10-Q: Hagerty Q2 2025 Earnings: Strong Revenue & Profit Growth

Hagerty, Inc. reports significant revenue and net income growth in Q2 2025, driven by strong insurance policy renewals and a surge in marketplace sales.

Summary

• Net income for the three months ended June 30, 2025, increased by $4.5 million (10.7%) to $47.2 million compared to the prior year.
• Adjusted EBITDA for the three months ended June 30, 2025, increased by $10.6 million (20.0%) to $63.7 million compared to the prior year.
• Total revenue for the three months ended June 30, 2025, increased by $55.5 million (17.7%) to $368.7 million compared to the prior year.
• Total Written Premium grew by 10.8% for the three months ended June 30, 2025, and 11.3% for the six months ended June 30, 2025.
• Commission and fee revenue increased by 11.2% for the three months ended June 30, 2025, and 11.9% for the six months ended June 30, 2025, primarily due to policy renewals and a 14.3% increase in underlying policy premiums.
• Earned premium at Hagerty Re increased by 12.8% for the three months ended June 30, 2025, and 12.3% for the six months ended June 30, 2025.
• Membership, marketplace and other revenue surged by 77.7% for the three months ended June 30, 2025, and 68.1% for the six months ended June 30, 2025, largely due to significantly higher marketplace inventory sales and private sale commissions.
• Hagerty Re Loss Ratio increased to 42.3% for the three months ended June 30, 2025 (from 41.1% in Q2 2024), and 42.2% for the six months ended June 30, 2025 (from 41.1% in 2024), including approximately $10.3 million of pre-tax catastrophe losses from the Southern California wildfires in January 2025.
• Hagerty Re Combined Ratio increased to 89.6% for the three months ended June 30, 2025 (from 88.1% in Q2 2024), and 89.1% for the six months ended June 30, 2025 (from 88.3% in 2024).
• New Business Count Insurance decreased by 1.3% for the three months ended June 30, 2025, and 3.5% for the six months ended June 30, 2025.
• Policies in Force increased by 3.5% to 1,559,798 as of June 30, 2025.
• HDC Paid Member Count increased by 3.7% to 907,963 as of June 30, 2025.
• Net cash provided by operating activities for the six months ended June 30, 2025, decreased by $24.5 million (20.1%) to $97.7 million.
• Long-term debt, net increased to $153.4 million as of June 30, 2025, from $105.0 million as of December 31, 2024, primarily due to new JPM Credit Facility borrowings.
• The estimated value of the Tax Receivable Agreement (TRA) Liability increased to $5.1 million as of June 30, 2025, from $2.2 million as of December 31, 2024.

Sentiment

Score: 8

Explanation: The company demonstrated robust financial performance with significant revenue and profit growth, driven by core insurance and booming marketplace segments. While there was a slight dip in new insurance business and an increase in loss ratio due to catastrophe events, the overall financial health, strategic initiatives (Markel fronting arrangement), and high customer satisfaction (NPS) indicate a very positive outlook. The increase in debt is for operational funding and strategic investments, and liquidity is deemed sufficient.

Positives

• Achieved significant growth in total revenue, increasing by 17.7% for both the three and six months ended June 30, 2025.
• Reported strong increases in Net Income, up 10.7% for Q2 2025 and 46.5% for the six months ended June 30, 2025.
• Demonstrated robust Adjusted EBITDA growth of 20.0% for Q2 2025 and 28.5% for the six months ended June 30, 2025.
• Experienced double-digit growth in Total Written Premium (10.8% for Q2, 11.3% for 6 months) and Earned Premium (12.8% for Q2, 12.3% for 6 months).
• Saw a substantial surge in Membership, marketplace and other revenue, increasing by 77.7% for Q2 2025 and 68.1% for the six months ended June 30, 2025, primarily driven by marketplace sales.
• Maintained strong policy retention and achieved significant increases in underlying policy premiums (14.3% for Q2, 15.3% for 6 months).
• Policies in Force and HDC Paid Member Count showed healthy growth of 3.5% and 3.7% respectively.
• Net Promoter Score (NPS) remains high at 82, indicating strong customer loyalty and satisfaction.
• Secured a new $375.0 million JPM Credit Facility, providing significant borrowing capacity.
• Hagerty Re maintains sufficient statutory capital and surplus, and Drivers Edge complies with state insurance regulations, indicating strong financial stability.

