Hagerty (HGTY) Q4 2025 Earnings Call Transcript

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Date

Thursday, Feb. 26, 2026, at 10 a.m. ET

Call participants

• Chief Executive Officer and Chairman — McKeel O. Hagerty
• Chief Financial Officer — Patrick Scott McClymont
• Senior Vice President of Investor Relations — Jason Koval

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Takeaways

• Total revenue -- $357 million, up 19%, driven by written premium growth and segment expansion.
• Written premiums -- Increased 19%, reflecting robust new business, State Farm conversions, and 89% retention.
• Commission and fee revenue -- Rose 18% to $106 million, primarily from insurance segment activities.
• Earned premium -- Grew 14% to $193 million, showing continued insurance performance.
• Marketplace revenue -- Jumped 80% to $29 million, with contribution from European auction expansion.
• Membership and other revenue -- Advanced 8% to $19 million, reflecting growth in subscription and related services.
• Net investment income -- Recorded at $11 million, up from $10 million in the comparable period.
• Income before taxes -- Totaled $40 million, increasing 186% year over year, benefiting from $21 million reserve reduction.
• Loss ratio -- Reported at 31%, positively impacted by 11 percentage points due to reserve reduction; underlying trend guided to 41% for planning purposes.
• G&A expenses -- Increased 24% in the quarter, with software and Markel fronting arrangement fees contributing eight percentage points of growth.
• Salaries and benefits -- Up 20% in the quarter, reflecting incentive compensation and additional headcount.
• Adjusted EBITDA -- Recorded at $57 million, representing 97% year-over-year growth.
• Net income -- Stood at $29 million for the quarter, up 238%. Full-year net income totaled $149 million, up 91%.
• GAAP EPS -- Basic and diluted earnings per share were $0.06. Adjusted EPS was $0.08 based on 361 million fully diluted shares.
• Record new members -- 371,000 new members joined, contributing to scale across insurance and services.
• Market expansion -- Marketplace and auction businesses expanded into Europe; transaction value from auctions and private sales reached $566 million.
• Markel fronting arrangement -- Transitioned to 100% premium retention effective January 1, eliminating prior commission structure and reshaping revenue reporting.
• Operating cash flow -- Increased 24% to $219 million, supporting ongoing reinvestment and liquidity.
• Cash and debt position -- Ended December with $160 million in cash and $178 million long-term debt; core debt excluding Broad Arrow Capital collateral totaled $110 million.
• 2026 outlook -- Written premium growth expected at 15%-16%; reported revenue of $1.28-$1.3 billion due to accounting changes; net income guidance is minus $41 million to minus $51 million, reflecting transitional ceding commission amortization of $190 million, a noncash expense.
• Adjusted EBITDA guidance -- Projected at $236 million-$247 million for 2026, aligned with core business performance.
• Combined ratio -- Achieved 87%, including a three-point benefit from reserve reduction.
• Return on equity (Hagerty Re) -- Reported at 34% for the year while building incremental surplus for 2026 premiums.
• Reinsurance renegotiation -- Achieved a double-digit risk-adjusted cost decrease for 2026.
• Policy growth target -- Management articulated a goal to double policies in force to 3 million by 2030.
• AI and technology initiatives -- Active deployments for claims fraud detection, valuation, administrative efficiency, and personalization with ongoing pilots, with the majority of CapEx allocated to IT investments.
• Partnership expansion -- Rolled out Liberty Mutual and Safeco partnership; continued ramp of State Farm Classic Plus and ongoing international MGA commission revenues.
• Segment reporting update -- Adopted new financial reporting structure under Article 7 for insurance companies; now presents distinct Insurance and Marketplace segments.

Summary

Hagerty (NYSE:HGTY) reported segmental revenue expansion, notable margin improvement, and stated a shift in accounting that will temporarily reduce reported revenue and net income in 2026 while underlying business momentum persists. The 2026 transition to a 100% premium retention model eliminates previous Markel commission revenue, introducing a substantial but wholly noncash $190 million expense to amortize ceding commissions that effectively masks core operational profitability in GAAP results. Management anticipates continued strong underlying cash generation and affirms an adjusted EBITDA range of $236 million-$247 million, establishing adjusted EBITDA as the company's preferred indicator of operational performance for 2026. Investments in technology, expansion of the Marketplace and B2B partnerships, including a major State Farm policy conversion ramp and the Liberty Mutual collaboration, are expected to accelerate both new member growth and premium scale. The company also spotlighted plans for future product launches and efficiency gains enabled by digital infrastructure advances and ongoing AI deployment.

• Hagerty executed a fronting arrangement with Markel that shifts all premium and associated risk retention internally, which management described as "an extremely rare occurrence in the insurance world."
• The insurer’s written premium growth guidance of 15%-16% for 2026 reflects acceleration from 2025, largely attributed to increased State Farm conversions and new partner programs.
• Marketplace expansion contributed to the company’s rise as the global number two in enthusiast vehicle auctions by transaction volume in just three years, with management highlighting $85 million in vehicle financing and $40 million in Marketplace online sales for 2025.
• AI integration is being piloted across fraud detection, valuation analytics, and personalized member experiences, described as crucial for supporting ambitious policy-in-force growth toward the stated goal of 3 million by 2030.

