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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 — 2023 vs 2024

Top changes in Hagerty, Inc.'s 2024 10-K

591 paragraphs added · 640 removed · 439 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

75 edited+19 added−22 removed12 unchanged
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.
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 also have a reinsurance quota share agreement.
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.
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 automotive enthusiast brand for car people, by car people.
The enthusiast community created by our insurance, membership and Marketplace offerings is enhanced by our media and entertainment platforms, as well as our renowned car events, which generate positive ongoing engagement with current Members, as well as interest from prospective members, in our brand, products and services.
The automotive enthusiast community created by our insurance, membership, and marketplace offerings is enhanced by our media and entertainment platforms, as well as our renowned car events, which generate positive ongoing engagement with current Members, as well as interest in our brand, products, and services from prospective members.
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.
The potential for stock-based compensation awards through our equity incentive plan, as well as the opportunity to participate in an 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.
Each jurisdiction in which we operate has established supervisory agencies with broad administrative powers for various business practices (for example, financial services consumer protection and data protection).
Each jurisdiction in which we operate has established supervisory agencies with broad administrative and oversight powers for various business practices (for example, financial services consumer protection and data protection).
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.
Essentia cedes 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.
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.
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, 2024, we have two issued patents in the U.S. and one in Canada.
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.
We have a self-insured medical plan in which our employees pay up to 25% 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.
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.
Based upon this analysis, we are able to identify key vehicle markets, explore additional opportunities within these markets, and overlay demographic and usage data to enrich our approach and leverage the information to better serve the automotive enthusiast community.
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.
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 their depreciated value.
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.
We continually review our development efforts to assess the existence and the ability to protect new intellectual property. 10 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, and Australia.
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.
ITEM 1. BUSINESS Company Overview We are a market leader in providing insurance for collector cars and enthusiast vehicles. Through our insurance business, we act as a Managing General Agent ("MGA") by underwriting, selling, and servicing collector car and enthusiast vehicle insurance policies.
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.
In addition, we offer Hagerty Drivers Club ("HDC") memberships, which are primarily bundled with our insurance policies and give subscribers access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts.
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.
Over the last decade, we have increased our written premium by a compound annual growth rate of 14%, powered primarily by strong growth in the number of our insurance policies in force.
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 built a strong reputation for providing excellent customer service through our passionate team of member service center professionals, resulting in a Net Promoter Score ("NPS") of at least 82 in recent years, an insurance policy retention rate approaching 90%, and a typical policy life of approximately nine years.
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.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. 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.
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.
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 — Legal, Regulatory and Political Risks — Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
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.
We are often told by agents and brokers that partnering with Hagerty brings value and joy to their automotive enthusiast customers 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 automotive enthusiasts an experience the agent or broker could not deliver themselves.
Hagerty Re manages its investment portfolio in accordance with an investment policy approved by its Board of Directors, which seeks to generate an attractive total return on an after-tax basis on its investment assets, over the long-term, subject to compliance with all of the following constraints and objectives: (i) comply with certain portfolio-level and asset-level class constraints; (ii) preserve capital by assuming only a modest amount of risk of principal loss; (iii) ensure sufficient liquidity to meet obligations; (iv) comply with all legal, regulatory, and contractual requirements; and (v) employ an efficient portfolio in terms of assumed risk and relative to expected return.
We manage our investment portfolio in accordance with an investment policy that seeks to generate an attractive total return on an after-tax basis on its investment assets, over the long-term, subject to compliance with all of the following constraints and objectives: (i) comply with certain portfolio-level and asset-level class constraints; (ii) preserve capital by assuming only a modest amount of risk of principal loss; (iii) ensure sufficient liquidity to meet obligations; (iv) comply with all legal, regulatory, and contractual requirements; and (v) employ an efficient portfolio in terms of assumed risk and relative to expected return.
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.
HDC and our marketplace offerings, as well as our events and media and entertainment platforms, work synergistically with our insurance business to drive retention and loyalty and enable automotive enthusiasts to protect, buy, sell, and enjoy their special cars, whether it is on the road, on the track, in the garage, at an event or auction, or through our media content.
We believe that this enthusiast-centered business model, with a focus on community and engagement, is a significant advantage over competitors who, without strong affinity or engagement, are left to compete mainly on price. 7 TABLE OF CONTENTS Insurance We provide insurance for approximately 2.4 million classic cars and enthusiast vehicles.
We believe that this enthusiast-centered business model, with a focus on community and engagement, is a significant advantage over competitors who, without strong affinity or engagement, are left to compete solely on price. 6 TABLE OF CONTENTS Insurance We provide insurance for approximately 2.6 million collector cars and enthusiast vehicles.
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.
We believe we can differentiate ourselves from other platforms and services by incorporating a higher level of trust into this marketplace by using our existing size, scale, improved processes, and trusted brand status. Our marketplace offerings leverage the power of our ecosystem by providing a trusted platform where enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles.
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").
Due to our consistent track record of delivering strong underwriting results, we then reinsure approximately 80% of the risks written by our MGA subsidiaries through our wholly owned subsidiary, Hagerty Reinsurance Limited ("Hagerty Re").
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.
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. Performance Culture Our performance culture objective is to be a company where each employee genuinely belongs, is respected and valued, and is driven to do their best work.
These relationships with the largest auto insurance carriers allows us to provide a high-touchpoint experience resulting in more appropriate levels of cost coverage and higher overall service satisfaction of Members. Government Regulation We operate across jurisdictions in North America and Europe and our businesses (in particular, insurance) are subject to comprehensive and detailed regulation and supervision.
These relationships with the largest auto insurance carriers enable us to provide a high-touchpoint experience for customers, resulting in more appropriate levels of coverage and higher overall customer service satisfaction. Government Regulation We operate across jurisdictions in North America and Europe and our businesses (in particular, insurance) are subject to comprehensive regulation and supervision.
Our insurance business generates two types of revenue: (1) commissions and fees earned by our MGA subsidiaries from the underwriting, sale and servicing of classic car and enthusiast vehicle insurance policies, and (2) insurance premiums earned for the risk assumed by Hagerty Re.
Our insurance business generates two types of revenue: (i) commissions and fees earned by our MGA subsidiaries from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies and (ii) insurance premiums earned for the risk assumed by Hagerty Re.
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.
The backbone of our ecosystem is our fast-growing specialty insurance business. People take excellent care of the things they love, and we take great pride in protecting and preserving their treasured vehicles. For over 40 years, we have consistently grown our insurance business and currently insure 2.6 million collector cars and enthusiast vehicles.
This program began issuing policies in four initial states in September 2023. Under this agreement, State Farm paid Hagerty an advanced commission of $20.0 million in 2020, which is being recognized as "Commission and fee revenue" over the remaining life of the arrangement.
This program began issuing policies in four initial states in September 2023, with additional states planned for 2025 and 2026. Under the master alliance agreement, State Farm paid Hagerty an advanced commission of $20.0 million in 2020, which is being recognized as "Commission and fee revenue" over the remaining life of the arrangement.
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.
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 and has an AM Best financial strength rating of A- (Excellent).
We rely on trademarks, patents, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and electronic and physical security measures to establish and protect our proprietary rights.
Business Attributes Intellectual Property We believe our intellectual property rights are valuable and important to our business. We rely on trademarks, patents, copyrights, trade secrets, license agreements, intellectual property assignment agreements, confidentiality procedures, non-disclosure agreements, and electronic and physical security measures to establish and protect our proprietary rights.
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.
We utilize our data science capabilities to benefit both our MGA and risk-taking activities across the following key areas: • Underwriting and Risk Assessment: Decades of data allow us to accurately assess the risk associated with insuring collector cars and enthusiast vehicles 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 and enthusiast vehicle 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.
With an insurance policy retention rate of nearly 90% and an average policy life of nine years, we have demonstrated a strong recurring revenue model that benefits from a combination of high insurance policy retention, new Member growth, and increases in premium rates driven, in part, by increasing valuation.
With an insurance policy retention rate of nearly 90% and an average policy life of nine years, we have demonstrated a strong recurring revenue model that benefits from a combination of high insurance policy retention, new Member growth, and increases in premiums driven, in part, by the increasing values of insured vehicles.
We believe this system of cooperation and partnership creates a win-win situation that allows us to capture more of the collector car and enthusiast vehicle insurance market.
We believe that this distribution model creates a win-win situation that allows us to capture more of the collector car and enthusiast vehicle insurance market.
("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.
("Aviva") is the parent company of Elite Insurance Company, which serves as the carrier for the specialty collector vehicle insurance policies sold by our Canadian MGA subsidiary ("Hagerty Canada").
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%.
While we have become one of the leading providers of insurance for pre-1981 classics, with an estimated market share of 14% in that cohort, we estimate our market share for post-1980 collectibles is only 2%, resulting in an overall collector car and enthusiast vehicle market share of under 5%.
This compares favorably to the overall auto insurance industry average of approximately 69%, excluding loss adjustment expenses. For the years ended December 31, 2023, 2022, and 2021, Hagerty Re earned premium represented 53%, 51%, and 48%, respectively, of our total revenue. Membership We offer HDC memberships to our insurance policyholders as a way to strengthen the bonds of those relationships.
This compares favorably to the overall auto insurance industry average of approximately 75%, excluding loss adjustment expenses. For the years ended December 31, 2024, 2023, and 2022, Hagerty Re earned premium represented 54%, 53%, and 51%, respectively, of our total revenue. 9 TABLE OF CONTENTS Membership We offer HDC memberships as a way to strengthen our relationships with insurance policyholders.
Lastly, through Broad Arrow Capital LLC ("BAC"), we provide financing solutions to qualified collectors and businesses in the U.S., Canada, the U.K., and certain European countries by structuring loans secured by their collector cars.
From time to time, Broad Arrow also opportunistically acquires collector cars and enthusiast vehicles for resale. Lastly, through Broad Arrow Capital LLC ("BAC"), we provide financing solutions to qualified collectors and businesses in the U.S., Canada, the U.K., and certain European countries by structuring loans secured by their collector cars.
While there are a number of other specialty insurance companies that offer collector car insurance, we believe our enthusiast-centered ecosystem, with a focus on community and engagement, is a significant competitive advantage over competitors who, without strong affinity or engagement, are left to compete primarily based on price.
While there are other specialty insurance companies offering collector car insurance, the size of their operations is small compared to ours. We believe our enthusiast-centered ecosystem, with a focus on community and engagement, is a significant competitive advantage over competitors who, without strong affinity or engagement, are left to compete solely based on price.
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.
We experience some competition in the larger standard auto insurance market as the majority of collector cars and enthusiast vehicles are currently insured through traditional auto insurance 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 specialty insurance products and HDC memberships.
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.
We also offer a marketplace to complement our insurance and membership offerings where automotive enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles. Through these offerings, our vision is to be the world's most trusted and preferred brand for automotive enthusiasts to protect, buy, sell, and enjoy their special cars.
