10-Q: Hagerty's Q3 2025 Earnings Soar on Strong Growth, Strategic Moves

Hagerty's Q3 2025 results show substantial revenue and profit growth, fueled by strong insurance performance and strategic initiatives.

Summary

• Net income for the three months ended September 30, 2025, increased by 142.9% to $46.2 million, compared to $19.0 million in the prior year.
• Total revenue grew by 17.5% to $379.994 million for the three months ended September 30, 2025, up from $323.374 million in 2024.
• Operating income for the quarter surged by 240.1% to $34.3 million, compared to $10.1 million in the same period last year.
• Adjusted EBITDA increased by 105.7% to $49.7 million for the quarter, from $24.2 million in the prior year.
• The Hagerty Re Loss Ratio improved significantly to 42.0% for the quarter, down from 60.0% in the prior year, and the Combined Ratio improved to 89.6% from 107.7%.
• Total Written Premium grew by 16.1% to $334.0 million for the quarter, and New Business Count for insurance increased by 47.9% to 114,513 policies.
• For the nine months ended September 30, 2025, net income rose by 72.7% to $120.7 million, and total revenue increased by 17.6% to $1.068 billion.
• The company achieved cumulative three-year profitability, leading to the release of a $38.1 million valuation allowance on deferred tax assets.
• A non-binding letter of intent was signed for a proposed fronting arrangement with Markel, expected to be effective January 1, 2026, aiming for increased profitability and operational control.
• The new Enthusiast+ insurance product was launched in Colorado in Q3 2025, with a phased nationwide rollout planned over the next four years.

Sentiment

Score: 8

Explanation: The company reported exceptionally strong financial results with significant growth in revenue, operating income, and net income, coupled with improved underwriting profitability. Strategic initiatives like the Markel fronting arrangement and Enthusiast+ product launch are well-positioned for future growth and efficiency. The high Net Promoter Score underscores strong customer loyalty. While there are notable expenses related to the TRA Liability and a data security settlement, these are largely one-time or accounting-related adjustments. The overall trajectory and strategic positioning suggest strong future potential, warranting a highly positive sentiment.

Positives

• Net income increased by 142.9% to $46.2 million for the three months ended September 30, 2025, and by 72.7% to $120.7 million for the nine months.
• Operating income saw a substantial increase of 240.1% to $34.3 million for the three months and 78.4% to $107.7 million for the nine months.
• Adjusted EBITDA grew by 105.7% to $49.7 million for the three months and 46.3% to $153.1 million for the nine months.
• Total revenue increased by 17.5% for the three months and 17.6% for the nine months, driven by strong performance across all segments.
• Commission and fee revenue increased by 18.0% to $137.1 million for the three months and 14.0% to $380.7 million for the nine months.
• Earned premium, net, increased by 12.9% to $187.0 million for the three months and 12.5% to $534.2 million for the nine months.
• Membership, marketplace and other revenue grew significantly by 34.5% to $55.9 million for the three months and 54.1% to $153.4 million for the nine months, with marketplace revenue up 58.5% for the quarter.
• Hagerty Re Loss Ratio improved by 18.0 percentage points to 42.0% for the three months and 5.6 percentage points to 42.1% for the nine months, indicating better underwriting results.
• Hagerty Re Combined Ratio improved by 18.1 percentage points to 89.6% for the three months and 5.8 percentage points to 89.3% for the nine months, demonstrating strong underwriting profitability.
• Total Written Premium increased by 16.1% to $334.0 million for the three months and 13.0% to $934.4 million for the nine months.
• New Business Count for insurance policies increased by 47.9% to 114,513 for the three months and 14.1% to 257,694 for the nine months.
• Policies in Force grew by 7.4% to 1,617,231, Vehicles in Force by 6.3% to 2,739,037, and HDC Paid Member Count by 5.1% to 920,725 as of September 30, 2025.
• The Net Promoter Score remained high at 82, indicating strong customer loyalty and engagement.
• The company released a $38.1 million valuation allowance on deferred tax assets due to achieving cumulative three-year profitability and forecasting continued profitability.
• The proposed fronting arrangement with Markel is expected to enhance profitability and operational efficiencies by giving Hagerty Re 100% control of premium and risk for policies written through Essentia.
• The launch of the Enthusiast+ product broadens the addressable market and is expected to generate attractive returns and contribute to long-term growth.