Industry Glossary

• Fronting arrangement: An insurance structure in which a licensed insurer issues policies or retains regulatory obligations but cedes economic risk and premium to another entity, often for a fee; here, Hagerty transitions from commission-based to full-risk retention and premium ownership.
• MGA (Managing General Agent): A specialized insurance intermediary authorized to underwrite and administer policies on behalf of insurers, with Hagerty operating as both an MGA and a retained risk entity.
• PYD (Prior Year Development): Adjustments to current-period financials arising from changes in estimates of prior years’ losses, which can impact stated loss ratios and net income.
• Reserve release: The reduction of previously established insurance loss reserves due to observed favorable claims trends or improved underlying risk experience, which can boost reported profitability in the period of release.
• Duck Creek: A commonly used cloud-based insurance technology platform, employed by Hagerty to drive core system modernization and product expansion.
• Combined ratio: A key insurance profitability metric—the sum of loss and expense ratios—below 100% indicates underwriting profitability before investment income.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Hagerty, Inc. Fourth Quarter 2025 Earnings Call. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please note this call is being recorded. I would now like to turn the conference over to your host today, Jason Koval, Senior Vice President of Investor Relations. Thank you, sir. You may begin.

Jason Koval: Thank you, operator, and good morning, everyone. And thank you for joining us to discuss Hagerty, Inc.'s results for 2025. I am joined this morning by McKeel O. Hagerty, Chief Executive Officer and Chairman, and Patrick Scott McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty, Inc.'s Investor Relations section of the company's corporate website at investors.hagerty.com. Our earnings release, slides, and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation.

Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. I will now turn the call over to McKeel.

Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty, Inc.'s fourth quarter 2025 earnings call. As we approach the spring driving season, our team is hard at work preparing for the onslaught of new members we expect to add to the Hagerty, Inc. ecosystem in 2026. Our members' cars are very special to them, and they are equally special to one team Hagerty, Inc. This inherent love for their toys results in fundamentally better risk profiles, due to the way our members care for their prized possessions. And Hagerty, Inc. has the automotive expertise and guaranteed value proposition they are looking for to protect their cars.

This includes innovating with new products and services that align Hagerty, Inc. with our members' needs. Our member-centric approach built around the automotive passion combined with our reinvestment posture positions us to spin the flywheel faster, resulting in high rates of sustained written premium growth and even faster growth in profits, which should lead to strong returns for shareholders. Let me dig into our excellent results for full year 2025. Slide 3 shows how we handily exceeded our original expectations from a year ago, with revenue up 17% and net income surging 91%.

Our profit growth benefited from record new business count and efficiency gains, as well as stable underwriting and better-than-anticipated loss trends, which permitted us to reduce reserves by $21 million. 2025 marked the third straight year of executing on our strategy to deliver high rates of top-line growth while more efficiently translating incremental revenue into profits and cash flow. Since going public four years ago, we have compounded revenue by 23% per year and increased net income by over $200 million, reflecting the strength and differentiation of the Hagerty, Inc. business model, as our profit growth is driven by adding new members and not the rate cycle. Operating cash flow is growing quickly, up 24% to $219 million.

This cash flow positions us to lengthen our leadership position by reinvesting back into our value proposition for members. With excellent retention and strong net promoter scores, we are operating from a position of strength as we look to grow our share of the 36 million vehicle target market from just 7% today. Slide 4 shares some additional 2025 highlights. First, we welcomed a record 371,000 new members to Hagerty, Inc.'s ecosystem of products and services. Written premium gains of 14% accelerated throughout the year and were better than anticipated, thanks to share gains from our recurring revenue model. Importantly, our underwriting is not just high quality, but also low volatility.

We ended the year selling new State Farm Classic Plus business in 27 states, and we are converting their U.S. book of 525,000 vehicles in seven of those states. We also announced a new partnership with Liberty Mutual and Safeco. Marketplace and our auction businesses had an incredible year, with revenue more than doubling as we expanded into Europe with auctions in Italy, Belgium, and Switzerland. Total transaction value of vehicles sold at auction and through private transactions came in at $566 million, making Hagerty, Inc. the number two global player after just three short years in the market.

Net income jumped 91% to $149 million, as compounding premium growth, cost discipline, resource prioritization, and terrific execution by one team Hagerty, Inc. is fueling steady margin expansion. We also evolved our relationship with Markel by signing a new fronting arrangement where we retain 100% of the premium beginning January 1. For some perspective, it is an extremely rare occurrence in the insurance world to transition from earning a commission to capturing full economics. And we have been working toward this moment for over a decade, taking on more and more of the risk and premium, culminating with the recent move from 80% to 100%.

We are excited to continue partnering with Markel as we deliver seamless experiences for Hagerty, Inc. members with greater operational control. Our technology and digital teams are steadily moving us toward a modern cloud-based architecture that should result in future efficiency gains and scalable growth, including the launch of Enthusiast Plus on Duck Creek, to capitalize on the burgeoning demand from younger generations of car lovers. We have continued to deepen our bench strength through several strategic hires across insurance, claims, technology, and marketplace. And finally, the estate of my late sister, Kim Hagerty, executed a secondary share offering that increased our float and trading volumes as we work toward being a more fully distributed public company.

