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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from____________to____________

Commission File Number: 001-39658
ROOT, INC.
(Exact name of Registrant as specified in its charter)
Delaware84-2717903
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
80 E. Rich Street, Suite 500
Columbus, Ohio
43215
(Address of principal executive offices)(Zip Code)
(866) 980-9431
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A common stock,
$0.0001 par value per share
ROOTNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒
As of April 28, 2021, the number of outstanding shares of the registrant’s Class A common stock, par value $0.0001 per share, was 86,893,126 and the number of outstanding shares of the registrant’s Class B common stock, par value $0.0001 per share, was 166,034,886.



TABLE OF CONTENTS
Page



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our ability to retain existing customers, acquire new customers and expand our customer reach;
our expectations regarding our future financial performance, including total revenue, gross profit/(loss), adjusted gross profit/(loss), direct contribution, direct loss ratio, marketing costs, direct loss adjustment expense, or LAE, ratio, quota share levels and expansion of our renewal premium base;
the impact of the COVID-19 pandemic on our business and financial performance;
our goal to be licensed in all states in the United States and the timing of obtaining additional licenses and launching in new states;
the accuracy and efficiency of our telematics and behavioral data, and our ability to gather and leverage additional data;
our ability to materially improve retention rates and our ability to realize benefits from retaining customers;
our ability to underwrite risks accurately and charge profitable rates;
our ability to maintain our business model and improve our capital and marketing efficiency;
our ability to drive improved conversion and decrease the cost of customer acquisition;
our ability to maintain and enhance our brand and reputation;
our ability to effectively manage the growth of our business;
our ability to improve our product offerings, introduce new products and expand into additional insurance lines;
our ability to cross sell our products and attain greater value from each customer;
our lack of operating history and ability to attain profitability;
our ability to compete effectively with existing competitors and new market entrants in our industry;
future performance of the markets in which we operate;
our ability to operate a “capital-light” business and obtain and maintain reinsurance contracts;
our ability to realize economies of scale;
our ability to expand our distribution channels through additional partnership relationships, digital media and referrals;
our ability to protect our intellectual property and any costs associated therewith;
our ability to expand domestically and internationally;
our ability to raise additional capital;



our ability to meet risk-based capital requirements;
our ability to stay in compliance with laws and regulation that currently apply or become applicable to our business; and
the growth rates of the markets in which we compete.
You should not rely on forward-looking statements as predictions of future events. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained herein. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made and we undertake no obligation to update them to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
Unless the context otherwise indicates, references in this report to the terms “Root,” “the Company,” “we,” “our” and “us” refer to Root, Inc. and its subsidiaries.

We may announce material business and financial information to our investors using our investor relations website (ir.joinroot.com). We therefore encourage investors and others interested in Root to review the information that we make available on our website, in addition to following our filings with the Securities and Exchange Commission, webcasts, press releases and conference calls.



Part I.  Financial Information
Item 1.  Financial Statements
ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
As of
March 31,December 31,
20212020
(in millions, except par value )
Assets
Investments:
Fixed maturities available-for sale, at fair value (amortized cost: $134.2 and $215.4 at March 31, 2021 and December 31, 2020, respectively)
$136.3 $221.0 
Short-term investments (amortized cost: $3.0 and $3.0 at March 31, 2021 and December 31, 2020, respectively)
3.0 3.0 
Other investments0.5 0.5 
Total investments 139.8 224.5 
Cash and cash equivalents1,106.3 1,112.8 
Restricted cash1.0 1.0 
Premiums receivable, net of allowance of $2.0 and $3.5 at March 31, 2021 and December 31, 2020, respectively
161.0 130.1 
Reinsurance recoverable130.0 124.8 
Prepaid reinsurance premiums101.3 112.8 
Other assets64.8 56.3 
Total assets$1,704.2 $1,762.3 
Liabilities and Stockholders’ Equity
Liabilities:
Loss and loss adjustment expense reserves$240.7 $237.2 
Unearned premiums199.4 157.1 
Long-term debt192.2 188.2 
Reinsurance premiums payable65.7 89.1 
Accounts payable and accrued expenses50.5 48.0 
Other liabilities21.4 10.3 
Total liabilities769.9 729.9 
Commitments and Contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 100.0 shares authorized, zero shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
  