The Markel and Hagerty agreements governing the relationship expire at the end of 2030 and include extension periods. Markel is a related party to the Company. Refer to Note 23 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information. Aviva Canada Alliance Aviva Canada Inc.
The current agreements governing our relationship with Markel expire at the end of 2030, unless we and Markel mutually agree to an extension. Markel is a related party to the Company. Refer to Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information. Aviva Canada Alliance Aviva Canada Inc.
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.
Canadian provincial laws govern many of the activities under this relationship and Hagerty Canada must maintain the appropriate licensing. The terms of our agreements with Aviva expire in 2030 and include a 5-year extension if certain thresholds are met.
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.
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, hiring, performance management, career progression, and retention. We are creating an environment focused on the respectful treatment of others, including employees, Members, and partners.
At the high-end of the collector car market, where values typically exceed $100,000, our wholly owned subsidiary, Broad Arrow Group, Inc. ("Broad Arrow"), helps collectors and enthusiasts buy and sell at live auctions and also facilitates private sales.
At the high-end of the collector car and enthusiast vehicle market, where values typically exceed $100,000, our wholly owned subsidiary, Broad Arrow Group, Inc. ("Broad Arrow"), helps collectors and enthusiasts buy and sell at live auctions and through brokered private sales. At lower price points, typically below $100,000, we also offer digital auctions through Hagerty Marketplace.
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.
We believe the combination of these complementary offerings creates an enthusiast-centered ecosystem of products and services, generating multiple points of engagement and monetization, resulting in an attractive recurring revenue business model with relatively low customer acquisition costs that is well-positioned to benefit from increasing scale.
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.
For the years ended December 31, 2024, 2023, and 2022, Hagerty Re's U.S. quota share, or assumed risk, was approximately 80%, 80%, and 70%, respectively. We expect that Hagerty Re's U.S. quota share will remain at approximately 80% in 2025.
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.
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 44% over the last three years.
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.
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.
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.
Our focus on collector car and enthusiast vehicle 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 automotive enthusiast market.
Refer to Note 8 — Business Combination in Item 8 of Part II of this Annual Report for additional information on the Business Combination .
Refer to Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information.
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.
This omnichannel approach allows us to offer our insurance products across two channels: (i) directly to consumers and (ii) through our agent channel, which includes a vast network of independent agents and brokers, as well as strategic distribution partnerships with large traditional auto insurers.
Our business model is attractive to our partners because we offer a full-service solution for their customers and their special cars.
Our business model is attractive to our partners because we offer a full-service solution for their customers and their special cars. We handle product development and pricing, underwriting, sales and service, and claims services on behalf of our insurance carrier partners.
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.
In addition, we offer Member benefits tailored to the automotive enthusiast, all through our proprietary technology and by our sales and service teams. For partners, our focus on the collector car and enthusiast vehicle space allows them to focus on other parts of their business portfolios. We then align financial interests so both parties benefit from the relationship.
We intend to continue to invest and further develop our leadership training and support to ensure that all leaders — those promoted, developing or hired — understand how to lead, keeping our diversity and inclusion principles top of mind in every aspect of their role.
We intend to continue to invest and further develop our leadership training and support to ensure that all leaders — those promoted, developing or hired — understand how to effectively lead a high-performance team.
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 estimate that there are approximately 48 million insurable collector cars and enthusiast vehicles in the U.S., valued at approximately $1.2 trillion. In 2024, we observed over 300,000 buy/sell collector car and enthusiast vehicle transactions representing approximately $15.7 billion in total value trading hands in our U.S. insurance book, or approximately 1% of the estimated U.S. market value.
Loans underwritten by BAC are typically $250,000 or higher, with a focus on classic and collector cars that are typically not financed by traditional banks and lenders.
Loans underwritten by BAC are typically $250,000 or higher, with a focus on collector cars and enthusiast vehicles that are typically not financed by traditional banks and lenders. To date, Broad Arrow's live auctions and private sales have been conducted in the U.S.
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.
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. Our enthusiast-centered ecosystem is built for car lovers, enabling them to protect, buy, sell, and enjoy their special cars, thereby increasing our share of their discretionary spending.
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.
In 2024, approximately three-quarters of our new policyholders also purchased an HDC membership. Our focus on HDC memberships is intended to build a community of car lovers and enhance brand loyalty through multiple points of engagement. Typical insurance businesses engage with their customers only a few times a year.
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.
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, including through our recent acquisition of Drivers Edge Insurance Company ("Drivers Edge").
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").
Agent Channel We market our insurance products through our insurance distribution partnerships, which include 9 of the top 10 largest auto insurers, as ranked by the National Association of Insurance Commissioners based upon 2023 direct premiums written.
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.
We work closely with our Members to determine the right amount of coverage for their vehicle, utilizing Hagerty Valuation Tools, which has been built over decades of collecting vehicle sales information, with historic pricing data on more than 48,000 collector car and enthusiast vehicle models.
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.
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.
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.
In 2024, approximately 55% of our total U.S. auto written premium is generated through our agent channel. 8 TABLE OF CONTENTS Strategic Agreements Markel Alliance Markel is the ultimate parent company of Essentia, which serves as the dedicated carrier for the specialty collector vehicle insurance policies sold by our U.S. MGA subsidiaries. Essentia is exclusive to our U.S.
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.
On this basis, we estimate that the U.S. total addressable market is approximately $19 billion of annual written premium for insurable collector cars and enthusiast vehicles based on our average vehicle premium of $405 per year.
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. Approximately 45% of our total U.S. auto written premium is generated through direct sales.
Direct Sales Channel Our direct sales channel is serviced by our employee agents who sell policies in the U.S., Canada, and the United Kingdom ("U.K."). In 2024, approximately 45% of our total U.S. auto written premium is generated through direct sales.
Hagerty is paid a commission under the managing general underwriter agreement and ancillary agreements for servicing the State Farm Classic+ policies. Additionally, we have the opportunity to offer HDC membership to State Farm Classic+ customers which provides Hagerty an additional revenue opportunity. State Farm is a related party to the Company.
In addition, we are paid a commission for underwriting, binding coverage, and issuing State Farm Classic+ policies and can offer HDC memberships to State Farm Classic+ customers, providing us an additional revenue opportunity. State Farm is a related party to the Company.
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.
The new platform will service distribution management, policy administration, billing, claims, and data reporting and insights. 7 TABLE OF CONTENTS Managing General Agent We earn commission revenue from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners.
Human Capital Our performance-based culture is shaped by our people, and their engagement, accountability and alignment with our key objectives as an organization. Our strategy involves hiring great people, providing challenging and meaningful work, and investing in their professional and personal development, and we believe this creates a strategic advantage for us.
Our strategy involves hiring great people, providing challenging and meaningful work, and investing in their professional and personal development, and we believe this creates a strategic advantage for us. Our objectives include effectively identifying, recruiting, retaining, and incentivizing our employees. As of December 31, 2024, we had 1,744 total employees including 1,733 full-time employees.
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.
State Farm Alliance We have a 10-year master alliance agreement and associated managing general underwriter agreement with State Farm Mutual Automobile Insurance Company ("State Farm") under which the State Farm Classic+ policy is offered to State Farm's customers through State Farm agents.
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.
As a result of these factors, we expect to experience seasonal fluctuations in our quarterly operating results, which may not fully reflect the underlying performance of our business. Competition We believe that our business model of integrated products and services is unique.
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.
With a rich heritage spanning over 40 years, the first Hagerty company was founded in 1984. Hagerty, Inc., a Delaware corporation, was formed in 2020 and became a public company traded on the New York Stock Exchange ("NYSE") in 2021 under the ticker symbol HGTY.
As a result, both brands benefit symbiotically through longer-lasting and more intimate customer relationships. Partnership Channel We also market our insurance products through our insurance distribution partners, who account for approximately 22% of our U.S. auto total written premium.
As a result, both brands benefit symbiotically through longer-lasting and more intimate customer relationships.
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.
In connection with the servicing of insurance policies, we also handle claims on behalf of our insurance carrier partners to ensure that our Members receive a high level of service focused on the unique requirements of repairing vintage and rare vehicles. Under our alliance agreement and associated agency agreement with Markel Group, Inc.
("Markel"), which generated approximately 95% of our total commission revenue in 2023, was amended to increase the base commission rate on our personal lines U.S. auto business to 37% and to adjust the profit share commission factors to scale annually from -5% to a maximum of +5% of written premium, with 80% of the expected CUC being paid monthly, beginning in 2024.
("Markel"), our MGA subsidiaries currently earn a base commission rate of approximately 37%, as well as an additional contingent underwriting commission ("CUC") that scales annually from -5% to a maximum of +5% of written premium, with 80% of the expected CUC paid monthly.
Refer to the section titled " Markel Alliance " below. Markel is a related party to the Company. Refer to Note 23 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information.
Refer to Note 24 — Related-Party Transactions in Item 8 of Part II of this Annual Report for additional information. For the years ended December 31, 2024, 2023, and 2022, commission and fee revenue earned by our MGA subsidiaries represented 35%, 37%, and 39%, respectively, of our total revenue.
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Our enthusiast-centered ecosystem is built for car lovers, enabling them to protect, buy and sell, and enjoy the special cars that are their passion, thereby increasing our share of their discretionary spending.
Added
Industry and Market Opportunity We love cars and are not alone, as evidenced by the large and growing collector car and enthusiast vehicle market. We estimate that there are approximately 48 million insurable collector cars and enthusiast vehicles in the United States ("U.S."), of which approximately 11 million are pre-1981 and 37 million are post-1980 collectibles.
Removed
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.
Added
For more information regarding the acquisition of Drivers Edge, refer to Note 10 — Acquisitions in Item 8 of Part II of this Annual Report. 5 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.
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We utilize our data science capabilities to benefit both our MGA activities, as well as our risk-taking activities through Hagerty Re.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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If any of the risks and uncertainties described below or elsewhere in this Annual Report actually occur, our business, financial condition or results of operations could be materially adversely affected, the trading price of our securities could decline, and you might lose all or part of your investment.
If any of the risks and uncertainties described below or elsewhere in this Annual Report actually occur, our business, financial condition or results of operations could be materially and adversely affected, the trading price of our securities could decline, and you might lose all or part of your investment.
We face competition from large, well-capitalized national and international companies, including other insurance providers, technology companies, automotive media companies, automotive auction and marketplace providers, other well-financed companies seeking new opportunities, or new competitors with technological or other innovations. Many of our competitors have substantial resources, experienced management, strong marketing, underwriting, and pricing capabilities.
We face competition from large, well-capitalized national and international companies, including other insurance providers, technology companies, automotive media companies, automotive auction and marketplace providers, other well-financed companies seeking new opportunities, or new competitors with technological or other innovations. Many of our competitors have substantial resources, experienced management, and strong marketing, underwriting, and pricing capabilities.
The success of new product and service introductions depends on a number of factors, including timely and successful development, market acceptance, our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products, the effective management of purchase commitments and vendor relationships in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products and services may have quality or other defects or deficiencies.
