10q10k10q10k.net
Hagerty, Inc.

Hagerty, Inc.HGTYEarnings & Financial Report

NYSE · insurance

Hagerty, Inc. is an American automotive lifestyle and membership company, as well as the world's largest provider of specialty insurance for classic vehicles. Hagerty is based in Traverse City, Michigan and also operates in Canada, Germany and the United Kingdom.

What changed in Hagerty, Inc.'s 10-K — 2022 vs 2023

Top changes in Hagerty, Inc.'s 2023 10-K

561 paragraphs added · 530 removed · 356 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

64 edited+41 added−46 removed4 unchanged
Some examples of how we utilize data science include: • Underwriting and Risk Assessment: Decades of data allow us to accurately assess the risk associated with insuring collectible cars through actuarial analysis, which leads to more efficient underwriting and appropriate pricing. • Market Analysis: Machine learning algorithms are designed to analyze data on collector car sales and values to identify trends and initiate automated marketing, sales and servicing workflows. • Customer Service: AI-powered tools provide instant and accurate responses to Member inquiries, freeing up our member service agents to handle more complex issues and improve the Member experience. • Claims Processing: Streamlining the claims process by automating routine tasks and flagging potential fraud.
Some examples of how we utilize data science include: • Underwriting and Risk Assessment: Decades of data allow us to accurately assess the risk associated with insuring collector cars through actuarial analysis, which leads to more efficient underwriting and appropriate pricing. • Market Analysis: Machine learning algorithms are designed to analyze data on collector car sales and values to identify trends and initiate automated marketing, sales and servicing workflows. • Customer Service: AI-powered tools provide instant and accurate responses to Member inquiries, freeing up our member service agents to handle more complex issues and improve the Member experience. • Claims Processing: Streamlining the claims process by automating routine tasks and flagging potential fraud.
Essentia cedes premiums and risk through quota share reinsurance agreements to our key insurance distribution partners with the remaining retained premium being ceded to its affiliate, Evanston Insurance Company ("Evanston"). Evanston, in turn, cedes a portion of the business it reinsures from Essentia, to Hagerty Re.
Essentia cedes premiums and risk through quota share reinsurance agreements to three of our key insurance distribution partners with the remaining retained premium being ceded to its affiliate, Evanston Insurance Company ("Evanston"). Evanston, in turn, cedes a portion of the business it reinsures from Essentia to Hagerty Re.
Membership Our focus on Membership offerings is intended to build a community of car lovers that are loyal to the Hagerty brand due to the multiple valuable points of engagement we provide. Typical insurance businesses engage with their customers only a few times a year.
Our focus on HDC membership offerings is intended to build a community of car lovers that are loyal to the Hagerty brand due to the multiple valuable points of engagement we provide. Typical insurance businesses engage with their customers only a few times a year.
Though we rely in part upon these legal, contractual, and other protections, we believe that factors such as the skill and ingenuity of our employees and the functionality and frequent enhancements to our platform are large contributors to our success in the marketplace.
Though we rely in part upon these legal, contractual, and other protections, we believe that factors such as the skill and ingenuity of our employees and the functionality and frequent enhancements to our platform are large contributors to our success.
This seasonality is due to the fact that more vehicles are driven and purchased during the second and third quarters, and our twelve-month policies renew during those same quarters. We expect to experience seasonal and other fluctuations in our quarterly operating results, which may not fully reflect the underlying performance of our business.
This seasonality is due to the fact that more vehicles are driven and purchased during the second and third quarters, and our twelve-month insurance policies renew during those same quarters. We expect to experience seasonal fluctuations in our quarterly operating results, which may not fully reflect the underlying performance of our business.
We handle product development and pricing, sales and service, underwriting and claims services on behalf of our underwriting carriers, and we offer Member benefits tailored to the enthusiast all through our proprietary technology and by our sales and service teams. For partners, our focus on the collector car space allows them to focus on other parts of their business portfolios.
We handle product development and pricing, sales and service, underwriting, and claims services on behalf of our carrier partners, and we offer Member benefits tailored to the enthusiast all through our proprietary technology and by our sales and service teams. For partners, our focus on the collector car space allows them to focus on other parts of their business portfolios.
Although we believe our intellectual property rights are valuable and strong, intellectual property rights are sometimes subject to invalidation or circumvention. Refer to the sections titled " Risk Factors — Risks Related to Our Business — Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
Although we believe our intellectual property rights are valuable and strong, intellectual property rights are sometimes subject to invalidation or circumvention. Refer to the section titled " Risk Factors — Risks Related to Our Business — Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
We intend to pursue additional intellectual property protection on such enhancements to the extent we believe it would be beneficial and cost-effective. As of December 31, 2022, we have two issued patents in the U.S. and one in Canada.
We intend to pursue additional intellectual property protection on such enhancements to the extent we believe it would be beneficial and cost-effective. As of December 31, 2023, we have two issued patents in the U.S. and one in Canada.
State laws govern many of the activities under this relationship and our MGAs must maintain the appropriate licensing as a producer and, where required, as an MGA, plus additional requirements in some states for claims adjusting.
State laws govern many of the activities under this relationship and our MGA subsidiaries must maintain the appropriate licensing as a producer and, where required, as an MGA, plus additional requirements in some states for claims adjusting.
We work closely with our Members to determine the right amount of coverage for their vehicle, utilizing Hagerty Valuation Tools ("HVT"), which has been built over decades of collecting vehicle sales information. If a car experiences a covered total loss, we pay the full amount of the car's insured value without any depreciation.
We work closely with our Members to determine the right amount of coverage for their vehicle, utilizing Hagerty Valuation Tools ("HVT"), which has been built over decades of collecting vehicle sales information. If a vehicle experiences a covered total loss, we pay the full amount of the vehicle's insured value without any depreciation.
The issued patents generally relate to our vehicle information number decoder, which allows us to determine vehicle configuration details and associated vehicle values, and our method and system for storage and selective sharing of vehicle data. The issued patents are expected to expire in August 2030, May 2031 and May 2033.
The issued patents generally relate to (i) our vehicle information number decoder, which allows us to determine vehicle configuration details and associated vehicle values and (ii) our method and system for storage and selective sharing of vehicle data. The issued patents are expected to expire in August 2030, May 2031, and May 2033, respectively.
Independent Agent and Broker Channel Approximately 33% of our total U.S. auto written premium is generated by the agent and broker channel through our relationships with over 45,000 independent agents and brokers, including the independent agents in our partnership channel as discussed below. Our independent agents and brokers represent all of the top 10 brokers in the U.S. by revenue.
Independent Agent and Broker Channel Approximately 33% of our total U.S. auto written premium is generated by our relationships with over 49,000 independent agents and brokers, including the independent agents in our partnership channel, as discussed below. These independent agents and brokers represent all top 10 brokers in the U.S. by revenue.
The market for buying and selling collector cars is substantial, encompassing live and time-based online auctions and private sales. We estimate that there are approximately 45 million insurable collector cars in the U.S., valued at approximately $1.0 trillion.
Marketplace The market for buying and selling collector cars is substantial, encompassing live and time-based online auctions, as well as private sales. We estimate that there are approximately 46 million insurable collector cars in the U.S., valued at approximately $1.0 trillion.
We continually review our development efforts to assess the existence and the ability to protect new intellectual property. We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select marks in the U.S., Canada, U.K., European Union ("E.U.") and Australia.
We continually review our development efforts to assess the existence and the ability to protect new intellectual property. 11 TABLE OF CONTENTS We have trademark rights in our name, our logo, and other brand indicia, and have trademark registrations for select markets in the U.S., Canada, U.K., European Union ("E.U."), and Australia.
Hagerty Media features the work of the nation’s top automotive content creators, journalists, and storytellers who bring the world of cars to life in exciting and unexpected ways across a variety of digital, print, and video media formats.
Our media content features the work of talented automotive content creators, journalists, and storytellers who bring the automotive world to life in exciting and unexpected ways across a variety of digital, print, and video media formats.
("Aviva") is the parent company of Elite Insurance Company and serves as the carrier for our affiliated Canadian MGA subsidiary ("Hagerty Canada") specialty classic and collector vehicle insurance program.
("Aviva") is the parent company of Elite Insurance Company which serves as the carrier for our Canadian MGA subsidiary ("Hagerty Canada") collector vehicle insurance program.
Most insurance companies offer and compete for multi-line insurance: auto, property, liability, boat, aircraft, and other exclusive collectables. Our focus on collector vehicle products and services reduces competitive threats for partners and raises their confidence in trading with us. Furthermore, we focus our investments on developing capabilities that serve the interests of the car enthusiast market.
Most insurance companies offer and compete for multi-line insurance: auto, homeowners, umbrella, watercraft, aircraft, and other exclusive collectibles. Our focus on collector car products and services reduces competitive threats for partners and raises their confidence in transacting with us. Furthermore, we focus our investments on developing capabilities that serve the interests of the car enthusiast market.
Elite Insurance Company and Hagerty Re have a reinsurance quota share agreement. The terms of the Aviva agreements expire in 2030 and include a 5-year extension. Canadian provincial laws govern many of the activities under this relationship and, in addition to appropriate carrier licensing requirements, Hagerty Canada must maintain the appropriate licensing.
The terms of the Aviva agreements expire in 2030 and include a 5-year extension. Canadian provincial laws govern many of the activities under this relationship and, in addition to appropriate carrier licensing requirements, Hagerty Canada must maintain the appropriate licensing.
The relationship with Aviva in Canada is exclusive with respect to specialty classic and collector vehicle insurance, with the exception of the Quebec province, where a third-party insurance agency carries the appropriate licenses and authority to submit business to Elite Insurance Company. Hagerty Canada receives compensation in the form of a broker commission.
The relationship with Aviva in Canada is exclusive with respect to specialty, enthusiast, classic, and collector vehicle insurance, with the exception of the Quebec province, where a third-party insurance agency carries the appropriate licenses and authority to submit business to Elite Insurance Company. Elite Insurance Company and Hagerty Re have a reinsurance quota share agreement.
Through our diverse Membership offerings, including HDC and Hagerty Garage + Social, we deploy an ecosystem of engagement, including both physical (through events and social functions) and digital platforms (through media content, social media engagement, market news and valuation data) that can result in numerous touchpoints with Members each year.
Through our diverse Membership offerings, we deploy an ecosystem of engagement, including both physical (through events and social functions) and digital platforms (through media content, social media engagement, market news and valuation data) that can result in numerous touchpoints with Members each year. We believe our leading NPS and strong retention rates reflect the effectiveness of our enthusiast ecosystem.
In 2022, we observed approximately 300,000 buy/sell vehicle transactions representing approximately $12.5 billion in total value trading hands in our U.S. insurance book, or approximately 1% of the estimated U.S. market value.
In 2023, we observed approximately 300,000 buy/sell collector car transactions representing approximately $14.2 billion in total value trading hands in our U.S. insurance book, or approximately 1.4% of the estimated U.S. market value.
We have built an ecosystem around the automotive enthusiast that results in multiple interactive touchpoints annually. We believe that consumers who feel part of an enthusiast community or club are more engaged and have higher renewal rates than those who simply purchase a good or service.
We believe that consumers who feel a part of an enthusiast community or club are more engaged and have higher renewal rates than those who simply purchase a good or service.
The backbone of our ecosystem is our fast-growing insurance operations. People take excellent care of the things they love, and we take great pride in protecting and preserving our Members’ treasured vehicles. During the past 38 years, we have consistently grown our insurance operations and currently insure more than 2.2 million classic cars and enthusiast vehicles worldwide.
The backbone of our ecosystem is our fast-growing insurance business. People take excellent care of the things they love, and we take great pride in protecting and preserving their treasured vehicles. For almost 40 years, we have consistently grown our insurance business and currently insure approximately 2.4 million classic cars and enthusiast vehicles.
Essentia is exclusive to our MGAs and writes no business other than insurance policies for Hagerty. Under this arrangement, we are licensed and appointed as Essentia’s MGA and are authorized to develop insurance products, underwrite, bill and perform claims services for policies written through Essentia.
MGA subsidiaries and only writes insurance policies we produce. Under this arrangement, we are licensed and appointed as Essentia’s MGA and are authorized to develop insurance products, underwrite, bill, and perform claims services for policies written through Essentia.
Engagement and belonging are fueled by having a meaningful connection to others and opportunities to grow and develop our careers. Across these dimensions, we are building programs, systems and tools that foster greater belonging.
We are creating a stronger sense of inclusion and belonging for our employees in general with a lens on representation. Engagement and belonging are fueled by having a meaningful connection to others and opportunities to grow and develop careers. Across these dimensions, we are building programs, systems and tools that foster greater belonging.
We estimate that there are approximately 45 million insurable collector cars in the U.S., of which approximately 11 million are pre-1981 and 34 million are post-1980 collectibles. Further, we estimate that the U.S. market translates into $12 to $15 billion of annual premium for insurable collector cars based on an average vehicle premium of $300 per year.
We estimate that there are approximately 46 million insurable collector cars in the United States ("U.S."), of which approximately 11 million are pre-1981 and 35 million are post-1980 collectibles. On this basis, we estimate that the U.S. market translates into $18 billion of annual premium for insurable collector cars based on our average vehicle premium of approximately $381 per year.
The potential for stock-based compensation awards through our equity incentive plan (the "2021 Equity Incentive Plan") and Employee Stock Purchase Plan are designed to align employee compensation to the long-term interests of our stockholders, while encouraging them to think and act like owners. We strive for a fair, competitive, transparent and equitable approach in recognizing and rewarding our employees.
The potential for stock-based compensation awards through our equity incentive plan, as well as the opportunity to participate in the Employee Stock Purchase Plan are designed to align employee compensation to the long-term interests of our stockholders, while encouraging them to think and act like owners.
Business Combination On December 2, 2021 (the "Closing"), The Hagerty Group completed a business combination pursuant to the Business Combination Agreement with Aldel and a subsidiary of Aldel, Aldel Merger Sub LLC (" Merger Sub" ) .
Business Combination On December 2, 2021, The Hagerty Group, LLC completed a business combination with Aldel Financial Inc. ("Aldel"), and Aldel Merger Sub LLC ("Merger Sub"), a Delaware limited liability company and wholly owned subsidiary of Aldel (the "Business Combination").
We have built a strong reputation for providing great customer service for Members through our passionate member service center, resulting in a NPS of approximately 83 over the last decade. Further, our insurance policy retention rate has been close to 90% over the past decade, with a typical policy life of approximately nine years.
We have built a strong reputation for providing excellent customer service through our passionate member service center, resulting in a Net Promoter Score ("NPS") of at least 82 in recent years, an insurance policy retention rate close to 90%, and a typical policy life of approximately nine years.
We have a self-insured medical plan in which our employees pay approximately 25% of the monthly estimated premiums. In addition to core medical, we offer maternity and paternity benefits to help employees who are looking to grow their family.
We have a self-insured medical plan in which our employees pay up to 29% of the monthly estimated premiums. In addition to core medical benefits, we offer maternity and paternity benefits, as well as employee assistance programs to support the mental health of our employees.
Our insurance offerings are centered around our "Guaranteed Value" insurance policy which differentiates our coverage from the standard auto insurance market. This means the covered vehicles are insured at their true replacement cost, whereas standard auto coverage is insured at a depreciated value.
Our insurance offerings are centered around our "Guaranteed Value" insurance policy which differentiates our coverage from the standard auto insurance market by insuring covered vehicles at their agreed upon value, rather than the depreciated value typically provided by standard auto coverage.
This depth and discipline of focus has enabled us to maintain a "neutral" and non-threatening partner of choice position with the highest quality automobile insurance companies in the market. Our approach to partnerships enables complementary growth. Our business model is attractive to our partners because we offer a full-service solution for their specialty customers and their specialty cars.
This depth and discipline of focus has enabled us to maintain a "neutral" and non-threatening partner of choice position with the highest quality automobile insurance companies in the market as we help them reduce the risk of losing a customer and the total value of the bundled insurance and membership offerings. Our approach to partnerships enables complementary growth.
For Evanston to take credit for reinsurance under applicable state law, Hagerty Re maintains funds in trust for the benefit of Evanston. The Markel and Hagerty agreements governing the relationship expire at the end of 2030 and include extension periods. Aviva Canada Alliance Aviva Canada Inc.
For Evanston to take credit for reinsurance under applicable state law, Hagerty Re maintains funds in trust for the benefit of Evanston.
Under one distribution partnership, we serve as the carrier's exclusive managing general underwriter for classic and collector car insurance products. Our track record of expertise and growth creates opportunities for cultivating strong, mutually beneficial partnerships that allow us to continue to meaningfully grow our share of the collector car market in the U.S. that we don’t service today.
Under these arrangements, we generally make our specialty insurance products and related services available to the carrier's agents, who then refer or present Hagerty to their customers. Our track record of expertise and growth creates opportunities for cultivating strong, mutually beneficial partnerships that allow us to continue to meaningfully grow our share of the collector car market in the U.S.
We then align financial interests so both parties enjoy a gain-share approach to the relationship, which creates strong and more durable institutional bonds. When our partners win and grow, we do as well. We take great care to build partnerships with firms who share our cultural principles and intense focus on customer service.
We then align financial interests so both parties benefit from the relationship, which creates strong and more durable institutional bonds. When our partners win and grow, we do as well.