Class A common stock, $0.0001 par value, 1,000.0 shares authorized, 86.5 and 59.4 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
  
Class B common stock, $0.0001 par value, 269.0 shares authorized, 166.4 and 192.2 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
  
Treasury stock, at cost(0.8)(0.8)
Additional paid-in capital1,780.6 1,775.6 
Accumulated other comprehensive income2.1 5.6 
Accumulated loss(847.6)(748.0)
Total stockholders’ equity934.3 1,032.4 
Total liabilities and stockholders’ equity$1,704.2 $1,762.3 
See Notes to the Condensed Consolidated Financial Statements - Unaudited
1


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - UNAUDITED
Three Months Ended March 31,
20212020
(in millions, except per share data)
Revenue:
Net premiums earned$59.1 $117.8 
Net investment income0.9 1.9 
Net realized gains on investments2.4  
Fee and other income6.2 4.3 
Total revenue68.6 124.0 
Operating expenses:
Loss and loss adjustment expenses59.9 129.9 
Sales and marketing68.4 35.8 
Other insurance expense2.4 11.3 
Technology and development13.8 16.0 
General and administrative18.4 30.9 
Total operating expenses162.9 223.9 
Operating loss(94.3)(99.9)
Interest expense(5.3)(5.7)
Loss before income tax expense(99.6)(105.6)
Income tax expense  
Net loss(99.6)(105.6)
Other comprehensive loss:
Changes in net unrealized losses on investments(3.5)(1.8)
Comprehensive loss$(103.1)$(107.4)
Loss per common share: basic and diluted (both Class A and B)$(0.40)$(2.69)
Weighted-average common shares outstanding: basic and diluted247.1 39.3 
See Notes to the Condensed Consolidated Financial Statements - Unaudited

2


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) - UNAUDITED
Redeemable Convertible Preferred StockClass A and Class B Common StockTreasury StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated LossTotal Stockholders' Equity (Deficit)
SharesAmountClass A SharesClass B SharesAmountSharesAmount
(in millions)
Balance—January 1, 2021 $ 59.4 192.2 $ 4.6 $(0.8)$1,775.6 $5.6 $(748.0)$1,032.4 
Net loss— — — — — — — — — (99.6)(99.6)
Changes in other comprehensive loss— — — — — — — — (3.5)— (3.5)
Conversion of Class B to Class A— — 26.1 (26.1)— — — — — —  
Common stock—option exercises and restricted stock units vesting, net of shares withheld for employee taxes— — 1.0 0.3 — — — 2.3 — — 2.3 
Reclassification of early-exercised stock option from liabilities — — — — — — — 0.4 — — 0.4 
Common stock—share-based compensation expense— — — — — — — 2.3 — — 2.3 
Balance—March 31, 2021 $ 86.5 166.4 $ 4.6 $(0.8)$1,780.6 $2.1 $(847.6)$934.3 
Balance—January 1, 2020158.9 $560.4  44.4 $ 4.5 $(0.1)$10.5 $0.6 $(385.0)$(374.0)
Net loss— — — — — — — — — (105.6)(105.6)
Changes in other comprehensive loss— — — — — — — — (1.8)— (1.8)
Tender offer and subsequent conversion2.9 — — (2.9)— — — 25.1 — — 25.1 
Common stock—option exercises— — 0.4 — — — 0.3 — — 0.3 
Common stock—share-based compensation expense— — — — — — — 0.6 — — 0.6 
Balance—March 31, 2020161.8 $560.4  41.9 $ 4.5 $(0.1)$36.5 $(1.2)$(490.6)$(455.4)

