Root, Inc.

ROOT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

1. NATURE OF BUSINESS

Root, Inc. is a holding company which, directly or indirectly, maintains 100% ownership of each of its subsidiaries, including, among others, Root Insurance Company, Root Property & Casualty Insurance Company, or Root Property & Casualty, and Root Select Insurance Company, all Ohio-domiciled insurance companies, Root Florida Insurance Company, or Root Florida, a Florida-domiciled insurance company, and Root Reinsurance Company, Ltd., a Cayman Islands-domiciled reinsurance company, together with Root, Inc., “we,” “us,” or “our.”

We were formed in 2015 and began writing personal auto insurance in July 2016. We are a technology company operating primarily a direct-to-consumer model with the majority of our personal insurance customers acquired through mobile apps and partnerships. We offer auto and renters insurance products underwritten by Root Insurance Company and auto insurance only through Root Property & Casualty and Root Florida.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—In our opinion, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. All such adjustments are of a normal and recurring nature. These condensed consolidated financial statements are unaudited and, accordingly, should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission on February 25, 2026.

Basis of Consolidation—The unaudited condensed consolidated financial statements include the accounts of Root, Inc. and its subsidiaries, all of which are wholly owned. These financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., or GAAP. All intercompany accounts and transactions have been eliminated.

Use of Estimates—The preparation of the unaudited condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates reflected in our unaudited condensed consolidated financial statements include, but are not limited to, reserves for loss and loss adjustment expense, or LAE, valuation allowances on our deferred tax assets and the amount of reinsurance recoverable from reinsurance contracts.

Segment Information—We are a technology company that provides direct-to-consumer insurance products to customers. We operate as a single reporting segment that is managed on a consolidated basis. Our Chief Executive Officer is our chief operating decision maker, or CODM. The primary measure the CODM utilizes to manage operations, monitor budget versus actual results, and evaluate financial performance is net income as reported on the condensed consolidated statements of operations and comprehensive income. This information is regularly provided to the CODM.

The CODM allocates resources based on consolidated expense and forecasted expense information. Significant expenses, which are presented on the condensed consolidated statements of operations and comprehensive income, include loss and LAE, sales and marketing, other insurance expense and technology and development. Other segment items include expenses that our CODM does not evaluate for purposes of making operating decisions. These items include general and administrative, interest expense, loss on extinguishment of debt and income tax expense, which can all be found on the condensed consolidated statements of operations and comprehensive income. Assets provided to the CODM are consistent with those reported on the condensed consolidated balance sheets.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents—Cash consists of cash on deposit. Cash equivalents are short-term, highly liquid investments that typically mature within three months from the date of origination or purchase, and are principally stated at amortized cost, which approximates their fair value. Restricted cash consists of amounts held by a financial institution to satisfy letter of credit requirements for certain property leases. Restricted cash equivalents consist of amounts held by our lender to satisfy the minimum cash management requirements under our senior secured term loan and short-term, highly liquid investments held by a financial institution to maintain certain collateral requirements with an unaffiliated Texas county mutual insurance company, and are stated at amortized cost, which approximates their fair value.

The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported within the condensed consolidated balance sheets that sum to the total of the same such amount in the condensed consolidated statements of cash flows:

Investments— In June 2026, we purchased $4.5 million in premium tax credits for a purchase price of $3.8 million. This investment is recognized within other assets in our condensed consolidated balance sheet. These tax credits can be utilized in three annual installments to offset certain state premium taxes beginning with the 2026 premium tax year. We will recognize these tax credits on a quarterly basis, up to the annual credit value. We also recognized a purchase discount, which is the difference between the premium tax credits and purchase price, as a deferred gain within other liabilities in our condensed consolidated balance sheet. As we utilize the tax credits to settle our premium tax liabilities, the deferred discount is recognized proportionally within other income in our condensed consolidated statements of operations and comprehensive income. An impairment will be recognized if it is probable that we will be unable to recover the carrying value of the premium tax credits. Impairment of the investment would be recognized within other income in our condensed consolidated statements of operations and comprehensive income.