Negatives

• New Business Count Insurance decreased by 1.3% for the three months ended June 30, 2025, and 3.5% for the six months ended June 30, 2025.
• Hagerty Re Loss Ratio and Combined Ratio increased, indicating higher losses and underwriting expenses relative to earned premium.
• Net cash provided by operating activities decreased by 20.1% for the six months ended June 30, 2025, primarily due to the timing of CUC receivables/payables and catastrophe claim payments.
• Interest and other income (expense), net decreased significantly (54.1% for Q2, 35.1% for 6 months), partly due to an increase in the TRA Liability and lower yields on fixed income securities.
• Sales expense increased substantially (40.4% for Q2, 39.2% for 6 months) due to higher cost of marketplace inventory sales and sales commissions.
• Other revenue decreased by 18.9% for Q2 and 21.0% for the six months ended June 30, 2025, partly due to the sale of Motorsport Reg (MSR) and lower sponsorship/admission revenue.
• Incurred $10.3 million of pre-tax catastrophe losses from the Southern California wildfires in January 2025, impacting the loss ratio.

Risks

• Ability to compete effectively within the industry and attract and retain insurance policyholders and paid Hagerty Drivers Club (HDC) subscribers.
• Maintaining key strategic relationships with insurance distribution and underwriting carrier partners.
• Preventing, monitoring, and detecting fraudulent activity.
• Managing risks associated with disruptions, interruptions, outages, or other issues with technology platforms or the use of third-party services.
• Accelerating the adoption of membership and marketplace products and services, as well as any new insurance programs and products offered.
• Completing the proposed fronting arrangement with Markel Group Inc. and achieving its intended benefits, as the letter of intent is non-binding and subject to definitive documentation and regulatory approvals.
• Managing the cyclical nature of the insurance business, including through any periods of recession, economic downturn, or inflation.
• Addressing unexpected increases in the frequency or severity of claims.
• Complying with the numerous laws and regulations applicable to the business, including state, federal, and foreign laws relating to insurance and rate increases, privacy, the internet, and accounting matters.
• Potential devaluation in collateral for Broad Arrow Capital (BAC) loans, which could adversely impact recovery.
• Concentration risk with three borrowers each holding loan balances exceeding 10% of the total notes receivable balance, totaling $33.3 million (33% of the portfolio).
• Being a holding company, dependence on distributions from The Hagerty Group, LLC (THG) to pay taxes, make payments under the Tax Receivable Agreement (TRA), and cover other expenses.
• Rising interest rates and the imposition of tariffs on imported goods could increase costs, reduce consumer spending on collector cars and related services, and negatively impact the business.
• Uncertainty regarding the impact of the recently enacted One Big Beautiful Bill Act (OBBBA) on Consolidated Financial Statements.
• Potential increase in the effective income tax rate and cash income tax payments in future years as a result of the global minimum corporate tax rate (Pillar 2), despite current expectations of no material impact.
• Litigation and regulatory matters, including a data security incident from 2021, could result in fines, penalties, and/or settlements that differ from the currently accrued estimated liability.

Future Outlook

The company expects increased profitability and enhanced operational efficiencies from the proposed fronting arrangement with Markel, anticipated to be signed in 2025 and become effective January 1, 2026. It also plans to add more states to the State Farm Classic+ policies program in the remainder of 2025 and 2026. The company is still evaluating the impact of the One Big Beautiful Bill Act (OBBBA) on its financial statements and does not expect a material impact from the Pillar 2 global minimum corporate tax rate, though its effective tax rate and cash payments could increase in future years.

Management Comments

• 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.
• We expect these changes [from the Proposed Fronting Arrangement] to result in increased profitability and additional control allowing for enhanced operational efficiencies.
• Maintaining a strong balance sheet and capital position is a top priority for us.
• 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.
• Management believes there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow management to reach a conclusion that a significant portion of the valuation allowance recorded against the U.S. deferred tax assets will be reversed.

Industry Context

Hagerty operates in the specialized market of collector car and enthusiast vehicle insurance, memberships, and marketplace services. The significant growth in marketplace revenue, including high-value inventory sales and auctions, suggests a robust and potentially growing demand within this niche luxury segment, possibly indicating resilience against broader economic conditions. The company's deepening strategic partnerships with major players like Markel and State Farm are crucial for its distribution and underwriting model, reflecting a trend towards leveraging established networks for specialized insurance offerings. The reported increase in underlying policy premiums due to inflation and higher vehicle repair costs aligns with broader trends observed across the general insurance industry.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct industry comparison.
• Hagerty's Net Promoter Score (NPS) of 82 is generally considered excellent, indicating strong customer loyalty and satisfaction, which is a positive benchmark within the service industry.
• The Hagerty Re Combined Ratio of 89.6% for Q2 2025 and 89.1% for the six months ended June 30, 2025, indicates underwriting profitability (below 100%), which is a strong performance metric for an insurance entity, even with the impact of catastrophe losses.