This is a long list of milestones, but at its core, 2025 was a year of investment for the future while delivering in the present. Let me move on to Slide 5 and walk you through Hagerty, Inc.'s 2026 priorities, which are focused on further enhancing the member experience while becoming more efficient at delivering great products and services. First is implementing our new fronting arrangement with Markel, which creates a step-function increase in potential underwriting profitability and investment income. To transition to this new 2% fronting arrangement, we are building out our internal team so we can control all aspects of our insurance risk, including administrative functions and regulatory filings.

With this arrangement comes a complex set of noncash transitional costs that Patrick will discuss in more detail, but the key takeaway is that our underlying profit and cash flow increase under the new arrangement. Our second priority is State Farm Classic Plus expansion and conversion of additional states. We will also prudently expand our Enthusiast Plus product after launching in Colorado last summer. Third is to refine our distribution strategy with partners and accelerate our B2B efforts, including agent distribution enhancements that should drive additional share gains for Hagerty, Inc. Fourth is to maintain the quality of our growth through further investments in claims expertise.

This includes building out the material damage and special investigative teams to ensure the claims are handled very quickly and accurately. Fifth is to enhance our member-centric approach and refine the Hagerty Drivers Club value proposition. And finally, we will continue our multiyear tech transformation and Duck Creek implementation. Executing on these priorities in 2026 should result in another year of strong underlying growth in premiums and cash flow. I will now turn the call over to Patrick to share more details on our results and initial 2026 outlook. Thank you, and good morning.

Patrick Scott McClymont: Before I dig into the results, I wanted to mention that beginning this quarter, the company is presenting its consolidated financial statements in accordance with Article 7 for insurance companies, reflecting the ongoing transformation of the company's business operations. As a result, net investment income is now reported as a component of revenue, with prior periods recast for comparability. Also, beginning this quarter, we present two segments, Insurance and Marketplace, which is a result of the continued revenue growth and geographic expansion of the Marketplace business. With that, let me walk through our fourth quarter results shown on Slides 6 and 7. In the fourth quarter, total revenue increased 19% to $357 million.

Written premiums grew 19% due to robust new business count, helped by ramping State Farm conversions and our 89% retention. Commission and fee revenue jumped 18% to $106 million. Earned premium grew 14% to $193 million. Marketplace revenue increased 80% to $29 million. Membership and other revenue grew 8% to $19 million. Net investment income, including gains, was $11 million for the quarter compared to $10 million in the prior-year period. Turning to profitability, shown on Slides 8 and 9. We reported fourth quarter income before taxes of $40 million, up 186% year over year after incorporating investment income into both periods.

Our loss ratio in the quarter came in at 31%, positively impacted by 11 percentage points due to the $21 million reserve reduction. This reduction was primarily due to the favorable development for the 2024 accident year, as well as improvement in current accident year experience related to decreased severity and loss ratio trends in liability and physical damage claims. Fourth quarter G&A increased 24% and full-year growth was up 15%, inflated by eight percentage points due to software-related costs for a new insurance policy management system and professional fees associated with the new Markel fronting arrangement.

Salaries and benefits were up 20% in the fourth quarter and 19% for the full year due to incentive compensation accruals given our strong outperformance and additional headcount to support growth. Adjusted EBITDA came in at $57 million, up 97% year over year. Fourth quarter net income was $29 million, an increase of 238% from 2024. Net income attributable to Class A common shareholders was $7 million after attribution of earnings to the noncontrolling interest and accretion on the preferred stock. GAAP basic and diluted earnings per share came in at $0.06 for the quarter based on 100 million basic and 102 million weighted average diluted shares of Class A common stock outstanding.

Adjusted earnings per share, defined as adjusted net income divided by 361 million fully diluted shares, came in at $0.08 for the fourth quarter. Let me reiterate a few of the key full-year 2025 highlights that McKeel mentioned. Commission and fee revenue grew 15%. Earned premium for our risk-taking entity, Hagerty Reinsurance, increased 13%. Marketplace revenue jumped 119% to $119 million. 2025 was our third full year of owning Broad Arrow, and the team expanded into Europe with three successful auctions in 2025, plus January's auction at Rétromobile Paris that launched 2026 with $21 million in sales.

As McKeel mentioned, we delivered $624 million of total vehicle transactions including $85 million of financing activity and another $40 million in online sales on Hagerty, Inc. Marketplace. With last week's announcement that Broad Arrow is now the official auction house of The Quail, A Motorsports Gathering during Monterey Car Week, it is clear that our team is firing on all cylinders and is on track to becoming the market leader to help members buy and sell their special vehicles. Membership and other revenue grew 4% to $82 million. Full-year loss ratio for 2025 was 39%.

With ceding commission for Hagerty Re at 47% of earned premium, our combined ratio was 87%, which includes three points of benefit from the $21 million reduction in reserves. Hagerty Re's return on equity for the year was 34%, despite building the surplus necessary for the incremental earned premium in 2026 from the new Markel arrangement. Our high-quality underwriting was recently recognized by A.M. Best when they reaffirmed our A- rating and upgraded their outlook to positive. And we successfully renegotiated reinsurance terms for 2026 with a double-digit risk-adjusted decrease in costs. Income before taxes jumped 49% to $139 million as we expanded full-year margins another 200 basis points.

