Hagerty Inc.
05/06/2026 | Press release | Distributed by Public on 05/06/2026 08:54
Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K ("Annual Report") and our Condensed Consolidated Financial Statements and related Notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q ("Quarterly Report"). This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Please refer to the section in this Quarterly Report entitled "Cautionary Statement Regarding Forward-Looking Statements".
Overview
We are a market leader in providing insurance for collector cars and enthusiast vehicles, helping the automotive enthusiast community protect and enjoy their special cars for over 40 years. Through our insurance model, our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re"), reinsures collector car and enthusiast vehicle insurance risks. Hagerty Re reinsures risks predominantly from policies issued by Essentia Insurance Company ("Essentia"), a subsidiary of Markel Group Inc. ("Markel"). Markel is a related party to the Company. Refer to Note 20 - Related-Party Transactions in Item 1 of Part I of this Quarterly Report for additional information on related party transactions with Markel.
We also operate as a Managing General Agent ("MGA") by underwriting, selling, and servicing collector car and enthusiast vehicle insurance policies on behalf of insurance carriers, including Hagerty Re under the Markel Fronting Arrangement. Our insurance products are complemented by our membership product, Hagerty Drivers Club ("HDC"), our renowned car events, and our media and entertainment platforms.
Complementing our insurance offerings, we operate a trusted marketplace where collectors and enthusiasts can buy and sell a wide range of vehicles, from entry level enthusiast vehicles to high value collector cars. Through our marketplace, we also provide financing solutions by structuring loans secured by collector cars.
Together, our integrated automotive ecosystem fosters a vibrant community where enthusiasts connect, share their passion, and access resources that enhance their ownership experience. Our vision is to be the world's most trusted and preferred brand for automotive enthusiasts to insure, buy, sell, and enjoy their special cars.
Markel Fronting Arrangement
On December 31, 2025, we entered into new contractual arrangements and amended the terms of our existing contractual arrangements with Markel and its affiliates. These coordinated transactions with Markel formed an arrangement that became effective January 1, 2026 (the "Markel Fronting Arrangement"). Under the Markel Fronting Arrangement: (i) we continue to issue policies through Essentia, with our underwriting authority (including pricing decisions, rate filing, insurance rating, and risk selections) and claims authority expanded to the maximum levels permitted by applicable law; (ii) we have assumed increased administrative responsibilities for the policies issued through Essentia; (iii) Hagerty Re controls 100% of the premium and assumes 100% of the risk for policies written through Essentia; and (iv) Hagerty Re pays an initial fronting fee, representing 2% of written premium, to Markel for administrative support, which incrementally decreases based on the level of written premium in each calendar year. We expect these changes to result in increased profitability and additional control, allowing for enhanced operational efficiencies.
Due to the expanded underwriting and claims authority granted to us under the Markel Fronting Arrangement, we now control the Essentia book of business. While our United States ("U.S.") MGA subsidiary and Hagerty Re continue to operate in the same manner they have historically, beginning on January 1, 2026, the benefit of our MGA services with respect to the Essentia book of business is being received by Hagerty Re and not Essentia. As a result, effective in the first quarter of 2026, we are no longer recognizing commission revenue or the associated ceding commission expense for Essentia-originated policies in our Condensed Consolidated Financial Statements. However, ceding commission expense associated with Essentia policies issued in 2025 will continue to be recognized ratably over the remaining term of those policies throughout 2026. In addition, policy acquisition costs incurred by our U.S. MGA subsidiary for Essentia policies issued in 2026 will be deferred and amortized over the policy term. Although we expect the Markel Fronting Arrangement to result in increased profitability, our reported commission revenue and ceding commission expense will be lower than in prior periods, reflecting the new contractual terms governing our relationship with Markel.
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On December 31, 2025, in connection with the Markel Fronting Arrangement, we entered into a loss portfolio transfer agreement (the "LPT Agreement") that became effective on January 1, 2026. Pursuant to the LPT Agreement, Hagerty Re assumed 100% of the net retained liabilities for Essentia-originated policies issued prior to January 1, 2026 and received $50.5 million in cash consideration. We are accounting for the LPT Agreement using the deposit method of accounting. At inception, we recorded the $50.5 million of cash consideration received as a deposit liability within "Other liabilities" on the Condensed Consolidated Balance Sheets. As of January 1, 2026, the estimated value of the liabilities assumed under the LPT Agreement was $42.7 million, resulting in an initial deferred gain of $7.8 million, which is being recognized over the expected period of future claim payments within "Interest expense and other, net" in the Condensed Consolidated Statements of Operations.
Reportable Segments
Due to the continued revenue growth and recent geographic expansion of the marketplace business, beginning in the fourth quarter of 2025, we updated our segment reporting to reflect two operating and reportable segments: Insurance and Marketplace. Previously, we operated as a single operating and reportable segment. We have recast prior period segment information to conform to the current presentation in this Quarterly Report. For more information regarding segment reporting, refer to Note 5 - Segment Reporting and Disaggregated Revenue in Item 1 of Part I of this Quarterly Report.
Components of Our Results of Operations
Revenue
Earned premium, net
Earned premium, net represents the earned portion of written premiums assumed under quota share reinsurance agreements with insurance carriers, net of premiums ceded to various reinsurers. Premiums assumed and ceded are recognized on a pro-rata basis over the term of the reinsured policies, which is generally 12 months.
Commission and fee revenue
We generate commission and fee revenue through our MGA subsidiaries, primarily from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies. Commission and fee revenue is earned when the policy becomes effective, net of allowances for policy changes and cancellations.
Effective January 1, 2026, commission revenue for Essentia-originated policies is no longer recognized in our Condensed Consolidated Statements of Operations, reflecting the new contractual terms governing our relationship with Markel, as discussed in more detail above under "Markel Fronting Arrangement". Commission and fee revenue will continue to include commissions earned from our other MGA activities, including from a subsidiary of State Farm Mutual Automobile Insurance Company ("State Farm") and our insurance carrier partners in Canada and the U.K. State Farm is a related party to the Company. Refer to Note 20 - Related-Party Transactions in Item 1 of Part I of this Quarterly Report for additional information on related party transactions with State Farm.
Marketplace revenue
Our marketplace business earns commission and fee-based revenue primarily from the sale of collector cars and enthusiast vehicles through live auctions, time-based digital auctions, and brokered private sales. Through our marketplace business, we also earn revenue from the sale of collector cars and enthusiast vehicles that we have opportunistically acquired for resale. In addition, we earn finance revenue from loans made to qualified collectors and businesses secured by their collector cars.
Commission and fee-based marketplace revenue is recognized on a net basis when the underlying sale is completed, which is generally upon the matching of a seller and buyer in a legally binding sale transaction. Revenue from the sale of acquired collector cars and enthusiast vehicles is recognized on a gross basis at the point in time when title and control of the vehicle is transferred to the buyer, which is generally upon collection of the full purchase price. Finance revenue is recognized over time based on the amount of the outstanding loan, the applicable interest rate on the loan, and the length of time the loan was outstanding during the period.
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Membership and other revenue
We earn subscription revenue from the sale of HDC memberships, which are bundled with our insurance policies and give members access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, special access to automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts. Revenue from the sale of HDC memberships is recognized ratably over the period of the membership. The membership is treated as a single performance obligation to provide access to stated Member benefits over the life of the membership, which is currently one year.
Other revenue also includes sponsorship, admission, advertising, valuation, registration, and sublease income. Other revenue is recognized when the performance obligation for the related product or service is satisfied.
Net investment income
Net investment income primarily consists of interest earned on our cash, cash equivalents, and fixed maturity securities, and, to a lesser extent, dividends earned from equity securities. Net investment income is recorded net of related investment management fees and expenses.
Net investment gains (losses)
Net investment gains (losses) represents the cumulative difference between the cost basis (or carrying value) and the net proceeds received from the sale of investments during the period, as well as the change in fair value of our equity securities between periods.