Premiums Payable and Reinsurance Premiums Receivable—We have a fronting arrangement with an unaffiliated Texas county mutual insurance company, or the fronting carrier. We route all of our new auto policies in Texas through the fronting carrier whereby we assume 100% of the related premium and losses on those policies. The fronting arrangement allows us to have greater rating and underwriting flexibility. Premiums assumed are deferred and earned pro rata over the policy period. Unearned premium is established to cover the unexpired portion of premiums assumed. Premiums payable are amounts owed to the fronting carrier. Reinsurance premiums receivable are the amounts owed to us from the fronting carrier for reinsurance premiums.

Deferred Policy Acquisition Costs—We amortized deferred policy acquisition costs of $29.0 million and $58.3 million for the three and six months ended June 30, 2026, respectively, and $18.3 million and $29.7 million for the three and six months ended June 30, 2025, respectively.

Performance-Based Restricted Stock Units—In the first quarter of 2026, we granted 0.4 million performance-based restricted stock units to our executive officers and certain key employees as part of our equity compensation plan. The actual number of performance-based restricted stock units can vary from zero to 200% of the target depending on goal achievement relative to a gross accident period loss ratio and policies in force goal matrix. The overall performance period begins on January 1, 2026 and ends on December 31, 2028 and is divided into three sub-performance periods, each beginning on January 1, 2026 and ending on December 31, 2026, 2027, and 2028, respectively. These overlapping sub-performance periods areone, two, andthree years in duration. Expense for each sub-performance period is recognized ratably over the requisite service period. Awards earned in any sub-performance period vest on the Compensation Committee Certification date, which is expected to be in the first quarter of the subsequent year.

The performance-based restricted stock units expense is recognized based on the grant date fair value of the award, which was determined using the Company’s close price as of the grant date. This expense is recognized using a graded vesting approach. We assess the probability of the performance conditions being met on a quarterly basis and begin recognizing expense only once it is deemed probable that the performance criteria will be satisfied.

Share Repurchases—We are authorized to repurchase shares of our Class A common stock under a stock repurchase program, or Repurchase Program, approved by our board of directors. We retire shares of our Class A common stock immediately upon repurchase. In connection with the early adoption of Accounting Standards Update, or ASU, No. 2025-12, Codification Improvements, during the second quarter of 2026, we elected to recognize the excess of the repurchase price over par value entirely as a reduction of additional paid-in capital, or APIC, provided that APIC remains positive. The repurchase price includes direct and incremental transaction costs incurred to repurchase the shares, which are recorded as a reduction of APIC.

This accounting policy election is reflected within the condensed consolidated balance sheets and the condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity. See Note 9, “Capital Stock,” for further details regarding our repurchase activity.

Reclassification—Certain prior-year amounts have been reclassified to conform with the current year presentation. These reclassifications did not have a material impact on the condensed consolidated financial statements and notes to condensed consolidated financial statements. The reclassifications within the condensed consolidated balance sheets include the presentation of “Prepaid reinsurance premiums” within “Other assets” and “Reinsurance premiums payable” within “Other liabilities.” Additionally, “Reinsurance recoverable and receivable” was disaggregated to “Reinsurance recoverable” and “Reinsurance premiums receivable,” respectively. “Deferred policy acquisition costs” were disaggregated from “Other assets” and “Premiums payable” was disaggregated from “Other liabilities” to separate captions.

Recently Adopted Accounting Pronouncements—In December 2025, the Financial Accounting Standards Board issued ASU, No. 2025-12, Codification Improvements, which serves to clarify, correct errors, or make minor improvements to various topics within the Accounting Standards Codification. ASU 2025-12 is effective for fiscal years beginning after December 15, 2026, including interim periods within those annual reporting periods. Early adoption is permitted, and entities may elect to adopt the amendments on an issue-by-issue basis. Certain amendments are required to be applied retrospectively, while others are applied prospectively.

During the second quarter of 2026, we early adopted the provisions of ASU 2025-12 to clarify methods to account for treasury stock retirements on a prospective basis. The adoption of this guidance did not result in a cumulative-effect adjustment to opening retained earnings, accumulated deficit, APIC, or total stockholders’ equity. Furthermore, the adoption of this guidance did not have a material impact on our condensed consolidated statements of operations and comprehensive income or condensed consolidated statements of cash flows.

