10-Q: Hagerty Reports Mixed Q2 Results Amid Strategic Shifts

Hagerty Inc. filed its Q2 2026 Form 10-Q, revealing a significant drop in net income and a shift in revenue composition due to the Markel Fronting Arrangement, while the Marketplace segment showed strong growth.

Summary

• Hagerty, Inc. reported a net loss of $4.7 million for the six months ended June 30, 2026, a substantial decrease from a net income of $74.5 million in the same period of 2025.
• Total revenue for the six months ended June 30, 2026, was $666.7 million, down 5.8% from $707.6 million in the prior year.
• The Insurance segment experienced a loss before taxes of $17.6 million for the six months ended June 30, 2026, compared to an income of $93.7 million in the prior year, largely due to the Markel Fronting Arrangement impacting commission revenue and introducing new expense classifications.
• Earned premium, net in the Insurance segment increased by 41.6% to $491.6 million for the six months ended June 30, 2026, driven by an increased quota share under the Markel Fronting Arrangement.
• The Marketplace segment showed improved performance, with income before taxes of $1.8 million for the six months ended June 30, 2026, compared to a loss of $0.5 million in the prior year, boosted by strong auction sales.
• The company's cash position improved, with total cash and cash equivalents and restricted cash and cash equivalents at $467.6 million as of June 30, 2026, up from $330.6 million in the prior year.
• Hagerty announced a pending acquisition of Bennetts Motorcycling Services Limited for approximately $43.0 million, expected to close in Q3 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing as having a negative sentiment due to a significant decrease in net income and a substantial increase in losses, despite some positive operational metrics.

Positives

• Earned premium, net in the Insurance segment increased by 41.6% to $491.6 million for the six months ended June 30, 2026, reflecting the increased quota share under the Markel Fronting Arrangement.
• The Marketplace segment reported improved income before taxes of $1.8 million for the six months ended June 30, 2026, a significant turnaround from a loss of $0.5 million in the prior year.
• Net Auction Sales in the Marketplace segment saw substantial growth, with a 92.7% increase for the six months ended June 30, 2026.
• Total cash and cash equivalents and restricted cash and cash equivalents increased to $467.6 million as of June 30, 2026, from $330.6 million as of December 31, 2025.
• New Business Count in the Insurance segment increased by 94.8% for the six months ended June 30, 2026.
• Policies in Force grew by 19.0% to 1,855,649 as of June 30, 2026.
• Hagerty Re Loss Ratio improved slightly to 40.6% for the six months ended June 30, 2026, from 42.2% in the prior year.

Negatives

• Net income for the six months ended June 30, 2026, was a loss of $4.7 million, a significant decline from a net income of $74.5 million in the same period of 2025.
• Income before taxes for the Insurance segment was a loss of $17.6 million for the six months ended June 30, 2026, a substantial decrease from an income of $93.7 million in the prior year.
• Commission and fee revenue decreased by 83.5% to $40.1 million for the six months ended June 30, 2026, primarily due to the Markel Fronting Arrangement.
• Underwriting and other insurance expenses increased significantly to $122.5 million for the six months ended June 30, 2026, from $2.6 million in the prior year, due to reclassification of costs related to the Markel Fronting Arrangement.
• Net income attributable to Class A Common Stockholders was a loss of $8.2 million for the six months ended June 30, 2026, compared to income of $15.6 million in the prior year.
• Basic and Diluted EPS were $(0.08) for the six months ended June 30, 2026, down from $0.16 in the prior year.

Risks

• The company faces risks related to its ability to compete effectively, attract and retain policyholders and subscribers.
• Maintaining key strategic relationships with insurance distribution and underwriting carrier partners is crucial.
• Risks associated with disruptions, interruptions, or outages with technology platforms or third-party services.
• The company must accelerate the adoption of its membership and marketplace products and services.
• Successfully implementing the fronting arrangement with Markel and managing increased exposure to underwriting volatility, catastrophes, and reinsurance counterparty risk.
• Underwriting and pricing new products, like Enthusiast+, consistent with expected loss ratios and risk tolerances.
• Executing Broad Arrow Group's private sale, auction, and financing strategies.
• Managing the cyclical nature of the insurance business and broader macroeconomic conditions, including inflation and interest rates.