And we delivered net income of $149 million, nearly double the prior year's $78 million. Full-year net income includes the $21 million reserve reduction. This resulted in $0.37 of earnings per diluted share and $0.37 of adjusted earnings per share. Adjusted EBITDA grew 46% to $237 million from the prior year's $162 million, which includes investment income of $39 million in both periods. And we delivered full-year operating cash flow of $219 million as we capture more value across our ecosystem. We ended December with a cash balance of $160 million and long-term debt of $178 million. Debt, excluding back leverage for Broad Arrow Capital's portfolio of loans collateralized by collector cars, was only $110 million.

We also doubled our lending facility for Broad Arrow Capital to $150 million to meet the borrowing needs of our global customers. And we surpassed $1 billion of investment securities in 2025, primarily high-grade corporate and government bonds. Let me wrap up with our 2026 outlook shown on Slide 10. We anticipate that 2026 will be another year of record growth driven by new business count and the evolved fronting arrangement with Markel. We expect written premium growth of 15% to 16%, an acceleration from this past year's 14%. I want to highlight changes to our accounting related to the new Markel fronting arrangement that will start in the first quarter.

Due to the expanded underwriting and claims authority granted to us under the new arrangement, we now control the Essentia book of business. Recall that Essentia is the Markel insurance company that issues our policies in the U.S. While our USMGA and Hagerty Re will continue to operate in the same manner they have historically, Hagerty Re is now directly the customer of our MGA services, not Essentia. Therefore, Hagerty Re will now pay the commission directly to our MGA. As a result, the consolidated financials we disclose will no longer show commission revenue or the associated ceding commission expense previously paid by Hagerty Re to Markel.

Commission revenue associated with the Markel alliance arrangement was $437 million in 2025, and ceding commission expense related to the company's reinsurance business with Markel was $344 million. In the consolidated income statement, these changes reduce reported commission revenue and ceding commission compared to prior periods. In a steady-state year like 2027, these will largely offset each other in our financials. 2026, however, is a transitional year, and we will have some noise we need to lay out in more detail to help you with comparability. I want to be clear. The driver of this noise is the strategically and economically attractive decision to assume the final 20% earned premium in our U.S. book of business with the new arrangement.

This evolution gives us more control and flexibility, allows us to capture more of our high-profit, high-return underwriting business, and increases our investment portfolio. First, eliminating the commission revenue means 2026 revenue will come in below 2025, at between $1.28 billion and $1.30 billion. This is a bit counterintuitive considering our written premium, which is the key driver of insurance performance, is growing 15% to 16%. Second, for policies issued in 2025, Hagerty Re paid a ceding commission to Markel. We pay that upfront on the ceded premium, with the expense being recognized over the one-year policy life. As of the start of 2026, about half of it is still on our balance sheet, approximately $190 million.

We will continue to amortize that amount in 2026, with these burn-off costs inflating disclosed expenses, which will reduce reported profits before taxes by that $190 million. This is a noncash, transitional expense that only impacts us in 2026, as we begin operating under the new structure. These costs will decline to zero by year-end 2026 as they flow through the P&L, from roughly $90 million in the first quarter to $10 million in the fourth quarter. A related change to note is in 2026 and beyond, qualifying policy acquisition costs incurred by our MGA subsidiaries for policies issued under the fronting arrangement will be deferred and amortized over the policy term.

This includes items such as broker fees, credit card fees, and some people costs that are directly tied to generating new policies. Given the complexities around how these costs will impact GAAP net income, we will use adjusted EBITDA to help you better understand our underlying profit and cash flow growth. Slide 11 reconciles the walk to adjusted EBITDA. We recognize there is a fair bit of potentially confusing changes in the presentation of the consolidated financial statements. Jay and I are happy to do follow-ups with anyone who would like to dive in. Wrapping up the guidance for 2026, and reflecting the transitional year, net income is anticipated to come in at minus $41 million to minus $51 million.

We expect adjusted EBITDA to come in between $236 million and $247 million. In summary, 2026 is on track to be another great year of growth at Hagerty, Inc., but accounting changes will create temporary noise in our 2026 GAAP reported results. 2027 should be a clean year, as we will fully amortize 2025 ceding commission and our reported results will more closely align with our underlying profit and cash flow. Longer term, we believe we are positioned to compound profit growth as we target doubling our policies in force to 3 million in 2030.

Our differentiated model, brand strength, and high-quality underwriting enable us to grow profits predictably, year after year, through sustained market share gains and with low volatility. New business count-driven premium growth makes us unique in insurance, where most companies' profits are subject to the whims of the pricing cycle. And with an average annual rate increase of just 2% over the last five years, one-third the increase of daily driver peers, Hagerty, Inc. is well positioned as a consumer-friendly brand with a compelling value proposition that should enable us to create shareholder value for many years to come. With that, we will now open the call to your questions.

Operator: Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Once again, that is 1 at this time. One moment while we poll for the first question. The first question comes from Michael Phillips with Oppenheimer. Please proceed.

Michael Phillips: Thanks. Good morning. First question on guidance, and I know there is obviously a lot of moving parts. But if we take the net loss number, maybe just take the midpoint of that and add the $1.90 or maybe the tax effect of the $1.90. Or are we still below the 2025 $49,000,000 net income? And I know that is way too simplistic, given all the moving parts, but is that a basic way to start thinking about things?

