And therefore, you’re going to see a reduction of our reinsurance costs. This quarter, you actually started to see, as a result of our reduced cessions and the better terms that we’ve gotten on our 10-1 cohort deal, you’re seeing greater convergence of our gross and net loss and LAE ratios. So we do continue to expect to see less than 25% of GWP going forward. And in the event that conditions change, we do want to maintain the flexibility to make changes to our reinsurance program as needed. You alluded to this in your question but we do have multiple decision points throughout the year where we can decide to increase or decrease our cessions. But overall, we believe that the reinsurance strategy changes that we’ve made really further support our underwriting profitability for the long term.
Operator: [Operator Instructions] Your next question comes from Elyse Greenspan with Wells Fargo.
Elyse Greenspan: My first question is just on the frequency side. So in your shareholder letter, right, you guys alluded to frequency declining by 4% in the fourth quarter which is an improvement, right, from where things were trending in the Q3. I think some other carriers did point to favorable frequency, especially to end the year. Do you guys have a sense of the favorable frequency trends that might have benefited your results in the fourth quarter?
Alex Timm: Yes. Thanks, Elyse. I would say the fourth quarter is a lower frequency quarter, generally driving us down in the winter months and then sort of up in summer months. But that — the frequency trend that we saw was also year-over-year. And so we think a lot of it is our mix of business as we continue to improve and train our models and rapidly deploy our models both on underwriting, on telematics and on our loss cost models that we can continue to effectively drive a better mix of business; and so we have seen frequencies continue to come down even on a year-over-year basis. So, I don’t think what you’re just seeing there is seasonality.
Elyse Greenspan: And then in terms of you guys talking about a path to profitability, right, with your current capital position. Can you help us just think about the glide path from the results in ’23 to getting to profitability in terms of number of years or some kind of time frame that you want to put out there? And then what do you think about in terms of what type of loss might we expect to see in ’24 based on your rate and growth outlook today?
Megan Binkley: Thanks, Elyse. So as we noted in our opening remarks, our results in 2023 are really a testament to the improvements that we’ve made in pricing and underwriting and the work that we’ve done to optimize our expense base over the past 2 years. You’re seeing really significant results from us on a year-over-year basis. And that puts us in a situation where if we were to stop investing in discretionary marketing spend tomorrow, we believe we would be profitable in the very short term. However, we don’t think that, that’s really the right answer for the long-term success of the business or for our shareholders. And so as we continue to see opportunities to grow share profitably, we’re going to continue to execute on that this next year.
And our timing to profitability is heavily dependent on, one, the competitive landscape and two, our appetite for growth. So the improved underwriting results that we’ve seen have also translated into a reduction of our reinsurance costs on a current basis and also into 2024. You saw those changes that we made to our quota share reinsurance program really flow through results for the first time in Q4. And you’re seeing our gross loss and LAE and net loss and LAE ratios really begin to converge within single digits. And we expect that this is going to have a material impact on our timeline for reaching profitability. And just to be clear as well, when we say profitability, we do mean GAAP net income. And as we look to 2024, we do expect that on a full year basis that our net combined ratio is going to continue to improve compared to full year 2023.
So I would say, in summary, we haven’t pinpointed a specific quarter on our profit timeline but we don’t expect that it’s multiple years from now. We believe that we’ve pulled very meaningful levers in the business to accelerate that path to profit and build long-term value for the business and for our shareholders. We’ve got a very positive outlook on our path to profitability which is really our top priority with our existing capital.
Elyse Greenspan: And then maybe just one more, right? You guys saw a good pickup in policy growth sequentially in the quarter. How are you thinking just about shopping some of the earlier questions, right, in ad spend kind of picking up to start the year? How are you thinking about policy growth trending in the first quarter and then really throughout all of 2024?
Alex Timm: Yes. Really through first quarter, we’ve continued — first quarter to date, we’ve actually continued to increase PIF. And so we are still growing. And we feel very good about our ability to continue to grow. And it’s not — again, it’s not just the Direct channel and it’s not just our ability to deploy marketing, although we do feel good there. We believe there’s many long-term levers. A big one being our partnership and embedded strategy and continuing to have those partners. Like I said, we’ve actually added multiple new partners already this quarter. And we also continue to iterate on our pricing and underwriting and continuing to get more competitive prices. And then lastly, we’re looking for a state expansion and continued marketing channel expansion.
So we think we have a lot of levers at our disposal to continue to drive growth and we think we’re just in the very beginnings of growth. And Root’s still a relatively small insurance company when you look at the market. So I think we’re going to continue to see growth and we feel good about our path there. I think it will be diligent growth that you see from us in 2024.
Operator: Your next question comes from Mike Ward with Citi.