Our insurance business model positions us to control the pricing and underwriting of the insurance policies, benefit from steady fee-based income and engage directly with consumers.
Our insurance business model positions us to control the pricing and underwriting of the insurance policies, benefit from steady commission income and engage directly with consumers. We operate an omnichannel distribution model, including our direct sales channel serviced by our employee agents, our vast network of independent agents and brokers, and our insurance distribution partners.
A paid subscription to HDC gives Members access to our products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside services and special vehicle-related discounts.
In addition, we offer Hagerty Drivers Club ("HDC") memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts.
Further, we have consistently received the "Great Place to Work" certification from the Great Place to Work Institute, Inc. over the past six years. Health and Wellness The health and wellness of our employees and their families is integral to our success. We have a comprehensive benefits program to support the physical, mental and financial well-being of our employees.
We strive for a fair, competitive, transparent and equitable approach in recognizing and rewarding our employees. Health and Wellness The health and wellness of our employees and their families is integral to our success. We have a comprehensive benefits program to support the physical, mental and financial well-being of our employees.
Hagerty’s media team covers entertainment, news, market information and vehicle valuation trends, all of which generate an engaged audience that drives retention and brings new Members into our ecosystem. Car enthusiasts love to gather with one another informally and formally throughout the year. We sponsor or own more than 1,800 automotive events annually.
Our media team covers entertainment, news, market information, and vehicle valuation trends, all of which helps generate an engaged audience that drives retention and brings new Members into our ecosystem.
Marketplace also conducts asset-backed financing through Broad Arrow Capital. Marketplace utilizes HVT, our valuation tool used by over three million people each year to access current and historic pricing data on more than 40,000 collector vehicle models based on our robust proprietary database of Hagerty Price Guide values dating as far back as 2006.
Marketplace utilizes HVT, our valuation tool used by over three million people each year to access current and historic pricing data on more than 48,000 collector vehicle models based on our robust proprietary database. Business Attributes Intellectual Property We believe our intellectual property rights are valuable and important to our business.
We believe we can differentiate from other platforms and services by injecting a higher level of trust into this marketplace by using our existing size, scale and trusted brand status. In January 2022, we entered into a joint venture with Broad Arrow Group, Inc.
We believe we can differentiate ourselves from other platforms and services by injecting a higher level of trust into this marketplace by using our existing size, scale, improved processes, and trusted brand status. Marketplace leverages the power of our ecosystem by providing a platform where enthusiasts can buy, sell, and finance collector cars.
Additionally, we have the opportunity to offer HDC membership to State Farm Classic+ customers, which provides us an additional revenue opportunity. Markel Alliance Markel is the ultimate parent company of Essentia Insurance Company ("Essentia"), which serves as the dedicated carrier for specialty classic and collector vehicle insurance policies sold by our affiliated U.S. and U.K. MGA subsidiaries.
Refer to Note 23 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information. Markel Alliance Markel is the ultimate parent company of Essentia Insurance Company ("Essentia"), which serves as the dedicated carrier for the specialty classic and collector vehicle insurance policies sold by our U.S. MGA subsidiaries. Essentia is exclusive to our U.S.
However, in lieu of competing with standard auto insurance carriers, we have formed relationships with many of them to offer their customers our membership subscription model coupled with our specialty insurance products. Through relationships with auto insurance carriers, we provide a high-touchpoint experience resulting in more appropriate levels of cost coverage and higher overall service satisfaction of Members.
We experience some competition in the larger standard auto insurance market as the majority of collectible vehicles are currently insured through national carriers. However, in lieu of competing directly with standard auto insurance carriers, we have formed relationships with many of them to offer their customers our membership subscription model coupled with our specialty insurance products.
Compensation Our compensation programs are designed to attract, retain and motivate talented, deeply qualified and committed individuals who believe in our mission, while rewarding employees for long-term value creation. We have a pay-for-performance culture in which employee compensation is aligned to company performance, as well as individual contributions and impacts.
None of our employees are represented by a labor union or covered by collective bargaining agreements. 12 TABLE OF CONTENTS Compensation Our compensation programs are designed to attract, retain and motivate talented, deeply qualified and committed individuals who believe in our mission, while rewarding employees for long-term value creation.
Following the Closing, Hagerty, Inc. is organized as a C corporation and owns an equity interest in The Hagerty Group in what is commonly known as an "Up-C" structure. Under this structure, substantially all of Hagerty, Inc.'s assets and liabilities are held by The Hagerty Group. The following chart summarizes this organizational structure following the Closing.
In connection with the closing, (i) Aldel changed its name from Aldel Financial Inc. to Hagerty, Inc., and (ii) we were organized in what is commonly known as an "Up-C" structure in which substantially all of the assets and liabilities of Hagerty, Inc. are held by The Hagerty Group .
We believe we are well positioned to capture a larger share of this growing market. In order to fully capitalize on this opportunity, we apply a data driven Member and vehicle segmentation approach that combines an understanding of vehicle ownership data, demographic data and vehicle usage.
We believe that our strong brand and value proposition focused on our "Guaranteed Value" insurance policies position us well to capture a larger share of this growing market over the coming decade. 6 TABLE OF CONTENTS In order to fully capitalize on this opportunity, we perform a data-driven Member and vehicle analysis to understand vehicle ownership data, demographic data, vehicle usage, and values.
This channel consists of partnerships with 9 of the top 10 largest auto insurers (as ranked by S&P Global Market intelligence based upon 2021 direct premiums written) and currently accounts for approximately 22% of total written premium.
This channel consists of partnerships with 9 of the top 10 largest auto insurers, as ranked by the National Association of Insurance Commissioners based upon 2022 direct premiums written, including State Farm Mutual Automobile Insurance Company ("State Farm").
This omnichannel approach allows us to interact with Members across three channels: (1) directly to consumers; (2) through independent agents and brokers; and (3) through strategic distribution partnerships. 3 TA BLE OF CONTENTS Direct Sales Channel Our direct sales channel is serviced by our employee agents working across all 50 states and three countries to drive new business flow.
This omnichannel approach allows us to offer our insurance products across three channels: (1) directly to consumers; (2) through independent agents and brokers; and (3) through strategic distribution partnerships with large traditional auto insurers.
Approximately 45% of our total U.S. auto written premium is generated through direct sales. As explained further below under "Membership", we connect with our Members at multiple points of engagement whereas typical insurance companies engage with their customers only at the point of purchase and upon renewal.
As discussed above under "Business Model and Competitive Strengths", we have created an auto enthusiast ecosystem that connects with Members across multiple points of engagement whereas typical insurance companies engage with their customers only at the point of purchase and upon renewal.
We aim to hire the best and set them up for success with individualized training and career development. Our objectives include effectively identifying, recruiting, retaining, incentivizing, and integrating our existing and additional employees. As of December 31, 2022, we had 1,874 total employees, 1,866 of which were full-time employees.
In 2022, we transitioned to a "remote-first" work model, which we believe enables us to attract top talent and provide employees the flexibility they increasingly seek. Our objectives include effectively identifying, recruiting, retaining, incentivizing, and integrating our existing and additional employees. As of December 31, 2023, we had 1,732 total employees, 1,726 of which were full-time employees.
Our high-engagement and experiential approach to the market is often co-branded by our agents/brokers to deliver auto enthusiasts an experience the agent/broker could not deliver themselves. As a result, both brands benefit together in longer-lasting and more intimate client relationships. Partnership Channel We also market our insurance products through our insurance distribution partners.
We are often told by agents and brokers that partnering with us brings value and joy to their enthusiast clients that is unmatched in the industry. Our high-engagement and experiential approach to the market is often co-branded by independent agents and brokers to deliver auto enthusiasts an experience the agent or broker could not deliver themselves.
Then, because we have confidence in our underwriting, as demonstrated by our predictably low loss ratios, we reinsure a portion of the written premium through Hagerty Re and recognize earned premium as additional revenue. We utilize our data science capabilities to benefit both our MGA activities, as well as our risk-taking activities through Hagerty Re.
We utilize our data science capabilities to benefit both our MGA activities, as well as our risk-taking activities through Hagerty Re.
The State Farm Classic+ policy will be available to new and existing customers through State Farm agents on a state-by-state basis. Hagerty Insurance Agency, LLC will be paid a commission under the managing general underwriter agreement and ancillary agreements for servicing the State Farm Classic+ policies.
In conjunction with the master alliance agreement, the Company also entered into a managing general underwriter agreement whereby the State Farm Classic+ policy is offered through State Farm Classic Insurance Company, a wholly owned subsidiary of State Farm. The State Farm Classic+ policy is available to new and existing State Farm customers through their agents on a state-by-state basis.
Our U.S. and U.K. quota share, or retained risk, was 60% in 2021, 70% in 2022, and will increase to at least 80% in 2023.
For the years ended December 31, 2023, 2022, and 2021, Hagerty Re's U.S. quota share, or assumed risk, was approximately 80%, 70%, and 60%, respectively.
To support the mental health of our employees, we offer clinical care providers, telehealth and employee assistance programs at no cost to them. Additionally, aside from our competitive paid time off program, we have Caregiver Time Off, which provides team members 40 hours each year of paid time off for caregiving responsibilities.
Additionally, aside from our competitive paid time off program, we offer caregiver time off, which provides employees 40 hours each year of paid time off for caregiver responsibilities. Diversity, Equity, and Inclusion Our diversity, equity, and inclusion objective is to be a company where each employee genuinely belongs, is respected and valued, and can do their best work.
Based upon this approach, we are able to analyze key vehicle markets, explore additional opportunities within these markets, overlay demographic and usage data to enrich our approach and leverage the information to better serve the auto enthusiast community. 2 TA BLE OF CONTENTS Business Model and Competitive Strengths The Hagerty brand has been carefully curated over the last four decades by providing Members with excellent customer service through our team of passionate automotive experts, resulting in an industry leading NPS score of 83 and insurance Member retention rate of nearly 90%.
Business Model and Competitive Strengths The Hagerty brand has been carefully curated over the last four decades by providing Members with excellent customer service through our passionate team of automotive experts. We have become known as an auto enthusiast brand for car people, by car people.
It does not purport to represent all legal entities owned or controlled by us: Refer to Note 1 — Summary of Significant Accounting Policies and New Accounting Standards and Note 8 — Business Combination in Item 8 of Part II of this Annual Report on Form 10-K for additional information on the Business Combination. 9 TA BLE OF CONTENTS
Refer to Note 8 — Business Combination in Item 8 of Part II of this Annual Report for additional information on the Business Combination .
Our deliberate approach to managing risk and employing actuarial discipline to the underwriting process results in an attractive average loss ratio of 43% over the last three years. This compares favorably to the overall auto insurance industry average of approximately 66%.
We anticipate that Hagerty Re's U.S. quota share will remain at 80% going forward. 10 TABLE OF CONTENTS Hagerty Re allows us to efficiently deploy capital and create steady, consistent underwriting results due to our deliberate approach to managing risk and employing actuarial discipline to the underwriting process, which has resulted in an attractive average loss ratio of 43% over the last three years.
Omnichannel Distribution Our insurance products are unique due to our omnichannel distribution approach — meaning we sell to our insurance Members wherever they need us.
Managing General Agent We earn commission revenue from the underwriting, sale, and servicing of classic car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Our insurance products are unique due to our omnichannel distribution approach, meaning we sell our insurance wherever our policyholders need us.
Earned Premium Because we have confidence in our underwriting, as demonstrated by our predictably low loss ratios, we reinsure a portion of the written premium through Hagerty Re and recognize earned premium as revenue.
Hagerty Re Because we have confidence in the risks underwritten by our MGA subsidiaries, we reinsure a large portion of that risk and share in the underwriting profit through Hagerty Re, which is registered as a Class 3A reinsurer under the Bermuda Insurance Act of 1978.
Importantly, our MGA affiliates also handle the claims for our programs so that we can ensure our Members are receiving high levels of service that are focused on the unique requirements of repairing vintage and rare vehicles. As a result, our insurance offerings work together to help us grow and share in the profits we generate.
In addition, our MGA subsidiaries also handle the claims for our insurance products to ensure our Members receive a high level of service focused on the unique requirements of repairing vintage and rare vehicles. For the years ended December 31, 2023, 2022, and 2021, MGA commission and fee revenue represented 37%, 39%, and 44%, respectively, of our total revenue.
Seasonality Due to our significant North American footprint, our revenue streams, and in particular, commission and fee revenue, exhibit seasonality peaking in the middle of the second calendar quarter and diminishing through the rest of the year, with the lowest relative level of commission and fee revenue expected to occur in the fourth calendar quarter and beginning of the first calendar quarter.
" within Part I, Item IA — Risk Factors, in this Annual Report for additional information. Seasonality Due to our significant North American footprint, our revenue streams, and in particular, commission and fee revenue, exhibit seasonality, with a larger percentage of revenue derived in the second and third quarters, while the first and fourth quarters generate lower revenue and profitability.
While we have grown our written premium by an average of 15% per year over the last decade and have become one of the leading providers of collector car insurance, we estimate our market share in the collector vehicle insurance market is currently only 4%.
While we have become one of the leading providers of insurance for pre-1981 classics, with an estimated market share of 13.3% in that cohort, we estimate our market share for post-1980 collectibles is only 1.7%, resulting in an overall collector car market share of under 5%.
To help achieve our internal goals, we focus on attraction, retention and development at all levels. This means that we will ensure fair and transparent processes in talent assessment and hiring, performance management and career progression and retention. We are creating a stronger sense of inclusion and belonging for our employees in general with a lens on representation.
We take this to heart not just within our Company, but also within the broader automotive enthusiast community. To help achieve our goals, we ensure fair and transparent processes in talent assessment and hiring, performance management and career progression and retention.
Removed
ITEM 1: BUSINESS Company Overview Hagerty is a global market leader in providing insurance for classic cars and enthusiast vehicles. We consistently earn strong net promoter scores ("NPS") by providing auto enthusiasts superior insurance coverage with excellent customer service and at lower prices than traditional carriers.
Added
ITEM 1: BUSINESS Company Overview We are a market leader in providing insurance for classic cars and enthusiast vehicles. Through our insurance model, we act as a Managing General Agent ("MGA") by underwriting, selling and servicing classic car and enthusiast vehicle insurance policies.
Removed
We have also leveraged our trusted insurance brand to build a leading automotive lifestyle brand. We offer an automotive enthusiast platform that protects, engages, entertains and connects with our insurance policyholders and Hagerty Drivers Club ("HDC") paid subscribers (collectively, "Members") and other car enthusiasts. Our goal is to save driving and car culture for future generations.
Added
Then, due to our consistent track record of delivering strong underwriting results, we reinsure a large portion of the risks written by our MGA subsidiaries through our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re").
Removed
We have developed an ecosystem of products, services and entertainment for car lovers that catalyzes their passion for cars and driving. The first Hagerty company was founded in 1984. Hagerty, Inc., a Delaware corporation, was formed in 2020 and our business today offers four highly integrated strategic product areas: Insurance, Membership, Marketplace and Media & Entertainment.
Added
Lastly, to complement our insurance and membership offerings, we also offer Hagerty Marketplace ("Marketplace"), where car enthusiasts can buy, sell, and finance collector cars. Through these offerings, our goal is to be the world's most trusted and preferred brand for enthusiasts to protect, buy and sell, and enjoy the special cars that are their passion.
Removed
Our market data informs our strategic decisions. Years ago, we decided to follow the data insights we gathered from our insurance operations to design and build additional adjacent and integrated offerings for car enthusiasts in order to drive retention and loyalty.
Added
HDC and Marketplace, as well as our media and entertainment platforms, work synergistically with our insurance business to drive retention and loyalty and enable auto enthusiasts to protect, buy and sell, and enjoy their special cars, whether it be on the road, on the track, in the garage, at an event, or through our media content.
Removed
Our products are intended to work together to engage, entertain, and connect with car lovers at various stages of their passion — digitally, on the track, in the garage, at an event, or on the road.
Added
We believe the combination of these complementary offerings creates an enthusiast-centered ecosystem of products and services, generating multiple points of monetization, resulting in an attractive recurring revenue business model with relatively low customer acquisition costs that benefit from increasing scale. With a rich heritage spanning over 40 years, the first Hagerty company was founded in 1984.
Removed
We believe the combination of insurance and these adjacent offerings creates an ecosystem of products generating multiple points of monetization, resulting in an attractive recurring revenue business model. As we continue to grow, we believe our digitally driven thinking will continue to enhance Member engagement and reduce transaction friction.
Added
Hagerty, Inc., a Delaware corporation, was formed in 2020 and became a public company traded on the New York Stock Exchange ("NYSE") in 2021. Industry and Market Opportunity We love cars and we are not alone, as evidenced by the large and growing collector car market.
Removed
Our systems must be highly integrated, whether to issue an insurance policy or to sell a ticket to a car event. We think long-term.
Added
Over the last decade, we have increased our written premium by a compound annual growth rate ("CAGR") of 13%, powered primarily by strong growth in the number of our insurance policies in force.
Removed
We believe the combination of these activities positions us to continue to grow into a multi-dimensional ecosystem catering to a large and expanding auto enthusiast market. 1 TA BLE OF CONTENTS Industry and Market Opportunity We love cars and we are not alone. The collector vehicle market is large and growing.
Added
Based upon this analysis, we are able to identify key vehicle markets, explore additional opportunities within these markets, overlay demographic and usage data to enrich our approach and leverage the information to better serve the auto enthusiast community.