Patrick Scott McClymont: I think with all the complexity, what we are asking people to really focus on is this adjusted EBITDA guidance that we have provided.

Michael Phillips: Okay.

Patrick Scott McClymont: And so if you look at it that way, which is in the press release, what we have done there is it is the same definition we have always had for adjusted EBITDA. The only change that we have included is this last row, Markel fronting arrangement transition costs. We are adding back the $190 million. And if you look at it that way, 2025 was a really good year. And it included, at the end of the year and when we took a look at the reserves, we had a release of just north of $20 million.

If you kind of strip that out, and then look at EBITDA in 2025, and then the guidance for 2026, I think we are showing something up, like, you are kind of 10, a little north of 10%. So I think that is the cleanest way to think about it.

Michael Phillips: Okay. And maybe one quick one on that one. The other one, just to clarify, is in 2025, we also had the VA release below the line for valuation allowance for tax purposes and a TRA benefit as well. And so those are noise in the net income number in 2025, that we are not assuming will be anything like that in 2026. And so those were benefits to net income in 2025 that do not recur in 2026.

Michael Phillips: Right. Okay. Maybe one quick one on the ceding commission to Markel at $1.90. Is there any potential for that to move up from a property-related commissions that might come in later, or is that a kind of a solid number? That is a solid number. Okay. On the loss ratio this quarter, you mentioned the reserve release, obviously. And then I do not think there was any last year. Last year, fourth quarter did have some CATs a little bit. I guess if you back all that out, your current quarter loss ratio probably moves to around a 42 I have. Last year, a 40. So you mentioned an improvement in the current accident year.

I do not, I am confused on that, and can you help me with that one? And it looks like to me the current accident year, again, goes from about a 40.4 to a 42 this year once we back out the CATs with PYD.

Patrick Scott McClymont: Once you back out the CATs. And what else?

Michael Phillips: The 10.6 points of PYD this quarter.

Patrick Scott McClymont: Okay.

Michael Phillips: Right. There is no CAT. Right? So 31.4 goes to a 42, I think. Right?

Patrick Scott McClymont: Yeah. I think the way that we are thinking about it, we did have the reserve release. We did have a very good year in 2025 from a loss perspective. As we look to 2026, you know, we are assuming that our losses are in line with what we have guided to previously, right in the low 40s. We are doing a lot of things in terms of how we manage claims. We have built up our, what we call, material damage unit. And so things are trending in a positive direction. But from a guidance standpoint, think of it as being right around that consistent number of 41% that we have talked about.

And that is the right way to model it. Hopefully, that is helpful.

Michael Phillips: Yeah. That is. Okay. Thank you. That is all I had for now. Appreciate it, Sterling.

Operator: The next question comes from Charlie Lederer with B Capital. Please proceed.

Charlie Lederer: Hey. Thanks. So maybe just on the written premium guidance, obviously, percent to 16% really strong. Can you walk us through the assumptions, I guess, of how much of the acceleration is from State Farm, Liberty Mutual, and the legacy Hagerty, Inc., you know, operations. And then just one follow-up on that. I think McKeel said that there are seven State Farm conversions ongoing. How many have been completed so far, and how many remain? Thanks.

Patrick Scott McClymont: Yeah. In the written premium, we are not going to break it down by the different categories. The way to think about it is the traditional business and sort of the core traditional business continues to grow at similar rates to what we have experienced. State Farm is definitely accelerating that in 2026, and then 2027 will pretty much wrap it up or big year. 2025, we had, which we are in 27 states by the end of the year, seven of which are doing the conversions that you talked about. We are rolling out more. Conversions this year, it really ramps up. So that is also a contributor. The Liberty Mutual we announced that. We are getting underway.

That is a relatively modest impact in 2026, and then, you know, kind of ramp up there.

Charlie Lederer: Thanks. And just looking at Slide 19, so if I compare the post-1980 TAM, you know, to what you showed last quarter, it did go up a little bit. Guess, can you walk us through the assumption changes. Is that a change in data, or does it reflect, you know, an increase, I guess, appetite for Hagerty, Inc.?

Patrick Scott McClymont: Yeah. So as you would expect, this is a, you know, a living, breathing analysis. And so we are regularly looking at, I think, TAM is, and this is just the passage of time.

Charlie Lederer: Right?

Patrick Scott McClymont: Over time, the older cars do not go away, typically, right, once they become, you know, part of our universe. They are treasured assets and people keep them, and so you see very few of those coming out of the TAM. But what happens is additional vehicles join the TAM.

Charlie Lederer: Right?

Patrick Scott McClymont: Manufacturers are still making cool cars that people view as enthusiast vehicles, and those are exactly the kind of cars that we want to underwrite. So it tends to grow over time. So we just did an update.

Charlie Lederer: Thanks. And maybe just one last one. So you gave the numbers on the commission revenue from Markel in 2025 and the ceding commission expense. As we think about the commission and fee revenue in 2026, you guys still expect to get some, right, from your ex-U.S. operations and then the State Farm business, right, that should all still flow through commission and fee revenue. Is that the right way to think about that?