See Notes to the Condensed Consolidated Financial Statements - Unaudited

3


ROOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Three Months Ended March 31,
20212020
(in millions)
Cash flows from operating activities:
Net loss$(99.6)$(105.6)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation2.3 0.6 
Tender offer 25.1 
Depreciation and amortization3.5 3.7 
Bad debt expense4.7 3.8 
Payment-in-kind interest expense2.4 2.2 
Realized gains on investments(2.4) 
Changes in operating assets and liabilities:
Premiums receivable(35.6)(19.7)
Reinsurance recoverable(5.2)(12.0)
Prepaid reinsurance premiums11.5 (21.6)
Other assets2.0 (4.2)
Losses and loss adjustment expenses reserves3.5 34.9 
Unearned premiums42.3 20.3 
Reinsurance premiums payable(23.4)31.8 
Accounts payable and accrued expenses2.5 (5.4)
Other liabilities0.6 (0.1)
Net cash used in operating activities(90.9)(46.2)
Cash flows from investing activities:
Purchases of investments (100.8)
Proceeds from maturities, call and pay downs of investments13.1 8.2 
Sales of investments70.2  
Capitalization of internally developed software(1.6)(1.4)
Purchases of fixed assets(0.4)(1.3)
Net cash provided by (used in) investing activities81.3 (95.3)
Cash flows from financing activities:
Proceeds from exercise of stock options and restricted stock units, net of tax proceeds/(withholding)3.3 0.3 
Debt issuance costs (0.1)
Repayments of long-term debt(0.2)(12.7)
Net cash provided by (used in) financing activities3.1 (12.5)
Net decrease in cash, cash equivalents and restricted cash (6.5)(154.0)
Cash, cash equivalents and restricted cash at beginning of period1,113.8 416.6 
Cash, cash equivalents and restricted cash at end of period$1,107.3 $262.6 
See Notes to the Condensed Consolidated Financial Statements - Unaudited

4


ROOT, INC. AND SUBSIDIARIES
NOTES TO THE 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, an Ohio-domiciled insurance company, and Root Property & Casualty, a Delaware-domiciled insurance 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 a direct-to-consumer model with more than 75% of our personal insurance customers acquired through mobile applications. We offer auto and renters insurance products underwritten by Root Insurance Company.
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 notes included in the Annual Report on Form 10-K filed with the SEC on March 4, 2021.
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 United States, 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, premium write-offs and valuation allowances for income taxes.
COVID-19—In March 2020, the World Health Organization declared COVID-19 to be a global pandemic. The pandemic and related measures taken to contain the spread of COVID-19, such as government-mandated business closures, orders to “shelter in place” and travel and transportation restrictions, have negatively affected the U.S. and global economies, disrupted global supply chains, and led to unprecedented levels of unemployment. We, and other businesses within the insurance industry, have been impacted by certain individual state bulletins that were issued in 2020 and outlined COVID-19 premium relief efforts, including restrictions on the ability to cancel policies for non-payment, requirements to defer insurance premium payments for up to 60 days and restrictions on increasing policy premiums. The COVID-19 pandemic has impacted and may further impact the broader economic environment, including negatively impacting unemployment levels, economic growth, the proper functioning of financial and capital markets and interest rates. As the COVID-19 pandemic continues to develop, there is uncertainty around the severity and duration of the pandemic and the pandemic’s potential impact on our business and our financial performance. Accordingly, we cannot predict the impact that it may have on our future results of operations and financial condition.
Recently Adopted Financial Accounting Standards—In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The main provision of ASU 2016-02 requires the recognition of right-of-use lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance also requires disclosures that meet the objective of enabling financial statement users to assess the amount, timing, and uncertainty of related cash flows. We adopted ASU 2016-02 on January 1, 2021.

