Yaron Kinar: Got it. And then one final one, if I could. The prioritization of growth into ’24, it sounds like you are prioritizing Direct over the embedded channel. And I guess, one, is that a fair assessment? And two, maybe you can talk about the strategy of why the strategic prioritization of Direct over embedded here?
Alex Timm: Yes, that’s a good question. First, I would say we love the Direct channel and we love the embedded and Partnerships channel. Really, we want to grow both channels as fast as we can, provided that again, we are hitting our profitability targets. And our product shows up a bit different in both channels, right? Our ease of doing business, our ability to generate a quote and bind in under a minute, we know that, that’s very valuable for customers when they show up on our website or when they show up on our app. Also turns out that’s very valuable for embedded partners when you want to offer insurance to your customers in a seamless experience in as little as 2 or 3 clicks. So for us, we are prioritizing diversified distribution.
We are continuing to build and are very excited about the long-term potential of our Partnership and embedded platform. We do believe we have product differentiation there as has been evidenced by the material improvement in attach rates that we have seen on the Carvana platform and we’re going to continue to scale that. That said, Direct is large, started from a much larger base. And the Internet is a big place. And we don’t think the Direct channel is going to go away overnight. And so for us, I wouldn’t say that we’re prioritizing Direct over embedded or Partnerships by any means. I would say that we are really pursuing diligent growth in both channels simultaneously.
Yaron Kinar: Congrats again on the quarter.
Operator: Your next question comes from Tommy McJoynt with KBW.
Tommy McJoynt: The first one here, we have heard some commentary from several of the sort of customer acquisition solution providers. And it sounds like the reset of the calendar year in January resulted in a number of auto insurers reengaging in their customer acquisition spend goals. Root’s obviously been very successful in the second half of 2023 with their pretty efficient customer acquisition. But have you noticed any sort of step change in that efficiency in January and February, just from a matter of more competition from some of the other auto insurers out there? And just is there a way to track your acquisition cost per policy that you’ve seen acquired?
Alex Timm: Yes. I would say you’re right, we have seen competition return into the Direct space and we have seen that from a few competitors, particularly starting to ramp up in the first quarter. That said, in 2023, we made material improvements to our marketing machine and we are actually still seeing growth through this year-to-date in PIF. So even with the increased competitive environment, we’re still able to grow. And we are actually beating our efficiency targets still when we measure for us, what we really focus on is our return on marketing spend and we are still actually hitting and exceeding that target even with the competition coming back.
Tommy McJoynt: Okay, got it. And then my second question, your unencumbered capital has trended pretty flat at just about $500 million for most of 2023. And that’s obviously been at a time when you saw your net earned premium almost triple from the first quarter to the fourth quarter. Have you had to invest or inject any capital into your regulated insurance subsidiaries? And if not, is there a level of net earned premium that those insurance subsidiaries can support just based on either statutory or rating agency guidelines?
Megan Binkley: Yes. Tommy, I appreciate the question. So you’re right. Our unencumbered cash has been around $500 million for the last couple of quarters. And I think if you take a step back and you look at our consolidated Q4 total cash and investments, that was up $45 million over Q3. And that’s really been primarily attributed to the growth that we’ve seen, right? The increase in premium and fees that we’ve collected as well as we’re investing that unencumbered cash. So we’ve been taking advantage of the rate environment and we’ve been able to generate some investment returns. So when you look at our results from a 2023 perspective, I mean, we have made just material improvements in our underlying results. And that really puts us in a situation where we’re not contributing as much capital down to our insurance subsidiaries as we would have been in 2022.
We believe that we’re in a good capital position as of the end of 2023. Our regulated insurance companies have more than the required capital. They’re appropriately capitalized and we’re continuing to see book value growth in our insurance subsidiaries.
Tommy McJoynt: Okay. And then if I could just sneak one last one in. Do you have what the cession rate will be for what you’ll be writing in 2024? I know in the third quarter it was 10% but I think there was some commutation impact there and the fourth quarter it was 18%. Just what’s the expectation for 2024? And then is that subject to change? I forget when your reinsurance contracts come up for renewal.
Megan Binkley: Yes. Great question, Tommy. I mean, if I take a step back, we did commute several of our in-force multiyear reinsurance treaties between the span of Q2 and Q3 with the goal of retaining more profits. So you are seeing a bit of a shift compared to where we were in Q3. But as I take a step back, I mean, our approach to reinsurance really continues to be a key focus for us. We’re going to continue to buy the true risk reduction cover. So that’s our CAT and XoL. We’re going to continue purchasing those covers to protect the business from large losses and tail risk events. And on the quota share side, we do plan to continue reducing our quota share cessions from where they were for the full year 2023 into 2024. As we guided to, actually during the Q3 call, we do expect to seed less than 25% of our gross written premium going forward.