Legal Proceedings

• The company is involved in various claims and legal actions that arise in the ordinary course of business.
• A data security incident occurred in 2021 involving unauthorized access into its online insurance quote feature, which is the subject of coordinated industry-wide regulatory investigations. An estimated liability has been accrued, but the amount of any fines, penalties, and/or settlements could differ from the current estimate and is not currently estimable.

Related Party Transactions

• Markel and State Farm are considered related parties due to their significant equity interests in Hagerty.
• Markel Alliance Agreement: Policies sold by Hagerty's U.S. MGAs are underwritten by Essentia Insurance Company (Markel subsidiary) and reinsured with Evanston Insurance Company (Markel subsidiary). Commission revenue from Markel-affiliated sources was $127.5 million for Q2 2025 and $221.4 million for the six months ended June 30, 2025, representing 91-92% of total commission revenue.
• Reinsurance Agreement with Markel: Hagerty Re assumes approximately 80% of risks written through U.S. MGAs (except High-Net-Worth Accounts, where it assumes 100% from a Markel subsidiary). Earned premium assumed from Markel subsidiaries was $182.9 million for Q2 2025 and $358.0 million for the six months ended June 30, 2025.
• State Farm Alliance Agreement: A 10-year master alliance agreement under which State Farm Classic+ policies are offered. State Farm paid Hagerty an advanced commission of $20.0 million. Commission revenue associated with State Farm Classic+ policies was not material.
• Reinsurance Agreement with State Farm: Hagerty Re cedes 50% of the risk assumed from a Markel subsidiary (related to High-Net-Worth Accounts) to Oglesby Reinsurance Company, a wholly owned subsidiary of State Farm.
• State Farm Term Loan: Hagerty Re entered into an unsecured term loan facility with State Farm for $25.0 million at an 8.0% interest rate, maturing in September 2033.
• Other Related Party Transactions: In the ordinary course of business, related parties such as Board members and management purchase insurance policies, receive claims payments, and engage in buying/selling collector cars through marketplace auctions or private transactions.

Stakeholder Impact

• Shareholders: Positive financial results, including significant revenue, net income, and Adjusted EBITDA growth, along with strategic initiatives like the proposed Markel fronting arrangement, could lead to increased shareholder value. The potential reversal of a valuation allowance on deferred tax assets could further enhance reported income.
• Employees: The increase in headcount and annual merit increases indicate continued investment in the workforce. Share-based compensation plans provide incentives aligned with company performance.
• Customers: Strong policy retention and a high Net Promoter Score (NPS) of 82 suggest high customer satisfaction. However, rate increases driven by inflation and higher vehicle repair costs may impact some policyholders.
• Partners (Markel, State Farm): Deepening strategic alliances and the proposed fronting arrangement with Markel indicate strong, evolving partnerships that are mutually beneficial.
• Creditors: Compliance with financial covenants for credit facilities (JPM, BAC) and management's assessment of sufficient liquidity suggest the company is well-positioned to meet its debt obligations.

Next Steps

• Negotiation and execution of definitive documentation for the Proposed Fronting Arrangement with Markel in 2025.
• Receipt of all required regulatory approvals for the Proposed Fronting Arrangement.
• Proposed Fronting Arrangement with Markel is expected to become effective on January 1, 2026.
• Additional states are planned for the State Farm Classic+ policies program in the remainder of 2025 and 2026.
• The company will adopt ASU No. 2023-09 starting with its Annual Report on Form 10-K for the year ended December 31, 2025.
• The company is assessing the impact of ASU No. 2024-03, which is effective for annual periods beginning after December 15, 2026.
• Management will continue to evaluate the realizability of deferred tax assets quarterly, with a reasonable possibility of valuation allowance reversal within the next twelve months.

Key Dates

Recommendation

The company demonstrates robust financial performance with significant growth in revenue, net income, and Adjusted EBITDA, driven by both its core insurance business and a rapidly expanding marketplace segment. Strategic initiatives, such as the proposed Markel fronting arrangement, are expected to further enhance profitability and operational control. While there are minor headwinds like a slight decrease in new business count and increased loss ratios due to specific catastrophe events, the overall trajectory is positive. The strong balance sheet, high customer satisfaction (NPS of 82), and effective management of debt and capital resources position the company for continued growth and market leadership in its specialized niche. The current results suggest the company is executing its strategy effectively and has strong future prospects.

Keywords

Collector Car Insurance, Enthusiast Vehicles, Hagerty Drivers Club, Managing General Agent, Reinsurance, Automotive Marketplace, Classic Cars, Financial Reporting, Insurance, SEC Filing, HGTY, Quarterly Results