5


We elected various practical expedients which include not applying the amended lease accounting guidance to comparative periods; including the carry forward of our leases without reassessing whether any contracts are leases or contain leases, lease classification and initial direct costs; and excluding leases with a term of 12 months or less from lease liability and right-of-use asset recognition. We did not elect the hindsight practical expedient.
Our lease agreements contain lease components and non-lease components, both of which we have elected to account for as a single lease component for our real estate asset class. Operating lease expense for operating lease right of use assets is recognized on a straight-line basis over the lease term, which may include options to extend or terminate the lease when it is reasonably certain to do so and there is a significant economic incentive to exercise that option.
Upon adoption of ASU 2016-02, we recognized an operating lease liability of $16.2 million and corresponding right of use asset of $9.9 million, which includes the effect of $6.3 million from reclassifying previously recognized deferred rent and lease exit liabilities as an offset, in accordance with the transition guidance. These lease assets and liabilities are recorded as other assets and other liabilities on the condensed consolidated balance sheets. This transition adjustment was reflected as a non-cash transaction in our condensed consolidated statements of cash flows. The transition did not have a material impact on our results of operations, liquidity or debt covenant compliance under our current debt agreements. For additional information refer to Note 6, “Leases.”
Upcoming Accounting Pronouncements—We currently qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, whereby we have the option to adopt new or revised accounting guidance within the same time periods as private companies. We have elected this option, but may ultimately determine it is preferable to take advantage of early adoption provisions offered within the applicable guidance.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends previous guidance on the impairment of financial instruments by adding an impairment model that allows an entity to recognize expected credit losses as an allowance rather than impairing as they are incurred. The new guidance is intended to reduce complexity of credit impairment models and result in a more timely recognition of expected credit losses. The effective date of ASU 2016-13 is for reporting periods beginning after December 15, 2022. We are currently evaluating the impact of ASU 2016-13.
3.INVESTMENTS
The amortized cost and fair value of short-term investments and available-for-sale fixed maturity securities at March 31, 2021 and December 31, 2020 are as follows:
March 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies$16.0 $0.1 $(0.1)$16.0 
Municipal securities20.0 0.5  20.5 
Corporate debt securities50.6 1.2 (0.1)51.7 
Residential mortgage-backed securities6.2  (0.1)6.1 
Commercial mortgage backed securities31.4 0.5  31.9 
Other debt obligations10.0 0.1  10.1 
Total fixed maturities134.22.4(0.3)136.3
Short-term investments3.0  3.0
Total$137.2 $2.4 $(0.3)$139.3 

6


December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
(dollars in millions)
Fixed maturities:
U.S. Treasury securities and agencies$16.9 $0.1 $ $17.0 
Municipal securities22.6 0.8  23.4 
Corporate debt securities87.5 3.1 (0.1)90.5 
Residential mortgage-backed securities7.8   7.8 
Commercial mortgage backed securities57.1 1.3  58.4 
Other debt obligations23.5 0.4  23.9 
Total fixed maturities215.45.7(0.1)221.0
Short-term investments3.0  3.0
Total$218.4 $5.7 $(0.1)$224.0 
The following tables reflect the gross unrealized losses and fair value of bonds, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021 and December 31, 2020:
March 31, 2021
Less than 12 Months12 Months or MoreTotal
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
(dollars in millions)
Bonds:
U.S. Treasury securities and agencies$14.0 $(0.1)$ $ $14.0 $(0.1)
Municipal securities6.4    6.4  
Corporate debt securities8.1 (0.1)  8.1 (0.1)
Residential mortgage-backed securities
4.3 (0.1)0.3  4.6 (0.1)
Commercial mortgage-backed securities
3.1    3.1  
Total bonds$35.9 $(0.3)$0.3 $ $36.2 $(0.3)
December 31, 2020
Less than 12 Months12 Months or MoreTotal
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
Fair ValueUnrealized
Loss
(dollars in millions)
Bonds:
U.S. Treasury securities and agencies$15.7 $ $ $ $15.7 $ 
Municipal securities2.3    2.3  
Corporate debt securities2.9 (0.1)  2.9 (0.1)
Residential mortgage-backed securities3.7    3.7  
Commercial mortgage-backed securities4.9    4.9  
Other debt obligations0.1    0.1  
Total bonds$29.6 $(0.1)$ $ $29.6 $(0.1)