Expenses
Losses and loss adjustment expenses, net
Losses and loss adjustment expenses, net represents our best estimate of the losses and associated settlement costs related to the risks we assume. Losses consist of claims paid, case reserves, and incurred but not reported ("IBNR") costs, which are recorded net of estimated recoveries from reinsurance, salvage, and subrogation. Loss adjustment expenses consist of the cost associated with processing and settling claims.
Throughout the year, we record a quarterly estimate of losses and loss adjustment expenses for the current accident year using an annual loss ratio, which is based on statistical analysis performed by our internal and external actuarial teams. The annual loss ratio is reviewed regularly throughout the year and adjusted, as necessary. Management believes this approach provides a more consistent view of loss experience over the year given the seasonality of our business.
Losses and loss adjustment expenses, net also includes the impact of reserve adjustments recorded to reflect the favorable or unfavorable development of prior accident year claims.
Effective January 1, 2026, as a result of the Markel Fronting Arrangement through which we assumed control of the Essentia book of business, internal overhead costs related to claims handling and settlement for this book of business are reported within losses and loss adjustment expenses. Prior to January 1, 2026, such costs were reported within Selling, general, and administrative expenses.
Policy acquisition costs, net
Policy acquisition costs, net represents costs directly related to the successful acquisition or renewal of insurance policies where we assume risk.
Prior to January 1, 2026, Policy acquisition costs, net included only the ceding commissions paid by Hagerty Re to insurance carriers for the risks assumed under the quota share agreements with those carriers. These commissions represented Hagerty Re's pro-rata share of the carrier's costs including (i) policy acquisition costs, which principally consisted of the commissions earned by our U.S. MGA subsidiary related to the Essentia book of business; (ii) general and administrative costs; and (iii) other costs.
Effective January 1, 2026, the definition of Policy acquisition costs, net includes costs incurred by our U.S. MGA subsidiary for the successful acquisition or renewal of insurance policies issued under the Markel Fronting Arrangement. The policy acquisition costs associated with the Markel Fronting Arrangement primarily include (i) third-party broker commissions; (ii) certain salaries, benefits, and other costs associated with underwriting, policy issuance, processing, and selling activities; (iii) fronting fees; and (iv) premium taxes.
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Effective January 1, 2026, ceding commission expense for Essentia-originated policies is no longer recognized in our Condensed Consolidated Statements of Operations, reflecting the new contractual terms governing our relationship with Markel, as discussed in more detail above under "Markel Fronting Arrangement".
Policy acquisition costs, net is recognized ratably over the term of the related policies, which is generally 12 months.
Underwriting and other insurance expenses
Underwriting and other insurance expenses consists of the operating costs incurred in connection with our risk taking activities that are not classified within Losses and loss adjustment expenses, net or Policy acquisition costs, net.
Effective January 1, 2026, as a result of the Markel Fronting Arrangement through which we assumed control of the Essentia book of business, Underwriting and other insurance expenses include costs incurred by our U.S. MGA subsidiary that are associated with our underwriting operations such as underwriting staff compensation and related benefits, technology and systems costs that support the underwriting process, and expenses related to risk evaluation and pricing. Also included are general and administrative expenses attributable to the operations of our risk taking activities, including facilities costs, professional services fees, regulatory and compliance costs, and other overhead expenses. Prior to January 1, 2026, such costs were reported within Selling, general, and administrative expenses.
Selling, general, and administrative expenses
Selling, general, and administrative expenses primarily consists of the operating costs incurred by our non-risk taking activities, including our MGA, membership, events, and media activities, as well as our Marketplace segment. These costs primarily include salaries and benefits, sales expense, general and administrative expenses, and depreciation and amortization.
Other Items
Interest expense and other, net
Interest expense and other, net primarily includes interest expense related to outstanding borrowings, primarily related to our current and prior revolving credit facilities with JPMorgan Chase Bank, N.A. ("JPM"), as well as the State Farm Term Loan (as defined in Note 14 - Debt in Item 1 of Part I of this Quarterly Report). Interest expense and other, net also includes the amortization of the gain from the LPT Agreement and changes in the estimated value of the liability associated with the Tax Receivable Agreement ("TRA") ("TRA Liability") between periods. Refer to Note 3 - Markel Fronting Arrangement in Item 1 of Part I of this Quarterly Report for additional information related to the LPT Agreement. Refer to Note 19 - Taxation in Item 1 of Part I of this Quarterly Report for additional information related to the TRA.
Income tax (expense) benefit
The Hagerty Group, LLC ("THG") is taxed as a pass-through ownership structure under provisions of the Internal Revenue Code ("IRC") and a similar section of state income tax law. As such, any taxable income or loss generated by THG is passed through to and included in the taxable income or loss of THG unit holders, including Hagerty, Inc.
Hagerty, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes with respect to income allocated from THG. Hagerty, Inc., Hagerty Insurance Holdings, Inc., Broad Arrow Group, Inc. ("Broad Arrow"), Hagerty Radwood, Inc., and various foreign subsidiaries are treated as taxable entities and income taxes are provided where applicable. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge Insurance Company ("Drivers Edge").
Key Operating Metrics
In MD&A, we discuss certain key operating metrics for the Insurance and Marketplace segments, as described below. We use these key operating metrics to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections, and make strategic decisions.
Insurance Segment
Total Written Premium represents the total amount of insurance premium written by our MGA subsidiaries on behalf of our insurance carrier partners and wholly owned insurance carrier subsidiary, Drivers Edge, during the period. Total Written Premium reflects the direct economic benefit of our policy acquisition efforts.
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Net Assumed Premium represents the amount of insurance premium assumed by Hagerty Re under quota share reinsurance arrangements with insurance carriers during the period, net of premiums ceded to various reinsurers. Net Assumed Premium is closely correlated with the growth of earned premium and underwriting results of Hagerty Re.
Hagerty Re Loss Ratio represents the ratio of (i) Hagerty Re's losses and loss adjustment expenses to (ii) its earned premium. Hagerty Re Loss Ratio is calculated using Hagerty Re's standalone financial statements, which in the current period exclude $5.9 million of claims handling expenses incurred by our MGA subsidiaries on behalf of Hagerty Re. Hagerty Re's standalone financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). This metric allows us to evaluate Hagerty Re's loss patterns on the basis of its standalone GAAP financial statements and make necessary and appropriate adjustments.
Hagerty Re Combined Ratio represents the ratio of (i) Hagerty Re's losses, loss adjustment expenses, and underwriting expenses to (ii) its earned premium. Hagerty Re's underwriting expenses primarily include policy acquisition costs and, to a lesser extent, certain administrative expenses. Hagerty Re Combined Ratio is calculated using Hagerty Re's standalone GAAP financial statements, which in the current period include $11.5 million of commissions paid to our MGA subsidiaries that are eliminated in consolidation. This metric provides a benchmark to evaluate Hagerty Re's underwriting profitability on the basis of its standalone GAAP financial statements. A combined ratio under 100% indicates underwriting income while a combined ratio exceeding 100% indicates an underwriting loss.
New Business Count represents the number of new insurance policies written by our MGA subsidiaries during the period. New Business Count is an important metric to assess our financial performance because policy growth is critical to our success. While we benefit from strong policy retention through renewals, new policies more than offset those cancelled or non-renewed at expiration. New policies also often mean new relationships and an opportunity to sell additional products and services.
Policies in Force ("PIF") represents the number of current and active insurance policies written by our MGA subsidiaries as of the end of the period. PIF is an important metric to assess our financial performance because policy growth drives revenue growth, increases brand awareness and market penetration, generates additional insight to improve the performance of our platform, and provides key data to assist us in strategic decision making.
