Executive Summary / Key Takeaways

• Hagerty is leveraging its unique automotive enthusiast ecosystem – encompassing specialty insurance, membership, and marketplace services – to drive consistent double-digit revenue growth, significantly outpacing the broader insurance industry.
• Recent financial results, including 18% total revenue growth and 45% Adjusted EBITDA growth in Q1 2025, demonstrate increasing operating leverage, building on substantial margin expansion achieved in 2023 and 2024.
• Strategic investments in technology (Apex/Duck Creek platform) and key partnerships (State Farm Classic Plus rollout) are expected to temper the rate of margin expansion in 2025 but are foundational to achieving scalable growth, doubling policies in force by 2030, and driving significantly higher profitability in subsequent years.
• Hagerty's differentiated brand, deep data expertise, and high-touch customer service (reflected in an NPS more than double the industry average) provide a strong competitive moat against larger, less specialized insurers, enabling superior retention and effective cross-selling.
• While facing risks such as catastrophe losses, potential impacts from economic conditions/tariffs, and the complexity of technology implementation, management's reaffirmed 2025 guidance signals confidence in delivering robust profit growth alongside strategic build-out.

The Open Road Ahead: Fueling Growth in the Enthusiast Market

Hagerty, Inc. stands at a unique intersection of the insurance sector and the passionate world of automotive enthusiasts. For over four decades, the company has cultivated a brand deeply embedded in car culture, evolving from a specialty vehicle insurer into a comprehensive ecosystem that helps members protect, buy, sell, and enjoy their prized vehicles. This differentiated model, encompassing Managing General Agent (MGA) insurance operations, a wholly owned reinsurance arm (Hagerty Re), the engaging Hagerty Drivers Club (HDC) membership, and a growing Marketplace business, sets Hagerty apart in a competitive landscape dominated by much larger, generalist insurers.

While giants like Progressive (PGR), Allstate (ALL), and Berkshire Hathaway's (BRK.B) Geico command vast market share in standard auto insurance, Hagerty has carved out a leadership position in the niche collector and enthusiast vehicle segment. This focus allows Hagerty to leverage specialized data and underwriting expertise, resulting in loss ratios significantly better than daily driver auto insurance and industry-leading customer retention, which climbed to 89% in 2024. Hagerty's Net Promoter Score (NPS) of 82, more than double the industry average of 39, underscores the success of its high-touch, enthusiast-centric service model – a critical competitive moat that fosters loyalty and drives profitable growth through referrals and renewals.

However, Hagerty's niche focus also presents challenges. Its smaller scale compared to mass-market insurers can lead to higher operating costs per policy. Furthermore, while Hagerty boasts proprietary technology like its vehicle valuation tool, enabling more accurate pricing for unique assets, its legacy IT infrastructure, built in the 2000s, has historically limited scalability and operational efficiency. This technological gap, coupled with the need to continuously invest in its expanding ecosystem (Marketplace, new insurance products), requires significant capital allocation.

Recognizing these dynamics, Hagerty has embarked on a strategic transformation aimed at preserving its core strengths while building a scalable, efficient platform for future growth. Key initiatives include expanding its insurance offerings to capture more of the total addressable market (TAM), simplifying and integrating its membership experience, growing the Marketplace business both domestically and internationally, and critically, modernizing its technology stack.

Under the Hood: Performance and Strategic Investments

Hagerty's recent financial performance reflects the impact of its growth strategy and the initial phase of its strategic investments. In the first quarter of 2025, total revenue increased an impressive 18% year-over-year to $319.6 million. This growth was powered by an 11.9% increase in Written Premium, which drove a 12.9% jump in Commission and fee revenue to $100.3 million and an 11.7% rise in Earned premium for Hagerty Re to $169.4 million. The Marketplace segment demonstrated particularly strong momentum, with revenue soaring 175.8% to $27.1 million in Q1 2025, significantly boosted by successful auctions, including the sale of The Academy of Art University Collection.

This top-line expansion is increasingly translating into bottom-line improvement. Operating income more than doubled in Q1 2025, increasing 110% year-over-year to $25.7 million, driving a 360 basis point expansion in operating margin. Adjusted EBITDA grew 45% to $39.6 million in the quarter. These results build on the significant operating leverage demonstrated in 2024, where full-year operating income jumped 538% to $66.4 million and Adjusted EBITDA increased 41% to $124.5 million, despite incorporating the impact of catastrophe losses.

