Root (NASDAQ:ROOT) reported second-quarter 2026 net income of $25 million, up 15% from a year earlier, as the auto insurer emphasized underwriting discipline and continued investment in technology, distribution and geographic expansion.
Revenue rose 2% year over year to $389 million, while policies in force increased 6% to 484,000. Gross written premium declined 2% to $340 million and gross earned premium fell 1% to $368 million. The company reported a 92.1% net combined ratio, reflecting a three-percentage-point year-over-year improvement.
“We intend to pursue growth only when it meets our target returns,” Timm said. “While that decision can constrain near-term growth, we believe it is the right one for building long-term shareholder value through cycles.”
Direct market competition moderates growth
Chief Financial Officer Megan Binkley said direct policies in force declined sequentially, primarily because of the normal runoff of customers acquired during the first-quarter tax season and a more competitive environment for new direct business.
As of the earnings call, Binkley said policies in force were relatively flat with the second-quarter ending level. If current competitive conditions persist, Root expects policies in force at the end of 2026 to be relatively flat compared with the end of 2025, when the company had about 482,000 policies in force.
Timm characterized the slowdown as an “episodic interruption” rather than a change in Root’s long-term growth outlook. He said the company aims to expand when market conditions produce acceptable returns and pull back when competitors are spending aggressively or pricing more aggressively.
Root said average premiums declined year over year, consistent with trends across the insurance industry. Timm said the company believes it may have room for low-single-digit rate reductions, estimating it could be “a little overpriced” by roughly 3%, although pricing varies by state.
The company also expects the normal seasonal pattern of higher loss ratios in the second half compared with the first half. Binkley said the renewal-business loss ratio was about 54% in the quarter, primarily due to seasonality, and remained within Root’s expectations.
Distribution shifts toward partnerships and agents
Root continued to diversify its customer-acquisition channels. Partnerships and independent agents represented approximately 51% of new writings in the second quarter, compared with about 44% a year earlier.
The company recently began operating in New Jersey, which Timm said went live in July. The launch brings Root to 37 states and more than 80% of the addressable U.S. population. Root is targeting a near-national footprint by the end of 2027.
Root also announced a partnership with insurance shopping platform Jerry. Timm said the company is seeing growth from both larger existing partners and a broader set of distribution relationships, including newly appointed independent agents.
“We’re very early in the agency strategy,” Timm said, adding that Root is active with only a small minority of independent agents nationally.
The company plans to invest about $10 million during the second half in research and development initiatives and testing new acquisition channels. Timm said Root has historically concentrated marketing investments in lower-funnel search channels but is testing upper-funnel channels, where it has seen favorable early results. He said Root currently participates in fewer than 10% of media channels used across the industry.
Technology and AI remain strategic focus
Timm said Root’s technology strategy is rooted in proprietary insurance and driving data, including more than 37 billion miles of driving data and over 900,000 filed claims. He said advances in artificial intelligence could enhance the company’s pricing, claims, underwriting, customer service and software-development processes.
Root expects to launch its newest predictive pricing model later in 2026, with a state-by-state rollout beginning in the fourth quarter. Timm said the model is not expected to materially affect 2026 results but could become a stronger driver in 2027. The company said its prior pricing-model launch increased customer lifetime values by more than 20%.
Timm also said that more than 90% of Root’s code base has been “touched meaningfully” by AI, and the company expects continued investment in AI engineering.
Balance sheet and expenses
During the quarter, Root refinanced its existing $200 million debt facility with a new term loan led by The Huntington National Bank. Binkley said the refinancing reduced the company’s cost of debt and increased financial flexibility.
Root repurchased more than $20 million of shares under its $75 million authorization. Binkley said buybacks are part of a broader capital-allocation framework that also includes organic growth, technology investments, pricing innovation and distribution opportunities.
The net expense ratio improved to 26% from the prior year, while the net loss and loss-adjustment-expense ratio was broadly unchanged at 66%. However, Binkley cautioned against treating the second-quarter expense ratio as a run rate because it benefited from lower performance-based equity compensation expense. She said investors should view the first and fourth quarters as more normalized periods for expenses and expects fixed expenses to represent 10% to 11% of gross earned premium in the second half.
About Root (NASDAQ:ROOT)
Root, trading on the Nasdaq under the ticker ROOT, is a Columbus, Ohio–based insurance company that leverages mobile technology and data analytics to offer personalized auto insurance policies. Founded in 2015 by Alex Timm and Dan Manges, Root set out to transform traditional underwriting by focusing on individual driving behavior rather than broad demographic factors.
The company’s core product is usage-based auto insurance, delivered through a smartphone app that monitors driving patterns such as speed, braking and phone usage behind the wheel.