PIF Retention represents the percentage of expiring insurance policies written by our MGA subsidiaries that are renewed on the renewal effective date, calculated on a twelve months basis. PIF Retention is an important measurement of the number of policies retained each year, which contributes to our recurring revenue streams including commissions earned by our MGA subsidiaries, HDC membership fees, and earned premium generated by Hagerty Re.
Vehicles in Force represents the number of current vehicles that are insured by policies written by our MGA subsidiaries as of the end of the period. Vehicles in Force is an important metric to assess our financial performance because insured vehicle growth drives revenue growth and increases market penetration.
HDC Paid Member Count represents the number of current insurance policyholders and paid HDC subscribers (collectively, "Members") who pay an annual membership subscription as of the end of the period. HDC Paid Member Count primarily includes Members whose HDC membership is bundled with their insurance policy and paid as part of their policy premium. HDC Paid Member Count is an important metric because it helps us measure membership revenue growth and provides an opportunity to cross-sell other products and services to our Members.
Marketplace Segment
Aggregate Auction Sales represents the total purchase price paid by buyers, including our buyer's premium and fees, for vehicles and memorabilia purchased through Broad Arrow's live and online auctions, as well as through Hagerty Marketplace's online sale platform.
Net Auction Sales represents the total purchase price paid by buyers, excluding buyer's premium and fees, for vehicles and memorabilia purchased through Broad Arrow's live and online auctions, as well as through Hagerty Marketplace's online sale platform.
Private Sales is a volume metric representing the total purchase price paid by buyers for all vehicles and memorabilia purchased through Broad Arrow's private sales business, including brokered sales and sales of our inventory.
BAC Loan Portfolio Balance represents the period end loan portfolio balance of Broad Arrow Capital LLC ("BAC") recorded on our Condensed Consolidated Balance Sheets.
BAC Average Loan Portfolio represents the monthly average loan portfolio balance of BAC during the period.
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Financial Highlights
The table below presents a summary of key financial measures from our Condensed Consolidated Financial Statements, which are prepared in accordance with GAAP, as well as our non-GAAP financial measures.
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||||||||||||
| GAAP Financial Measures | dollars in thousands (except per share amounts) | |||||||||||||||||||||||||
|
Total Revenue (1)
|
$ | 311,830 | $ | 328,336 | $ | (16,506) | (5.0) | % | ||||||||||||||||||
| Income (loss) before taxes | $ | (20,937) | $ | 32,782 | $ | (53,719) | (163.9) | % | ||||||||||||||||||
| Net Income (Loss) | $ | (12,745) | $ | 27,293 | $ | (40,038) | (146.7) | % | ||||||||||||||||||
| Basic Earnings (Loss) Per Share ("EPS") | $ | (0.06) | $ | 0.07 | $ | (0.13) | (185.7) | % | ||||||||||||||||||
| Diluted EPS | $ | (0.06) | $ | 0.07 | $ | (0.13) | (185.7) | % | ||||||||||||||||||
| Non-GAAP Financial Measures | ||||||||||||||||||||||||||
| Adjusted EBITDA | $ | 85,185 | $ | 48,151 | $ | 37,034 | 76.9 | % | ||||||||||||||||||
| Adjusted Net Income (Loss) | $ | (13,144) | $ | 25,352 | $ | (38,496) | (151.8) | % | ||||||||||||||||||
| Adjusted Diluted EPS | $ | (0.04) | $ | 0.07 | $ | (0.11) | (157.1) | % | ||||||||||||||||||
N/M = Not meaningful
(1) Refer to Note 2 - Summary of Significant Accounting Policies in Item 1 of Part I of this Quarterly Report for a reconciliation of prior year revenue to current year presentation.
For the three months ended March 31, 2026, we reported a Net loss of $12.7 million, representing a $40.0 million decrease compared to the prior year, and Adjusted EBITDA of $85.2 million, representing a $37.0 million, or 76.9%, increase compared to the prior year.
In our Insurance segment, Loss before taxes for the three months ended March 31, 2026 was $20.4 million, representing a $53.3 million decrease from the prior period. The loss for the current period is due to the transition of our business under the Markel Fronting Arrangement, which resulted in a decrease in Commission and fee revenue and the recognition of non-cash costs to amortize the remaining deferred ceding commissions for Essentia policies written in 2025. These factors were partially offset by a $70.3 million, or 41.5%, increase in Earned premium, net, reflecting the increase to our quota share percentage from 80% to 100% under the Markel Fronting Arrangement, as well as the continued growth of that book of business.
In our Marketplace segment, Income before taxes for the three months ended March 31, 2026 was $0.8 million, compared to $1.5 million in the prior period. Current period results reflect a lower level of Broad Arrow inventory sales, as prior year results included the one-time sale of vehicles acquired from The Academy of Art University Collection. This decrease in inventory sales was largely offset by an increase in auction revenue due to strong results at the 2026 auction at The Amelia, which saw an 81% increase in Aggregate Auction Sales from the prior year.
Adjusted EBITDA, Adjusted Net Income (Loss), and Adjusted Diluted EPS are non-GAAP financial measures. Please see the section titled "Non-GAAP Financial Measures" below for a description of these non-GAAP financial measures and a reconciliation to the most comparable GAAP measure.
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Results of Operations
Insurance Segment
The following table summarizes Insurance segment results of operations for the three months ended March 31, 2026 and 2025, and the dollar and percentage change between the two periods:
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| Segment Results: | dollars in thousands | |||||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||
| Earned premium, net | $ | 239,642 | $ | 169,355 | $ | 70,287 | 41.5 | % | ||||||||||||||||||
| Commission and fee revenue | 16,435 | 100,287 | (83,852) | (83.6) | % | |||||||||||||||||||||
| Membership and other revenue | 22,127 | 20,865 | 1,262 | 6.0 | % | |||||||||||||||||||||
| Net investment income | 10,014 | 8,883 | 1,131 | 12.7 | % | |||||||||||||||||||||
| Net investment losses | (2,289) | (315) | (1,974) | N/M | ||||||||||||||||||||||
| Total revenue | 285,929 | 299,075 | (13,146) | (4.4) | % | |||||||||||||||||||||
| EXPENSES: | ||||||||||||||||||||||||||
| Losses and loss adjustment expenses, net | 97,919 | 71,130 | 26,789 | 37.7 | % | |||||||||||||||||||||
| Policy acquisition costs, net | 101,922 | 77,333 | 24,589 | 31.8 | % | |||||||||||||||||||||
| Underwriting and other insurance expenses | 59,588 | 1,357 | 58,231 | N/M | ||||||||||||||||||||||
| Selling, general, and administrative expenses | 46,866 | 115,941 | (69,075) | (59.6) | % | |||||||||||||||||||||
| Interest expense and other, net | (16) | 412 | (428) | (103.9) | % | |||||||||||||||||||||
| Total expenses | 306,279 | 266,173 | 40,106 | 15.1 | % | |||||||||||||||||||||
| INCOME (LOSS) BEFORE TAXES | $ | (20,350) | $ | 32,902 | $ | (53,252) | (161.9) | % | ||||||||||||||||||
| Operational Metrics: | ||||||||||||||||||||||||||
| Total Written Premium | $ | 288,946 | $ | 244,327 | $ | 44,619 | 18.3 | % | ||||||||||||||||||
| Net Assumed Premium | $ | 317,346 | $ | 155,651 | $ | 161,695 | 103.9 | % | ||||||||||||||||||
| Hagerty Re Loss Ratio | 38.4 | % | 42.0 | % | (3.6) | % | N/M | |||||||||||||||||||
| Hagerty Re Combined Ratio | 86.5 | % | 88.5 | % | (2.0) | % | N/M | |||||||||||||||||||
|
New Business Count - Insurance
|
111,896 | 55,309 | 56,587 | 102.3 | % | |||||||||||||||||||||
| March 31, | December 31, | |||||||||||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||||||||||||
| Operational Metrics: | ||||||||||||||||||||||||||
| Policies in Force | 1,760,400 | 1,684,935 | 75,465 | 4.5 | % | |||||||||||||||||||||
| Policies in Force Retention | 88.5 | % | 88.7 | % | (0.2) | % | N/M | |||||||||||||||||||
| Vehicles in Force | 2,910,661 | 2,819,179 | 91,482 | 3.2 | % | |||||||||||||||||||||
| HDC Paid Member Count | 940,313 | 929,895 | 10,418 | 1.1 | % | |||||||||||||||||||||
N/M = Not meaningful
As discussed in greater detail above under "Markel Fronting Arrangement", due to the expanded underwriting and claims authority granted to us under the Markel Fronting Arrangement, we now control the Essentia book of business. While our U.S. MGA subsidiary and Hagerty Re continue to operate in the same manner they have historically, beginning on January 1, 2026, the benefit of our MGA services is being received by Hagerty Re and not Essentia. As a result, effective in the first quarter of 2026, we are no longer recognizing commission revenue or the associated ceding commission expense for Essentia-originated policies in our Condensed Consolidated Financial Statements. However, ceding commission expense associated with Essentia policies issued in 2025 will continue to be recognized ratably over the remaining term of those policies throughout 2026. In addition, policy acquisition costs incurred by our U.S. MGA subsidiary for Essentia policies issued in 2026 are being deferred and amortized over the policy term. Accordingly, our entry into the Markel Fronting Arrangement has reduced the period-to-period comparability of our Condensed Consolidated Financial Statements.