… 71 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

168 edited+38 added−46 removed219 unchanged
In addition, the broker/agent relationships many of the partners we work with may change and their own internal strategy about how products are marketed may change, and, where we do not have exclusivity, we face competition by providers who seek to build or strengthen the relationships without distribution partners, which could cause a loss of focus on or exposure to our products and services, adversely impacting new sales.
In addition, the broker/agent relationships with many of the partners we work with may change and their own internal strategy about how products are marketed may change, and, where we do not have exclusivity, we face competition by providers who seek to build or strengthen the relationships without distribution partners, which could cause a loss of focus on or exposure to our products and services, adversely impacting new sales.
Any significant additional federal fund rate increases may have a material adverse effect on our business, results of operations, and financial condition. As we continue to grow operations in different geographic locations, additional risk related to foreign currencies may have an impact on revenue and our results of operations.
Any significant additional federal fund rate increases may have a material adverse effect on our business, financial condition, and results of operations. As we continue to grow operations in different geographic locations, additional risk related to foreign currencies may have an impact on revenue and our results of operations.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. We may also encounter difficulty in obtaining funds to meet our commitments. We are exposed to the credit risk, or liquidity risk, through our banking partners.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. We may also encounter difficulty in obtaining funds to meet our commitments. We are exposed to credit risk, or liquidity risk, through our banking partners.
Risks Related to Our Insurance Services The insurance products that we develop and sell for our underwriting carriers are subject to regulatory approval, and we may incur significant expenses in connection with the development and filing of new products before revenue is generated from new products.
Risks Related to Our Insurance Products and Services The insurance products that we develop and sell for our underwriting carriers are subject to regulatory approval, and we may incur significant expenses in connection with the development and filing of new products before revenue is generated from new products.
Any of these changes may result in a decline in new business and renewals and, as a result, have a material adverse effect on our business, results of operations and financial condition. Reinsurance subjects Hagerty Re to counterparty risk where reinsurers fail to pay or timely pay claims due to insolvency or otherwise fail to honor their obligations.
Any of these changes may result in a decline in new business and renewals and, as a result, have a material adverse effect on our business, financial condition, and results of operations. Reinsurance subjects Hagerty Re to counterparty risk where reinsurers fail to pay or timely pay claims due to insolvency or otherwise fail to honor their obligations.
The vehicles we sell may be subject to statutory warranties as to title or other limited warranties that cannot be disclaimed under the General Conditions of Sale that are published online or in our auction sale catalogs and the terms stated in, and the laws applicable to, agreements governing private sale transactions.
The vehicles we sell may be subject to statutory warranties as to title or other limited warranties that cannot be disclaimed under our General Conditions of Sale that are published online or in our auction sale catalogs and the terms stated in, and the laws applicable to, agreements governing private sale transactions.
If appropriate contractual measures are not maintained, employees, contractors, and vendors may divulge trade secrets or claim ownership over our intellectual property. New legislation or legal requirements impacting the use of petroleum-based and/or supporting autonomous vehicles could significantly challenge and impact our core insurance model and company purpose.
If appropriate contractual measures are not maintained, employees, contractors, and vendors may divulge trade secrets or claim ownership over our intellectual property. New legislation or legal requirements impacting the use of petroleum-based vehicles and/or supporting autonomous vehicles could significantly challenge and impact our core insurance model and company purpose.
In addition, the TRA provides that if (1) Hagerty, Inc. breaches any material obligations under the TRA (including in the event payments are more than three months late under the TRA , subject to certain exceptions), (2) Hagerty, Inc. is subject to certain bankruptcy, insolvency or similar proceedings, or (3) at any time, Hagerty, Inc. may elect an early termination of the TRA , the obligations under the TRA (with respect to all The Hagerty Group Units, whether or not such The Hagerty Group Units have been exchanged or redeemed before or after such transaction) would accelerate and become payable in a lump sum amount equal to the present value of the anticipated future tax benefits calculated based on certain assumptions, including that Hagerty, Inc. would have sufficient taxable income to fully utilize the deductions arising from the tax deductions, tax basis and other tax attributes subject to the TRA .
In addition, the TRA provides that if (1) Hagerty, Inc. breaches any material obligations under the TRA (including in the event payments are more than three months late under the TRA , subject to certain exceptions), (2) Hagerty, Inc. is subject to certain bankruptcy, insolvency or similar proceedings, or (3) at any time, Hagerty, Inc. may elect an early termination of the TRA , the obligations under the TRA (with respect to all The Hagerty Group units, whether or not such units have been exchanged or redeemed before or after such transaction) would accelerate and become payable in a lump sum amount equal to the present value of the anticipated future tax benefits calculated based on certain assumptions, including that Hagerty, Inc. would have sufficient taxable income to fully utilize the deductions arising from the tax deductions, tax basis and other tax attributes subject to the TRA .
Our ability to borrow under our revolving credit facility and letter of credit facilities is contingent on our compliance with the covenants and other requirements under those facilities. Similarly, our access to capital may be impaired if regulatory authorities or rating agencies take negative actions against us.
Our ability to borrow under our revolving credit facilities and letter of credit facilities is contingent on our compliance with the covenants and other requirements under those facilities. Similarly, our access to capital may be impaired if regulatory authorities or rating agencies take negative actions against us.
In some areas of our business, we act on the basis of our own or the industry’s interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations eventually prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.
In some areas of our business, we act on the basis of our own or the industry’s interpretations of applicable laws or regulations, which may conflict from jurisdiction to jurisdiction. In the event those interpretations prove different from the interpretations of regulatory authorities, we may be penalized or precluded from carrying on our previous activities.
Although we maintain security measures at our premises, valuable property may be subject to damage or theft. The damage or theft of valuable property despite these security measures could have a material adverse impact on our business and reputation.
Although we maintain security measures at our premises and insurance, valuable property may be subject to damage or theft. The damage or theft of valuable property despite these security measures and insurance could have a material adverse impact on our business and reputation.
We may not be able to prevent, monitor, or detect fraudulent activity, including transactions with insurance policies or payments of claims as well as transactions through our marketplace.
We may not be able to prevent, monitor, or detect fraudulent activity, including transactions with insurance policies or payments of claims as well as transactions through our Marketplace business.
The significant majority of our investment portfolio is invested in cash and cash equivalents and fixed maturity securities. This portfolio mix may change over time if we elect to diversify our holdings into other asset classes. In recent years, interest rates have been at or near historic lows, however, throughout 2022, interest rates have steadily risen.
The significant majority of our investment portfolio is invested in cash and cash equivalents and fixed maturity securities. This portfolio mix may change over time if we elect to diversify our holdings into other asset classes. In recent years, interest rates have been at or near historic lows, however, throughout 2023, interest rates have steadily risen.
We face a number of challenges that may affect our ability to sustain our culture, including: • failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture, values, and mission; • the size and geographic diversity of our workforce and our ability to promote a uniform and consistent culture across all our offices and employees working remotely; • competitive pressures to move in directions that may divert us from our mission, vision, and values; • the continued challenges of a rapidly evolving industry; and • the increasing need to develop expertise in new areas of business needed to execute our growth plans and strategy.
We face a number of challenges that may affect our ability to sustain our culture, including: • failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture, values, and mission; • the size and geographic diversity of our workforce and our ability to promote a uniform and consistent culture across all our offices and employees working remotely; 15 TABLE OF CONTENTS • competitive pressures to move in directions that may divert us from our mission, vision, and values; • the continued challenges of a rapidly evolving industry; and • the increasing need to develop expertise in new areas of business needed to execute our growth plans and strategy.
If the risks within the insurance programs that we offer on behalf of our underwriting carriers are not priced and underwritten accurately with competitive, yet profitable, rates, our business and financial condition could be adversely affected. As an MGA for Essentia , we operate under delegated underwriting authority in the U.S.
If the risks within the insurance programs that we offer on behalf of our underwriting carriers are not priced and underwritten accurately with competitive, yet profitable, rates, our business and financial condition could be adversely affected. As an MGA, we operate under delegated underwriting authority in the U.S.
We use proprietary artificial intelligence algorithms in minimal circumstances within our underwriting processes for efficiency. Our technology platforms are expensive and complex. The continuous development, maintenance, and operation of our technology platforms may entail unforeseen difficulties, including material performance problems or undetected defects or errors.
We use proprietary artificial intelligence algorithms in certain circumstances within our underwriting processes for efficiency. Our technology platforms are expensive and complex. The continuous development, maintenance, and operation of our technology platforms may entail unforeseen difficulties, including material performance problems or undetected defects or errors.
If one or more of Hagerty Re's reinsurance providers go insolvent or default in payment when reimbursement is sought by Hagerty Re, this may have a material effect on Hagerty Re's results of operations and financial condition as well as its ability to accept risk.
If one or more of Hagerty Re's reinsurance providers become insolvent or default in payment when reimbursement is sought by Hagerty Re, this may have a material effect on Hagerty Re's financial condition and results of operations as well as its ability to accept risk.
Because of the 10-to-1 voting ratio between our Class V and Class A Common Stock , the holders of our Class V Common Stock will collectively control a majority of the combined voting power of common stock and, therefore, will be able to control all matters submitted to our stockholders until the earlier of (1) 15 years from the date of the consummation of the Business Combination and (2) the date on which such share of Class V Common Stock is transferred other than pursuant to a Qualified Transfer (as defined in our Amended and Restated Charter).
Because of the 10-to-1 voting ratio between our Class V and Class A Common Stock , the holders of our Class V Common Stock will collectively control a majority of the combined voting power of common stock and, therefore, will be able to control all matters submitted to our stockholders until the earlier of (i) 15 years from the date of the consummation of the Business Combination and (ii) the date on which such share of Class V Common Stock is transferred other than pursuant to a Qualified Transfer (as defined in our Amended and Restated Charter).
We derive a large portion of our revenue from commissions and quota share reinsurance on the sale of personal lines insurance products in the U.S. through our exclusive relationship with Essentia , in Canada through our relationship with Aviva's Canadian subsidiary, Elite Insurance Company, and in the U.K., primarily through our relationship with Markel .
We derive a large portion of our revenue from commissions and quota share reinsurance on the sale of personal lines insurance products in the U.S. primarily through our exclusive relationship with Essentia , in Canada through our exclusive relationship with Aviva's Canadian subsidiary, Elite Insurance Company, and in the U.K., through our relationship with Aviva .
PIPE Warrants to purchase an aggregate of 12,669,300 shares of Class A Common Stock became exercisable on the 30th day following the closing of the Business Combination in accordance with the terms of the warrant agreement governing those securities.
PIPE Warrants to purchase an aggregate of 12,147,300 shares of Class A Common Stock became exercisable on the 30th day following the closing of the Business Combination in accordance with the terms of the warrant agreement governing those securities.
We may issue additional shares of Class A Common Stock in several ways: By the Board .
We may issue additional shares of Class A Common Stock in several ways: By the Board of Directors (the "Board") .
It is possible that our underwriting companies that we write business through may share in liability with these types of claims on certain instances. Hagerty Re's actual ultimate loss liability could potentially be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
It is possible that our underwriting companies that we write business through may share in liability with these types of claims in certain instances. 26 TABLE OF CONTENTS Hagerty Re's actual ultimate loss liability could potentially be greater than our loss and loss adjustment expense reserves, which could have a material adverse effect on our financial condition and results of operations.
Certain warrants to purchase our Class A Common Stock are now exercisable and could become exercisable in 2023, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Certain warrants to purchase our Class A Common Stock are now exercisable and could become exercisable in 2024, which could increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.
Their influence over our business and affairs may not be consistent with the interests of some or all of our other stockholders and might negatively affect the market price of our common stock. We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to the holders of such warrants, thereby making such warrants worthless.
Their influence over our business and affairs may not be consistent with the interests of some or all of our other stockholders and might negatively affect the market price of our common stock. 36 TABLE OF CONTENTS We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to the holders of such warrants, thereby making such warrants worthless.
These unfavorable economic conditions have lead, and in the future may lead, consumers to reduce their spending on collectible cars and services, which in turn could lead to a decrease in the demand for our products and services.
These unfavorable economic conditions have led, and in the future may lead, consumers to reduce their spending on collectible cars and related services, which in turn could lead to a decrease in the demand for our products and services.
As such, we are eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (a) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley") , (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.
As such, we are eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended ("Sarbanes-Oxley") and (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements.
The risks included in our insurance programs are typically those of an antique, classic, or collectable nature. Adjusting claims on these types of risks often requires specialized knowledge of collector vehicles, so our claims staff is trained to have collectable expertise to provide an efficient, yet comprehensive, claims experience.
The risks included in our insurance programs are typically those of an antique, classic, or collectible vehicle nature. Adjusting claims on these types of risks often requires specialized knowledge of collector vehicles, so our claims staff is trained to have collectible vehicle expertise to provide an efficient, yet comprehensive, claims experience.
In the event of a title or other warranty claim against us, we may have recourse against the seller of the property and may have the benefit of insurance, but a claim could nevertheless expose us to losses and to reputational risk. Valuable collector cars are exhibited and stored at events and facilities around the world.
In the event of a title, authenticity or other claim against us, we may have recourse against the consignor or seller of the property and may have the benefit of insurance, but a claim could nevertheless expose us to losses and to reputational risk. Valuable collector cars are exhibited and stored at events and facilities around the world.
In addition, if legislation were to restrict our ability to collect driving data, it could impair our capacity to underwrite insurance cost effectively, negatively impacting our revenue and earnings.
In addition, if legislation were to restrict our ability to collect personal data, it could impair our capacity to underwrite insurance cost effectively, negatively impacting our revenue and earnings.
Additionally, we are subject to laws and regulations involving sales, use, and other indirect taxes which are assessed by various governmental authorities and imposed on certain transactions between us and our collectors. In addition, changes to the laws and regulations involving sales, use, and other indirect taxes could increase the complexity of our compliance obligations.
Additionally, we are subject to laws and regulations involving sales, use, and other indirect taxes which are assessed by various governmental authorities and imposed on certain transactions between us and our collectors. Changes to the laws and regulations involving such sales, use, and other indirect taxes could increase the complexity of our compliance obligations.
In addition, we are subject to Member insurance claims arising from weather events such as winter storms, rain, hail, and high winds. The incidence and severity of weather conditions are largely unpredictable. There is generally an increase in the frequency and severity of Member insurance claims when severe weather conditions occur.
In addition, we are subject to Member insurance claims arising from weather events such as winter storms, rain, hail, and high winds. There is generally an increase in the frequency and severity of Member insurance claims when severe weather conditions occur.
A significant increase in claim severity could have an adverse effect on our financial condition and results of operations. Severe weather events, catastrophes, and unnatural events are unpredictable, and we may experience losses or disruptions from these events.
A significant increase in claim severity could have an adverse effect on our financial condition and results of operations. 24 TABLE OF CONTENTS Severe weather events, catastrophes, and unnatural events are unpredictable, and we may experience losses or disruptions from these events.
Payments under the TRA will be based on the tax reporting positions determined, and the IRS or another tax authority may challenge all or a part of the existing tax basis, tax basis increases, or other tax attributes subject to the TRA , and a court could sustain such challenge.
Payments under the TRA will be based on the tax reporting positions determined, and the Internal Revenue Service ("IRS") or another tax authority may challenge all or a part of the existing tax basis, tax basis increases, or other tax attributes subject to the TRA , and a court could sustain such challenge.
Such an event may cause Hagerty Re to require capital investments that may not be available. 22 TA BLE OF CONTENTS Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in the insurance policies we sell and service could have a material adverse effect on our financial condition and operations.
Such an event may cause Hagerty Re to require capital investments that may not be available. Unexpected changes in the interpretation of coverage or provisions, including loss limitations and exclusions, in the insurance policies we sell and service could have a material adverse effect on our financial condition and operations.
These activities are subject to internal guidelines and policies, as well as legal and regulatory requirements, including, but not limited to, those related to: • privacy regulation and data security; • anti-corruption and anti-bribery; • domestic and international economic sanctions; • restrictions on advertising and marketing; 27 TA BLE OF CONTENTS • restrictions on rebating and inducements related to insurance transactions; • restrictions on sharing insurance commissions and payments of referral fees; • restrictions related to underwriting and pricing of insurance; • approval of policy forms and premiums; • restrictions on the adjustment and settlement of insurance claims; • restrictions on the sale, solicitation, and negotiation of insurance; • rules regarding licensing, affiliations, and appointments; • state-mandated premium rebates, refunds, or reductions as a result of potentially lower risk exposure due to COVID-19 and related emergency orders; • regulation of corporate governance and risk management; and • periodic examinations of operations, finances, market conduct and claims practices.
These activities are subject to internal guidelines and policies, as well as legal and regulatory requirements, including, but not limited to, those related to: • data privacy and security; • anti-corruption and anti-bribery; • domestic and international economic sanctions; • restrictions on advertising and marketing; • restrictions on rebating and inducements related to insurance transactions; • restrictions on sharing insurance commissions and payments of referral fees; • restrictions related to underwriting and pricing of insurance; • approval of policy forms and premiums; • restrictions on the adjustment and settlement of insurance claims; • restrictions on the sale, solicitation, and negotiation of insurance; • rules regarding licensing, affiliations, and appointments; • state-mandated premium rebates, refunds, or reductions as a result of potentially lower risk exposure due to emergency orders; • regulation of registered securities, corporate governance and risk management; and • periodic examinations of operations, finances, market conduct and claims practices.
Our assessment of the vehicles we offer is based on scholarship and research, but necessarily requires a degree of judgment from our collector car specialists.
Our assessment of the vehicles we offer is based on scholarship and research, but necessarily requires a degree of judgment from our car specialists and researchers.
These foreign exchange risks could have a material negative impact on our financial condition and results of operations. 14 TA BLE OF CONTENTS Our technology platforms may not function properly, which might subject us to loss of business and revenue, breach of contractual obligations, and place us out of compliance with state and federal rules and regulations.
These foreign exchange risks could have a material negative impact on our financial condition and results of operations. Our technology platforms may not function properly, which might subject us to loss of business and revenue, breach of contractual obligations, and place us out of compliance with state and federal rules and regulations.
Failure to operate properly in accordance with Bermuda law could cause Hagerty Re's license to be restricted or revoked along with possible supervisory control of Hagerty Re and its assets and termination of reinsurance agreements with its ceding carriers. Additionally, Bermuda insurance statutes, regulations and the policies of the BMA are less restrictive than U.S. insurance statutes and regulations.
Failure to operate properly in accordance with Bermuda law could cause Hagerty Re's license to be restricted or revoked, result in possible supervisory control of Hagerty Re and its assets and termination of reinsurance agreements with its ceding insurers. Additionally, Bermuda insurance statutes, regulations and the policies of the BMA are less restrictive than U.S. insurance statutes and regulations.
So long as more than 50% of the voting power for the election of directors is held by an individual, a group, or another company, we will qualify as a "controlled company" under the NYSE listing requirements. As of December 31, 2022, HHC controls approximately 67.9% of the voting power of our outstanding capital stock.
So long as more than 50% of the voting power for the election of directors is held by an individual, a group, or another company, we will qualify as a "controlled company" under the NYSE listing requirements. As of December 31, 2023, HHC controls approximately 67.7% of the voting power of our outstanding capital stock.
We compete with other collector car dealers to obtain valuable consignments to offer for sale either at auction or through private sale. The level of competition is intense and can adversely impact our ability to obtain valuable consignments for sale, as well as the commission margins achieved on such consignments.
We compete with other collector car auction houses, dealers, brokers and classifieds platforms to obtain valuable consignments to offer for sale either at auction or through private sale. The level of competition is intense and can adversely impact our ability to obtain valuable consignments for sale, as well as the commission margins achieved on such consignments.
As a result, you may not receive any return on an investment in our Class A Common Stock unless you sell our Class A Common Stock for a price greater than that which you paid for it. Anti-takeover provisions in our organizational documents could delay or prevent a change of control.
As a result, you may not receive any return on an investment in our Class A Common Stock unless you sell our Class A Common Stock for a price greater than that which you paid for it. Anti-takeover provisions in our organizational documents and applicable insurance laws could delay or prevent a change of control.
Additional operational requirements for Hagerty Re in Bermuda include: • complying with economic substance requirements which include maintaining a principal office in Bermuda and having a certain number of Bermuda-domiciled managers involved in overseeing operations; • obtaining prior approval for changes in ownership / transfers of shares; • having restrictions on dividends; • complying with Bermuda know-your-customer and anti-bribery type laws; • having audited financial statements and being subject to BMA examination; and • carrying out operations in accordance with its filed and approved business plan.
Additional operational requirements for Hagerty Re in Bermuda include: • maintaining a principal office in Bermuda and having a certain number of Bermuda-domiciled managers involved in overseeing operations; • obtaining prior approval for changes in ownership/transfers of shares; • having restrictions on dividends; • complying with Bermuda know-your-customer and anti-bribery type laws; 29 TABLE OF CONTENTS • having audited financial statements and being subject to BMA examination; and • carrying out operations in accordance with its filed and approved business plan.
Any of these effects could have a material adverse effect on our financial condition and results of operations. 16 TA BLE OF CONTENTS Our day-to-day operations create transactions, events, and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements.
Any of these effects could have a material adverse effect on our financial condition and results of operations. Our day-to-day operations create transactions, events, and conditions that may give rise to the need for accounting estimates to be recognized or disclosed in the financial statements.