The success of new product and service introductions depends on a number of factors, including timely and successful development, market acceptance, our ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products and services, the effective management of purchase commitments and vendor relationships in line with anticipated product demand, the availability of products in appropriate quantities and at expected costs to meet anticipated demand, and the risk that new products and services may have quality or other defects or deficiencies.
Our ability to conduct business in these jurisdictions depends on our compliance with the rules and regulations promulgated by federal and state or provincial regulatory bodies and other regulatory authorities.
Our ability to conduct business in these jurisdictions depends on our compliance with the rules and regulations promulgated by federal, state or provincial regulatory bodies and other regulatory authorities.
Insurance regulators periodically subject the underwriting companies that we work with to conduct audits and examinations to assess compliance with applicable laws and regulations, financial condition, and the conduct of regulated activities. These examinations and audits may be conducted during a jurisdiction’s normal review cycle, or because of a targeted investigation.
Insurance regulators periodically subject the underwriting companies that we work with to audits and examinations to assess compliance with applicable laws and regulations, financial condition, and the conduct of regulated activities. These examinations and audits may be conducted during a jurisdiction’s normal review cycle, or because of a targeted investigation.
A failure to comply with regulatory requirements, or changes in regulatory requirements or interpretations, can result in actions by regulators, potentially leading to penalties and enforcement actions, and in extreme cases, revocation of an authority to do business in one or more jurisdictions. This could result in adverse publicity and potential damage to our brand and reputation in the marketplace.
A failure to comply with regulatory requirements, or changes in regulatory requirements or interpretations, can result in actions by regulators, potentially leading to penalties and enforcement actions, and in extreme cases, revocation of authority to do business in one or more jurisdictions. This could result in adverse publicity and potential damage to our brand and reputation in the marketplace.
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.
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 privacy and cybersecurity laws and regulations, regulators could prohibit or restrict our collection or use of this data.
This in turn may cause Hagerty Re to retain more risk, be unable to accept risk and grow, or require greater capital investment that may not be available, in each case resulting in lower profits, as well as a material effect on our financial condition and results of operations.
This in turn may cause Hagerty Re to retain more risk, be unable to accept further risk and grow, or require greater capital investment that may not be available, in each case resulting in lower profits, as well as a material effect on our financial condition and results of operations.
Our Amended and Restated Charter authorizes us to issue shares of our Class A Common Stock and options, rights, warrants and appreciation rights relating to our Class A Common Stock and on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise. Under the 2021 Equity Incentive Plan .
Our Amended and Restated Charter authorizes us to issue shares of our Class A Common Stock and options, rights, warrants and appreciation rights relating to our Class A Common Stock on the terms and conditions established by our Board in its sole discretion, whether in connection with acquisitions or otherwise. Under the 2021 Stock Incentive Plan .
Changes to tax laws may affect the volume of collector vehicle inventory available for our Marketplace business, and increase our compliance risks. Our collectors reside in various tax jurisdictions. Changes to tax laws or tax reporting obligations in any of these jurisdictions could adversely impact the ability and/or willingness of our collectors to sell or purchase collector cars.
Changes to tax laws may affect the volume of collector vehicle inventory available for our marketplace business, and increase our compliance risks. Our collectors reside in various tax jurisdictions. Changes to tax laws, or tax collection or reporting obligations, in any of these jurisdictions could adversely impact the ability and/or willingness of our collectors to sell or purchase collector cars.
These types of examination or audit findings could lead an insurance regulator to require either us or the underwriting company that we work with to take one or more remedial actions or otherwise subject us to regulatory scrutiny, impose fines and penalties, or take further actions.
These types of examination or audit findings could lead an insurance regulator to require either us or the underwriting company that we work with to take one or more remedial actions or otherwise subject us to regulatory scrutiny or impose fines and penalties.
If we are not successful in maintaining existing relationships and in continuing to expand our distribution relationships, or if we encounter regulatory, technological, or other impediments to delivering our services to Members through these relationships, our ability to retain Members and grow our business could be adversely impacted.
If we are not successful in maintaining existing relationships and continuing to expand our distribution relationships, or if we encounter regulatory, technological, or other impediments to delivering our products and services to Members through these relationships, our ability to retain Members and grow our business could be adversely impacted.
We intend to avail ourselves of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period.
We may avail ourselves of such extended transition period and, therefore, we may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies or that have opted out of using such extended transition period.
In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis, or at all, our business, financial condition and results of operations could be harmed. 17 TABLE OF CONTENTS The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to, or exploit weaknesses that may exist in the payment systems.
In addition, if these systems fail to work properly and, as a result, we do not charge our customers’ credit cards on a timely basis, or at all, our business, financial condition and results of operations could be harmed. 16 TABLE OF CONTENTS The payment methods that we offer also subject us to potential fraud and theft by criminals, who are becoming increasingly more sophisticated, seeking to obtain unauthorized access to, or exploit weaknesses that may exist in the payment systems.
There are many factors that could affect our ability to pay claims accurately and timely, including the efficiency of our claims processing, the training and experience of our claim’s adjusters, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions.
There are many factors that could affect our ability to pay claims accurately and timely, including the efficiency of our claims processing, the training and experience of our claims adjusters, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions.
If we are unable to comply with applicable rules or requirements for the payment methods that we accept, or if payment-related data is compromised due to an incident or a breach, we may be liable for significant costs incurred by payment card issuing banks and other third parties, subject to fines and higher transaction fees, subject to potential litigation or enforcement action, or our ability to accept or facilitate certain types of payments may be impaired.
If we are unable to comply with applicable rules or requirements for the payment methods that we accept, or if payment-related data is compromised due to a cybersecurity incident or a breach, we may be liable for significant costs incurred by payment card issuing banks and other third parties, subject to fines and higher transaction fees, subject to potential litigation or enforcement action, or our ability to accept or facilitate certain types of payments may be impaired.
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.
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.
Failure to collect the correct amount of indirect tax or applicable tax exemption documentation on a transaction may expose us to claims from tax authorities. 31 TABLE OF CONTENTS Legal, Regulatory and Political Risks The legal and regulatory requirements applicable to our business are extensive. If we are not able to comply, it could have an adverse effect on us.
Failure to collect the correct amount of indirect tax or applicable tax exemption documentation on a transaction may expose us to claims from tax authorities. 29 TABLE OF CONTENTS Legal, Regulatory and Political Risks The legal and regulatory requirements applicable to our business are extensive. If we are not able to comply, it could have an adverse effect on us.
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.
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 if reinsurers fail to pay or timely pay claims due to insolvency or otherwise fail to honor their obligations.
Our insurance coverage relating to any data security and privacy damages and claim expenses may not be sufficient to compensate for all liabilities we may incur. 33 TABLE OF CONTENTS Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
Our insurance coverage relating to any data security and privacy damages and claim expenses may not be sufficient to compensate for all liabilities we may incur. 30 TABLE OF CONTENTS Our intellectual property rights are extremely valuable and if they are not properly protected, our products, services, and brand could be adversely impacted.
There is no public market for the Series A Convertible Preferred Stock. There is no established public trading market for the Series A Convertible Preferred Stock, and we do not expect a market to develop.
There is no public market for our Series A Convertible Preferred Stock. There is no established public trading market for the Series A Convertible Preferred Stock, and we do not expect a market to develop.
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.
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; • having audited financial statements and being subject to BMA examination; and • carrying out operations in accordance with its filed and approved business plan.
We operate primarily in North America and the seasonality of driving in that region has caused a large portion of our revenue to be generated in the spring and summer months of each year. This in turn impacts operational cash flows and could produce volatility in our earnings.
We operate primarily in North America and the seasonality of driving in that region has caused a large portion of our commission and fee revenue to be generated in the spring and summer months of each year. This in turn impacts operational cash flows and could produce volatility in our earnings.
Pursuant to the Investor Rights Agreement, each of HHC, Markel and State Farm has agreed to vote for the election of any director nominated by HHC, Markel and State Farm in furtherance of the director designation rights described above. As a consequence, at present, the re-election in 2024 of the directors designated by HHC, Markel and State Farm is assured.
Pursuant to the Investor Rights Agreement, each of HHC, Markel, and State Farm has agreed to vote for the election of any director nominated by HHC, Markel, and State Farm in furtherance of the director designation rights described above. As a consequence, at present, the re-election in 2025 of the directors designated by HHC, Markel and State Farm is assured.
As a result, we qualify as, and elect to be treated as, a "controlled company" under the NYSE listing standards and will not be subject to the requirements that would otherwise require us to have: (i) a majority of "independent directors," as defined under the listing standards of the NYSE; (ii) a nominating committee comprised solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee comprised solely of independent directors; and (iv) director nominees selected, or recommended for the board of directors’ selection, either by a majority of the independent directors or a nominating committee comprised solely of independent directors.
As a result, we qualify as, and elect to be treated as, a "controlled company" under the NYSE listing standards and will not be subject to the requirements that would otherwise require us to have: (i) a majority of "independent directors," as defined under the listing standards of the NYSE; (ii) a nominating committee comprised solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee comprised solely of independent directors; and (iv) director nominees selected, or recommended for the Boards' selection, either by a majority of the independent directors or a nominating committee comprised solely of independent directors.
If we become aware of such websites or mobile apps, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites or mobile apps in a timely manner and, even if we could, technological and legal measures may be insufficient to halt their operations.
If we become aware of such websites or mobile apps, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect all such websites or mobile apps in a timely manner and, even if detected, technological and legal measures may be insufficient to halt their operations.
If The Hagerty Group were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and The Hagerty Group might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
If THG were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, we and THG might be subject to potentially significant tax inefficiencies, and we would not be able to recover payments previously made by us under the TRA even if the corresponding tax benefits were subsequently determined to have been unavailable due to such status.
We or our vendors and business partners may experience attacks, unavailable systems, unauthorized access, or disclosure due to employee or other theft or misuse, denial-of-service attacks, sophisticated attacks by nation-state and nation-state supported actors, and advanced persistent threat intrusions.
We and/or our vendors and business partners may experience attacks, unavailable systems, unauthorized access, or disclosure due to theft or misuse, denial-of-service attacks, sophisticated attacks by nation-state and nation-state supported actors, and advanced persistent threat intrusions.
Some of our membership products are newer and have limited operating history, which makes it difficult to forecast operating results. We may not show profitability from these newer products as quickly as we anticipate or at all.
Some of our membership and marketplace products and services are newer and have limited operating history, which makes it difficult to forecast operating results. We may not show profitability from these newer products as quickly as we anticipate or at all.
The TRA generally provides for the payment by Hagerty, Inc. to Legacy Unit Holders of 85% of the cash tax benefits, if any, realized as a result of (i) tax basis adjustments resulting from TRA exchanges in connection with or following the Business Combination , (ii) certain other tax benefits related to entering into the TRA , including tax benefits attributable to making payments under the TRA .
The TRA generally provides for the payment by Hagerty, Inc. to Legacy Unit Holders of 85% of the cash tax benefits, if any, realized as a result of (i) tax basis adjustments resulting from TRA exchanges in connection with or following the business combination that formed Hagerty, Inc. in 2021 , (ii) certain other tax benefits related to entering into the TRA , including tax benefits attributable to making payments under the TRA .