3. INVESTMENTS

The amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities at June 30, 2026 and December 31, 2025 are as follows:

Management reviewed the available-for-sale fixed maturity securities and short-term investments at each balance sheet date to consider whether it was necessary to recognize a credit loss as of June 30, 2026 and December 31, 2025. We do not intend to sell the securities, and it is not more likely than not that we will be required to sell the securities before recovery. Management concluded that the unrealized losses on the available-for-sale fixed maturity securities and short-term investments were due to non-credit related factors and, therefore, there was no allowance for credit loss as of June 30, 2026 and December 31, 2025.

The following tables reflect the gross unrealized losses and fair value of short-term investments and available-for-sale fixed maturity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2026 and December 31, 2025:

Other Investments

As of June 30, 2026 and December 31, 2025, other investments related to our private equity investments were zero and $4.4 million, respectively. During the three and six months ended June 30, 2026, we recognized an impairment loss of $4.4 million related to our private equity investments, which reduced the carrying amount of other investments to zero. The impairment loss was recorded in net investment income in our condensed consolidated statements of operations and comprehensive income. There wereno realized or unrealized gains or losses recognized on private equity investments for the three and six months ended June 30, 2026 and 2025, andno impairment losses recognized for the three and six months ended June 30, 2025.

The following table reflects the gross and net realized gains and losses on short-term investments and available-for-sale fixed maturities that have been included in the condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2026 and 2025:

The following table sets forth the amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities by contractual maturity at June 30, 2026:

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following table sets forth the components of net investment income for the three and six months ended June 30, 2026 and 2025:

The following tables summarize the credit ratings of short-term investments and available-for-sale fixed maturity securities at June 30, 2026 and December 31, 2025:

Pursuant to certain regulatory requirements, we are required to hold assets on deposit with various state insurance departments for the benefit of policyholders. These special deposits are included in available-for-sale fixed maturity securities on the condensed consolidated balance sheets. As of June 30, 2026 and December 31, 2025, these required deposits had an amortized cost of $13.7 million and $15.7 million, respectively, and fair value of $13.8 million and $15.9 million, respectively. We maintain restricted cash equivalents and certain investments in a trust to meet collateral requirements with the fronting carrier. As of June 30, 2026 and December 31, 2025, we held investments in the trust of $87.5 million and $77.0 million, respectively. There are withdrawal and other restrictions on these deposits. Ultimately, when unearned premiums run off and loss reserves are paid under this program, any remaining trust balances will be released and available for general use.

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following tables provide information about our financial assets measured and reported at fair value as of June 30, 2026 and December 31, 2025:

We estimate the fair value of all our different classes of Level 2 fixed maturities and short-term investments by using quoted prices from a combination of an independent pricing vendor or broker/dealer, pricing models, quoted prices of securities with similar characteristics or discounted cash flows. All significant inputs were observable in the active markets.

Fair Value of Long-Term Debt

The carrying amount of long-term debt is recorded at the unpaid balance, net of discount and debt issuance costs. The fair value of outstanding long-term debt is classified within Level 2 of the fair value hierarchy. The fair value is based on a model referencing observable interest rates and spreads to project and discount cash flows to present value. As of June 30, 2026 and December 31, 2025, the carrying amounts and fair values of these financial instruments were as follows:

The carrying amounts of other short-term financial instruments approximate their fair value due to their short-term nature.

5. 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:

Net incurred losses and LAE attributable to prior accident years was a decrease of $28.5 million and $14.0 million for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, the development of incurred losses and LAE related to prior periods was primarily driven by lower-than-expected reported losses and LAE from accident year 2025 on both liability and physical damage coverages and the identification of additional subrogation opportunities resulting from model improvements. For the six months ended June 30, 2025, the development of incurred losses and LAE related to prior periods was primarily driven by lower-than-expected reported losses and LAE from accident year 2024 on both liability and physical damage coverages.

6. REINSURANCE

The following table reflects amounts affecting the condensed consolidated statements of operations and comprehensive income for reinsurance for the three and six months ended June 30, 2026 and 2025:

In the event that all or any of the reinsuring companies might be unable to meet their obligations under existing reinsurance agreements, we would be liable to the policyholder for such defaulted amounts.