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The following table provides a reconciliation of the standalone results of operations for our Hagerty Re and MGA+ reporting units, which reflect the continuing operations of those businesses, to our Condensed Consolidated Statements of Operations:
| Three months ended March 31, 2026 | |||||||||||||||||||||||||||||||||||
|
Hagerty Re: Essentia Policy Year 2025 (1)
|
Hagerty Re: Essentia Policy Year 2026 & Other Carriers (2)
|
Hagerty Re Total |
MGA+ (4)
|
Consolidation Entries (5)
|
Insurance Segment | ||||||||||||||||||||||||||||||
| REVENUES: | in thousands | ||||||||||||||||||||||||||||||||||
| Earned premium, net | $ | 218,273 | $ | 21,369 | $ | 239,642 | $ | - | $ | - | $ | 239,642 | |||||||||||||||||||||||
| Commission and fee revenue | - | 120,236 | (103,801) | 16,435 | |||||||||||||||||||||||||||||||
| Membership and other revenue | - | 22,127 | - | 22,127 | |||||||||||||||||||||||||||||||
| Net investment income | 9,232 | 782 | - | 10,014 | |||||||||||||||||||||||||||||||
| Net investment losses | (2,289) | - | - | (2,289) | |||||||||||||||||||||||||||||||
| Total revenue | 246,585 | 143,145 | (103,801) | 285,929 | |||||||||||||||||||||||||||||||
| EXPENSES: | |||||||||||||||||||||||||||||||||||
|
Losses and loss adjustment expenses, net (3)
|
91,965 | 5,954 | - | 97,919 | |||||||||||||||||||||||||||||||
| Policy acquisition costs, net: | |||||||||||||||||||||||||||||||||||
| Ceding commission expense | 99,357 | 8,741 | 108,098 | - | (11,541) | 96,557 | |||||||||||||||||||||||||||||
| Other policy acquisition costs | 1,227 | - | 4,138 | 5,365 | |||||||||||||||||||||||||||||||
|
Underwriting and other insurance expenses (3)
|
6,050 | 78,703 | (25,165) | 59,588 | |||||||||||||||||||||||||||||||
| Selling, general, and administrative expenses | - | 46,866 | - | 46,866 | |||||||||||||||||||||||||||||||
| Interest expense and other, net | (793) | 777 | - | (16) | |||||||||||||||||||||||||||||||
| Total expenses | 206,547 | 132,300 | (32,568) | 306,279 | |||||||||||||||||||||||||||||||
| Income (loss) before taxes | $ | 40,038 | $ | 10,845 | $ | (71,233) | $ | (20,350) | |||||||||||||||||||||||||||
(1) Represents Hagerty Re's earned premium and associated policy acquisition costs related to Essentia policies issued in 2025.
(2) Represents Hagerty Re's earned premium and associated policy acquisition costs related to Essentia policies issued in 2026 and through other carriers.
(3) Our MGA subsidiaries incur costs to fulfill certain underwriting and claims handling functions and incur related costs on behalf of Hagerty Re, for which they are compensated through an intercompany commission paid by Hagerty Re. These costs are reflected within the standalone results of our MGA+ reporting unit within Losses and loss adjustment expenses, net, and Underwriting and other insurance expenses.
(4) The MGA+ reporting unit includes our MGA operations, as well as our membership, events and media activities.
(5) Reflects entries made in consolidation to eliminate intercompany commission revenue and ceding commission expense between the Hagerty Re and MGA+ reporting units, as well as entries made to defer policy acquisition costs incurred by the MGA+ reporting unit. Such policy acquisition costs are amortized over the underlying policy term.
Earned premium, net
Earned premium, net was $239.6 million for the three months ended March 31, 2026, an increase of $70.3 million, or 41.5%, compared to 2025. This increase was primarily driven by our entry into the Markel Fronting Arrangement, which became effective January 1, 2026 and increased Hagerty Re's U.S. quota share from approximately 80% to 100%, including for in-force policies written in 2025. To a lesser extent, the increase was driven by continued growth of subject premiums written through our MGA subsidiaries.
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The following tables present premiums assumed and earned, as well as the related quota share percentages for the three months ended March 31, 2026 and 2025:
| Three months ended March 31, 2026 | ||||||||||||||||||||||||||
| U.S. | Canada |
U.K. (1)
|
Total | |||||||||||||||||||||||
| in thousands (except percentages) | ||||||||||||||||||||||||||
|
Subject premium (2)
|
$ | 345,737 | $ | 8,995 | $ | - | $ | 354,732 | ||||||||||||||||||
| Quota share percentage | 100.0 | % | 50.0 | % | 80.0 | % | 98.7 | % | ||||||||||||||||||
| Assumed premium | 345,737 | 4,498 | - | 350,235 | ||||||||||||||||||||||
| Reinsurance premiums ceded | (32,889) | |||||||||||||||||||||||||
| Net assumed premium | 317,346 | |||||||||||||||||||||||||
| Change in unearned premiums | (96,164) | |||||||||||||||||||||||||
| Change in deferred reinsurance premiums | 18,460 | |||||||||||||||||||||||||
| Earned premium, net | $ | 239,642 | ||||||||||||||||||||||||
(1) In 2026, we did not reinsure classic auto risks produced by our United Kingdom ("U.K.") MGA subsidiary, and the prior book of business is in run-off.
(2) Represents the portion of total written premium subject to reinsurance agreements.
| Three months ended March 31, 2025 | ||||||||||||||||||||||||||
| U.S. | Canada |
U.K. (1)
|
Total | |||||||||||||||||||||||
| in thousands (except percentages) | ||||||||||||||||||||||||||
|
Subject premium (2)
|
$ | 211,868 | $ | 7,512 | $ | 6 | $ | 219,386 | ||||||||||||||||||
| Quota share percentage | 81.0 | % | 50.0 | % | 80.0 | % | 80.0 | % | ||||||||||||||||||
| Assumed premium | 171,750 | 3,756 | 5 | 175,511 | ||||||||||||||||||||||
| Reinsurance premiums ceded | (19,860) | |||||||||||||||||||||||||
| Net assumed premium | 155,651 | |||||||||||||||||||||||||
| Change in unearned premiums | 5,422 | |||||||||||||||||||||||||
| Change in deferred reinsurance premiums | 8,282 | |||||||||||||||||||||||||
| Earned premium, net | $ | 169,355 | ||||||||||||||||||||||||
(1) In 2025, we did not reinsure classic auto risks produced by our U.K. MGA subsidiary, and the prior book of business is in run-off.
