STATUTORY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2022

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The following provides a reconciliation of the beginning and ending reserve balances for loss and LAE, net of reinsurance:


	2022		2021		2020
	(dollars in millions)
Gross loss and LAE reserves, January 1	$	320.2	$	237.2	$	140.7
Reinsurance recoverable on unpaid losses	(79.5)		(79.6)		(18.9)
Net loss and LAE reserves, January 1	240.7		157.6		121.8
Net incurred loss and LAE related to:
Current year	348.1		405.9		341.9
Prior years	2.9		(13.6)		20.9
Total incurred	351.0		392.3		362.8
Net paid loss and LAE related to:
Current year	215.6		226.4		216.3
Prior years	165.1		82.8		110.7
Total paid	380.7		309.2		327.0
Net loss and LAE reserves, December 31	211.0		240.7		157.6
Plus reinsurance recoverable on unpaid losses	76.4		79.5		79.6
Gross loss and LAE reserves, December 31	$	287.4	$	320.2	$	237.2

Incurred losses and LAE attributable to prior accident years was an increase of $2.9 million, a decrease of $13.6 million and an increase of $20.9 million during 2022, 2021 and 2020, respectively.

The increase to incurred losses for prior accident years in 2022 of $2.9 million was primarily driven by higher-than-expected reported losses from accident year 2021 material damage claims due to higher replacement parts cost and growth in used car values.

The decrease to incurred losses for prior accident years in 2021 of approximately $13.6 million was primarily due to lower-than-expected reported losses on bodily injury claims, and higher than expected subrogation and salvage recoveries from accident year 2020 material damage claims.

The increase to incurred losses for prior accident years in 2020 of approximately $20.9 million was primarily due to higher than estimated reported losses for bodily injury claims, as well as higher loss emergence on collision claims from prior accident years due to a slower cycle time for reported claims. The year ended December 31, 2020 also included development of incurred losses related to accident years 2019 and prior as a result of a change in estimate. The adjustments recorded in the year ended December 31, 2020 were necessary in order to effectuate management’s best estimate for determining the estimated ultimate cost of settling claims using our knowledge and experience about past and current events and developments.

The following table shows incurred and paid losses and allocated loss adjustment expenses, or ALAE, development by accident year for private passenger auto in aggregate, cumulative claim frequency is defined as the number of reported claims at the claim level which includes reported claims that do not result in a liability:


Incurred Losses and ALAE—Net of Reinsurance
Accident Year	2017 (unaudited)		2018 (unaudited)		2019 (unaudited)		2020 (unaudited)		2021 (unaudited)		2022		IBNR		Reported Claims(1)
			(dollars in millions)
2017	$	1.2	$	1.1	$	1.1	$	1.1	$	1.1	$	1.1	$	—	556
2018			42.3		48.3		49.6		48.7		48.3		0.2		18,111
2019					287.3		306.3		304.7		306.0		1.5		90,167
2020							295.9		287.7		286.2		3.9		117,343
2021									341.6		348.1		14.3		151,988
2022											296.0		50.1		115,312
Total											$	1,285.7	$	70.0	493,477

Cumulative Paid Losses and ALAE—Net of Reinsurance
Accident Year	2017 (unaudited)		2018 (unaudited)		2019 (unaudited)		2020 (unaudited)		2021 (unaudited)		2022
			(dollars in millions)
2017	$	0.6	$	0.9	$	1.0	$	1.1	$	1.1	$	1.1
2018			20.6		44.6		48.1		48.1		47.7
2019					177.0		277.7		296.2		302.1
2020							182.0		238.5		269.9
2021									179.4		294.6
2022											175.3
Total											1,090.7
Loss and ALAE reserves—net of reinsurance											$	195.0

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(1) Reported by claim event.

The following table sets forth the reconciliation of the claims development tables to the balance sheet losses and ALAE reserves, with separate disclosure of unallocated LAE, or ULAE, and reinsurance recoverable on unpaid losses for the years ended December 31:


	2022		2021
	(dollars in millions)
Loss and ALAE reserves—net of reinsurance	$	195.0	$	220.5
ULAE reserves—net of reinsurance	16.0		20.2
Reinsurance recoverables on unpaid losses	76.4		79.5
Total loss and LAE reserves—gross of reinsurance	$	287.4	$	320.2

The following table sets forth the historical average annual percentage payout of incurred losses and ALAE (claims duration), net of reinsurance, as of December 31, 2022:


Year	1		2		3		4		5		6
Incremental Paid(1)	54.9	%	32.5	%	8.3	%	3.7	%	(0.4)	%	—	%

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(1) Supplemental information and unauditedSTATUTORY FINANCIAL INFORMATION

Root Insurance Company and Root Property & Casualty, or our insurance subsidiaries, are required to prepare statutory financial statements in conformity with the basis of accounting practices prescribed or permitted by the Ohio DOI and Delaware DOI, respectively. Ohio and Delaware have adopted the NAIC Accounting Practices and Procedures Manual as the basis of their statutory accounting practices. Root Insurance Company and Root Property & Casualty maintained statutory capital and surplus as of December 31, 2022 and 2021 and had statutory net loss for the years ended December 31, 2022, 2021 and 2020 as follows:


	Statutory Net Loss						Statutory Capital and Surplus
	2022		2021		2020		2022		2021
	(in millions)
Root Insurance Company	$	(125.7)	$	(126.9)	$	(123.8)	$	77.0	$	91.5
Root Property & Casualty	(30.8)		(33.4)		(25.5)		20.3		21.8
Total	$	(156.5)	$	(160.3)	$	(149.3)	$	97.3	$	113.3

The payment of dividends by Root Insurance Company and Root Property & Casualty are subject to restrictions set forth in the insurance laws and regulations of the States of Ohio and Delaware, respectively, or the insurance laws. The insurance laws require domestic insurance companies to notify the supervisory superintendent, commissioner and/or director to seek prior regulatory approval to pay a dividend or distribute cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory-basis policyholders' surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer as of the prior December 31. During the years ended December 31, 2022, 2021 and 2020, Root Insurance Company and Root Property & Casualty did not pay any dividends.

The insurance laws also require domestic insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the insurance laws as the amount equal to our unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses. Additionally, following any dividend, an insurers policyholder surplus must be reasonable in relation to the insurer's outstanding liabilities and adequate for its financial needs.

The NAIC Risk-Based Capital, or RBC, model law requires every insurer to calculate its total adjusted capital and RBC requirement to ensure insurer solvency. Regulatory guidelines provide for an insurance commissioner to intervene if the insurer experiences financial difficulty, as evidenced by a company's total adjusted capital falling below established relationships to required RBC. The model includes components for asset risk, underwriting risk, credit risk and other factors. The State of Ohio and the State of Delaware impose minimum RBC requirements that are developed by the NAIC. The formulas in the model for determining the amount of RBC specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital to authorized control level RBC, as

defined by the NAIC. Companies below specific trigger points or ratios are classified within certain levels, all of which require specified corrective action. The statutory surplus for Root Insurance Company and Root Property & Casualty exceeded the minimum RBC requirements for the years ended December 31, 2022 and 2021.