The TRA also provides that, upon certain changes of control or other significant transactions, in the discretion of HHC and Markel , obligations under the TRA may be accelerated and become payable in a lump sum as described above.
The TRA also provides that, upon certain changes of control or other significant transactions, at the discretion of HHC and Markel , obligations under the TRA may be accelerated and become payable in a lump sum, calculated as described above.
These broad market and industry fluctuations may adversely affect the market price of our Class A Common Stock and Public Warrants , regardless of our actual operating performance. In the past, following periods of market volatility, stockholders have instituted securities class action litigation.
These broad market and industry fluctuations may adversely affect the market price of our Class A Common Stock regardless of our actual operating performance. In the past, following periods of market volatility, stockholders have instituted securities class action litigation.
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.
It is possible that our underwriting companies that we write business through may share in liability with these types of claims in 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.
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.
Such an event may cause Hagerty Re to require capital investments that may not be available. 25 TABLE 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.
If the loss ratio for the insurance programs that we administer is favorable to that of the industry, regulatory authorities could impose rate restrictions, require payment of premium refunds to policyholders, or could challenge or delay efforts to raise rates. Rate changes may be required for us to achieve our goals related to profitability and return on equity.
If the loss ratio for the insurance programs that we administer is favorable to that of the industry, regulatory authorities could impose rate restrictions, require payment of premium refunds to policyholders, or could challenge or delay efforts to raise rates. Rate changes may be required for us to achieve our profitability and return on equity objectives.
While we believe that we have adopted adequate and effective risk management and compliance programs, compliance risks remain, especially as we become subject to additional rules and regulations. The requirement to oversee and monitor the increasing speed and volume of regulatory changes could hinder our ability to appropriately review, analyze, and implement processes to ensure compliance in a timely manner.
While we believe that we have adopted adequate and effective risk management and compliance programs, compliance risks remain, especially as we become subject to additional rules and regulations. The increasing speed and volume of regulatory changes could hinder our ability to appropriately review, analyze, and implement processes to ensure compliance in a timely manner.
Investors may find the Class A Common Stock less attractive because we will rely on these exemptions, which may result in a less active trading market for the Class A Common Stock and its price may be more volatile.
Investors may find the Class A Common Stock less attractive because we will rely on these exemptions, which may result in a less active trading market for the Class A Common Stock and its price may become more volatile.
Fluctuations in our operating results could be due to a number of other factors, many of which may be outside of our control, including competition, frequency and severity of catastrophic events, levels of capacity, adverse litigation trends, regulatory constraints, general economic conditions, and agreement on underwriting appetite with our carrier partners, and other factors.
Fluctuations in our operating results could be due to a number of other factors, many of which may be outside of our control, including competition, but also the frequency and severity of catastrophic events, levels of capacity, adverse litigation trends, regulatory constraints, general economic conditions, and agreement on underwriting appetite with our carrier partners, and other factors.
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.
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. 33 TABLE OF CONTENTS Anti-takeover provisions in our organizational documents and applicable insurance laws could delay or prevent a change of control.
We operate as the MGA for the Essentia program in all 51 jurisdictions. We also operate a similar auto insurance program in Canada (underwritten by Elite Insurance Company) and in the U.K. (underwritten by Aviva ).
We operate as the MGA for the Essentia program in all 51 jurisdictions. We also operate a similar auto insurance program in Canada, underwritten by Elite Insurance Company, and in the U.K., where the program is underwritten by Aviva .
We believe that the growth of our business and revenue depends in part upon our ability to: (i) retain our existing Members and add new Members in our current, as well as new, geographic markets; (ii) add new insurance programs and products; and (iii) add to and continue to grow our offering of non-insurance automotive enthusiast-related products.
We believe that the continued growth of our business depends in part upon our ability to: (i) retain our existing Members; (ii) add new Members in our current markets, as well as new geographic markets; (iii) add new insurance programs and products; and (iv) continue to grow our offering of non-insurance automotive enthusiast-related products.
If consumers do not perceive our service offerings to be of value, including if we introduce new or adjust existing features, adjust pricing, coverage or service offerings, or change the mix of offerings in a manner that is not favorably received by consumers, we may not be able to attract and retain Members .
In addition, if existing Members and consumers do not perceive our offerings to be of value, including if we introduce new or adjust existing features, coverage or service offerings, or change the mix of offerings in a manner that is not favorably received, we may not be able to retain existing Members or attract new Members .
If we are unable to maintain or obtain our dealer licenses, auctioneer licenses, and/or other applicable permits and licenses as required in certain jurisdictions in which we operate, or plan to operate, such licensing issues may adversely impact the business results of operation, and financial condition of our Marketplace business.
If we are unable to maintain or obtain our dealer licenses, auctioneer licenses, and/or other applicable permits and licenses as required in certain jurisdictions in which we operate, or plan to operate, such licensing issues may adversely impact the business results of operation, and financial condition of our m arketplace business.
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).
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 that formed Hagerty, Inc. in 2021, 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).
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.
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.
Risks Related to Tax We are a holding company, and our only material asset is our interest in The Hagerty Group, and we will therefore be dependent upon distributions made by The Hagerty Group to pay taxes, make payments under the TRA and pay other expenses.
Risks Related to Tax We are a holding company, and our only material asset is our interest in THG, and we will therefore be dependent upon distributions made by THG to pay taxes, make payments under the TRA and pay other expenses.
The Hagerty Group intends to have in effect an election under Section 754 of the Internal Revenue Code ("IRC") for each taxable year in which TRA exchanges occur, which is expected to result in adjustments to the tax basis of the assets of The Hagerty Group as a result of such TRA exchanges.
THG intends to have in effect an election under Section 754 of the Internal Revenue Code ("IRC") for each taxable year in which TRA exchanges occur, which is expected to result in adjustments to the tax basis of the assets of THG as a result of such TRA exchanges.
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.
Our assessment of the vehicles we offer is based on scholarship and research, but necessarily requires a degree of judgment by our car specialists and researchers.
Our ability to pay taxes, make payments under the TRA and pay dividends (in the event that any dividends are declared) and other expenses will depend on the financial results and cash flows of The Hagerty Group and the distributions we receive from The Hagerty Group.
Our ability to pay taxes, make payments under the TRA and pay dividends (in the event that any dividends are declared) and other expenses will depend on the financial results and cash flows of THG and the distributions we receive from THG.
Our Amended and Restated Charter provides that, subject to limited exceptions, any (1) derivative action or proceeding brought on behalf of us under Delaware law, (2) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee to us or our stockholders, (3) action asserting a claim against us, our directors, officers or other employees arising under the Delaware General Corporation Law ("DGCL"), our Amended and Restated Charter or our Amended and Restated Bylaws (in each case, as may be amended from time to time), (4) action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine of the State of Delaware or (5) other action asserting an "internal corporate claim," as defined in Section 115 of the DGCL, in all cases subject to the court having personal jurisdiction over all indispensable parties named as defendants shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state or federal court located within the State of Delaware.
Our Amended and Restated Charter provides that, subject to limited exceptions, any (i) derivative action or proceeding brought on behalf of us under Delaware law, (ii) action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, or other employee to us or our stockholders, (ii) action asserting a claim against us, our directors, officers or other employees arising under the Delaware General Corporation Law ("DGCL"), our Amended and Restated Charter or our Amended and Restated Bylaws (in each case, as may be amended from time to time), (iv) action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine of the State of Delaware, or (v) other action asserting an "internal corporate claim," as defined in Section 115 of the DGCL, in all cases subject to the court having personal jurisdiction over all indispensable parties named as defendants shall, to the fullest extent permitted by law, be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, another state or federal court located within the State of Delaware.
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.
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, 2024, HHC controls approximately 67.5% of the voting power of our outstanding capital stock.
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.
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 an adverse impact on our business and reputation.
If our claims adjusters are unable to effectively process our volume of claims in the manner that our Members expect, our ability to grow our business while maintaining high levels of Member satisfaction could be compromised, which in turn, could adversely affect our reputation, financial condition and results of operations.
If our claims adjusters are unable to effectively process our volume of claims in accordance with our service metrics and the manner that our Members expect, our ability to grow our business while maintaining high levels of Member satisfaction could be compromised, which in turn, could adversely affect our reputation, financial condition and results of operations.
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 .
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 MGA relationships with Essentia and State Farm , in Canada through our exclusive MGA relationship with Aviva's Canadian subsidiary, Elite Insurance Company, and in the U.K., through our MGA relationship with Aviva .
This shift, along with a significant rise in the annual growth of car sharing members and autonomous and electric vehicles in the markets we currently conduct business, could have a trickle-down effect to the collector car space and create a drop in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
This shift, along with a significant rise in the annual growth of car sharing members and autonomous and electric vehicles, and legislative efforts to reduce carbon emissions, in the markets we currently conduct business, could have a trickle-down effect to the collector car space and create a drop in demand for our products and services, which could have a material adverse effect on our business, financial condition and results of operations.
Cyberattacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, viruses, social engineering (including phishing) and other malicious internet-based activity are prevalent in our industry and such attacks continue to increase. We also utilize third-party providers to host, transmit, or otherwise process electronic data in connection with our business activities.
Cyberattacks, denial-of-service attacks, ransomware attacks, business email compromises, computer malware, viruses, social engineering (including phishing) and other malicious internet-based activity are prevalent in our industry and such attacks continue to increase with frequency, levels of sophistication, and persistence. We utilize third-party providers to host, transmit, or otherwise process electronic data in connection with our business activities.
A decrease in Member demand for a new or improved product could cause us to fall short of our sales targets, and we might not be able to avoid the substantial costs associated with the product’s development or improvement.
Member demand could decrease after the development cycle has begun. A decrease in Member demand for a new or improved product could cause us to fall short of our sales targets, and we might not be able to avoid the substantial costs associated with the product's development or improvement.
Any of these eventualities could result in a material adverse effect on our business, financial condition and results of operations. 18 TABLE OF CONTENTS Our future success depends on the ability to continue to develop and implement technology to transform or replace legacy technology, and to maintain the security and confidentiality of this technology in compliance with evolving privacy laws.
Any of these eventualities could result in a material adverse effect on our business, financial condition and results of operations. 17 TABLE OF CONTENTS Our future success depends on our ability to continue to develop and implement technology to transform or replace legacy technology, and to maintain the security and confidentiality of our legacy technology, each in compliance with evolving privacy and cybersecurity laws.
As we continue expanding our development of intellectual property across all channels, we may be unable to adequately protect and/or obtain appropriate rights, leading to increased risk. Competitors may target certain products or services and seek to assert competing rights.
As we continue expanding our development of intellectual property across all channels, we may be unable to adequately protect and/or obtain appropriate rights, leading to increased risk. Additionally, our intellectual property rights may be subject to invalidation or circumvention. Competitors may target certain products or services and seek to assert competing rights.
