. You can find the reconciliation of those historical measures to the nearest comparable gap measures in our shareholder letter released today in our filings with the SEC, each of which will be posted on our website at ir.joinroot.com. I will now turn the call over to Alex Timm, Roots co-founder and CEO.

Thanks, Joe, and good afternoon, everyone. On today's call, I'll be underscoring a few highlights of Roots Q4 in fiscal 2020 performance and provide some additional context on three key drivers of our business. One, the powerful competitive advantages enabled by our investment in proprietary technology and telematics. Two, how these advantages uniquely position us to manage risk as we expand our footprint and achieve scale. And three, how our seasoned states will increasingly contribute to our management of the business, the deployment of our capital, and profitability. I'll then turn the call over to Dan, who will discuss our Q4 and fiscal 2020 results in detail, and then we'll open up the call for Q&A. I'm happy to share that despite the unprecedented turbulence of 2020, Root is better positioned across almost every metric. We delivered a 37% increase in direct written premiums while simultaneously delivering a 26 point improvement in our direct accident period loss ratio. That is tremendous. Today, every large insurance carrier is eager to message to the consumers and to the world that they're developing advanced technologies. In reality, they're not technology companies. Root is a technology company. So let me tell you a little bit about our technology and our models and why we believe our models are so much better. First, Root's pricing model has been built from the ground up based on modern technology and data, placing fairness at the center of our model. The realization that each individual is a universe of one has allowed us to create a better pricing and underwriting model and reward safe drivers. We put the customer in control while simultaneously delivering a superior modern experience via our mobile app. It is Roots proprietary telematics that enables us to deliver these consumer benefits and deliver profitable growth to the business. The foundation of Roots proprietary telematics is the transparent collection and analysis of actual driving behavior off of a smartphone. This is the most powerful variable in our underwriting model. By collecting and synthesizing massive amounts of rich sensory behavioral data across thousands of driving variables, including identifying distracted driving, which is one of the biggest causes of car accidents today, we price based on actual causality rather than just correlations. The data we collect identifies the worst 10 to 15% of drivers on the road. We call it like it is, and we don't sell to those drivers. This factor alone separates Root from any competitor. This allows us to then quote the remaining population fairly and at lower rates, which then allows us to build a more attractive book over time. Let me be very clear. This technology is difficult to build. While telematics in one form or another has been around for decades, mobile telematics has actually only recently been feasible due to advancements in mobile technology, but as well as advancements in machine learning. Today, we believe that Root has actually accumulated the largest proprietary data set of behavioral driving data tied to the associated claims data. We are the only insurance company to design our program to operate across our entire book of business. This has allowed us to build what we believe is the most powerful model in the industry. Almost all of our competitors outsource this capability, which prevents them from achieving similar results. This is evidenced by the Milliman study that validated root is 10 times more predictive than a leading industry competitor, and that was outlined in our prospectus. So given all of this amazing technology, we often get the question, why can't we see it in the loss ratio? To isolate the positive impacts of our proprietary technology and models, we've created a metric of seasoned states. As shared in today's letter, a seasoned state is a state where one, the regulator has approved our data science driven loss cost model, and two, we have been writing policies in the state for a minimum of one year and we've gotten two price filings approved. Applying this criteria, we started 2020 with only three states that we considered seasoned. By the end of 2020, That number was 20. As expected, our percentage of earned premium in these seasoned states also increased throughout the year, and it totaled 60% in the second half of 2020, which has enabled us to draw meaningful conclusions about these states from that data. What we've learned and what we see is that these seasoned states during the second half of 2020 ran a loss ratio a full 15 points below unseasoned states. This demonstrates the success of our approach and the materially positive impact of our improvements in segmentation. This is possible through the increasing data that we have in these states. And this shows our data flywheel at work. The strong loss ratio performance in our season states in 2020 validates that the root pricing model is working. It is consistent with our expectations that each iteration of our UBI model results in meaningful improvements in predictive power and segmentation, which then fuels our loss ratio trend. This is a trend that we fully expect to continue in the future. As a management team, we take very seriously the deployment of your money. And as such, we are constantly balancing growth versus profitability. And something that's special about Root In addition to driving growth and profits, growth actually also creates a natural moat around our business. This is what we call our flywheel. Basically more data leads to better pricing that drives faster growth as prices get better, which then leads to more data. That growth makes us smarter. And with each new learning, we create better products at better prices. And this is the beauty of a machine learning based business. Our season state analysis. is enabling us to learn and fine-tune our pricing model in each state before we aggressively drive growth. Once we have proof that our state's unit economics are sound, we quickly and efficiently then will throttle up marketing spend in the capital we are deploying in that state. This provides us confidence as we drive growth that we will also be driving profit. We look forward to sharing further details around the evolution of our telematics and our technology and the growth and performance of our business within these seasoned states. in the quarters ahead. With that, I'll turn that over to Dan. Dan?