7. LONG-TERM DEBT

In October 2024, we entered into a $200.0 millionsix-year term loan, or Amended Term Loan, with the principal amount due and payable upon maturity on October 29, 2030. Interest was payable quarterly and 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 May 2026, we prepaid all of the outstanding principal balance of the Amended Term Loan with borrowings under a new senior secured term loan described below. The prepayment resulted in a loss on extinguishment of debt of $4.9 million, primarily related to accelerated amortization of debt discount and issuance costs and a prepayment premium.

In May 2026, we obtained a $200.0 million senior secured term loan that matures in May 2029. We incurred $2.3 million of debt discount and issuance costs related to the senior secured term loan, which were capitalized and will be amortized over the duration of the senior secured term loan. We are required to make quarterly principal payments starting September 30, 2026 equal to approximately 0.25% of the original principal amount in each of the first two years following the closing date and 1.25% quarterly in the third year, with the unpaid balance due at maturity. Interest is variable and calculated between SOFR plus 3.0% and SOFR plus 3.75% and is payable quarterly in cash. The SOFR margin is based upon the debt-to-capital ratio which is calculated on the last day of each quarter beginning on September 30, 2026.

The senior secured term loan requires us to maintain cash and cash equivalents held with the lender to be at least 25.0% of the outstanding principal balance at all times. As of June 30, 2026, we maintained $50.0 million of cash and cash equivalents with the lender, which we have recorded within restricted cash and cash equivalents on our condensed consolidated balance sheets. The senior secured term loan also contains debt covenants that commence with the three months ending September 30, 2026, and are measured at the end of each fiscal quarter.

These covenants require mandatory minimum thresholds on our consolidated net worth, debt service coverage, and regulated subsidiary equity. We are also required to maintain a minimum risk-based capital ratio on our domestic insurance subsidiaries. Additionally, the agreement includes a maximum debt-to-capital ratio, which includes scheduled step-downs over the duration of the senior secured term loan.

The senior secured term loan is secured by assets of Root, Inc. and those of our wholly-owned subsidiary loan parties. In addition, we have pledged 100% of the capital stock of our subsidiaries.

The following summarizes the carrying value of long-term debt as of June 30, 2026 and December 31, 2025:

The required principal payments on long-term debt as of June 30, 2026 are as follows:

8. INCOME TAXES

The consolidated effective tax rate was 0.6% andzero for the six months ended June 30, 2026 and 2025, respectively. The difference between these rates and the U.S. federal income tax rate of 21.0% was primarily due to state income tax expense and a full valuation allowance on our federal and state deferred tax assets.

As of June 30, 2026, we maintained a full valuation allowance against our deferred tax assets. We expect to maintain a full valuation allowance until it becomes more likely than not that the deferred tax asset will be realized. However, given our anticipated future earnings, management believes that there is a reasonable possibility that in the foreseeable future, sufficient positive evidence may become available to reach a conclusion that all or a portion of the valuation allowance may no longer be needed. Release of the valuation allowance would result in recognition of certain deferred tax assets and a corresponding material income tax benefit for the period the release is recorded. The exact timing and amount of the valuation allowance release would depend on our financial performance, projected taxable income in the relevant jurisdictions, and ongoing evaluation of available positive and negative evidence.

As of June 30, 2026 and December 31, 2025, we did not have any unrecognized tax benefits for uncertain tax positions and had no interest or penalties related to uncertain tax positions.

9. CAPITAL STOCK

Repurchase Program

On May 6, 2026, we announced that our board of directors approved the Repurchase Program for the repurchase of up to $75.0 million of our outstanding shares of Class A common stock. We may utilize various methods to effect repurchases, which include open market purchases, privately negotiated transactions, block purchases, accelerated share repurchase agreements or a combination of methods, including pursuant to trading plans adopted under Rule 10b5-1 under the Securities Exchange Act of 1934, or the Exchange Act. The Repurchase Program does not have a set expiration date and may be modified, suspended, or discontinued at any time at the discretion of our board of directors. The timing and amount of any repurchases under the Repurchase Program will depend upon several factors, including market and business factors.

During the six months ended June 30, 2026, we repurchased and immediately retired 0.4 million shares of our Class A common stock for an aggregate amount, including transaction costs, of $20.8 million under the Repurchase Program.