(2) Represents the portion of total written premium subject to reinsurance agreements.
Losses and loss adjustment expenses, net
Losses and loss adjustment expenses, net were $97.9 million for the three months ended March 31, 2026, an increase of $26.8 million, or 37.7%, compared to 2025. This increase is primarily the result of the Markel Fronting Arrangement, which increased Hagerty Re's U.S. quota share from approximately 80% to 100% as of January 1, 2026 for all in-force policies. To a lesser extent, the increase was driven by continued growth of subject premiums written through our MGA subsidiaries. For the three months ended March 31, 2026, the Hagerty Re loss ratio was 38.4%, a decrease of 3.6% from 2025, when the Hagerty Re loss ratio was 42.0%. The lower loss ratio is driven by favorable experience in prior accident years, primarily due to the emergence of lower physical damage losses for the 2025 accident year.
Policy acquisition costs, net
Policy acquisition costs, net were $101.9 million for the three months ended March 31, 2026, an increase of $24.6 million, or 31.8%, compared to 2025. This increase is due to the transition of our business under the Markel Fronting Arrangement, which resulted in incremental ceding commission expense for in-force policies written in 2025 and assumed at 100% on January 1, 2026. This increase was partially offset by the deferral of costs incurred by our U.S. MGA subsidiary for the successful acquisition or renewal of insurance policies issued under the Markel Fronting Arrangement, beginning in 2026. These deferred costs are amortized over the average policy life of 12 months. For further details on our accounting policy related to deferred acquisition costs, refer to Note 2 - Summary of Significant Accounting Policies in Item 1 of Part I of this Quarterly Report for additional information.
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Underwriting and other insurance expenses
Underwriting and other insurance expenses were $59.6 million for the three months ended March 31, 2026, an increase of $58.2 million compared to 2025. This increase is primarily due to the transition of our business under the Markel Fronting Arrangement, which required a different classification of certain costs in our Condensed Consolidated Statements of Operations. Beginning in 2026, because we now control the Essentia book of business, operating costs incurred by our U.S. MGA subsidiary in support of our risk taking activities are classified within Underwriting and other insurance expenses. In 2025, prior to assuming control of the Essentia book of business, these costs were categorized within Selling, general, and administrative expenses.
Net investment income and Net investment losses
The following table presents the components of Net investment income and Net investment losses for the three months ended March 31, 2026 and 2025:
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| in thousands (except percentages) | ||||||||||||||||||||||||||
| Interest income | $ | 9,984 | $ | 8,970 | $ | 1,014 | 11.3% | |||||||||||||||||||
|
Dividend income
|
207 | 40 | 167 | N/M | ||||||||||||||||||||||
|
Investment management fees and expenses
|
(177) | (127) | (50) | 39.4% | ||||||||||||||||||||||
| Net investment income | 10,014 | 8,883 | 1,131 | 12.7% | ||||||||||||||||||||||
| Net investment losses | (2,289) | (315) | (1,974) | N/M | ||||||||||||||||||||||
| Total | $ | 7,725 | $ | 8,568 | $ | (843) | (9.8)% | |||||||||||||||||||
N/M = Not meaningful
The increase in Net investment income was due to an increase in the size of our fixed maturity securities portfolio for the three months ended March 31, 2026, when compared to the prior year. The increase in Net investment losses was primarily driven by unrealized losses on equity securities in the period.
Other revenues
Commission and fee revenue
Commission and fee revenue was $16.4 million for the three months ended March 31, 2026, a decrease of $83.9 million, or 83.6%, compared to 2025. This decrease was primarily due to the transition of our business under the Markel Fronting Arrangement. Due to the expanded underwriting and claims authority granted to us under the Markel Fronting Arrangement, we now control the Essentia book of business and, as a result, beginning on January 1, 2026, the benefit of our MGA services is being received by Hagerty Re and not Essentia. As a result, effective in the first quarter of 2026, we no longer recognize commission revenue for Essentia-originated policies in our Condensed Consolidated Financial Statements. This decrease was partially offset by an increase of $5.4 million related to policies written under the State Farm Master Alliance Agreement.
Membership and other revenue
Membership and other revenue was $22.1 million for the three months ended March 31, 2026, an increase of $1.3 million, or 6.0%, compared to 2025. This increase was primarily due to a $1.5 million, or 10.3%, increase in revenue attributable to new insurance policies issued with a bundled HDC membership.
Other expenses
Selling, general, and administrative expenses
Selling, general, and administrative expenses were $46.9 million for the three months ended March 31, 2026, a decrease of $69.1 million, or 59.6%, compared to 2025. This decrease is primarily due to the transition of our business under the Markel Fronting Arrangement, which required a different classification of certain costs in our Condensed Consolidated Statements of Operations. Beginning in 2026, because we now control the Essentia book of business, certain costs incurred by our U.S. MGA subsidiary in support of our risk taking activities, are classified within Losses and loss adjustment expenses, net, Policy acquisition costs, net, and Underwriting and other insurance expenses. In 2025, prior to assuming control of the Essentia book of business, these costs were categorized within Selling, general, and administrative expenses.
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Marketplace Segment
The following table summarizes Marketplace segment results of operations for the three months ended March 31, 2026 and 2025, and the dollar and percentage change between the two periods:
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| Segment Results: | in thousands (except percentages) | |||||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||
| Marketplace revenue | $ | 25,652 | $ | 29,086 | $ | (3,434) | (11.8) | % | ||||||||||||||||||
| Net investment income | 249 | 175 | 74 | 42.3 | % | |||||||||||||||||||||
| Total revenue | 25,901 | 29,261 | (3,360) | (11.5) | % | |||||||||||||||||||||
| EXPENSES: | ||||||||||||||||||||||||||
|
Selling, general, and administrative expenses (1)
|
25,272 | 27,839 | (2,567) | (9.2) | % | |||||||||||||||||||||
| Interest expense and other, net | (157) | (116) | (41) | (35.3) | % | |||||||||||||||||||||
| Total expenses | 25,115 | 27,723 | (2,608) | (9.4) | % | |||||||||||||||||||||
| INCOME BEFORE TAXES | $ | 786 | $ | 1,538 | $ | (752) | (48.9) | % | ||||||||||||||||||
| Operational Metrics: | ||||||||||||||||||||||||||
| Aggregate Auction Sales | $ | 135,379 | $ | 75,336 | $ | 60,043 | 79.7 | % | ||||||||||||||||||
| Net Auction Sales | $ | 123,436 | $ | 68,213 | $ | 55,223 | 81.0 | % | ||||||||||||||||||
| Private Sales | $ | 36,830 | $ | 53,669 | $ | (16,839) | (31.4) | % | ||||||||||||||||||
| BAC Average Loan Portfolio | $ | 135,270 | $ | 62,784 | $ | 72,486 | 115.5 | % | ||||||||||||||||||
(1) Selling expenses include direct costs associated with the sale of vehicles and memorabilia through auctions and private sales, including the purchase price and associated direct costs of inventory when Broad Arrow opportunistically purchases inventory to be sold through auctions or private sales, as well as interest expense and borrowing costs associated with the BAC Credit Facility.
| March 31, | December 31, | |||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| Operational Metrics: | in thousands (except percentages) | |||||||||||||||||||||||||
| BAC Loan Portfolio Balance | $ | 142,956 | $ | 103,338 | $ | 39,618 | 38.3 | % | ||||||||||||||||||
Income before taxes for the Marketplace segment was $0.8 million for the three months ended March 31, 2026, a decrease of $0.8 million, or 48.9%, compared to 2025. This decrease was principally due to a lower level of Broad Arrow inventory sales, as the prior-year period included the one-time sale of a collection outside of the regular auction schedule. That event included the sale of vehicles acquired from The Academy of Art University Collection, which were sold at an auction held in February 2025. This decrease in inventory sales was partially offset by an increase in auction revenue, driven by the strong results at the 2026 auction at The Amelia, which saw an 81.0% increase in Net Auction Sales from the prior year. To a lesser extent, the increase in auction revenue was also due to the inaugural Global Icons online auction during the Salon Retromobile week in Paris. Lastly, the decrease in Marketplace segment results was further offset by an increase in finance revenue from the increase in BAC's loan book, which was a result of the upsizing of the BAC Credit Facility in the fourth quarter of 2025.