For example, Hagerty Re's license limits it to reinsuring business that is underwritten by carriers rated A- or better by A.M. Best or similar rating agencies.
For example, Hagerty Re's license limits it to reinsuring business that is underwritten by our subsidiaries and carriers rated A- or better by A.M. Best or similar rating agencies.
In addition, failure to monitor and detect fraud and otherwise comply with state Special Investigation Unit requirements can result in regulatory fines or penalties. We rely on the expertise of our Chief Executive Officer, senior management team, and other key employees. If we are unable to attract, retain, or motivate key personnel, our business may be severely impacted.
In addition, failure to monitor and detect fraud and otherwise comply with state Special Investigation Unit requirements can result in regulatory fines or penalties. 14 TABLE OF CONTENTS We rely on the expertise of our Chief Executive Officer and other key employees. If we are unable to attract, retain, or motivate key personnel, our business may be severely impacted.
We are a holding company with no material assets other than our ownership of The Hagerty Group units and our managing member interest in The Hagerty Group. As a result, we will have no independent means of generating revenue or cash flow.
We are a holding company with no material assets other than our ownership of THG units and our managing member interest in THG. As a result, we will have no independent means of generating revenue or cash flow.
We have reserved 11,495,220 shares of Class A Common Stock for issuance under our 2021 Employee Stock Purchase Plan (as defined in Note 21 — Share-Based Compensation in Item 8 of Part II of this Annual Report). A s of December 31, 2023, we have issued 197,819 shares under this Plan. Under the Contribution and Exchange Agreement .
We have reserved 11,495,220 shares of Class A Common Stock for issuance under our 2021 Employee Stock Purchase Plan (as defined in Note 21 — Share-Based Compensation in Item 8 of Part II of this Annual Report). A s of December 31, 2024, we have issued 228,316 shares under this Plan. Under the Contribution and Exchange Agreement .
The nature of the product development and filing cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from the new products.
Moreover, a product filing may be disapproved. The nature of the product development and filing cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we generate revenues, if any, from new products.
We work with a limited number of carriers in the U.S., Canada, and the U.K. for our personal lines insurance products, and there is a risk that if one or more of the carriers becomes impaired or terminates its relationship with us that our profitability may be adversely affected.
Our MGA subsidiaries work with a limited number of carriers in the U.S., Canada, and the U.K. to offer our personal lines insurance products, and there is a risk that if one or more of the carriers becomes impaired or terminates its relationship with us that our profitability may be adversely affected.
We will file one or more registration statements on Form S-8 under the Securities Act to register shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock issued pursuant to our equity incentive plans. Any such Form S-8 registration statements will automatically become effective upon filing.
At such time, we may file additional registration statements on Form S-8 under the Securities Act to register shares of Common Stock or securities convertible into or exchangeable for shares of Common Stock issued pursuant to our equity incentive plans. Any such Form S-8 registration statements will automatically become effective upon filing.
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.
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.
Climate change may affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind and thunderstorm events, eruptions of volcanoes, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures.
Environmental changes, including shifts in temperatures and weather patterns, may affect the occurrence of certain natural events, such as an increase in the frequency or severity of wind and thunderstorm events, eruptions of volcanoes, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures.
If one or more of these analysts ceases coverage of us or fails to publish reports on it regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
If one or more of these analysts ceases coverage of us or fails to publish reports on it regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
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.
We are exposed to credit risk, or liquidity risk, through our banking partners. 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.
The manner in how we handle claims is a differentiating factor for our business, and an inability to be able to continue to offer a timely and comprehensive claims experience could undermine our brand and position in the insurance marketplace.
The manner in which we handle claims is a differentiating factor for our business, and an inability to be able to continue to offer a timely and comprehensive claims experience could undermine our brand and position in the collector car and enthusiast vehicle insurance marketplace.
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.
We have reserved 38,317,399 shares of Class A Common Stock for issuance under our 2021 Stock Incentive Plan (as defined in Note 21 — Share-Based Compensation in Item 8 of Part II of this Annual Report) . As of December 31, 2024, we have issued 2,181,856 shares under this Plan. Under the 2021 Employee Stock Purchase Plan.
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.
We are subject to regulation and supervision both federally and in each applicable 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.
Because collector auto insurance constitutes a significant portion of our overall business, we may be more sensitive than other providers of insurance to, and more adversely affected by, trends that could decrease auto insurance rates or reduce demand for auto insurance over time, such as industry advances in mileage-based or usage-based insurance offerings, changes in vehicle technology, autonomous or semi-autonomous vehicles, or vehicle sharing arrangements.
Because collector auto insurance constitutes a significant portion of our overall business, we may be more sensitive than other providers of insurance to, and more adversely affected by, trends that could decrease auto insurance rates or reduce demand or distribution channels for auto insurance over time, such as industry advances in mileage-based or usage-based insurance offerings, departures by some insurers from certain states that are prone to natural disasters, changes in vehicle technology, autonomous or semi-autonomous vehicles, or vehicle sharing arrangements.
Additionally, the loss of a member of our senior management team, specialized insurance experts or key personnel might significantly delay or prevent the achievement of our strategic business objectives and could harm our business. We rely on a small number of highly specialized insurance experts, the loss of any one of whom could have a disproportionate impact on our business.
Additionally, the loss of key personnel within our senior management and Broad Arrow teams might significantly delay or prevent the achievement of our strategic business objectives and could harm our business. We rely on a small number of specialized experts, the loss of any one of whom could have a disproportionate impact on our business.
In the U.S., our insurance agencies operate as an MGA for Essentia and also operate in this capacity for State Farm Classic Insurance Company in order to service the State Farm Classic+ program . Essentia is currently domiciled in Missouri and has a classic auto insurance program in all 50 United States, plus the District of Columbia.
In the U.S., our insurance agencies operate as an MGA for both Essentia and also State Farm Classic Insurance Company for servicing the State Farm Classic+ program . Essentia is domiciled in Missouri and has a classic auto insurance program in all 50 United States, plus the District of Columbia.
Deterioration in the financial condition, earnings or cash flow of The Hagerty Group for any reason could limit or impair The Hagerty Group’s ability to pay such distributions.
Deterioration in the financial condition, earnings or cash flow of THG for any reason could limit or impair THG’s ability to pay such distributions.
We reserved 4,724,560 shares of Class A Common Stock for exchange under our Contribution and Exchange Agreement (as defined within the Sixth Amended and Restated Limited Liability Company Agreement of The Hagerty Group, incorporated by reference within Item 6. Exhibits , in this Annual Report ).
We reserved 4,724,560 shares of Class A Common Stock for exchange under our Contribution and Exchange Agreement (as defined within the Sixth Amended and Restated Limited Liability Company Agreement of THG (the "LLC Agreement"), incorporated by reference within Item 15. Exhibits, Financial Statement Schedules, in this Annual Report ).
The trading price of our common stock and warrants is likely to be volatile. The stock market recently has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of particular companies.
The trading price of our common stock is likely to be volatile. The stock market has experienced volatility, often unrelated or disproportionate to the operating performance of particular companies.
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.
We may incur Member insurance claims from severe weather events, and 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 models at various levels of probability.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Through our Information Security department, the CIO 42 TABLE OF CONTENTS and CISO work to ensure that key stakeholders are informed about the prevention, detection, mitigation, and remediation of cybersecurity risks and incidents. We have established and maintain incident response and recovery plans that address the detection, reporting, analysis, response, recovery, communication, documentation, and post-incident review of cybersecurity incidents.
Through our Information Security department, the CIO and CISO work to ensure that key stakeholders are informed about the prevention, detection, mitigation, and remediation of cybersecurity risks and incidents. We have established and maintain incident response and recovery plans that address the detection, reporting, analysis, response, recovery, communication, documentation, and post-incident review of cybersecurity incidents.
Our CISO also has several industry recognized designations. As part of our cybersecurity risk management program, our information security department identifies, assesses, and manages cybersecurity risks, whether material or non-material.
Our CISO also has several industry recognized designations. 37 TABLE OF CONTENTS As part of our cybersecurity risk management program, our information security department identifies, assesses, and manages cybersecurity risks, whether material or non-material.
Governance The Board, through the Audit Committee, oversees our risk assessment and risk management activities, including our cybersecurity program. The Audit Committee receives periodic reports from our CIO and is notified any time our incident security program has determined that a cybersecurity incident is material or requires reporting to a regulatory body.
Governance Our Board, through the Audit Committee, oversees our risk assessment and risk management activities, including our cybersecurity program. Our Audit Committee receives periodic reports from our CIO and is notified any time management determines that a cybersecurity incident may be material or may need to be reported to a regulatory body.
Further, the Chair of the Audit Committee is regularly informed of both material and non-material cybersecurity risks and incidents. Our cybersecurity program is led by an experienced CIO and an experienced Chief Information Security Officer ("CISO").
Further, the Chair of our Audit Committee is regularly informed of cybersecurity risks and incidents that may be material, as well as those that are not. Our cybersecurity program is led by an experienced CIO and an experienced Chief Information Security Officer ("CISO").

Item 2. Properties

Properties — owned and leased real estate

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We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations. In 2022, Hagerty approved an initiative to increase operational efficiencies and flexibility by transitioning to a "remote first" work model for employees.
We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate our operations.
ITEM 2. PROPERTIES Our corporate headquarters are located in Traverse City, Michigan, and consist of approximately 109,500 square feet of office space at the main campus location under a lease agreement that expires in March 2036. In the U.S., we lease additional office space in Ohio, Colorado, Connecticut, and Michigan. Internationally, we lease offices in Canada, the U.K. and Germany.
ITEM 2. PROPERTIES Our material properties include our corporate headquarters located in Traverse City, Michigan, which consists of approximately 109,500 square feet of office space under a lease agreement that expires in March 2036.
Removed
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.
Removed
In Canada, we have one location in Ontario.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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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
Refer to Note 25 — 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

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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.
Hagerty, Inc. is a holding company and does not have material assets other than its ownership of THG units, and as a consequence, our ability to declare and pay dividends to holders of our Class A Common Stock is subject to the ability of THG to provide distributions to us.
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.
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.
Our Board will take into account: • general economic and business conditions; • our results of operations and financial condition; • our available cash and current and anticipated cash needs; • our capital requirements; • contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including The Hagerty Group) to us; and • such other factors as our Board may deem relevant.
Our Board will take into account: • general economic and business conditions; • our results of operations and financial condition; • our available cash and current and anticipated cash needs; 38 TABLE OF CONTENTS • our capital requirements; • contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries (including THG) to us; and • such other factors as our Board may deem relevant.
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.
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 would be less than the amounts distributed by THG to its unit holders on a per share basis.
Subject to funds being legally available, we intend to cause The Hagerty Group to make pro rata distributions to the other unit holders and us in an amount at least sufficient to allow us and the other unit holders to pay all applicable taxes, to make payments under the TRA we entered into with The Hagerty Group unit holders and to pay our corporate and other overhead expenses.
Subject to funds being legally available, we intend to cause THG to make pro rata distributions to us and its other unit holders in an amount at least sufficient to allow us and the other unit holders to pay all applicable taxes, to make payments under the TRA and to pay our corporate and other overhead expenses.
If The Hagerty Group makes such distributions, The Hagerty Group unit holders will be entitled to receive pro-rata distributions from The Hagerty Group.
If THG makes such distributions, THG unit holders will be entitled to receive pro-rata distributions from THG.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A Common Stock and Public Warrants are traded on the NYSE under the symbols "HGTY" and "HGTY.WS", respectively.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Class A Common Stock is traded on the NYSE under the symbol "HGTY".
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.
In addition, because our Board may determine to pay or not pay dividends, holders of our Class A Common Stock may not necessarily receive dividend distributions related to any excess distributions, even if THG makes such distributions to us.
Any declaration and payment of dividends will be at the sole discretion of our Board, which may change our dividend policy at any time.
Dividend Policy We do not currently intend to pay cash dividends on our Class A Common Stock. Any declaration and payment of dividends will be at the sole discretion of our Board, which may change our dividend policy at any time.
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.
Horace Mann Educators Corporation 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 the Company's old and new peer groups were 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. 39 TABLE OF CONTENTS December 3, 2021 December 31, 2021 2022 2023 2024 Hagerty, Inc. $ 100.00 $ 133.02 $ 78.89 $ 73.17 $ 90.53 Russell 2000 $ 100.00 $ 101.88 $ 81.06 $ 94.78 $ 105.72 Customized Peer Group - 2024 $ 100.00 $ 103.50 $ 108.03 $ 132.01 $ 178.49 Customized Peer Group - 2023 $ 100.00 $ 103.47 $ 107.57 $ 131.15 $ 176.84 ITEM 6. [ Reserved ] Not applicable.
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.
Stockholders of Record As of February 20, 2025, there were 18 holders of record of our Class A Common Stock and two holders of record of our Class V Common Stock. The number of record holders does not include persons who held shares of our common stock in nominee or "street name" accounts through brokers.
Removed
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.
Added
During the year ended December 31, 2024, THG made tax distributions of $6.7 million to non-controlling interest unit holders and $1.1 million of tax distributions to Hagerty, Inc. There were no such tax distributions during the year ended December 31, 2023.
Removed
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.
Added
During 2024, we made a change to our peer group to remove American Coastal Insurance Corporation as a result of its insolvency and replaced it with Skyward Specialty Insurance Group, Inc., which more closely aligns with our business and financial profile. Our 2023 customized peer group consisted of the following companies: Safety Insurance Group, Inc. Universal Insurance Holdings, Inc.
Removed
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.
Added
Horace Mann Educators Corporation After the change in our peer groups, our 2024 customized peer group consisted of the following companies: 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.
Removed
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.
Added
Skyward Specialty Insurance Group, Inc. RLI Corp. Donegal Group Inc.

Item 7. Management's Discussion & Analysis

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

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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.
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 and loss adjustment expenses incurred by Hagerty Re and the amount of paid losses as of the reporting date.
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.
Class A Common Stock at the time of the redemption, exchange or purchase, the extent to which redemptions or exchanges are taxable, the amount and timing of the taxable income that Hagerty, Inc. generates in the future, the tax rates then applicable, and the portion of the payments under the TRA constituting imputed interest.
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.
This analysis requires significant judgment, including the estimation of future cash flows, which is dependent on internal forecasts, available industry and 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.
Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future taxable income, the time period over which our temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies.
Such evidence includes historical operating results, the existence of cumulative earnings and losses in the most recent fiscal years, taxable income in prior carryback year(s) if permitted under the tax law, expectations for future taxable income, the time period over which temporary differences will reverse, and the implementation of feasible and prudent tax planning strategies.
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.
By providing this non-GAAP financial measure, together with a reconciliation to Net income, 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.
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.
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 marketplace business, and is reported annually using an average of the two surveys.
However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for net income (loss) or other financial statement data presented in our Consolidated Financial Statements as indicators of financial performance.
However, Adjusted EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as an alternative to, or a substitute for Net income or other financial statement data presented in our Consolidated Financial Statements as indicators of financial performance.
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 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.
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.
Management uses Adjusted EPS: • as a measurement of operating performance of our business on a fully consolidated and fully diluted 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.
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.
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 finite lived 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.
Components of Our Results of Operations Revenue Commission and fee revenue We generate commission and fee revenue through our MGA subsidiaries primarily from the underwriting, sale, and servicing of classic car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies.
Components of Our Results of Operations Revenue Commission and fee revenue We generate commission and fee revenue through our MGA subsidiaries, primarily from the underwriting, sale, and servicing of collector car and enthusiast vehicle insurance policies on behalf of our insurance carrier partners. Commissions are earned for both new and renewed policies.
(calculated with certain assumptions) to the amount of such taxes that Hagerty, Inc. would have been required to pay had there been no increase to the tax basis of the assets of The Hagerty Group as a result of the redemptions or exchanges and had Hagerty, Inc. not entered into the TRA.
(calculated with certain assumptions) to the amount of such taxes that Hagerty, Inc. would have been required to pay had there been no increase to the tax basis of the assets of THG as a result of the redemptions or exchanges and had Hagerty, Inc. not entered into the TRA.
Additionally, in 2023, we recognized $3.1 million of charges associated with operating lease ROU asset impairments and related leasehold disposals in connection with the Company's ongoing transition to a "remote-first" work model.
Additionally, in 2023, we recognized $3.1 million of charges associated with operating lease right-of-use ("ROU") asset impairments and related leasehold disposals in connection with the Company's ongoing transition to a "remote-first" work model.
Any adjustments to the provision for losses and loss adjustment expenses are recognized in our Consolidated Statements of Operations in the period in which management determines that an adjustment is required. If the actual level of loss frequency and/or severity is higher or lower than our expectations, the ultimate cost of claims paid will differ from management's estimates.
Any adjustments to the provision for losses and loss adjustment expenses are recognized in our Consolidated Statements of Operations in the period in which management determines that an adjustment is required. 55 TABLE OF CONTENTS If the actual level of loss frequency and/or severity is higher or lower than our expectations, the ultimate cost of claims paid will differ from management's estimates.
This payment obligation as a part of the TRA is an obligation of Hagerty, Inc. and not of The Hagerty Group. For purposes of the TRA, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Hagerty, Inc.
This payment obligation as a part of the TRA is an obligation of Hagerty, Inc. and not of THG. For purposes of the TRA, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Hagerty, Inc.
We also believe that Adjusted EPS, which compares our consolidated Net income (loss) with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated basis.
We also believe that Adjusted EPS, which compares our consolidated Net income with our outstanding and potentially dilutive shares, provides useful information to investors regarding our performance on a fully consolidated and fully diluted basis.
In addition, Hagerty Re entered into the State Farm Term Loan resulting in net cash inflows of $24.4 million, after deducting issuance costs, and Broad Arrow Capital LLC, as initial servicer, and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into the BAC Credit Agreement, resulting in net cash inflows of $22.9 million, after deducting issuance costs.
In addition, in 2023 Hagerty Re entered into the State Farm Term Loan resulting in net cash inflows of $24.4 million, after deducting issuance costs, and BAC, as initial servicer, and its wholly owned subsidiary BAC Funding 2023-1, LLC, as borrower, entered into the BAC Credit Agreement, resulting in net cash inflows of $22.9 million, after deducting issuance costs.
Effect if Actual Results Differ From Estimates and Assumptions Changes in the liability resulting from historical exchanges under the TRA may occur based on changes in anticipated future taxable income, changes in applicable tax rates, or other changes in tax attributes that may occur and impact the expected future tax benefits to be received by the Company.
Effect if Actual Results Differ From Estimates and Assumptions Changes in the liability resulting from historical exchanges under the TRA may occur based on changes in anticipated future taxable income, changes in applicable tax rates, and other changes in tax attributes that may occur and impact the expected future tax benefits to be received.
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.
Under the JPM Credit Agreement , we are required, among other things, to meet certain financial covenants (as defined in the JPM Credit Agreement ), including a fixed charge coverage ratio and a leverage ratio. We were in compliance with these financial covenants as of December 31, 2024.
The Hagerty Group made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of The Hagerty Group units.
THG made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of THG units.
Salaries and benefits are expected to increase over time as the business continues to grow but will likely decrease as a percent of revenue. Ceding commission, net Ceding commission, net represents the commissions paid by Hagerty Re to insurance carrier partners for the risk assumed under the quota share agreements with those carriers.
Salaries and benefits are expected to increase in dollar amount over time as the business continues to grow but will likely decrease as a percent of revenue. Ceding commissions, net Ceding commissions, net represents the commissions paid by Hagerty Re to insurance carrier partners for the risk assumed under the quota share agreements with those carriers.
As a result, an additional valuation allowance could be required, which would have an adverse impact on the Company’s effective income tax rate and results. Conversely, if management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded, the Company may reverse all or a portion of the valuation allowance in that jurisdiction.
As a result, an additional valuation allowance could be required, which would have an adverse impact on our effective income tax rate and results. Conversely, if management determines that sufficient positive evidence exists in the jurisdiction in which a valuation allowance is recorded, we may reverse all or a portion of the valuation allowance in that jurisdiction.
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.
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 THG's assets, the timing of any future redemptions, exchanges or purchases of THG units held by Legacy Unit Holders, the price of Hagerty, Inc.
Sources and Uses of Liquidity Our sources of liquidity include our: (i) balances of cash and cash equivalents; (ii) net working capital; (iii) cash flows from operations; (iv) borrowings from the JPM Credit Facility (as defined below) to fund the general corporate needs of The Hagerty Group and its subsidiaries; and (v) borrowings from the BAC Credit Facility to fund a substantial portion of the lending activities of BAC.
Sources and Uses of Liquidity Our sources of liquidity include our: (i) balances of cash and cash equivalents; (ii) net working capital; (iii) cash flows from operations; (iv) borrowings from the JPM Credit Facility (as defined below) to fund the general corporate needs of THG and its subsidiaries; and (v) borrowings from the BAC Credit Facility (as defined below) to fund a portion of the lending activities of BAC.
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.
In addition, we offer HDC memberships, which are primarily bundled with our insurance policies and give subscribers access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts.
Actual taxable income may differ from estimates, which could significantly impact the liability under the TRA and the Company's Consolidated Statements of Operations. 62 TABLE OF CONTENTS Goodwill and Intangible Assets Description Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination.
Actual taxable income may differ from estimates, which could significantly impact the liability under the TRA and our Consolidated Statements of Operations. 57 TABLE OF CONTENTS Goodwill and Intangible Assets Description Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in a business combination.
These commissions represent Hagerty Re's pro-rata share of the carrier's costs including (i) policy acquisition costs, which primarily consists of the commissions earned by our MGA subsidiaries, (ii) general and administrative costs, and (iii) other costs. Ceding commissions paid is recorded net of commissions received by Hagerty Re related to ceded reinsurance premiums.
These commissions represent Hagerty Re's pro-rata share of the carrier's costs including (i) policy acquisition costs, which consists of the commissions earned by our MGA subsidiaries, (ii) general and administrative costs, and (iii) other costs. Ceding commissions are recorded net of commissions received by Hagerty Re related to ceded reinsurance premiums.
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.
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. and global economies; (iii) an increase in competition; (iv) an increase in interest rates; or (v) other unanticipated events and circumstances that may decrease or delay the projected cash flows or increase the discount rates and could potentially result in an impairment charge.
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.
The TRA requires us to pay Legacy Unit Holders 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 THG 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 THG 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.
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.
PIF is an important metric to assess our financial performance because policy growth drives revenue growth, increases brand awareness and market penetration, generates additional insight to improve the performance of our platform, and provides key data to assist us in strategic decision making.
These indicators could include a decline in the Company’s stock price and market capitalization, a significant change in the outlook for the reporting unit's business, lower than expected operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit.
These indicators could include a decline in our stock price and market capitalization, a significant change in the outlook for a reporting unit, lower than expected reporting unit operating results, increased competition, legal factors, or the sale or disposition of a significant portion of a reporting unit.
We expect this expense category to increase in dollar amount over time but will likely decrease as a percentage of revenue over the next few years after we reach scale to handle incoming business from new partnerships. Depreciation and amortization Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives.
We expect this expense category to modestly increase in dollar amount over time as the business continues to grow but will likely decrease as a percentage of revenue over the next few years after we reach scale to handle incoming business from new partnerships. 44 TABLE OF CONTENTS Depreciation and amortization Depreciation and amortization reflects the recognition of the cost of our investments in various assets over their useful lives.
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.
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 that formed Hagerty, Inc. in 2021, redeem or exchange their Class V Common Stock and THG units for shares of Class A Common Stock of Hagerty, Inc. on a one-for-one basis.
The revolving borrowing period and the maturity date of the BAC Credit Agreement may be extended by one year if requested by Broad Arrow Capital LLC and agreed to by the administrative agent. Broad Arrow Capital LLC is not a borrower or guarantor of the BAC Credit Facility.
The revolving borrowing period and the maturity date of the BAC Credit Agreement may be extended by one year if requested by BAC and agreed to by the administrative agent. BAC is not a borrower or guarantor of the BAC Credit Facility.
As of December 31, 2023, based on an assessment of all available positive and negative evidence, management believes it is more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of The Hagerty Group, will not be realized.
As of December 31, 2024, based on an assessment of all available positive and negative evidence, management believes it is more likely than not that certain deferred tax assets, including the deferred tax asset for the investment in the assets of THG, will not be realized.
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.
Losses consist of claims paid, case reserves, and incurred but not reported costs, which are recorded net of estimated recoveries from reinsurance, salvage and subrogation. Loss adjustment expenses consist of the cost associated with processing and settling claims.
Management uses Adjusted EBITDA as a measure of the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.
We use Adjusted EBITDA as a measure of the operating performance of our business on a consistent basis, as it removes the impact of items not directly resulting from our core operations.
JPM Credit Facility borrowings are collateralized by the assets of and equity interests in The Hagerty Group and its consolidated subsidiaries, except for (a) the assets held by the special purpose entities related to the BAC Credit Facility and (b) all or a portion of certain foreign and certain excluded or immaterial subsidiaries.
JPM Credit Facility borrowings are collateralized by the assets of and equity interests in THG and its consolidated subsidiaries, except for (i) the assets held by the special purpose entities related to the BAC Credit Facility and (ii) all or a portion of certain foreign and certain excluded or immaterial subsidiaries.
Under the BAC Credit Agreement, Broad Arrow Capital LLC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants, including the requirement of Broad Arrow Capital LLC, as the servicer, to maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio.
BAC and BAC Funding 2023-1, LLC are required, among other things, to meet certain financial covenants under the BAC Credit Agreement, including that BAC, as the servicer, maintain a minimum tangible net worth, minimum liquidity balances, and an indebtedness to tangible net worth ratio.
The redemptions and exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of The Hagerty Group. These increases in tax basis may reduce the amount of tax that Hagerty, Inc. would otherwise be required to pay in the future.
The redemptions and exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of THG. These increases in tax basis may reduce the amount of tax that we would otherwise be required to pay in the future.
(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.
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.
(4) Refer to "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount. 47 TABLE OF CONTENTS (5) Policies in Force ("PIF") represents the number of current and active insurance policies as of the applicable period end date.
(5) Refer to "Non-GAAP Financial Measures" below for a description of this non-GAAP financial measure and a reconciliation to the most comparable GAAP amount. (6) Policies in Force ("PIF") represents the number of current and active insurance policies as of the end of the period.
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.
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. 43 TABLE OF CONTENTS Our marketplace business earns fee-based revenue primarily from the sale of collector cars and enthusiast vehicles through live auctions, time-based digital auctions, and brokered private sales.
The BAC Credit Agreement provides for the BAC Credit Facility, which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined by a calculation that is primarily based upon a percentage of the carrying value of certain BAC notes receivable.
The BAC Credit Agreement provides for a revolving credit facility (the "BAC Credit Facility"), which has an aggregate borrowing capacity of $75.0 million and is subject to a borrowing base that is determined based on the carrying value of certain BAC notes receivable.
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.
Claims involving property damage are generally settled faster than bodily injury claims. 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.
As of December 31, 2023, the Company was in compliance with the financial covenants under the BAC Credit Agreement. Refer to Note 17 — Long-Term Debt in Item 8 of Part II of this Annual Report for additional information related to the BAC Credit Agreement.
As of December 31, 2024, we were in compliance with the financial covenants under the BAC Credit Agreement. Refer to Note 17 — Long-Term Debt in Item 8 of Part II of this Annual Report for additional information related to the JPM Credit Agreement and BAC Credit Agreement.
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 following tables present premiums assumed by Hagerty Re and the related quota share percentages for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 U.S. Canada U.K.
Business Review In 2023, we conducted a review of certain components of our operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social and DriveShare, as discussed below. This initiative supported our strategy to prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential.
Business Review In 2023, we began a review of certain components of our operations which resulted in the sale or reorganization of certain businesses, including Hagerty Garage + Social, DriveShare, and Motorsport Reg ("MSR"). This initiative supports our strategy to prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential.
Losses and impairments related to divestitures During the year ended December 31, 2023, the Company recognized $4.0 million of losses and impairments related to Hagerty Garage + Social and DriveShare, as discussed above under "Business Review". Refer to Note 10 — Losses and Impairments Related to Divestitures in Item 8 of Part II of this Annual Report for additional information.
During the year ended December 31, 2023, we recognized $4.0 million of losses and impairments related to Hagerty Garage + Social and DriveShare. Refer to Note 11 — Divestitures in Item 8 of Part II of this Annual Report for additional information.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax basis and operating loss and tax-credit carryforwards.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to (i) differences between the financial statement carrying values and tax bases of assets and liabilities and (ii) operating loss and tax-credit carryforwards.
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.
In general, under the fair value accounting model, in periods when our stock price increased, the warrant liability increased, and we recognized additional expense. In periods when our stock price decreased, the warrant liability decreased, and we recognized additional income.
Ceding commission, net is recognized ratably over the term of the related reinsured policies, which is generally 12 months. Losses and loss adjustment expenses Losses and loss adjustment expenses represents our best estimate of the losses related to the risk assumed by Hagerty Re.
Ceding commissions, net is recognized ratably over the term of the related reinsurance policies, which is generally 12 months. Losses and loss adjustment expenses Losses and loss adjustment expenses represent our best estimate of the losses and associated settlement costs related to the risk assumed by Hagerty Re.
Hagerty Re is registered as a Class 3A reinsurer under the Bermuda Insurance Act of 1978. Earned premium represents the earned portion of written premiums that Hagerty Re has assumed under quota share reinsurance agreements with our insurance carrier partners, net of premiums ceded to various reinsurers and the cost of catastrophe reinsurance coverage.
Earned premium Earned premium represents the earned portion of written premiums that Hagerty Re has assumed under quota share reinsurance agreements with our insurance carrier partners, net of premiums ceded to various reinsurers and the cost of catastrophe reinsurance coverage.
Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced). 51 TABLE OF CONTENTS Earned premium Earned premium at Hagerty Re was $531.9 million for the year ended December 31, 2023, an increase of $128.8 million, or 32.0%, compared to 2022.
Commission rates vary based on geography, but do not differ by distribution channel (i.e., whether they are direct-sourced or agent-sourced). 46 TABLE OF CONTENTS Earned premium Earned premium at Hagerty Re was $643.3 million for the year ended December 31, 2024, an increase of $111.5 million, or 21.0%, compared to 2023.
Lastly, to complement our insurance and membership offerings, we also offer 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.
We also offer a marketplace to complement our insurance and membership offerings where automotive enthusiasts can buy, sell, and finance collector cars and enthusiast vehicles. Through these offerings, our vision is to be the world's most trusted and preferred brand for automotive enthusiasts to protect, buy, sell, and enjoy their special cars.
The Hagerty Group made an election under Section 754 of the IRC with the filing of its 2019 income tax return, which cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of The Hagerty Group units.
In connection with the filing of its 2019 income tax return THG made an election under Section 754 of the IRC for each taxable year in which TRA exchanges occur. This election cannot be revoked without the permission of the IRS Commissioner and will be in place for any future exchange of THG units.
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.
HDC Paid Member Count is an important metric 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. (10) NPS is an important measure of the overall strength of our relationship with Members.
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.
Refer to Note 20 — Warrant Exchange in Item 8 of Part II of this Annual Report for additional information with respect to our warrants.
The TRA provides for payment to the Legacy Unit Holders of 85% of the U.S. federal, state and local income tax savings realized by Hagerty, Inc. as a result of the increases in tax basis and certain other tax benefits as outlined in the Business Combination Agreement (provided as Exhibit 2.1, incorporated by reference within Item 6.
The TRA provides for payment to the Legacy Unit Holders of 85% of the U.S. federal, state and local income tax savings realized by Hagerty, Inc. as a result of the increases in tax basis and certain other tax benefits as outlined in the Business Combination Agreement upon the exchange of THG units and shares of Hagerty, Inc.
Our primary liquidity needs and capital requirements include cash required for: (i) the funding of business operations, including strategic investments; (ii) the servicing and repayment of borrowings under the JPM Credit Facility, the BAC Credit Facility, and the State Farm Term Loan; (iii) the payment of income taxes; and (iv) the funding of potential payments under the TRA.
Our primary liquidity needs and capital requirements include cash required for: (i) funding the business operations of THG and its subsidiaries; (ii) funding strategic investments and acquisitions; (iii) servicing and repayment of borrowings under the JPM Credit Facility, the BAC Credit Facility, and the unsecured term loan credit facility with State Farm (the "State Farm Term Loan"); (iv) funding potential cash dividend payments on the Series A Convertible Preferred Stock; (v) payment of income taxes; and (vi) funding payments under the TRA.
As of December 31, 2023, the Company has recorded goodwill of $114.2 million, including $103.6 million attributable to the Marketplace reporting unit, and intangible assets of $91.9 million, consisting principally of internally developed software, renewal rights, and trade names and trademarks.
As of December 31, 2024, the Company has recorded goodwill of $114.1 million, including $103.6 million attributable to the Marketplace reporting unit, and intangible assets of $90.1 million, consisting principally of internally developed software, renewal rights, trade names, and trademarks, as well as indefinite lived state insurance licenses.
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.
Tax Receivable Agreement We expect to have adequate capital resources to meet the requirements and obligations under the TRA entered into with the Legacy Unit Holders.
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.
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.
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.
Adjusted EPS We define Adjusted Earnings Per Share ("Adjusted EPS") as consolidated Net income, excluding net gains and losses related to our warrant liabilities, 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 THG; (iii) all issued and outstanding shares of our Series A Convertible Preferred Stock on an as-converted basis; (iv) all unissued share-based compensation awards; and (v) all unexercised warrants outstanding prior to the Warrant Exchange.
Total in thousands (except percentages) Subject premium $ 754,746 $ 54,536 $ 9,129 $ 818,411 Quota share percentage 81.0 % 35.0 % 80.0 % 77.8 % Assumed premium in Hagerty Re 609,975 19,088 7,303 636,366 Reinsurance premiums ceded (33,070) Net assumed premium 603,296 Change in unearned premiums (81,813) Change in deferred reinsurance premiums 10,383 Earned premium $ 531,866 Year Ended December 31, 2022 U.S.
Total in thousands (except percentages) Subject premium $ 754,746 $ 54,536 $ 9,129 $ 818,411 Quota share percentage 81.0 % 35.0 % 80.0 % 77.8 % Assumed premium in Hagerty Re 609,975 19,088 7,303 636,366 Reinsurance premiums ceded (33,070) Net assumed premium 603,296 Change in unearned premiums (81,813) Change in deferred reinsurance premiums 10,383 Earned premium $ 531,866 Membership, marketplace and other revenue Membership, marketplace and other revenue was $133.5 million for the year ended December 31, 2024, an increase of $30.6 million, or 29.8%, compared to 2023.
A discussion of the Company’s results of operations comparing results for the years ended December 31, 2022 and 2021 is included under the section entitled “Results of Operations” in Item 7 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2022, and is incorporated by reference into this Annual Report for the year ended December 31, 2023. 45 TABLE OF CONTENTS Overview We are a market leader in providing insurance for classic cars and enthusiast vehicles.
A discussion of the Company's results of operations comparing results for the years ended December 31, 2023 and 2022 is included under the section entitled "Results of Operations" in Item 7 of Part II of the Annual Report on Form 10-K for the year ended December 31, 2023, and is incorporated by reference into this Annual Report.
The cost of catastrophe reinsurance coverage is recognized over the contract period in proportion to the related earned premium. 48 TABLE OF CONTENTS Membership, marketplace and other revenue We earn subscription revenue through 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.
Membership, marketplace and other revenue We earn subscription revenue through HDC memberships, which are primarily bundled with our insurance policies and give subscribers access to an array of products and services, including emergency roadside assistance, Hagerty Drivers Club Magazine, automotive enthusiast events, our proprietary vehicle valuation tool, and special vehicle-related discounts.
Premiums assumed and ceded are recognized on a pro-rata basis over the term of the related reinsured policies, which is generally 12 months.
Premiums assumed and ceded are recognized on a pro-rata basis over the term of the reinsured policies, which is generally 12 months. The cost of catastrophe reinsurance coverage is recognized over the contract period in proportion to the related earned premium.
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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related Notes included in Item 8 of Part II of this Annual Report.
Other Items Change in fair value of warrant liabilities Our warrants are accounted for as liabilities and measured at fair value each reporting period, with changes in fair value recognized as non-operating income (expense) in our Consolidated Statements of Operations.
No warrants remained outstanding following the completion of the Warrant Exchange. Prior to the Warrant Exchange, our warrants were accounted for as liabilities and were measured at fair value each reporting period, with changes in fair value recognized as non-operating income (expense) in our Consolidated Statements of Operations.
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.
The $11.5 million gain during the year ended December 31, 2023 was a result of the change in fair value of our warrant liabilities.
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.
Claims are analyzed and reported based on the year in which the loss occurred - i.e., on an accident year basis. 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.
Effect if Actual Results Differ From Estimates and Assumptions If management's projections of future taxable income and other positive evidence considered in evaluating the need for the valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of the net deferred tax asset.
The exact timing and amount of the valuation allowance reversal, and any corresponding increase to the TRA Liability, are subject to change on the basis of the level of profitability that is actually achieved. 56 TABLE OF CONTENTS Effect if Actual Results Differ From Estimates and Assumptions If management's projections of future taxable income and other positive evidence considered in evaluating the need for the valuation allowance prove, with the benefit of hindsight, to be inaccurate, it could prove more difficult to support the realization of the net deferred tax asset.
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.
Promotion expense includes various costs related to branding, events, advertising, marketing, and customer acquisition. Sales expenses, in general, are expensed as incurred and will trend with revenue growth. General and administrative expenses General and administrative expenses primarily consists of expenses related to non-capitalized hardware and software, professional services, and occupancy costs. These costs are expensed as incurred.
The following table summarizes the components of Ceding commission, net for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 in thousands (except percentages) Ceding commission: Ceding commission – reinsurance assumed $ 256,000 $ 191,150 Ceding commission – reinsurance ceded (4,195) — Ceding commission, net $ 251,805 $ 191,150 Percentage of earned premium 47.3 % 47.4 % Losses and loss adjustment expenses Losses and loss adjustment expenses at Hagerty Re were $220.7 million for the year ended December 31, 2023, an increase of $38.3 million, or 21.0%, compared to 2022.
The following table summarizes the components of Ceding commissions, net for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 in thousands (except percentages) Ceding commission: Ceding commission – reinsurance assumed $ 317,648 $ 256,000 Ceding commission – reinsurance ceded (15,929) (4,195) Ceding commissions, net $ 301,719 $ 251,805 Percentage of earned premium 46.9 % 47.3 % Losses and loss adjustment expenses Losses and loss adjustment expenses were $298.6 million for the year ended December 31, 2024, an increase of $77.9 million, or 35.3%, compared to 2023.
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.
When estimating reserves, our actuarial reserving group utilizes several actuarial reserving methods which consider historical claim reporting patterns, claim cycle time, claim frequency and severity, claims settlement practices, adequacy of case reserves over time, the seasonality of our business, and current economic conditions.
Changes in the projected liability under the TRA are and will be recorded as a component of "Interest and other income (expense)" each period.
Subsequent changes in the projected liability under the TRA, as well as any interest accrued on the TRA between our annual tax filing date and the TRA payment date, are and will be recorded as a component of "Interest and other income (expense), net" each period.
Based on our current expectations, we believe that these sources of liquidity will be sufficient to provide an adequate level of capital to support our anticipated short and long-term commitments, operating needs, and capital requirements. 55 TABLE OF CONTENTS Financing Arrangements JPM Credit Facility The Hagerty Group has a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent, and the other financial institutions party thereto from time to time as lenders, as amended (the " JPM Credit Agreement ").
As of December 31, 2024, we believe that our sources of liquidity will be sufficient to provide an adequate level of capital to support our anticipated short and long-term commitments, operating needs, and capital requirements. 50 TABLE OF CONTENTS Financing Arrangements JPM Credit Facility THG has a credit agreement with JPMorgan Chase Bank, N.A.
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.
Comparative Cash Flows The following table summarizes our cash flow data for the years ended December 31, 2024 and 2023: Year ended December 31, 2024 2023 $ Change % Change in thousands (except percentages) Net Cash Provided by Operating Activities $ 177,024 $ 133,706 $ 43,318 32.4 % Net Cash Used in Investing Activities $ (618,564) $ (52,647) $ (565,917) N/M Net Cash Provided by (Used in) Financing Activities $ (46,922) $ 103,161 $ (150,083) (145.5) % 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.
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.
Salaries and benefits are expensed as incurred except for costs that are required to be capitalized, which are then amortized over the useful life of the asset created, primarily internally developed software and software-as-a-service ("SaaS") implementation costs.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+8 added−1 removed0 unchanged
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.
Based on variable-rate borrowings outstanding as of December 31, 2024, a 100-basis point (or 1.0%) change in our borrowing rates would result in our annual interest payments changing by approximately $0.8 million.
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
Loan portfolio We also have a portfolio of loans secured by collector cars of approximately $57.0 million as of December 31, 2024, upon which interest is earned predominately at variable rates including the Prime Rate and Term Secured Overnight Financing Rate.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as a result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices.
Removed
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
In the normal course of our operations, the primary components of market risk affecting us are interest rate risk and credit risk. Interest rate risk Interest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our available-for-sale securities, debt obligations, and loan portfolio secured by collector cars have interest rate risk.
Added
Available-for-sale securities The primary market risk to our investment portfolio is interest rate risk associated with investments in fixed maturity securities. Fluctuations in interest rates have a direct effect on the market valuation of these securities. When market interest rates increase, the fair value of our fixed maturity securities decreases.
Added
Conversely, as interest rates decrease, the fair value of our fixed maturity securities increases. We manage this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio. The target duration of our investment portfolio is two to four years.
Added
As of December 31, 2024, we held fixed maturity securities with a fair value of $577.7 million.
Added
The table below illustrates the sensitivity of the value of our fixed maturity securities with hypothetical changes in interest rates as of December 31, 2024: December 31, 2024 Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value in thousands (except percentages) 200 basis points increase $ 543,669 $ (34,019) (5.9) % 100 basis points increase $ 560,885 $ (16,803) (2.9) % No change $ 577,688 $ — — % 100 basis points decrease $ 594,620 $ 16,932 2.9 % 200 basis points decrease $ 610,694 $ 33,006 5.7 % Debt obligations As of December 31, 2024, we had approximately $80.5 million of variable rate indebtedness, representing approximately 76% of our total debt outstanding, at an average interest rate during the year ended December 31, 2024 of approximately 6.75%.
Added
Based on variable-rate loans outstanding as of December 31, 2024, a 100-basis point (or 1.0%) change in our variable rates would result in our annual interest income changing by approximately $0.5 million. Credit risk Available-for-sale securities Credit risk is the potential loss resulting from adverse changes in an issuer's ability to repay its debt obligations.
Added
We have exposure to credit risk as a holder of fixed maturity securities. Our risk management strategy and investment policy are designed to invest in investment grade debt and to limit the amount of credit exposure with respect to a single issuer to no greater than 5%, except for the U.S. Federal Government.
Added
As of December 31, 2024, all fixed income securities in our investment portfolio were rated investment grade by at least one nationally recognized rating organization. 61 TABLE OF CONTENTS

Other HGTY 10-K year-over-year comparisons