Patrick Scott McClymont: Exactly. Exactly. The commissions that our risk-taking entity pays to our MGA still happens underneath. But upon consolidation, the commission revenue goes away and the ceding commission goes away. So that is what we are communicating. The other parts of our business where we continue to provide those MGA services, as you described, internationally, the U.K. business, and State Farm, those will still show up as revenue on the P&L.

Jason Koval: Thank you.

Operator: The next question comes from Charles Gregory Peters with Raymond James. Please proceed.

Charles Gregory Peters: So I think for the first question, I wanted to, I was looking at your presentation, and on Slide 5, you talked about the 2026 priorities. And I was intrigued that one of the items that was not really highlighted, which was a success in 2025, was the Marketplace revenue. And so I was just, and when I triangulate, you know, the results you did in 2025 with Marketplace revenue and the guidance you have laid out for 2026, just curious about your thinking about that area because that seems to be a strong area of growth for your company.

McKeel O. Hagerty: Well, hey. Thank you. And we were really proud of the delivery of, you know, both growth and profitability in 2025 from all of the Marketplace activities, live auctions and really starting to see a little bit of effort from the digital Marketplace sales plus Broad Arrow plus everything else. You know, when we are talking about our priorities, you know, definitely a very insurance-focused year. It kind of goes with our technology spend and how we are focusing on the core business growth, absorbing the State Farm business, et cetera, turning on new partnerships like Liberty Mutual, Safeco, that we will see the benefit of in the years to come.

But the Marketplace business is, you know, continuing to be an important part of our picture. And our first really large sale actually happens next week, Amelia Island, which, you know, with the press release went out with a very large catalog of cars, which could be, you know, really meaningful for us in the first part of the year. So a big part of the business by nature, you know, in comparison to the insurance side of the house, it is a lumpier business. You just see a lot more variability. Teams are working really hard, but it is still a very important part of it. It is just not listed here.

Charles Gregory Peters: Yeah.

Patrick Scott McClymont: I think as we think about the revenue from that, and McKeel just mentioned in the earlier, so its low estimates are $105 million. And that is the largest auction we have ever announced in our history doing this. So we are very excited about that. The way we think about it is the live auction business, the digital auction business will continue to grow. Some of that is geographic expansion. We did our first sale in Paris this year, so that happened in January. And each of the other sales that we have got, we are up to a schedule now where we have got eight scheduled auctions. Our goal is to grow each of those.

The private sale business had a phenomenal 2025. That is the more chunky, sort of episodic business that McKeel was talking about. And it was a truly phenomenal year, and we are expecting that business to do well again. But it is difficult from a confidence standpoint to put a high degree of confidence around the prediction there because it is just chunky and episodic. And so as you are triangulating, that may be one of the things that you need to think through. Phenomenal year in 2025. We will have a good year this year. But it is hard to say that it is going to be at the same level of where we ended up in 2025.

Charles Gregory Peters: Well, your answer there got to the destination of what I was thinking about, which is trying to work through the mechanics of the flow-through to the income statement for Hagerty, Inc. from both the digital and live Marketplace. So that is clearly top of mind. Perhaps you can do that in further comments offline.

Patrick Scott McClymont: We would love to do that. And that is why we went to segment disclosure. Right? The business has grown to a point where it makes sense to split it out. So we are sharing that information, obviously, in the documents that we have posted, and, you know, we are happy to have an offline conversation. But it is an important business and continues to grow.

Charles Gregory Peters: Great. I appreciate that. The other thing that is topical this year in particular is technology, artificial intelligence, and ChatGPT. I am not sure there is a strong correlation between that and classic cars, but I am sure there are opportunities across your organization to deploy technology to make you more efficient and more successful. Maybe you could spend a second and talk to us about what you are doing and where you are spending your money on that front to improve the company.

McKeel O. Hagerty: Yeah. Thank you. It is, you know, it is not just a table topic or a topic as you hear. It is important work for any kind of company, I think, and for us, you know, I think when we think about doubling the, you know, policies in force by 2030, we have to find not just kind of core underlying efficiencies in how to run the business, but AI will be an important part of, in particular, how we personalize the for a much larger policyholder group and member group, you know, over time. This is where AI, we think, can really shine for us.

But we have a number of initiatives underneath our overall technology investments that are both either piloting AI programs or actively using them in other ways. So these range from fraud detection on the claim side, how we are analyzing valuations for both Marketplace and the insurance valuation services that we offer. We have a number of areas in just the administrative side of this. We have a lot of people who work in administrative functions, and I do not know about you, but I, myself, using AI every single day to do my job in a clearer, more effective way, and we have a number of initiatives to make that happen.

But ultimately, it is that personalization of service that we think will be the key benefit for us from with AI. So we have experiments, investments in every single part of that. And I, we are not, nothing to report yet in terms of concrete savings as most companies are also realizing, but we are there, and we are very excited about what it can do for us.

Charles Gregory Peters: Just one little detail follow-up. You mentioned claim fraud, and I guess it is counterintuitive, you know, sitting back here, that you would expect there would be claim fraud in classic cars. Do you think the incidence level for claim fraud in your area of the market, it has got to be lower than the broader market generally speaking. But maybe you have some perspective on that?