We may not be successful in these efforts, and even if we are successful, these efforts may increase or create the following risks, among others: • we might not be able to effectively use search engines, social media platforms, content-based online advertising, and other online sources for generating traffic to our website; • potential Members in a particular marketplace could generally not meet the underwriting guidelines; • demand for new products or expansion into new markets may not meet our expectations; • new products and expansion into new markets may increase or change our risk exposures, and the data and models we use to manage those exposures may not be as effective as those we use in existing markets or with existing products; • models underlying automated underwriting and pricing decisions may not be effective; • efforts to develop new products or expand into new markets or to change commission terms may create or increase distribution channel conflicts; • in connection with the conversion of existing policyholders to a new product, some policyholders’ pricing may increase while the pricing for other policyholders may decrease, the net impact of which could negatively impact retention and profit margins; • changes to our business processes or workflow, including the use of new technologies, may give rise to execution risk; • our products might not be competitive in terms of Member experience, pricing, or insurance coverage options; • there could be barriers in obtaining the governmental and regulatory approvals, licenses, or other authorizations necessary for expansion into new markets or in relation to our products (such as line, form, underwriting, and rating approvals), or such approvals contain conditions that impose restrictions on our operations (such as limitations on growth); • our digital platform might experience disruptions; • we could suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we may not be able to offer new and competitive products, to provide effective updates to our existing products, or to keep pace with technological improvements in our industry; • we might not be able to maintain traditional retail agent relationships; • Members may have difficulty installing, updating, or otherwise accessing our website on mobile devices or web browsers as a result of actions by us or third parties; • Members may be unable or unwilling to adopt or embrace new technology; • technical or other problems may frustrate the Member experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; • we might not be able to address Member concerns regarding the content, data privacy, and security generally or for our digital platform specifically; • we may not identify or enter joint ventures with strategic partners or we may enter into joint ventures that do not produce the desired results; or 24 TA BLE OF CONTENTS • there may be challenges in, and the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax, and regulatory restrictions.
Our expansion into new markets and new products may place us in unfamiliar competitive environments and involve various risks, including competition, government regulation, the need to invest significant resources, and the possibility that returns on such investments might not be achieved for several years, or at all. 27 TABLE OF CONTENTS We may not be successful in these efforts, and even if we are successful, these efforts may increase or create the following risks, among others: • we might not be able to effectively use search engines, social media platforms, content-based online advertising, and other online sources for generating traffic to our website; • potential Members in a particular marketplace could generally not meet the underwriting guidelines; • demand for new products or expansion into new markets may not meet our expectations; • new products and expansion into new markets may increase or change our risk exposures, and the data and models we use to manage those exposures may not be as effective as those we use in existing markets or with existing products; • models underlying automated underwriting and pricing decisions may not be effective; • efforts to develop new products or expand into new markets or to change commission terms may create or increase distribution channel conflicts; • in connection with the conversion of existing policyholders to a new product, some policyholders’ pricing may increase while the pricing for other policyholders may decrease, the net impact of which could negatively impact retention and profit margins; • changes to our business processes or workflow, including the use of new technologies, may give rise to execution risk; • our products might not be competitive in terms of Member experience, pricing, or insurance coverage options; • there could be barriers in obtaining the governmental and regulatory approvals, licenses, or other authorizations necessary for expansion into new markets or in relation to our products (such as line, form, underwriting, and rating approvals), or such approvals could contain conditions that impose restrictions on our operations (such as limitations on growth); • our digital platform might experience disruptions; • we could suffer reputational harm to our brand resulting from negative publicity, whether accurate or inaccurate; • we may not be able to offer new and competitive products, to provide effective updates to our existing products, or to keep pace with technological improvements in our industry; • we might not be able to maintain traditional retail agent relationships; • Members may have difficulty installing, updating, or otherwise accessing our website on mobile devices or web browsers as a result of actions by us or third parties; • Members may be unable or unwilling to adopt or embrace new technology; • technical or other problems may frustrate the Member experience, particularly if those problems prevent us from generating quotes or paying claims in a fast and reliable manner; • we might not be able to address Member concerns regarding the content, data privacy, and security generally or for our digital platform specifically; • we may not identify or enter joint ventures with strategic partners or we may enter into joint ventures that do not produce the desired results; or • there may be challenges in, and with the cost of, complying with various laws and regulatory standards, including with respect to the insurance business and insurance distribution, capital and outsourcing requirements, data privacy, tax, and regulatory restrictions.
Like others in the industry, we rely on estimates and assumptions in setting the premium rates. We also utilize the data that we gather through our interactions with Members . 21 TA BLE OF CONTENTS Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses, and other costs.
Like others in the industry, we rely on estimates and assumptions in setting the premium rates. We also utilize the data that we gather through our interactions with Members . Establishing adequate premium rates is necessary, together with investment income, if any, to generate sufficient revenue to offset losses, loss adjustment expenses, and other costs.
The demand for collector cars is influenced not only by overall economic conditions, but also by changing trends in the collector car market as to which vehicles and provenance are most sought after and by the collecting preferences of individual collectors.
The supply and demand for collector cars, and therefore the values of collector cars, are influenced not only by overall economic conditions, but also by changing trends in the collector car market as to which vehicles and provenance are most sought after and by the collecting preferences of individual collectors.
The BAC collector car financing business has a limited operating history and has incurred minimal losses on its loan portfolio. Accordingly, despite our stringent loan underwriting standards, our current loan loss experience may not be indicative of the future performance of the loan portfolio.
BAC, our wholly owned collector car financing business, has a limited operating history and has incurred minimal losses on its loan portfolio. Accordingly, despite our conservative loan underwriting standards, our current loan loss experience may not be indicative of the future performance of the loan portfolio.
Any such failure could also subject us to fines, penalties, equitable relief, and changes to our business practices. Future regulatory changes could limit or impact our business model. Compliance with applicable laws and regulations is time consuming and personnel-and systems-intensive.
Any such failure could also subject us to fines, penalties, equitable relief, and changes to our business practices. 32 TABLE OF CONTENTS Future regulatory changes could limit or impact our business model. Compliance with applicable laws and regulations is time consuming and personnel- and systems-intensive.
As part of the reserving process, we review historical data and consider the impact of such factors as: • trends in claim frequency and severity; • changes in operations; • emerging economic and social trends; • trends in insurance rates; • inflation or deflation; and • changes in the regulatory and litigation environments.
As part of the reserving process, we review historical data and consider the impact of such factors as: • trends in claim frequency and severity; • changes in operations; • emerging economic and social trends; • trends in insurance rates; • changing mix of insured risks; • inflation or deflation; and • changes in the regulatory and litigation environments.
In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed. Changes in social attitudes may make ownership of collector vehicles less desirable, leading to a drop in demand for our products and services.
In addition, to the extent that such activity creates confusion among consumers or advertisers, our brand and business could be harmed. 19 TABLE OF CONTENTS Changes in social attitudes may make ownership of collector vehicles less desirable, leading to a decline in demand for our products and services.
You may not be able to resell your shares or warrants at an attractive price due to a number of factors such as those listed elsewhere in this "Risk Factors" section and this Annual Report on Form 10-K, as well as the following: • results of operations that vary from the expectations of securities analysts and investors; • results of operations that vary from those of our competitors; • the impact of pandemics, including COVID-19, and their effect on our business and financial condition; • changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; • declines in the market prices of stocks generally; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; • any significant change in our management; • changes in general economic or market conditions or trends in our industry or markets; • changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business; 36 TA BLE OF CONTENTS • future sales of our Common Stock or other securities; • investor perceptions or the investment opportunity associated with our Common Stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • the development and sustainability of an active trading market for our Common Stock; • actions by institutional or activist stockholders; • changes in accounting standards, policies, guidelines, interpretations or principles; and • other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.
You may not be able to resell your shares or warrants at an attractive price due to a number of factors such as those listed elsewhere in this "Risk Factors" section and this Annual Report, as well as the following: • results of operations that vary from the expectations of securities analysts and investors; • results of operations that vary from those of our competitors; • public float and trading volume of our securities is low; • changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors; • declines in the market prices of stocks generally; • strategic actions by us or our competitors; • announcements by us or our competitors of significant contracts, acquisitions, joint ventures, other strategic relationships or capital commitments; • any significant change in our management; • changes in general economic or market conditions or trends in our industry or markets; • changes in business or regulatory conditions, including new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • future sales of our Common Stock or other securities; • investor perceptions or the investment opportunity associated with our Common Stock relative to other investment alternatives; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC; • litigation involving us, our industry, or both, or investigations by regulators into our operations or those of our competitors; • guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; • the development and sustainability of an active trading market for our Common Stock; • actions by institutional or activist stockholders; • changes in accounting standards, policies, guidelines, interpretations or principles; and • other events or factors, including those resulting from pandemics or epidemics, natural disasters, war, acts of terrorism or responses to these events.
Global economic conditions, including increases in inflation and interest rates, have resulted in uncertainty in consumer discretionary spending, employment decreases and overall volatility in the financial markets.
Global economic conditions, including increases in inflation and interest rates, have resulted in uncertainty in consumer discretionary spending, employment rate fluctuations and overall volatility in the financial markets.
Our contract with Markel , and our contract with State Farm regarding the upcoming State Farm Classic+ program, contain provisions that allow those partners to terminate our agreements with them at any time upon the occurrence of a change of control.
Our contracts with each of Markel and State Farm, regarding the State Farm Classic+ program, contain provisions that allow those partners to terminate our agreements with them at any time upon the occurrence of a change of control.
It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, Member and supplier relationships, the disruption of each party’s ongoing businesses, processes, and systems, or inconsistencies in standards, controls, procedures, practices, policies, and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Broad Arrow acquisition.
It is possible that the synergies and cost savings anticipated by the acquisition and integration of Broad Arrow into Hagerty could take longer than anticipated and could result in the loss of valuable employees, Member and supplier relationships, the disruption of each party’s ongoing businesses, processes, and systems, or inconsistencies in standards, controls, procedures, practices, policies, and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the Broad Arrow acquisition.
We are subject to regulation and supervision both federally and in each applicable local state or provincial jurisdiction. In general, these regulations are designed to protect Members , policyholders, and insureds and to protect the integrity of the financial markets, rather than to protect stockholders or creditors.
The insurance industry in which we operate is subject to extensive regulation. We are subject to regulation and supervision both federally and in each applicable local state or provincial jurisdiction. In general, these regulations are designed to protect Members , policyholders, and insureds and to protect the integrity of the financial markets, rather than to protect stockholders or creditors.
The limited operating history of Broad Arrow Capital (" BAC ") may not represent BAC ’s future operating results, as minimal loan losses on the BAC loan portfolio may not be indicative of future loan loss experience and our ability to realize proceeds from the sale of collateral for Broad Arrow Capital loans may be delayed or limited.
The limited operating history of BAC may not represent BAC’s future operating results, as minimal loan losses on the BAC loan portfolio to date may not be indicative of future loan loss experience and our ability to realize proceeds from the sale of collateral for BAC loans may be delayed or limited.
In order to accurately price the policies, we must, among other factors: • collect and properly and accurately analyze a substantial volume of data from our Members ; • develop, test, and apply appropriate actuarial projections and rating formulas; • review and evaluate competitive product offerings and pricing dynamics; • closely monitor and timely recognize changes in trends; • project both frequency and severity of our Members ’ losses with reasonable accuracy; and • in many jurisdictions, obtain regulatory approval for the resulting rates.
In order to accurately price the policies, we must, among other factors: • collect and properly and accurately analyze a substantial volume of data from our Members ; • develop, test, and apply appropriate actuarial projections and rating formulas; • review and evaluate competitive product offerings and pricing dynamics; • closely monitor and timely recognize changes in trends; • project both frequency and severity of our Members ’ losses with reasonable accuracy; and • in many jurisdictions, obtain regulatory approval for the resulting rates. 25 TABLE OF CONTENTS We may not have success in implementing a pricing methodology accurately in accordance with our assumptions.
These statutes and regulations may restrict Hagerty Re's ability to write reinsurance policies, distribute funds and pursue its investment strategy. 25 TA BLE OF CONTENTS Under its license as a Class 3A insurer, Hagerty Re must meet and maintain the relevant solvency margin, and liquidity and other ratios applicable under Bermuda law.
These statutes and regulations may restrict Hagerty Re's ability to write reinsurance contracts, distribute funds and pursue its investment strategy. Under its license as a Class 3A insurer, Hagerty Re must meet and maintain the relevant solvency margin, and liquidity and other ratios applicable under Bermuda law.
Pursuant to the terms of the Investor Rights Agreement among HHC, Markel and State Farm , HHC designated two directors to our Board, and Markel and State Farm each designated one director to our Board.
Pursuant to the terms of the Investor Rights Agreement among HHC, Markel and State Farm , HHC has the right to designate two directors to our Board, and Markel and State Farm have each designated one director to our Board.
Such rate increase have a corresponding impact to our costs of borrowing and may have an adverse impact on our ability to raise funds through the offering of our securities or through the issuance of debt due to higher debt capital costs, diminished credit availability, and less favorable equity markets.
A sustained elevated interest rate environment will have a corresponding impact to our costs of borrowing and may have an adverse impact on our ability to raise funds through the offering of our securities or through the issuance of debt due to higher debt capital costs, diminished credit availability, and less favorable equity markets.
HHC controls approximately 67.9% of the voting power, Markel controls approximately 29.0% of the voting power, and State Farm controls approximately 1.9% of the voting power.
HHC controls approximately 67.7% of the voting power, Markel controls approximately 29.0% of the voting power, and State Farm controls approximately 2.1% of the voting power.
We may incur catastrophe losses in our business in excess of: (1) those experienced in prior years, (2) the average expected level used in pricing, (3) current reinsurance coverage limits, or (4) loss estimates from external tornado, hail, hurricane, and earthquake models at various levels of probability.
We may incur catastrophe losses in our business in excess of: (i) those experienced in prior years, (ii) the average expected level used in pricing, (iii) current reinsurance coverage limits, or (iv) loss estimates from external tornado, hail, hurricane, and earthquake models at various levels of probability.
To the extent warrants are exercised, additional shares of Class A Common Stock will be issued, which will result in dilution to our then existing stockholders and increase the number of shares eligible for resale in the public market.
To the extent warrants are exercised, additional shares of Class A Common Stock will be issued, which will result in dilution to our then existing stockholders and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could depress the market price of our common stock.
The amount and quality of collector cars consigned for sale is influenced by a number of factors not within our control.
The values and availability of quality collector cars for sale is influenced by a number of factors not within our control.
If federal, state, or international regulators were to determine that the type of data we collect, the process we use for collecting this data, or how we use it, unfairly discriminates against a protected class of people, regulators could move to prohibit or restrict our collection or use of this data.
If federal, state, or international regulators were to determine that the type of data we collect, the process we use for collecting this data, or how we use it, unfairly discriminates against a protected class of people or otherwise violates applicable data Privacy Laws and regulations, regulators could prohibit or restrict our collection or use of this data.
Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, and decrease the use of our mobile application or website by consumers and suppliers and may result in the imposition of monetary liability.
Any such proceedings or actions require us to spend significant amounts in defense of these proceedings or actions, distract our management, increase our costs of doing business, decrease the use of our mobile application or website by consumers and suppliers, and may result in the imposition of monetary liability.
In situations when there are competing claims on the collateral for BAC loans and/or when a borrower becomes subject to bankruptcy or insolvency laws, our ability to realize proceeds from the sale of its collateral may be limited or delayed.
In situations when there are competing claims on the collateral or mispricing of the collateral value for BAC loans and/or when a borrower and/or the collateral becomes subject to a dispute, including but not limited to bankruptcy, litigation or insolvency laws, our ability to realize proceeds from the sale of collateral may be limited and/or delayed.
Our business model is dependent on our ability to collect vehicle usage and driving data.
Our business model is dependent on our ability to collect vehicle and personal data.
The large volume of competition in the global collector car sales market and the variability of the amount, demand and quality of collector cars consigned for sale may adversely impact the business, results of operations, and financial condition of our Marketplace business vertical.
Competition in the global collector car sales market and the variability of the value, demand and availability of quality collector cars for sale may adversely impact the business, results of operations, and financial condition of our Marketplace business.
We have reserved 38,317,399 shares of Class A Common Stock for issuance under our 2021 Equity Incentive Plan (as defined in Note 21 — Stock-Based Compensation in Item 8 of Part II of this Annual Report on Form 10-K) . As of December 31, 2022, we have issued 37,071 shares under this Plan. Under the 2021 Employee Stock Purchase Plan.
We have reserved 38,317,399 shares of Class A Common Stock for issuance under our 2021 Equity Incentive Plan (as defined in Note 21 — Share-Based Compensation in Item 8 of Part II of this Annual Report) . As of December 31, 2023, we have issued 965,517 shares under this Plan. Under the 2021 Employee Stock Purchase Plan.
Risks Related to Hagerty Marketplace If we are unable to successfully integrate the operations of Broad Arrow into Hagerty, or realize the anticipated synergies and cost savings from the Broad Arrow acquisition, the business, financial condition and results of operations of the Marketplace business vertical could be materially and adversely affected.
Risks Related to Hagerty Marketplace If we are unable to realize the anticipated synergies and cost savings from the Broad Arrow acquisition and integration, or if we are unable to retain the key employees, the business, financial condition and results of operations of our Marketplace business could be materially and adversely affected.
HHC may have its interest diluted due to future equity issuances or its own actions in selling shares of common stock, in each case, which could result in a loss of the "controlled company" exemption under the NYSE listing rules. We would then be required to comply with those provisions of the NYSE listing requirements.
HHC may have its interest diluted due to future equity issuances or its own actions in selling shares of common stock, in each case, which could result in a loss of the "controlled company" exemption under the NYSE listing rules.
If we were to experience operating losses and are not able to generate additional liquidity through a capital raise or other cash infusion, we may need to secure additional sources of funds, which may or may not be available. Additionally, a failure to generate additional liquidity could negatively impact our ability to operate our business.
If we were to experience operating losses and are not able to generate additional liquidity through a capital raise or other cash infusion, we may need to secure additional sources of funds, which may or may not be available.
Inadequate reserves may adversely affect earnings, as well as the ability to continue to accept risk, and Hagerty Re's ability to maintain its financial condition and meet solvency requirements with possible loss of its license in Bermuda.
Inadequate current reserves may adversely affect earnings in future periods, as well as the ability to continue to accept risk, and Hagerty Re's ability to maintain its financial condition and meet solvency requirements necessary to maintain its license in Bermuda.
In 2021, we experienced an unauthorized access into our online insurance quote system whereby attackers used personal information already in their possession to obtain additional consumer data, including driver’s license numbers, through Hagerty's Instant Quote feature. The issue has been remediated.
In 2021, we experienced an unauthorized access into our online insurance quote feature whereby attackers used personal information already in their possession to obtain additional consumer data, including driver’s license numbers.
While none of our systems or databases were compromised or significantly disrupted as part of this incident and the costs associated with the incident and our remediation efforts were not material, we could be subject to litigation. Regulators may also explore regulatory enforcement actions, including fines or other penalties, related to this event.
While none of our systems or databases were compromised or significantly disrupted as part of this incident and the costs associated with the incident and our remediation efforts were not material, we could be subject to litigation or regulatory enforcement actions.
Our Class V Common Stock has 10 votes per share and our Class A Common Stock has one vote per share. Markel and HHC, who currently hold all of the Class V Common Stock , together will hold a substantial majority of the voting power of our outstanding capital stock.
Markel and HHC, who currently hold all of the Class V Common Stock , together will hold a substantial majority of the voting power of our outstanding capital stock.
To the extent that cash flows generated by our operations are insufficient to fund future operating requirements, or that our capital position is adversely impacted by a decline in the fair value of our investment portfolio, losses from catastrophic events or otherwise, we may need to raise additional funds.
Additionally, a failure to generate additional liquidity could negatively impact our ability to operate our business. 20 TABLE OF CONTENTS To the extent that cash flows generated by our operations are insufficient to fund future operating requirements, or that our capital position is adversely impacted by a decline in the fair value of our investment portfolio, losses from catastrophic events or otherwise, we may need to raise additional funds.
We have identified several accounting estimates as being "critical" to the fair presentation of our financial condition and results of operations because they involve major aspects of our business and require us to make judgments about matters that are inherently uncertain.
We have identified several accounting estimates as being "critical" to the fair presentation of our financial condition and results of operations because they involve major aspects of our business and require us to make judgments about matters that are inherently uncertain. Refer to "Critical Accounting Estimates" within Item 7 of Part II of this Annual Report for additional information.
Further, we may be required to expend significant financial and operational resources in response to a security breach, including repairing system damage, increasing security protection costs by deploying additional personnel and protection technologies, and defending against and resolving legal and regulatory claims, all of which could be costly and divert resources and the attention of our management and key personnel away from our business operations. 13 TA BLE OF CONTENTS Some of our membership products are newer and have limited operating history, which makes it difficult to forecast operating results.
Further, we may be required to expend significant financial and operational resources in response to a security breach, including repairing system damage, increasing security protection costs by deploying additional personnel and protection technologies, and defending against and resolving legal and regulatory claims, all of which could be costly and divert resources and the attention of our management and key personnel away from our business operations.