Income tax (expense) benefit
We are the sole managing member of THG, and as a result, consolidate its financial results. THG is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, THG is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by THG is passed through and included in the taxable income or loss of its members, including Hagerty, Inc., on a pro rata basis. Hagerty, Inc. is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of THG, as well as any of its stand-alone income or loss. In addition, Hagerty Insurance Holdings, Inc., Broad Arrow, Hagerty Radwood, Inc., and various foreign subsidiaries are treated as taxable entities. Hagerty Insurance Holdings, Inc. files a consolidated tax return with its wholly owned corporate subsidiaries Hagerty Re and Drivers Edge.
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Our provision for income taxes was a benefit of $8.2 million, resulting in an effective tax rate of 39.1% for the three months ended March 31, 2026, compared to an expense of $5.5 million, resulting in an effective tax rate of 16.7% for the three months ended March 31, 2025. The change in income tax benefit (expense) period over period is driven by non-reversing temporary differences between taxable income and pre-tax book income related to the Markel Fronting Arrangement, partially offset by higher earnings in Hagerty Re and an increase in Hagerty, Inc.'s allocable share of income from THG.
Non-GAAP Financial Measures
Adjusted EBITDA
We define EBITDA as consolidated Net income (loss), excluding Interest expense and other, net, Income tax expense (benefit), and Depreciation and amortization. We define Adjusted EBITDA as EBITDA, further adjusted to (i) exclude net investment gains and losses; (ii) deduct interest expense related to the State Farm Term Loan; (iii) exclude share-based compensation expense; and when applicable, exclude (iv) restructuring, impairment and related charges; (v) gains, losses and impairments related to divestitures; and (vi) certain other unusual items, such as Markel Fronting Arrangement transitional costs during the three months ended March 31, 2026.
How This Measure is Useful
When used in conjunction with GAAP financial measures, Adjusted EBITDA is a supplemental measure of operating performance that we believe is a useful measure to evaluate our performance period over period and relative to our competitors and peers. Management uses Adjusted EBITDA to evaluate our operating performance on a consistent basis, as it removes the impact of items not directly resulting from our core operations. We believe the presentation of Adjusted EBITDA provides securities analysts, investors, and other interested parties with a supplemental view of our operating performance that enhances their understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
Limitations of the Usefulness of This Measure
Adjusted EBITDA may differ from similarly titled measures used by other companies due to different methods of calculation, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies. Presentation of Adjusted EBITDA is not intended to be considered in isolation or a substitute for, or superior to, the financial information prepared in accordance with GAAP. A reconciliation of Adjusted EBITDA to Net income (loss), the most directly comparable GAAP measure, is presented below.
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| Three months ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| in thousands | ||||||||||||||
| Net income (loss) | $ | (12,745) | $ | 27,293 | ||||||||||
|
Interest expense and other, net (1)
|
922 | 1,689 | ||||||||||||
| Income tax expense (benefit) | (8,192) | 5,489 | ||||||||||||
| Depreciation and amortization | 9,706 | 9,488 | ||||||||||||
| EBITDA | (10,309) | 43,959 | ||||||||||||
| Net investment losses | 2,289 | 315 | ||||||||||||
|
Interest expense related to State Farm Term Loan (2)
|
(515) | (515) | ||||||||||||
| Share-based compensation expense | 4,617 | 4,392 | ||||||||||||
|
Markel Fronting Arrangement transitional costs (3)
|
88,958 | - | ||||||||||||
|
Other unusual items (4)
|
145 | - | ||||||||||||
| Adjusted EBITDA | $ | 85,185 | $ | 48,151 | ||||||||||
(1) Excludes interest expense related to the BAC Credit Facility, which is recorded within "Selling, general, and administrative expenses" in the Condensed Consolidated Statements of Operations.
(2) Interest expense related to the State Farm Term Loan is charged against Adjusted EBITDA as it is directly attributable to the operations of Hagerty Re. Refer to Note 14 - Debt and Note 20 - Related-Party Transactions in Item 1 of Part I of this Quarterly Report for additional information.
(3) Represents the amortization of deferred ceding commissions paid to Markel for policies written prior to January 1, 2026. These costs relate exclusively to policies written prior to our entry into the Markel Fronting Arrangement and are being fully amortized ratably over the remaining term of those policies through December 31, 2026. We expect the amortization of these deferred ceding commissions to decline from $89.0 million in the first quarter of 2026 to approximately $10.0 million in the fourth quarter of 2026, as the remaining 2025 policy terms run off. Management excludes these costs from Adjusted EBITDA because they are transitional charges related solely to deferred ceding commissions on policies written prior to January 1, 2026, are expected to run off by December 31, 2026, and are not indicative of our ongoing operating performance under the Markel Fronting Arrangement.
(4) For the three months ended March 31, 2026, other unusual items includes additional severance expenses associated with the actions taken in the fourth quarter of 2025.
As a result of our transition to the Article 7 reporting standards, Net investment income is reported as a component of revenue and is no longer an adjustment in our reconciliation from Net income (loss) to Adjusted EBITDA. In addition, interest expense related to the State Farm Term Loan is now deducted from Adjusted EBITDA as it is directly attributable to Hagerty Re, which generates a significant portion of our net investment income. The following table presents a reconciliation of Adjusted EBITDA as presented in the prior period in accordance with Article 5, to the current presentation in accordance with Article 7:
| Three months ended March 31, 2025 | |||||
| in thousands | |||||
| Prior presentation of Adjusted EBITDA | $ | 39,608 | |||
| Net investment income | 9,058 | ||||
| Interest expense related to State Farm Term Loan | (515) | ||||
| Current presentation of Adjusted EBITDA | $ | 48,151 | |||
Adjusted Net Income (Loss) and Adjusted Diluted EPS
Adjusted Net Income (Loss) represents Net income (loss) attributable to Class A Common Stockholders, assuming the full exchange of all outstanding THG units and Series A Convertible Preferred Stock for shares of Class A Common Stock, adjusted to exclude (i) net investment gains and losses; and when applicable, (ii) changes in the TRA Liability; (iii) gains and losses related to divestitures; and (iv) certain other unusual items, each of which we do not believe are directly related to our core operations and may not be indicative of our ongoing performance. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income (Loss) by the weighted average shares of Class A Common Stock outstanding, assuming the full exchange of all outstanding THG units, Series A Convertible Preferred Stock, and unvested share-based compensation awards.
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How These Measures Are Useful
When used in conjunction with GAAP financial measures, Adjusted Net Income (Loss) and Adjusted Diluted EPS are supplemental measures of operating performance that we believe are useful measures to evaluate our performance period over period and relative to our competitors and peers. Management uses Adjusted Net Income (Loss) and Adjusted Diluted EPS to evaluate our operating performance on a consistent basis to make strategic and operational decisions. We believe these measures provide management and investors with useful information regarding trends in our business that may not otherwise be apparent when relying solely on GAAP measures. By assuming the full exchange of all outstanding THG units and Series A Convertible Preferred Stock, we believe these measures facilitate comparisons with other companies that have different organizational and tax structures, as well as comparisons period over period because it eliminates the effect of any changes in Net income (loss) attributable to Class A Common Stockholders driven by increases in Hagerty, Inc.'s ownership in THG, which is unrelated to our operating performance, and excludes items that are unusual or may not be indicative of our ongoing performance.
