Root Inc.’s second earnings report as a public company reveals that the digital auto insurance startup continues to lose substantial amounts of money but it is generating substantial premium and customer growth overall.

The Ohio-based InsurTech lost $133.3 million in the 2020 fourth quarter, versus an $85.2 million net loss in the 2019 fourth quarter. Root lost $363 million for all of 2020, up from $282.4 million the previous year, according to its Q4 2020 shareholder letter.

News of Root’s results drove the company’s stock price down from $16.42 on Feb. 25 (the afternoon of which the numbers were announced) to $13.49 a day later. The stock price has recovered a bit since then, trading at $14.01 late afternoon on March 1.

Root Raised $724.2 million in an IPO held at the end of October.

COVID-19 made its impact known in multiple ways in the fourth quarter and 2020 second half. On the one hand, coronavirus shutdowns reduced driving and improved the company’s loss ratio. On the other hand, Root responded to the pandemic by slowing its marketing spend mid-year, which it said slowed its growth in the 2020 second half but increased its proportion of renewal premiums in a big way.

For the quarter, Root’s net premiums earned were just over $44 million, down from nearly $101 million in the 2019 fourth quarter. Root’s net premiums earned are up for the year, however, hitting $322.5 million compared to $275.3 million in 2019.

Root, which is pursuing a national expansion, reported higher expenses in sales and marketing, technology and related development and general/administrative costs.

Here are other Root result highlights:

• Q4 2020 direct earned premium grew 30 percent to $155 million, year-over-year.
• Direct loss ratio improved 17 points to 76, including $10 million of favorable prior period development.
• For all of 2020, direct earned premium jumped to $605 million, a 71 percent jump year-over-year.
• Direct earned premium for 2020 reached $605 million, up 71 percent versus 2019.

Root also issued guidance for 2021, predicting direct written premium between $805 million and $855 million, and direct earned premium of $685 million and $715 million.

Root also said it will more than double sales and marketing investments for 2021 after slowing spending in 2020 due to COVID-19. The company also plans to target “significant growth acceleration during the year.”

Also, due to positive loss ratio trends, Root said it would postpone extension of its Jan. 1 reinsurance treaty until April 1, when it expects to “obtain superior terms.”

Source: Root