10. SHARE-BASED COMPENSATION

Warrants

In October 2021, we issued Carvana eight tranches of warrants, comprised ofthree tranches of “short-term warrants” andfive tranches of “long-term warrants,” with the opportunity to purchase a maximum of 7.2 million shares of Class A common stock. The short-term warrants expired unexercised on September 1, 2025, at which point the long-term warrants became probable of vesting; the long-term warrants have an expiration date of September 1, 2027.

We recognized compensation expense considering the probability of and progress toward achieving the long-term warrant policy origination milestones. For the three months ended June 30, 2026 and 2025, we recognized compensation expense of $1.6 million andzero, respectively. For the six months ended June 30, 2026 and 2025, we recognized compensation expense of $3.5 million andzero, respectively. Warrant compensation expense is recorded in other insurance expense in the condensed consolidated statements of operations and comprehensive income. All of these warrants are out-of-the-money and, therefore, have no intrinsic value as of June 30, 2026.

Based on the probability of achieving certain policy origination milestones, unrecognized compensation cost is approximately $4.3 million as of June 30, 2026. The weighted-average remaining compensation costs are expected to be recognized over a period of 0.75 years.

The following table provides the maximum remaining unrecognized compensation costs as of June 30, 2026, and other key terms of the warrants:

Employee Share-Based Compensation

We maintain an equity incentive plan, or the Plan, for the issuance and grant of equity awards (restricted stock, service-based restricted stock units, performance-based restricted stock units, market-based restricted stock units, and incentive and nonqualified stock options) to our officers, directors, employees, and certain advisors. As of June 30, 2026, we had 1.5 million common shares available for issuance under the Plan.

The following table displays share-based compensation expense recorded in the condensed consolidated statements of operations and comprehensive income:

The unrecognized compensation cost and the remaining weighted-average period over which these costs are expected to be recognized for restricted stock units and unvested stock options as of June 30, 2026 is as follows:

Restricted Stock Units

A summary of restricted stock units activity for the six months ended June 30, 2026 is as follows:

Additional information pertaining to restricted stock units for the six months ended June 30, 2026 and 2025 is as follows:

Stock Options

A summary of option activity for the six months ended June 30, 2026 is as follows:

11. COMMITMENTS AND CONTINGENCIES

From time to time, we are party to litigation and legal proceedings relating to our business operations. While the outcome of all legal actions is not presently determinable, we do not believe that we are party to any current or pending legal action that could reasonably be expected to have a material adverse effect on our financial condition or results of operations and cash flow.

On December 23, 2025, an amended putative collective and class action complaint was filed against the Company, Root, Inc., and its wholly owned subsidiary, Caret Holdings, Inc., in the United States District Court for the Southern District of Ohio, Eastern Division (Case No. 2:25-cv-01078-ALM-KAJ) by a former employee individually and on behalf of other similarly situated current and former employees. The complaint alleged that the defendants violated the Fair Labor Standards Act and the Missouri Minimum Wage Law by failing to pay non-exempt customer service representatives for all hours worked, including alleged off-the-clock pre-shift and post-shift work and overtime compensation. The complaint sought unpaid wages, overtime compensation, liquidated damages, statutory damages, pre- and post-judgment interest, attorneys’ fees, and costs on behalf of the named plaintiff and members of the proposed collective and class. The matter was resolved for an immaterial amount and dismissed with prejudice on May 7, 2026.

We are contingently liable for possible future assessments under regulatory requirements for insolvencies and impairments of unaffiliated insurance companies.

12. OTHER COMPREHENSIVE (LOSS) INCOME AND ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents the changes in our accumulated other comprehensive (loss) income, or AOCI, for the three and six months ended June 30, 2026 and 2025:

13. EARNINGS PER SHARE

The following table displays the computation of basic and diluted earnings per share, or EPS, for both Class A and Class B common stock for the three and six months ended June 30, 2026 and 2025:

We excluded the following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, from the computation of diluted EPS attributable to common shareholders for the periods indicated because including them would have had an anti-dilutive effect:

14. GEOGRAPHICAL BREAKDOWN OF GROSS PREMIUMS WRITTEN

Gross premiums written by state is as follows for the three and six months ended June 30, 2026 and 2025: