UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission file number: 001-40244 HAGERTY, INC. (Exact name of registrant as specified in its charter) Delaware 86-1213144 121 Drivers Edg ...

[Where You Can Find More Information](index=4&type=section&id=Where%20You%20Can%20Find%20More%20Information) [Information Availability](index=4&type=section&id=Information%20Availability) Hagerty, Inc. files annual, quarterly, and current reports with the SEC, which are available on its investor relations website and the SEC's website - Hagerty, Inc. files annual, quarterly, and current reports, and proxy statements with the SEC[11](index=11&type=chunk) - Company reports are available free of charge on investor.hagerty.com and www.sec.gov[11](index=11&type=chunk)[15](index=15&type=chunk) - The investor relations website (investor.hagerty.com) is used for disclosing information to investors, including compliance with Regulation FD[15](index=15&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward%20Looking%20Statements) [Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section highlights that the 10-K report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, market conditions, growth, and expansion plans[12](index=12&type=chunk) - These statements are subject to risks, uncertainties, and assumptions, including those outlined in 'Part I, Item 1A, "Risk Factors"', which could cause actual results to differ materially and adversely[12](index=12&type=chunk) - Key factors that could cause actual results to differ include competition, maintaining strategic relationships, preventing fraud, managing technology disruptions, accelerating product adoption, COVID-19 impacts, cyclical insurance business, claims frequency/severity, regulatory compliance, and litigation[13](index=13&type=chunk) - The company operates in a competitive and rapidly changing environment, with new risks emerging, and management cannot predict all risks or their full effect on the business[14](index=14&type=chunk) [Glossary of Terms](index=6&type=section&id=Glossary%20of%20Terms) [Key Definitions](index=6&type=section&id=Key%20Definitions) This section defines technical terms used throughout the Annual Report on Form 10-K, covering accounting standards, regulatory bodies, and insurance-specific terminology - The glossary defines technical terms used in the 10-K, including accounting, regulatory, and insurance-specific terminology[17](index=17&type=chunk) - Key terms include 'Members' (insurance policyholders and HDC paid subscribers), 'MGA' (Managing General Agent), 'PIF' (Policies in Force), and 'NPS' (Net Promoter Score)[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) - Financial terms like 'Loss Ratio' (losses and loss adjustment expenses to earned premium in Hagerty Re) and 'Written Premium' (total insurance premium written on policies) are also defined[24](index=24&type=chunk)[31](index=31&type=chunk) [Part I](index=9&type=section&id=Part%20I) [Item 1. Business](index=9&type=section&id=Item%201.%20Business) Hagerty is a global leader in classic and enthusiast vehicle insurance, leveraging its trusted brand to build an automotive lifestyle platform through four integrated strategic areas - Hagerty is a global market leader in classic and enthusiast vehicle insurance, with a goal to preserve driving and car culture[35](index=35&type=chunk) - The company operates through four integrated strategic product areas: Insurance, Membership, Marketplace, and Media & Entertainment[36](index=36&type=chunk) - Hagerty insures over **2.2 million** classic and enthusiast vehicles worldwide, maintaining an NPS of approximately **83** and an insurance policy retention rate close to **90%** over the last decade[37](index=37&type=chunk)[44](index=44&type=chunk) [Company Overview](index=9&type=section&id=Company%20Overview) Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering superior coverage, excellent customer service, and an integrated ecosystem of products - Hagerty is a global market leader in classic and enthusiast vehicle insurance, known for superior coverage, excellent customer service, and lower prices than traditional carriers[35](index=35&type=chunk) - The company has developed an ecosystem of products and services across Insurance, Membership, Marketplace, and Media & Entertainment, aiming to protect, engage, entertain, and connect with car enthusiasts[36](index=36&type=chunk) - Hagerty insures over **2.2 million** classic and enthusiast vehicles worldwide, boasts an NPS of approximately **83**, and maintains a policy retention rate near **90%** over the past decade[37](index=37&type=chunk) [Industry and Market Opportunity](index=10&type=section&id=Industry%20and%20Market%20Opportunity) The U.S. collector vehicle market is estimated at **45 million** insurable cars, representing **$12 to $15 billion** in annual premiums, with Hagerty holding a **4%** market share - The U.S. collector vehicle market is estimated to have approximately **45 million** insurable cars, representing **$12 to $15 billion** in annual premiums[40](index=40&type=chunk) - Hagerty's market share in the collector vehicle insurance market is estimated at **4%**, despite growing written premium by an average of **15%** per year over the last decade[40](index=40&type=chunk) Hagerty Penetration in Collector Vehicle Market (U.S.) | Type | Total Market (cars, mm) | Hagerty Penetration | | :-------------------- | :---------------------- | :------------------ | | Pre-1981 Classics | 11.3 | 12.1% | | Post 1980 Collectibles | 34.0 | 1.4% | | Total | ~45.3 | 4.1% | - Growth in the collector vehicle market is driven by factors such as post-1980 cars becoming modern collectibles, increasing focus on cars as an investment asset (**8%** historical annual appreciation), baby boomer retirements, millennial interest, expanding automotive subcultures, and increasing supply of premium luxury cars[41](index=41&type=chunk)[43](index=43&type=chunk) [Business Model and Competitive Strengths](index=11&type=section&id=Business%20Model%20and%20Competitive%20Strengths) Hagerty's brand is built on excellent customer service and high retention rates, with diversified revenue streams from its integrated product offerings - Hagerty's brand is built on excellent customer service, an industry-leading NPS of **83**, and an insurance Member retention rate of nearly **90%**[44](index=44&type=chunk) - The company's product offerings (Insurance, Membership, Marketplace, Media & Entertainment) diversify revenue streams and counteract insurance policy attrition by establishing relationships with new owners[44](index=44&type=chunk) [Insurance](index=11&type=section&id=Insurance) Hagerty insures over **2.2 million** classic and enthusiast vehicles globally, controlling pricing and underwriting, and generating revenue from commissions, fees, and earned premium - Hagerty insures over **2.2 million** classic and enthusiast vehicles globally, controlling pricing and underwriting, benefiting from fee-based income, and engaging directly with consumers[45](index=45&type=chunk) - The insurance model generates revenue from commissions and fees (as an MGA) and earned premium (through Hagerty Re, reinsuring a portion of written premium)[46](index=46&type=chunk) - Hagerty utilizes data science for underwriting, risk assessment, market analysis (machine learning for trends), customer service (AI-powered tools), and claims processing (automating tasks, flagging fraud)[47](index=47&type=chunk)[50](index=50&type=chunk) [Commission Revenue](index=11&type=section&id=Commission%20Revenue) Hagerty earns commission revenue for distributing and servicing classic vehicle insurance policies, averaging **32%** of written premium, with high retention and low loss ratios - Hagerty earns commission revenue for distributing and servicing classic and collector vehicle/boat insurance policies in the U.S., Canada, and U.K[48](index=48&type=chunk) - On average, commissions equal **32%** of written premium, with up to an additional **10%** in contingent underwriting commissions based on targeted loss ratios[48](index=48&type=chunk) - The company has a strong track record with nearly **90%** retention rates and low loss ratios averaging under **40%** over the last decade[48](index=48&type=chunk) - Hagerty's 'Guaranteed Value' insurance policy differentiates it by insuring vehicles at true replacement cost, unlike standard auto insurance which uses depreciated value[49](index=49&type=chunk) [Omnichannel Distribution](index=11&type=section&id=Omnichannel%20Distribution) Hagerty employs an omnichannel distribution strategy, selling insurance directly to consumers, through independent agents, and via strategic partnerships with other insurers - Hagerty employs an omnichannel distribution approach, selling insurance through direct-to-consumer, independent agents/brokers, and strategic distribution partnerships[50](index=50&type=chunk) - Direct sales account for approximately **45%** of total U.S. auto written premium, driven by multiple annual touchpoints with engaged Members[51](index=51&type=chunk) - The independent agent and broker channel generates about **33%** of total U.S. auto written premium through relationships with over **45,000** agents and brokers[53](index=53&type=chunk) - Partnership channel, including **9 of the top 10** largest auto insurers, accounts for approximately **22%** of total written premium, offering specialty products to their clients[54](index=54&type=chunk) [Strategic Agreements](index=12&type=section&id=Strategic%20Agreements) Hagerty maintains key strategic agreements with State Farm, Markel Corporation, and Aviva Canada Inc. for distribution and underwriting of its specialty insurance products - Hagerty has a master alliance agreement with State Farm (since 2020) to provide its customers access to Hagerty's features and services, expected to begin in H2 2023, adding ~**19,200** State Farm agents to its partnership channel[57](index=57&type=chunk)[58](index=58&type=chunk) - Markel Corporation's subsidiary, Essentia Insurance Company, is the exclusive dedicated carrier for Hagerty's U.S. and U.K. MGA specialty classic and collector vehicle insurance policies, with agreements expiring end of 2030[59](index=59&type=chunk)[60](index=60&type=chunk) - Aviva Canada Inc. serves as the carrier for Hagerty's Canadian MGA specialty classic and collector vehicle insurance program, with terms expiring in 2030[61](index=61&type=chunk) [Earned Premium](index=13&type=section&id=Earned%20Premium) Hagerty Re, a captive reinsurance subsidiary, reinsures a portion of written premium, recognizing it as earned premium revenue, with a U.S. quota share increasing to **70%** in 2022 - Hagerty Re, a wholly owned captive reinsurance subsidiary formed in Bermuda in 2017, reinsures a portion of written premium, recognizing it as earned premium revenue[62](index=62&type=chunk) - Hagerty Re's reinsurance capabilities allow for efficient capital deployment and consistent underwriting results, with an attractive average loss ratio of **43%** over the last three years, significantly better than the auto insurance industry average of ~**66%**[62](index=62&type=chunk) - Hagerty Re's U.S. and U.K. quota share (retained risk) increased from **60%** in 2021 to **70%** in 2022, and is set to increase to at least **80%** in 2023[62](index=62&type=chunk) [Membership](index=13&type=section&id=Membership) Hagerty's Membership offerings build a loyal community of car enthusiasts through diverse engagement points, including the Hagerty Drivers Club and Hagerty Garage + Social facilities - Hagerty's Membership offerings aim to build a loyal community of car lovers through diverse engagement points, including physical events and digital platforms[63](index=63&type=chunk)[64](index=64&type=chunk) - Hagerty Drivers Club (HDC) has approximately **753,000** Members, providing access to magazines, events, valuation tools, roadside services, and discounts[65](index=65&type=chunk) - Approximately three-quarters of new insurance policyholders purchase an HDC subscription[65](index=65&type=chunk) - Hagerty Garage + Social offers premium, climate-controlled clubhouses and car storage facilities in strategic U.S. and Canadian markets, providing a physical brand experience and community interaction[66](index=66&type=chunk) [Marketplace](index=14&type=section&id=Marketplace) Marketplace leverages Hagerty's ecosystem to facilitate buying and selling collector cars through live/online auctions and private sales, supported by asset-backed financing and valuation tools - Marketplace leverages Hagerty's ecosystem to facilitate buying and selling collector cars through live/online auctions (Broad Arrow) and private sales (Hagerty Classifieds, Collectors Garage)[67](index=67&type=chunk)[69](index=69&type=chunk) - The U.S. collector car market is valued at approximately **$1.0 trillion**, with about **300,000** transactions worth **$12.5 billion** observed in Hagerty's U.S. insurance book in 2022[67](index=67&type=chunk) - Hagerty acquired the remaining **60%** of Broad Arrow in August 2022 for **$73.3 million** in equity, after an initial **$15.3 million** investment for **40%** in January 2022, to further build Marketplace[68](index=68&type=chunk) - Marketplace also offers asset-backed financing (Broad Arrow Capital) and utilizes Hagerty Valuation Tools (HVT), accessed by over **three million** people annually, for pricing data[69](index=69&type=chunk) [Media & Entertainment](index=14&type=section&id=Media%20%26%20Entertainment) Hagerty Media & Entertainment creates ongoing engagement with Members and prospective Members through quality content and world-class car events, monetized via ticket sales and sponsorships - Hagerty Media & Entertainment creates ongoing engagement with Members and prospective Members through quality content and world-class car events[70](index=70&type=chunk) - Hagerty Media produces digital, print, and video content, including the Hagerty Drivers Club Magazine, premium video content (**2.5 million** YouTube subscribers), social media (**4.7 million** followers), and thousands of articles[71](index=71&type=chunk) - Hagerty sponsors or owns over **1,800** automotive events annually, including major Concours d'Elegance events like Greenwich, Detroit, and The Amelia, monetized through ticket sales and sponsorships[72](index=72&type=chunk) [Business Attributes](index=15&type=section&id=Business%20Attributes) Hagerty protects its intellectual property through trademarks and patents, experiences seasonality in revenue, faces competition from specialty and standard insurers, and manages its investment portfolio for yield and liquidity - Hagerty relies on trademarks, patents (two in U.S., one in Canada, expiring 2030-2033), copyrights, trade secrets, and license agreements to protect its intellectual property[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - Revenue streams, particularly commission and fee revenue, exhibit seasonality, peaking in Q2 and diminishing through the year, with the lowest levels in Q4 and early Q1, due to vehicle driving and purchasing patterns[77](index=77&type=chunk) - Hagerty's business model and integrated ecosystem are considered unique, with competition primarily from other specialty insurance companies and standard auto insurers (with whom they often partner)[78](index=78&type=chunk) - The investment portfolio is primarily in cash, short-term investments, and Canadian Sovereign and Provincial fixed income securities, managed for yield, capital conservation, and liquidity[79](index=79&type=chunk) [Employees and Human Capital Resources](index=16&type=section&id=Employees%20and%20Human%20Capital%20Resources) Hagerty's culture is a strategic advantage, focusing on talent attraction, professional development, and a remote-first model, with **1,874** employees as of December 31, 2022 - Hagerty's culture, shaped by its people, is a strategic advantage, focusing on hiring, challenging work, and professional/personal development[80](index=80&type=chunk) - In 2022, the company adopted a remote-first model to attract top talent and provide flexibility[80](index=80&type=chunk) - As of December 31, 2022, Hagerty had **1,874** total employees (**1,866** full-time) and has received awards like the Gallup Exceptional Workplace Award (2021) and 'Great Place to Work' certification for six years[81](index=81&type=chunk) - The company offers comprehensive benefits for health and wellness, a pay-for-performance compensation culture aligned with company performance and stock-based awards, and focuses on diversity and inclusion initiatives[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) [Business Combination](index=16&type=section&id=Business%20Combination) On December 2, 2021, The Hagerty Group completed a business combination with Aldel Financial Inc., resulting in Hagerty, Inc. operating under an 'Up-C' structure with its stock trading on the NYSE - On December 2, 2021, The Hagerty Group completed a business combination with Aldel Financial Inc. (now Hagerty, Inc.) and Aldel Merger Sub LLC[87](index=87&type=chunk) - Following the closing, Hagerty, Inc. is organized as a C corporation and owns an equity interest in The Hagerty Group in an 'Up-C' structure, where substantially all assets and liabilities are held by The Hagerty Group[89](index=89&type=chunk) - Class A Common Stock and Public Warrants began trading on the NYSE under 'HGTY' and 'HGTY.WS' respectively, on December 3, 2021[87](index=87&type=chunk) [Item 1A. Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) This section outlines numerous risks that could materially and adversely affect Hagerty's business, financial condition, or results of operations, spanning operational, industry-specific, legal, and financial categories - Hagerty's business is subject to risks related to attracting and retaining Members, dependence on insurance distribution and underwriting partners, and preventing fraudulent activity[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Operational risks include reliance on key management and unique culture, competition, challenges in integrating acquisitions (like Broad Arrow), and potential disruptions from cyberattacks or technology platform failures[99](index=99&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk)[106](index=106&type=chunk)[176](index=176&type=chunk) - Insurance-specific risks involve regulatory approvals for products, compliance with extensive regulations, dependence on a limited number of underwriting carriers (e.g., Essentia, Aviva), rate increase approvals, and unexpected increases in claims frequency or severity, including from catastrophic events[131](index=131&type=chunk)[134](index=134&type=chunk)[138](index=138&type=chunk)[141](index=141&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk) - Risks related to the company's securities include potential dilution from future stock issuances, substantial sales by large stockholders, exercisable warrants, and the dual-class stock structure limiting shareholder influence[199](index=199&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk)[210](index=210&type=chunk)[212](index=212&type=chunk) - Tax-related risks stem from Hagerty, Inc. being a holding company dependent on distributions from The Hagerty Group to pay taxes and obligations under the Tax Receivable Agreement (TRA), with potential for substantial and accelerated payments[222](index=222&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) [Risk Factors Summary](index=18&type=section&id=Risk%20Factors%20Summary) Hagerty faces risks related to member attraction, partner dependence, fraud, technology, regulatory compliance, claims, acquisition integration, and its stock structure - The business faces risks related to attracting and retaining Members, dependence on insurance partners, fraud prevention, and reliance on a skilled management team[93](index=93&type=chunk) - Other key risks include technology platform issues, cyberattacks, limited operating history of new products, susceptibility to inflation/interest rates, compliance with laws/regulations, and unexpected claims increases[93](index=93&type=chunk) - Specific risks also cover reinsurer non-payment, interpretation of coverage, integration of Broad Arrow, dependence on The Hagerty Group for payments, and stock structure issues (dual-class, control by HHC)[93](index=93&type=chunk) [Risks Related to Our Business](index=19&type=section&id=Risks%20Related%20to%20Our%20Business) Hagerty's business faces risks from member retention, partner dependence, fraud, key personnel, competition, acquisitions, cyberattacks, new product profitability, payment processing, economic conditions, and intellectual property protection - Continued business and revenue growth depend on the ability to continuously attract and retain Members; failure to meet consumer expectations or unfavorable pricing changes could lead to decline[94](index=94&type=chunk)[95](index=95&type=chunk) - A large percentage of revenue is derived from a few distribution partners; loss or termination of these relationships could adversely affect the business[96](index=96&type=chunk) - Inability to prevent, monitor, or detect fraudulent activity (policy acquisitions, claims, marketplace sales) could result in increased costs, litigation, regulatory fines, and reputational harm[97](index=97&type=chunk)[98](index=98&type=chunk) - Reliance on the CEO, senior management, and key employees means their departure could severely impact the business; maintaining a unique culture is also critical for success[99](index=99&type=chunk)[101](index=101&type=chunk) - Future growth and profitability may be affected by new market entrants or competitors developing preferred offerings, especially from large, well-capitalized companies[102](index=102&type=chunk) - Future acquisitions or investments carry strategic, execution, and compliance risks, potentially leading to unforeseen liabilities, expenses, or impairment charges[104](index=104&type=chunk)[105](index=105&type=chunk) - Cyberattacks, disruptions to technology platforms, or reliance on third-party providers could impair operations, lead to data breaches, reputational harm, and significant financial/operational resources expenditure[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Some membership products have limited operating history, making profitability forecasts difficult; new products may not achieve anticipated profitability[109](index=109&type=chunk) - Payment processing risks, including reliance on limited services and potential fraud, could adversely affect results of operations[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) - Rising inflation and interest rates may affect demand for products/services and increase borrowing costs, impacting financial condition[113](index=113&type=chunk)[114](index=114&type=chunk) - Growing foreign operations expose the company to foreign currency exchange rate fluctuations, potentially negatively impacting financial results[115](index=115&type=chunk) - Technology platform malfunctions could lead to business loss, breach of contracts, non-compliance, and financial losses due to incorrect pricing or claims processing[116](index=116&type=chunk) - Future success depends on developing and maintaining confidential technology; changes in laws or misappropriation of data could harm competitive position[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) - Changes in social attitudes towards collector vehicles (e.g., electric/autonomous vehicles) could reduce demand for products and services[120](index=120&type=chunk) - An inadequate diversity, equity, and inclusion strategy could negatively impact brand image, employee engagement, and sales[121](index=121&type=chunk) - Performance of the investment portfolio is subject to various risks, including interest rate fluctuations, which could adversely affect financial results[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Need for additional capital in the future may not be met or may be on unfavorable terms, impacting liquidity and ability to fund operations or expansion[125](index=125&type=chunk)[126](index=126&type=chunk) - Reliance on accounting estimates creates a risk of material misstatement if assumptions are incorrect[127](index=127&type=chunk) - The COVID-19 pandemic has caused and may continue to cause disruptions, delays, increased costs, and reduced demand, potentially triggering or intensifying other risks[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk) [Risks Related to Our Insurance Services](index=26&type=section&id=Risks%20Related%20to%20Our%20Insurance%20Services) Hagerty's insurance services face risks from regulatory approvals, compliance, dependence on underwriting partners, rate approvals, claims frequency/severity, catastrophic events, and reinsurance counterparty risk - Insurance products require regulatory approval, leading to significant expenses and potential delays in development and filing before revenue generation[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) - Operating as an MGA in a highly regulated environment exposes the company to compliance risks, potential penalties, and enforcement actions if regulations are not met or interpretations differ[134](index=134&type=chunk)[135](index=135&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - Dependence on a limited number of key underwriting carrier partners (Essentia, Aviva, Markel) means termination or financial difficulties of these partners could adversely affect profitability and business continuity[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Regulatory environments requiring rate approvals, dictating underwriting/pricing, or mandating loss-sharing arrangements can adversely affect financial condition and profitability[141](index=141&type=chunk) - Underwriting companies and Hagerty's agencies are subject to regulatory examinations and audits, which could result in adverse findings, enforcement actions, fines, or remedial actions[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - Restrictions on collecting or utilizing vehicle usage and driving data could impair cost-effective underwriting and negatively impact revenue and earnings[147](index=147&type=chunk) - The cyclical nature of the insurance business, including periods of excess underwriting capacity and unfavorable premium rates, could adversely affect business[148](index=148&type=chunk) - Reinsurance for catastrophic losses may become unavailable or more expensive, forcing Hagerty Re to retain more risk or require greater capital investment[149](index=149&type=chunk) - Unexpected increases in claims frequency or severity (due to driving behaviors, macroeconomics, weather, medical costs, litigation, vehicle values) could adversely affect operations and financial condition[150](index=150&type=chunk)[151](index=151&type=chunk) - Severe weather events, catastrophes, and unnatural events are unpredictable and can cause significant losses or disruptions, exacerbated by climate change impacts[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Inaccurate pricing and underwriting of insurance programs could lead to insufficient premiums, reduced competitiveness, or adverse effects on profitability[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Reinsurance subjects Hagerty Re to counterparty risk, where reinsurers may fail to pay claims due to insolvency, materially affecting financial condition[159](index=159&type=chunk) - Unexpected changes in the interpretation of coverage or policy provisions (limitations, exclusions) could lead to higher than anticipated losses and expenses[160](index=160&type=chunk) - Hagerty Re's ultimate loss liability could exceed reserves, impacting financial condition and ability to accept risk, and potentially leading to loss of Bermuda license if solvency requirements are not met[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk) - Expansion into new insurance products and jurisdictions may incur additional costs, slower growth, and lower profitability than projected, facing challenges like regulatory approvals and competitive environments[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - Reliance on third-party technology and intellectual property for pricing, underwriting, and claims could be adversely impacted if these providers become unavailable or provide inaccurate information[169](index=169&type=chunk) - Denial of claims or failure to accurately and timely pay claims could damage brand, lead to regulatory actions, litigation, and adversely impact business[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - A downward change in Essentia's financial strength rating could adversely affect Hagerty's ability to conduct business through them[173](index=173&type=chunk) - Hagerty Re is subject to Bermuda regulatory requirements (BSCR, solvency margin, liquidity ratios, operational requirements); failure to comply could lead to license restrictions or revocation[174](index=174&type=chunk)[175](index=175&type=chunk) [Risks Related to Hagerty Marketplace](index=34&type=section&id=Risks%20Related%20to%20Hagerty%20Marketplace) Hagerty Marketplace faces risks from integrating Broad Arrow, retaining key specialists, intense competition, potential losses from claims on valuable cars, and limited operating history of Broad Arrow Capital - Failure to successfully integrate Broad Arrow operations or realize anticipated synergies and cost savings could materially and adversely affect the Marketplace business vertical[176](index=176&type=chunk)[177](index=177&type=chunk) - Broad Arrow's success is highly dependent on retaining key specialists and management due to its service-based nature and unique business culture[178](index=178&type=chunk) - Intense competition in the global collector car sales market and variability in demand/quality of consigned cars can impact ability to obtain consignments and commission margins[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Exposure to losses from title, warranty, or other claims related to damage or theft of valuable collector cars could harm business and reputation[182](index=182&type=chunk)[183](index=183&type=chunk) - Broad Arrow Capital (BAC) has limited operating history, and minimal loan losses may not be indicative of future experience; realizing proceeds from collateral sales may be delayed or limited[184](index=184&type=chunk) - Changes to tax laws or reporting obligations in various jurisdictions could adversely impact the volume of collector vehicle inventory available for Marketplace and increase compliance risks[185](index=185&type=chunk) [Legal, Regulatory and Political Risks](index=35&type=section&id=Legal%2C%20Regulatory%20and%20Political%20Risks) Hagerty is exposed to extensive and complex legal and regulatory requirements across jurisdictions, with potential impacts from future changes in laws, interpretations, and intellectual property protection - Extensive and complex legal/regulatory requirements across jurisdictions (privacy, anti-corruption, sanctions, advertising, underwriting, claims, licensing) pose compliance risks, potentially increasing operating costs and limiting growth[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk) - Future regulatory changes, including new laws or interpretations, could limit or impact Hagerty's business model, increasing compliance costs and potentially leading to fines or adverse consequences[190](index=190&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk) - Changes in regulations related to autonomous vehicles and petroleum-based vehicles could significantly alter the core insurance model and company purpose[193](index=193&type=chunk)[197](index=197&type=chunk) - New legislation or legal requirements impacting the internet and mobile applications could affect communication with Members, harm the business model, and lead to reputational damage or litigation[195](index=195&type=chunk) - Inadequate protection of intellectual property rights could adversely impact products, services, and brand, with risks from competitors, employees, contractors, and vendors[196](index=196&type=chunk) [Risks Relating to Ownership of Our Securities](index=38&type=section&id=Risks%20Relating%20to%20Ownership%20of%20Our%20Securities) Ownership of Hagerty's securities carries risks including dilution from future issuances, potential stock price decline from sales, limited investor attractiveness as an emerging growth company, and concentrated voting power due to its dual-class structure - Future issuances of Class A Common Stock (incentive plans, acquisitions) could dilute existing ownership, and future sales by stockholders could lower the stock price[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk) - Exercisable warrants could increase the number of shares eligible for resale, resulting in dilution to stockholders and potentially depressing the market price[206](index=206&type=chunk) - As an 'emerging growth company,' taking advantage of disclosure exemptions may make securities less attractive to investors and comparisons to other public companies more difficult[207](index=207&type=chunk) - Hagerty qualifies as a 'controlled company' under NYSE listing standards, allowing exemptions from certain corporate governance requirements, which may limit stockholder protections[208](index=208&type=chunk)[209](index=209&type=chunk) - The dual-class common stock structure concentrates voting power with two stockholders (Markel and HHC), limiting other shareholders' ability to influence important transactions, including change of control[210](index=210&type=chunk)[212](index=212&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - The company may redeem unexpired warrants prior to their exercise at a disadvantageous time for holders, potentially making them worthless[217](index=217&type=chunk) - No current plans to pay cash dividends mean investors may not receive a return unless they sell their Class A Common Stock for a price greater than paid[218](index=218&type=chunk) - Anti-takeover provisions in organizational documents could delay or prevent a change of control, limiting stockholders' ability to obtain a premium for their shares[219](index=219&type=chunk)[220](index=220&type=chunk) - The Amended and Restated Charter designates the Delaware Court of Chancery as the exclusive forum for certain actions, potentially limiting stockholders' ability to choose a favorable judicial forum[221](index=221&type=chunk) [Risks Related to Tax](index=42&type=section&id=Risks%20Related%20to%20Tax) Hagerty, Inc. is a holding company dependent on distributions from The Hagerty Group to meet tax and TRA obligations, with potential for substantial and accelerated payments, and risks from tax law changes - Hagerty, Inc. is a holding company dependent on distributions from The Hagerty Group to pay taxes, make payments under the TRA, and cover other expenses; financial deterioration of The Hagerty Group could impair this ability[222](index=222&type=chunk)[223](index=223&type=chunk) - Payments under the Tax Receivable Agreement (TRA) to Legacy Unit Holders for tax benefits may be substantial and could accelerate upon certain events (e.g., breach, bankruptcy, change of control), potentially exceeding actual cash tax savings and negatively impacting liquidity[225](index=225&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - If The Hagerty Group becomes a publicly traded partnership taxable as a corporation, it could lead to significant tax inefficiencies and inability to recover TRA payments[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Increases in tax rates, changes in tax laws, or disagreements with tax authorities can adversely affect business, financial condition, and results of operations[232](index=232&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) [General Risk Factors](index=44&type=section&id=General%20Risk%20Factors) The price of Hagerty's securities may be volatile or decline due to various factors, including market expectations, economic conditions, strategic actions, and future sales by stockholders - The price of Hagerty's securities may be volatile or decline regardless of operating performance due to various factors, including market expectations, economic conditions, strategic actions, and litigation[236](index=236&type=chunk)[237](index=237&type=chunk)[239](index=239&type=chunk) - Future sales, or the perception of future sales, by the company or its stockholders in the public market could cause the market price for Class A Common Stock to decline[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - If securities analysts cease coverage or downgrade the stock, it could lead to a decline in stock price and trading volume[245](index=245&type=chunk) [Item 1B. Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section states that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[246](index=246&type=chunk) [Item 2. Properties](index=46&type=section&id=Item%202.%20Properties) Hagerty's corporate headquarters are in Traverse City, Michigan, with additional leased office spaces globally, and a network of Hagerty Garage + Social locations, as the company transitions to a 'remote first' work model - Corporate headquarters are in Traverse City, Michigan, with approximately **109,500 square feet** of office space under a lease expiring in March 2036[247](index=247&type=chunk) - Additional leased office spaces are located in Ohio, Colorado, Connecticut, Michigan (U.S.), Canada, the U.K., and Germany[247](index=247&type=chunk) - In 2022, Hagerty adopted a 'remote-first' work model and plans to sublease portions of its office spaces in Ohio, Colorado, Connecticut, Michigan, and Ontario[248](index=248&type=chunk) - The company operates a network of Hagerty Garage + Social locations in New York, Illinois, Washington, Florida (3 locations), California (2 locations), and Ontario (Canada)[249](index=249&type=chunk) [Item 3. Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) Hagerty is periodically involved in various claims and legal actions in the ordinary course of business, which are not expected to have a material adverse effect on its financial position - Hagerty is involved in various claims and legal actions in the ordinary course of business[250](index=250&type=chunk) - The company does not believe the ultimate resolution of these actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources[250](index=250&type=chunk) - Future litigation to defend proprietary rights could incur defense and settlement costs and divert management resources[251](index=251&type=chunk) [Item 4. Mine Safety Disclosures](index=46&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Hagerty, Inc - This item is not applicable[252](index=252&type=chunk) [Part II](index=47&type=section&id=Part%20II) [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=47&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Hagerty's Class A Common Stock and Public Warrants trade on the NYSE, with **12** record holders of Class A Common Stock as of March 1, 2023, and no current intention to pay cash dividends - Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under symbols 'HGTY' and 'HGTY.WS'[254](index=254&type=chunk) - As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock[255](index=255&type=chunk) - The company does not currently intend to pay cash dividends on Class A Common Stock, retaining future earnings for operations, expansion, and debt repayment[218](index=218&type=chunk)[256](index=256&type=chunk) - Hagerty, Inc. is a holding company, and its ability to pay dividends depends on distributions from The Hagerty Group, which are expected to be less than amounts distributed to Hagerty Group Unit Holders due to taxes, TRA payments, and expenses[257](index=257&type=chunk) - As a smaller reporting company, Hagerty is not required to provide a stock performance graph[259](index=259&type=chunk) - In August 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock to foreign Contributors and **4,724,560** Hagerty Group Units to domestic Contributors, exchangeable for Class A Common Stock starting in 2023[260](index=260&type=chunk) [Market Information](index=47&type=section&id=Market%20Information) Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under the symbols 'HGTY' and 'HGTY.WS' - Hagerty's Class A Common Stock and Public Warrants are traded on the NYSE under the symbols 'HGTY' and 'HGTY.WS', respectively[254](index=254&type=chunk) [Stockholders of Record](index=47&type=section&id=Stockholders%20of%20Record) As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock, along with various warrant holders - As of March 1, 2023, there were **12** record holders of Class A Common Stock and two record holders of Class V Common Stock[255](index=255&type=chunk) - Additionally, there were **31** record holders of PIPE Warrants, two of OTM Warrants, and nine of Public Warrants, Private Placement Warrants, and Underwriter Warrants combined[255](index=255&type=chunk) [Dividend Policy](index=47&type=section&id=Dividend%20Policy) Hagerty does not currently intend to pay cash dividends on its Class A Common Stock, prioritizing future earnings for operations, expansion, and debt repayment - Hagerty does not currently intend to pay cash dividends on its Class A Common Stock, prioritizing future earnings for operations, expansion, and debt repayment[218](index=218&type=chunk)[256](index=256&type=chunk) - Any future dividend declarations will be at the sole discretion of the Board, considering economic conditions, financial performance, cash needs, capital requirements, and contractual/regulatory restrictions[256](index=256&type=chunk) - As a holding company, Hagerty's ability to pay dividends depends on distributions from The Hagerty Group, which are expected to be less than amounts distributed to Hagerty Group Unit Holders due to taxes, TRA payments, and expenses[257](index=257&type=chunk) [Stock Performance Graph](index=47&type=section&id=Stock%20Performance%20Graph) As a smaller reporting company, Hagerty is not required to provide a stock performance graph - Hagerty is a smaller reporting company and is not required to provide a stock performance graph[259](index=259&type=chunk) [Recent Sales of Unregistered Securities](index=48&type=section&id=Recent%20Sales%20of%20Unregistered%20Securities) In August 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock and **4,724,560** Hagerty Group Units to contributors - On August 16, 2022, as part of the Broad Arrow Acquisition, Hagerty issued **713,684** shares of Class A Common Stock to certain foreign Contributors, subject to a 5-year lockup[260](index=260&type=chunk) - Additionally, **4,724,560** Hagerty Group Units were issued to domestic Contributors, exchangeable for Class A Common Stock on a one-for-one basis over a 5-year period, starting in 2023[260](index=260&type=chunk) [Item 6. [ Reserved ]](index=48&type=section&id=Item%206.%20%5B%20Reserved%20%5D) This item is reserved and not applicable - This item is reserved and not applicable[261](index=261&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Hagerty's financial condition, results of operations, and liquidity for 2022 and 2021, covering recent developments, KPIs, revenue, expenses, and critical accounting estimates - Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering an automotive enthusiast platform that protects, engages, entertains, and connects with Members[264](index=264&type=chunk) - The Broad Arrow Acquisition in August 2022 (following an initial **40%** investment in January 2022) led to consolidation of Broad Arrow's financials and a **$34.7 million** revaluation gain on the previously held equity method investment[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - The Business Combination on December 2, 2021, resulted in Hagerty, Inc. operating as a C corporation with an 'Up-C' structure, holding an equity interest in The Hagerty Group[268](index=268&type=chunk)[269](index=269&type=chunk) Key Performance Indicators (2022 vs. 2021) | Indicator | 2022 | 2021 | | :---------------------------- | :---------- | :---------- | | Total Written Premium | $776,664 | $674,305 | | Loss Ratio | 45.3% | 41.3% | | New Business Count (Insurance)| 234,520 | 244,478 | | Policies in Force | 1,315,977 | 1,247,056 | | Policies in Force Retention | 88.0% | 89.1% | | Vehicles in Force | 2,234,461 | 2,103,185 | | HDC Paid Member Count | 752,754 | 718,583 | | Net Promoter Score | 83.0 | 82.0 | | Total Revenue | $787,588 | $619,079 | | Operating Income (Loss) | $(67,566) | $(10,070) | | Net Income (Loss) | $2,403 | $(61,354) | | Basic Earnings (Loss) Per Share| $0.39 | $(0.56) | | Adjusted EBITDA | $(1,940) | $25,350 | | Adjusted Earnings (Loss) Per Share| $(0.20) | $(0.05) | - Total Revenue increased by **27.2%** to **$787.6 million** in 2022, driven by increases in earned premium (**36.3%**), membership, marketplace, and other revenue (**49.5%**), and commission and fee revenue (**13.1%**)[291](index=291&type=chunk)[292](index=292&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Operating expenses increased by **35.9%** to **$855.2 million** in 2022, primarily due to higher ceding commission (**35.6%**), losses and loss adjustment expenses (**49.4%**), sales expense (**31.0%**), and general and administrative services (**38.0%**)[291](index=291&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) - Net income (loss) improved significantly from **$(61.4) million** in 2021 to **$2.4 million** in 2022, largely due to a **$41.9 million** gain from change in fair value of warrant liabilities and a **$34.7 million** revaluation gain on previously held equity method investment[291](index=291&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) - Cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, primarily due to increased cash from operating assets and liabilities, partially offset by a decrease in net income (loss) after excluding non-cash adjustments[321](index=321&type=chunk)[322](index=322&type=chunk) - Hagerty maintains a strong balance sheet and capital position, with sufficient liquidity from cash, short-term investments, cash flows from operations, and a **$230.0 million** Credit Facility to meet needs for at least the next 12 months[313](index=313&type=chunk)[314](index=314&type=chunk)[327](index=327&type=chunk) [Overview](index=48&type=section&id=Overview) Hagerty is a global market leader in classic and enthusiast vehicle insurance, offering an automotive enthusiast platform that protects, engages, entertains, and connects with its Members - Hagerty is a global market leader in providing insurance for classic cars and enthusiast vehicles[264](index=264&type=chunk) - The company offers an automotive enthusiast platform that protects, engages, entertains, and connects with its Members and other car enthusiasts, aiming to save driving and car culture[264](index=264&type=chunk) [Recent Developments Affecting Comparability](index=48&type=section&id=Recent%20Developments%20Affecting%20Comparability) Hagerty's financial comparability was affected by the August 2022 Broad Arrow acquisition, which resulted in a **$34.7 million** revaluation gain, and the December 2021 Business Combination establishing an 'Up-C' structure - Hagerty acquired the remaining **60%** equity interest of Broad Arrow in August 2022 for **$73.3 million** in equity, after an initial **$15.3 million** investment for **40%** in January 2022[265](index=265&type=chunk) - The Broad Arrow acquisition resulted in a **$34.7 million** revaluation gain on the previously held **40%** equity method investment, recognized in the Consolidated Statements of Operations for 2022[267](index=267&type=chunk) - The Business Combination on December 2, 2021, transformed Aldel Financial Inc. into Hagerty, Inc., operating under an 'Up-C' structure where Hagerty, Inc. holds an equity interest in The Hagerty Group[268](index=268&type=chunk)[269](index=269&type=chunk) [Key Performance Indicators and Certain Non-GAAP Financial Measures](index=49&type=section&id=Key%20Performance%20Indicators%20and%20Certain%20Non-GAAP%20Financial%20Measures) Hagerty uses KPIs and non-GAAP financial measures to evaluate business performance, identify trends, and make strategic decisions, with the Loss Ratio increasing to **45.3%** in 2022 due to Hurricane Ian and reserve strengthening - Hagerty uses Key Performance Indicators (KPIs) and certain non-GAAP financial measures to evaluate business performance, identify trends, prepare financial projections, and make strategic decisions[271](index=271&type=chunk) Key Performance Indicators (2022 vs. 2021) | Indicator | 2022 | 2021 | | :---------------------------- | :---------- | :---------- | | Total Written Premium | $776,664 | $674,305 | | Loss Ratio | 45.3% | 41.3% | | New Business Count (Insurance)| 234,520 | 244,478 | | Policies in Force | 1,315,977 | 1,247,056 | | Policies in Force Retention | 88.0% | 89.1% | | Vehicles in Force | 2,234,461 | 2,103,185 | | HDC Paid Member Count | 752,754 | 718,583 | | Net Promoter Score | 83.0 | 82.0 | | Total Revenue | $787,588 | $619,079 | | Operating Income (Loss) | $(67,566) | $(10,070) | | Net Income (Loss) | $2,403 | $(61,354) | | Basic Earnings (Loss) Per Share| $0.39 | $(0.56) | | Adjusted EBITDA | $(1,940) | $25,350 | | Adjusted Earnings (Loss) Per Share| $(0.20) | $(0.05) | - The Loss Ratio increased to **45.3%** in 2022 (from **41.3%** in 2021) due to **$10.0 million** in net losses from Hurricane Ian (adding **2.5%**) and a **$6.5 million** strengthening of U.S. auto liability reserves (adding **1.6%**)[274](index=274&type=chunk) [Components of Our Results of Operations](index=51&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Hagerty's revenue is generated from commissions, earned premium, and membership/marketplace/other services, while operating expenses include salaries, ceding commission, losses, sales, general and administrative, and depreciation - Revenue is generated from commission and fees (MGA activities), earned premium (Hagerty Re reinsurance), and membership, marketplace, and other services (HDC, Garage + Social, Broad Arrow, events, media)[275](index=275&type=chunk)[276](index=276&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[281](index=281&type=chunk) - Commission and fee revenue includes contingent underwriting commissions (CUC) based on calendar-year performance of the insurance book of business[277](index=277&type=chunk) - Operating expenses consist of salaries and benefits, ceding commission, losses and loss adjustment expenses, sales expense, general and administrative services, and depreciation and amortization[282](index=282&type=chunk) - Ceding commission is paid by Hagerty Re to insurance carriers for policy acquisition costs, averaging **47%** and **48%** of net earned premium in 2022 and 2021, respectively[284](index=284&type=chunk) - Losses and loss adjustment expenses represent Hagerty Re's estimated share of losses and settlement costs, including reported and incurred but not reported (IBNR) claims[285](index=285&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) Hagerty's total revenue increased by **27.2%** to **$787.6 million** in 2022, driven by earned premium and membership/marketplace growth, while operating expenses rose by **35.9%**, leading to a net income of **$2.4 million** Consolidated Statements of Operations Summary (2022 vs. 2021) | Item | 2022 ($ thousands) | 2021 ($ thousands) | $ Change | % Change | | :-------------------------------------------- | :----------------- | :----------------- | :--------- | :--------- | | **REVENUE:** | | | | | | Commission and fee revenue | 307,238 | 271,571 | 35,667 | 13.1% | | Earned premium | 403,061 | 295,824 | 107,237 | 36.3% | | Membership, marketplace and other revenue | 77,289 | 51,684 | 25,605 | 49.5% | | **Total revenue** | **787,588** | **619,079** | **168,509**| **27.2%** | | **OPERATING EXPENSES:** | | | | | | Salaries and benefits | 199,542 | 171,901 | 27,641 | 16.1% | | Ceding commission | 191,150 | 140,983 | 50,167 | 35.6% | | Losses and loss adjustment expenses | 182,402 | 122,080 | 60,322 | 49.4% | | Sales expense | 140,781 | 107,483 | 33,298 | 31.0% | | General and administrative services | 89,068 | 64,558 | 24,510 | 38.0% | | Depreciation and amortization | 33,887 | 22,144 | 11,743 | 53.0% | | Restructuring, impairment and related charges, net| 18,324 | — | 18,324 | 100.0% | | **Total operating expenses** | **855,154** | **629,149** | **226,005**| **35.9%** | | **OPERATING INCOME (LOSS)** | **(67,566)** | **(10,070)** | **(57,496)**| **571.0%** | | Change in fair value of warrant liabilities | 41,899 | (42,540) | 84,439 | 198.5% | | Revaluation gain on previously held equity method investment| 34,735 | — | 34,735 | 100.0% | | Interest and other income (expense) | 2,028 | (1,993) | 4,021 | 201.8% | | **INCOME (LOSS) BEFORE INCOME TAX EXPENSE** | **11,096** | **(54,603)** | **65,699** | **120.3%** | | Income tax benefit (expense) | (7,017) | (6,751) | (266) | (3.9)% | | Income (loss) from equity method investment, net of tax| (1,676) | — | (1,676) | (100.0)% | | **NET INCOME (LOSS)** | **2,403** | **(61,354)** | **63,757** | **103.9%** | - Commission and fee revenue increased by **13.1%** to **$307.2 million** in 2022, driven by a **6.5%** increase in renewal policy premiums and higher average premiums on new policies (up **14.5%** YoY), partially offset by a **$4.1 million** reduction in expected CUC payout due to higher loss ratios[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) - Earned premium revenue increased by **36.3%** to **$403.1 million** in 2022, primarily due to a **$120.4 million** (**34.0%**) increase in written premiums assumed, with Hagerty Re's U.S. quota share increasing from **60%** in 2021 to **70%** in 2022[296](index=296&type=chunk) - Membership, marketplace and other revenue grew by **49.5%** to **$77.3 million** in 2022, with membership fees up **11.4%** (**$4.6 million**) and other revenue (sponsorship, admission, advertising) up **66.0%** (**$7.3 million**), largely due to newly acquired events[297](index=297&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk) - Salaries and benefits increased by **16.1%** to **$199.5 million** in 2022, mainly due to a net increase of approximately **200** employees (**12%**) to support growth and acquisitions[301](index=301&type=chunk) - Ceding commission expense rose by **35.6%** to **$191.2 million** in 2022, primarily due to the increase in U.S. quota share percentage from **60%** to **70%** and higher U.S. premium volume ceded to Hagerty Re[302](index=302&type=chunk) - Losses and loss adjustment expenses increased by **49.4%** to **$182.4 million** in 2022, driven by the increased U.S. quota share, **$10.0 million** in net losses from Hurricane Ian, and a **$6.5 million** strengthening of U.S. auto liability reserves[304](index=304&type=chunk) - Sales expense increased by **31.0%** to **$140.8 million** in 2022, mainly due to a **$19.0 million** increase in travel and promotion costs (newly acquired events, advertising) and a **$7.6 million** increase in broker expense[305](index=305&type=chunk) - General and administrative services expenses increased by **38.0%** to **$89.1 million** in 2022, primarily due to **$11.2 million** in public company operating expenses, **$3.7 million** in software licenses, and **$2.5 million** in occupancy costs for new Hagerty Garage + Social locations[306](index=306&type=chunk) - Depreciation and amortization expense increased by **53.0%** to **$33.9 million** in 2022, driven by higher capital assets from software development investment (**$8.9 million** increase) and intangible asset additions from acquisitions (**$1.8 million** increase)[307](index=307&type=chunk) - Restructuring, impairment and related charges of **$18.3 million** were recognized in 2022, including **$12.2 million** for a voluntary retirement program and reduction in force, and **$6.2 million** for operating lease ROU asset impairments[308](index=308&type=chunk) - A **$41.9 million** gain from change in fair value of warrant liabilities was recognized in 2022, compared to a **$42.5 million** loss in 2021[309](index=309&type=chunk) - A **$34.7 million** revaluation gain on previously held equity method investment was recognized in 2022, related to the remeasurement of the **40%** equity interest in Broad Arrow prior to its acquisition[310](index=310&type=chunk) - Income tax expense increased slightly to **$7.0 million** in 2022, primarily due to increased income before tax expense within Broad Arrow[311](index=311&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) Hagerty maintains a strong balance sheet and capital position, with liquidity from cash, investments, operations, and a **$230.0 million** Credit Facility, expected to be sufficient for the next 12 months - Hagerty prioritizes maintaining a strong balance sheet and capital position, managing liquidity globally across all operating subsidiaries[313](index=313&type=chunk) - Sources of liquidity include cash on hand, short-term investments, net working capital, cash flows from operations, and the Credit Facility, expected to be sufficient for the next 12 months[314](index=314&type=chunk) - Primary liquidity needs include funding business operations (technology investments), servicing borrowings, paying income taxes, and making payments under the Tax Receivable Agreement (TRA)[315](index=315&type=chunk) - Hagerty Re, the reinsurance subsidiary, is self-funded primarily through existing capital and net cash flows from operations, holding approximately **$398.8 million** in cash and restricted cash as of December 31, 2022[316](index=316&type=chunk) - Hagerty Re is subject to Bermuda Solvency Capital Requirement (BSCR) and dividend restrictions; it maintained sufficient statutory capital and surplus as of December 31, 2022, with **$32.9 million** available for dividends without prior approval in 2023[318](index=318&type=chunk)[319](index=319&type=chunk) [Comparative Cash Flows](index=57&type=section&id=Comparative%20Cash%20Flows) Net cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, while investing activities used **$91.5 million**, and financing activities shifted to a net use of **$28.1 million** Cash Flow Summary (2022 vs. 2021) | Activity | 2022 ($ thousands) | 2021 ($ thousands) | $ Change | % Change | | :---------------------------- | :----------------- | :----------------- | :---------- | :---------- | | Net cash provided by operating activities | $55,328 | $42,281 | $13,047 | 30.9% | | Net cash used in investing activities | $(91,521) | $(68,994) | $(22,527) | (32.7)% | | Net cash provided by (used in) financing activities | $(28,084) | $332,071 | $(360,155) | (108.5)% | - Net cash provided by operating activities increased by **30.9%** to **$55.3 million** in 2022, primarily due to a **$25.1 million** increase in cash from operating assets and liabilities (driven by increased U.S. quota share, claims severity, and Hurricane Ian timing), partially offset by a **$12.1 million** decrease in net income (loss) after excluding non-cash adjustments[322](index=322&type=chunk)[323](index=323&type=chunk) - Net cash used in investing activities increased by **32.7%** to **$91.5 million** in 2022, mainly due to **$44.4 million** in property, equipment, and software investments, **$15.4 million** in acquisitions (net of cash), and a **$15.3 million** investment in Broad Arrow[324](index=324&type=chunk) - Net cash used in financing activities was **$28.1 million** in 2022, a significant shift from **$332.1 million** provided in 2021, primarily due to net repayments of **$28.1 million** on long-term debt in 2022 compared to **$66.5 million** in net borrowings and **$269.0 million** net cash inflows from the Business Combination in 2021[325](index=325&type=chunk) [Financing Arrangements](index=58&type=section&id=Financing%20Arrangements) The Hagerty Group's Credit Facility provides **$230.0 million** in commitments, with **$105.0 million** outstanding as of December 31, 2022, and the company uses interest rate swaps to mitigate variable debt exposure - The Hagerty Group's Credit Facility, amended in September and December 2022, provides **$230.0 million** in commitments, with **$105.0 million** outstanding as of December 31, 2022[326](index=326&type=chunk)[327](index=327&type=chunk) - The Credit Facility expires in October 2026, accrues interest at Term SOFR Rate plus a margin (effective rate **6.57%** in 2022), and is collateralized by company assets (excluding certain subsidiaries)[327](index=327&type=chunk)[328](index=328&type=chunk) - Hagerty was in compliance with financial covenants (fixed charge coverage ratio, leverage ratio) under the Credit Agreement as of December 31, 2022[329](index=329&type=chunk) - Hagerty uses interest rate swap agreements to fix interest rates on variable debt, mitigating exposure to fluctuations; one swap with a notional amount of **$35.0 million** (fixed rate **0.81%**) matures in December 2025[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk) - The Tax Receivable Agreement (TRA) requires Hagerty, Inc. to pay Legacy Unit Holders **85%** of cash tax savings from tax basis adjustments and other benefits, with payments expected to be substantial[333](index=333&type=chunk)[334](index=334&type=chunk) [Contractual Obligations](index=59&type=section&id=Contractual%20Obligations) As of December 31, 2022, Hagerty's total contractual obligations amounted to **$240.9 million**, primarily comprising debt, operating leases, and purchase commitments Contractual Obligations as of December 31, 2022 ($ thousands) | Obligation | Total | 2023 | 2024 | 2025 | 2

"Investor Speakers: McKeel Hagerty | Chief Executive Officer Patrick McClymont | SVP & Chief Financial Officer FORWARD LOOKING STATEMENTS / NON-GAAP FINANCIAL MEASURES (vi) adverse impacts from the COVID-19 pandemic and current and future variants of the virus; (vii) manage the cyclical nature of the insurance business, including through any periods of recession, economic downturn or inflation; (viii) unexpected increases in the frequency or severity of claims; (ix) compliance with the numerous laws and reg ...

Hagerty, Inc. (NYSE:HGTY) Q4 2022 Earnings Conference Call March 14, 2023 10:00 AM ET Company Participants Jay Koval - Senior Vice President, Investor Relations McKeel Hagerty - Chief Executive Officer Patrick McClymont - Chief Financial Officer Conference Call Participants Sidney Schultz - Raymond James Paul Newsome - Piper Sandler Pablo Singzon - JPMorgan Operator Greetings, and welcome to Hagerty Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A bri ...

Hagerty, Inc. (NYSE:HGTY) Q3 2022 Earnings Conference Call November 10, 2022 10:00 AM ET Company Participants Jason Koval - Head, IR McKeel Hagerty - CEO Patrick McClymont - CFO Conference Call Participants Mark Hughes - Truist Sidney Schultz - Raymond James Paul Newsome - Piper Sandler Pablo Singzon - JPMorgan Operator Greetings, and welcome to Hagerty's Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentat ...

Financial Data and Key Metrics Changes - Total revenue grew 23% year-over-year to $206 million in Q2 2022, with a 26% increase in the first half of the year [33][15] - Written premiums increased by 14% in Q2 and 15% in the first half, reaching $238 million [15][36] - The loss ratio remained stable at 41%, allowing for reinvestment in the platform [36][19] - Net loss for the quarter was $5.5 million, compared to a net income of $12.5 million in the prior year [41] Business Line Data and Key Metrics Changes - Commission and fee revenue grew 14% to $96 million, driven by new business written premiums and policy retention of 88% [34] - Membership and other revenue increased 21% to $16 million, benefiting from an increase in total paid members [34] - Earned premium grew 34% to $94 million, driven by new business premium growth and policy retention [34] Market Data and Key Metrics Changes - Total active members grew 9% year-over-year to 2.5 million [15] - The company noted a modest demand impact at the beginning of Q2 due to inflation affecting consumer behavior, but demand stabilized quickly [20][21] Company Strategy and Development Direction - The company is focused on expanding its marketplace through the acquisition of the remaining 60% of Broad Arrow Group for $64.8 million, which is expected to be accretive to revenue and EBITDA [16][25] - Strategic partnerships, such as with State Farm, are aimed at augmenting organic growth and driving operating leverage [29][27] - The company aims to enhance its digital transformation and cross-selling of products while maintaining cost discipline [31][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to grow despite economic challenges, noting that the enthusiast vehicle market tends to be resilient during downturns [18][20] - The company anticipates a revenue growth trajectory of 24% to 28% for the full year, supported by mid-teens organic growth in written premiums and contributions from new partnerships [45][46] - Management emphasized the importance of customer-centric approaches and the need for careful management of costs while investing in growth [28][32] Other Important Information - The company reported a fair value loss of $5.4 million related to private and public warrants, impacting net loss for the quarter [41] - The company is expected to see an increase in adjusted EBITDA in the coming years as investments in digital platforms and partnerships begin to yield results [40][47] Q&A Session Summary Question: What was the catalyst for the acceleration in July? - Management noted that consumer confidence stabilized, leading to increased demand as summer driving months approached [56] Question: Was the increase in EBITDA guidance due to spending more or timing of revenue? - Management clarified that the increased spending was primarily for development related to State Farm and Broad Arrow, with no State Farm revenue included in 2022 guidance [57][58] Question: Can you size the expenses made for State Farm and other investments? - Management indicated that $80 million was spent on non-recurring pre-revenue costs, with a significant portion related to State Farm development [67] Question: Will expenses continue to rise in line with revenue? - Management expects expenses to grow at a slower pace compared to revenue growth as major development projects are completed [71]

Hagerty, Inc. (NYSE:HGTY) Q1 2022 Earnings Conference Call May 9, 2022 5:00 PM ET Company Participants Garrett Edson - ICR, IR McKeel Hagerty - Chief Executive Officer Fred Turcotte - Chief Financial Officer Conference Call Participants Operator Greetings. And welcome to the Hagerty’s First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is bei ...

"Investor Speakers: McKeel Hagerty | Chief Executive Officer Frederick J. Turcotte | SVP & Chief Financial Officer THE AMELIA HAGERTYRS D'ELEGANCE | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

a Investor & Presentation Speakers: McKeel Hagerty | Chief Executive Officer Frederick J. Turcotte | SVP & Chief Financial Officer HAGERTY FORWARD LOOKING STATEMENTS / NON-GAAP FINANCIAL MEASURES This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may relate to, but are not limited to, expectations of future operating results or financial perform ...

Hagerty, Inc. (NYSE:HGTY) Q4 2021 Earnings Conference Call March 24, 2022 5:00 PM ET Company Participants McKeel Hagerty - Chief Executive Officer Fred Turcotte - Chief Financial Officer Operator Greetings. Welcome to the Hagerty Full Year 2021 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] A short video will be played to the webcast followed by prepared remarks from Hagerty. [Audio/Video Pre ...