Limitations of the Usefulness of These Measures
Adjusted Net Income (Loss) and Adjusted Diluted EPS may differ from similarly titled measures used by other companies due to different methods of calculation. Presentation of Adjusted Net Income (Loss) and Adjusted Diluted EPS should not be considered alternatives to Net income (loss) attributable to Class A Common Stockholders and Diluted EPS, as determined under GAAP. While these measures are useful in evaluating our performance, they assume the full exchange of all outstanding THG units and Series A Convertible Preferred Stock for shares of Class A Common Stock, which has not occurred and may not occur. Further, the adjustments made to arrive at Adjusted Net Income (Loss) exclude certain expenses and income that may recur in the future. Adjusted Net Income (Loss) and Adjusted Diluted EPS should be evaluated in conjunction with our GAAP financial results. A reconciliation of Adjusted Net Income (Loss) to Net income (loss) attributable to Class A Common Stockholders, the most directly comparable GAAP measure, and the computation of Adjusted Diluted EPS are presented below.
| Three months ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Numerator: | in thousands (except per share amounts) | |||||||||||||
| Net income (loss) attributable to Class A Common Stockholders | $ | (6,521) | $ | 6,496 | ||||||||||
| Adjustments: | ||||||||||||||
| Accretion of Series A Convertible Preferred Stock | 2,030 | 1,875 | ||||||||||||
| Net income (loss) attributable to non-controlling interest | (8,254) | 18,922 | ||||||||||||
| Net investment losses | 2,289 | 315 | ||||||||||||
|
Other unusual items (1)
|
145 | - | ||||||||||||
|
Tax impact of above adjustments (2)
|
(2,833) | (2,256) | ||||||||||||
| Adjusted Net Income (Loss) | $ | (13,144) | $ | 25,352 | ||||||||||
| Denominator: | ||||||||||||||
|
Weighted average shares of Class A Common Stock outstanding - Diluted
|
101,034 | 346,311 | ||||||||||||
| Adjustments: | ||||||||||||||
| Assumed exchange of non-controlling interest THG units for shares of Class A Common Stock | 245,102 | - | ||||||||||||
| Assumed conversion of shares of Series A Convertible Preferred Stock into shares of Class A Common Stock | 6,785 | 6,785 | ||||||||||||
| Assumed vesting of share-based compensation awards | 8,007 | 6,881 | ||||||||||||
|
Adjusted weighted average shares of Class A Common Stock outstanding - Diluted
|
360,928 | 359,977 | ||||||||||||
| Adjusted Diluted EPS | $ | (0.04) | $ | 0.07 | ||||||||||
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| Three months ended March 31, | ||||||||||||||
| 2026 | 2025 | |||||||||||||
| Diluted EPS | $ | (0.06) | $ | 0.07 | ||||||||||
|
Impact of assumed exchange, conversion, or vesting of remaining potentially dilutive securities (3)
|
0.02 | 0.01 | ||||||||||||
|
Non-GAAP adjustments (4)
|
- | (0.01) | ||||||||||||
| Adjusted Diluted EPS | $ | (0.04) | $ | 0.07 | ||||||||||
(1) For the three months ended March 31, 2026, other unusual items includes additional severance expenses associated with the actions taken in the fourth quarter of 2025.
(2) Represents the tax effect of the aforementioned adjustments to reflect corporate income taxes at an estimated effective tax rate of 29.0% and 23.4% for the three months ended March 31, 2026 and 2025, respectively, which considers the U.S. federal statutory rate of 21%, a combined state income tax rate of approximately 5% (net of federal benefits), and certain material permanent items.
(3) Assumes the exchange of all outstanding THG units, Series A Convertible Preferred Stock, and unvested share-based compensation awards for shares of Class A Common Stock, resulting in the elimination of the non-controlling interest and recognition of the Net income (loss) attributable to non-controlling interest, as well as elimination of the accretion of Series A Convertible Preferred Stock. Refer to Note 18 - Earnings Per Share in Item 1 of Part I of this Quarterly Report for additional information on Diluted EPS.
(4) Represents the per share impact of non-GAAP adjustments for each period. Refer to the reconciliation above for additional information.
Liquidity and Capital Resources
Maintaining a strong balance sheet and capital position is a top priority for us. As a holding company without direct operations, we manage liquidity globally and across all operating subsidiaries.
Sources and Uses of Liquidity
Our sources of liquidity include our: (i) balances of cash and cash equivalents; (ii) net working capital; (iii) cash flows from operations, including net investment income; (iv) borrowings from the 2025 JPM Credit Facility (as defined below) to fund the general corporate needs of THG and its subsidiaries; and (v) borrowings from the BAC Credit Facility (as defined below) to fund a portion of the lending activities of BAC.
Our primary liquidity needs and capital requirements include cash required for: (i) funding the business operations of THG and its subsidiaries; (ii) funding strategic investments and acquisitions; (iii) servicing and repayment of borrowings under the 2025 JPM Credit Facility, the BAC Credit Facility, and the unsecured term loan credit facility with State Farm (the "State Farm Term Loan"); (iv) funding potential cash dividend payments on the Series A Convertible Preferred Stock; (v) payment of income taxes; (vi) funding required distributions to the non-controlling interest unit holders of THG; and (vii) funding required payments to Hagerty Holding Corp. ("HHC") and Markel (together the "Legacy Unit Holders") under the TRA.
As of March 31, 2026, we believe that our sources of liquidity will be sufficient to provide an adequate level of capital to support our anticipated short and long-term commitments, operating needs, and capital requirements.
Financing Arrangements
2025 JPM Credit Facility
THG has a credit agreement with JPMorgan Chase Bank, N.A. ("JPM"), as administrative agent, issuing bank and swingline lender, the foreign subsidiary borrowers thereto, and the other financial institutions party thereto as lenders (the "2025 JPM Credit Agreement").
The 2025 JPM Credit Agreement provides for a senior unsecured revolving credit facility (the "2025 JPM Credit Facility") with an aggregate borrowing capacity of $375.0 million. The 2025 JPM Credit Agreement matures in March 2030, but may be extended if agreed to by THG and the lenders party thereto. Any unpaid balance on the 2025 JPM Credit Facility is due at maturity. As of March 31, 2026, total outstanding borrowings under the 2025 JPM Credit Facility were $93.6 million.
The 2025 JPM Credit Agreement requires us to, among other things, meet certain financial covenants, including a minimum fixed charge coverage ratio test and a maximum leverage ratio test. As of March 31, 2026, we were in compliance with these financial covenants.
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BAC Credit Facility
BAC and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, have a revolving credit agreement (the "BAC Credit Agreement") that provides for a revolving credit facility (the "BAC Credit Facility") with an aggregate commitment of $150.0 million. The BAC Credit Facility's borrowing base is determined by the carrying value of certain BAC notes receivable, which is then limited by the amount of the aggregate commitment. As of March 31, 2026, the applicable borrowing base for the BAC Credit Agreement was $110.5 million.
The revolving borrowing period of the BAC Credit Facility expires in November 2027, followed by an amortization period until it ultimately matures in November 2028. The borrowing period and the maturity date of the BAC Credit Facility may be extended by one year if requested by BAC and agreed by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.
BAC and certain of its subsidiaries may transfer notes receivable to wholly owned, bankruptcy remote special purpose entities (each, an "SPE") to secure borrowings, isolating these assets from our other obligations. Recourse is limited to (i) an obligation of the applicable seller to repurchase a note receivable if it is determined that there was a breach of any representation or warranty relating to such note receivable as of the relevant date specified in the related transfer agreement; and (ii) a limited guarantee for certain liabilities that may result under certain foreign exchange hedging activity of one of the SPEs.
BAC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants including that BAC, as the servicer, maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio. As of March 31, 2026, we were in compliance with the financial covenants under the BAC Credit Agreement.