… 172 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed3 unchanged
As a result, we intend to sublease all or portions of our office space in Ohio, Colorado, Connecticut, Michigan and Ontario. In addition, we have a network of Hagerty Garage + Social locations in the U.S., which includes one location in each of New York, Illinois and Washington, three locations in Florida and two locations in California.
As a result, we have subleased a portion of our office space in Ohio and Canada and intend to sublease portions of our office space in Colorado, Connecticut, and Michigan. In addition, we have three Hagerty Garage + Social locations in the U.S., which includes one location in California, and two locations in Florida.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

0 edited+1 added−0 removed4 unchanged
Added
Refer to Note 24 — Commitments and Contingencies in Item 8 of Part II of this Annual Report for additional information related to legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+4 added−3 removed3 unchanged
If The Hagerty Group makes such distributions, Hagerty Group Unit Holders will be entitled to receive pro-rata distributions from The Hagerty Group.
If The Hagerty Group makes such distributions, The Hagerty Group unit holders will be entitled to receive pro-rata distributions from The Hagerty Group.
However, because we must pay taxes, make payments under the TRA, and pay our expenses, amounts ultimately distributed as dividends to holders of our Class A Common Stock are expected to be less than the amounts distributed by The Hagerty Group to the Hagerty Group Unit Holders on a per share basis.
However, because we must pay taxes, make payments under the TRA, and pay our expenses, amounts ultimately distributed as dividends to holders of our Class A Common Stock are expected to be less than the amounts distributed by The Hagerty Group to its unit holders on a per share basis.
Hagerty, Inc. is a holding company and does not have material assets other than its ownership of Hagerty Group Units in The Hagerty Group, and as a consequence, our ability to declare and pay dividends to the holders of our Class A Common Stock is subject to the ability of The Hagerty Group to provide distributions to us.
Hagerty, Inc. is a holding company and does not have material assets other than its ownership of units of The Hagerty Group, and as a consequence, our ability to declare and pay dividends to the holders of our Class A Common Stock is subject to the ability of The Hagerty Group to provide distributions to us.
Assuming The Hagerty Group makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, TRA payments and expenses (any such portion, an "excess distribution") will be made by our Board.
Assuming The Hagerty Group makes distributions to its members in any given year, the determination to pay dividends, if any, to holders of our Class A Common Stock out of the portion, if any, of such distributions remaining after our payment of taxes, TRA payments and expenses (any such portion, an "excess distribution") will be made by our Board.
The number of record holders does not include persons who held shares of our common stock or warrants in nominee or "street name" accounts through brokers. Dividend Policy We do not currently intend to pay cash dividends on our Class A Common Stock.
The number of record holders does not include persons who held shares of our common stock or warrants in nominee or "street name" accounts through brokers. 43 TABLE OF CONTENTS Dividend Policy We do not currently intend to pay cash dividends on our Class A Common Stock.
Because our Board may determine to pay or not pay dividends to our Class A common stockholders, our Class A common stockholders may not necessarily receive dividend distributions relating to excess distributions, even if The Hagerty Group makes such distributions to us.
Because our Board may determine to pay or not pay dividends to holders of our Class A Common Stock, holders of our Class A Common Stock may not necessarily receive dividend distributions relating to excess distributions, even if The Hagerty Group makes such distributions to us.
The declaration and payment of any dividends by Hagerty, Inc. will be at the sole discretion of our Board, which may change our dividend policy at any time.
Any declaration and payment of dividends will be at the sole discretion of our Board, which may change our dividend policy at any time.
Additionally, there were 31 record holders of our PIPE Warrants, two record holders of our OTM Warrants and nine record holders of our Public Warrants, Private Placement Warrants and Underwriter Warrants, in the aggregate, as of March 1, 2023.
Additionally, there were 15 record holders of our PIPE Warrants, two record holders of our OTM Warrants and nine record holders of our Public Warrants, Private Placement Warrants and Underwriter Warrants, in the aggregate, as of March 1, 2024.
Prior to the consummation of the Business Combination, Aldel's common stock and warrants were listed on the NYSE under the symbols "ADF.U", "ADF", and "ADF.WS", respectively. Stockholders of Record As of March 1, 2023, there were 12 record holders of our Class A Common Stock and two record holders of our Class V Common Stock.
Stockholders of Record As of March 1, 2024, there were 12 record holders of our Class A Common Stock and two record holders of our Class V Common Stock.
Removed
Stock Performance Graph We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and are not required to provide the information otherwise required under this item. 39 TA BLE OF CONTENTS Recent Sales of Unregistered Securities On August 16, 2022, as part of the Broad Arrow Acquisition and pursuant to the Contribution and Exchange Agreement, we issued 713,684 shares of Class A Common Stock in Hagerty, Inc. to certain foreign Contributors, subject to a lockup that phases out pro-rata over a 5-year period.
Added
Stock Performance Graph The following shall not be deemed to be "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our other filings under the Securities Act or the Exchange Act.
Removed
In addition, we issued 4,724,560 Hagerty Group Units to certain domestic Contributors which can be exchanged on a one-for-one basis over a 5-year period for Class A Common Stock in Hagerty, Inc., beginning in 2023.
Added
The performance presentation shown below is being furnished as required by applicable rules of the SEC and was prepared using the following assumptions: • A $100 investment was made in our Class A Common Stock, the Russell 2000 and our peer group as of December 3, 2021, which is the date our Class A Common Stock began trading on the NYSE; • Investment in our peer group was weighted based on the stock market capitalization of each individual company within the peer group at the beginning of each period for which a return is indicated; and • Dividends were reinvested on the relevant payment dates. 44 TABLE OF CONTENTS Our customized peer group consists of the companies listed below.
Removed
These shares were issued in reliance upon one or more exemptions from the registration requirements of the Securities Act, including Section 4(a)(2) thereof and Rule 506(b) of Regulation D. ITEM 6. [ Reserved ] Not applicable.
Added
Safety Insurance Group, Inc. Universal Insurance Holdings, Inc. Heritage Insurance Holdings, Inc. Erie Indemnity Company BRP Group, Inc. Palomar Holdings, Inc. Ryan Specialty Holdings, Inc. Kinsale Capital Group, Inc. Goosehead Insurance, Inc. Tiptree Inc. United Fire Group, Inc. American Coastal Insurance Corporation RLI Corp. Donegal Group Inc.
Added
Horace Mann Educators Corporation December 3, 2021 December 31, 2021 2022 2023 Hagerty, Inc. $ 100.00 $ 133.02 $ 78.89 $ 73.17 Russell 2000 $ 100.00 $ 101.88 $ 81.06 $ 94.78 Customized Peer Group $ 100.00 $ 103.47 $ 107.57 $ 131.15 ITEM 6. [ Reserved ] Not applicable.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