7


There were no other-than-temporary impairments recognized in the three months ended March 31, 2021 or 2020, respectively.
The following table reflects the gross and net realized gains and losses on short-term investments and fixed maturities that have been included in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
(dollars in millions)
Realized gains on investments$2.5 $ 
Realized losses on investments(0.1) 
Net realized gains on investments$2.4 $ 
The following table sets forth the amortized cost and fair value of short-term investments and fixed maturity securities by contractual maturity at March 31, 2021:
March 31, 2021
Amortized CostFair Value
(dollars in millions)
Due in one year or less$9.4 $9.4 
Due after one year through five years98.8 100.6 
Due five years through 10 years9.7 9.8 
Due after 10 years19.3 19.5 
Total$137.2 $139.3 
The following table sets forth the components of net investment income for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
(dollars in millions)
Interest on bonds$0.8 $0.9 
Interest on deposits and cash equivalents0.3 1.1 
Total1.1 2.0 
Investment expense(0.2)(0.1)
Net investment income$0.9 $1.9 
The following tables summarize the credit ratings of investments at March 31, 2021 and December 31, 2020:
March 31, 2021
Amortized CostFair Value% of Total
Fair Value
S&P Global rating or equivalent(dollars in millions)
AAA$73.2 $74.0 53.1 %
AA+, AA, AA-, A-117.0 17.312.5 
A+, A, A-36.4 37.126.6 
BBB+, BBB, BBB-10.6 10.97.8 
Total$137.2 $139.3 100.0 %

8


December 31, 2020
Amortized CostFair Value % of Total
Fair Value
S&P Global rating or equivalent (dollars in millions)
AAA$116.5 $118.7 53.0 %
AA+, AA, AA-, A-122.7 23.310.4 
A+, A, A-57.5 59.426.5 
BBB+, BBB, BBB-21.7 22.610.1 
Total$218.4 $224.0 100.0 %

9


4.FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables provide information about our financial assets measured and reported at fair value as of March 31, 2021 and December 31, 2020:
March 31, 2021
Level 1Level 2Level 3Total
Fair Value
(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies$16.0 $ $ $16.0 
Municipal securities 20.5  20.5 
Corporate debt securities 51.7  51.7 
Residential mortgage-backed securities 6.1  6.1 
Commercial mortgage-backed securities 31.9  31.9 
Other debt obligations 10.1  10.1 
Total fixed maturities16.0 120.3  136.3 
Short-term investments2.2 0.8  3.0 
Cash equivalents485.7   485.7 
Total assets at fair value
$503.9 $121.1 $ $625.0 
December 31, 2020
Level 1Level 2Level 3Total
Fair Value
(dollars in millions)
Assets
Fixed maturities:
U.S. Treasury securities and agencies$17.0 $ $ $17.0 
Municipal securities 23.4  23.4 
Corporate debt securities 90.5  90.5 
Residential mortgage-backed securities 7.8  7.8 
Commercial mortgage-backed securities 58.4  58.4 
Other debt obligations 23.9  23.9 
Total fixed maturities17.0 204.0  221.0 
Short-term investments2.2 0.8  3.0 
Cash equivalents568.4   568.4 
Total assets at fair value
$587.6 $204.8 $ $792.4 
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.