McKeel O. Hagerty: Yeah. It is, just like claims frequency itself, it is lower than standard auto, but, you know, you are not immune to it. Our claims business is, you know, we are downstream from societal factors and all sorts of things. So you have more and more cars. You are going to have more and more claims. And you will have more and more instances of, you know, potential fraud. For us, it is just that we have always had an SIU, or special investigative unit, in this business as long as we have handled claims.

We just have more sophisticated tools to make sure that we are watching the, you know, all the p's and q's, if you will, when claims are coming in to make sure that we actually owe the claim. And we are really, between that and, as Patrick mentioned, in an earlier answer, we stood up these new material damage units, or what we used to call physical damage units, that are just being very diligent, bringing in industry best practices in how you manage physical damage claims to make sure we pay what we owe, make sure the customer is happy, make sure we are working with our shops effectively, but you are not overpaying.

And that is where, you know, it is, we are not immune from big industry trends. But, you know, definitely, as you mentioned, it is lower in our particular part of the automotive world.

Charles Gregory Peters: Got it. Hey. Thanks for the answers.

Patrick Scott McClymont: You bet.

Operator: The next question comes from Elise Greenspan with Wells Fargo. Please proceed.

Elise Greenspan: Hi. Thanks. Good morning. I guess my first question, going back to some parts of the prior conversation, was just hoping, you know, you guys have, you know, spoken to long-term targets, right, around just trying to get a sense of just the outlook specifically for, you know, 2026. And then, you know, within 2026, you know, just how much of ramp are you expecting from the, you know, the 525,000 State Farm policies?

Patrick Scott McClymont: Sure. So as we mentioned, on State Farm, we are now rolled out in 27 states as of the end of the year. So seven of those we are doing the conversions of the 525,000, the subset of that is within those states. The other 20 we are selling new business. And so when a State Farm agent has, you know, a new car with a customer or a new customer, that is what we do initially, and that is our rollout cadence. We always start with the new, and that is to make sure that everything is working and the product, you know, the agents understand the product, our systems, all that stuff.

And then what we have done is we have shortened the time that we are just doing the new. We are accelerating when we switch over to conversions, and that really takes hold as we get into this year, 2026. So, you know, the way to think about it is by the time we get to the end of this year, we will move from those 27 states to close to full penetration. There will be a few that stretch over into 2027. But most of the states will be up and running by the end of this year. And we will be making further progress in terms of the conversions as well.

It will not be until 2027 that we will be at pretty close to full. All states are in conversion mode. We are picking up those policies. So there is still a couple more years of ramp on it. But this is the big year. This is the year that you are going to see real acceleration in getting to that 525,000. And it will happen kind of ratably over the course of the year.

Elise Greenspan: And then in terms of, you know, there is a lot, I guess, within the guidance. But in terms of, like, just the loss ratio and how we think about that trending during 2026. Any kind of, you know, color that you can provide there, you know, relative to 2025. I guess if we exclude the PYD, you know, how are you thinking about the overall loss ratio trending between the two years?

Patrick Scott McClymont: Yes. I think I addressed that on the previous question. We still think the way we think about it is right at that low 40% number. Call it 41%, something like that. That is what we think about from a planning standpoint because I think, you know, in the first and second quarter, we are probably going to book to that just because there is not that much information yet on the first-year prompt year. And then as we get into the third and fourth quarter, we will have more information, and there potentially could be some CATs, and that is when we think about some adjustments. But that is our framework for it.

Elise Greenspan: Okay. Thank you.

Operator: The next question comes from Matt Carletti with Citizens. Please proceed.

David (for Matt Carletti): Hi. Thank you. This is David on for Matt. And in terms of partnerships, I know there are currently multiple ongoing that continue to evolve. Is there any sort of pipeline for new potential partners?

McKeel O. Hagerty: Yes. Thank you very much. So, you know, these partnerships have been a big part of our growth story for, you know, almost 20 years. And, you know, just like all the conversation we have about State Farm, it is not just, you know, getting the conversation going, and it is the contracting phase and the technology implementation phase, but then you get up and running, and it can take a couple years to get them going. So we are super excited about the partnerships we have.

As we mentioned, we announced the new partnership with Liberty Mutual and Safeco, which was for us, a really cool, I guess, kind of double win because it is not only a new partner, but it is a partner that was actively competing with us in the collector vehicle insurance space. And they decided to partner with us instead of continuing to compete independently. So we are excited about that one. That will take a couple years to start realizing what it can be. We have active discussions with others, both kind of, you know, bigger chunky partners that, you know, we do not currently work with, as well as smaller and kind of mid-tier insurance partners.

We are also looking at a couple of partnerships that are very different than our typical insurance partnership, but that we think can be, as I said, kind of chunky, new additional opportunities to fill the pipeline. So more to come, and we will announce some when we can.

Operator: Great.

Patrick Scott McClymont: Thank you.

Operator: The next question comes from Maxwell Fritscher with Truist Securities. Please proceed.

Maxwell Fritscher: Hi. Thank you. I am calling in for Mark Douglas Hughes. How are you thinking about free cash generation in 2026? I guess, as another way, how do you expect the year-end cash balance to compare to the $160 million you reported?