114 edited+117 added−78 removed11 unchanged
Broker expense is the compensation paid to our agent partners and national broker partners when an insurance policy is written through a broker relationship. Broker expense generally tracks with written premium growth. Cost of sales includes postage, document costs, payment processing fees, emergency roadside service costs and other variable costs associated with the sale and servicing of a policy.
Broker expense is the compensation paid to our agent partners and national broker partners when an insurance policy is written through a broker relationship. Broker expense generally tracks with written premium growth. Cost of sales includes payment processing fees, emergency roadside service costs, postage and other variable costs associated with the sale and servicing of a policy.
By providing this non-GAAP financial measure, together with a reconciliation to net income (loss), which is the most directly comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
By providing this non-GAAP financial measure, together with a reconciliation to net income (loss), which is the most comparable GAAP measure, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
The estimates utilized in determining the amount of losses and loss adjustment expenses recorded in a period are based on statistical analysis performed by our internal and external actuarial team. Reserves are reviewed regularly and adjusted as necessary to reflect management’s estimate of the ultimate cost of settlement.
The estimates utilized in determining the amount of losses and loss adjustment expenses recorded in a period are based on statistical analysis performed by our internal and external actuarial team. Reserves are reviewed regularly and adjusted, as necessary, to reflect our estimate of the ultimate cost of settlement.
Finance revenue is recognized when earned 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. Other revenue includes sponsorship, admission, advertising, valuation and registration income. Other revenue is recognized when the performance obligation for the related product or service is satisfied.
Finance revenue is recognized when earned 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. Lastly, other revenue includes sponsorship, admission, advertising, valuation and registration income. Other revenue is recognized when the performance obligation for the related product or service is satisfied.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of the Company's performance and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry.
We also earn fee-based revenue from Hagerty Garage + Social memberships, which include storage in addition to the HDC Member benefits. Revenue from the sale of HDC and storage memberships is recognized ratably over the period of the membership.
We also earn fee-based revenue from Hagerty Garage + Social memberships, which include storage services in addition to the HDC Member benefits. Revenue from the sale of HDC and storage memberships is recognized ratably over the period of the membership.
We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating the Company's performance when read together with our Consolidated Financial Statements prepared in accordance with GAAP.
We use these Key Performance Indicators to evaluate our business, measure our performance, identify trends against planned initiatives, prepare financial projections, and make strategic decisions. We believe these Key Performance Indicators are useful in evaluating our performance when read together with our Consolidated Financial Statements prepared in accordance with GAAP.
Revaluation gain on previously held equity method investment During the year ended December 31, 2022, we recognized a revaluation gain on a previously held equity method investment of $34.7 million, which represents the remeasurement of our 40% equity interest in Broad Arrow immediately prior to the Broad Arrow Acquisition in August 2022.
Revaluation gain on previously held equity method investment During the year ended December 31, 2022, the Company recognized a revaluation gain on a previously held equity method investment of $34.7 million, which represents the remeasurement of our 40% equity interest in Broad Arrow immediately prior to the Broad Arrow Acquisition in August 2022.
We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by investors and securities analysts in evaluating the consolidated performance of other companies in our industry.
We present Adjusted EPS because we consider it to be an important supplemental measure of our operating performance and believe it is used by securities analysts, investors and other interested parties in evaluating the consolidated performance of other companies in our industry.
This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, available industry/market data (to the extent available), estimation of the long-term rate of growth for the reporting unit including expectations and assumptions regarding the impact of general economic conditions on the reporting unit, estimation of the useful life over which cash flows will occur (including terminal multiples), determination of the respective weighted average cost of capital and market participant assumptions.
This analysis requires significant judgment, including the estimation of future cash flows, which is dependent on internal forecasts, available industry/market data, the estimation of the long-term rate of growth for the reporting unit including expectations and assumptions regarding the impact of general economic conditions on the reporting unit, the estimation of the useful life over which cash flows will occur (including terminal multiples), the determination of the respective weighted average cost of capital and market participant assumptions.
Capital and Dividend Restrictions Through our reinsurance subsidiary, Hagerty Re, we reinsure the same personal lines risks that are underwritten by our affiliated MGA subsidiaries on behalf of our insurance carrier partners. Our reinsurance operations are self-funded primarily through existing capital and net cash flows from operations.
Capital and Dividend Restrictions Through our reinsurance subsidiary, Hagerty Re, we reinsure the same personal lines risks that are underwritten by our MGA subsidiaries on behalf of our insurance carrier partners. Hagerty Re's reinsurance operations are funded primarily through existing capital and net cash flows from operations.
(2) Loss Ratio, expressed as a percentage, is the ratio of (1) losses and loss adjustment expenses incurred to (2) earned premium in Hagerty Re. We view Loss Ratio as an important metric because it is a powerful benchmark for profitability. The benchmark allows us to evaluate our historical loss patterns including incurred losses and make necessary and appropriate adjustments.
(2) Loss Ratio, expressed as a percentage, is the ratio of (i) losses and loss adjustment expenses incurred to (ii) earned premium in Hagerty Re. We view Loss Ratio as an important metric because it is a powerful benchmark for profitability. This benchmark allows us to evaluate our historical loss patterns including incurred losses and make necessary and appropriate adjustments.
When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is based on a number of factors, including the carrying value of the reporting unit's goodwill, the amount of time in 54 TA BLE OF CONTENTS between quantitative fair value assessments, macro-economic conditions, industry and market conditions and the operating performance of the reporting unit.
When assessing goodwill for impairment, our decision to perform a qualitative assessment for an individual reporting unit is based on a number of factors, including the carrying value of the reporting unit's goodwill, the amount of time in between quantitative fair value assessments, macro-economic conditions, industry and market conditions and the operating performance of the reporting unit.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of Part II of this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 8 of Part II of this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.
It also contributes to maintaining our NPS as discussed below. (6) Vehicles in Force are the number of current insured vehicles as of the applicable period end date. We view Vehicles in Force as an important metric to assess our financial performance because insured vehicle growth drives our revenue growth and increases market penetration.
It also contributes to maintaining our NPS, as discussed below. (7) Vehicles in Force represents the number of current insured vehicles as of the applicable period end date. We view Vehicles in Force as an important metric to assess our financial performance because insured vehicle growth drives our revenue growth and increases market penetration.
We view PIF as an important metric to assess our financial performance because policy growth drives our revenue growth, increases brand awareness and market penetration, generates additional insight to improve the performance of our platform, and provides key data to assist strategic decision making for the Company.
We view PIF as an important metric to assess our financial performance because policy growth drives our 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.
(5) PIF Retention is the percentage of expiring policies that are renewed on the renewal effective date, calculated on a rolling twelve months basis. We view PIF Retention as an important measurement of the number of policies retained each year, which contributes to recurring revenue streams from MGA commissions, membership fees and earned premiums.
(6) PIF Retention represents the percentage of expiring insurance policies that are renewed on the renewal effective date, calculated on a rolling twelve months basis. We view PIF Retention as an important measurement of the number of policies retained each year, which contributes to recurring revenue streams from MGA commissions, membership fees, and earned premiums.
In general, under the fair value accounting model, in periods when our stock price increases, the warrant liability increases, and we recognize additional expense in our Consolidated Statements of Operations. In periods when our stock price decreases, the warrant liability decreases, and we recognize additional income in our Consolidated Statements of Operations.
In general, under the fair value accounting model, in periods when our stock price increases, the warrant liability increases, and we recognize additional expense. In periods when our stock price decreases, the warrant liability decreases, and we recognize additional income.
Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (1) failure to meet business plans; (2) deterioration of the U.S. economy; (3) an increase in interest rates; or (4) other unanticipated events and circumstances that may decrease the projected cash flows or increase the discounts rates and could potentially result in an impairment charge.
Examples of events or circumstances that could reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of our reporting units may include such items as: (i) failure to meet business plans; (ii) deterioration of the U.S. economy; (iii) an increase in interest rates; or (iv) other unanticipated events and circumstances that may decrease the projected cash flows or increase the discount rates and could potentially result in an impairment charge.
In estimating loss and loss adjustment expense reserves, our actuarial reserving group considers claim cycle time, claims settlement practices, adequacy of case reserves over time, and current economic conditions.
When estimating loss and loss adjustment expense reserves, our actuarial reserving group considers claim cycle time, claims settlement practices, adequacy of case reserves over time, the seasonality of our business, and current economic conditions.
Because actual experience can differ from key assumptions used in estimating reserves, there may be significant variation in the development of these reserves and the actual losses and loss adjustment expenses ultimately paid in the future.
Effect if Actual Results Differ From Estimates and Assumptions Because actual experience can differ from key assumptions used in estimating reserves, there may be significant variation in the development of reserves and the amount of actual losses and loss adjustment expenses ultimately paid in the future.
Sales expense Sales expense includes costs related to the sales and servicing of insurance policies, as well as costs related to our Membership and Marketplace offerings, such as broker expense, cost of sales, promotion expense and travel and entertainment expenses.
(Refer to "Critical Accounting Estimates" below.) Sales expense Sales expense includes costs related to the sale and servicing of insurance policies, as well as costs related to our Membership and Marketplace offerings, such as broker expense, cost of sales, promotion expense, and travel and entertainment expenses.
The most directly comparable GAAP measure is basic earnings per share ("Basic EPS"), which is calculated as Net income (loss) attributable to controlling interest divided by the weighted average of Class A Common Stock outstanding during the period.
The most directly comparable GAAP measure to Adjusted EPS is basic earnings per share ("Basic EPS"), which is calculated as Net income (loss) available to Class A Common Stockholders divided by the weighted average number of Class A Common Stock shares outstanding during the period.
Tax Receivable Agreement Hagerty, Inc. expects to have adequate capital resources to meet the requirements and obligations under the TRA entered into with the Legacy Unit Holders on December 2, 2021 that provides for the payment by Hagerty, Inc. to the Legacy Unit Holders of 85% of the amount of cash savings, if any, under U.S. federal, state and local income tax or franchise tax realized as a result of (1) any increase in tax basis of Hagerty, Inc.'s assets resulting from (a) purchase of Hagerty Group Units from any of the Legacy Unit Holders using the net proceeds from any future offering, (b) redemptions or exchanges by the Legacy Unit Holders of Class V Common Stock and Hagerty Group Units for shares of Class A Common Stock or (c) payments under the TRA and (2) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA.
The TRA provides for the payment by Hagerty, Inc. to the Legacy Unit Holders of 85% of the amount of cash savings, if any, under U.S. federal, state and local income tax or franchise tax realized as a result of (i) any increase in tax basis of Hagerty, Inc.'s assets resulting from (a) the purchase of The Hagerty Group units from any of the Legacy Unit Holders using the net proceeds from any future offering, (b) redemptions or exchanges by the Legacy Unit Holders of Class V Common Stock and The Hagerty Group units for shares of Class A Common Stock or (c) payments under the TRA and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA.
Legacy Unit Holders may, subject to certain conditions and transfer restrictions described above, redeem or exchange their Class V Common Stock and Hagerty Group Units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one basis.
Legacy Unit Holders may, subject to certain conditions and transfer restrictions as described in the Legacy Unit Holders Exchange Agreement executed in connection with the Business Combination, redeem or exchange their Class V Common Stock and The Hagerty Group units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one basis.
Our future capital requirements will depend on many factors, including our reinsurance premium growth rate, renewal rates, the introduction of new and enhanced products, entry into, and successful entry in new geographic markets, and the continuing market adoption of our product offerings.
Hagerty Re's future capital requirements will depend on many factors, including its reinsurance premium growth rate, renewal rates, underwriting results, successful entry in new geographic markets, and the continuing market adoption of its product offerings.
Non-GAAP Financial Measures Adjusted EBITDA We define Adjusted EBITDA as consolidated net income (loss) (the most directly comparable GAAP measure) before interest and other income (expense), income tax (expense) benefit, and depreciation and amortization, adjusted to exclude (i) restructuring, impairment and related charges, net, (ii) changes in the fair value of warrant liabilities, (iii) stock-based compensation expense, (iv) the revaluation gain on a previously held equity method investment, (v) expense associated with the accelerated vesting of incentive plans, (vi) net gains and losses from asset disposals and (vii) certain other unusual items.
Non-GAAP Financial Measures Adjusted EBITDA We define Adjusted EBITDA as consolidated Net income excluding interest and other income (expense), income tax expense, and depreciation and amortization, adjusted to exclude (i) changes in the fair value of our warrant liabilities; (ii) share-based compensation expense; and when applicable, (iii) restructuring, impairment and related charges, net; (iv) the net gain or loss from asset disposals; (v) losses and impairments related to divestitures; (vi) the revaluation gain on a previously held equity method investment; and (vii) certain other unusual items.
Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed within "Risk Factors" in Item 1A of this report.
Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed within "Risk Factors" in Item 1A of this report. The following discussion contains references to the years ended December 31, 2023 and 2022.
As of December 31, 2022, Hagerty Re had approximately $398.8 million in Cash and cash equivalents and Restricted cash and cash equivalents. We, and particularly Hagerty Re, pay close attention to the underlying underwriting and reserving risks by monitoring the pricing and loss development of the underlying business written through our affiliated MGAs.
As of December 31, 2023, Hagerty Re had approximately $558.2 million in "Cash and cash equivalents" and "Restricted cash and cash equivalents". 56 TABLE OF CONTENTS We, and particularly Hagerty Re, pay close attention to the underlying underwriting and reserving risks by monitoring the pricing and loss development of the underlying business written through our MGA subsidiaries.
In January 2023, Broad Arrow Europe Limited and Broad Arrow Capital UK Limited were joined to the Credit Facility as co-borrowers. Under the Credit Agreement, we are required, among other things, to meet certain financial covenants, including a fixed charge coverage ratio and a leverage ratio. We were in compliance with these financial covenants as of December 31, 2022.
Under the JPM Credit Agreement , we are required, among other things, to meet certain financial covenants, including a fixed charge coverage ratio and a leverage ratio. We were in compliance with these financial covenants as of December 31, 2023.
For reporting units with goodwill, we perform a qualitative analysis to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount.
Judgments and Uncertainties Application of the goodwill impairment test requires judgment, including the identification of reporting units and the determination of the estimated fair value of reporting units. For reporting units with goodwill, we perform a qualitative analysis to determine whether it is more likely than not the fair value of the reporting unit is less than its carrying amount.