10


The carrying amount of long-term debt is recorded at historical amounts. 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 March 31, 2021 and December 31, 2020 the carrying amounts and fair values of these financial instruments were as follows:
Carrying Amount
as of March 31, 2021
Estimated Fair Value as of March 31, 2021
Carrying Amount
as of
December 31, 2020
Estimated Fair Value as of December 31, 2020
(dollars in millions)
Long-term debt$192.2 $211.5 $188.2 $209.0 
The carrying amounts of other short-term financial instruments approximates 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:
Three Months Ended March 31,
20212020
(dollars in millions)
Gross loss and LAE reserves, January 1$237.2 $140.7 
Reinsurance recoverable on unpaid losses(79.6)(18.9)
Net loss and LAE reserves, January 1157.6 121.8 
Net incurred loss and LAE related to:
Current year69.8 122.0 
Prior years(9.9)7.9 
Total incurred59.9 129.9 
Net paid loss and LAE related to:
Current year25.344.1
Prior years35.354.2
Total paid60.6 98.3 
Net loss and LAE reserves, March 31156.9 153.4 
Plus reinsurance recoverable on unpaid losses83.8 22.2 
Gross loss and LAE reserves, March 31$240.7 $175.6 
Incurred losses and LAE attributable to prior accident years was a decrease of $9.9 million and an increase of $7.9 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, the development of incurred losses related to prior periods was primarily related to lower-than-expected reported losses on bodily injury and uninsured motorist bodily injury claims and greater than expected recoveries from subrogation and salvage from 2020. For the three months ended March 31, 2020, the development of incurred losses and related to prior periods was primarily related to higher-than-expected reported losses on bodily injury and collision coverages from 2019.
6.LEASES
We primarily have operating leases for offices that support our corporate, claims and customer service functions. We determine if an arrangement is a lease at inception by evaluating whether the arrangement conveys the right to use an identified asset and whether we obtain substantially all of the economic benefits from and have the

11


ability to direct the use of the asset. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating lease right-of-use assets and corresponding operating lease liabilities are recognized upon the commencement date based primarily on the present value of lease payments over the lease term. We use the implicit rate of the lease, if it is readily determinable, in determining the present value of lease payments. Our leases generally do not provide an implicit rate. Therefore, we use a collateralized incremental borrowing rate that incorporates information available at commencement date, including our company-specific interest rates from recent debt issuances, which we adjust to remove the LIBOR component in order to obtain our company-specific interest rate risk. We also leverage commercial mortgage-backed securities, or CMBS rates, for transactions with similar values, origination dates, geographies and property types as the respective lease, which are adjusted using linear interpolation if the lease term falls between the published CMBS terms. As of March 31, 2021, our leases had a weighted-average discount rate of 10.8%. Our leases have remaining lease terms from less than 1 year up to approximately 7 years with a weighted-average remaining lease term of 5.1 years as of March 31, 2021.

As of March 31, 2021, we recognized an operating lease liability of $15.8 million and corresponding right-of-use asset of $9.7 million. Operating lease liabilities are included in other liabilities and operating lease right-of-use assets are included in other assets in our condensed consolidated balance sheets. For the three months ended March 31, 2021, we recognized operating lease costs of $0.8 million. Variable lease expense and short-term lease expense recognized during the three months ended March 31, 2021 were not material. Moreover, we recognized operating cash flows paid for amounts included in the measurement of operating lease liabilities of $0.9 million.

We may also sublease portions of our offices, resulting in sublease income. Sublease income and the related assets and cash flows are not material to our condensed consolidated financial statements as of and for the three months ended March 31, 2021.

Future lease payments as of March 31, 2021 were as follows:
Operating Leases
(dollars in millions)
Remainder of 2021$2.9 
20224.3 
20234.4 
20244.3 
20251.5 
2026 and thereafter3.1 
Total future lease payments20.5 
Less: imputed interest(4.7)
Total lease liabilities$15.8 

As previously disclosed in our 2020 Annual Report on Form 10-K under the prior lease accounting guidance, the following table summarizes, by remaining maturity, future commitments related to operating leases and other arrangements as of December 31, 2020:
Operating Leases
(dollars in millions)
2021$3.9 
20224.4 
20234.4 
20244.3 
20251.5 
2026 and thereafter3.1 
Total$21.6 


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7.LONG-TERM DEBT