Root Inc.'s stock initially rallied after the insurtech reported first-quarter earnings, but the stock ended the week as one of the worst performers as those gains evaporated.
For the first time in its history as a public company, Root posted positive operating income. It also booked operating income of $5.4 million, up from an operating loss of $29.8 million in the year-ago period. The insurer also posted a net loss of $6.2 million, an improvement from the net loss of $40.9 million in the fourth quarter of 2023.
Kaenan Hertz, managing partner with Insurtech Advisors, said in an email that Root's first-quarter results were unsurprising since the company has been working to cut unnecessary expenditures, reducing its workforce and shifting focus on honing its underwriting and pricing accuracy.
"In addition, they benefited from the fact that Carvana, its leading distribution partner, has been tearing it up," Hertz said. "Root's strategic adjustments appear to have set a strong foundation for improved operational efficiency and financial performance."
Rally falters
After bouncing higher at first, Root shares have since firmly been in the red for the week ending May 3. Hertz said that might be due in part to the market finding "a ceiling" for insurtechs and the prospect that they might produce outsized profits sometime in the future has evaporated.
"Root's stock decline ... can be attributed to a combination of factions, including broader market dynamics and a shift in investor sentiment toward the insurtech sector," Hertz said.
Root's stock has been volatile in recent history. In 2023, it was one of the most shorted insurance stocks despite also being a top performer that year among its peers. Since then, many investors have unwound their short positions and the stock grew triple digits over the first quarter, making it one of the top-performing stocks in the period.
To bring market confidence back for Root, the company needs to continue its "trajectory toward profitability," Hertz said, adding that the insurtech should concentrate on keeping its revenue growth and improving its underwriting practices to achieve that.
Root shares were trading down 11.7% for the week as of close of business May 2 and fell further through midday on Friday.
Root did not respond to requests for comment prior to publication.
Fla. insurer socked after shedding policies
Heritage Insurance Holdings Inc., a Florida-based insurance company that has long struggled to be resilient against the chaos and heavy catastrophes that plague the market, posted significant stock losses this week.
Heritage reported first-quarter net income of $14.2 million, or 47 cents per share, slightly higher than net income of $14.0 million, or 55 cents per share, in the first quarter of 2023. The company attributed the modest growth to an increase in net premiums earned as well as higher net investment income, which was driven by rate approvals, underwriting actions and management of company exposure taken during 2023 and 2022.
Although Heritage's net income grew, its policies in force declined to 436,955 in the first quarter from 509,072 in the year-ago period.
During Heritage's earnings call, CEO Ernie Garateix said the decrease in policies in force were "intentional" and are part of the company's plan to get adequate rate, non-renew unprofitable policies as much as allowed by the state, and lower concentrations.
"These activities achieved the intended impact and now puts us in a position that policy count is no longer expected to decline at the same rate we experienced over the past few years," Garateix said.
Heritage's stock was trading down 22.5% for the week as of close of business May 2.
A spokesperson for Heritage pointed out that "seasonal fluctuations" impact the company's stock price, noting that investors often reassess their holdings as high-risk catastrophe seasons approach.
In addition, the spokesperson highlighted that the first quarter typically garners the lowest income for the company, and Heritage is "optimistic about the remainder of the year."
Hippo Holdings Inc. also reported earnings this week, logging a net loss attributable to the company of $35.7 million, or $1.47 per share. That was better than the net loss attributable to the company of $69.8 million, or $3.01 per share, a year earlier.
Hippo's stock was down 13.1% for the week at the close of business May 2.
The S&P 500 was down 0.7% for the week through the end of trading May 2. The S&P 500 US Insurance index was up 1.25% at 709.42.