Changes in these estimates and assumptions could materially affect the determination of estimated fair value and potential impairment for each reporting unit. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors.
Changes in these estimates and assumptions could materially affect the determination of estimated fair value and potential impairment for each reporting unit.
Refer to Note 14 — Restructuring, Impairment and Related Charges in Item 8 of Part II of this Annual Report on Form 10-K for additional information with respect to the restructuring initiatives implemented in 2022.
Refer to Note 15 — Restructuring, Impairment and Related Charges in Item 8 of Part II of this Annual Report for additional information with respect to our restructuring initiatives.
The increase in revenue from renewal policies was primarily related to a 6.5% increase in renewal policy premiums as well as continued strong retention.
The increase in revenue from renewal policies was primarily related to an increase of 17.0% in the underlying policy premiums, as well as continued strong policy retention.
New Accounting Standards New accounting standards are described in Note 1 — Summary of Significant Accounting Policies and New Accounting Standards, in Item 8 of Part II of this Annual Report on Form 10-K.
New Accounting Standards New accounting standards are described in Note 1 — Summary of Significant Accounting Policies and New Accounting Standards, in Item 8 of Part II of this Annual Report, which are incorporated herein by reference.
Other Items Change in fair value of warrant liabilities During the years ended December 31, 2022 and 2021, the change in fair value of warrant liabilities resulted in a gain of $41.9 million and a loss of $42.5 million, respectively, which represents the net change in our valuation of warrant liabilities.
Change in fair value of warrant liabilities During the years ended December 31, 2023 and 2022, the change in the fair value of our warrant liabilities resulted in a gain of $11.5 million and $41.9 million, respectively.
Our intangible assets are evaluated for impairment only when there is evidence that events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Application of the goodwill impairment test requires judgment, including the identification of reporting units and the determination of the estimated fair value of reporting units.
For reporting units with goodwill, an impairment loss is recognized for the amount by which the reporting unit's carrying value, including goodwill, exceeds its fair value. Our intangible assets are evaluated for impairment only when there is evidence that events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.
Losses consist of claims paid, case reserves and IBNR, net of estimated recoveries for reinsurance, salvage and subrogation. Loss adjustment expenses consist of the cost associated with the investigation and settling of claims.
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 the investigation and settlement of claims.
We view HDC Paid Member Count as important because it helps us measure membership revenue growth and provides an opportunity to customize our value proposition and benefits to specific types of enthusiasts, both by demographic and vehicle interest. (8) Hagerty uses Net Promoter Score ("NPS") as an important measure of the overall strength of our relationship with Members.
We believe that HDC Paid Member Count is important because it helps us measure membership revenue growth and provides an opportunity to customize our value proposition and benefits to specific types of enthusiasts, both by demographic and vehicle interest.
The following table presents the amount of premiums assumed and related ceding commission, as well as the quota share percentages for the year ended December 31, 2022 and 2021: U.S. Canada U.K.
The following table presents premiums assumed by Hagerty Re and the related quota share percentages for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 U.S. Canada U.K.
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 The Hagerty Group's assets, the timing of any future redemptions, exchanges or purchases of Hagerty Group Units held by Legacy Unit Holders, the price of Class A Common Stock at the time of the purchase, redemption or exchange, 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.
Judgments and Uncertainties 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 The Hagerty Group's assets, the timing of any future redemptions, exchanges or purchases of The Hagerty Group units held by Legacy Unit Holders, the price of Hagerty, Inc.
Refer to Note 20 — Warrant Liabilities in Item 8 of Part II of this Annual Report on Form 10-K for additional information with respect to our warrants.
Refer to Note 16 — Fair Value Measurements in Item 8 of Part II of this Annual Report for additional information with respect to our warrants.
Year Ended December 31, 2022 2021 Operational Metrics (period of time) Total Written Premium ( in thousands ) (1) $776,664 $674,305 Loss Ratio (2) 45.3% 41.3% New Business Count (Insurance) (3) 234,520 244,478 Operational Metrics (point in time) Policies in Force (4) 1,315,977 1,247,056 Policies in Force Retention (5) 88.0% 89.1% Vehicles in Force (6) 2,234,461 2,103,185 HDC Paid Member Count (7) 752,754 718,583 Net Promoter Score (8) 83.0 82.0 GAAP Measures Total Revenue ( in thousands ) $787,588 $619,079 Operating Income (Loss) (in thousands) $(67,566) $(10,070) Net Income (Loss) (in thousands ) $2,403 $(61,354) Basic Earnings (Loss) Per Share $0.39 $(0.56) Non-GAAP Measures Adjusted EBITDA (in thousands) (9) $(1,940) $25,350 Adjusted Earnings (Loss) Per Share (9) $(0.20) $(0.05) 41 TA BLE OF CONTENTS (1) Total Written Premium is the total amount of insurance premium written on policies that were bound by our insurance carrier partners during the period.
Year Ended December 31, 2023 2022 Operational Metrics Total Written Premium ( in thousands ) (1) $ 907,175 $ 776,664 Loss Ratio (2) 41.5 % 45.3 % New Business Count — Insurance (3) 254,386 234,520 GAAP Measures Total Revenue (in thousands) $ 1,000,213 $ 787,588 Operating Income (Loss) (in thousands) $ 10,408 $ (67,566) Net Income (in thousands) $ 28,179 $ 2,403 Basic Earnings Per Share $ 0.19 $ 0.39 Diluted Earnings (Loss) Per Share $ 0.09 $ (0.07) Non-GAAP Financial Measures Adjusted EBITDA (in thousands) (4) $ 88,162 $ (1,940) Adjusted Earnings (Loss) Per Share (4) $ 0.04 $ (0.20) December 31, 2023 2022 Operational Metrics Policies in Force (5) 1,401,037 1,315,977 Policies in Force Retention (6) 88.7 % 88.0 % Vehicles in Force (7) 2,378,883 2,234,461 HDC Paid Member Count (8) 815,007 752,754 Net Promoter Score (9) 82 83 (1) Total Written Premium is the total amount of insurance premium written by our MGA subsidiaries on policies that were bound by our insurance carrier partners during the period.
Membership fee revenue was $45.2 million for the year ended December 31, 2022, an increase of $4.6 million, or 11.4%, compared 2021, which was primarily attributable to the increase in the issuance of new policies bundled with an HDC membership as well as an increase in storage revenue related to our Hagerty Garage + Social locations.
Membership fee revenue was $52.5 million for the year ended December 31, 2023, an increase of $7.2 million, or 16.0%, compared to 2022, which was primarily attributable to an increase in new policies issued with a bundled HDC membership, as well as an increase in storage revenue attributable to more Hagerty Garage + Social locations being in operation for most of the current year.
The reserves also include estimates of all expenses associated with processing and settling reported and unreported claims. We regularly review our reserve estimates and update those estimates as new information becomes available or as events emerge that may affect the resolution of unsettled claims. Updates made to reserve estimates based on new information may cause changes in prior reserve estimates.
Management regularly reviews its reserve estimates and updates those estimates as new information becomes available or as events emerge that may affect the resolution of unsettled claims. Updates made to reserve estimates based on new information may cause changes in prior reserve estimates.
Any taxable income or loss generated by The Hagerty Group is passed through to and included in the taxable income or loss of all holders of Hagerty Group Units , including Hagerty, Inc. Hagerty, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes with respect to income allocated from The Hagerty Group.
Any taxable income or loss generated by The Hagerty Group is passed through to and included in the taxable income or loss of all holders of The Hagerty Group units, including Hagerty, Inc.
The increase in revenue from new policies was related to sustained year-over-year growth in our business, as well as rate actions and higher vehicle values. The average premium on a newly issued policy has increased 14.5% year-over-year as a result of writing accounts with higher insured values at higher rates.
The increase in revenue from new policies was driven by sustained year-over-year growth in New Business Count, as well as rate increases in several states. The average premium on a newly issued policy increased 7.0% when compared to the prior year period as a result of writing policies with higher insured values at higher premium rates.
(3) New Business Count represents the number of new insurance policies issued during the applicable period. We view New Business Count as an important metric to assess our financial performance because it is critical to achieving our growth objectives. While Hagerty benefits from strong renewal retention, new business policies more than offset those cancelled or non-renewed at expiration.
(3) New Business Count represents the number of new insurance policies issued by our MGA subsidiaries during the applicable period. We view New Business Count as an important metric to assess our financial performance because it is critical to achieving our growth objectives.
Under the terms of many of our contracts with insurance carriers, we have the opportunity to earn an annual contingent underwriting commission ("CUC"), or profit-share, based on the calendar-year performance of the insurance book of business. Our CUC agreements are based on written or earned premium and loss ratio results.
In addition, under the terms of certain of our contracts with insurance carriers, we have the opportunity to earn a CUC based on written or earned premium and the loss ratio results of the insurance book of business.
Depreciation and amortization Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives. Depreciation expense relates to leasehold improvements, furniture and equipment, vehicles, hardware and purchased software. Amortization relates to investments related to recent acquisitions, SaaS implementation, internal software development and investments made in digital media and content assets.
Depreciation expense relates to leasehold improvements, furniture and equipment, vehicles, hardware, and purchased software. Amortization relates to investments associated with acquisitions, SaaS implementation, and internal software development, as well as investments made in and impairments of digital media content assets.
We determined that our Private Placement Warrants, OTM Warrants, Underwriter Warrants and PIPE Warrants are Level 3 within the fair value hierarchy. We utilize a Monte Carlo simulation model to measure the fair value of these warrants. Our Monte Carlo simulation model includes assumptions related to the expected stock-price volatility, expected term, dividend yield and risk-free interest rate.
The Company utilizes a Monte Carlo simulation model to measure the fair value of these warrants. The Company’s Monte Carlo simulation model includes assumptions related to the expected stock price volatility, expected term, dividend yield, and risk-free interest rate.
As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be an accurate prediction of the future.
Effect if Actual Results Differ from Estimates and Assumptions Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be an accurate prediction of the future.
Employee compensation includes wages paid to employees, as well as various incentive compensation plans. Employee benefits include the costs of various employee benefits plans, including medical, dental insurance and wellness plans. Costs related to employee education, training and recruiting are included in employee development costs.
Operating Expenses Salaries and benefits Salaries and benefits consist primarily of costs related to employee compensation, payroll taxes, employee benefits, and employee development costs. Employee compensation includes wages paid to employees, as well as various incentive compensation plans. Employee benefits include the costs of various employee benefit plans, including retirement, medical, dental, and wellness plans.
The increase in renewal policy premiums for the year ended December 31, 2022 compared to 2021 reflects sustained year-over-year growth in our business and rate increases in several states due to inflation and appreciation of vehicle values, all of which contribute to higher premiums and, in turn, higher commission revenue.
The increase in renewal policy premiums reflects sustained year-over-year growth in PIF, as well as rate increases in several states due to inflation and higher vehicle repair costs, both of which contribute to higher premiums and, in turn, higher commission revenue.
No regulatory action is taken by the BMA if an insurer’s capital and surplus is equal to or in excess of their enhanced capital requirement as determined by the BSCR model. In addition, the BMA has established a target capital level for each insurer which is 120% of the enhanced capital requirement.
Capital Restrictions In Bermuda, Hagerty Re is subject to the Bermuda Solvency Capital Requirement ("BSCR") administered by the BMA. No regulatory action is taken by the BMA if an insurer’s capital and surplus is equal to or in excess of their enhanced capital requirement, as determined by the BSCR model.
Comparative Cash Flows The following table summarizes our cash flow data for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 $ Change % Change in thousands (except percentages) Net cash provided by operating activities $ 55,328 $ 42,281 $ 13,047 30.9 % Net cash used in investing activities $ (91,521) $ (68,994) $ (22,527) (32.7) % Net cash provided by (used in) financing activities $ (28,084) $ 332,071 $ (360,155) (108.5) % Operating Activities Cash provided by operating activities primarily consists of net income (loss) adjusted for non-cash items and changes in working capital balances.
Comparative Cash Flows The following table summarizes our cash flow data for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 $ Change % Change in thousands (except percentages) Net Cash Provided by Operating Activities $ 133,706 $ 55,328 $ 78,378 141.7 % Net Cash Used in Investing Activities $ (52,647) $ (91,521) $ 38,874 42.5 % Net Cash Provided by (Used in) Financing Activities $ 103,161 $ (28,084) $ 131,245 N/M N/M = Not meaningful Operating Activities Cash provided by operating activities primarily consists of net income, adjusted for non-cash items, and changes in working capital balances.
Refer to Note 8 — Business Combination in Item 8 of Part II of this Annual Report on Form 10-K for additional information on the Business Combination.
Refer to Note 10 — Losses and Impairments Related to Divestitures in Item 8 of Part II of this Annual Report for additional information.
NPS is measured twice annually through a web-based survey sent by email invitation to a random sample of existing Members, and is reported annually using an average of the two surveys. Often referred to as a barometer of brand loyalty and Member engagement, NPS is well-known in our industry as a strong indicator of growth and retention.
NPS is measured twice annually through a web-based survey sent by email invitation to a random sample of existing Members, which currently excludes customers in our new Marketplace business, and is reported annually using an average of the two surveys.
Hagerty's Adjusted EBITDA may be determined or calculated differently than similarly titled measures of other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies. 55 TA BLE OF CONTENTS The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is Net income (loss): Year Ended December 31, 2022 2021 in thousands Net income (loss) $ 2,403 $ (61,354) Interest and other (income) expense (2,028) 1,993 Income tax (benefit) expense 7,017 6,751 Depreciation and amortization 33,887 22,144 Restructuring, impairment and related charges, net 18,324 — Change in fair value of warrant liabilities (41,899) 42,540 Stock-based compensation expense 12,129 — Revaluation gain on previously held equity method investment (34,735) — Accelerated vesting of incentive plans — 9,321 Net (gain) loss from asset disposals 1,970 1,764 Other unusual items (1) 992 2,191 Adjusted EBITDA $ (1,940) $ 25,350 (1) Other unusual items in 2021 relates to expenses incurred related to the Business Combination.
Hagerty's definition of Adjusted EBITDA may be different than similarly titled measures used by other companies in our industry, which could reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies. 64 TABLE OF CONTENTS The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is Net income: Year Ended December 31, 2023 2022 in thousands Net income $ 28,179 $ 2,403 Interest and other income (22,821) (2,028) Income tax expense 16,593 7,017 Depreciation and amortization 45,809 33,887 EBITDA 67,760 41,279 Restructuring, impairment and related charges, net 8,812 18,324 Change in fair value of warrant liabilities (11,543) (41,899) Share-based compensation expense 17,729 12,129 Losses and impairments related to divestitures 4,013 — Revaluation gain previously held equity method investment — (34,735) Net loss from asset disposals — 1,970 Other unusual items (1) 1,391 992 Adjusted EBITDA $ 88,162 $ (1,940) (1) Other unusual items primarily includes certain legal settlement expenses (net) recognized in the years ended December 31, 2023 and 2022, and certain non-restructuring severance expenses recognized in the year ended December 31, 2022.
As a result, premiums from newly insured policies increased $13.2 million, or 9.9% during the year ended December 31, 2022. In turn, commission revenue from newly issued policies grew by $4.1 million over the same period.
Accordingly, premiums from new policies increased $23.7 million, or 16.1%, during the year ended December 31, 2023. In turn, base commission revenue from newly issued policies grew by $7.6 million, or 16.5%, over the same period.