Negatives

• Interest and other income (expense), net, decreased significantly by $29.3 million for the three months and $36.2 million for the nine months, primarily due to a $29.2 million expense related to the Tax Receivable Agreement (TRA) Liability in Q3 2025.
• Salaries and benefits increased by 44.3% to $68.1 million for the three months and 18.8% to $191.3 million for the nine months, driven by higher accrued incentive compensation and increased headcount.
• Sales expense increased by 31.3% to $77.7 million for the three months and 36.0% to $199.7 million for the nine months, largely due to higher marketplace inventory sales and commissions.
• General and administrative expenses increased by 17.3% to $24.4 million for the three months and 11.5% to $69.2 million for the nine months, partly due to professional fees for the THG Unit Exchange, secondary offering, and proposed Markel arrangement.
• A slight decrease in Policies in Force Retention to 88.6% from 89.0% year-over-year.
• The company incurred $3.15 million in legal settlement expenses related to a data security incident with the NY DFS and NY AG, payable in Q4 2025.

Risks

• Inability to successfully enter into the Proposed Fronting Arrangement with Markel or realize the anticipated benefits, as it is subject to negotiation, definitive documentation, and regulatory approvals.
• 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 business.
• Dependence on distributions from The Hagerty Group, LLC (THG) to pay taxes, make payments under the Tax Receivable Agreement (TRA), and cover other expenses, due to the holding company structure.
• Regulatory restrictions on Hagerty Re (Bermuda Solvency Capital Requirement) and Drivers Edge (state-specific minimum capital and surplus requirements) could limit their ability to make distributions or pay dividends.
• Uncertainty in estimating the Tax Receivable Agreement (TRA) Liability, as its calculation depends on significant assumptions regarding future taxable income.
• Exposure to litigation and claims in the ordinary course of business, which could result in defense and settlement costs and diversion of management resources.
• Potential for unexpected increases in the frequency or severity of claims, including catastrophe losses (e.g., Southern California Wildfires, Hurricane Helene, Hurricane Milton).
• Challenges in competing effectively within the industry and attracting and retaining insurance policyholders and paid Hagerty Drivers Club (HDC) subscribers.
• Risks associated with disruptions, interruptions, outages, or other issues with technology platforms or the use of third-party services.
• Difficulty in underwriting and pricing new products, such as Enthusiast+, consistent with expected loss ratios and risk tolerances.
• Managing the cyclical nature of the insurance business and broader macroeconomic conditions, including inflation, interest rates, and potential recessionary pressures.
• Compliance with numerous state, federal, and foreign laws and regulations applicable to the business, including those related to insurance, privacy, and accounting matters.

Future Outlook

The proposed fronting arrangement with Markel is expected to be signed in Q4 2025 and become effective on January 1, 2026, aiming to increase profitability and operational efficiencies. The Enthusiast+ product will undergo a phased, nationwide rollout over the next four years. Salaries and benefits, along with general and administrative expenses, are expected to increase in dollar amount but decrease as a percentage of revenue as the business grows and reaches scale. Depreciation and amortization are also expected to increase in dollar amount but decrease as a percentage of revenue as platform technology investments mature. Management does not anticipate a material impact on the effective tax rate or results of operations from the global minimum corporate tax (Pillar 2) despite potential increases in future years. The company believes its liquidity sources will be sufficient to meet anticipated short and long-term commitments and obligations, including those under the Tax Receivable Agreement.

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."
• Regarding the Proposed Fronting Arrangement with Markel: "We expect these changes to result in increased profitability and additional control allowing for enhanced operational efficiencies."
• Regarding the Enthusiast+ product: "We expect that Enthusiast+ policies will generate attractive returns for us, widen our funnel of insurable vehicles and aid in our growth."
• Regarding the Enthusiast+ product: "We believe that Enthusiast+ will enable us to better meet the needs of modern vehicle enthusiasts and contribute to the long-term growth and diversification of our insurance portfolio."
• Regarding the Business Review: "This initiative supports our strategy to prioritize investments and resources in the areas of our business that offer the strongest growth and profit potential."
• Regarding liquidity: "As of September 30, 2025, 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."

Industry Context

Hagerty operates in the niche market of collector car and enthusiast vehicle insurance, which is experiencing growth and evolving consumer preferences. The launch of the Enthusiast+ product signifies a strategic expansion into the broader modern enthusiast vehicle market, aligning with industry trends of diversification and tailored product offerings. The proposed fronting arrangement with Markel is a significant move to gain greater control over underwriting and claims, a common strategy for Managing General Agents (MGAs) seeking to optimize their value chain and improve profitability. The company's marketplace business, Broad Arrow, is expanding globally, reflecting the increasing sophistication and international nature of the collector car market. Macroeconomic factors such as inflation and interest rates are acknowledged as influencing vehicle repair costs and discretionary consumer spending, which are relevant across the insurance and luxury goods sectors.