Refer to Note 14 - Debt in Item 1 of Part I of this Quarterly Report for additional information related to the 2025 JPM Credit Agreement and BAC Credit Agreement.
Capital and Dividend Restrictions
We are a holding company with no material assets other than our ownership interest in THG and its operating subsidiaries. Accordingly, our ability to meet our cash requirements depends on THG's financial performance and the distributions we receive from THG. Our subsidiaries' ability to make distributions, pay dividends and make other payments may be regulated by the states and territories where they are domiciled. For example, as described below, our ability to upstream capital from Hagerty Re is subject to Bermuda regulatory capital requirements and dividend restrictions administered by the Bermuda Monetary Authority ("BMA"), which may limit distributions in certain periods.
For a discussion of the risks associated with our holding company structure, refer to Item 1A. Risk Factors - Risks Related to Tax - "Hagerty, Inc. is a holding company, whose only material asset is its interest in THG. Hagerty, Inc. depends on THG distributions to pay taxes, make payments under the TRA, and pay other expenses." in our Annual Report.
Capital Restrictions
Our reinsurance subsidiary, Hagerty Re, is subject to the Bermuda Solvency Capital Requirement ("BSCR"), which establishes a target capital level and enhanced capital requirements for each insurer. As of March 31, 2026, Hagerty Re maintained sufficient statutory capital and surplus to comply with the BSCR.
Similarly, our U.S. insurance company subsidiary, Drivers Edge, which holds certificates of authority in 42 states, is subject to state-specific minimum capital and surplus requirements, as well as risk-based capital ("RBC") requirements. RBC levels are reported on an annual basis. As of March 31, 2026, Drivers Edge maintained sufficient capital and surplus levels to comply with National Association of Insurance Commissioners and state insurance regulations.
Dividend Restrictions
Under Bermuda law, Hagerty Re is prohibited from declaring or issuing a dividend if it fails to meet its minimum solvency margin or minimum liquidity ratio. Prior approval from the BMA is also required if Hagerty Re's proposed dividend payments would exceed 25% of its prior year-end total statutory capital and surplus. Based on these restrictions, during 2026, Hagerty Re can pay $95.4 million in dividends without prior BMA approval. As of March 31, 2026, there were no plans to issue dividends from Hagerty Re.
Similarly, state statutes restrict the amount of dividends that Drivers Edge may pay without prior approval of state insurance regulators. As of March 31, 2026, there were no plans to issue dividends from Drivers Edge and a change in such plans may require regulatory approval.
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Comparative Cash Flows
The following table summarizes our cash flow data for the three months ended March 31, 2026 and 2025:
| Three months ended March 31, | ||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| in thousands (except percentages) | ||||||||||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 16,253 | $ | 43,830 | $ | (27,577) | (62.9) | % | ||||||||||||||||||
| Net Cash Used in Investing Activities | $ | (39,925) | $ | (4,481) | $ | (35,444) | N/M | |||||||||||||||||||
| Net Cash Provided by Financing Activities | $ | 91,039 | $ | 14,244 | $ | 76,795 | N/M | |||||||||||||||||||
N/M = Not meaningful
Operating Activities
Cash provided by operating activities primarily consists of Net income (loss), adjusted for non-cash items, and changes in working capital balances. Net cash provided by operating activities for the three months ended March 31, 2026 and 2025 is presented below:
|
Three months ended March 31,
|
||||||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | |||||||||||||||||||||||
| in thousands (except percentages) | ||||||||||||||||||||||||||
| Net income (loss) | $ | (12,745) | $ | 27,293 | $ | (40,038) | N/M | |||||||||||||||||||
| Non-cash adjustments to Net income (loss) | 3,314 | 17,169 | (13,855) | (80.7) | % | |||||||||||||||||||||
| Changes in operating assets and liabilities | 25,684 | (632) | 26,316 | N/M | ||||||||||||||||||||||
| Net Cash Provided by Operating Activities | $ | 16,253 | $ | 43,830 | $ | (27,577) | (62.9) | % | ||||||||||||||||||
N/M = Not meaningful
Net cash provided by operating activities for the three months ended March 31, 2026 was $16.3 million, a decrease of $27.6 million, or 62.9%, compared to 2025. This decrease was due to a $53.9 million decrease in Net income (loss), net of non-cash adjustments, partially offset by a $26.3 million increase in cash from operating assets and liabilities. The decrease in operating cash flows is primarily driven by cash flow changes as a result of the transition of our business under the Markel Fronting Arrangement. These changes resulted in an increase in losses paid during the three months ended March 31, 2026 as a result of a change in timing of settlement payments, partially offset by the increase in our U.S. quota share percentage from approximately 80% in 2025 to 100% in 2026. In addition, our annual incentive payment made in respect of prior year performance was higher in 2026 compared to 2025, and Broad Arrow increased inventory purchases during the three months ended March 31, 2026 compared to 2025.
Investing Activities
Cash used in investing activities for the three months ended March 31, 2026 increased by $35.4 million when compared to 2025. This increase was principally due to a $25.9 million increase in net fundings of BAC notes receivable, which is consistent with the increases in the loan portfolio between the periods. To a lesser extent, the increase is driven by net purchases of investments within our investment portfolio.
Financing Activities
Cash from financing activities for the three months ended March 31, 2026 increased $76.8 million when compared to 2025, principally due to the LPT Agreement with Markel, which resulted in a $50.5 million cash inflow. To a lesser extent, the increase was driven by a $12.6 million increase in net proceeds received from credit facility borrowings. Lastly, we made a $24.7 million payment to THG non-controlling interest unit holders in 2025 and there was no comparable payment in 2026.
Tax Receivable Agreement
In connection with the consummation of the business combination that formed Hagerty, Inc. in 2021, Hagerty, Inc. entered into a TRA with the Legacy Unit Holders. The TRA requires us to pay the Legacy Unit Holders 85% of the U.S. federal, state, and local cash tax savings realized by Hagerty, Inc. resulting from increases in tax basis and certain other tax benefits, as outlined in the Business Combination Agreement, upon the exchange of THG units and shares of Hagerty, Inc. Class V Common Stock for shares of Hagerty, Inc. Class A Common Stock or cash.
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The amount and timing of any payments under the TRA will vary depending on a number of factors, including, but not limited to, the increase in tax basis of THG's assets, the timing of any future redemptions, exchanges or purchases of THG units held by Legacy Unit Holders, the price of Hagerty, Inc. Class A Common Stock at the time of the redemption, exchange or purchase, the extent to which redemptions or exchanges are taxable, the amount and timing of the taxable income that Hagerty, Inc. generates in the future, the tax rates then applicable, and the portion of the payments under the TRA constituting imputed interest. We expect to have adequate capital resources to meet the requirements and obligations under the TRA entered into with the Legacy Unit Holders.
Refer to Note 19 - Taxation in Item 1 of Part I of this Quarterly Report for information related to the TRA.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of March 31, 2026.
Critical Accounting Policies and Estimates
The preparation of the unaudited Condensed Consolidated Financial Statements in accordance with GAAP requires management to make significant judgments, assumptions, and estimates that materially affect the amounts reported in our Condensed Consolidated Financial Statements. Management's judgments, assumptions, and estimates are based on historical experience, future expectations, and other factors that are believed to be reasonable as of the date of the Condensed Consolidated Financial Statements. Actual results may ultimately differ from management's original estimates, as future events and circumstances sometimes do not develop as expected.
Our accounting policies are set forth in Note 2 - Summary of Significant Accounting Policies to Consolidated Financial Statements contained in our Annual Report.
New Accounting Standards
New accounting standards are described in Note 2 - Summary of Significant Accounting Policies in Item 1 of Part I of this Quarterly Report, which are incorporated herein by reference.
Hagerty Inc. published this content on May 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 06, 2026 at 14:54 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]