The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS: Year Ended December 31, 2022 2021 in thousands (except per share amounts) Numerator: Net income (loss) attributable to controlling interest (1) $ 32,078 $ (46,358) Net income (loss) attributable to non-controlling interest (29,675) (398) Net income (loss) attributable to redeemable non-controlling interest — (14,598) Consolidated net income (loss) $ 2,403 $ (61,354) Change in fair value of warrant liabilities (41,899) 42,540 Revaluation gain on previously held equity method investment (34,735) — Adjusted consolidated net income (loss) (2) $ (74,231) $ (18,814) Denominator: Weighted-average shares of Class A Common Stock outstanding — Basic (1) 82,728 82,327 Total potentially dilutive securities outstanding: Conversion of non-controlling interest Hagerty Group Units to Class A Common Stock 255,758 251,034 Total warrants outstanding 19,484 20,006 Total unissued stock-based compensation 6,902 — Potentially dilutive shares outstanding 282,144 271,040 Fully dilutive shares outstanding (2) 364,872 353,367 Basic EPS = (Net income (loss) attributable to controlling interest / Weighted-average shares of Class A Common Stock outstanding) (1) $ 0.39 $ (0.56) Adjusted EPS = (Adjusted consolidated net income (loss) / Fully dilutive shares outstanding) (2) $ (0.20) $ (0.05) (1) Numerator and Denominator of the GAAP measure Basic EPS (2) Numerator and Denominator of the non-GAAP measure Adjusted EPS
In addition, Adjusted EPS has limitations as an analytical tool and should not be considered as a measure of profit or loss per share. 65 TABLE OF CONTENTS The following table reconciles Adjusted EPS to the most directly comparable GAAP measure, which is Basic EPS: Year Ended December 31, 2023 2022 in thousands (except per share amounts) Numerator: Net income available to Class A Common Stockholders (1) $ 15,881 $ 32,078 Undistributed earnings allocated to Series A Convertible Preferred Stock 673 — Accretion of Series A Convertible Preferred Stock 3,677 — Net income (loss) attributable to non-controlling interest 7,948 (29,675) Consolidated net income 28,179 2,403 Change in fair value of warrant liabilities (11,543) (41,899) Revaluation gain on previously held equity method investment — (34,735) Adjusted consolidated net income (loss) (2) $ 16,636 $ (74,231) Denominator: Weighted average shares of Class A Common Stock outstanding — basic (1) 84,180 82,728 Total potentially dilutive securities outstanding: Conversion of non-controlling interest units of The Hagerty Group to Class A Common Stock 255,499 255,758 Conversion of Series A Convertible Preferred Stock to Class A Common Stock 6,785 — Total unissued share-based compensation awards 8,385 6,902 Total warrants outstanding 19,484 19,484 Potentially dilutive shares outstanding 290,153 282,144 Fully dilutive shares outstanding (2) 374,333 364,872 Basic EPS (1) $ 0.19 $ 0.39 Adjusted EPS (2) $ 0.04 $ (0.20) (1) Numerator and Denominator, respectively, of the GAAP measure Basic EPS (2) Numerator and Denominator, respectively, of the non-GAAP measure Adjusted EPS 66 TABLE OF CONTENTS
Refer to Note 11 — Provision for Unpaid Losses and Loss Adjustment Expenses in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the methodologies used to estimate loss and loss adjustment expense reserves.
Refer to Note 12 — Provision for Unpaid Losses and Loss Adjustment Expenses in Item 8 of Part II of this Annual Report for additional information regarding the methodologies used to estimate loss and loss adjustment expense reserves. Reserves are reviewed quarterly and periodically throughout the year by combining historical results and current actual results to calculate new development factors.
Claims are analyzed and reported based on the accident year or the year in which the claims occurred. Accident year data is classified and utilized within actuarial models to prepare estimates of required reserves for payments to be made in the future.
Accident year data is classified and utilized within actuarial models to prepare estimates of required reserves for payments to be made in the future. The timing of claim settlement varies and depends on the type of claim being reported. Claims involving property damage are generally settled faster than bodily injury claims.
Hagerty Re maintained sufficient statutory capital and surplus to comply with regulatory requirements as of December 31, 2022. 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.
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.
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.
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. Marketplace earns fee-based revenue primarily from the sale of collector cars through live auctions, time-based online auctions, and brokered private sales.
General and administrative services General and administrative services primarily consist of professional services, occupancy costs and hardware and software. These costs are expensed as incurred.
Sales expenses, in general, are expensed as incurred and will trend with revenue growth. 49 TABLE OF CONTENTS General and administrative services General and administrative services primarily consist of expenses related to professional services, occupancy costs, and non-capitalized hardware and software. These costs are expensed as incurred.
The judgments made by management in estimating the provision for unpaid losses and loss adjustment expenses are impacted by: • uncertainty around inflationary costs, both economic and social inflation; • estimates of expected losses through the use of historical loss data; • the changing mix of business due to the large growth in modern collectible cars which carry a different risk profile than the risks associated with classic cars; • legislative and judicial changes in the jurisdictions in which we write insurance; and • management's industry experience.
The factors considered by management in estimating the provision for unpaid losses and loss adjustment expenses include the following: • historical trends in claim frequency and severity; • the changing mix of business due to the large growth in modern collectible cars which carry a different risk profile than the risks associated with classic cars; • emerging economic and social trends; • inflation, both economic and social; • retention limits under current catastrophe and treaty reinsurance programs; • legislative and judicial changes in the jurisdictions in which we write insurance; and • management's assessment of broader industry experience and trends. 60 TABLE OF CONTENTS Claims are analyzed and reported based on the year in which the loss occurred - i.e., on an accident year basis.
We also believe that Adjusted EPS, which compares our consolidated Net income (loss) (which includes our controlling and non-controlling interest) with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis. 56 TA BLE OF CONTENTS Our management uses Adjusted EPS: • as a measurement of operating performance of our business on a fully consolidated basis; • to evaluate the performance and effectiveness of our operational strategies; • to evaluate our capacity to expand our business; and • as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.
Management uses Adjusted EPS: • as a measurement of operating performance of our business on a fully consolidated basis; • to evaluate the performance and effectiveness of our operational strategies; and • as a preferred predictor of core operating performance, comparisons to prior periods and competitive positioning.
Unpaid Losses and Loss Adjustment Expenses Unpaid losses and loss adjustment expenses are the difference between the estimated ultimate cost of losses incurred and the amount of paid losses as of the reporting date. These reserves reflect management’s best estimate of unpaid losses related to both reported claims and IBNR claims.
Provision for Unpaid Losses and Loss Adjustment Expenses Description The provision for unpaid losses and loss adjustment expenses is the difference between management's estimate of the ultimate cost of losses incurred by Hagerty Re and the amount of paid losses as of the reporting date.
Refer to Note 9 — Acquisitions and Investments in Item 8 of Part II of this Annual Report on Form 10-K for additional information with respect to our acquisition of Broad Arrow. Income tax benefit (expense) Income tax expense was $7.0 million for the year ended December 31, 2022, an increase of $0.3 million, or 3.9%, compared to 2021.
Refer to Note 9 — Acquisitions and Investments in Item 8 of Part II of this Annual Report for additional information with respect to our acquisition of Broad Arrow.
Membership, marketplace and other revenue We earn subscription revenue through bundled HDC membership offerings, which include access to products and services such as, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance and special vehicle-related discounts.
In addition, we offer HDC memberships, which can be bundled with our insurance policies and give subscribers access to an array of products and services, including Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, emergency roadside assistance, and special vehicle-related discounts.
Salaries and benefits costs are expensed as incurred except for those costs which are required to be capitalized, which are then amortized over the useful life of the asset created (generally software or media content). Salaries and benefits are expected to increase over time as the business continues to grow but will likely decrease as a percent of revenue.
Costs related to employee education, training, and recruiting are included in employee development costs. Salaries and benefits are expensed as incurred except for those costs which are required to be capitalized, which are then amortized over the useful life of the asset created, primarily software.
Our Consolidated Financial Statements are prepared in accordance with GAAP. The preparation of our Consolidated Financial Statements requires management to make assumptions and estimates that affect the reported results of operations and financial position, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period.
Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires management to make significant judgments, assumptions, and estimates that materially affect the amounts reported in the Company's Consolidated Financial Statements.
Adjusted EPS We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated Net income (loss) attributable to both our controlling and non-controlling interest, less the change in fair value of our warrants and the revaluation gain on previously held equity method investment, divided by our outstanding and total potentially dilutive securities.
Adjusted EPS We define Adjusted Earnings (Loss) Per Share ("Adjusted EPS") as consolidated Net income (loss), less changes in the fair value of our warrant liabilities and, when applicable, the revaluation gain on a previously held equity method investment, divided by our outstanding and total potentially dilutive securities, which includes (i) the weighted-average issued and outstanding shares of Class A Common Stock; (ii) all issued and outstanding non-controlling interest units of The Hagerty Group; (iii) all unexercised warrants; (iv) all unissued share-based compensation awards; and (v) all issued and outstanding shares of our Series A Convertible Preferred Stock on an as-converted basis.
Other revenue includes sponsorship, admission, advertising, valuation and registration revenue and accounts for 23.8% of the Membership, marketplace and other revenue total. Operating Expenses Salaries and benefits Salaries and benefits expenses were $199.5 million for the year ended December 31, 2022, an increase of $27.6 million, or 16.1%, compared to 2021.
For the years ended December 31, 2023 and December 31, 2022, other revenue was 21.2% and 23.8%, respectively, of total Membership, marketplace and other revenue. Costs and Expenses Salaries and benefits Salaries and benefits were $216.9 million for the year ended December 31, 2023, an increase of $17.4 million, or 8.7%, compared to 2022.
Results of Operations Year Ended December 31, 2022 compared to the Year Ended December 31, 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021, and the dollar and percentage change between the two years: Year Ended December 31, 2022 2021 $ Change % Change REVENUE: in thousands (except percentages) Commission and fee revenue $ 307,238 $ 271,571 $ 35,667 13.1 % Earned premium 403,061 295,824 107,237 36.3 % Membership, marketplace and other revenue 77,289 51,684 25,605 49.5 % Total revenue 787,588 619,079 168,509 27.2 % OPERATING EXPENSES: Salaries and benefits 199,542 171,901 27,641 16.1 % Ceding commission 191,150 140,983 50,167 35.6 % Losses and loss adjustment expenses 182,402 122,080 60,322 49.4 % Sales expense 140,781 107,483 33,298 31.0 % General and administrative services 89,068 64,558 24,510 38.0 % Depreciation and amortization 33,887 22,144 11,743 53.0 % Restructuring, impairment and related charges, net 18,324 — 18,324 100.0 % Total operating expenses 855,154 629,149 226,005 35.9 % OPERATING INCOME (LOSS) (67,566) (10,070) (57,496) 571.0 % Change in fair value of warrant liabilities 41,899 (42,540) 84,439 198.5 % Revaluation gain on previously held equity method investment 34,735 — 34,735 100.0 % Interest and other income (expense) 2,028 (1,993) 4,021 201.8 % INCOME (LOSS) BEFORE INCOME TAX EXPENSE 11,096 (54,603) 65,699 120.3 % Income tax benefit (expense) (7,017) (6,751) (266) (3.9) % Income (loss) from equity method investment, net of tax (1,676) — (1,676) (100.0) % NET INCOME (LOSS) $ 2,403 $ (61,354) $ 63,757 103.9 % 45 TA BLE OF CONTENTS Revenue Commission and fee revenue Commission and fee revenue was $307.2 million for the year ended December 31, 2022, an increase of $35.7 million, or 13.1%, compared to 2021, consisting of an increase of $31.6 million in revenue from renewal policies, as well as an increase of $4.3 million in revenue from new policies.
Hagerty, Inc. is taxed as a corporation and pays corporate federal, state, and local taxes with respect to income allocated from The Hagerty Group. 50 TABLE OF CONTENTS Results of Operations for the Years Ended December 31, 2023 and 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and 2022, and the dollar and percentage change between the two periods: Year Ended December 31, 2023 2022 $ Change % Change REVENUE: in thousands (except percentages) Commission and fee revenue $ 365,512 $ 307,238 $ 58,274 19.0 % Earned premium 531,866 403,061 128,805 32.0 % Membership, marketplace and other revenue 102,835 77,289 25,546 33.1 % Total revenue 1,000,213 787,588 212,625 27.0 % OPERATING EXPENSES: Salaries and benefits 216,896 199,542 17,354 8.7 % Ceding commission, net 251,805 191,150 60,655 31.7 % Losses and loss adjustment expenses 220,658 182,402 38,256 21.0 % Sales expense 156,378 140,781 15,597 11.1 % General and administrative services 85,434 89,068 (3,634) (4.1) % Depreciation and amortization 45,809 33,887 11,922 35.2 % Restructuring, impairment and related charges, net 8,812 18,324 (9,512) (51.9) % Losses and impairments related to divestitures 4,013 — 4,013 100.0 % Total operating expenses 989,805 855,154 134,651 15.7 % OPERATING INCOME (LOSS) 10,408 (67,566) 77,974 115.4 % Change in fair value of warrant liabilities 11,543 41,899 (30,356) (72.5) % Revaluation gain on previously held equity method investment — 34,735 (34,735) (100.0) % Interest and other income 22,821 2,028 20,793 N/M INCOME BEFORE INCOME TAX EXPENSE 44,772 11,096 33,676 N/M Income tax expense (16,593) (7,017) (9,576) (136.5) % Loss from equity method investment, net of tax — (1,676) 1,676 100.0 % NET INCOME $ 28,179 $ 2,403 $ 25,776 N/M N/M = Not meaningful Revenue Commission and fee revenue Commission and fee revenue was $365.5 million for the year ended December 31, 2023, an increase of $58.3 million, or 19.0%, compared to 2022, consisting of increases of $47.7 million related to renewal policies and $10.6 million related to new policies.
Commission and fee revenue is earned when the policy becomes effective, net of policy changes and cancellations, as our performance obligation is complete when the policy is issued.
Commission and fee revenue is earned when the policy becomes effective, net of allowances for policy changes and cancellations, as our performance obligation is substantially complete when the policy is issued. Earned premium We earn reinsurance premium revenue for the risks assumed by Hagerty Re from the classic car and enthusiast vehicle insurance policies underwritten by our MGA subsidiaries.
Implicit within the actuarial models are estimates of the impacts of inflation, especially for claims with longer expected cycle times.
Historical loss patterns are then applied to actual paid losses and reported losses by accident year to develop expectations of future claim payments. Implicit within the actuarial models are estimates of the impacts of inflation, especially for claims with longer expected cycle times.
Total amortization expense related to these acquisitions was $1.8 million. 47 TA BLE OF CONTENTS Restructuring, impairment and related charges, net During the year ended December 31, 2022, we recognized restructuring, impairment and related charges of $18.3 million, which primarily consisted of $12.2 million in expenses related to our voluntary retirement program and reduction in force and $6.2 million related to operating lease ROU asset impairments and related leasehold disposals.
As a result, in 2022, we recognized restructuring, impairment and related charges of $18.3 million, which primarily consisted of $12.2 million in employee severance-related expenses related to the VRP and 2022 RIF and $6.2 million related to operating lease ROU asset impairments and related leasehold disposals.
Other revenue was $18.4 million for the year ended December 31, 2022, an increase of $7.3 million, or 66.0%, compared to 2021, primarily due to newly acquired events, resulting in increases of $3.3 million and $2.6 million in sponsorship revenue and admission revenue, respectively.
For the years ended December 31, 2023 and 2022, Marketplace revenue was 27.8% and 17.7%, respectively, of total Membership, marketplace and other revenue. 52 TABLE OF CONTENTS Other revenue, which primarily includes sponsorship, admission, advertising, valuation and registration income, was $21.8 million for the year ended December 31, 2023, an increase of $3.4 million, or 18.6%, compared to 2022, primarily due to increased event sponsorship and admission revenue.

… 229 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

0 edited+4 added−1 removed0 unchanged
Removed
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information otherwise required under this item. 57 TA BLE OF CONTENTS
Added
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to interest rate risk as part of our ongoing business operations . Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in prevailing market interest rates.
Added
As of December 31, 2023, we had approximately $68.0 million of variable rate indebtedness (after taking into consideration $35.0 million in interest rate swaps which effectively convert variable-rate debt to fixed-rate debt), representing approximately 50% of our total debt outstanding, at an average interest rate during the year ended December 31, 2023 of approximately 7.30%.
Added
Based on variable-rate borrowings outstanding as of December 31, 2023, a 100-basis point (or 1.0%) change in our borrowing rates would result in our annual interest payments changing by approximately $0.7 million.
Added
We also have a portfolio of loans secured by collector cars of approximately $52.9 million as of December 31, 2023, upon which interest is earned predominately at variable rates including Prime Rate and Term Secured Overnight Financing Rate ("SOFR"). 67 TABLE OF CONTENTS

Other HGTY 10-K year-over-year comparisons