Future Outlook

The company expects the Markel Fronting Arrangement to result in increased profitability and additional control, allowing for enhanced operational efficiencies. The acquisition of Bennetts is expected to close in the third quarter of 2026, further expanding the company's international presence.

Management Comments

• We expect these changes to result in increased profitability and additional control, allowing for enhanced operational efficiencies.
• Although we expect the Markel Fronting Arrangement to result in increased profitability, our reported commission revenue and ceding commission expense will be lower than in prior periods, reflecting the new contractual terms governing our relationship with Markel.
• This acquisition builds on the international momentum Hagerty has established through Broad Arrow Auctions, which has expanded its European presence over the past year.
• Together, both brands can create a more integrated enthusiast platform in the U.K. combining specialty insurance, live and digital auctions and community engagement across both motorcycles and enthusiast cars with additional cross-sell opportunities.

Industry Context

StockSavvy.ai notes that Hagerty's strategic shift with the Markel Fronting Arrangement significantly impacts its financial reporting, leading to lower reported commission revenue but a higher quota share for risk assumption. The growth in the Marketplace segment aligns with broader trends of increasing engagement in the collector car market.

Comparison to Industry Standards

• Hagerty Re's combined ratio of 88.1% for the six months ended June 30, 2026, indicates underwriting profitability, which is generally considered strong within the specialty insurance sector.
• The company's PIF Retention of 88.2% is a key metric for customer loyalty in the insurance industry, and while slightly down from the prior year, it remains a solid indicator of customer satisfaction.
• The significant increase in Net Auction Sales for Broad Arrow Group, particularly at major events like Concorso dEleganza Villa dEste, suggests strong performance relative to other auction houses specializing in high-value vehicles.

Legal Proceedings

• The company is involved in various claims and legal actions arising in the ordinary course of business, but does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources.

Related Party Transactions

• Hagerty Re reinsures risks predominantly from policies issued by Essentia Insurance Company, a subsidiary of Markel Group Inc. Markel is a related party.
• The company has a master alliance agreement with State Farm, under which State Farm Classic+ policies are offered to State Farm's customers.
• Hagerty Re has a quota share agreement to cede risk to Oglesby Reinsurance Company, a subsidiary of State Farm.
• Markel and State Farm have significant equity interests in Hagerty, Inc., including common stock and Series A Convertible Preferred Stock.
• Markel and State Farm are also holders of THG units.
• The company entered into a loss portfolio transfer agreement with Markel, effective January 1, 2026.
• Hagerty Re has an unsecured term loan credit facility with State Farm.

Stakeholder Impact

• Shareholders may be impacted by the significant decrease in net income and earnings per share.
• Policyholders and Hagerty Drivers Club subscribers (Members) are expected to continue receiving services, with potential benefits from the Markel Fronting Arrangement and the Bennetts acquisition.
• Employees may be affected by the strategic shifts and potential integration of Bennetts.
• Creditors and debt holders are subject to the company's debt covenants and financial performance, with the company currently in compliance.

Next Steps

• Complete the acquisition of Bennetts Motorcycling Services Limited, expected in the third quarter of 2026.
• Continue to integrate the Markel Fronting Arrangement and realize anticipated benefits.
• Monitor and manage risks associated with the Markel Fronting Arrangement, including underwriting volatility and reinsurance counterparty risk.
• Focus on accelerating the adoption of membership and marketplace products and services.
• Execute Broad Arrow Group's private sale, auction, and financing strategies.
• Manage macroeconomic conditions and their potential impact on the insurance business.

Key Dates

Recommendation

While the Marketplace segment shows strong growth and the company's liquidity has improved, the significant decline in net income and profitability within the Insurance segment due to the Markel Fronting Arrangement creates uncertainty. The strategic shift is expected to yield long-term benefits, but the immediate financial impact is negative. Therefore, a 'hold' recommendation is appropriate pending clearer signs of recovery and successful integration of the new arrangements.

Keywords

insurance, collector cars, automotive enthusiast, reinsurance, marketplace, membership, underwriting, financial services