Patrick Scott McClymont: Yeah. For 2026, you should think about the cash conversion similar to what you saw in 2025. Our CapEx is, it is consistent with the numbers that we have shown over the last couple of years. Most of our CapEx is related to IT. There is not much else that we do that requires CapEx. And so we are investing in our new platform, but we have been doing that for the last couple of years. So that will be consistent. And then the normal investments we make in the overall IT world. So from a cash flow standpoint, that ends up being pretty close to D&A as well.

And then the rest of it really is what we have communicated in terms of the growth in the earnings power of the business. You can start with our guidance around adjusted EBITDA, but assume similar cash flow conversion in 2026 versus what we have this year.

Maxwell Fritscher: Great. Thank you. And then following up on the AI question, and you might have answered this. I am sorry if I missed it. But are you seeing any opportunity on the distribution front from AI?

McKeel O. Hagerty: Hey. Thanks for the question. Clearly, in the marketing function of the business, AI will, and we are actually already piloting some ways that we are thinking about how you can distribute better or better work through lead generation and kind of demand gen. But that is the main focus right now. I know that there are some, you know, sort of early announcements out in the industry about, you know, almost four completely AI-driven different channels of distribution. Those are not right at the moment on our radar screen, but, you know, the group is very actively looking in these areas.

And we think, you know, because our, the underlying premise of our business is to find people who love cars, an emotional connection between human beings and these cool vehicles, AI is undoubtedly going to provide opportunities for us to sift through that in more granular ways, especially as, yeah, we were talking about in the earlier TAM answer, as new and newer vehicles come online and become sort of in our target zone, we still have to find not just the vehicle, but we have to find the right people. And the AI will be very helpful in that.

Patrick Scott McClymont: Very helpful. Thank you.

Operator: Thank you. And our last question comes from Thomas Mcjoynt-Griffith with KBW. Please proceed.

Thomas Mcjoynt-Griffith: Hey, good morning. I had a question about what is your outlook for written premium per policy. I understand there is a lot of moving pieces with State Farm coming on board, the Enthusiast Plus program rolling out, perhaps what you guys are filing with rates. So what do you see as the outlook for written premium per policy in 2026?

Patrick Scott McClymont: Yeah. I think what is going to happen in 2026, and the things that would pull it up are, yeah, there are some rate things that are flowing through. There are some mix things that flow through in valuation. And then some of it is just mix, you know, where we are getting the business from. But the State Farm business, which is really ramping up, you know, does have lower premiums. Just the nature of those vehicles, the age of those vehicles, and, you know, the insured value. So that will be pulling down on that number.

Either way, the way we think about it is the core business continues to grow at the rates that we had talked about. We have been very disciplined in terms of rate increases. We talked about on the call, you know, 2% over the last handful of years versus 6% for the broader industry. And so we will continue to have our kind of rate increases where appropriate. So that will be a tailwind for us. The State Farm, you know, it is just, it is big. It is meaningful. And so that will have a counterbalance to that as we get into 2026.

Thomas Mcjoynt-Griffith: Thanks. And then second, you mentioned the acquisition costs that are incurred by the MGA starting to get deferred and amortized over the policy term. In 2026, will there be some cadence to the quarterly impact of that? I am thinking perhaps in the first quarter, with everything being deferred, not much getting amortized yet, you might get a stronger earnings profile in the first quarter. But then more of a normal impact in the back half of the year. Am I thinking about that right?

Patrick Scott McClymont: Yeah. The way to think about it is it kind of starts from zero. Right? Because under the new regime, as we sell policies in 2026, whatever we are putting on the balance sheet in terms of DAC, that gets booked, and it gets amortized over the one-year life of that policy. So you end up, from a P&L standpoint, pushing those expenses forward. And so in 2026, you are going to have that ramp up. Right? Not until we get to the end of 2026 that we have renewed all those policies, taken on the new ones, and you get sort of that full balance on the balance sheet. And it gets normalized in 2027.

But yes, what you are describing is what is going to happen in 2026.

Operator: Thank you. At this time, I would like to turn the call back to Hagerty, Inc. for closing comments.

Jason Koval: Thank you, operator, and thank you, everyone who called in and asked thoughtful questions. Thank you to one team Hagerty, Inc. for delivering fantastic near-term results while positioning Hagerty, Inc. for durable, compounding growth and margin expansion. Car culture is alive and well, with new generations of car lovers driving strong demand for fun cars, especially more modern enthusiast vehicles. In other words, the best is yet to come as we make it easier and more enjoyable to be a driving enthusiast by becoming part of the Hagerty, Inc. community. We recently launched an ad campaign with our new marketing partner, Vera Jackson, that I wanted to share with you, as it encapsulates the essence of Hagerty, Inc.

It goes something like this. At Hagerty, Inc., we do not see cars as things. They are unique, alive, and loved. We buy them. We wrench on them, and sometimes we curse them. But most of all, we drive them. Muscle cars, supercars, rad cars, one-of-one spec cars, coupes, convertibles, compacts, liftbacks, fastbacks, and hatchbacks. We love them all. Because cars are for driving. And Hagerty, Inc. is for drivers. We hope to see you next week at Amelia Island, Florida, outside of Jacksonville, for our Concours d’Elegance on Saturday, March 7, as well as two days of Broad Arrow auctions on Friday and Saturday, and Cars and Community on the main show field on Sunday.

Our team has started work to make it the best Amelia Concours yet, and with that, never stop driving.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

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