Comparison to Industry Standards

• Net Promoter Score (NPS) of 82 is exceptionally high, indicating world-class customer loyalty and satisfaction, significantly above the typical 'good' NPS of 50+ and 'excellent' NPS of 70+ seen in many industries, including insurance.
• Hagerty Re Combined Ratio of 89.6% for Q3 2025 and 89.3% for the nine months ended September 30, 2025, demonstrates superior underwriting profitability. This is notably strong compared to the broader property & casualty insurance industry, where combined ratios often range from the mid-90s to over 100%, even for well-managed companies like Travelers or Chubb, especially in periods with significant catastrophe losses.
• Policies in Force (PIF) Retention of 88.6% is a solid rate for an insurance product, indicating strong customer retention. This is competitive with leading personal lines insurers who typically aim for retention rates in the high 80s to low 90s.
• Total Written Premium growth of 16.1% for Q3 2025 and 13.0% for the nine months ended September 30, 2025, represents robust growth, outpacing the average market growth rates for many mature insurance lines and demonstrating successful market penetration and product appeal.
• The strategy to launch Enthusiast+ for modern enthusiast vehicles, expecting higher loss ratios but attractive returns, is a common and effective approach in specialty insurance to expand market share while managing segment-specific risks, similar to how other niche insurers develop tailored products for specific, underserved segments.

Legal Proceedings

• Settled data security incident investigations with the New York Department of Financial Services (NY DFS) and the New York Attorney General (NY AG) in October 2025, agreeing to pay $1.85 million to the NY DFS and $1.3 million to the NY AG.
• The Hagerty Group, LLC (THG) is currently under audit by the IRS for the 2021 tax year.

Related Party Transactions

• Markel and State Farm are significant equity holders and related parties.
• Markel Alliance Agreement: Policies sold by Hagerty's U.S. MGAs are underwritten by Essentia Insurance Company and reinsured with Evanston Insurance Company (both Markel subsidiaries). Commission revenue from Markel was $122.4 million for Q3 2025 and $343.8 million for the nine months ended September 30, 2025.
• Reinsurance Agreement with Markel: Hagerty Re assumes approximately 80% of risks from U.S. MGAs (100% for High-Net-Worth Accounts) from Evanston. Earned premium, net, related to Markel was $191.3 million for Q3 2025 and $549.3 million for the nine months.
• State Farm Alliance Agreement: A 10-year master alliance agreement to offer State Farm Classic+ policies, including an advanced commission of $20.0 million paid by State Farm to Hagerty.
• Reinsurance Agreement with State Farm: Hagerty Re cedes 50% of the risk assumed from a Markel subsidiary (High-Net-Worth Accounts) to Oglesby Reinsurance Company (a State Farm subsidiary).
• State Farm Term Loan: Hagerty Re has an unsecured term loan credit facility with State Farm for $25.0 million at 8.0% interest, maturing in September 2033.
• THG Unit Exchange: Hagerty Holding Corp. (HHC), controlled by McKeel and Tammy Hagerty, exchanged 9,481,750 THG units for Class A Common Stock in Q3 2025, followed by a secondary offering where HHC sold these shares.

Next Steps

• Negotiate and execute definitive documentation for the Proposed Fronting Arrangement with Markel in Q4 2025.
• Obtain all required regulatory approvals for the Proposed Fronting Arrangement.
• Implement a phased, nationwide rollout of the Enthusiast+ product over the next four years.
• Pay $1.85 million to the NY DFS and $1.3 million to the NY AG in Q4 2025 for the data security incident settlement.
• Kenneth Ahn's Rule 10b5-1 trading plan to commence on December 15, 2025.
• Adopt ASU No. 2023-09 (Income Taxes) starting with the Annual Report on Form 10-K for the year ended December 31, 2025.
• Assess the impact of ASU No. 2024-03 (Income Statement Expenses) for adoption after December 15, 2026.
• Assess the impact of ASU No. 2025-06 (Internal-Use Software) for adoption after December 15, 2027.

Key Dates

Recommendation

The company demonstrated exceptional financial performance with significant revenue growth, substantial increases in operating and net income, and improved underwriting profitability (combined ratio below 90%). Strategic initiatives like the Markel fronting arrangement and the Enthusiast+ product launch are expected to drive further growth and efficiency. The high Net Promoter Score indicates strong customer loyalty. While there are notable expenses related to the TRA Liability and a data security settlement, these are largely one-time or accounting-related adjustments. The overall trajectory and strategic positioning suggest strong future potential, making it an attractive investment.

Keywords

Collector car insurance, Specialty insurance, Automotive enthusiast, Hagerty Drivers Club, Marketplace, Reinsurance, Markel, State Farm, Enthusiast+ product, Financial results, Underwriting profitability, SEC filing, 10-Q, Risk management, Corporate governance