The profitability gains are a direct result of Hagerty's focus on operational efficiencies and cost discipline within its core MGA business, where margins are expanding. While the risk-taking Hagerty Re segment operates at a more typical insurance profit margin (around 10%), the Marketplace business, when performing well, is noted by management as being highly profitable on a contribution basis (30-35% margins).

However, the path to sustained margin expansion involves significant near-term investment. Hagerty is currently undertaking a multiyear technology transformation program, dubbed "Apex," which includes transitioning to the Duck Creek cloud-based insurance platform. This initiative is designed to replace the aging legacy system, which was identified as a constraint on scalability and operational efficiency. The new platform aims to simplify the member experience, automate workflows, enhance security, and enable a more modern risk rating architecture. While essential for long-term growth and efficiency, this implementation is complex and costly. Management estimates over $20 million in elevated investments in 2025 due to operating redundant systems and associated personnel and software expenses. This investment is expected to temper the rate of margin expansion in 2025.

Another key driver of both current and future growth is the strategic partnership with State Farm. The rollout of the State Farm Classic Plus program, which began in four states in late 2023, is planned to expand to 25 or more states by the end of 2025. The conversion of State Farm's existing classic vehicle customers (totaling over 520,000) to the Hagerty program is beginning in initial states, with a large ramp-up in volumes anticipated in 2026 and 2027. This partnership provides a significant channel for new customer acquisition and written premium growth. Additionally, the planned launch of the Enthusiast Plus product later in 2025, starting in Colorado, aims to broaden Hagerty's underwriting aperture to capture the growing market for more modern enthusiast vehicles that the core program currently declines.

Liquidity remains a focus, with primary sources including cash on hand, operating cash flows, and access to credit facilities. As of March 31, 2025, Hagerty held $127.7 million in cash and cash equivalents and $158.6 million in restricted cash and cash equivalents. Total debt stood at $146.7 million, including borrowings under the new $375 million senior unsecured revolving credit facility (2025 JPM (JPM) Credit Facility) and the Broad Arrow Capital (BAC) Credit Facility which funds collector car loans.

The company believes its current liquidity is sufficient to meet anticipated short and long-term obligations, including potential preferred stock dividends, tax obligations (including TRA payments), and funding strategic investments.

Risks on the Horizon

Despite strong momentum, Hagerty faces inherent risks. As an insurer, it is exposed to catastrophe losses, as evidenced by the $10.4 million pre-tax impact from the Southern California wildfires in Q1 2025 and the $30 million pre-tax impact from Hurricanes Helene and Milton in Q3 2024. While catastrophe reinsurance helps mitigate this, large or frequent events can impact profitability. The cyclical nature of the insurance business and potential economic downturns could also affect results, although management notes the collector car market has historically shown resilience. Rising interest rates could impact consumer spending on discretionary items like collector cars and potentially affect the value of collateral for BAC loans, although the company mitigates this with targeted low loan-to-value ratios. Changes in tariffs could increase costs for vehicle parts, potentially impacting claims severity, though Hagerty believes this impact will be muted compared to standard auto insurance due to the nature of collector car supply chains. The successful implementation of the complex Apex technology transformation is also critical; delays or cost overruns could impact efficiency gains and financial performance. Furthermore, as a holding company, Hagerty's ability to meet cash requirements depends on distributions from its subsidiaries, which are subject to regulatory restrictions.

Conclusion

Hagerty is executing a clear strategy to capitalize on its unique position in the automotive enthusiast market. By leveraging its strong brand, deep data expertise, and integrated ecosystem of insurance, membership, and marketplace services, the company is driving robust top-line growth and expanding profitability. While 2025 involves significant strategic investments in technology and key partnerships that may temper near-term margin expansion, these initiatives are designed to build a scalable platform for accelerated growth and significantly higher margins in the years to come. The reaffirmed 2025 guidance for double-digit revenue growth and strong profit increases signals management's confidence in this trajectory. For investors, Hagerty represents an opportunity to participate in a differentiated business model with a loyal customer base and a visible path to compounding profit growth, underpinned by strategic investments aimed at long-term scalability and efficiency. Monitoring the execution of the technology transformation and the ramp-up of key partnerships like State Farm will be crucial in evaluating the company's progress towards its ambitious goal of doubling policies in force by 2030 and realizing its full margin potential.